STELLAR RESOURCES LIMITED — Capital/Financing Update 2015

Mar 23, 2015

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24 March 2015

Metallurgy optimisation upgrades Heemskirk NPV

• Optimisation study from WorleyParsons has increased Severn tin recovery by 7.4% to 79.5%

• Average tin recovery across all deposits increased by 4.5% to 72.8%

Issued Capital Shares: 300,227,775 Share Price: A$0.039 Market Cap: A$11.7m

• PFS valuation increased by 34.2% to A$82.3m

• Annual tin in concentrate production increased by 4.5% to 4,520t, enhancing leverage to higher tin prices

• PFS valuation increases to A$160 million when PFS assumptions are updated for current exchange rate of US$0.78/A$

Commodity Tin Price: US$17,610/t Exchange Rate US$ 0.79

Main Shareholders European Investors 26.0% Capetown SA 20.8% Resource Capital Fund 12.1%

Board & Management Phillip G Harman Non-Executive Chairman

Peter G Blight Managing Director

Miguel Lopez de Letona Non-Executive Director

Thomas H Whiting Non-Executive Director

Markus Elsasser

Non-Executive Director

Christina R Kemp Company Secretary

ASX Code: SRZ

ABN 96 108 758 961 Level 17, 530 Collins Street Melbourne Victoria 3000 Australia

Stellar Resources Limited (ASX: SRZ, “Stellar” or the “Company”) is pleased to advise that it has received the results of the Severn Metallurgical Optimisation Program from WorleyParsons. The results are extremely positive for the 100% owned Heemskirk project and add tangible value to the development economics.

Key advances in the process circuit include:

• Elimination of heavy media separation – simplified process and reduces tin losses to heavy media tail

• Increase in primary grind size to P80 = 250µ – increases tin recovery through lower cost gravity circuit from 63.9% to 69.1%

• Optimisation of the sulphide float circuit – reduces tin losses to the sulphide float tail from 10.1% to 2.6%

Managing Director Peter Blight said: “ This is a significant milestone for the Heemskirk project for two reasons. Firstly, it has demonstrated a step up in recovery for Severn, the major deposit, and promises improvements for the other deposits which to date have not been tested to the same degree. Secondly, it has provided robust data for optimising design criteria and processing conditions ahead of a definitive feasibility study to commence in 2015. The Severn results have also been measured against the neighbouring Renison Bell (Metals X) tin processing plant when it was in its prime and stack-up extremely well, an outcome that reinforces management’s view that there is much more upside to be harnessed at Heemskirk. ”

About Stellar:

Stellar Resources (SRZ) is an exploration and development company with assets in Tasmania and South Australia. The company is rapidly advancing its high-grade Heemskirk Tin Project, located near Zeehan in Tasmania, and plans to become Australia’s second largest producer of tin.

www.stellarresources.com.au

Telephone +61 3 9618 2540 Facsimile +61 3 9649 7200

ASX Announcement

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Objectives of metallurgical optimisation

The PFS, released 24 July 2013, concluded that Heemskirk tin ore could be successfully treated using a conventional processing circuit involving gravity separation followed by tin flotation. The PFS estimated an average recovery of 70% across all ore sources into a 48% tin concentrate.

WorleyParsons completed an audit of the PFS work and developed a testing program using a “global composite” representing typical Severn mineralogy, composition and tin grade. The purpose of the program was to simplify and improve the performance of the flow sheet and provide more robust information with respect to optimum process design criteria and processing conditions. In particular, the test-work focused on the following areas:

• Economics of heavy media separation

• Primary grind size optimisation

• Tin loss reduction in sulphide float

• Maximum tin recovery by gravity

• Tin flotation grade and recovery optimisation

• Concentrate dressing optimisation

• Maximising net smelter return

Increased Recovery

The headline result for Severn was an increase in tin recovery from 72.4%, established in the PFS, to 79.5% demonstrated through sequential testing and optimisation of processing conditions for each unit process. As Table 1 shows, the major advance was increasing the proportion of tin recovered by the gravity circuit from 63.9% to 69.1%. Improvements to the flotation circuit had a more modest impact on recovery. However, future flotation testing during pilot work will provide the opportunity for further improvement.

Table 1: Severn tin recovery comparison

Process	PFS1	Optimisation2
Headgrade(HG): % Sn	1.06	1.00
Gravity: % HG Sn	63.9	69.1
Flotation: % HG Sn	8.5	10.4
Total Sn recovered: %	72.4	79.5

Notes:

1 PFS completed in July 2013

2 Optimisation of PFS flow sheet completed in March 2015

Maximum net smelter return

Net smelter return analysis adds an economic factor to the trade-off between concentrate grade and recovery. In the case of Severn, a range of recovery and concentrate grade outcomes where plotted against net smelter return, as shown in Figure 1-1 of the WorleyParsons-prepared Severn Metallurgical Optimisation Program paper (attached to this announcement). The optimum outcome is recovery of 79.5% into a concentrate grading 45% tin.

ASX Announcement

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Concentrate quality within smelter tolerance

Major and trace element analysis of concentrate at a range of tin grades shows that all elements are within smelter tolerance limits. At the optimum concentrate grade of 45% tin, iron is 5.82%, arsenic 0.15%, and sulphur 1.77%.

Comparison with Renison Bell

Direct comparison of head grade treated and expected recovery for the Severn deposit with Renison Bell, which has operated the current mill since 1966, is somewhat simplistic given differences in mineralogy, technology and process control. However, in the absence of a controlled comparative metallurgical test program the next best thing is to select the most comparable period in Renison Bell’s history.

In Figure 1, the period of comparison is 1979 to 1989 as head grades are similar and the 13 year old Renison Bell plant, with the recent introduction of leaching, was in a form similar to the flow sheet tested for Severn. Recoveries at Renison Bell averaged 73.6% during this time, which, once allowing for better process control and technology advances in the period since, would be close to the high 79.5% outcome for Severn.

Figure 1: Severn grade and recovery compared to Renison Bell (1979-1989)

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100 1.5
80 1.2
60 0.9
40 0.6
20 0.3
- -
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
Renison recovery (%) LHS Severn recovery (%) LHS
Renison grade (%) RHS Severn grade (%) RHS
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Next Steps

• Complete metallurgical testing program for St Dizier

• Assessment of CAPEX and OPEX implications of Severn results

• Apply the lessons learned from optimising Severn, which represents 60% of the resource, to the other ore sources at Queen Hill and Montana – once drill samples are available

• Pilot testing of the circuit to support a DFS – once large drill core sample available

• Further variability testing (to be completed as part of the DFS)

ASX Announcement

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For further details please contact:

Peter Blight Managing Director Tel: 03 9618 2540 Email: peter.blight@stellarresources.com.au

or visit our Website at: http://www.stellarresources.com.au

Competent Person statement

The information in this report that relates to Exploration Results is compiled by Mr R K Hazeldene who is a Member of the Australasian Institute of Mining and Metallurgy and a Member of the Australian Institute of Geoscientists and an employee of the Company. Mr Hazeldene has sufficient experience relevant to the style of mineralisation and type of deposits being considered to qualify as a Competent Person as defined by the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code, 2012 Edition). Mr Hazeldene consents to the inclusion in the report of the matters based on his information in the form and context in which it appears in this report.

The information in this report that relates to Heemskirk Tin Mineral Resources was last reported on 24[th] July 2013 in an ASX release titled “Pre-feasibility Study Advances Heemskirk Tin”. The information was prepared in accordance with the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ by Tim Callaghan of Resource and Exploration Geology. The information in this report that relates to the St Dizier Mineral Resource was announced on 12 March 2014 in an ASX release titled “Heemskirk Tin Project: New Open Pittable Resource at St Dizier”. The information was prepared in accordance with the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (JORC Code) by Tim Callaghan of Resource and Exploration Geology. Tim Callaghan is a Member of The Australasian Institute of Mining and Metallurgy (“AusIMM”), has a minimum of five years’ experience in the estimation and assessment and evaluation of Mineral Resources of this style and is the Competent Person as defined in the JORC Code. This report accurately summarises and fairly reports his estimations and he has consented to the resource report in the form and context in which it appears.

Stellar Resources confirms that it is not aware of any new information or data that materially affects the information included in the Mineral Resource estimates reported on 24 July 2013 and 12 March 2014, Stellar confirms that all material assumptions and technical parameters underpinning the estimates continue to apply and have not materially changed. In addition, Stellar Resources confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified.

Forward looking statements

This report contains a number of forward looking statements with respect to the company’s plans for mineral development. Known and unknown risks and uncertainties and factors outside of the company’s control may cause the actual results, performance and achievements of the company to differ materially from those expressed or implied in this report. To the maximum extent permitted by law and stock exchange rules, the company does not warrant the accuracy, currency or completeness of the information in this report, nor the future performance of the company and will not be responsible for any loss or damage arising from use of the information.

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KEY OUTCOMES FROM THE SEVERN METALLURGICAL OPTIMISATION PROGRAM

1 SUMMARY AND CONCLUSIONS

The Severn metallurgical testing program has focused on the optimisation of the process flow sheet utilising a large “global” composite sample representing the typical Severn mineralogy, composition and tin grades. This has provided a number of important improvements to metallurgical performance, and flowsheet simplifications, in addition to generating more robust information with respect to optimum process design criteria and processing conditions.

Key outcomes of the program include:

• Elimination of the heavy media separation circuit

This has provided a simplification to the overall process flowsheet and a reduction in associated tin losses, and is expected to provide an improved project outcome.

• Coarser primary grind; grind size optimisation test work has demonstrated a significantly coarser primary grind size (P80 = 250 µm) is more optimum than that considered in the PFS (P80 = 130 µm). This provides the following benefits;

• reduced tin losses due to reduced fines production

• reduction in primary grind operating and capital costs, and overall comminution energy requirements

Significantly, the percentage of tin passing 30 µm (below which size gravity recovery is relatively poor) is estimated to decrease from ~43% passing 30 µm at a primary grind size of 130 µm (as assumed in the PFS), to only ~30% passing 30 µm at a primary grind size of 240 µm. This is equivalent to ~30% reduction in fine tin generation, and is a key contributor to the improved gravity recovery achieved.

• Optimisation of the sulfide flotation circuit has led to a significant reduction in tin losses to the final sulphide concentrate tailings stream. This, together with the elimination of the heavy media circuit has increased the amount of tin available for recovery within the gravity and tin flotation circuits.

• Optimisation of the gravity circuit configuration, combine with upstream flowsheet improvements, has led to ~10% improvement in tin recovery via gravity.

• Improvements with the concentrate dressing circuit have led to improved gravity concentrate quality and clearly demonstrated a high quality concentrate, low in penalty elements, can be readily produced.

• Elimination of the silica flotation circuit has provided a simplification to the overall process flowsheet.

• Optimisation of the Deslime cut point has allowed minimisation of combine slimes and tin flotation tailings losses

• Tin flotation test work has robustly demonstrated commercially meaningful tin flotation concentrate grades can be achieved at acceptable recoveries

• Based on the outcomes of the optimisation program overall tin recovery is estimated at 79.5% at a final concentrate grade of 45% Sn.

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Figure 1-1 Overall Grade Recovery Response: Severn Bulk Composite

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100
95
Net Smelter Revenue maximised in this region
90
85
80
75
70
65
60
Grade/Recovery
NSR
55
50
40 41 42 43 44 45 46 47 48 49 50
Concentrate grade (% Sn)
Net Smelter Return (M$/y)
Overall Tin Recovery (%)
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• Net Smelter Return (NSR) analysis based on typical tin concentrate treatment and refining charges and penalty rate, at a range of grade recovery points has shown NSR is maximised at final concentrate tin grades in the low to mid forties.

Importantly, the overall performance has been demonstrated across a consistent, robust test work program, covering all major sections (including sulfide flotation, gravity separation, desliming, tin flotation, concentrate dressing and concentrate leaching) of the proposed process flowsheet.

Table 1 shows a comparison of the tin deportment across the circuit assumed in the PFS and the Severn Optimisation Program Outcomes.

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Table 1 – Comparison of Tin Deportment Assumed in PFS and Severn Optimisation Program Outcomes

Process Product and Tail		Assumed PFS	Severn Optimisation	Change from
		Performance	program Outcome	PFS
				Performance
Ore Grade	% Sn	1.06	1.00	0.06
1.Ore Feed (product)	% Sn	100	100	0.0
2. HMS Floats (tail)	% Sn	-1.5	0	1.5
3.Final Sulfide Conc (tail)	% Sn	-10.1	-2.6	7.5
Sn Recovery to Gravity Circuit Feed (product)	% Sn	88.4	97.4	9.0
4.Gravity Conc(product)	% Sn	63.9	69.1	5.2
5. Gravity Tail	% Sn	-2.6	-3.8	-1.2
6. Slime Tail	% Sn	-1.3	-3.7	-2.4
7. Tin Flotation Conc(product)	% Sn	8.5	10.4	1.9
8. Tin Flotation Tail	% Sn	-12.1	-10.2	1.9
9. Overall Recovery(product)	% Sn	72.4	79.5	7.1
10. Overall Loss(tail)	% Sn	-27.6	-20.4	7.2
Final Tin Concentrate Grade	% Sn	50.8	45.0	5.8

Overall Tin Recovery (9) = (4)+(7); Overall Tin Losses (10) = (2)+(3)+(5)+(6)+(8)

Notably significant reduction in tin losses to the HMS Floats, Final Sulfide concentrate and Tin Flotation Tailings streams have been achieved. In particular the reduction in losses ahead of the primary tin recovery circuits (gravity and tin flotation), via HMS Floats and Final Sulfide Concentrate have improved tin recovery into the feed of these, with tin deportment to gravity circuit feed now at 97.4%, up 9% from the PFS.

Tin recovery into both gravity and tin flotation concentrates has also improved to give an overall recovery of 79.5%, an improvement of 7.1% compared to the PFS performance.

Final concentrate grade is slightly reduced compared to the PFS. However, this is more than offset by the increase in overall recovery, resulting in a significant increase in net smelter return compared to the PFS.

2 OPTIMISED PROCESS FLOWSHEET

A simplified version of the optimised process flowsheet which incorporates the various improvements and simplifications discussed above is shown in Figure 2-1.

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Figure 2-1 OPTIMISED PROCESS FLOWSHEET (simplified)
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Colour Coding:
From Mine Primary Comminution Circuit
Sulfide Flotation Circuit
ROM Stockpile
Crushed Ore Bin
Gravity Separation Circuit
Secondary crusher Surge/Conditioning Tin Flotation Circuit
Primary crusher Tank
Concentrate Dressing Circuit
Ball Mill
Tailings Handling/Storage Facility
S Roughers
Sn Rougher
S Scavengers
Deslimes
Sn Cl Scav
Course gravity
rougher Sn Cl 1
S Con Regrind +106 CleanerCourse
S Cl 2 S Cl 1 -106 +106
Sn Cl 2
Gravity Tails Scav cleaner
Regrind
Fine gravity 1st Scav
rougher
+38 to
tails
Fine Cleaner -38 to
-106 deslime
Con
wash water
S Dressing
Rougher Tailings Storage Facility
Magnetics to tails H2SO4
S Dressing
Cleaner
NonMags to
cons leach
Concentrate Neutralisation
Leaching Product Bagging
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3 CONCENTRATE QUALITY

The outcomes of the Severn optimisation program have led to improved gravity concentrate quality and clearly demonstrated a high quality combine final concentrate, low in penalty elements, can be readily produced.

Combine final concentrate quality (gravity plus tin flotation concentrate) is summarised in Table 2 for a range of overall grade recovery points.

Table 2 - Final Combine Concentrate Analysis

(Gravity concentrate plus tin flotation concentrate post concentrate dressing and concentrate leaching)

eaching)	eaching)
Product			Final Concentrate
Assay	Units
Sn Fe As Mn CaO MgO Al2O3 SiO2 S	% % % % % % % % %	47.5 5.33 0.14 0.09 0.62 0.52 2.84 15.3 1.63	46.0 5.61 0.14 0.09 0.61 0.52 2.87 15.9 1.71	45.0 5.82 0.15 0.09 0.61 0.52 2.91 16.4 1.77	43.5 6.14 0.15 0.09 0.60 0.52 2.98 17.2 1.88
Recovery		78.0%	79.2%	79.6%	80.5%

The high quality of the gravity concentrate allows dilution with a larger portion of tin flotation concentrate, allowing overall recovery to be maximised while maintaining acceptable combine Final Concentrate quality.

Comments;

• No significant impurities impacting the saleability of the concentrate are present

• Generally, the levels of impurities elements which are present, are not expected to incur significant penalties charges

• Tin flotation test work has robustly demonstrated commercially meaningful tin flotation concentrate grades can be achieved at acceptable recoveries

• Analysis of Net Smelter return over a range on concentrate grades shows net revenue is maximised at final concentrate tin grades in the low to mid forties.

3.1 Concentrate value

The improvement in tin recovery by gravity has important implications in terms of the net value realised for the overall project, as this also allows recovery by tin flotation to be increased.

The gravity circuit inherently produces a significantly higher concentrate tin grade compared to tin flotation. Therefore, for a given final concentrate grade target, increased gravity recovery allows a larger portion of relativity lower grade tin flotation concentrate to be incorporated allowing overall recovery to be maximised.

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However, improved recovery needs to be balanced against increased costs; higher tin grade concentrate realises a higher net smelter return per tonne of tin due to reduced TC/TR’s and transport costs, while tin produced via flotation also incurs a higher operating cost compared with gravity separation, largely due to reagent costs (particularly concentrate leach).

Taking these issues into consideration analysis of Net Smelter return over a range on concentrate grades shows net revenue is maximised at final concentrate tin grades in the low to mid forties.

4 IMPACT OF SULFUR HEAD GRADE

Although not considered untypical, sulfur content of the Severn Bulk Composite (SBC) sample is higher than the average for the overall Severn Mineral Resource at 14.6% S compared with 9.06% S. This results in a higher than average mass deportment to final sulfide concentrate for the SBC, and likely higher Sn loses than average. Figure 4-1 summarises mass, Sn and S deportment across the sulfide flotation circuit for two cases;

1. 14.6% sulfur; as per the optimised test work results achieved on the SBC

2. 9.06% sulfur; average for the overall Severn Mineral Resource

Assuming similar tin grades in final sulfide concentrate can be achieved at the resources average sulfur grade, tin loss to the final sulfide concentrate is estimated at 1.4%, with 98.6% Sn recovery to the gravity circuit feed. This compares with a loss of 2.6% the final sulfide concentrate for the Severn Bulk Composite.

This represents some additional upside in overall tin recovery compared to that presented in Table 1 and Figure 1-1.

Figure 4-1 Tin Deportment across Sulfide Flotation Circuit

14.6% S head grade - as per optimised test work on Severn Bulk Composite

• 9.06% S head grade equivalent to overall Severn Mineral Resource S grad; assumes same performance as SBC

Ore feed							Sulfide Flotation	Sulfide Flotation		Ore feed							Sulfide Flotation	Sulfide Flotation
							Tails/Gravity Feed										Tails/Gravity Feed
1.03 14.6	% Sn % S		Sulfide Flotation				1.39 3.0	% Sn % S		1.03 9.06	% Sn % S		Sulfide Flotation				1.19 3.0	% Sn % S
74	t/h solids						54	t/h solids		74	t/h solids						63	t/h solids
0.76	t/h Sn						0.74	t/h Sn		0.76	t/h Sn						0.75	t/h Sn
10.81	t/h S						1.61	t/h S		6.71	t/h S						1.90	t/h S
**100% **	Sn Dist'n						**97.4% **	Sn Dist'n		**100% **	Sn Dist'n						**98.6% **	Sn Dist'n
100%	S Dist'n						14.9%	S Dist'n		100%	S Dist'n						28.3%	S Dist'n
100%	Mass Dist'n						72%	Mass Dist'n		100%	Mass Dist'n						86%	Mass Dist'n
			Final Sulfide										Final Sulfide
			Concentrate										Concentrate
			0.10	% Sn									0.10	% Sn
			45	% S									45	% S
			20	t/h solids									11	t/h solids
			0.02	t/h Sn									0.01	t/h Sn
			9.21	t/h S									4.81	t/h S
			**2.6% **	Sn Dist'n									**1.4% **	Sn Dist'n
			85.1%	S Dist'n									71.7%	S Dist'n
			28%	Mass Dist'n									14%	Mass Dist'n

5 CAPEX AND OPEX IMPLICATIONS

More detailed assessment of the CAPEX and OPEX implications of the current flowsheet optimisation program is required to accurately quantify any impacts on these. This more detailed assessment is the subject of currently planned work.

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6 NEXT STEPS

The current metallurgical testing program has focused on the Severn deposit which forms approximately 60% of the overall tin resource for the Heemskirk Tin Project. As yet the same rigorous approach to metallurgical testing and optimisation has not been applied to the Upper Queen Hill, Lower Queen Hill and Montana deposits due to limited availability of suitable samples. However, it is expected that many of the learnings and process improvements from the Severn program will be translatable to these deposits, particularly improvements achieved with respect primary grinding, sulfide flotation, gravity and dressing circuit configuration, and tin flotation.

In outline the next steps with respect to the metallurgical development of the project include;

1. Completion of St Dizier metallurgical testing program

This program is currently well advanced and nearing completion.

1. Assessment of CAPEX and OPEX implications of the Severn optimisation program outcomes

2. Testing of the other major ore sources

Detailed testing building on the learnings from Severn of the other major ore sources including the Upper Queen Hill, Lower Queen Hill and Montana deposits is planned to be under taken once sample availability permits.

1. Pilot testing, larger scale batch testing and other testwork necessary to support the DFS

In addition to further definition of process design criteria and variability testing this will need to include some larger scale testing such as piloting and/or large scale batch testing, vendor testing for equipment sizing purposes, and potentially generation of larger sample quantities for work such as tailings characterisation, production of concentrate samples, etc.

1. Further variability testing (to be completed as part of DFS)

Ore variability testing will be required on all major ore types, and on the various blends reflecting mining schedule and treatment ratios.

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Appendix 1 - Samples Used in Testwork Program

The Severn metallurgical testing program has focused on optimisation of the PFS process flow-sheet using a large, ~120 kg, “global composite” sample representing typical Severn mineralogy, composition and tin grade.

The Severn Bulk Composite (SBC) sample was produced from ½ core from intersections of the following drill holes; ZS-109, ZS-111, ZS-111W, ZS-112a, ZS-112b, ZS-112c, ZS-112d, ZS-112W, ZS-115, ZS-120 and ZS-123, with remaining material from Severn composites from previous test programs also added to augment the total quantity of sample.

Figure 6-1 shows a long projection of the Severn deposit with the intervals forming the SBC highlighted. The intervals forming SBC represent a reasonable spread across the tin mineralisation both spatially and in terms of composition.

Figure 6-1 Severn Long Projection

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Overall the Severn Bulk Composite is thought to be “typical” of the majority of the Severn deposit.

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