STELLAR RESOURCES LIMITED — Interim / Quarterly Report 2019

Oct 27, 2019

28 October 2019

Report for the Quarter ended 30 September 2019

Highlights

• Scoping Study confirms attractive economics for the Heemskirk Tin Project located near Zeehan in Tasmania:
  • Low pre-production capital cost of ~ A$57m to develop a 350ktpa underground mine and tin concentrate production facility
  • Annual average tin in concentrate production of ~ 2,200t at an average concentrate grade of 49% tin over an initial mine life of 11 years
  • Attractive all-in-cash cost of ~ US$13,100/t comparable to the neighbouring Renison Tin mine and places Heemskirk in the lower half of industry costs
  • Pre-tax NPV10% of ~ A$83m (post-tax ~A$71m), IRR of ~45% and capital paid back in ~ 3 years to an accuracy of ±35%
• Early tin production potential identified at the Razorback satellite project:
  • Exploration Target defined in July
  • Re-development of the Razorback mine identified as a source of early tin production and cash flow for Stellar

Corporate

• Cash balance of $0.4m as at 30th September 2019 expenditure for the quarter was $0.2m
• Discussions progressed with several large corporates which have expressed interest in the Heemskirk Tin Project

Targets for December Quarter 2019

▪ Securing funding for working capital and to progress the Heemskirk Tin Project to completion of a preliminary feasibility study

About Stellar:

Stellar Resources (SRZ) is an exploration and development company with assets in Tasmania. 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.

Capital Structure

Shares:	380,328,733
Share Price (SRZ):	A$0.013
Listed Options:	59,142,857
Option Price (SRZO):	A$0.002
Unlisted Options:	17,000,000

Commodity

Tin Price: US$17,700/t Exchange Rate US$ 0.68

Main Shareholders

European Investors 19.5% Capetown SA 16.4%

Board & Management
Phillip G Harman
Non-Executive Chairman
Peter G Blight
Managing Director 
Gary L Fietz
Non-Executive Director 
Thomas H Whiting
Non-Executive Director 
Melanie J Leydin
Company Secretary

ASX Code: SRZ

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

Telephone +61 3 9692 7222 Facsimile +61 3 9077 9233

www.stellarresources.com.au

HEEMSKIRK TIN PROJECT SCOPING STUDY

Introduction

During the quarter, Stellar focused on completion of a scoping study for the development of the Queen Hill, Severn and St Dizier tin deposits (see Figure 1 for locations) referred to as the Heemskirk Tin Scoping Study. There are several other assets in Stellar's tin portfolio that were not included in the scoping study that are listed below:

• Montana and Oonah inferred tin resources immediately to the east and north of Queen Hill
• Deeper resources at Severn inferred resources below the underground mining plan
• Razorback satellite project located 8km east of Zeehan includes an exploration target below the historical Razorback open pit mine
• Large exploration potential with multiple tin targets and historical metal mines in the Montana Flats and Mount Razorback ELs.

Stellar's projects have an enviable location within the well-established mining district on the West Coast of Tasmania with a competitive market for services, mining and processing inputs and labour, access to nearby water and power, and to the port of Burnie 150km to the north for export of concentrate.

Figure 1: Location of Stellar's Tin Tenements around Zeehan, Tasmania

Stellar released the details of its Heemskirk Tin Scoping Study in ASX announcement "Heemskirk Tin Scoping Study Confirms Attractive Economics" on 1st October. A summary of the study conclusions follows and should be read with reference to the detailed disclosure and cautionary statements included in the 1st October release.

The Heemskirk Tin Project Scoping Study has been undertaken for the purpose of ascertaining whether a business case can be made to proceed to more definitive studies on the viability of the Heemskirk Tin Project. It is a preliminary technical and economic study of potential project viability based on low level technical and economic assessments that are not sufficient to support the estimation of ore reserves. Further exploration and evaluation work and appropriate studies are required before Stellar will be in a position to estimate any ore reserves or to provide any assurance of an economic development case.

Project Outline

The Heemskirk Tin Project Scoping Study is based on development of an underground mine, processing plant, tailings storage facility and surface infrastructure to mine ~ 350ktpa ore at a LOM head grade of ~ 0.95% tin from the Queen Hill and Severn tin deposits (2 of the 4 Heemskirk deposits) over a 10 year mine-life. The project also includes open-pit mining of the St Dizier satellite tin deposit and trucking of ore to the Heemskirk processing plant during year 11 of the mine plan. The processing plant is expected to produce ~ 4,500 tpa of concentrate containing ~ 2,200tpa of tin. As in the case of the neighbouring Renison tin mine, the plan calls for trucking of concentrate 150km to the north via a sealed road to the Port of Burnie for export to smelters in Asia.

Preliminary Mining Schedule

A study of mining the Queen Hill and Severn deposits based on the updated May 2019 Heemskirk mineral resource estimate (see ASX announcement dated 16 May 2019 "Updated Heemskirk Resource Increases Indicated Category and Confidence in the Project") was recently completed by technical consultants, Mining One. Mining One have previously undertaken mining studies on the Heemskirk deposits in 2014 and 2016 and a number of inputs developed from these previous studies were modified and optimized to suit revised stoping areas in the 2019 mining study (see Figure 2).

Figure 2: Conceptual Heemskirk Mine Design Showing Stopes based on Indicated Mineral Resource (Grey) and Inferred Mineral Resource (Brown)

The preliminary mining schedule for Queen Hill and Severn includes total mineral resources of 3.29Mt @ 0.95% Sn after application of mining dilution and recovery factors and mining cut-off grades. Figure 3 shows that for the first 5 years of production and most of year 6, ore is mined from indicated resources. Also, tin head grades during the early years are generally higher than later in the schedule. Mining of indicated resources from the St Dizier satellite deposit has also been included in the final year (year 11) of the preliminary mining schedule. Indicated resources represent 58% of total ore mined over the 11 year life of the project.

Figure 3: Heemskirk Tin Project – Preliminary Production Schedule by Resource Category

Processing Plant and Surface Infrastructure

In July 2016, engineering consultants, Mincore, completed plant layout, typical equipment drawings and a +/-35% capital cost estimate for a 200ktpa Heemskirk Processing Plant and Surface Infrastructure based on a modified version of the Renison Tin processing flow sheet. Modifications to the flow sheet reflect metallurgical test results from programs conducted by ALS Metallurgical Laboratory in Burnie between 2010 and 2015 with oversight and analysis by Worley.

Mincore were re-engaged by Stellar in August 2019 to scale their June 2016 estimate up to a 350ktpa Heemskirk Processing Plant and Surface Infrastructure capital cost estimate which has been used as the basis for the current scoping study.

An illustrative view of the processing plant and surface infrastructure designed by Mincore is shown in Figure 4.

Figure 4: Proposed Heemskirk Tin Processing Plant (Mincore)

Pre-production Capital Cost

The Heemskirk Tin pre-production capital cost is estimated to be ~ A$57M. Mine development cost is expected to be relatively low at ~ A$8M due to the rapid 6-month decline development schedule required to support a 350ktpa operation. In addition, the Zeehan location is well serviced by existing and available infrastructure resulting in little additional mine specific infrastructure to connect to existing services.

A breakdown of the Capital Cost estimate is shown in Table 1. (note: Capital Costs are also stated in US$ for comparison purposes). Capital cost estimates use a combination of first principals, quotes and industry benchmarks. The accuracy of the capital cost estimate is up to ±35%.

	(A$M)	(US$M)
Mining	8	6
Processing & Surface Infrastructure	34	24
Tailings	5	4
Working Capital	9	6
Contingency	1.7	1
Total Development Capital Cost	57	40

Table 1: Heemskirk Tin Project Capital Cost Summary

Technical and Financial Factors

An economic evaluation of the Heemskirk Tin Project has been undertaken by Stellar based on the scoping study input assumptions described in the 1st October 2019 announcement. The base case valuation results are summarized in Table 2. The valuation results have an accuracy of ±35%.

	Unit	Total LOM
Ore Production	(Mt)	3,695,386
Sn Grade (LOM Ave)	(%)	0.94
Tin Recovery (LOM Ave)	(%)	69.4
Tin Producted	(Tonnes)	24,000
Mine Life	(Yrs)	11
Tin Price	(US$/t)	20,000
Exhange rate	USD:AUD	0.70
Tin Price	(A$/t)	28,571
Gross Revenue	(A$M)	691
Total Operating Costs (AISC)	(A$M)	454
Total Operating Costs (AISC)	(US$/t Tin)	13,100
Operating Cash Flow	(A$M)	237
Operating Margin	(%)	34%
Capital Cost	(A$M)	57
Net Cash Flow (Pre-Tax)	(A$M)	180
Pre-Tax NPV10%	(A$M)	83
Post-Tax NPV10%	(A$M)	71
IRR (Pre-Tax)	(%)	45
Payback Period	(Yrs)	3.0
Pre-Tax NPV / Capex		1.5

Table 2: Heemskirk Tin Project – Summary of Financial Parameters

At an All-In Sustaining Cost (AISC) of approximately US$13,100/t of tin produced over the Life of Mine, the Heemskirk Tin Project Base Case generates an attractive expected operating margin of approximately 34% based on the US$20,000/t tin price assumed.

The Heemskirk Tin Project Scoping Study has demonstrated attractive economics with a Base Case pretax NPV10% of approximately A$83m, at a tin price of US$20,000/t, determined to an accuracy of ±35%. The pre-tax IRR of the project is approximately 45% and the payback period is approximately 3.0 years or well within the first 5 years of production from indicated resources. The project has a Base Case post-tax NPV10% of approximately A$71m as a result of tax shielding from A$24.2m Stellar group accumulated losses and capital depreciation on the project. A 30% tax rate and depreciation over the life of the project have been assumed.

Capital costs required for the project have been significantly reduced to $57m from earlier internal estimates and ore production accelerated with mine and process plant production commencing 6 months and concentrate sales 9 months from the start mine development.

Project Funding

To achieve the range of outcomes indicated in the Scoping Study, funding of in the order of A$57m will likely be required for project development in addition to pre-development funding of approximately A$8m for exploration to convert the mineral resource to an ore reserve and to complete a Bankable Feasibility Study. Whilst there is no certainty that project development funding will be obtained on satisfactory terms, at the time required, or at all, the Stellar Directors believe that it is reasonable to assume the availability of funding for the development of the Heemskirk Tin Project for the purposes of the Scoping Study.

CORPORATE

As at 30 th September 2019, the Company held cash and term deposits of $0.4m. Expenditure for the quarter was $0.2m.

The company is focused on securing funding for working capital and to maintain the momentum generated by the Heemskirk Tin Scoping Study.

TIN MARKET UPDATE

The London Metal Exchange tin price averaged US$17,162/t over the September quarter 2019, a 13% decline from the previous quarter and an 11% fall year on year. LME stocks increased by 82% or 3,000t to 6,400t at the end of June and rose modestly to 6,800t over the September quarter. Chinese smelters reduced production during the September quarter due to a shortage of concentrate resulting in a 46% reduction in Shanghai Futures Exchange tin stocks to 4,500t. The stock decline in China largely offset the rise in LME stocks.

Figure 5: London Metal Exchange tin spot price (US$/t &A$/t) and LME & SHFE stocks

• The International Tin Association (ITA) has reported that its latest survey of tin users points to an estimated 2% decline in global tin demand in 2019, compared with a 2% increase in 2018. Tin solder, the largest end-use, has experienced reduced demand from manufacturers linked to the US-China trade war. It is also evident that many other tin end users are running down their stocks depleting the amount of tin held in the supply pipeline.
• In September/October 2019, two of the world's largest tin producers announced cutbacks in response to weaker tin demand and lower LME prices. China's Yunnan Tin announced a 10% production reduction and recently closed its main smelter for maintenance. Indonesia's PT Timah followed the YTC announcement with a planned 2,000tpm reduction in refined exports. If carried out, the cutback represents a 33% decline in monthly exports from Indonesia.
• Announcements of producer cutbacks have not had time to have an impact on LME prices. The PT Timah cutback should result in a meaningful reduction in LME stocks given that the company is the largest exporter of tin in the world and the largest supplier outside of China.

Project	Licence Number	Tenement	Location	Interest held (%)
Development
Heemskirk Tin	2023P/M1RL5/1997	Zeehan	Tasmania	100%
	2M/2014	Tailings Dam	Tasmania	100%
	2040P/M	Tailings Pipeline	Tasmania	100%
St Dizier	ML10M/2017	St Dizier	Tasmania	100%
Exploration
Tin	EL11/2017	Razorback	Tasmania	100%
	EL13/2018	Montana Flats	Tasmania	100%
Uranium	EL63502	Midgee	South Australia	100%

TENEMENT REGISTER

1ML2023P/M granted over Heemskirk tin deposits; RL5/1997 maintained over private land holdings within ML2023P/M

2 EL6350 (formerly EL5426) JV with Samphire Uranium Limited earning 73% on declaring a uranium resource

MINERAL RESOURCE STATEMENTS – HEEMSKIRK TIN PROJECT

Classification	Deposit	Tonnage	Total Sn	Contained	Cassiterite	Cu	Pb	Zn
		mt	%	Sn t	% of total Sn	%	%	%
Indicated	Upper Queen Hill	0.32	1.0	3,230	87	0.2	2.1	1.0
	Lower Queen Hill	0.65	1.4	9,230	97	0.0	0.1	0.1
	Severn	1.15	1.0	11,500	99	0.1	0.0	0.1
Total Indicated		2.12	1.1	23,96097		0.1	0.4	0.2
Inferred	Upper Queen Hill	0.11	1.6	1,760	94	0.2	1.9	0.7
	Lower Queen Hill	0.36	1.4	5,040	97	0.0	0.2	0.0
	Severn	2.74	0.9	24,660	99	0.0	0.0	0.0
	Montana	0.68	1.5	10,200	96	0.1	0.7	1.4
	Oonah	0.59	0.9	5,310	36	0.8	0.1	0.1
Total Inferred		4.48	1.0	46,970	90	0.1	0.2	0.3
Total Indicated + Inferred		6.60	1.1	70,930	92	0.1	0.3	0.3

Heemskirk Tin Deposits

1.cassiterite = (total Sn% - soluble Sn%)/total Sn%

1. block cut-off grade of 0.6% tin

2. tonnes rounded to reflect uncertainty of estimate

3. estimates prepared by Resource and Exploration Geology under JORC 2012

St Dizier Tin Deposit

Classification			Tonnage Total Sn Contained Soluble		Cassiterite1	W O3	Fe	S
	m t	%	Sn t	Sn %	% of total Sn	%	%	%
Indicated	1.20	0.69	8,280	0.09	87	0.04	23.70	2.64
Inferred	1.06	0.52	5,512	0.22	58	0.05	22.22	1.81
Total Resource	2.26	0.61	13,786	0.15	75	0.04	23.00	2.25

1.cassiterite = (total Sn% - soluble Sn%)/total Sn%

1. block cut-off grade of 0.3% tin

2. tonnes rounded to reflect uncertainty of estimate

3. estimates prepared by Resource and Exploration Geology under JORC 2012

For further details please contact:

Peter Blight

Managing Director

Stellar Resources Limited

Tel: 03 9692 7222

Email: peter.blight@stellarresources.com.au

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

Tin Tenement Map – Western Tasmania

Competent Persons Statement

The Information in this report that relates to Mineral Resources 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 (Principal of Resource and Exploration Geology Pty Ltd), who is a Member of the Australasian Institute of Mining and Metallurgy ("AusIMM"), has a minimum of five years' experience in the estimation, assessment and evaluation of Mineral Resources of this style and is a Competent Person as defined in the JORC Code. This announcement accurately summarises and fairly reports his estimations and he has consented to the resource report in the form and context in which it appears. The estimated mineral resources underpinning the production target have been prepared by Tim Callaghan (Principal, Resource and Exploration Geology Pty Ltd), in accordance with the requirements of the JORC Code 2012.

The drill and exploration results reported herein, insofar as they relate to mineralisation, are based on information compiled by Mr R K Hazeldene (Member of the Australasian Institute of Mining and Metallurgy and Member of the Australian Institute of Geoscientists) who is 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. It should be noted that the abovementioned exploration results are preliminary.

Forward Looking Statements

This report may include forward-looking statements. Forward-looking statements include, but are not limited to statements concerning Stellar Resources Limited's planned activities and other statements that are not historical facts. When used in this report, the words such as "could", "plan", "estimate", "expect", "intend",

"may", "potential", "should" and similar expressions are forward-looking statements. In addition, summaries of Exploration Results and estimates of Mineral Resources and Ore Reserves could also be forward-looking statements. Although Stellar Resources Limited believes that its expectations reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. The entity confirms that it is not aware of any new information or data that materially affects the information included in this announcement and that all material assumptions and technical parameters underpinning this announcement continue to apply and have not materially changed. Nothing in this report should be construed as either an offer to sell or a solicitation to buy or sell Stellar Resources Limited securities.

For more information on specific risks associated with forward looking statements refer to the Key Risks section of the announcements "Heemskirk Tin Scoping Study Confirms Attractive Economics" 1 October 2019 and "St Dizier Tin Mining Lease Granted and Scoping Study Results" 22 January 2019.

Rule 5.5

Appendix 5B

Mining exploration entity and oil and gas exploration entity quarterly report

Nameof entity
STELLAR RESOURCES LIMITED

ABN Quarter ended ("current quarter")

96 108 758 961 30 September 2019

	Consolidated statement of cash flows	Current quarter$A'000	Year to date(3 months)$A'000
1.	Cash flows from operating activities
1.1	Receipts from customers	-	-
1.2	Payments for
	(a)exploration & evaluation	(84)	(84)
	(b)development	-	-
	(c)production	-	-
	(d)staff costs	(68)	(68)
	(e)administration and corporate costs	(43)	(43)
1.3	Dividends received (see note 3)	-	-
1.4	Interest received	2	2
1.5	Interest and other costs of finance paid	-	-
1.6	Income taxes paid	-	-
1.7	Research and development refunds	-	-
1.8	Other (provide details if material)	-	-
1.9	Net cash from / (used in) operating activities	(193)	(193)
2.	Cash flows from investing activities
2.1	Payments to acquire:
	(a)property, plant and equipment	-	-
	(b)tenements (see item 10)	-	-
	(c)investments	-	-
	(d)other non-current assets	-	-

	Consolidated statement of cash flows	Current quarter$A'000	Year to date(3 months)$A'000
2.2	Proceeds from the disposal of:
	(a)property, plant and equipment	-	-
	(b)tenements (see item 10)	-	-
	(c)investments	-	-
	(d)other non-current assets	-	-
2.3	Cash flows from loans to other entities	-	-
2.4	Dividends received (see note 3)	-	-
2.5	Other (security deposits)	39	39
2.6	Net cash from / (used in) investing activities	39	39
3.	Cash flows from financing activities

3.1	Proceeds from issues of shares	-	-
3.2	Proceeds from issue of convertible notes	-	-
3.3	Proceeds from exercise of share options	-	-
3.4	Transaction costs related to issues of shares,convertible notes or options	-	-
3.5	Proceeds from borrowings	-	-
3.6	Repayment of borrowings	-	-
3.7	Transaction costs related to loans and borrowings	-	-
3.8	Dividends paid	-	-
3.9	Other (provide details if material)	-	-
3.10	Net cash from / (used in) financing activities	-	-

4.	Net increase / (decrease) in cash and cashequivalents for the period
4.1	Cash and cash equivalents at beginning of period	615	615
4.2	Net cash from / (used in) operating activities(item 1.9 above)	(193)	(193)
4.3	Net cash from / (used in) investing activities(item 2.6 above)	39	39
4.4	Net cash from / (used in) financing activities(item 3.10 above)	-	-

Consolidated statement of cash flows		Current quarter$A'000	Year to date(3 months)$A'000
4.5	Effect of movement in exchange rates on cash held	-	-
4.6	Cash and cash equivalents at end of period	461	461

5.	Reconciliation of cash and cash equivalentsat the end of the quarter (as shown in theconsolidated statement of cash flows) to the relateditems in the accounts	Current quarter$A'000	Previousquarter$A'000
5.1	Bank balances	421	65
5.2	Call deposits	40	550
5.3	Bank overdrafts	-	-
5.4	Other (provide details)	-	-
5.5	Cash and cash equivalents at end of quarter(should equal item 4.6 above)	461	615

6. Payments to directors of the entity and their associates Current quarter

• 6.1 Aggregate amount of payments to these parties included in item 1.2 80
• 6.2 Aggregate amount of cash flow from loans to these parties included in item 2.3
• 6.3 Include below any explanation necessary to understand the transactions included in items 6.1 and 6.2

Directors' fees and consulting fees paid during the September 2019 quarter.

7. Payments to related entities of the entity and their associates Current quarter

• 7.1 Aggregate amount of payments to these parties included in item 1.2 -
• 7.2 Aggregate amount of cash flow from loans to these parties included in item 2.3
• 7.3 Include below any explanation necessary to understand the transactions included in items 7.1 and 7.2

Nil

$A'000
	-

$A'000

8.	Financingfacilities availableAdd notes as necessary for an understanding of theposition	Total facility amountat quarter end$A'000	Amount drawn atquarter end$A'000
8.1	Loan facilities	-	-
8.2	Credit standby arrangements	-	-
8.3	Other (please specify)	-	-

8.4 Include below a description of each facility above, including the lender, interest rate and whether it is secured or unsecured. If any additional facilities have been entered into or are proposed to be entered into after quarter end, include details of those facilities as well.

Nil

9.	Estimated cash outflows for next quarter	$A'000
9.1	Exploration and evaluation	5
9.2	Development	-
9.3	Production	-
9.4	Staff costs	50
9.5	Administration and corporate costs	60
9.6	Other (provide details if material)	-
9.7	Total estimated cash outflows	115

10.	Changes intenements(items 2.1(b) and2.2(b) above)	Tenementreference andlocation	Nature of interest	Interestatbeginningof quarter	Interestat end ofquarter
10.1	Interests in miningtenements andpetroleum tenementslapsed, relinquishedor reduced	-	-	-	-
10.2	Interests in miningtenements andpetroleum tenementsacquired or increased	-	-	-	-

Compliance statement

• 1 This statement has been prepared in accordance with accounting standards and policies which comply with Listing Rule 19.11A.
• 2 This statement gives a true and fair view of the matters disclosed.

Sign here: Date: 28 October 2019

(Company secretary)

Print name: Melanie Leydin

Notes

• 1. The quarterly report provides a basis for informing the market how the entity's activities have been financed for the past quarter and the effect on its cash position. An entity that wishes to disclose additional information is encouraged to do so, in a note or notes included in or attached to this report.
• 1. If this quarterly report has been prepared in accordance with Australian Accounting Standards, the definitions in, and provisions of, AASB 6: Exploration for and Evaluation of Mineral Resources and AASB 107: Statement of Cash Flows apply to this report. If this quarterly report has been prepared in accordance with other accounting standards agreed by ASX pursuant to Listing Rule 19.11A, the corresponding equivalent standards apply to this report.
• 1. Dividends received may be classified either as cash flows from operating activities or cash flows from investing activities, depending on the accounting policy of the entity.