SUNSTONE METALS LTD — Capital/Financing Update 2010

Jul 26, 2010

ASX/Media Release

27 July 2010

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AVALON PREPARES RESOURCE ESTIMATE FOR ‘D’ ZONE AT VISCARIA FOLLOWING RECEIPT OF FINAL ASSAY RESULTS FURTHER STRONG DRILLING RESULTS DEFINE MINERALISATION OVER 1.1km STRIKE LENGTH

Australian-based minerals company Av a lon Minerals Ltd (ASX: AVI ; “Avalon”) is pleased to advise that it has commenced work on a JORC compliant resource estimate for the ‘D’ Zone at its 100%-owned Viscaria Copper and Iron Project in Northern Sweden after receiving final assay results from the recently completed drilling program.

Further strong results have been receiv e d in the final batch of assays, bringing to a close the initial phase of drilling of the ‘D’ Zone prior to completion of the Pre-Feasibility Study on the proposed r e -commencement of mining operations at Viscaria.

As previously announced, the ‘D’ Zon e comprises overlapping zones of ironrich and copper-rich mineralisation hosted within a magnetite-carbonate Skarn iron-copper deposit. The ‘D’ Zone is t h e largest of Avalon’s three potentially open pittable resources at Viscaria.

New intersections from the recently c ompleted 4,994 metre diamond core program include:

Avalon Minerals Ltd ACN 123 184 412

PO Box 165 West Perth WA 6872

Telephone: +61 8 9322 2752 Mobile: 0439 399 318 Email: andrew.munckton@avalonminerals. com.au Web: w ww.avalonminerals.com.au

Iron Ore

• VDD0054 36m @ 27.7% Fe from 62m

• • VDD0055 24m @ 36.1% Fe from 130m and 19m @ 26.2% Fe from 160m

• • VDD0062 36m @ 27.5% Fe from 75m • VDD0063 23m @ 28.5% Fe from 140m

• Copper

• VDD0053 4.9m @ 1.6% Cu from 124.9m

• • VDD0054 9.7m @ 1.4% Cu from 89m • VDD0055 16.3m @ 0.9% Cu from130.7m • VDD0060 7.0m @ 1.6% Cu from 21m • VDD0061 11.0m @ 1.5% Cu from 28m

The ‘D’ Zone has now been defined over a strike length of 1,100 metres to a depth of approximately 150 metres be l ow surface and consists of a zone of coarse-grained magnetite mineralisatio n that dips steeply west and averages approximately 20 metres in true thickne s s.

Within this magnetite zone are copper-ri c h zones of 5 to 10 metres true width of greater than 1.0% Cu, surrounded by lo w er grade mineralisation (0.1% to 0.8% Cu).

ASX Code: AVI

Directors David McSweeney (Executive Chairman)

Tan Sri Abu Sahid M o hamed (Non-Executive Director) Stephen Stone ( N on-Executive Director) Gary Steinepreis ( N on-Executive Director) Andrew Munckton (CEO)

Metallurgical test work undertaken to d a te on the ‘D’ Zone has shown that an acceptable quality copper concentrate can be produced from the ore ( see ASX Announcement – 30 June 2010 ) and t hat a magnetite concentrate of either Blast Furnace (BF) quality (grading 6 4 % to 68% Fe) or Direction Reduction

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(DR) quality (grading 69% to 71% Fe) c a n be produced from the copper flotation tails a nd magnetite-rich ores with additional grinding.

The ‘D’ Zone resource calculation and e stimation is expected to be completed in the S eptember Quarter together with revised resource estimates for ‘A’ a n d ‘B’ Zone.

Commenting on the results, Avalon’s C E O, Mr Andrew Munckton, said:

“ The results of this drilling prog r am have confirmed our view that the ‘D’ Zon e is a very attractive zone of mineralisation that remained u n touched by the previous owners of the proj e ct which can potentially be extracted by open pit mining methods. The ‘D’ Zone is open both along strike a nd down dip and has been demonstrated as a 20 metre wi d e zone over 1,100 metres in strike with signific a nt continuity at depth.

“The magnetite and copper m i neralisation is very consistent and, couple d with the excellent recent metallurgical results, gives us c o nfidence that the ‘D’ Zone will form the basi s of a very solid concentrate project at Viscaria . “We can now proceed with res o urce estimation and pit optimisation and desi g n work to support the PreFeasibility Study and ultimately th e Bankable Feasibility Study for developmen t of the Project.”

‘D’ Zone Metallurgical Test Work

Metallurgical testing of the ‘D’ Zone ore s is continuing, following the favourable initial r e sults reported in June ( see ASX Announcement – 30 June 2010 ).

Recent work has focused on copper flotation performance and magnetic separation o f magnetite iron concentrate from the copper flotation tails. Further w ork in these areas is continuing. Results to d a te show satisfactory copper recovery in a variety of tests on a suite o f ores at ‘D’ Zone and are summarised in Tabl e 1 below:

Table 1: Metallurgical Test Results

Ore Type	Feed Cu% Fe% S %	Feed Cu% Fe% S %	Feed Cu% Fe% S %	Copper Concentrate Cu% Recovery%	Copper Concentrate Cu% Recovery%	Magnetite Conc Wt% Fe% entrate from Tailings Cu% S% Si0₂%	Magnetite Conc Wt% Fe% entrate from Tailings Cu% S% Si0₂%	Magnetite Conc Wt% Fe% entrate from Tailings Cu% S% Si0₂%	Magnetite Conc Wt% Fe% entrate from Tailings Cu% S% Si0₂%	Magnetite Conc Wt% Fe% entrate from Tailings Cu% S% Si0₂%
Oxide/Transition 106µm 45µm Sulphide 106µm 45µm	1.7 1.7 1.1 1.1	32 34 32 32	0. 0. 1. 1. 36 37 26 26	22 27 28 27	62 63 86 95	58	65	0.16 0.009
						52	66
Awaiting results

Commenting on the results, Andrew Mu n ckton said:

“ The copper flotation results a r e very pleasing and demonstrate compara b le results to the historical performance of the plant at Vis c aria. We are confident of being able to produ c e a very clean concentrate grading approximately 26% cop p er at 90% copper recovery from the ‘D’ Zone o re.”

“The work has also shown that m arket-acceptable quality magnetite concentra t e can be produced from the tailings stream of the ore after the copper removal. We are now testing ho w this material responds to further grinding. We are incre a singly confident of the ability to produce b o th copper concentrate and magnetite concentrate that will b e highly sought after by the market from the ‘ D ’ Zone ores.”

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Impact of the D zone findings on Viscaria

The recent work at ’D’ Zone is likely t o impact the outcomes of the Pre Feasibility S tudy at Viscaria. While the quantification of the impact is the subjec t of the PFS it is likely that changes to the proj e ct under study will include:

• The mining of a larger combined Cu and Fe resource in open pit at D Zone

• Lower unit mining costs at D z one incorporating the economies of scale a c hievable in larger open pit mining

• Larger processing plant with inc r eased capital and lower unit operating cost

• Increased sales of Cu concentrate due to increased mining and processing outputs

• A second revenue stream from s ales of magnetite concentrate

ENDS

Released by: Nicholas Read Read Corporate Telephone: +61 (0)8 9388 1474

On behalf of: Andrew Munckton CEO and General Manager Avalon Minerals Limited Mobile: +61 0439 399 318

Competent Persons Statement

The information in this report relating to the Mineral Resources, Exploration Results and Explor a tion Targets is reviewed by Mr Andrew Munckton BSc (Mining Geology) who i s a Member of the Australasian Institute of Mining an d Metallurgy and is employed by Avalon Minerals Ltd as the Company’s CEO a nd General Manager of Operations. Mr Munckton h a s sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity whi c h he is undertaking to qualify as a Competent Person as defined in the 2004 E d ition of the “Australasian Code for reporting of Explor a tion Results, Mineral Resources and Ore Reserves”.

Avalon Minerals – Background

Avalon Minerals Ltd listed in March 2007 with t h e aim of developing and discovering mineral deposits.

Avalon’s corporate objective is to build a diversified resource mining group based on cash flows from producing operations.

The primary project generation strategy has b e en successful with the acquisition of the advanced Vi s caria copper deposit in northern Sweden where a maiden JORC Code complia n t copper resource has been defined. This resource c o mprises of an Inferred Resource of: 8.2 million tonnes grading 2.7% Cu for the ‘A’ Z one South; 5.6 million tonnes grading 1.3% Cu for the ‘A’ Z one North; 24.3 million tonnes grading 0.8% Cu for the ‘B’ Zone; and 2.5 million tonnes grading 1.6% Cu for the ‘D’ Z one.

When combined, this totals 520,000 tonnes of c ontained copper.