SUNSTONE METALS LTD — Capital/Financing Update 2013

Aug 22, 2013

UPDATED APPENDIX 3B PRO-RATA RIGHTS ISSUE AND PLACEMENT

Avalon Minerals Ltd (ASX: AVI; "Avalon") advises that, further to the Rights Issue announced on 9 August 2013, the share issue announced on 19 August 2013 and the Rights Issue Offer booklet released 22 August 2013, the attached updated Appendix 3B reflects the number of ordinary shares the Company proposes to have on issue.

Pursuant to the terms of the underwritten, non-renounceable, pro-rata Rights Issue, Avalon intends to issue 588,540,623 shares at $0.01 per share.

In addition, the Company intends to issue a further 26,523,616 shares at an issue price of $0.013 per share by way of a placement to sophisticated and professional investors as identified by the Company. Details of any placement will be provided to the market once completed.

ABOUT AVALON

Avalon is an ASX listed mineral exploration company with high quality assets in Sweden, one of the leading metal producing countries in the European Union.

Avalon's flagship asset is the Viscaria Copper-Iron Project located 1,200km north of Stockholm where the Company has delineated a global resource of 54.9 million tonnes of copper mineralisation at 1.1% Cu, containing 609,000 tonnes of copper and 25.6 million tonnes of iron mineralisation at 26.4% Fe, containing 5.7 million tonnes of iron.

The Viscaria Project is surrounded by established infrastructure, lying immediately adjacent to LKAB's Kirunavaara Iron Ore operation and in close proximity to high-capacity rail and ports.

ABOUT SWEDEN

Sweden has a 1,000 year mining history, is the largest producer of iron ore in the European Union and is a leading producer of base metals (copper, zinc, lead) and precious metals (gold and silver).

There are excellent discovery opportunities, with much of the country underexplored by modern standards. Furthermore, Sweden possesses a world-class geological database and favourable minerals legislation, is politically and economically stable and has mining knowhow, highly trained personnel and excellent infrastructure.

For further information please visit www.avalonminerals.com.au or contact:

Mr Jeremy Read - Managing Director Avalon Minerals Limited Tel: 07 3368 9888 Em: jeremy.read@avalonminerals.com.au www.twitter.com/avalonminerals

Rule 2.7, 3.10.3, 3.10.4, 3.10.5

Appendix 3B

New issue announcement, application for quotation of additional securities and agreement

Information or documents not available now must be given to ASX as soon as available. Information and documents given to ASX become ASX's property and may be made public.

Introduced 01/07/96 Origin: Appendix 5 Amended 01/07/98, 01/09/99, 01/07/00, 30/09/01, 11/03/02, 01/01/03, 24/10/05, 01/08/12, 04/03/13

Name of entity

Avalon Minerals Limited

ABN

68 123 184 412

We (the entity) give ASX the following information.

Part 1 - All issues

You must complete the relevant sections (attach sheets if there is not enough space).

1 +Class of +securities issued or to be issued

Ordinary shares

• 2 Number of +securities issued or to be issued (if known) or maximum number which may be issued
• 3 Principal terms of the +securities (e.g. if options, exercise price and expiry date; if partly paid +securities, the amount outstanding and due dates for payment; if +convertible securities, the conversion price and dates for conversion)

Rights Issue – 588,540,623

1. Placement – 26,523,616

Fully paid ordinary shares

111006 (240293)

+ See chapter 19 for defined terms.

4 Do the +securities rank equally in all respects from the +issue date with an existing +class of quoted +securities?

If the additional +securities do not rank equally, please state:

• the date from which they do
• the extent to which they participate for the next dividend, (in the case of a trust, distribution) or interest payment
• the extent to which they do not rank equally, other than in relation to the next dividend, distribution or interest payment
• 5 Issue price or consideration 1. $0.01
• 6 Purpose of the issue (If issued as consideration for the acquisition of assets, clearly identify those assets)

6a Is the entity an +eligible entity that has obtained security holder approval under rule 7.1A? No

If Yes, complete sections 6b – 6h in relation to the +securities the subject of this Appendix 3B, and comply with section 6i

6b The date the security holder resolution under rule 7.1A was passed N/A

Ordinary shares – Yes

2.	$0.013

As part of the non-renounceable, pro-rata entitlement issue and for a placement – to provide funds to be used to:

• a) fund preparatory work required for the bankable feasibility study on the Company's Viscaria Copper-Iron Project in Sweden;
• b) investigate and advance business development opportunities for the Company, with the goal of creating value for shareholders;
• c) provide funds towards the acquisition of tenements; and
• d) working capital.

	on of assets, clearly l

					+ See chapter 19 for defined terms.
--	--	--	--	--	-------------------------------------	--

• 6c Number of +securities issued without security holder approval under rule 7.1
• 6d Number of +securities issued with security holder approval under rule 7.1A
• 6e Number of +securities issued with security holder approval under rule 7.3, or another specific security holder approval (specify date of meeting)
• 6f Number of +securities issued under an exception in rule 7.2
• 6g If +securities issued under rule 7.1A, was issue price at least 75% of 15 day VWAP as calculated under rule 7.1A.3? Include the +issue date and both values. Include the source of the VWAP calculation.
• 6h If +securities were issued under rule 7.1A for non-cash consideration, state date on which valuation of consideration was released to ASX Market Announcements
• 6i Calculate the entity's remaining issue capacity under rule 7.1 and rule 7.1A – complete Annexure 1 and release to ASX Market Announcements
• 7 +Issue dates
  • Note: The issue date may be prescribed by ASX (refer to the definition of issue date in rule 19.12). For example, the issue date for a pro rata entitlement issue must comply with the applicable timetable in Appendix 7A.

Cross reference: item 33 of Appendix 3B.

8 Number and +class of all +securities quoted on ASX (including the +securities in section 2 if applicable)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

1. 17 September 2013 2. To be advised Number +Class 1,203,604,862 Fully paid ordinary shares

		Number	+Class
9	+classNumberandofall+securities not quoted on ASX+securities(includingtheinsection 2 if applicable)	1,000,000	Options exercisable at40 cents and expiring31 January 2014
		500,000	Options exercisable at30 cents and expiring 1July 2014
		300,000	Options exercisable at30 cents and expiring27 April 2015
		26,000,000	Options exercisable at5 cents and expiring 3130 September 2015
		10,000,000	Tranche 1 – vest uponthe closing price of theShares being $0.12 ormorefor10consecutiveASXtrading days
		15,000,000	Tranche 3 – vest uponthe closing price of theShares being $0.30 ormorefor10consecutiveASXtrading days

10 Dividend policy (in the case of a trust, distribution policy) on the increased capital (interests)

No change

Part 2 - Pro rata issue

11	Issecurityholderapprovalrequired?	No
12	Is the issue renounceable or nonrenounceable?	Non-renounceable
13	Ratio in which the +securitieswill be offered	1 for 1
14	+Class of +securities to which theoffer relates	Fully paid ordinary shares

+ See chapter 19 for defined terms.

16Willholdingsondifferentn/aregisters(orsubregisters)beaggregatedforcalculatingentitlements?
17Policy for deciding entitlementsRounding downin relation to fractions
18Names of countries in which theN/Aentity has security holders whowillnotbesentnewofferdocumentsNote: Security holders must be told how theirentitlements are to be dealt with.Cross reference: rule 7.7.
19Closingdateforreceiptofacceptances or renunciations5pm (AEST) on 9 September 2013
20Names of any underwritersTan Sri Abu Sahid Mohamed
21Amount of any underwriting fee5% of amount underwrittenor commission
22Names of any brokers to theN/Aissue
23Fee or commission payable toN/Athe broker to the issue
24Amountof any handling feeN/Apayable to brokers who lodgeacceptances or renunciations onbehalf of security holders
25If the issue is contingent onN/Asecurity holders' approval, thedate of the meeting
26Date entitlement and acceptance22 August 2013form and offer documents willbe sent to persons entitled

+ See chapter 19 for defined terms.

27	If the entity has issued options,and the terms entitle optionholderstoparticipateonexercise,thedateonwhichnotices will be sent to optionholders	9 August 2013
28	Date rights trading will begin (ifapplicable)	N/A
29	Date rights trading will end (ifapplicable)	N/A
30	How do security holders selltheir entitlements in full througha broker?	N/A
31	How do security holders sell partof their entitlements through abrokerandacceptforthebalance?	N/A
32	How do security holders disposeof their entitlements (except bysale through a broker)?	N/A
33	+Issue date	17 September 2013

Part 3 - Quotation of securities

You need only complete this section if you are applying for quotation of securities

• 34 Type of +securities (tick one)
• (a) +Securities described in Part 1

(b) All other +securities

Example: restricted securities at the end of the escrowed period, partly paid securities that become fully paid, employee incentive share securities when restriction ends, securities issued on expiry or conversion of convertible securities

+ See chapter 19 for defined terms.

Entities that have ticked box 34(a)

Additional securities forming a new class of securities

Tick to indicate you are providing the information or documents

35	If the +securities are +equity securities, the names of the 20 largest holders ofthe additional +securities, and the number and percentage of additional+securities held by those holders
36	If the +securities are +equity securities, a distribution schedule of the additional+securities setting out the number of holders in the categories1 - 1,0001,001 - 5,0005,001 - 10,00010,001 - 100,000100,001 and over
37	A copy of any trust deed for the additional +securities

Entities that have ticked box 34(b)

38	Number of +securities for which+quotation is sought
39	+Class of +securities for whichquotation is sought
40	Do the +securities rank equally inall respects from the +issue datewith an existing +class of quoted+securities?If the additional +securities do
	not rank equally, please state:•the date from which they do•theextenttowhichtheyparticipateforthenextdividend, (in the case of atrust, distribution) or interestpayment
	•the extent to which they donot rank equally, other than inrelation to the next dividend,distributionorinterestpayment

+ See chapter 19 for defined terms.

41 Reason for request for quotation now

Example: In the case of restricted securities, end of restriction period

(if issued upon conversion of another +security, clearly identify that other +security)

		Number	+Class
42	+classNumberandofall+securitiesquotedonASX+securities(includingtheinclause 38)

+ See chapter 19 for defined terms.

Quotation agreement

• 1 +Quotation of our additional +securities is in ASX's absolute discretion. ASX may quote the +securities on any conditions it decides.
• 2 We warrant the following to ASX.
  • The issue of the +securities to be quoted complies with the law and is not for an illegal purpose.
  • There is no reason why those +securities should not be granted +quotation.
  • An offer of the + securities for sale within 12 months after their issue will not require disclosure under section 707(3) or section 1012C(6) of the Corporations Act.

Note: An entity may need to obtain appropriate warranties from subscribers for the securities in order to be able to give this warranty

• Section 724 or section 1016E of the Corporations Act does not apply to any applications received by us in relation to any +securities to be quoted and that no-one has any right to return any +securities to be quoted under sections 737, 738 or 1016F of the Corporations Act at the time that we request that the +securities be quoted.
• If we are a trust, we warrant that no person has the right to return the +securities to be quoted under section 1019B of the Corporations Act at the time that we request that the +securities be quoted.
• 3 We will indemnify ASX to the fullest extent permitted by law in respect of any claim, action or expense arising from or connected with any breach of the warranties in this agreement.
• 4 We give ASX the information and documents required by this form. If any information or document is not available now, we will give it to ASX before +quotation of the +securities begins. We acknowledge that ASX is relying on the information and documents. We warrant that they are (will be) true and complete.

Company Secretary

Sign here: Date: 23 August 2013

Print name: Roslynn Shand

== == == == ==

+ See chapter 19 for defined terms.

Appendix 3B – Annexure 1

Calculation of placement capacity under rule 7.1 and rule 7.1A for eligible entities

Introduced 01/08/12 Amended 04/03/13

Part 1

Rule 7.1 – Issues exceeding 15% of capital
Step 1: Calculate "A", the base figure from which the placementcapacity is calculated
Insert number of fully paid +ordinarysecurities on issue 12 months before the+issue date or date of agreement to issue
Add the following:
Number of fully paid +ordinary securities•issued in that 12 month period under anexception in rule 7.2
Number of fully paid +ordinary securities•issued in that 12 month period withshareholder approval
Number of partly paid +ordinary•securities that became fully paid in that12 month period
Note:•Include only ordinary securities here –other classes of equity securities cannotbe added•Include here (if applicable) the securitiesthe subject of the Appendix 3B to whichthis form is annexed•It may be useful to set out issues ofsecurities on different dates as separateline items
Subtract the number of fully paid +ordinarysecurities cancelled during that 12 monthperiod
"A"

+ See chapter 19 for defined terms.

Step 2: Calculate 15% of "A"
"B"	0.15
	[Note: this value cannot be changed]
Multiply "A" by 0.15
Step 3: Calculate "C", the amount of placement capacity under rule7.1 that has already been used
Insert number of +equity securities issuedor agreed to be issued in that 12 monthperiod not counting those issued:
•Under an exception in rule 7.2
•Under rule 7.1A
•With security holder approval under rule7.1 or rule 7.4
Note:•This applies to equity securities, unlessspecifically excluded – not just ordinarysecurities•Include here (if applicable) the securitiesthe subject of the Appendix 3B to whichthis form is annexed•It may be useful to set out issues ofsecurities on different dates as separateline items
"C"
Step 4: Subtract "C" from ["A" x "B"] to calculate remainingplacement capacity under rule 7.1
"A" x 0.15
Note: number must be same as shown inStep 2
Subtract "C"
Note: number must be same as shown inStep 3
Total ["A" x 0.15] – "C"
	[Note: this is the remaining placementcapacity under rule 7.1]

+ See chapter 19 for defined terms.

Part 2

Rule 7.1A – Additional placement capacity for eligible entities
Step 1: Calculate "A", the base figure from which the placementcapacity is calculated
"A"
Note: number must be same as shown inStep 1 of Part 1
Step 2: Calculate 10% of "A"
"D"	0.10
	Note: this value cannot be changed
Multiply "A" by 0.10
Step 3: Calculate "E", the amount of placement capacity under rule7.1A that has already been used
Insert number of +equity securities issuedor agreed to be issued in that 12 monthperiod under rule 7.1A
Notes:•This applies to equity securities – notjust ordinary securities•Include here – if applicable – thesecurities the subject of the Appendix3B to which this form is annexed•Do not include equity securities issuedunder rule 7.1 (they must be dealt within Part 1), or for which specific securityholder approval has been obtained•It may be useful to set out issues ofsecurities on different dates as separateline items
"E"

+ See chapter 19 for defined terms.

Step 4: Subtract "E" from ["A" x "D"] to calculate remainingplacement capacity under rule 7.1A
"A" x 0.10
Note: number must be same as shown inStep 2
Subtract "E"
Note: number must be same as shown inStep 3
Total ["A" x 0.10] – "E"
	Note: this is the remaining placementcapacity under rule 7.1A

+ See chapter 19 for defined terms.