SUNSTONE METALS LTD — Capital/Financing Update 2016

Sep 5, 2016

SATULINMAKI HIGH GRADE GOLD PROJECT - DRILLING COMMENCED

Highlights

• Drilling has commenced on hole SMDD001 at the Satulinmäki gold prospect.
• The drilling program will test targets within a series of sub-parallel gold zones defined by historical drill holes including;
  • o 18m at 4.1g/t, including 3m at 9.3g/t and 4m at 10.3g/t in hole R391
  • o 10m at 2.7g/t in hole R416
• It is anticipated that 6 holes will be drilled for a total 930m, adjacent to, and deeper than the historical gold intersections.
• First gold assay results are expected to be returned in early October.
• Drilling at Kietyönmäki Lithium prospect will resume after this initial phase of gold drilling. First assays from Kietyönmäki drilling are expected next week.

Avalon Minerals Ltd (ASX: AVI) ('Avalon') is pleased to report that drilling at the high grade Satulinmäki gold prospect in southern Finland has commenced.

Diamond drill hole SMDD001 has commenced. Six drill holes are planned at Satulinmäki for a total of 930m and these will test interpreted sub-vertical gold mineralised shoots based on historical diamond drilling that was completed by the Geological Survey of Finland (GTK) during the period 2001 - 2005.

The diagrams below show the location of the proposed drill holes, and a cross section and long section which shows the interpreted geometry and model for drill testing.

The drill program will test zones below historical holes that include intersections such as:

• 25.0m @ 3.17 g/t Au from 50m downhole in drill hole R391, including;
  • o 3.0m @ 9.3 g/t Au from 54m, and
  • o 4.0m @ 10.3 g/t Au from 66m
• 25.0m @ 1.7 g/t Au from 51m downhole in drill hole R413, including;
  • o 1.0m @ 9.8 g/t Au from 51.3m, and
  • o 1.0m @ 8.6 g/t Au from 62.3m, and
  • o 1.0m @ 4.2 g/t Au from 71.3m, and
  • o 1.0m @ 6.2 g/t Au from 74.3m
• 3.0m @ 5.9 g/t Au from 33.9m downhole in drill hole R414
• 2.0m @ 1.89 g/t Au at the end of hole in drill hole R414. This hole ended in mineralisation (see figure 3)

• 10.0m at 2.7 g/t Au from 15m downhole in drill hole R416
• 4.0m @ 5.2 g/t Au from 101.3m downhole in drill hole R419

It is expected that first assay results from this drilling program will be returned in early-October.

The historical data, comprising 60 shallow diamond drill holes, has been interpreted and a structural model proposed that comprises a series of sub-parallel NE trending gold bearing quartz veins within altered mafic volcanic schists. It is suggested that the plunge of mineralisation is sub-vertical. If this model is supported by the proposed drilling program then further targets along structural strike will be defined, and the results from the nearby Riukka gold prospect will be reviewed and drill holes proposed for this area.

Figure 1: Location of Satulinmäki gold prospect, 4km NW of the Kietyonmaki lithium project

Figure 2: Satulinmäki gold prospect showing interpreted NE trending gold bearing vein systems. Figure 3 cross section is shown through the main target vein. Collar positions of historical holes with red dots and grey, green traces. Proposed holes SMD001 to SMD006 are shown in white.

Figure 3: Cross section showing target zone down plunge from mineralised horizons in historical holes R413 and R414.

Figure 4: Long section on the main gold bearing zone showing existing shallow historical intersections, and pierce points of the proposed drill holes 1 to 5. The 5 proposed drill holes have also been planned to intersect several sub-parallel gold horizons parallel to this main zone.

About Avalon

Avalon has an advanced portfolio of exploration and development projects in Scandinavia. The portfolio comprises:

• 1. The Kietyönmäki lithium pegmatite project in southern Finland which is currently being drill tested. The project is part of an earn-in JV with Canadian company Nortec Minerals, where Avalon can earn up to an 80% interest (see ASX announcement dated 19th May 2016). Historical drilling by the Geological Survey of Finland (GTK) identified a high grade lithium pegmatite deposit including diamond drill intersections of up to 18m at 1.8% Li2O. Proposed work will deliver a mineral resource estimate and preliminary metallurgical studies by the end of 2016.
• 1. The Viscaria Copper project in northern Sweden which has a completed Scoping Study and is moving towards PFS and permitting to allow for mine development. The project has a mineral resource estimate of 52.4 Mt at 1.2% Cu, and a Mining Inventory considered for the 2016 Scoping Study Update (see ASX announcement dated 5th April 2016) of 18Mt at 1.2% Cu. Considerable exploration upside exists and low technical risk extensional drill targets have been defined to increase the resource estimate.
• 1. The Satulinmäki and Riukka gold prospects in southern Finland. These prospects have received shallow diamond drilling by GTK and are now the subject of plans for followup drilling by Avalon. Intersections include 18m @ 4.1g/t Au from 50m downhole, including 3m @ 9.3g/t Au, and 4m @ 10.3g/t Au in drill hole R391 at Satulinmäki. The Satulinmäki and Riukka gold prospects are included in the earn-in JV with Canadian company Nortec Minerals.
• 1. A portfolio of early stage lithium exploration projects in Sweden and Finland. These cover areas of documented lithium bearing pegmatite rocks and are being advanced to allow for drill testing in 2017.

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

Mr Malcolm Norris Managing Director Avalon Minerals Ltd Tel: 07 3368 9888 Email: malcolm.norris@avalonminerals.com.au

Criteria	JORC Code explanation	Commentary
Samplingtechniques	Nature and quality of sampling (e.g. cut channels, random chips, orspecificspecialisedindustrystandardmeasurementtoolsappropriate to the minerals under investigation, such as downholegamma sondes, or handheld XRF instruments, etc.). These examplesshould not be taken as limiting the broad meaning of sampling.	The results announced here are from historical diamond drill core samplesdrilled during the period 2001 to 2005 by the Geological Survey of Finland(GTK) and 6 of the 60 holes were subsequently selectively re-logged and resampled by Nortec Minerals Corp (see Nortec announcement March 1st, 2011).At Satulinmäki 60 drill holes were completed by GTK and Nortec's checksampling was from 6 drill holes, R329, 330, 334, 340, 385 and 386.
	Include reference to measures taken to ensure sample representivityand the appropriate calibration of any measurement tools or systemsused.	No reports of core recovery have been sighted.
	Aspects of the determination of mineralisation that are Material tothe Public Report. In cases where 'industry standard' work has beendone this would be relatively simple (e.g. 'reverse circulation drillingwas used to obtain 1 m samples from which 3 kg was pulverised toproduce a 30 g charge for fire assay'). In other cases moreexplanation may be required, such as where there is coarse gold thathas inherent sampling problems. Unusual commodities ormineralisation types (e.g. submarine nodules) may warrantdisclosure of detailed information.	Diamond drilling was used to obtain ~1m samples from which 3-5 kg were sentto the laboratory to be pulverised to produce a 250g sample. Then a 50g portionof this sample was used for gold and multi-element analysis.
Drillingtechniques	Drill type (eg core, reverse circulation, open-hole hammer, rotary airblast, auger, Bangka, sonic, etc) and details (e.g. core diameter,triple or standard tube, depth of diamond tails, face-sampling bit orother type, whether core is oriented and if so, by what method, etc).	Diamond drill core.
Drillsample	Method of recording and assessing core and chip sample recoveriesand results assessed.	Diamond core recovery data for this historical drilling has not been sighted.
recovery	Measures taken to maximise sample recovery and ensurerepresentative nature of the samples.	Details of geological logs suggest good core recovery.
	Whether a relationship exists between sample recovery and gradeand whether sample bias may have occurred due to preferentialloss/gain of fine/coarse material.	No relationship between sample recovery and grade has been established.

TABLE 1 – Section 1: Sampling Techniques and Data

Criteria	JORC Code explanation	Commentary
Logging	Whether core and chip samples have been geologically andgeotechnicallylogged to a level of detail to support appropriateMineral Resource estimation, mining studies and metallurgicalstudies.	Drill samples were logged for lithology. No further studies were undertaken.
	Whether logging is qualitative or quantitative in nature. Core (orcostean, channel, etc.) photography.	Drill samples were logged for lithology and hence logging is qualitative. Corewas photographed and selected intervals have been viewed.
	The total length and percentage of the relevant intersections logged.	All drill holes were logged in full from start to finish of the hole, based onhistorical reports. Nortec then re-logged selected intervals.
Sub-samplingtechniques andsample	If core, whether cut or sawn and whether quarter, half or all coretaken.	Halfcore was sampled and the remaining core is stored in GTK's core storagefacility. The core was logged at GTK's Loppi core archive. After logging thecore was cut in half by saw for those holes drilled between 2002 and 2005,and by handsplitter for holes drilled in 2001.
preparation	If non-core, whether riffled, tube sampled, rotary split, etc. andwhether sampled wet or dry.	Core samples.
	For all sample types, the nature, quality and appropriateness of thesample preparation technique.	The whole half-core sample was ground by a swing mill at GTK's Kuopio orRovaniemi laboratories. The analyses were undertaken at GTK's Espoo andRovaniemi laboratories. Assays by Notec were submitted to ALS Chemex inOutokumpu for Ore grade Gold by fire assay with an AAS finish (FA-AAS)
	Quality control procedures adopted for all sub-sampling stages tomaximise representivity of samples.	There is no record of specific QAQC processes during the historical drillingor on the check assays, although assays from both GTK and Nortec wereconsistent with one another hence providing confidence in the results.
	Measures taken to ensure that the sampling is representative of the insitu material collected, including for instance results for fieldduplicate/second-half sampling.	No record of these procedures.
	Whether sample sizes are appropriate to the grain size of the materialbeing sampled.	Sample sizes are considered to be appropriate and correctly represent the styleand type of mineralisation.
Qualityofassay data andlaboratory tests	The nature, quality and appropriateness of the assaying andlaboratory procedures used and whether the technique is consideredpartial or total.	The major method used by GTK was fire assay (plus ICP-AES) from a 50gram subsample (method code 705P). Gold from the first drill cores (DH 326-DH331) was analysed by GFAAS from aqua regia leach Hg-coprecipitationand using 20g subsamples (method 522U). In addition, ICP-AES analyses bypartial leaching (aqua regia digestion, method code 511P) were used forsamples from holes D326-D347 and ICP-MS analyses from holes D379-D389.Samples taken by Nortec were submitted to ALS Chemex in Outokumpu forOre grade Gold by fire assay with an AAS finish (FA-AAS). Best intercepts

Criteria	JORC Code explanation	Commentary
		were calculated using a cut-off grade of 0.4g/t Gold and a maximum internalwaste of 2 metres.
	For geophysical tools, spectrometers, handheld XRF instruments,etc., the parameters used in determining the analysis includinginstrument make and model, reading times, calibrations factorsapplied and their derivation, etc.	No handheld XRF measurements were taken on this hole.
	Nature of quality controlprocedures adopted (e.g. standards, blanks,duplicates, external laboratory checks) and whether acceptablelevels of accuracy (i.e. lack of bias) and precision have beenestablished.	Re-sampling by Nortec confirmed earlier assay results received by theGeological Survey of Finland (GTK).
Verification of	The verification of significant intersections by either independent oralternative company personnel.	Verification of GTK results by subsequent sampling by Nortec.
samplingand	The use of twinned holes.	Twin holes have not been drilled in this area.
assaying	Documentation of primary data, data entry procedures, dataverification, data storage (physical and electronic) protocols.	Nortecdata and the Finnish Geological Survey (GTK) data have been sightedin reports.
	Discuss any adjustment to assay data.	Assay data were not adjusted.
Locationofdata points	Accuracy and quality of surveys used to locate drill holes (collar anddown-hole surveys), trenches, mine workings and other locationsused in Mineral Resource estimation.	Hole locations are shown on detailed maps from GTK 2006 report Kärkkäinenet. al.
	Specification of the grid system used.	The current projection used formap preparation in Finland is ETRSTM35FIN, with Datum EUREF89
	Quality and adequacy of topographic control.	No reports of topographic control have been sighted.
Dataspacing	Data spacing for reporting of Exploration Results.	The historical drilling was comprised of 60 drill holes on multiple traverses atapproximately 10 and 40m apart.
anddistribution	Whether the data spacing and distribution is sufficient to establishthe degree of geological and grade continuity appropriate for theMineral Resource and Ore Reserve estimation procedure(s) andclassifications applied.	Sufficient continuity in both geology and mineralisation has been establishedbased on geological mapping and cross-section representation.
	Whether sample compositing has been applied.	No sample compositing was done.
Orientationofdata in relation	Whether the orientation of sampling achieves unbiased sampling ofpossible structures and the extent to which this is known, consideringthe deposit type.	Drilling orientations were considered appropriate for the interpreted structurescontrolling mineralisation.

Criteria	JORC Code explanation	Commentary
togeologicalstructure	If the relationship between the drilling orientation and the orientationof key mineralised structures is considered to have introduced asampling bias, this should be assessed and reported if material.	The company does not believe that any sample bias had been introduced whichcould have a material effect.
Samplesecurity	The measures taken to ensure sample security.	Nortec'ssampling procedures indicate individual samples were given dueattention.
Auditsorreviews	The results of any audits or reviews of sampling techniques and data.	No audits were completed.

TABLE 1 – Section 2: Exploration Results

Criteria	JORC Code explanation	Commentary
Mineraltenementandlandtenurestatus	Type, reference name/number, location and ownership includingagreements or material issues with third parties such as joint ventures,partnerships, overriding royalties, native title interests, historicalsites, wilderness or national park and environmental settings.	The Satulinmäki gold occurrence iscovered by approved exploration claims,under the Finnish Mining Act.
	The security of the tenure held at the time of reporting along with anyknown impediments to obtaining a licence to operate in the area.	Exploration claims are valid and are held by Nortec Minerals Corp. Avalon hasa joint venture with Nortec to explore the claims.
Explorationdone by otherparties	Acknowledgment andappraisal of exploration by other parties.	The historic drilling at Satulinmäki was undertaken by the Finnish GeologicalSurvey in 1985, and was re-logged and re-sampled by Nortec Minerals Corp.in 2010.
Geology	Deposit type, geological setting and styleof mineralisation.	The Satulinmäki gold occurrence is interpreted to be an orogenic gold systemhosted by a series of quartz veins.

Criteria	JORC Code explanation	Commentary
DrillholeInformation	A summary of all information material to the understanding of theexploration results including a tabulation of the following informationfor all Material drill holes:a.easting and northing of the drill hole collarb.elevation or RL (Reduced Level –elevation above sea level inmetres) of the drill hole collarc.dip and azimuth of the holed.down hole length and interception depthe.hole length.	Details of the drill holes discussed in this announcement are referenced toNortec Minerals Corp reports at http://www.nortecminerals.com/index.php.60 drill holes were completed by GTK on multiple traverses. Holes were drilledat mainly -45 degree angles. The deepest hole was to 139.2m EOH at -60degrees which tested to ~100m below surface.
	If the exclusion of this information is justified on the basis that theinformation is not Material and this exclusion does not detract fromthe understanding of the report, the Competent Person should clearlyexplain why this is the case.	Information included above.
Dataaggregationmethods	In reporting Exploration Results, weighting averaging techniques,maximum and/or minimum grade truncations (e.g. cutting of highgrades) and cut-off grades are usually Material and should be stated.	The Weighted Averaging method is used to calculate drill holeintersections forthe gold grade based on the assay results received, and the down hole width ofthe assayed interval.
	Where aggregate intercepts incorporate short lengths of high graderesults and longer lengths of low grade results, the procedure used forsuch aggregation should be stated and some typical examples of suchaggregations should be shown in detail.	Weighted averaging method used.
	The assumptions used for any reporting of metal equivalent valuesshould be clearly stated.	Metal Equivalents have not been applied.
Relationshipbetween	If the geometry of the mineralisation with respect to the drill-holeangle is known, its nature should be reported.	The orientations of the mineralised horizons is interpreted to be sub-verticalbased on geological mapping and cross-sectional interpretation.
mineralisationwidthsandinterceptlengths	If it is not known and only the down hole lengths are reported, thereshould be a clear statement to this effect (e.g. 'down hole length, truewidth not known').	See above –estimated true widths are approximately 60% of intersected widthsbased on cross section construction.
Diagrams	Appropriate maps and sections (with scales) and tabulations ofintercepts should be included for any significantdiscovery beingreported. These should include, but not be limited to a plan view ofdrill hole collar locations and appropriate sectional views.	Reporting of historical holes only. No significant discovery reported here.

Criteria	JORC Code explanation	Commentary
Balancedreporting	Where comprehensive reporting of all Exploration Results is notpracticable, representative reporting of both low and high gradesand/or widths should be practiced to avoid misleading reporting ofExploration Results.	Historical results only and this is stated in the text
Othersubstantiveexplorationdata	Other exploration data, if meaningful and material, should bereported) including (but not limited to): geological observations;geophysical survey results; geochemical survey results; bulk samples–size and method of treatment; metallurgical test results; bulkdensity, groundwater, geotechnical and rock characteristics;potential deleterious or contaminating substances.	No other significant geological data has been reviewed at this stage.
Further work	The nature and scale of planned further work (e.g. tests for lateralextensions or depth extensions or large-scale step-out drilling).	Comprehensive data compilation is ongoing. The GTK have extensive openfile data available. Field work is ongoing during 2016, with follow-up drillingexpected in Q4 2016.
	Diagrams clearly highlighting the areas of possible extensions,including the main geological interpretations and future drillingareas, provided this information is not commercially sensitive.	Additional exploration reservation areas have been applied for which cover theinterpreted extensions of the prospective domains.