SUNSTONE METALS LTD — Capital/Financing Update 2016

Aug 22, 2016

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 Performance Rights
• 2 Number of +securities issued or to be issued (if known) or maximum number which may be issued
• a. 37,812,500 Ordinary Shares b. 5,000,000 Ordinary Shares subject to voluntary escrow for 12 months c. 8,520,000 Performance Rights

+ See chapter 19 for defined terms.

• 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) a. 37,812,500 Fully Paid Ordinary Shares b. 5,000,000 Fully Paid Ordinary Shares subject to voluntary escrow for 12 months c. 8,520,000 Performance Rights: 2,839,721 Performance Rights vesting at share price of $0.045 per share for 10 consecutive trading days;
  • 2,839,721 Performance Rights vesting at outperformance of TSR against ASX Small Resources Index;
  • 2,840,558 Performance Rights vesting at share price of $0.07 per share for 10 consecutive trading days;
  • Expiry 3 years from grant date.

+ 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
• 6 Purpose of the issue (If issued as consideration for the acquisition of assets, clearly identify those assets)

Ordinary shares - Yes

Performance Rights – No, will only rank equally upon vesting of Performance Rights into ordinary shares.

5 Issue price or consideration 37,812,500 shares issued at $0.016 per share; 5,000,000 shares issued under terms of Heads of Agreement related to Swedish lithium tenements Performance Rights NIL

• a. Placement to exisitng sophisticated investors to be used to fund a drilling program at the Kietyönmäki lithium occurrence, with the objective of defining a maiden JORC Resource; Other exploration activities on the Company's Swedish and Finnish lithium exploration assets including geophysics, geochemistry and metallurgical test work; Progressing the Environmental and Social Impact Assessment ('ESIA') in relation to its Viscaria Copper Project, Sweden; and Working capital, including corporate costs to manage the exploration programme and costs of the offer.
• b. shares issued under terms of Heads of Agreement related to Swedish lithium tenements
• c. Performance Rights under the Company's Employee Performance Rights Plan approved by shareholders at AGM dated 26 November 2015

6a	Is the entity an +eligible entity thathasobtainedsecurityholderapproval under rule 7.1A?If Yes, complete sections 6b – 6hin relation to the +securities thesubject of this Appendix 3B, andcomply with section 6i	Yes
6b	Thedatethesecurityholderresolution under rule 7.1A waspassed	26November 2015
6c	+securitiesNumberofissuedwithout security holder approvalunder rule 7.1	Nil
6d	Number of +securities issued withsecurity holder approval under rule7.1A	Nil
6e	Number of +securities issued withsecurity holder approval under rule7.3, or another specific securityholder approval (specify date ofmeeting)	41,250,000 Ordinary Shares
6f	Number of +securities issued underan exception in rule 7.2	1,562,500OrdinaryShares(exception14)2,089,000 Performance Rights (exception 14)6,431,000 Performance Rights (exception 9)
6g	If +securities issued under rule7.1A, was issue price at least 75%of 15 day VWAP as calculatedunder rule 7.1A.3?Include the+issuedateandbothvalues.Include the source of the VWAPcalculation.	N/A
6h	If +securities were issued underrule7.1Afornon-cashconsideration, state date on whichvaluationofconsiderationwasreleasedtoASXMarketAnnouncements	N/A
6i	Calculate the entity's remainingissue capacity under rule 7.1 andrule 7.1A – complete Annexure 1andreleasetoASXMarketAnnouncements	7.1: 78,065,9157.1A: 52,043,943

+ See chapter 19 for defined terms.

7	+Issue datesNote: 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 rataentitlement issue must comply with the applicabletimetable in Appendix 7A.Cross reference: item 33 of Appendix 3B.	23 August 2016
8	+classNumberandofall+securitiesquotedonASX(including the +securities in section2 if applicable)	Number520,439,436	+ClassFullypaidordinaryshares
		Number	+Class
9	+classNumberandofall+securities not quoted on ASX(including the +securities in section2 if applicable)	5,200,0005,600,00010,800,000	Optionsexercisable at 6 centsexercisable at 8 centsTOTAL OPTIONS
		2,267,8002,267,8002,268,4002,839,7212,839,7212,840,55815,324,000	Performance Rights2015 Tranche 1 - $0.082015 Tranche 2 - TSR2015 Tranche 3 - $0.122016 Tranche 1 - $0.0452016 Tranche 2 - TSR2016 Tranche 3 - $0.07TOTAL RIGHTS

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?	N/A
13	Ratio in which the +securities willbe offered	N/A
14	+Class of +securities to which theoffer relates	N/A

+ See chapter 19 for defined terms.

Appendix 3B New issue announcement

15	+Recorddatetodetermineentitlements	N/A
16	Will holdings on different registers(or subregisters) be aggregated forcalculating entitlements?	N/A
17	Policy for deciding entitlements inrelation to fractions	N/A
18	Names of countries in which theentity has security holders who willnot be sent new offer documents	N/A
	Note: Security holders must be told how theirentitlements are to be dealt with.Cross reference: rule 7.7.
19	Closingdateforreceiptofacceptances or renunciations	N/A
20	Names of any underwriters	N/A
21	Amount of any underwriting fee orcommission	N/A
22	Names of any brokers to the issue	N/A
23	Fee or commission payable to thebroker to the issue	N/A
24	Amount of any handling fee payableto brokers who lodge acceptancesorrenunciationsonbehalfofsecurity holders	N/A
25	If the issue is contingent on securityholders' approval, the date of themeeting	N/A
26	Date entitlementand acceptanceform and offer documents will besent to persons entitled	N/A
27	If the entity has issued options, andthe terms entitle option holders toparticipate on exercise, the date onwhich notices will be sent to optionholders	N/A
28	Date rights trading will begin (ifapplicable)	N/A

29	Date rights trading will end (ifapplicable)	N/A
30	How do security holders sell theirentitlementsinfullthroughabroker?	N/A
31	How do security holders sell part oftheir entitlements through a brokerand accept for the balance?	N/A
32	How do security holders dispose oftheir entitlements (except by salethrough a broker)?	N/A
33	+Issuedate	N/A

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

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 of the 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 categories 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over

111006 (240293)

+ See chapter 19 for defined terms.

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 which quotation is sought
• 40 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
• 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)

42 Number and +class of all +securities quoted on ASX (including the +securities in clause 38)

Number	+Class

+ 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.

== == == == ==

Sign here: ............................................................ Date: 23 August 2016

Print name: Gavin Leicht

Company Secretary

+ 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	240,319,478
Add the following:
Number of fully paid +ordinary securities•issued in that 12 month period under anexception in rule 7.2	66,334,654 (Pro-rata Rights Issue)11,184,138 (issued under shortfall fromRights Issue).
Number of fully paid +ordinary securities•issued in that 12 month period withshareholder approval	202,601,166
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"	520,439,436

+ 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	78,065,915
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:	NIL
•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	78,065,915
Note: number must be same as shown inStep 2
Subtract "C"	0
Note: number must be same as shown inStep 3
Total ["A" x 0.15] – "C"	78,065,915
	[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"	520,439,436
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	52,043,943
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	0
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"	0

+ See chapter 19 for defined terms.

Step 4: Subtract "E" from ["A" x "D"] to calculate remainingplacement capacity underrule 7.1A
"A" x 0.10	52,043,943
Note: number must be same as shown inStep 2
Subtract "E"	0
Note: number must be same as shown inStep 3
Total ["A" x 0.10] – "E"	52,043,943
	Note: this is the remaining placementcapacity under rule 7.1A

+ See chapter 19 for defined terms.