SUNSTONE METALS LTD — Capital/Financing Update 2016

May 18, 2016

AVALON BUILDS LITHIUM PORTFOLIO IN FINLAND

Highlights

• Avalon Minerals has secured interests in a portfolio of lithium projects in Finland.
• Avalon has lodged and had registered an Exploration Reservation application covering approximately 500km2 in the Kaustinen district, host to some of Europe's largest lithium deposits. The areas under application include areas in close proximity to lithium deposits at the drilled, resource definition and PFS stages held by Finnish company Keliber Oy.
• Avalon has also finalised a joint venture with Canadian company Nortec Minerals Corp. over the Kietyönmäki lithium occurrence in southern Finland, and secured additional ground in the area. Lithium mineralisation at Kietyönmäki is hosted in a spodumene-bearing pegmatite dyke swarm. Assays from drill holes drilled by the Geological Survey of Finland, and confirmed by Nortec, included 9m at 1% lithium within a broader zone of 24m at 0.61% lithium.
• Avalon's move into the lithium sector builds on its Scandinavian expertise and network, and is a complimentary business to its flagship Viscaria Copper Project.
• Avalon continues to advance its 100% owned Viscaria Copper Project in Sweden and is proceeding with permitting for a 2-3Mtpa operation producing >20,000t per annum of copper in concentrate.

Avalon Minerals Ltd (ASX: AVI) ('Avalon') is pleased to announce that it has secured interests in several highly prospective lithium exploration opportunities in Finland.

Avalon has secured interests in the two main areas of known lithium occurrences.

• In the Somero district in southern Finland, Avalon has lodged 2 Exploration Reservation applications, and has entered into an earn-in joint venture with Canadian company Nortec Minerals Corp. over the Kietyönmäki lithium occurrence and surrounding areas.
• In the Kaustinen district in central Finland, Avalon has lodged an Exploration Reservation application over areas prospective for lithium bearing pegmatites. The Kaustinen district is host to some of Europe's largest known lithium pegmatite deposits.

All areas are supported by high quality infrastructure and located close to potential final customers. Good quality open file data exists and this is currently being accessed. Avalon's exploration program will involve an initial phase of data compilation and interpretation, with an expectation that drill targets will be defined

relatively quickly. Low sovereign risk in Finland, and Avalon's operating base from Kiruna in northern Sweden, together with partnerships with Finnish entities, makes this a compelling opportunity.

Figure 1: Regional locations of lithium projects within the Avalon portfolio.

All of Avalon's lithium assets are to be held within the newly established subsidiary Scandian Metals Pty. Ltd. ('Scandian'), to provide flexibility for future growth and funding of the lithium portfolio.

Somero: Avalon has lodged applications for two Exploration Reservations over an area of 117 km2 . Avalon has also entered into an earn-in joint venture with Nortec Minerals Corp. covering the adjacent Kietyönmäki lithium occurrence and surrounding areas held under approved claims.

Historical drilling by the GTK (Geological Survey of Finland) was undertaken at Kietyönmäki. Re-logging and re-sampling by Nortec returned results including 9m at 1% lithium within a broader zone of 24m at 0.61% lithium (http://www.nortecminerals.com/tammela.php). The drilling is within the Kietyönmäki Main Dyke, a large spodumene-bearing pegmatite dyke that can be traced for over 400m, has a width of up to 18 metres, and is known to extend vertically for at least 100m. The dyke is part of a swarm. GTK historically drilled only 17 holes on three closely spaced traverses.

Prospectivity mapping in the Somero district has also been undertaken by GTK, and has identified many areas considered highly prospective for lithium pegmatite occurrences, primarily to the south-east of the Kietyönmäki occurrence. These areas have been covered in the ground acquired by Avalon for the Somero lithium project.

The Somero area is supported by high quality infrastructure (figure 2).

Figure 2: Areas of Exploration Reservation Applications by Avalon, and claims held through the Nortec JV. The Hirvikallio lithium prospect is surrounded by Natura 2000 environmental areas and hence is excluded from the current claim areas.

Kaustinen: Avalon has lodged, and had registered, one Exploration Reservation application covering 527 km2 , within the Central Ostrobothnia district, home to several known lithium pegmatites some of which are at an advanced stage of PFS and held by private Finnish company Keliber Oy.

The exploration area is supported by high quality infrastructure (figure 3).

Key Terms of the Somero Joint Venture with Nortec Minerals Corp:

Avalon, through Scandian Metals, has entered into an earn-in joint venture with Nortec Resources Corp. (TSX.V-NVT). Avalon will fund exploration on Nortec's approved claims and an area of interest in two stages to earn an 80% interest. Stage 1 comprises expenditure of EUR 500,000 over a 24-month time period to earn a 51% interest, followed by an option to move to Stage 2 which allows for expenditure of EUR 1,000,000 over an additional two years to earn an additional 29% taking the Scandian holding to 80%.

Avalon will pay to Nortec EUR 20,000 and issue 1,000,000 Avalon shares upon signing of the Heads of Agreement, and if Scandian elects to move to Stage 2 then it will pay Nortec EUR200,000 in either cash or shares or a combination of both.

Standard dilution clauses apply once the parties hold 80% and 20%. If a party's interest falls below 10% then that interest will automatically convert to a 1.5% net smelter royalty.

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

APPENDIX 1 The following Table and Sections are provided to ensure compliance with the JORC Code (2012 Edition)

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.Include reference to measures taken to ensure sample representivityand the appropriate calibration of any measurement tools or systems	The results announced here are from historical diamond drill core samplesdrilled in 1985 by the Geological Survey of Finland (GTK) and subsequentlyre-logged and selectively re-sampled by Nortec Minerals Corp.17 drill holeswere completed by GTK and Nortec's check sampling was from one drill hole,R310.No reports of core recovery have been sighted.
	used.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 (see first point above) fromwhich 3-5 kg weresent to the laboratory to be pulverised to produce a 250gsample. Then a 50gportion of this sample wasused for 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.
Drillsamplerecovery	Method of recording and assessing core and chip sample recoveriesand results assessed.	Diamond core recovery data for this historical drilling has not been sighted.
	Measures taken to maximise sample recovery and ensurerepresentative nature of the samples.	Details of geological logs suggest good core recovery.

TABLE 1 – Section 1: Sampling Techniques and Data

Criteria	JORC Code explanation	Commentary
	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.
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 werelogged 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.
	The total length and percentage of the relevant intersections logged.	All drill holes were logged in full from start to finishof the hole, based onhistorical reports.Nortec then re-logged selected intervals.
Sub-sampling	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.
techniques andsamplepreparation	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.	Thecheck samples were processed and analysed at a recognised laboratoryandsample preparation was carried out according to industry standardpractices.
	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 were consistent with oneanother hence providing some 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.	Nortec samples were submitted to ALS Chemex in Outokumpu for 48element ICP-MS finish. Ore grade results for lithium were analysed using a4-acid digest method and an AAS finish.This analysis technique isconsidered suitable for this style of mineralisation.
	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 XRFmeasurements were taken on this hole.

Criteria	JORC Code explanation	Commentary
	Nature of quality control procedures 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.
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.	Nortec data and the Finnish Geological Survey data have been sighted inreports.
	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 1985 reports.
	Specification of the grid system used.	The current projection used for map preparation in Finland is ETRSTM35FIN, with Datum EUREF89
	Quality and adequacy of topographic control.	No reports of topographic control have been sighted.
Dataspacinganddistribution	Data spacing for reporting of Exploration Results.	The historical drilling was comprised of 17 drill holes on three traverses atapproximately 30 and 60m apart.
	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 appropriate for the predominantly high angle of themineralised intersections providing representative samples.
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's sampling procedures indicate individual samples were given dueattention.

Criteria	JORC Code explanation	Commentary
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 Kietyönmäki lithium occurrence iscovered by approved explorationclaims, under the Finnish MiningAct.
	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 and appraisal of exploration by other parties.	The historic drilling at Kietyönmäkiwas 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 style of mineralisation.	The Kietyönmäki lithium occurrenceoccurs in a pegmatite dyke swarm.
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.17 drill holes were completed by GTK on 3 traverses. Holes were drilled at-60 and -45 degree angles, and orthogonal to one another so good crosssection representation of the geology was established. The deepest hole wasto 130m EOH at -45 degrees which tested to ~90m below surface.

Criteria	JORC Code explanation	Commentary
	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 hole intersections forthe lithium grade based on the assay results received, and the down hole widthof the 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.	The results fromthe Nortecre-assays show both aggregated intercepts andspecific higher grade intercepts within the broader interval.
	The assumptions usedfor 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 isknown, 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 –estimatedtrue 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 significant discovery 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.
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
Othersubstantive	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; bulk	No other significant geological data has been reviewed at this stage

Criteria	JORC Code explanation	Commentary
explorationdata	density, groundwater, geotechnical and rock characteristics;potential deleterious or contaminating substances.
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 will commence immediately.The GTK haveextensive open file data available and field work is expected to commence inJuly 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