Sparton Resources Inc.

Sparton Resources Inc.

October 27, 2006 09:22 ET

Sparton Receives Initial Results From SBD Project Nevada Geophysical Program


TORONTO, ONTARIO--(CCNMatthews - Oct. 27, 2006) - Sparton Resources Inc. (TSX VENTURE:SRI) (the "Company") announced today that it has received initial encouraging geophysical results from the geophysical surveys currently underway on its SBD claims in the Battle Mountain Area of Nevada, USA. The Nevada work program began two weeks ago and is expected to be completed by the end of November, 2006.

Separately the Company also reports that the summer field program of detailed exploration in the Nongchiuba area of the Luxi gold program in Yunnan China has now been completed.

Further, Sparton has received a notice from Zhao Jin Mining Industry Co. Ltd. ("ZJ") that due to further delays in its planned IPO on the Hong Kong Stock Exchange it has been unable to confirm by ZJ board of directors resolution, the closing of the transaction to acquire a 51% interest in Yunnan Sparton Minerals Company Limited ("YSM"), which holds the Luxi Project Exploration Licences and that it wishes to terminate the existing share acquisition Letter Agreement dated Feb. 24, 2006, (see news releases dated Feb. 27, 2006, June 14, 2006, Aug. 8, 2006).

Under various amendments to the original Letter Agreement signed by ZJ, if ZJ failed to complete the IPO by September 30, 2006 Sparton is to receive 10% of the previously agreed purchase price (1,980,000RMB or approximately C$283,000) as a deposit on the purchase of shares, and 51% of the YSM operating costs from April 25 to September 30, 2006 which are estimated to be about 477,000RMB or $C68,000. In these documents ZJ further acknowledged that the delays in completing the IPO had caused loss of business opportunity to Sparton indicating to the Company that further compensation may be appropriate.


Due to various equipment delays the geophysical surveys at SBD only began in the second week October. CSAMT (Controlled Source Audio Magneto Telluric) and ground magnetic surveys are covering the entire SBD 29 claim area in a rectilinear grid designed to locate structural intersections capable of hosting gold mineralization similar to that at various deposits in the area such as Marigold (Glamis Gold), Phoenix, (Newmont), Lone Tree (Newmont) and Pipeline (Cortez Joint Venture). The nearby Trenton Canyon Mine (Newmont) gold mineralization is closely related to the Trenton Canyon Stock, a granitic intrusion with related dykes that appear to intrude structures carrying gold on the SBD claims. The magnetic surveys are designed to locate these intrusives and their contact zones with favourable sedimentary host rocks in the area.

Initial results from about 25% of the CSAMT work (north south survey lines only) indicate a number of strong conductive zones crossing the SBD Claim Group. The SBD work is expected to require a further 3 weeks to complete. Work will begin on the Coal Canyon claims once the SBD program is finished. Once complete survey results are available all data will be compiled and drill targets prioritized. There is a serious shortage of drills in Nevada at the present time and the Company is currently negotiating to share either core or RC drilling equipment with another client in order that drilling can begin prior to year end.


During August and September additional detailed geochemical, rock chip sampling and geophysical surveys were completed in the newly discovered Nongchiuba area in the south central part of the Luxi Exploration Area (see news release dated Aug. 8, 2006).

A survey grid was established over the 3km by 1km mineralized trend and soil sampling and ground magnetic surveys completed along about 23 kilometres of survey lines. In addition YSM owned auger drilling equipment has been used to trace the mineralized trend under overburden covered areas.

Over 450 soil samples have been collected on the survey lines and 81 auger holes (collecting 101 bedrock chip samples) have now been completed. These samples are being analyzed at the Yunnan Provincial Laboratories and complete analytical results for this work are not expected to be available until early November. Duplicate samples will be analysed for quality control by SGS Mineral Services Division as per previous Luxi sampling programs. The geophysical data are encouraging and it appears that the intrusives can be outlined with ground magnetic survey techniques.


Recently, and during the past summer, Sparton and its YSM partner Yunnan Nuclear Geological Exploration Brigade 201 ("201") conducted a number of negotiating sessions with ZJ representatives, which extended the time for finalization of the ZJ purchase of a 51% interest in YSM due to continued delays in the finalization of ZJ's Initial Public Offering ("IPO") and share listing on the Hong Kong Stock Exchange. The extensions were granted to accommodate the anticipated IPO schedule and also the Mid Autumn Festival China bank holiday period in early October. ZJ has now notified Sparton and 201 that it wishes to terminate the original Letter Agreement dated February 24, 2006 due to the fact that it is unable to provide a ZJ directors resolution confirming the transaction. This resolution was to have been provided immediately after the IPO was completed.

Under the terms of an Amendment to the original Letter Agreement ZJ also agreed to pay Sparton the sum of 10% of the original agreed Purchase Price (19,800,000RMB) or 1,980,000 RMB (approximately $C238,000), as a deposit against the total share purchase price, and 51% of YSM operating costs from April 25, 2006 until Sept. 30, 2006. (April 24, 2006 was the original closing date contemplated in the original letter agreement and September 30, 2006 a negotiated extended date for closing). These costs have now been audited and total approximately 935,000RMB of which 51% represents 476,850RMB or approximately $C68,000.

Currently Sparton is negotiating with ZJ the final terms for the completion of these payments. Various alternatives have been discussed, including complete termination of the share purchase agreement provided ZJ makes the agreed payments to Sparton. It is the Company's present position based on current written communication with ZJ, that a timely receipt of these agreed payments will allow ZJ to finalize the YSM share purchase transaction after its IPO is completed. Sparton will seek written confirmation from ZJ whether or not it intends to finalize the YSM share purchase after the IPO. Several other mining companies have expressed an interest in becoming involved in the Luxi Project and are expected to begin data reviews in the coming weeks if ZJ confirms it does not intend to proceed after the IPO.

Additionally the Sparton reports that it has granted an option to purchase 150,000 Sparton shares of the Company at a price of $0.14 for a five year period to a consultant of the Company. These options are effective October 25, 2006.

(i) Exchange Rate for Chinese Currency, 7RMB approx. equals $C1.0 dollar.

The TSX Venture Exchange has not reviewed and does not accept responsibility for adequacy or accuracy of the content of the information contained herein.

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