Sparton Resources Inc.

Sparton Resources Inc.

December 14, 2006 11:53 ET

Sparton Signs Agreement to Evaluate and Acquire Interests in Five Producing Gold Operations in Inner Mongolia China

Area Includes 140 Sq. Km of Exploration Licences, 3 Sq. Km of Mining Licences and Exploration Mandate for a 23,000 Sq. Km Area in the Extension of the Prolific Tianshan Gold Belt

TORONTO, ONTARIO--(CCNMatthews - Dec. 14, 2006) - Sparton Resources Inc. (TSX VENTURE:SRI) (the "Company") announced today that it has entered into an agreement with Brigade 208 ("208") of the Geology Bureau of the China National Nuclear Corporation ("CNNC") to do a due diligence evaluation of 208's gold production and exploration areas in the northern part of Inner Mongolia. Under the terms of the agreement Sparton will immediately begin a full evaluation and technical review of 208's precious metals programs and producing properties, and subject to further negotiation may acquire up to a 30% interest in the producing operations covered by a total of 3 sq. km of Mining Licences and a 60% interest in 140 sq. km of Exploration Licences which surround the existing mines. The evaluation program will begin immediately and utilize both Chinese and North American licensed professionals.

In addition to the Exploration Licences currently held by 208, the local area UAA government has given 208 the mandate to explore a 23,000 sq km area under its jurisdiction, with the exception of an area of about 20 sq. km currently under development by Jinshan Gold Mines Ltd. at its '217' Project. Jinshan (controlled by Ivanhoe Mines Ltd.) is currently building the largest open pit gold mine in China at 217 with planned production of approximately 50,000 tonnes of ore per day, and recovery over 3 tonnes (about 117,000 ounces) of gold per year by heap leach methods. The 217 Project is about 120 km east of the Tugurege Gold Mine. Sparton is expected to participate in exploration in this greater 23,000 sq. km area as well.

Current precious metal production in the 208 area comes from four modest seasonal heap leach operations, and one underground mine (the Tugurege Gold Mine) which is currently producing gold from one inclined and two vertical shafts. 2006 production to date from all of the operations was approximately 380kg gold and 1000kg silver. The project area is located in the Wulate Zhongqui Administrative Area ("WAA") approximately 27 km from the Mongolia border, and the existing operations vary from 200-350 km northwest of Baotou, the largest industrial city in Inner Mongolia.


Brigade 208 is one of the most successful exploration teams of the Geological Bureau of the China National Nuclear Corporation (CNNC). Sparton's relationship with the group evolved as a consequence of its successful research program with ARCN the remote sensing branch of CNNC to evaluate the possibility of uranium production in China from non conventional sources such as coal ash and phosphate rock.

208's primary mandate is uranium exploration and it has played a leading role in locating new uranium resources in northern China. Its various divisions have a capacity of over 130,000 metres of core drilling for exploration and resource definition per year. 208 has successfully explored for and discovered a 10,000 tonne uranium resource in its area and is currently operating a portable in situ leach ("ISL") uranium recovery test plant on this deposit. With reduced budgets available for non uranium exploration activities 208 has indicated a strong interest in joining with a foreign partner to expand its existing mining operations and further explore the area of its successful precious metal producing operations.


The WAA area represents the eastern extension of the prolific Tianshan Gold Belt, a major regional precious metal producing trend which includes the world class Kumtor Kyrgistan (8.5 million ounce reserves and resources as of Dec. 31, 2005), Murantau Uzbekitstan (170 million ounce historic and current resource), and Axi, Kazakhstan (1.7 million ounce reserves in 1993) gold deposits all located to the west. It has seen very limited modern exploration, and with the exception of the Tugurege Gold Mine none of the current gold and silver producing areas have ever been drill tested.

Until the year 2000 precious metal production in the area was mainly through small "cottage industry" type operations by local farmers. At that time 208 began studies of gold occurrences in the area and identified the gold bearing vein systems at Tugurege as well as widespread mineralization associated with major fracture zones in granites and dioritic host rocks. Over 1000 mineral showings have been identified in area of the present 140 sq. km Exploration Licence. 39 of these are represented by vein systems over one metre or more in width, and with the exception of the area around the Tugurege Mine which began operation in 2002 none have ever been drill tested. The Licence is divided into three areas for exploration reporting, the East and West Areas and the Nine Kilometre Area ("NKA"). This latter structural zone is about 12 km long by 2 km wide and hosts several gold occurrences, none of which have ever been drill tested. Over 200,000 tonnes of heap leach material grading 1-2 g/t gold have been mined for testing purposes in the NKA.


Currently the Tugurege Mine currently operates at about 200 tpd using one 8 hour shift, 7 days per week, and produces from two vein systems, the Number 7 and Number 2 zones which are sub parallel and developed by two vertical shafts and one decline. Non NI 43-101 compliant gold resources at Tugurege, based on underground sampling and surface drilling according to Chinese Standards in B and C categories along a 1km strike length, with 6000 metres of drilling completed this year, are reported by 208 as 9.38 tonnes of gold. About 70% of this is contained in the number 7, number 2 and number 2-2 en echelon vein systems which are currently being mined. The Number 2 and Number 7 vein systems average about 9g/t and 4g/t gold respectively over average respective widths of 1.5 and 2.5 metres. Ore is milled in a conventional way and gold recovered from a carbon in pulp ("CIP") circuit. Mill recoveries average about 85% for gold. There are no deleterious metals such as arsenic present. Deepest production is from about 105 metres below surface and deepest drilling data available are from about 280 metres below surface. The average grade of mined material from all veins is 5.5g/t gold, and the vein structures dip about 55-60 degrees with the mining done by overhand shrinkage stoping methods. The structural zone hosting these veins is over 2.8km long and has only been tested along about 30% of this strike length. Team 208 believes there is potential to triple these resources with additional drilling at depth and along strike.

2006 production at Tugurege was 260 kg gold and 100kg silver and next year 208 plans to expand the mine up to a 400 tpd capacity with a target gold production of 500kg or about 16,000 ounces. In 2006 cash operating costs at Tugurege were 60 RMB (C$8.90) per gram or about C$276 per ounce.


208 also operates four small heap leach pad operations at three locations in and near the 140sq Km Exploration Licence area. These operate only during the non-freezing spring, summer and early autumn seasons and together produced about 100kg gold and 1000 kg silver in 2006. Ore is dug from weathered quartz vein systems in sheared and fractured volcanic and intrusive rocks which grade from 1-2.5 g/t gold and 100-400g/t silver over surface areas of up to 2 square km. Only limited surface exploration has been carried out in these 4 areas and mining only commenced in 2003. The Number 1 Heap Leach Mine for example has produced about 30kg of gold annually from 80,000 tonnes of run of mine ore excavated each year. At Da Mao about 120 km north of Baotou, the Number 2 Heap Leach Mine produces 60,000 tonnes of ore per year averaging 1g/t gold are mined from an oxidized shear zone hosting multiple fine quartz veins in altered diorite and is producing about 20 kg of gold annually.

2006 was the first year of mining at the Number 3 Heap Leach Mine and about 50,000 tonnes of ore averaging 1g/t gold and 50 g/t silver was loaded onto each of two leach pads (Number 3 and 4 Pads) and a total of 50 kg of gold was produced. Ore is not crushed at any of these operations and recoveries average only about 50-60 % of the contained precious metal.

None of these deposits has ever been drill tested or systematically evaluated to estimate their total precious metal resources.

208 made an overall profit of 12 million RMB (C$1.78 million) in 2006 on total sales revenue of 40 million RMB (C$5.92 million) from all its precious metals operations.


Sparton will begin the valuation and due diligence review of 208's exploration and production assets immediately. Based on the initial assessment of technical data reviewed by Company staff there appears to be significant upside potential to generate new resources and reserves both at the Tugurege mine and at the deposits hosting the heap leach mineralization. Recoveries at the latter can certainly be improved by simple crushing and sizing of leach pad material and the possibility of year round operations should be investigated.

Budgets are already in place for the 2007 program and will be reviewed as well.

"Sparton is extremely excited about the possibility of acquiring interests in both the production and exploration precious metal assets of Team 208", stated A. Lee Barker the Company's President and CEO.

"Successful negotiation for the acquisition of these projects will provide us with a cash flow base that can easily be expanded with modest investment and the application of some technical upgrades at the operations, and will make the Company a more attractive investment venue for new investors".

"The potential for new discovery in this under explored 23,000 sq. km NKA portion of the prolific Tianshan Gold Belt is very high, and Sparton has already created a favourable working relationship with 208 and its parent organization through its successful precious metals and non conventional uranium resource evaluation programs elsewhere in China."

(i) Exchange Rate for Chinese Currency, 6.75 RMB approx. equals $C1.0 dollar.

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