Sparton Resources Inc.
TSX VENTURE : SRI

Sparton Resources Inc.

January 29, 2008 11:21 ET

Sparton Signs Three Key Agreements for Uranium and Germanium Production in China

JOINT VENTURE CONTRACT SIGNED FOR OPERATING COMPANY AGREEMENT FOR URANIUM PRODUCTION FROM LINCANG AREA WASTE PILE AGREEMENT SIGNED TO PURCHASE LINCANG AREA GERMANIUM PRODUCING COMPANY

TORONTO, ONTARIO--(Marketwire - Jan. 29, 2008) - Sparton Resources Inc. (TSX VENTURE:SRI) (the "Company") reported today that it has signed three key agreements in China which will position the Company to become a significant producer of germanium and provide the initial structure for uranium production in PRC. The first agreement relates to the establishment of a new sino-foreign joint venture operating company with a branch of the China National Nuclear Corporation ("CNNC") to produce uranium from waste material and coal ash in Yunnan Province. The second agreement relates to Sparton and the new operating company obtaining exclusive rights to test, process, and extract uranium from a large coal ash waste pile in the Lincang Area of central Yunnan (see Company news release dated January 3, 2008). The third agreement is a share purchase agreement that will permit the company to acquire 85% of the shares of the private Chinese company which is the second largest germanium concentrate producer in the Lincang area.

All of these agreements represent milestones in Sparton's ongoing program to begin uranium production from waste ash sources in China, and to become an operating company in the rapidly expanding international germanium market. All of the agreements have been signed through the Company's wholly owned subsidiary Sparton Energy Inc. ("SEI") which is registered in the British Virgin Islands.

NEW JV OPERATING COMPANY

The new operating company, Yunnan Sparton New Environ-Tech Consulting Co. Ltd. ("YSN") will be structured as an environmental solutions company utilizing waste coal ash or other waste industrial material for the extraction of valuable materials. These activities are now encouraged for foreign investment by the PRC Central Government and are eligible for government and local financial institution funding assistance. YSN partners are SEI, ARCN (the Remote Sensing Branch of CNNC), and Beijing John Hanseng Investment Consulting Co. Ltd. ("JHIC").

The initial share interests in YSN are: SEI 60%, ARCN 30%, and JHIC 10%. These can diluted through non participation to SEI 90%, ARCN 5% (carried), and JHIC 5% (carried). The new JV Company will have an initial registered capital of 2,000,000 RMB (approximately C$280,000) which will be contributed in tranches. YSN will be responsible for all waste testing, development and production of uranium from waste ash material in Yunnan including the current programs evaluating the Lincang and Xiaolongtan waste ash deposits.

WASTE ASH PROCESSING AGREEMENT LINCANG AREA

The Company has made an exclusive agreement with Tianhao Group Ltd. China ("TH") a Lincang germanium producer, to test and extract uranium from the large government ash waste pile which was sampled by the Sparton and results reported earlier (see news release dated January 3, 2008). TH has exclusive rights to reprocess the material in the government controlled waste ash area for germanium extraction. The agreement provides for TH to receive either a negotiated processing fee or royalty on any uranium production by YSN from the waste ash or other process waste material it controls. The average grade reported earlier for this waste ash is 0.64 lbs/tonne U3O8, and the main waste area is estimated to contain over 350,000 tonnes of ash. TH is also producing 60-80 tonnes of new uranium bearing waste each day from its operations which contain about the same U3O8 content as the main waste pile based on test results recently received by Sparton. This agreement provides the Company and YSN with the opportunity to begin successful uranium production from the same ash used historically for successful uranium extraction in the Lincang area. Samples for initial uranium leach tests are currently in transit to the Company's process engineering consultants Lyntek Inc. in Denver Colorado.

SHARE PURCHASE AGREEMENT FOR 85% INTEREST IN HUA JUN GERMANIUM PRODUCER

Following additional negotiations and initial due diligence evaluations with Linjiang 306 Huajun Coal Co. Ltd. Lincang City ("HJ") after signing the Memorandum of Understanding (MOU) reported on January 3, 2008, the Company through SEI has entered into a preliminary agreement on January 27, 2008 to purchase an 85% share interest in HJ for a total consideration of 22,000,000 RMB (approximately C$3.06 million). This total cost includes 2,000,000 RMB (C$278,000) in transfer fees and taxes. HJ is a private PRC company founded and owned by two local Lincang businessmen who will retain 8% and 7% share interests respectively in HJ on completion of the transaction.

HJ's current assets are valued at valued at 23,500,000 RMB (C$3.26million) including infrastructure, and mining licences covering three coal mines producing thermal and germanium coal feedstock. HJ also owns an ash waste pile of approximately 100,000 tonnes averaging about 170 ppm U3O8 (0.4lbs/tonne)
and is producing 50 tonnes per day of new uranium bearing ash.

The germanium operation is very successful and currently produces approximately 3500 kg per year of concentrate which is sold to germanium refiners for prices which have varied from about 5000RMB per kg to the current level of 9000RMB per kg. in the past 12 month period. Net Profits after all taxes and costs averaged 1,100,000RMB (C$153,000) per month during the third quarter of 2007.
The current operations area has sufficient germanium coal feedstock for approximately 10 years of production at current levels but is being enlarged in view of the rapidly expanding germanium market.

The purchase price will be paid in a series of tranches related to completion of a 45 day final due diligence evaluation by the Company and is tied to various government approvals required for the share transfer. No payment was made on signing the purchase agreement.

Once 60 % of the total purchase cost has been paid to the current HJ owners SEI will assume full operational responsibility for HJ. The previous owners have also indemnified SEI against any and all legal and environmental obligations incurred during their stewardship of HJ.

A final share purchase agreement is to be executed on or before March 31 2008.

DISCUSSION

These agreements represent major progress in the Company's international secondary uranium recovery programs. Additionally Sparton now has the opportunity to become a profitable producer in the rapidly developing germanium market. The purchase of a successful germanium operation with significant scope for expansion and value added technology applications for less than 2 times positive cash flow is an attractive investment opportunity.

The direct investment in the new uranium production operating company YSN by CNNC's subsidiary ARCN, is also significant development in the overall program and demonstrates the Chinese support for Sparton's initiatives in advancing the secondary uranium program to production in PRC.

Due diligence on HJ and further test work on HJ and TH samples are currently underway. Results will be reported when available.

All analyses reported here were done by SGS-CSTC Standards Technical Services Co. Ltd. laboratories in Tianjin China, a member of the international SGS Group.

If leach test results are positive, feasibility studies will be undertaken to evaluate the commercialization of uranium production from these waste ash areas. The initial leaching tests are expected to shortly.

Sparton's international exploration and evaluation programs are being carried out under the direct supervision of A. Lee Barker, P. Eng., P Geol., the Company's President and CEO who is a Qualified Person under National Instrument 43-101.

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

Contact Information

  • Sparton Resources Inc.
    A. Lee Barker
    President and CEO
    (416) 366-3551 or Mobile: (416) 716-5762
    (416) 366-7421 (FAX)
    Email: info@spartonres.ca
    or
    Sparton Resources Inc.
    Charles Ge
    Director
    int'l +86 10 8559 0034
    int'l +86 10 8559 0034 (FAX)
    Email: Charlesge@vip.163.com
    Website: www.spartonres.ca