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Canstar Resources research and analysis

Contributed by eResearch

By Bob Weir

Canstar Resources Inc. (“Canstar Resources”, “Canstar” or “the Company”) is a mineral exploration and development company focused on gold and base metals projects in Canada.

The Company’s key property is Mary March (zinc-leadcopper- silver-gold), with an option to own 50% and a right-of-first-refusal on the other 50%, and located in Newfoundland.

INVESTMENT HIGHLIGHTS

Canstar Resources saw a successful closure of the decade-long court dispute about its key Mary March property in November 2011. The stock was up 50% in one day after the announcement;

The Company immediately announced that it would start a field exploration program on the property in early 2012;

The Mary March property is located 20 km from the Buchans Mine in Newfoundland, which historically produced more than 16 million tonnes of base metaland gold-containing ore.

PROJECTS

Canstar has interests in six properties in Newfoundland and Ontario. See the summary table below.

Canstar considers Mary March, Conception Bay, and Slate Bay to be its key properties, and the other three as noncore properties. The Company has decided to joint venture, with other corporations, the Tahoe and Shrimp Lake properties and the Miminska property. The Company already has a partner on the McFauld’s Lake property. This report covers the Mary March property, which has been in the spotlight in 2011.

MARY MARCH PROJECT

Litigation and Future Exploration: The core portion of the Mary March property was subject to a lengthy litigation between the Newfoundland and Labrador Mineral Recorders' office and a private company, Vinland Resources. After a long history of hearings, which started in 2000, ownership of the Mary March property was finally resolved in November 2011 when clear title was restored to Canstar. The Company immediately announced that a comprehensive exploration program would be implemented, which would require acquiring relevant work permits from the government and negotiating work contracts, including drilling and project financing. Canstar expects that field work at the property will start in early 2012.

Option Agreement: Canstar Resources has an option to earn the 50% interest in the Mary March property that is held by Phelps Dodge Company of Canada Limited (“Phelps”). According to an underlying agreement, Phelps may earn a 50% interest in the property from Falconbridge Limited by incurring expenditures of $1,500,000. Canstar Resources will assume the remaining exploration expenditures of around $755,000 and issue 100,000 common shares to Phelps, together with 100,000 common share purchase warrants exercisable at a price of $0.50 for a period of twenty-four months. The Company is also required to make a cash payment of $2,000,000 to Phelps within six months of commercial production. The Company’s interest is subject to a 1% NSR due upon commencement of commercial production. The remaining 50% interest in the property is held by Xstrata plc, on which Canstar has the first right-ofrefusal.

Location and Geology: The Mary March property is located in central Newfoundland, 20 km northeast of the formerly-producing Buchans Mine and lying within the same geological group (see the two maps on the next page). The Buchans Mine produced 16.2 million tonnes averaging 14.5% Zn, 7.56% Pb, 1.33% Cu, 126 g/t Ag, and 1.37 g/t Au over its 56-year mine life. Discovery holes drilled by Phelps in 1999-2000 produced some of the highest grade base and precious metal intersections ever achieved in the area outside the Buchans Mine, including 10.33% Zn, 118.1g/t Ag, 1.62% Pb, 4.1 g/t Au, and 0.66% Cu over 9.23 m.

FINANCIAL POSITION

At the end of FY2011 (June 30, 2011), Canstar’s cash position was just below $400,000. With the increased activity forecast to commence on Mary March in 2012, the Company needs external financing. In mid-December 2011, the Company announces proposed $1,050,000 non-brokered private placement to explore Mary March and adjacent properties

eResearch Analysts on this report:
Yuri Belinsky, B.A., M.A.
Bob Weir, B.Sc., B.Comm., CFA