Sparton Resources Inc. 2 (SRI V, $0.47)

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1 Member CIPF Sparton Resources Inc. 2 (SRI V, $0.47) Jim Mustard, P.Eng., ( , jmustard@haywood.com) Andrew Kaip, P.Geo., ( , akaip@haywood.com) May 10, 2004 Target Price $N/A Current Price $0.47 Return (incl. dividend) N/A 52-Week High / Low $1.70 / $0.10 Estimated Treasury $3.4 million Shares O/S 39.8 million (basic) 47 million (f.d.) Market Capitalization $22.1 million Daily Volume 88,400 (3-month average) Currency C$ unless noted Company Web Site Revisions, Date of Record SECTOR OUTPERFORM (SPECULATIVE), initiated May 10, 2004 Risk Profile Forecast Risk Financial Risk Valuation Risk Political Risk High High Moderate Moderate High Industry Mining Junior Exploration Company Profile Sparton is an exploration company focused on China and North America. Management has extensive experience and a track record of grassroots discovery. Drilling is about to commence at the Luxi Gold Project in Yunnan Province, China. Recommendation SECTOR OUTPERFORM SPECULATIVE Sparton About to Commence Drilling for Gold in China Investment Brief The lure of China has drawn Sparton into southern China where it is about to commence a first-pass drill program on the Luxi Gold Project Sparton is earning an 80% interest in a joint venture (JV) in southeastern Yunnan Province of southern China Luxi hosts several gold occurrences that currently produce an estimated 6,000 ounces annually from heap-leach operations. Sparton s JV partner Brigade 201 owns the mine operations 100%. The geological setting may have some resemblance to replacement-style mineralization in Nevada, USA. Sparton s recent price performance affords a buying window for speculators. Valuation Market capitalization is average for a peer group of early stage Canadian exploration companies in China. Uniquely, Sparton has a 12.5% interest in an east-coast, offshore gas discovery, which has been independently valued, that approximates the Company s current market valuation. Catalysts Successful drilling at Luxi could propel the stock past recent highs. Exploration efforts elsewhere could also be accretive. On the downside, the price of gold could continue to slip further below the $400 mark, and investors could succumb to China fatigue, causing early investors to be sellers in a liquidity event, as opposed to being buyers. Price Performance Luxi Gold Project Geochemistry $2.0 $1.8 Sparton Resources (SRI-V) $1.5 $1.3 $1.0 $0.8 $0.5 $ Day M.A. 200 Day M.A. $0.0 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr Volume in Millions Source: Bloomberg Source: Sparton Resources Please see recommendation structure, disclaimers, and notes at the end of this report.

2 Investment Thesis Last year, Sparton s efforts to spark investor interest resulted in cementing a deal for an underexplored gold project in China where several large centres of gold mineralization occur. The general setting, although still poorly outlined, has evidence of gold controlled by faults and lithologies (rock types) that are presumed to be similar to several gold-deposit settings in Nevada. Drilling is about to commence (by the end of May) below known mineralized areas and will also test newly outlined geophysical anomalies. Very limited prior drilling has been completed in a few of the target areas. Recent surface sampling of newly exposed pits has located areas of primary mineralization with no previous drilling. The Company s current market value is supported by its 12.5% interest in an offshore (east coast) gas field. We are introducing Sparton Resources Inc. (SRI V) with a SECTOR OUTPERFORM (SPECULATIVE) recommendation before drilling commences. Report Summary If it s broken, then fix it that was Sparton s motto when it started looking for opportunities in China last spring, as its market was going nowhere. Based on a perception of gaining a larger audience of investors and an ability to capitalize on the burgeoning interest in financing projects in China, Sparton decided to take the long leap to Asia. Sparton already had (and continues to hold) an eclectic mix of exploration properties in Canada that include gold, base metals, PGM, diamonds, and an east-coast offshore gas play, but it was really not getting any attention for these assets. Thus, the siren call to China. With a group of experienced mining men Alan Lee Barker, Edward G. Thompson, and Mackenzie Iles Watson supported by market-savvy financial consultant Arthur Dalfen, the Company raised in excess of $3.4 million since signing the deal in China. Now with a fat treasury, a share price largely underwater relative to the recent financings, and a drill program about to commence, Sparton makes a good candidate as a bottom fish for those seeking a quick return based on the probability that the early stage drilling will encounter mineralization similar to that observed on the surface. Jim Mustard, P.Eng. ( , jmustard@haywood.com) May 10,

3 Investment Profile Return Sparton provides a low-cost entry to a gold-in-china play that is highly speculative. If the Company fails to click on any of its upcoming gold drill targets, the downside is limited, since the price has declined substantially from earlier highs. The return is directly dependent on results from the drilling a classic speculative opportunity for risk accounts only. Risk Forecast risk is high. Despite management s track record of discovery and its extensive experience, it has no prior history in China. Gold-price volatility adds to the high forecast risk. Financial risk is moderate, as the Company has sufficient funds to meet its requirements for the next 18 months. Valuation risk is moderate, owing to a market capitalization of $22.1 million, which is supported by the Company s gas interests. Political risk is high. Sparton has not previously operated in China, where there is a degree of uncertainly regarding sovereign risk. We do acknowledge that Yunnan is one the most commercially friendly provinces with which to do business in China. We rate the overall risk exposure for the Company as high largely because of management s inexperience in China and the commodity risk. Comparables Sparton s current market capitalization lies at our benchmark average for our basket of early stage explorers in China. Market Capitalization of Early Stage China Explorers Company Symbol Share $ Shares f.d. Market Cap ($M) Majestic MJS-V Dynasty DYG-V Orsa Ventures ORN-V SKN Resources SRL-V First Fortune FRF-V Windridge WNN.H-V Sparton SRI-V Average 22.3 Source: Haywood Securities Jim Mustard, P.Eng. ( , jmustard@haywood.com) May 10,

4 Given management s technical track record, a gold project with little modern exploration, and its interest in an offshore gas field, Sparton s current market capitalization is fully justified. Luxi Sparton is earning an 80% interest in a joint venture (JV) to explore several mineral Exploration Licences aggregating in excess of 250 km 2. The agreement also provides for the eventual inclusion of defined mining and exploration rights for primary (non-oxide) mineralization within the 0.5 km 2 Guanlingpo Mining Licence. (The Guanlingpo Mining Licence lies within the Exploration Licences and hosts several currently operating open pits.) The exploration rights to evaluate mineralization below the 1,180-metre elevation within Guanlingpo are included as part of the JV s Exploration Licences. Sparton acquired the JV from its 100% acquisition of Cana-Trimax Investment Inc. (CT), which cut the deal with Yunnan Nuclear Geological Exploration Brigade 201 (Brigade 201). The Company recently received its Articles of Association for the formation of the Chinese Joint Venture Company Yunnan Sparton Minerals Company Ltd. (Yunnan Sparton) owned 80% by Sparton and 20% by Brigade 201. It has also received the Chinese-Foreign Cooperative Joint Venture Contract for Yunnan Sparton between Sparton and Brigade 201. Yunnan Sparton has recently received its business licence, allowing it to now proceed with its exploration plan. Sparton has issued 1.5 million shares and paid US$50,000 to CT for the acquisition. Upon transfer of the specified mining and exploration rights to the JV, Sparton must issue a further total of 0.5 million shares. Sparton must expend a total of US$1.5 million over a three-year period that includes cash payments to Brigade 201 totalling US$200,000. When the mining lease is transferred to the JV, an additional US$400,000 must be spent within the lease over a three-year period as well. The Luxi (pronounced LOO SHEE) project occurs in the western part of Yunnan Province and is 70 kilometres east of the Myanmar border. After discovering gold in the area, Brigade 201 outlined a number of small oxide gold deposits in the soil and regolith associated with fault zones, silicification, and hydrothermal alteration. The primary mineralization is controlled by low-angle structures (thrust faults) associated with the contacts between Permian age carbonate rocks and Jurassic age sediments. The thrust faults are numerous and occur in a belt some 10 kilometres wide, representing multiple geological targets. Brigade 201 currently operates a small seasonal heap-leach operation on the 0.5 km 2 Guanlingpo Mining Licence. An estimated 200 kilograms (approximately 6,000 ounces) of gold are produced annually from the regolith, and an estimated 200,000 ounces of gold have been produced in the area since Jim Mustard, P.Eng. ( , jmustard@haywood.com) May 10,

5 Previous exploration work identified several gold-in-soil anomalies that vary in size from 1.5 kilometres long by 200 metres wide, to 400 metres long by 75 metres wide, and no systematic drilling has been carried out. Only very recently has active mining exposed some of the primary mineralization that is Sparton s focus. Chip sampling of these pods has returned grades of 9.1 g/t over 5.5 metres and 5.4 g/t Au over 6.0 metres. In addition, grab samples of jasperoid material (iron-rich silicified rock often associated with epithermal/replacementgold mineralization) returned grades of 4.8, 3.6, and 2.4 g/t Au. In conjunction with Brigade 201, Sparton has completed preliminary induced polarization (IP) geophysical surveys, and those surveys are now planned to continue along the southwest-trending Shangmangyang fault zone from the Guanlingpo pits. IP is also planned for the Mabozi and Bajowa areas (southern parallel zones) where geochemical sampling and previous limited physical work have also identified general drillable targets. In the Mabozi area, there are active cool-water springs proximal to previous work sites that returned results up to 0.44 g/t Au over 58 metres. At Bajowa, small-scale production is also currently taking place. Sparton has organized a drill and associated supplies for delivery to the project by mid-may, with drilling expected to commence by month end. In summary, the project area has at least seven untested drill targets in four main anomalous areas identified along 38 kilometres of strike length in addition to the known mineralization within the existing Guanlingpo Mining Licence area. Not one of the major areas of exposed primary (non-oxide) mineralization, including Guanlingpo, has ever been systematically surveyed using modern geophysical methods, nor drill tested. Yunnan Province is somewhat unique in China, as the central Chinese government has granted companies in Yunnan the independent right to negotiate foreign investment in various types of mineral-resource projects, including precious metals. Yunnan s administrative agencies can approve most contracts, agreements, etc. without the necessity of consulting with the central government. Jim Mustard, P.Eng. ( , jmustard@haywood.com) May 10,

6 Silt and Soil Anomalies, Luxi Project, China Source: Sparton Resources Overview of Guanlingpo Pit Area with Primary Mineralization Exposed Source: Sparton Resource Inc. Jim Mustard, P.Eng. ( , May 10,

7 Sierra Rosario, Mexico Sparton Resources Inc. Since there has never been any systematic exploration carried out, Sparton believes the Sierra Rosario Project represents an excellent early stage opportunity for a potentially significant precious-metal discovery and plans to conduct more detailed mapping followed by trenching. Sparton acquired an option to earn a 51% interest in the Sierra Rosario Project in northwestern Mexico (Sonora State) from International Northair Mines Ltd. (INM V). The claim block lies along the western flanks of the Sierra Madre Occidental geological province, which hosts numerous precious and base-metal occurrences. Sierra Rosario is an early stage exploration project with encouraging gold and silver assay results from several zones of mineralization located during a reconnaissance prospecting program. The area has no previous history of systematic exploration. International Northair geologists were initially drawn to the area by local miners who have historically produced placer gold from a number of drainages within the claims. Gold has also been produced from residual soils in the southern area, suggesting that underlying mineralized bedrock could be the source for the mineralization. The San Rafael Zone, one of the principal target areas, occurs in intensely altered rhyolite porphyry in the northern part of the claim block. Reconnaissance work identified surface mineralization of approximately 200 x 70 metres in size. Mineralization is epithermal in nature and occurs in association with strong silicification and multiple orientations of quartz veining. Twenty-three selective samples averaged 181 g/t silver and g/t gold. There are also anomalous copper, lead, and zinc values associated with the gold and silver assays. Other Projects Sparton has a 12.5% working interest in Significant Development Licence (SDL) #2286 offshore Nova Scotia and near Sable Island in the Chebucto gas field. Majority partners are Exxon Mobil (operator) and Shell Canada. Past exploration costs approximate $50 million. SDL #2286 is likely to be pooled with the adjoining SDL #2276A to optimize development, since the underlying structure that controls the gas pool is transgressive under both SDLs. Assuming the SDLs are combined (resulting in a 6% net interest to Sparton) and assuming probable recoverable gas of 20 billion cubic feet, an independent firm estimates Sparton s interest is valued at $20 million using a 10% discount rate. Sparton also has a diamond project in the Otish Mountains, Quebec, a nickel- PGM project west of Sudbury, a gold project in Newfoundland, and another gold project near Hemlo, Ontario. In general, Sparton has minimal budgets allocated to these projects, and partners will be sought for those that are available for option. We do not expect any of these other projects to realize significant value appreciation this year. Jim Mustard, P.Eng. ( , jmustard@haywood.com) May 10,

8 Recommendation Structure Sparton Resources Inc. SECTOR OUTPERFORM Haywood s top recommendation category. The analyst believes that the security will outperform its sector. Although all securities involve substantial risk, this recommendation is used if a company has tangible underlying assets to support its market valuation. SECTOR OUTPERFORM (SPECULATIVE) Investment for risk accounts only. The security has strong upside and downside potential. SECTOR PERFORM The analyst believes that the security will trade with tight correlation to its underlying sector or the target price (together with any anticipated distributions) is at or above the market price. SECTOR UNDERPERFORM Investors are advised to sell the security or hold alternative securities within the sector, or the analyst s target price is below the current price or targeted return supports investment in alternative sectors. RESEARCH COMMENT An analyst comment about an issuer event that does not include a recommendation. COVERAGE DROPPED Haywood Securities will no longer cover the issuer. Haywood will provide notice to clients whenever coverage of an issuer is discontinued. The termination of coverage will not occur unless clients have been provided advice relating to positions they may still hold, such as a recommendation to sell their securities. Disclaimers This report is prepared by Haywood Securities Inc. for use by Haywood Securities Inc. and Haywood (USA) Securities Inc. Estimates and projections contained herein, whether or not our own, are based on assumptions that we believe to be reasonable. The information presented, while obtained from sources we believe reliable, is checked but not guaranteed against errors or omissions. Haywood Securities Inc., its subsidiaries and their respective officers, directors and employees may hold positions in the securities mentioned and may purchase and/or sell them from time to time. Haywood Securities Inc. expects to receive or intends to seek compensation for investment banking services from the issuer mentioned in this report. This report is neither a solicitation for the purchase of securities nor an offer of securities. Our recommendations are intended only for clients of Haywood Securities Inc. or those of Haywood (USA) Securities Inc. and such clients are cautioned to consult the respective firm prior to purchasing or selling any security recommended. Haywood Securities Inc. is a Canadian broker-dealer, and a member of the Toronto Stock Exchange and the Canadian Venture Exchange. Haywood (USA) Securities Inc. is a wholly owned subsidiary of Haywood Securities Inc., registered with the U.S. Securities and Exchange Commission, and is a member of the National Association of Securities Dealers (NASD) and SIPC. (1) Individuals involved with the preparation of this report have a beneficial interest in the issuer s securities. (2) Haywood Securities has served as financial agent in a privateplacement special-warrant financing for the issuer during the preceding 24 months. (3) Haywood Securities is restricted on the issuer at the time of publication. (4) Haywood Securities has reviewed the company s lead projects and a portion of the expenses for this travel may have been reimbursed by the issuer. (5) Haywood Securities has provided services for remuneration to the issuer during the preceding 24 months. (6) Officers or directors of Haywood Securities hold in aggregate more that 1% of the issuer s outstanding securities. Jim Mustard, P.Eng. ( , jmustard@haywood.com) May 10,