BERAL, INC.  
Andrew G. Racz  
Director of Research  
300 East 54 Street, 26C  
New York, New York 10022  
Telephone: (212) 319-6949  
Fax: (212) 753-1944  

March 1, 2006

It is believed that in several years, the possibility exists to have reserves as much as three to four million ounces of gold.

Capitalization and Interest in the Company

There is no question that Sparton became a subject of highly speculative interest because of the increasing gold price. Gold increasing in size is priced from $240 an ounce in 2004 to $560 at the time of writing, below the high of $572 sixty days ago, has given rise to the possibility of mining and exploration to properties that were hitherto unmarketable.

It so happens that with the increase in the price of gold and the rapid increase in money supply all over the world, interest is focused on the Far East, particularly on China and India, where a large amount of people reach the level of middle class and where the countries acquire a great amount of liquidity expressed in dollars.

The two key surplus countries, Japan and China each hold about 800 billion dollar surpluses. The question of currency revaluation and diversification from the U.S. dollar is now a question of daily discussion at the level of chancellors, by the respective chairmen of the Secretary of Treasuries, as well as in trading rooms all over the world.

It is widely circulated that the world has now three billion more capitalists. These are the people that 25 or 30 years ago lived at the poverty level and money meant survival level of some piece of paper or stone to most of the citizens.

Recent publicity mentioned that Russia is increasing its monetary reserves from 4% to 8% in gold, that the Chinese are moving towards 10% ownership of gold of their total reserves, and the Japanese and the Indians are following suit. This being the case, if the price of gold is heading towards $600-700, the exploration prospects will grow and the value of resources will increase accordingly.

With gold in the ground valued not so long ago at $10 an ounce, and now $50 an ounce, this makes the value of the securities like Sparton or any other junior gold companies much more valuable. In case of Sparton, we are talking of the following numbers:

Considering the fact that Sparton at the time of writing has over $4 million in cash, we are looking at a company whose breakup value is substantially higher than the price that currently is on the marketplace.

The Two Major Holdings of Sparton    

The Nevada Property

Sparton is evaluating five strategic gold properties in Nevada. The company signed a due diligence option agreement with Golden Phoenix USA in Nevada to evaluate mineral load and Placer claim holdings in the Nevada properties. Under the option the company is granted an exclusive right for a 60-day option. The holdings to be acquired are comprised of 82 claims (60 load claims and 22 Placer claims) in five separate strategically located groups.

Partial exploration for various claim groups have been reviewed by the company management and documented.

Sparton views the potential acquisition of the Nevada properties as a major opportunity for the company. After the technical evaluation and acquisition, the Nevada properties would be put in separate corporation. The company believes that it has an opportunity to obtain financing between $5 to $10 million. This would put the total value of the Nevada properties, which is in the Carlin area, worth about $5 million. By obtaining an operating partner or sale or public offering, the value can increase substantially. Nevada has been one of the best areas in America to explore for oil. Apart from Placer and Barrick, recently Robert McEwen, the chairman of U.S. Gold, is exploring in many parts of the state. U.S. Gold recently raised $75 million and controls about a billion dollars worth of securities through the purchase of the chairman. Mr. McEwen clearly stated that his interest is in acquiring properties that cover a large part of Nevada. His drilling will begin within a month or so. Sparton believes that work by other eminent companies would increase the value of his holdings.

To increase drilling activities both in China and in Nevada, the company placed $1,460,000 worth of private placement in December, 2005, putting itself into a stronger position in the future.

The Valuation of Sparton prior to considering its holdings in China

In order to highlight the value of the common stock of Sparton, it is perhaps appropriate to summarize the values of the company, excluding any involvement in China, but adding the
C. $2.8 million that Sparton a few days ago obtained from the Zhaogin Gold Group, through the 41% sale of its Luxi gold project.

In adding up these numbers, we have arrived at a figure of $10.4 million. Dividing the $10.0 million by the 50 million shares, we arrive at a U.S. dollar valuation of 204. The current price of Sparton, both in U.S. and Canadian terms, is illustrated in the table below.

Sparton in China

In early February, the company began negotiations regarding the possible acquisition by an equity interest in the Sparton Luxi gold project. At this stage, we should take a look at Table 2 which illustrates the total picture of Sparton as it stands. Zhaogin is China's largest gold producer and a gold refiner. It has spent considerable time analyzing the Luxi project. One should keep in mind that ZJ is the largest gold mining company and gold refining company in China.

The Luxi project holds an 80% interest in various licenses comprising the Luxi gold project through the interests of Yunnan Sparton Minerals Co. The interest is expected to increase to 90% through diluting Yunnan Nuclear Ventures. Sparton has been conducting an ongoing exploration program in approximately 250,000 km. for 254 months. Various releases by the company have reported progress on the project. Sparton's total investment to date at Luxi amounted to $3.8 million Canadian and includes $1.4 million U.S. in capital assets, representing the drilling vehicles and various and sundry items.

Primary gold mineralization discovered to date that Luxi has many similarities to the gold deposits hoisted in a similar geological environment in Nevada, including those in the famous Carlin area.

The Zhaogin Coal Group

The Zhaogin is in northeastern China, currently the largest gold and gold refiner with production of 285,000 ounces of gold. This should be considered very small to North American standards when Gold Corp. is estimated to produce a million ounces a year and Barrick over three million ounces. Nevertheless, ZJ possesses mining operations both underground and surface installations. The company has 11,000 employees and maintains a research department for mineral processing development.

Mainland Gold Firm Eyes HK Listing

Shandong Zhaojin Mining Co., a leading gold producer in mainland China, is mulling an initial public offering in Hong Kong by the year end, raising HKD 780 million or so. Cazenove Asia ltd. is the IPO sponsor of Zhaojin Mining, whose state-run parent is one of the mainland's biggest goldmakers. The countdown to the company's listing dream has entered the final days, senior officials said. The Zhaoyuan, Shandong province-based company, in which Zhaojin Group holds a 55% stake, would have listed at the Hong Kong Stock Exchange in this February according to an earlier plan, after raising HKD 1.2 billion to HKD 1.6 billion. Neither it and its former advisor, JP Morgan Chase, explained on the delayed timetable and the cut of IPO proceeds. Cazenove Asia, a local brokerage, was not available for comment. The initial share sale of Zhaojin Mining, a spinoff from the parent in April 2004, is expected to warm market reaction. It has total assets of CNY 1 billion and net assets of CNY 800 million, and its headquarters city is home to one-eighth of the mainland gold reserve. A smaller player, Fujian Zijn Mining Industry, went public at the HKSE two years ago. The stock was oversubscribed 744 times in the retail tranche before surging 73% in the debut trading, as investors pinned great hope on China"s fledgling gold industry. Mainland citizens presently own merely 0.2 grams per capita, in stark contrast to 10 grams for the rest of Asia, said a World Gold Association report. Their total demands were rising 14% in the first quarter from the same period of 2004, read the report.

It should be mentioned that a smaller player, Fujin Zhin Mining, went public in Hong Kong two years ago. The stock was oversubscribed 744 times before surging 73% in initial trading. Mainland China presently owns merely .2 grams per capita in sharp contrast to 10 grams for the rest of Asia, according to the World Gold Association.

Nevertheless, total gold demand in China is rising 14% a year. Zhaogin Mining, the parent, is on the heels of three mainland blue chip stocks. Zhaogin Mining engages in gold exploration. Its chairman, Guo Guangchang, the 13th richest man in Forbes China Top 100. It also owns a buy-out firm and other industrial holdings.

The Sparton deal with the gold giants of China

On February 27, Sparton announced that it has made a historical agreement with China's largest integrated gold producer, which acquired 41% of Sparton's holdings in the Sparton Luxi project. Sparton received $2.8 million Canadian and the project was valued at 48 million RMB, an equivalent of $6.6 million Canadian. The project will be managed by Sparton.

It should be mentioned that Sparton achieved this agreement with a company that has thirteen operating gold mines and an extensive refining operation in precious metals. Over 15% of the refined gold traded in the Shanghai Gold Exchange is produced by ZJ.

The current size of the Luxi project is minuscule compared to the total potential. It is possible that in twelve months, 350,000 ounces of gold and two years later a million ounces of gold would be identified.

Conclusion

Sparton has a big potential in China. Its valuation can add near term 304 and long term $1.00 or $2.00 to the current market capitalization. In looking at the company itself, potential speculators must keep in mind that as the parent grows with China's gold reserve production, so is Sparton's potential. Furthermore, if ZJ goes public and the valuation of the company, let's say, reaches a billion dollars, it obviously provides more capital to the Luxi project.

It is a possibility that ZJ will use its stock to acquire half of Sparton's current project and then the current stock will benefit substantially.

A less dramatic but impressive potential is the Nevada project.

All told, Sparton is a company that has multifold speculative appeal. This appeal is being reinforced every day when the price of gold goes up by a dollar.

(Article 22 - posted March 1, 2006)

e-mail: mlikar@aol.com

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