Lodestar Minerals : Mac Equity Partners LSR Research Note

Mac Equity Partners Equity Capital Markets September 2017 LODESTAR MINERALS LIMITED | Research Note

IN SEARCH OF THE NEXT PLUTONIC GOLD MINE

MODEST MARKET CAP | Market cap of just $4.6m provides substantial opportunity for investors in the event of successful drill results. NEAR TERM DRILLING | Oversubscribed $500,000 placement by Mac Equity to expedite drilling at Yowereena Joint Venture tenements after completion of planned near term drilling program at Ned's Creek. JV WITH VANGO MINING LTD (ASX:VAN) | Earning 80% interest through very low spend of $357,000. Walk-up targets, historical intercepts and exposure to what is believed to be a larger gold system immediately north of two Ned's Creek prospects. HIGH GRADE GOLD INTERCEPTS AT NED'S CREEK | High grade supergene hits in drilling over 5kms, 21m at 3.0g/t Au from 40m (LNR656) and 10m at 5.6g/t Au from 55m (LNR533) at Contessa, 16m at 2.1g/t Au from surface (high grade intersection of 4m at 6.3g/t Au from 12m) (LNR924) at Brumby. EXPLORATION IN A GOLD PRODUCING REGION | Gold intercepts at multiple Ned's Creek prospects are promising amongst larger geological setting and nearby gold producing mines. Plutonic gold mine (+5moz) within 35kms of Ned's Creek. GOLD TAILWINDS | Gold has reached yearly highs on the back of investors hedging downside portfolio risk in response to rising tensions on the Korean Peninsula.

COMPANY OVERVIEW

Lodestar Minerals Limited ("Lodestar") is a West Australian exploration company focused on gold prospects in the Murchison gold field region of Western Australia. Lodestar holds 13 tenements over three main project areas. The Company's primary near term focus is on the Ned's Creek Project where multiple aircore drill campaigns have returned consistent gold intercepts across the Project's acreage. Ned's Creek is located 150kms north east of Meekatharra in a known gold producing region. Superior Gold Inc's (TSX-V:SGI) Plutonic gold mine (5moz historical production) is located 35kms from Ned's Creek's western boundary. Vango Minerals Limited's (ASX:VAN) Plutonic Dome Gold Project is also just a stones throw from Ned's Creek and has intersected very high grade gold at multiple prospects across their acreage.

The Ned's Creek Project encompasses six prospects, with the immediate focus being to further define the mineralisation at and directly to the north-east of Brumby and west of Contessa (see commentary on JV in this note). The additional four prospects, including West Pinny, Marymia, Gidgee Flat and Central Park have all returned gold intercepts at varying

grades and are contained along the same granite belt as Brumby and Contessa. The near term focus for Brumby and Contessa is to commence diamond drilling by the end of September 2017.

CAPITAL STRUCTURE
GICS Industry Group	Materials
Shares on Issue	518.7m
Share Price	$0.009
52 week low/high	$0.008/ $0.015
Cash	$1.26m
Debt	$1.17m Con Note
Market Capitalisation (undiluted)	$4.6m
Listed Options (LSROA)	~89.7m
Unlisted Options	~38.8m

MANAGEMENT
Ross Taylor	Non-exec Chairman
William Clayton	Managing Director
David McArthur	Exec Director

MAJOR SHAREHOLDERS
Ross Taylor	16.4%
BNP Paribas Nominees Pty Ltd	3.70%
Merrill Lynch (Australia) Nominees Pty Limited	3.02%
David McArthur	2.6%
Top 20	36.09%

MAC EQ UITY PARTN ERS

Matthew Sheldrick | + 61 417923155 [e-mail]

Auth or

Josh Chadwick | [phone] [e-mail]

PRIMARY PROJECT OVERVIEW - NED'S CREEK

Acquired in 2010, the 100% owned Ned's Creek Project encompasses six prospects and is located within a broader geological setting that has been proven to hold substantial gold mineralisation. Lodestar's primary prospects are Brumby and Contessa.

GEOLOGY

Historical drilling at Brumby and Contessa has resulted in the generation of a new geological model. The model indicates the potential for two forms of gold mineralisation within Ned's Creek: higher-grade, diorite and shear-hosted mineralisation associated with the Contessa granite contact and lower-grade, syenite-hosted mineralisation within the granite structure (see Figure 1).

MULTI HIGH GRADE GOLD INTERCEPTS

Both historic and recent Lodestar drilling have intercepted gold at varying grades and depths across Ned's Creek. 55

Figure 1: Brumby and Contessa prospects

EXPLORATION IN GOLD PRODUCING REGION

In September 2016, Northern Star Resources (ASX:NST) announced the sale of their Plutonic gold mine to Superior

3

holes in the most recent 88 hole 5000m campaign returned

Gold Inc.

Plutonic is located 35kms to the west of Ned's

gold results above 0.1g/t.1 Notable high grade intercepts at Contessa include 4m at 4.3g/t gold from 48m and 8m at 3.35g/t from 48m.2

NEAR TERM DRILLING CAMPAIGN

Lodestar's diamond drill program, commencing in late September, intends to test bedrock primary gold targets at Brumby and Contessa and follow up on a previous aircore drill program where multiple aircore holes intersected gold at end of hole.

Diamond drilling at Brumby is targeting the area beneath gold intersections in aircore drill holes LNR824 and LNR912 which reported gold intersections at Lodestar's previous aircore drill campaign.

Diamond drilling at Contessa will test mineralisation below two previous aircore drill holes (LNR806 and LNR906) which intersected gold mineralisation in a quartz-sulphide vein system at end of hole of 3m at 1.0g/t Au and 4m at 4.45g/t Au, respectively. Diamond drilling has the ability to drill deeper into the bedrock, where it is thought the supergene gold (identified in previous drilling) is originating from.

Successful drill results will go a long way to confirming host gold mineralisation within the bedrock and will be used to direct the next phase of infill drilling at Contessa with the potential to open up large, untested areas for further drilling.

Total cost of the diamond drill program is expected to be

$60,000 with the WA Government contributing $22,500 through Exploration Incentive Scheme co-funding.

Creek and to date has produced over 5 million ounces of

gold.4

Vango Mining Ltd (ASX:VAN) (Lodestar's JV partner, see below) recently acquired a 100% interest in the Plutonic Dome Gold Project from Dampier Gold (ASX:DAU). The project contains a gold resource of ~800,000 ounces. Vango's JV with DAU allows DAU to earn up to 50% interest in the K2 Deposit by funding up to $3m to bring the deposit into production. The K2 Deposit is next door to Lodestar's Marymia Prospect and 20kms from Brumby and Contessa. Other close by VAN prospects have recorded 11m @ 20.2g/t Au from 161m and 5.75m @ 4.7g/t Au from 192.25m.5

Although not producing, Riedel Resources Limited's (ASX:RIE) Marymia Project further illustrates the potential of the gold region. With their JV partner Australian Mines Limited (ASX:AUZ) a reverse circulation (RC) drill hole returned 10 metres @ 8.79 g/t gold from 130 metres downhole in 2015.6 Again, the Project is located immediately east of Lodestar's tenements. Of note is the exploration approach being taken by AUZ (80% earn in interest on $3m spend) to target gold mineralisation. As commented in RIE's Quarterly Report to 30 June 2017, AUZ are utilising shallow aircore drilling to test continuity of supergene gold above bedrock-hosted gold mineralisation. Results will then be used to guide further RC and diamond drilling.

The approach mirrors what is being carried out at Brumby and Contessa (and to be carried out at the JV ground) and provides confidence that supergene gold discovered through aircore drilling at Ned's Creek has come from and is hosted within a larger bedrock gold system.

YOWEREENA FARM IN PROJECT

On 14 March 2017 Lodestar announced a farm-in agreement with ASX listed Vango Mining Limited (ASX:VAN).7 Remarkably, the farm-in agreement allows Lodestar to earn an 80% interest in the tenement by meeting a very low minimum spend of

$357,000 in the 12 months to 14th March 2018.

The JV covers four mining leases located immediately north of Lodestar's Brumby and Contessa gold prospects (See figure 2), with walk up drill targets and historic high grade gold intersections at Boundary Fence, including 13m at 10.52g/t Au from 45m.8

Upside Exposure to Larger Gold System

The primary reason for securing the JV is that the area to the north of Lodestar's Contessa and Brumby prospects is the northern contact of the Contessa granite formation, which has not been tested for intrusion related gold mineralisation of the like discovered at Brumby and Contessa.

Figure 2: Lodestar and Vango's Joint Venture Tenement (Blue)

The JV therefore gives Lodestar the ability to realise the full potential of the mineralisation associated with Brumby and Contessa. Walk up targets are ready to further define gold mineralisation within the Yowereena JV at the Boundary Fence prospect. Since announcing the Yowereena farm-in in March, Lodestar has identified two priority drill targets. Drilling is intended to commence as soon as possible after the current diamond drilling is completed and will follow up several high- grade historic gold intercepts achieved by Marymia Exploration in the early 1990s. Drilling on the JV ground will mark a significant step towards unlocking the upside gold potential of the Ned's Creek project. Drilling may also provide important geological information to increase the chances of locating a significant bedrock gold source to underpin a more effective targeting of the larger area with step-out drilling. Since Lodestar's VAN JV announcement, the market is yet to factor in its significance. Successful diamond drilling at Brumby and Contessa could be the catalyst for the market to begin to appreciate the importance and upside exposure that the JV provides Lodestar within the Company's overall exploration plan for Ned's Creek.

INDICATIVE DRILLING TIMELINE TO DECEMBER 2017

Leading into the Christmas period, Lodestar has three drill programs they hope to carry out within Ned's Creek and the JV acreage. With the benefit of a strong gold price and the market moving into a Christmas rally, the timing of the drill programs is fortunate and should provide consistent news flow as the Company keeps the market informed of their operations and drill results.

*The timeline is indicative only and is subject to change depending on factors that include but are not limited to drill rig availability, weather,

Government and other approvals and previous drill results. 3

Figure 3: Locations of four of Lodestar's six gold prospects at the Ned's Creek Pro- ject.

CORPORATE ANALYSIS

Very low market cap

At the time of this note, Lodestar has a market capitalisation of just ~$4.6m, which represents a very reasonable valuation for the stage of mineral exploration, the existing gold intercepts, upside exposure through the JV and the prospects of near term drilling.

Lodestar is currently trading at $0.009 with a strong floor at $0.008. LSR hasn't traded below $0.008 in the last 12 months.

Financial Backing from Management

Lodestar's Chairman Ross Taylor has provided near term funding certainty with a convertible note loan to the Company to the value of $1.17m. The note is unsecured, accrues 10% interest with maturity of 24 months, and is convertible at $0.01 per share. The convertible note investment by the Company's Chairman, who already holds 16.4% of the Company, demonstrates an enormous amount of confidence in the Company and its future prospects. If conversion of this debt into equity occurred at the current time, it would be at a premium to the current share price and could send a strong signal to the market.

Low cash burn

The Company and Board strive to minimise overhead/ administration costs to maximise exploration expenditure and shareholder value. The Board of Directors also have substantial shareholdings in the Company, ensuring they are well incentivised and aligned with shareholder interests.

GOLD TAILWINDS

The USD Gold price recently hit a 52 week high of US$1,357.58, largely on the back on investors seeking safe haven investments as the threat of war on the Korean Peninsula was etched into the 24 hour news cycle.

Since the start of 2017, investors have seen value in the gold sector. Of the larger gold producing ASX companies, Northern Star Resources has increased by 51.41% and Newcrest Mining by 16.7% since the beginning of January.

Figure 4: USD Gold Price (2017-present)

If investors continue to favour the gold sector on the back of historically high gold prices for 2017, we may see capital flow from large gold producers and into junior gold explorers as investors' appetite for risk increases and larger gold producers reach their intrinsic value or begin to become overpriced. As the market moves into a Christmas rally investors could see uplift in many of the under valued junior exploration companies who are carrying out drill campaigns towards the end of the year. 4