Sirius Exploration PLC

Date: February 2007

S.P. Angel

Market price as on
22 December 2006
GBp 3.38 Investment Highlights
Listed on AIM Sirius Exploration PLC has entered into a joint venture with Phelps Dodge and
Market Capitalisation (In million) GBp 1.72 acquired the exploration rights for Osogovo and Kadiica properties in
Macedonia. The Company has completed an exploration program at both of
Share Outstanding (In million) 59.680
these sites. Recently Phelps Dodge has agreed to give Sirius Exploration 100%
52 week High GBp 6.25 of the Osogovo and Kadiica projects subject to getting the agreed 1% net
smelter royalty on any output.
52 week Low GBp 2.00
The Company has registered a new claim for a prospect at Kalin Kamen
Trading Volume (3 months trailing) 19,333
(along the eastern boundary of Osogovo), believed to be rich in copper
skarns. This project will be wholly owned by Sirius Exploration.
Sirius Exploration PLC.
Potential gold targets are identified in Sirius Explorations Kadiica claim. The
86 Fetter Lane
Company which had earlier identified a copper target in the region will be
London EC4A 1AD
developing a mine within 2 to 3 years in the target area.
United Kingdom
Tel: + 44 (1453) 511900 Sirius has signed an agreement with Rio Tinto for exclusive use of the latter's
Email: info@siriusexploration.com exploration database relating to Macedonia for a period of 12 months.
Web: www.siriusexploration.com The Company is headed by an outstanding management team having wide
ranging expertise.
S P Angel Corporate Finance acts as The management has significant experience in corporate finance which helps
Nominated Broker to Sirius Exploration the Company to carry out its expansion plans through joint ventures and
PLC.
acquisitions.
We rate the company a speculative BUY.

Company Overview
Sirius Exploration PLC (AIM: SXX) was listed on AIM on the 1st August 2005.
The Company has a joint venture with Phelps Dodge and has completed a drilling
program at two exploration sites in Macedonia, Kadiica and Osogovo. As per the
joint venture agreement, it has been concluded that neither site is likely to contain
a deposit large enough for Phelps Dodge to exploit. However in both cases it
appears that there are smaller potentially profitable resources which Sirius will be
free to exploit, with the provision that it pays Phelps Dodge a 1% net smelter
royalty on any output.
Sirius Exploration has also entered into an agreement with Rio Tinto to analyse
their Macedonian database to identify further exploration opportunities in the
region. Rio Tinto is a world leader in exploring, mining and processing the earth's
mineral resources. We expect the agreement with Rio Tinto to help Sirius
Exploration boost its development plans.
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Sirius Exploration PLC

Business Strategy
Sirius Exploration's most important activity to date has been identifying properties
with good mining potential and bringing them to a point of proven reserves where
they can be sold or taken up for exploitation under joint ventures.
However at the last AGM the Company substantially increased its authorized
share capital to 170m shares of which only 59m are issued. In the annual report
the Chairman statedwe also intend to utilize your boards corporate finance
skills in looking for acquisitions. These may be small one project companies
which cannot find funding in todays markets. Alternatively they could be
small to medium size companies on less attractive exchanges than AIM. In
our view this statement of intent certainly makes Sirius stand out from the herd in
addition to its exploration properties.
The Companys directors also intend to exploit their experience and contacts to
seek access to the considerable geological data accumulated by the major mining
companies.
The Company is actively pursuing a policy of property acquisitions, both for
exploration and joint venture. Though the Company's principal interest is in
exploration of base metals (copper, zinc, etc.), Sirius is also exploring other
opportunities to enhance its value.
Exhibit 1: Property Acquisition Strategy

Selling
Locating Acquiring Bringing properties
properties potential them to or entering
with good properties point of into joint
mineral proven venture
potential reserves with other
companies
for
exploitation

Source: Company Website

Description of Various Projects

In November 2004, Sirius Exploration PLC bought exploration rights for the
Osogovo and Kadiica properties in Macedonia from Phelps Dodge, the world's
second largest copper producer. Kadiica and Osogovo are situated in the Balkan
porphyry trend. These properties were seen as potential porphyry copper systems
as a result of the geological mapping and prospecting work undertaken by
Phelps Dodge in this area. Sirius has completed a drilling program at both
Osogovo and Kadiica.

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Sirius Exploration PLC

Exhibit 2: Mineral Properties in Macedonia

Exploration
Properties

Osogovo Property Kadiica Property Kalin Kamen

Low grade copper porphyry Existence of supergene

deposit New claim
blanket

Higher grade copper deposit

Potentially exploitable skarn in centre of blanket
mineralization

Identified new gold target

Source: Company Website

Geological Background
The Balkan Mountains in the northeast lie within a well known mineralized belt
(Banat-Srednegorie) which extends from Serbia through Macedonia and Bulgaria
into Turkish Thrace. Macedonia is rich in nonferrous metals. The country is an
important producer of metals, especially copper, ferroalloys, lead, silver and zinc.
There are existing mined deposits under active exploration in this area.
The map in Exhibit 3 shows the location of the two properties, Kadiica and
Osogovo, covered by Siriuss initial arrangement with Phelps Dodge Corporation.
Exhibit 3: Geological Setting of Macedonia

Source: Company Website

Osogovo Property
The Osogovo district, lying close to the border with Bulgaria, is known for its lead,
zinc and silver deposits at Sasa, Toranitza and Golema Reka. ..

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Sirius Exploration PLC

At Osogovo, there is indeed a large copper porphyry deposit, but it is probably

of too low grade (<<0.2%) copper and has little chance of containing a tonnage
suitable for Phelps Dodge. Phelps Dodge has hence issued formal notification to
transfer this claim to Sirius.
Survey works have identified the presence of some rich copper skarns on the
eastern boundary of Osogovo. Historic results reported the presence of 16m of
1.7% copper and 40 grams per tonne silver, including a 6.1m section of 3.5%
copper. The area is in the limestone bed and it has rich copper-silver skarn
mineralisation prospects.
In order to ensure that the identified area will fall within the Companys claim
area, the management filed a new claim called Kalin Kamen. The filing will
extend the existing Osogovo claim to the east and north. Kalin Kamen will be
wholly owned by Sirius Exploration once the claim is processed.
Going by the result of the data generated during last seasons exploration
program on the Osogovo prospect, Sirius believes that the ground covered by
Kalin Kamen has the prospect for copper mineralization.

Kadiica Property
Kadiica has been historically known for iron mineralisation, particularly in large,
low grade surface deposits called ferricretes. Earlier the area was explored for
iron but Phelps Dodge recognized that there were indicators of a porphyry
mineralized system. The leached cap of the porphyry mineralisation was
identified at the top of the mountain. The exploration work undertaken
established not only the existence of a supergene blanket but also of a higher
grade deposit within the core of the blanket. Preliminary leach tests of core from
the blanket material shows that the mineralisation is leachable with a minimum
copper recovery of 65%.
A cluster of seven rock chip samples collected by Rio Tinto from within a 500m x
300m area that falls within the Kadiica claim revealed 0.8 to 5.4 grams per
tonne gold with an average of 1.8 grams per tonne gold.
In November 2006, a new gold target was identified by Sirius Exploration within
its Kadiica Copper project area. The Company expects to develop a small mine
at Kadiica within the next two to three years.

Agreement with Rio Tinto

In March 2006, Sirius Exploration PLC signed an agreement with Rio Tinto for the
exclusive use of the latter's exploration database relating to Macedonia for a
period of 12 months. As per Phelps Dodge, the properties referred to in their
database do not have adequate potential to satisfy the requirements of a large
producer. However, Sirius expects that as a small producer, it could find a
suitable target from the same database. Also the agreement will help Sirius to
save cost and time in tracing exploration targets in Macedonia.

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Sirius Exploration PLC

Management
Sirius Exploration PLC has an excellent management team with wide ranging
expertise.

Mr. Richard Poulden, Executive Chairman

Richard Poulden, is a lawyer with a background in corporate finance and
experience in the development of early-stage businesses. He has acquired
experience in the natural resources industry through his involvement in oil and gas
projects in the Americas, the Middle East and Central Asia. He served as a
member of the UK Leadership Team of Electronic Data Systems and worked on
the merger of EDS global energy practice. He has an MA from Oxford and an
MBA from the London Business School.

Dr. Nicholas Badham, Managing Director

Dr. Nicholas Badham, BA (Hons. Oxford), PhD is a Fellow of the Geological
Society, a chartered European Geologist and a Fellow of the Society of Economic
Geologists. A former Chief Geologist at Azco Mining, he spent seven years with
RTZ, rising to the position of the Chief Geologist in charge of worldwide regional
area selection and exploration research. He has also worked in exploration
research for BP Minerals International and Selection Trust. Since 1996, he has run
his own exploration consulting business and had amongst his consulting clients
major companies such as Rio Tinto PLC, BHP World Minerals, Noranda Inc, Exxon
Minerals S.A and Phelps Dodge.

Jonathan Harrison, Finance Director

Mr. Harrison is a chartered accountant with experience in quoted and unquoted
companies. He held senior finance positions with Intercontinental Hotels, Grand
Metropolitan Hotels, Letheby & Christopher and the Boddington Group. In
September 1999 he joined Topnotch Health Clubs PLC and in March 2000
oversaw the Companys listing on AIM.

Professor Michael Mainelli, Non-Executive Director

Dr. Mainelli is Chairman of Z/Yen, the UKs leading risk/reward group, where he
has worked since 1994 on strategy, technology, and finance and business
development. Michael started his career as a research scientist and later became
a partner in a leading accountancy firm. He has led several privatizations. He has
experience in the natural resources industry through various projects of a Swiss
firm where he initiated and ran the firms multi-million dollar oil industry
consortium (Shell, BP, Chevron and Elf Aquitaine were primary partners plus 10
minor partners). He was Chief Scientist of the DTI Foresight Challenge award-
winning Financial Laboratory and served on the board of Europes largest R&D
organization the 12,000 strong Defense Evaluation and Research Agency of the
UKs Ministry of Defense.

Derek Stonley, Non-Executive Director

Mr. Stonley graduated from Cambridge with a BA in Natural Sciences and has
over 40 years experience in the mining sector. He held senior positions at BP
Minerals International Limited in exploration in Europe and North America for

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Sirius Exploration PLC

stratiform, copper and lead-zinc, diamonds, gold and copper-gold porphyries. He

worked as a Senior Geologist and ultimately as a Consulting Geologist at Rio
Tinto Mining and Exploration Limited and was involved in the exploration and
assessment of projects in Africa, Russia and Europe for iron ore, diamonds, gold
and bauxite. Since 2002 he has been running his independent consultancy, Derek
Stonley Consulting, with particular focus on Africa and Europe.

Industry Analysis
Copper is an important component of modern industry. Copper resists rust and is
supple, pliable and an excellent conductor of heat and electricity. As an alloy
with other metals such as zinc (to form brass), aluminum or tin (to form bronzes), or
nickel, it acquires new characteristics suitable for use in highly specialized
applications. The most important uses of copper are found in sectors like electrical
wiring, construction, automotive, electric utilities, air conditioning and commercial
refrigeration and telecommunications.

World Copper Market

Production
Chile is the largest producer of copper in the world. The country possesses about
30% of the world's known copper resources and accounts for over 35% of global
copper production (Source: MBendi Information Services). The total copper
production in Chile stood at 4.19 Mt in 2003 and 5.47 Mt in 2004. The state-
owned Codelco is one of largest copper producers in Chile, contributing about
74% of the country's copper production in 2003 (as compared to 33% in 2002).
Exhibit 4 highlights the world copper mine production since 1995.

Exhibit 4: World Copper Mine Production

16

14
Million Metric Tonnes

12

10

6
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: Dailyfutures.com

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Sirius Exploration PLC

Demand
Demand for base metals (copper, lead, zinc, and nickel) are being driven
particularly by the economic growth in countries like Brazil, Russia, India and
China. However, copper has always enjoyed the pride of place among all the
base metals because of its specific characteristics that make it useful for a wide
range of domestic, industrial and high technology applications.

Consumption
Chinas rapid industrialization drives the growth in copper consumption. Between
1997 and 2003, global refined copper consumption increased at a compound
annual growth rate of 3.3%. Excluding China, the growth rate stood at a mere
1.3%. Development of Chinas infrastructure, including electricity generation and
transmission capacity, electrified railways and telephone networks and growth in
output of manufactured goods is creating massive new demand for copper. The
neighboring countries of China, most notably Taiwan, South Korea and Japan, are
also major consumers of copper. These nations use copper to produce
sophisticated manufactured goods that are exported to China. Exhibit 5 highlights
the world copper consumption since 2003.
Exhibit 5: Global Copper Consumption

19.0

18.0
Million Metric Tonnes

17.0

16.0

15.0

14.0
2003 2004 2005 2006

Source: ICSG
China surpassed the United States as the largest copper consuming country in
2002. China still has huge potential for sustaining the ongoing growth momentum
given its growth outlook.
To meet the huge domestic demand, China depends to a large extent on copper
imports. However, the countrys reliance on copper imports is expected to drop as
domestic production has risen by 12% this year. Also the next important copper
consumption market, the U.S. housing market, is slowing after the Federal Reserve
raised borrowing costs for two years through June. The Federal Reserve has lifted
the target rate for overnight loans between banks to 5.25%.
The above factors resulted in a significant impact on copper demand in the first
eight months of 2006. This resulted in world copper production exceeding
consumption by 84,000 tons.

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Sirius Exploration PLC

Industry experts believe that with the current credit tightening being lifted, a
major restocking cycle in copper could appear. The size of this restocking could be
between 200,000 to 400,000 tonnes and may add 2% to global demand in
2007.
Also infrastructure remains the major sector for longer term demand for copper.
Chinas new rail and underground spending programme in the next five years
could be bigger than the combined spending of the rest of the world in similar
activities over the last 20 years.
India, which is another strongly emerging economy, has announced a $350 billion
infrastructure spending programme for the next 10 years. The countrys demand
for copper is expected to increase from the current 4% of global consumption to
10% by 2010.
Currently, Chile produces over one third of all copper mined annually, with its two
best known mines, Escondida and Chuquicamata together producing nearly 10%
of all copper mined globally. The region is however estimated to reach its peak
production in 2008. Although the country has plans to enhance copper production,
new copper discoveries are still required to meet the emerging demand.

Mineral Industry of Macedonia

The mineral industry of The Former Yugoslav Republic of Macedonia (Macedonia)
was represented by the mining and processing of metals (mainly nonferrous), a
variety of industrial minerals and mineral fuels, which were limited to the
production of lignite. Crude petroleum was imported and processed at the
countrys sole domestic refinery.
In 2004, Macedonia reported a 5.3% growth in the countrys gross domestic
product, compared to the corresponding figure reported in 2003. Industrial
production, however, declined by about 2%. The gross volume of output of the
mining and quarrying sector showed a decline of about 5% while the mine output
of industrial minerals increased by about 3.6%. Mine production of most metals
(cadmium, copper, lead, and zinc) was well below their level of output in 2003. In
terms of value, the production of coal, lignite and peat declined by about 1%.
Despite a decline in mine production of nonferrous metals in 2004, it is expected
that the production of copper, lead-zinc and associated metals will continue and
increase in volume. Foreign direct investment (FDI) in the countrys mining and
quarrying sector in 2004 amounted to almost $5.8 million, which contrasts with a
total FDI inflow in 2003 of $26,000.
Macedonia is slowly recovering from extreme political and social tension, which
prevailed upon the region in the late 1990s and early 2000s and disrupted long
established regional markets. The production of all minerals is expected to
recover slowly during the next several years.

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Sirius Exploration PLC

Price Outlook
Copper prices which had shot up to the level of US$3,000/tonne in the 1990s,
remained at a relatively stable range between US$1,400/tonne and
US$2,000/tonne during the five-year period ended 2003. In late 2003 and
early 2004, the prices began to move upwards again. Prices continued to climb
higher during 2004 and 2005, reaching US $4,500/tonne at the end of 2005.
This high price level did not seem sustainable at that time. During 1H 2006, the
prices shot upwards further. The prices reached the peak at over US$8,700/tonne
(LME 3 month) in May 2006. This was more than six times as high as the price in
November 2001 (US$1,400/tonne).
The price of copper has been driven higher by continuing growth in demand from
China, limited stocks and lower mining activity around the globe leading to supply
problems. The price volatility has also resulted because of investors seeking short-
term gains. Exhibit 6 highlights the movement in copper spot prices since 1997.
Exhibit 6: Copper Spot Prices (US$/Tonne)

5.0

4.0

3.0
Thousands

2.0

1.0

0.0
1/31/1997

11/28/1997

9/30/1998

7/30/1999

5/31/2000

3/30/2001

1/31/2002

11/29/2002

9/30/2003

7/30/2004

5/31/2005

Source: London Metal Exchange 3/31/2006

Continued demand for copper and the long gestation period to develop new
resources for production are expected to sustain the historically high prices for at
least the next few years.

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Sirius Exploration PLC

Risk factors
Exploration and mining
Exploration is a high risk business, and very few properties that are explored
ultimately turn into producing mines. Although the initial findings of Sirius
Exploration are promising, the mineral deposits being assessed by the Company
may not contain economically recoverable volumes of precious or base metals. In
the event that the mineral deposits are economically recoverable, there may still
be delays in the construction and commissioning of mining projects. Other technical
difficulties may also delay production delay production, further increasing the
capital requirement and overall expenditure.

Management
Any good company is dependent upon its key management and Sirius is no
exception. Change in the management structure may impact Sirius growth
prospects.

Increasing Copper Prices

Copper prices are hovering at such a high level that some users are switching to
cheaper alternatives such as plastic and aluminum. Industry experts believe that
about 100,000 tons of copper demand will be lost this year due to substitution.
Nonetheless many believe that we are in an economic super-cycle1 which will
provide continuing commodities demand while the industrialization and
infrastructure building of the BRIC economies continues.

No History of Revenue
At present Sirius Exploration PLC has reported no revenues as it is a development
stage company. For the 12-month period ended March 31, 2006, net operating
loss amounted to GBP 321,609. As is the case with any company engaged in
exploration, Sirius Exploration PLC requires cash for investment in exploration
activities.

1
See notes by Alan Heap of Saloman Smith Barney

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Sirius Exploration PLC

Future Outlook
Sirius Exploration PLC intends to continue to focus on exploration activities
primarily for base metal deposits, particularly copper, in the initial stages, as the
market dynamics for the metal remain compelling.
We are also particularly attracted by the possibility of an acquisition program as
this could build value quickly for shareholders. Undoubtedly the management
team have the capability of managing a much larger enterprise and both Poulden
and Mainelli have been involved in industry consolidations in the past.
Although Sirius expects to expand its exploration activities over time, its current
focus is on the prospects identified in Macedonia, because the area in which the
Company's properties are located is already well known for containing
substantial mineral resources. Also, Macedonia has a relatively stable economy
and is seeking European Union membership, which should encourage inward
investment by foreign mining companies. Sirius Exploration is an early starter in
this region.
The Company has already concluded corporate deals with major market players
like Phelps Dodge and Rio Tinto. These will boost the development plans of the
Company.
As well as such important corporate connections, Sirius can also boast of a highly
qualified and experienced management team. In fact, its corporate collaborations
and experienced management team are the key attractions of Sirius Exploration.
Also, the value of its tie ups and its gold and copper exploration acreage in the
Federal Republic of Macedonia will be an added advantage for the Company.
We expect Sirius Exploration to continue with its policy of forging joint ventures
and agreements with major mining companies.
In view of the growing demand for copper and increasing copper prices, and
in view of the possibility of an acquisition program, we expect that Sirius will
achieve its growth targets.

We rate this company as a speculative Buy.

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Sirius Exploration PLC

Disclaimer:
Research disclaimer non-impartial research

This report has been issued and approved for distribution within the United Kingdom by S
P Angel & Co Limited (S P Angel). S P Angel is authorised and regulated by the Financial
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This report should not be considered to be impartial investment research as S P Angel

provides corporate finance and broking services to the company that is covered within this
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information or opinions expressed herein, or research or analysis on which they are based,
prior to the material being published.

The information and opinions expressed in this report have been compiled in good faith
from a number of sources believed to be reliable, but neither S P Angel, nor any of its
employees, accepts liability for any loss arising from the use hereof or makes any
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Investments referred to in this document may not be suitable for all investors and it is
recommended that you consult your professional adviser before making any investment
decision in relation to this report. In particular this report is not making any
recommendations directed to execution only clients.

This report has been compiled and issued under the supervision of S P Angel & Co Limited
Corporate Finance Department. Contact: John Millers 020-7422-4396

S.P. Angel