Desert Star Announces $20 Million Convertible Term Debt Loan with Wheaton Precious Metals; Increases Total Financing Package to C$100 Million
Desert Star Resources Ltd. |717 – 1030 West Georgia Street | Vancouver, British Columbia | Canada | V6E 2Y3
Telephone: (604) 628-5623 | www.desertstar.ca
Desert Star Announces $20 Million Convertible Term Debt Loan with Wheaton Precious
Metals; Increases Total Financing Package to C$100 Million
Vancouver, B.C., October 31, 2017. Desert Star Resources Ltd. (TSX -V: DSR) (“Desert Star” or the
“Company”) is pleased to announce it has entered into a non -binding Term Sheet for a C$20 million
Subordinated Secured Convertible Term Debt Loan (the “Term Debt Loan”) with Wheaton Precious Metals
Corp. (TSX:WPM) (NYSE:WPM) (“Wheaton”) which, in addition to the proposed Early Deposit Precious
Metals Purchase Agreement (“PMPA”) announced on August 10, 2017, results in a total financing package
exceeding C$100 million. The expanded financing package with Wheaton provides capital towards the
acquisition, exploration and development of the high grad e Kutcho copper -zinc-silver-gold project
(“Kutcho Project”) as follows:
1. Up to C$20 million convertible term debt loan and participation of up to C$4 million in an equity
financing to fund the acquisition (the “Acquisition”) of the Kutcho Project from Capstone Mining
Corp. (“Capstone”) previously announced on June 15, 2017.
2. US$7 million advanced on an early deposit basis under the PMPA to fund completion of the
feasibility study and permitting-related expenditures on the Kutcho Project.
3. US$58 million advanced as part of the PMPA towards funding the construction of the Kutcho
Project.
“The increased proposed financing package with Wheaton represents another significant milestone towards
the completion of the Acquisition and development of the high grade Kutcho Project” stated Vince Sorace,
President and CEO of Desert Star. “Wheaton will be a strong technical and financial partner for Desert Star
as we move aggressively forward in expanding the Kutcho Project and towards a production decision.”
“The Kutcho Project is ideally suited for Wheaton’s early deposit stream structure as a source of financing,”
said Randy Smallwood, President and Chief Executive Officer of Wheaton Precious Metals. “While Desert
Star’s recent prefeasibility study shows that this project already has very good economics, we also believe
there is excellent potential for expansion and exploration.”
Macquarie Capital Markets Canada Ltd. is acting as lead agent with regard to Kutcho Project Acquisition
financing.
Subordinated Secured Convertible Term Debt Loan
Principal Amount Up to C$20,000,000 fully backstopped by Wheaton – C$10,000,000 of the Term
Debt Loan is available for syndication.
Desert Star Resources
Interest Rate 10.00% per annum.
Interest Payments Payments will be made in cash semi-annually with the first three payments being
deferred until 24 months after the Effective Date:
One-half of the deferred payments will be payable in cash; and
One-half of the deferred payments may be either paid in cash or
added to the Principal Amount at Desert Star’s option.
Convertibility Lender may convert all or any portion of the Principal Amount into common
shares of Desert Star on any date prior to and including the maturity date.
Conversion Price 25% to 30% premium to the applicable price at which Desert Star completes any
concurrent equity financing.
Term 84 months from the Effective Date.
Early Redemption Repayment may be made in full on or after 24 months from the Effective Date
with the payment of applicable pre-payment cash penalties:
25% of the outstanding amount if pre-paid on or after 24 months until 36
months;
20% of the outstanding amount if pre-paid on or after 36 months until 60
months; and
15% of the outstanding amount if pre -paid on or after 60 months until
maturity.
Security Interest All assets of Desert Star, including 100% of Desert Star’s interest in the Kutcho
Project, subject to being subordinated only to Wheaton’s precious metals stream.
Closing of the Term Debt Loan is expected to occur in conjunction with the closing of the Kutcho Project
Acquisition and is subject to TSX Venture Exchange approval , additional equity of $10 million and other
specified conditions.
Early Deposit Precious Metals Purchase Agreement
Upfront Payment Wheaton will make upfront cash payments totaling US$65 million.
Stream Wheaton will be entitled to purchase 100% of the silver and gold production from
the Kutcho Project until 5.6 million ounces of silver and 51,000 ounces of gold
have been delivered, at which point the stream will decrease to 66.67% of the
silver and gold production for the life of the mine.
Desert Star Resources
Production
Payment
Wheaton will make an ongoing cash payment equal to 20% of the applicable spot
price of silver and gold for each ounce delivered under the agreement.
Early Deposit US$7 million of the US$65 million will be paid by Wheaton on an early deposit
basis to fund Feasibility Study expenditures
Expansion Deposit Wheaton would make an additional payment of up to US$20 million should the
Kutcho Project processing throughput be inc reased to 4,500 tpd or more within
5 years of attaining commercial production.
Wheaton Option Wheaton will have the option to terminate the PMPA following delivery of a
Feasibility Study or after two years if the Feasibility Documentation has not been
delivered to Wheaton by such date. Should Wheaton so withdraw, it would forfeit
US$1.0 million and be eligible to receive only 9.23% of the payable gold and
silver from Kutcho Project or, in certain circumstances, be paid in cash over time.
Security &
Guarantees
In order to secure the Company’s obligations under the PMPA, the Company will
grant Wheaton a first ranking security over its assets.
Desert Star’s financial advisor with regard to the Term Debt Loan and the PMPA is Macquarie Capital
Markets Canada Ltd.
Desert Star Acquisition of Kutcho
Desert Star signed a definitive share purchase agreement dated June 15, 2017 (the “SPA”) providing for
the Acquisition of 100% of Kutcho Copper Corp., which holds the Kutcho Project, from Capstone., subject
to certain conditions precedent, as disclosed in the Company’s news release on June 15, 2017. Completion
of the Acquisition remains subject to TSX Venture Exchange approval. Highlights of the Acquisition
include:
Desert Star to acquire 100% interest in Capstone’s wholly-owned subsidiary Kutcho Copper Corp.
which holds 100% interest in the Kutcho Project.
Desert Star to pay Capstone C$28.8 million cash upon closing.
Capstone to become 9.9% shareholder of Desert Star at the completion of the Acquisition.
Fort Capital is Desert Star’s financial advisor in connection with the Acquisition.
Project Overview
The Kutcho Project is located in northern British Columbia, approximately 100 kilometres east of
Dease Lake and Highway 37, and consists of one mining lease and 46 mineral exploration claims
encompassing 17,060 Hectares.
Desert Star Resources
Mineralization at the Kutcho Project comprises three “Kuroko -type” volcanic massive sulfide
(“VMS”) deposits aligned in a westerly plunging linear trend. The largest deposit, Main, comes to
surface at the east end of the trend, with Sumac followed by Esso down plunge to the west.
Over C$50 million of historical project expenditures that provided the basis for the 2017 PFS
(defined below). The 2017 PFS includes parameter changes consistent with current market
conditions, such as capital expenditures, operating costs, metal prices and foreign exchange rate.
2017 Prefeasibility Study Highlights
As previously disclosed in the Company’s July 31, 2017 News Release, the Company has filed, an
independent technical report prepared in accordance with National Instrument 43 -101 in respect of the
Kutcho Project titled “Prefeasibility Study Technical Report on the Kutcho Project, British Columbia”
dated effective June 15, 2017, (the “2017 PFS” or the “Technical Report”). Key highlights from the 2017
PFS are as follows:
Pre-tax NPV (8% discount rate) of C$423 million and IRR of 34.6%(1).
After-tax NPV (8% discount rate) of C$265 million and IRR of 27.6%(1).
Life of mine (“LOM”) net pre-tax cash flow C$801 million and LOM free cash flow (after-tax) of
C$533 million.
12-year mine life with 2,500 tonne per day production rate for a total life -of-mine payable
production of 378 million pounds of copper and 473 million pounds of zinc, plus by-product gold
and silver.
Average annual production of 33 million pounds of copper and 46 million pounds of zinc, plus by-
product gold and silver.
Initial capital costs, including 15% contingency, for a 100% owner-operated mine are estimated at
C$220.7 million excluding sunk capital to the start of construction.
Operating costs of C$73.72/tonne of material milled.
Unit operating costs of US$1.60/lb copper excluding by -products, and US$0.59/lb copper net of
by-products.
Pre-tax payback of 3.3 years and post-tax payback of 3.5 years.
Probable Mineral Reserve(2) of 10.4 million tonnes averaging 2.01% copper, 3.19% zinc, 0.3 7 g/t
gold and 34.61 g/t silver. A 1.5% Cu cut -off grade was used for mineral reserve estimation of the
Main zone and 1.0% Cu cut-off for the Esso zone and is based on the 2011 mine plan.
Measured and Indicated Mineral Resources(3) at a 1.0% copper cut-off grade of 16.9 million tonnes
averaging 1.89% copper, 2.87% zinc, 0.36 g/t gold and 32.8 g/t silver.
Inferred Mineral Resources (4)(5) at a 1.0% copper cut -off grade of 5.8 million tonnes averaging
1.33% copper, 1.64% zinc, 0.24 g/t gold and 23.2 g/t silver.
Desert Star Resources
1 Using metal prices of US$2.75/lb copper, US$1.10/lb zinc, US$17.00/oz silver and US$1,250/oz gold and
a currency exchange rate of 0.75 USD/CAD
2 A Probable Mineral Reserve is the economically mineable part of an Indicated Mineral Resource, and in
some circumstances a Measured Mineral Resource, demonstrated by at least a Preliminary Feasibility
Study. This study must include adequate information on mining, processing, metallurgical, economic and
other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.
3 Measured and Indicated Resources are inclusive of Probable Mineral Reserves. Mineral Resources are
not Mineral Reserves and do not have demonstrated economic viability.
4 The economic analysis contained in the 2017 PFS does not include inferred resources.
5 Inferred mineral resources are estimated based on limited geologic evidence and sampling, sufficient only
to imply but not verify geological and grade or quality continuity.
Qualified Person: Rory Kutluoglu, B.Sc. P.Geo., a Qualified Person as defined by National Instrument 43-
101, has read and approved all technical and scientific information co ntained in this news release. Mr.
Kutluoglu is the Company’s Vice President Exploration. The QP verifies that sufficient data verification
was conducted for the 2017 PFS and that this data is adequately representative of the project.
Vince Sorace
President and CEO, Desert Star Resources Ltd.
For further information regarding Desert Star, please email [email protected] or visit our website
at www.desertstar.ca.
Cautionary Note Regarding Forward-Looking Statements
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
This news release contains certain statements that may be deemed “forward -looking statements” with respect to the Company
within the meaning of applicable securities laws, including statements with respect to the proposed Term Debt Loan, PMPA and
Acquisition, estimated mineral resources and mineral reserves, the timing and amount of estimated production, costs of production,
capital expenditures, commodity price assumptions, the Company’s ability to successfully obtain all regulatory approvals and
permits to co mmence and conduct mining operations, environmental risks and title challenges. Forward-looking statements are
statements that are not historical facts and are generally, but not always, identified by the words “expects”, “plans”, “anticipates”,
“believes”, “intends”, “estimates”, “projects”, “potential” and similar expressions, or that events or conditions “will”, “would”,
“may”, “could” or “should” occur. Although Desert Star believes the expectations expressed in such forward-looking statements
are based on reasonable assumptions, such statements are not guarantees of future performance, are subject to risks and
uncertainties, and actual results or realities may differ materially from those in the forward -looking statements. Such material
risks and uncertainties include, but are not limited to, Desert Star’s ability to negotiate a final binding Term Debt Loan or PMPA,
obtain all requisite approvals for the proposed Term Debt Loan, PMPA and Acquisition, including approval of the TSX Venture
Exchange, the Co mpany’s ability to raise sufficient capital to fund its obligations under the Acquisition or under its property
agreements going forward, to maintain its mineral tenures and concessions in good standing, to explore and develop Kutcho or its
other projects, to repay its debt and for general working capital purposes; changes in economic conditions or financial markets;
the inherent hazards associates with mineral exploration, and mining operations, future prices of copper and other metals, changes
in general economic conditions, accuracy of mineral resource and reserve estimates, the ability of Desert Star to obtain the
necessary permits and consents required to explore, drill and develop Kutcho and if obtained, to obtain such permits and consents
in a timely fashion relative to Desert Star’s plans and business objectives for the projects; the general ability of Desert Star to
monetize its mineral resources; and changes in environmental and other laws or regulations that could have an impact on the
Company’s operations, compliance with environmental laws and regulations, aboriginal title claims and rights to consultation and
accommodation, dependence on key management personnel and general competition in the mining industry. Forward -looking
statements are based on the reasonable beliefs, estimates and opinions of Desert Star’s management on the date the statements are
made. Except as required by law, Desert Star undertakes no obligation to update these forward -looking statements in the event
that management’s beliefs, estimates or opinions, or other factors, should change.