Desert Star Announces US$65 Million Precious Metals Purchase Agreement with Wheaton Precious Metals; Extends Agreement with Capstone
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 US$65 Million Precious Metals Purchase Agreement with Wheaton
Precious Metals; Extends Agreement with Capstone
Vancouver, B.C., August 10, 2017. Desert Star Resources Ltd. (TSX -V: DSR) (“Desert Star” or the
“Company”) is pleased to announce it has agreed to terms on a non-binding Early Deposit Precious Metals
Purchase Agreement (“PMPA”) with Wheaton Precious Metals Corp. (TSX:WPM) (NYSE:WPM)
(“Wheaton”) under which Wheaton will pay Desert Star cash consideration totaling US$65 million for up
to 100% of the payable silver production and up to 100% of the payable gold production from the
Company’s Kutcho Cu-Zn-Ag-Au Project in northwest British Columbia. In addition, Wheaton will make
ongoing production payments to Desert Star equal to 20% of the a pplicable spot prices of silver and gold
delivered. A n additional payment of up to US$20 million will be payable to Desert Star should the
processing capacity increase to 4,500 tonnes per day (“tpd”) or more within five years of attaining
commercial production, compared with the 2,500 tpd operation contemplated in the 2017 Prefeasibility
Study (“2017 PFS”).
Under the terms of the proposed PMPA, Desert Star w ill be advanced US$7 million as an early deposit
(“Early Deposit”) with payments to be used to fund f easibility study expenditures. The balance of the
US$65 million would be payable in instalments during construction of the Kutcho Project. Wheaton has
also agreed to participate in up to 14% of a proposed Desert Star equity financing to a maximum of C$4
million where the use of proceeds include the acquisition of the Kutcho Project by Desert Star (the
“Acquisition”), as previously announced on June 15, 2017 . The precious metals stream is subject to
completion of a definitive PMPA, completion of the Acquisition and other customary conditions.
“The agreement with Wheaton represents a significant milestone towards the Acquisition and subsequent
development of the Kutcho Project,” stated Vince Sorace, President and CEO of Desert Star. “Wheaton’s
involvement validates our conviction in the Kutcho Project. We believe it is an exceptional opportunity,
with significant near-term upside potential in the project economics, throughput expansion and increase of
the existing mineral reserves and resources. The Early Depos it structure allows Desert Star the flexibility
to advance Kutcho through a Feasibility Study and to a construction decision with significantly reduced
dilution to shareholders.”
In addition to the proposed PMPA with Wheaton, Desert Star announces an agreement between the
Company and Capstone to extend the outside date for the completion of the Acquisition from August 31,
2017 to September 30, 2017.
Desert Star’s financial advisor with regard to the precious metals streaming financing is Macquarie Capital
Markets Canada Ltd.
Transaction Highlights
Proposed Early Deposit and equity financing participation provides for funding of approximately
C$13 million which represents in excess of 30% of the Acquisition and projected Feasibility Study
expenditures.
Desert Star Resources
Balance of the upfront deposit payment of US$58 million represents approximately 35% of the
estimated initial capital costs with the precious metals stream representing approximately 7% of
revenue from the Kutcho Project based on the assumptions utilized in the 2017 PFS.
Precious metals streaming results in a further increase to the current after-tax IRR of 27.6% detailed
in the 2017 PFS.
Expansion payment of up to US$20 million provides capital support for Desert Star’s proposed
expansion of Kutcho’s potential.
Equity investment results in Wheaton becoming a significant shareholder of Desert Star and strong
alignment with all Kutcho stakeholders.
Transaction Overview
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 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.
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 increased 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 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 Resources
Desert Star Acquisition of Kutcho
Desert Star signed a Definitive Agreement dated June 15, 2017 to acquire 100% of Kutcho Copper Corp.
from Capstone Mining Corp., subject to certain conditions precedent, as disclosed in the Company’s news
release on June 15, 2017. Completion of the Acquisi tion 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 DSR’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.
Mineralization at Kutcho comprises three “Kuroko -type” volcanic ma ssive 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.
Desert Star’s study includes parameter changes consistent with current market conditions, such as
capital expenditures, operating costs, metal prices and foreign exchange rate.
2017 Prefeasibility Study Highlights
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.
Desert Star Resources
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, 0.37 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.
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 contained in this news release. Mr.
Kutluoglu is the Company’s Vice Pre sident 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 “forwa rd-looking statements” with respect to the Company
within the meaning of applicable securities laws, including statements with respect to the proposed PMPA and Acquisition,
estimated mineral resources and mineral reserves, the timing and amount of estimate d production, costs of production, capital
expenditures, commodity price assumptions, the Company’s ability to successfully obtain all regulatory approvals and permits to
commence 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 performanc e, 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 PMPA, obtain all requisite
approvals for the proposed PMPA and Acquisition, including approval of the TSX Venture Exchange, the Company’s ability to
Desert Star Resources
raise sufficient capital to fund its obligations under the Acquisition or under i ts 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 finan cial 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 Des ert
Star’s plans and business objectives for the projects; the general abilit y 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.