KC.V · 2017-06-15 12:00:00

Desert Star to Acquire the Kutcho High Grade Copper-Zinc-Silver-Gold Project from Capstone Mining and Announces Updated PFS Results; Post Tax C$265 Million NPV8% and 27.6% IRR

Economic Studies Mergers & Acquisitions Property Options & Staking

Desert Star Resources Ltd. |717 – 1030 West Georgia Street | Vancouver, British Columbia | Canada | V6E 2Y3

Telephone: (604) 628-5623 | www.desertstar.ca

Desert Star to Acquire the Kutcho High Grade Copper-Zinc-Silver-Gold Project

from Capstone Mining and Announces Updated PFS Results; Post Tax C$265

Million NPV8% and 27.6% IRR

Vancouver, B.C., June 15 , 2017. Desert Star Resources Ltd. (TSX-V: DSR) (“ Desert Star ” or the

“Company”) is pleased to announce it has signed a definitive agreement dated June 15 , 2017 (the

“Agreement”) with Capstone Mining Corp. (“Capstone”) to acquire 100% of the Kutcho high grade copper-

zinc-gold-silver project (“Kutcho”). The consideration for the acquisition of Capstone’s wholly -owned

subsidiary Kutcho Copper Corp. (the “Acquisition”), which owns Kutcho includes C$28.8 million in cash

plus such number of common shares in Desert Star, such that , subsequent to the completion of the

Acquisition and any concurrent financing, Capstone will own 9.9% of the issued and outstanding shares of

Desert Star.

Desert Star also announces the results of a n updated Prefeasibility Study (“2017 PFS”) prepared in

accordance with National Instrument 43 -101 for the Kutcho project. The base case estimate of this study

generates an after-tax net present value (NPV) at an 8% discount rate of C$265 million and an internal rate

of return (IRR) of 2 7.6% 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.

In connection with the completion of the Acquisition, the Company proposes to significantly strengthen its

management team and board members with a number of new appointments including Mr. Stephen Quin,

President & CEO of Midas Gold Corp. and former CEO of Sherwood Copper Corp., Mr. Bill Bennett,

former BC Mines Minister and Allison Rippin Armstrong, former VP of Sustainability for Kaminak Gold

Corp. Additional proposed appointments and complete bios are described further below.

“The acquisition of the Kutcho project represents a transformational growth opportunity for the company

and its shareholders,” stated Vince Sorace, President & CEO of Desert Star Resources. “We believe Kutcho

is an exceptional opportunity, with significant near-term upside potential in both the project economics and

expansion of the existing mineral reserves and resources. Desert Star is guided by an experienced board,

management and technical team with experience in project development, permitting and finance, all

committed to working closely with First Nations, local communities and all levels of Government. We look

forward to advancing Kutcho to a fully permitted status with strong First Nations, community and regulator

support.”

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 known “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 updated

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.

Desert Star Resources

2017 PFS Highlights

 Pre-tax NPV (8% discount rate) of C$423 million and IRR of 34.6%

 After-tax NPV (8% discount rate) of C$265 million and IRR of 27.6%

 Life of mine (“LOM”) net p re-tax cash flow C$801 million and LOM f ree cash flow (after-tax)

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(1) at a 1.5% copper cut-off grade 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 and is based on the 2011 mine plan.

Proposed Work Program

Desert Star has developed plans to advance th e Kutcho project from the 201 7 PFS to a fully permitted

project with a feasibility study completed by the end of 2019. This work includes additional geotechnical

work on the deposits, a drilling program to collect metallurgical samples and upgrade a portio n of the

inferred mineral resources to the measured and/or indicated categories so they could potentially be included

in future studies , additional metallurgical test work to optimize metallurgical parameters, and

environmental baseline studies.

Potential Exploration Upside

Significant exploration upside has been identified through historic work including several priority drill

ready targets prospective for the discovery of new deposits including:

 mineralized drill intersections along strike and down plunge to the west from the Esso deposit (one

of three VMS deposits comprising the Kutcho project) including 7.2 metres @ 1.96% copper,

5.24% zinc, and 18.0 g/t silver in DDH 94-B3;

 the FW Zone, a relatively narrow sulphide lens (2 to 5 metres thick) that lies beneath the Main

Zone and currently has an historic estimate* - prepared as an internal document for Esso in 1979,

of 230,000 tonnes averaging 1.47% copper, 5.52% zinc, 0.4 g/t gold and 43.7 g/t silver.

 In addition, there is favourable untested stratigra phy east of the Main Zone, and on the southern

portion of the property where the Kutcho time equivalent sulphide horizon is fold repeated.

*A Qualified Person has not completed sufficient work to classify the historic estimate tabulated above as

current mineral resources and the issuer is not treating the above mineral estimates as current mineral

resources. The historic estimate is uncategorized and does not use the categories (“inferred”, “indicated” or

“measured” mineral resource, or “probable” or “proven” mineral reserve) set out in Sections 1.2 and 1.3 of

NI 43-101 as defined by the Canadian Institute of Mining, Metallurgy and Petroleum, are not compliant

with the NI 43-101. The historical estimate is relevant to obtain a reference to mineral potential present on

the property. The Company has not undertaken any verification of the historical data upon which the

historical estimates are based on.

Desert Star Resources

Advisors

The company has engaged the following advisors:

 Fort Capital as its financial advisor in connection with the Acquisition

 Macquarie Capital Markets Canada Ltd. as its financial advisor and lead agent with regard to any

acquisition financing

 C3 Alliance Corp as a strategic advisor on Community and First Nations engagement, project

permitting and government relations

 JDS Energy & Mining Inc. as its lead technical consultant

 Farris, Vaughan, Wills & Murphy LLP as its legal advisor

2017 PFS Assumptions & Economic Results

A detailed analysis and update of capital expenditures and operating costs was conducted and compared to

a previous Preliminary Feasibility Study for Kutcho prepared for Capstone in February , 2011 by JDS

Energy & Mining Inc. entitled “Kutcho Copper Project Prefeasibility Study British Columbia” (the “2011

PFS”). The economic results of the 2017 PFS are summarized in Table 1 with parameters provided in Table

2 and all-in cash costs are shown in Table 3.

Table 1: Economic Summary (Base Case Scenario)

Item Unit Value

LOM Net Operating Income C$M 1,088

LOM Net Pre-tax Cash Flow C$M 801

Average Annual Pre-tax Cash Flow C$M 86

LOM Income Taxes C$M 267

LOM Free Cash Flow (after-tax) C$M 533

Average Annual Free Cash Flow C$M 63

Pre-tax NPV (8% discount rate) C$M 423

Pre-tax IRR % 34.6

Pre-tax Payback Years 3.3

After-tax NPV (8% discount rate) C$M 265

After-tax IRR % 27.6

After-tax Payback Years 3.5

Desert Star Resources

Table 2: Operating and Capital Costs Parameters

Parameter Unit 2011 PFS 2017 PFS

UG Mining OPEX C$/t mined 27.37 41.89

OP Mining OPEX C$/t mined 1.84 1.93

Processing C$/t milled 18.44 20.79

Equipment Leasing C$/t milled 4.21 1.66

G&A C$/t milled 10.37 10.86

Total Operating Cost C$/t milled 63.23 73.72

Initial Capital (incl. contingency) C$M 187.4 220.7

Sustaining & Closure Capital (incl. cont.) C$M 26.1 67.1

Total Capital Cost C$M 213.5 287.8

Table 3: All-in Cash Costs (Base Case Scenario)

Description Unit Life of mine

total C$/lbs Copper

UG Mining (incl. equipment leases) C$M 419 1.11

OP Mining C$M 3 0.01

Processing C$M 217 0.57

Equipment Leasing (power plant) C$M 17 0.04

G&A C$M 113 0.30

Refining & Transport C$M 193 0.51

Royalties C$M 38 0.10

Sustaining & Closure Capital C$M 67 0.18

Total C$M 1,067 2.82

All-in Cash + Sustaining Cost (net of by-product) 0.97

US$0.72

Economic Sensitivities

The 2017 PFS contemplates several sensitivity scenarios that demonstrate Kutcho’s robust economic nature

under a variety of scenarios, which are summarized in Table 4.

Desert Star Resources

Table 4: Commodity Price Sensitivity – Scenario Summary

Case Cu

(US$/lb)

(US$/oz)

Forex

(US$:C$)

After-tax

NPV-8%

(C$M)

After-

tax

IRR

(%)

After-tax

Payback

(years)

A 2.50 1.00 1,125 15.30 0.725 211 24 3.9

B (Base Case) 2.75 1.10 1,250 17.00 0.750 265 28 3.5

C 3.00 1.20 1,375 18.70 0.775 316 31 3.3

The 2017 PFS was conducted under the overall supervision of Gord Doerksen, P.Eng. of JDS Energy &

Mining Inc. Mr. Doerksen is the VP Engineering at JDS and an independent qualified person under National

Instrument 43-101 who has verified and approved the technical and scientific information related to the

2017 PFS and the 2011 PFS, and prepared the economic analysis included in this news release.

Mineral Reserves & Mineral Resources

 Measured and Indicated Mineral Resource (including Reserves) at 1.5% copper cut-off grade is

11.3 million tonnes averaging 2.19% copper, 3.28% zinc, 0.39 g/t gold and 36.7 g/t silver.

 The portion of this Mineral Resource that converted to Probable Mineral Reserve(1) is 10.4 million

tonnes averaging 2.01% copper, 3.19% zinc, 0.37 g/t gold and 34.61 g/t silver;

Table 5: Mineral Reserves & Mineral Resources (at 1.5% Cu Cut-off Grade)

Classification

Tonnes

(‘000)

Grade Contained Metal

(%)

(g/t)

CuEq(2)

(%)

(Mlbs)

(Moz)

Probable Reserve(1) 10,441 2.01 3.19 0.37 34.6

2.92 463 734 0.10 11.6

Mineral Resources

Measured (M) 5,421 2.15 2.86 0.34 31.4 2.92 256.

341.

0.06 5.46

Indicated (I) 5,859 2.24 3.67 0.45 41.6 3.31 289.

473.

0.08 7.83

M&I Resource 11,280 2.19 3.28 0.39 36.7 3.11 545 816 0.10 13.3

Inferred Resource(3) 1,090 1.74 2.04 0.35 30.7 2.32 42 49 0.00 1.10

(1) 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.

(2) Copper equivalencies are based on commodity prices of $2.75/lb Cu, $1.10/lb Zn, $17.00/oz Ag and

$1,250/oz Au and recoveries of 84.7% Cu, 75.7% Zn, 48.0% Ag, 41.2% Au. Actual economic parameters,

including recoveries, are subject to change as additional test work and studies are completed.

(3) The economic analysis contained in the 2017 PFS does not include inferred resources.

Cut-off Grade Sensitivities

As part of the 2017 PFS update, a new calculation for the cut-off value was conducted that returned a mill-

head NSR (including recoveries) cut-off value of $74/t excluding royalties and sustaining capital . This

converts to a 0.8% copper cut-off, including by-product credits. Tables 6-9 demonstrate the sensitivity to

cut-off grade for the Measured, Indicated and Inferred Mineral Resources of the Main, Esso and Sumac

deposits.

Desert Star Resources

Table 6: Main Measured & Indicated Resources(4) by COG

Cut-off Grade

(%Cu)

Tonnage

(Kt)

Grade

(%)

(g/t)

0.50 16,476 1.69% 2.27% 0.31 27.30

0.75 15,803 1.74% 2.32% 0.31 27.81

1.00 14,472 1.81% 2.42% 0.32 27.65

1.25 12,340 1.93% 2.55% 0.33 28.89

1.50 9,464 2.10% 2.72% 0.34 31.32

1.75 6,817 2.29% 2.89% 0.36 32.84

2.00 4,430 2.51% 3.03% 0.38 34.78

Table 7: Main Inferred Resources(4) by COG

Cut-off Grade

(%Cu)

Tonnage

(Kt)

Grade

(%)

(g/t)

0.50 1,234 1.38% 2.22% 0.38 28.82

0.75 1,198 1.40% 2.24% 0.38 29.20

1.00 1,019 1.49% 2.36% 0.39 30.20

1.25 664 1.69% 2.60% 0.42 31.42

1.50 464 1.84% 2.83% 0.43 31.55

1.75 260 2.02% 2.94% 0.42 32.00

2.00 94 2.32% 2.98% 0.40 31.67

Table 8: Esso Measured & Indicated Resources(4) by COG

Cut-off Grade

(%Cu)

Tonnage

(Kt)

Grade(1)

(%)

(g/t)

0.50 2,823 2.10% 5.07% 0.54 51.99

0.75 2,604 2.22% 5.35% 0.57 55.02

1.00 2,381 2.35% 5.63% 0.60 57.98

1.25 2,081 2.52% 5.91% 0.63 61.61

1.50 1,816 2.69% 6.18% 0.66 64.78

1.75 1,556 2.87% 6.42% 0.70 68.12

2.00 1,329 3.04% 6.70% 0.72 71.36

Desert Star Resources

Table 9: Sumac Inferred Resources(4) by COG

Cut-off Grade

(%Cu)

Tonnage

(Kt)

Grade(1)

(%)

(g/t)

0.50 8,734 1.00% 1.32% 0.16 15.96

0.75 6,610 1.12% 1.38% 0.18 18.27

1.00 4,042 1.27% 1.42% 0.21 22.30

1.25 1,785 1.46% 1.57% 0.26 26.55

1.50 656 1.67% 1.46% 0.29 30.12

1.75 140 1.93% 1.45% 0.36 35.56

2.00 33 2.19% 1.90% 0.41 48.18

(4)Mineral Resources that are not mineral reserves do not have demonstrated economic viability.

Acquisition Agreement Summary

 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

 The shares issued to Capstone, will be restricted from sale for a period of two years from the date

of issuance. Upon termination of the pooling restrictions, Capstone must give the Company written

notice of its intention to sell any of the Purchased Shares, and Desert Star will have a 10-day right

to designate the purchaser of such shares.

 For so long as Capstone hol ds at least 5% of the issued and outstanding shares of the Company,

Capstone will retain the right to:

o Appoint one director to Desert Star’s board; and

o Participate in any subsequent security offerings on a pr o-rata basis in proportion to

Capstone’s beneficial ownership interest in the Company’s outstanding shares

immediately prior to such offering

 If the closing of the Acquisition has not occurred on or before August 31, 2017, either Capstone

or the Company may elect to terminate the Agreement

Management and Board Appointments

In addition to the existing management, technical team and advisory board members, Desert Star will be

strengthening management and boards with the following appointments:

Allison Rippin Armstrong – Community & Environment

Ms. Allison Rippin Armstrong has 20 years of experience working in permitting, regulatory processes and

environmental compliance for resource companies, Indigenous organizations and NGOs. Most recently,

Ms. Rippin Armstrong served as the Vice President, Sustainability for Kaminak Gold Corporation, which

was acquired by Goldcorp Inc. in 2016 for $520 million. Ms. Rippin Armstrong’s experience includes roles

in environment, lands and permitting for the Ekati Diamond Mine, Dene Nation and numerous resource

proponent companies for projects in the NWT, Nunavut, Saskatchewan, Alberta and Ontario. Ms. Rippin

Armstrong has also participated as an industry representative in the development of draft regulations with

the federal government.

Desert Star Resources

Stephen Quin - Director

Stephen Quin was appointed president, chief executive officer and a director of Midas Gold, Inc. effective

January 1, 2011 and guided the Company through the completion of the acquisition of the Yellow Pine

deposit, which forms a core asset in the Stibnite Gold Project, the creation of Midas Gold Corp. and its

combination with Midas Gold, Inc. in April 2011, the 2011 TSX listing of Midas Gold Corp., and

subsequent advancement of the Stibnite Gold Project and fundrais ing to support the work thereon.

Prior to joining Midas Gold, Mr. Quin served as president and chief operating officer of Capstone Mining

Corp. (“Capstone”), a mid -tier copper producer with mines in Canada and Mexico and, before that, as

president and chi ef executive officer of Sherwood Copper Corporation (“Sherwood”), which was

amalgamated into Capstone in November 2008. As president and CEO of Sherwood, Mr. Quin led that

company through the exploration, feasibility, permitting, mine financing and constru ction of the Minto

Mine and subsequent operations, resource increases and production expansions. Mr. Quin also led

Sherwood’s acquisition of Western Keltic Mines, Inc., the then owner of the Kutcho project, and

Sherwood’s subsequent evaluation of the Kutcho project that led to the completion of the 2011 PFS. Prior

to joining Sherwood, Mr. Quin was Executive VP at Miramar Mining Corporation, where he was

responsible for exploration, business development and investor relations for 18 years, and notable

milestones included the acquisition of the Con gold mine in NWT, the acquisition and exploration of the

Hope Bay gold project in Nunavut and the creation of Northern Orion Exploration and its acquisition and

advancement of the Agua Rica copper-gold-molybdenum porphyry copper project and the San Jorge copper

project, both in Argentina.

Bill Bennett - Director

Bill Bennett was a government MLA in British Columbia for 16 years in the Riding of Kootenay East. In

addition to holding portfolios for Local Governm ent and Tourism, Mr. Bennett was named BC Mines

Minister 3 separate times over his 16 years, and is known across Canada for his knowledge of the mining

industry in BC, and has significant experience with all natural resources issues and with First Nations issues.

He led the BC government's efforts over many years to restore BC's competitiveness for exploration

investment, including having improved the BC Ministry of Energy & Mines permitting process and helping

to launch BC's First Nations mine revenue sharing program. Mr. Bennett has a BA from the University of

Guelph and a law degree from Queens University.

Jay Sujir - Director

Mr. Sujir is an independent business advisor to the mining industry, and a lawyer and Partner in Farris,

Vaughan, Wills & Murphy LLP’s Mining and Securities groups. He has over 30 years of experience acting

for mining and other natural resource companies and is a member of the British Columbia Advisory

Committee of the TSX Venture Exchange. Mr. Sujir has served as, and is cu rrently a Director of several

junior exploration and mining companies, including Leagold Mining, Red Eagle Mining and Excelsior

Mining Corp.

Brad Mercer - Director

Mr. Mercer is a geoscientist with over 33 years of experience managing mineral exploration programs and

feasibility evaluations of mineral properties focused in the Americas and is currently Senior Vice President,

Exploration at Capstone Mining Corp . Mr. Mercer leads t he exploration team at Capstone , credited with

discovering nine copper-gold deposits in six years at the Minto Mine, Yukon, and is currently continuing

success at the Cozamin Mine in Mexico. In addition to successes at the Minto and Cozamin mines, Mr.

Mercer lead teams credited with the discovery of the Moly Brook molybdenum deposit and the Unknown

Brook gold deposit, both located in Newfoundland, Canada. It is anticipated that Mr. Mercer will serve as

Capstone’s appointee to the board of Desert Star.

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