Desert Star Resources Announces $20 Million Convertible Term Debt Loan with Wheaton Precious Metals

Increases Total Financing Package to C$100 Million

VANCOUVER, Oct. 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 grade 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.
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.
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 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.


• 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, 0.37 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 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 info@desertstar.ca 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 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 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 Company’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.