Desert Star Announces US$65 Million Precious Metals Purchase Agreement with Wheaton Precious Metals; Extends Agreement with Capstone

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Aug. 10, 2017) - Desert Star Resources Ltd. (TSX VENTURE: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 applicable spot prices of silver and gold delivered. An 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 will be advanced US$7 million as an early deposit ("Early Deposit") with payments to be used to fund feasibility 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 Deposit 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.
  
  
• 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

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 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 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 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. 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.
  
  
• 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.
  
  

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.

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 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 PMPA, obtain all requisite approvals for the proposed 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.