Kutcho Project

The Kutcho property is located approximately 100 km east of Dease Lake in the Liard mining division of northern British Columbia, and consists of one mining lease and 46 mineral exploration claims covering an area of approximately 17,060 hectares. The site is accessible via a 900 m long gravel airstrip located 10 km from the deposit and a 100 km long seasonal road from Dease Lake suitable for tracked and low-impact vehicles.

• Development project located in British Columbia, a top tier mining jurisdiction with major mines and active projects including Brucejack (Pretium), Red Chris (Imperial Metals) and Galore Creek (Teck/NovaGold)
• High grade copper-zinc-gold-silver volcanic massive sulphide (“VMS”) system with a Probable Mineral Reserve⁽¹⁾ (2017 estimate) of 10.4 Mt @ 2.01% Cu, 3.19% Zn, 34.61 g/t Ag and 0.37 g/t Au
• 2017 updated Prefeasibility Study (“PFS”) demonstrates robust economics: after-tax NPV (8% discount rate) and IRR of C$265 million and 27.6% respectively with a manageable initial capex (incl. 15% contingency) of C$220.7 million
• Significant potential for improvement through expansion of reserve/resources and a focused permitting effort

• 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%
• 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
• Average annual production of 33 million pounds of copper and 46 million pounds of zinc
• Initial capital costs, including 15% contingency, for a 100% owner-operated mine are estimated at C$220.7 million
• 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

The Kutcho property lies within the King Salmon Allochthon, a narrow belt of Permo-triassic island arc volcanic rocks and Jurassic sediments, situated between two northerly-dipping thrust faults: the Nahlin fault to the north, and the King Salmon fault to the south. The belt of volcanic rocks is thickest in the area where it hosts the VMS deposits, partly due to primary deposition, but also to stratigraphic repetition by folding and possibly thrusting.

Mineralization at Kutcho comprises three known “Kuroko-type” VMS deposits aligned in a westerly plunging linear trend. The largest, the Main deposit, comes to surface to the eastern end, followed by Sumac down plunge, and Esso to the western end which occurs at depths of about 400 m below surface.

“Kuroko-type” VMS deposits are typically related to felsic volcanism in island arc or back-arc tectonic settings. Features of the Kutcho deposits suggest that they formed at or near the water-seafloor interface in a structurally controlled depression, such as a half-graben type structure. The chemical composition of the alteration around the Kutcho deposits is well zoned about the hydrothermal vent areas. Mineralization consists of a pyritic footwall with zoned copper and zinc towards a sharp hanging wall contact.

2017 Mineral Reserve & Mineral Resources⁽¹⁾

(1)Preliminary feasibility study dated July 2017, prepared by JDS Mining Inc. for Desert Star Resources titled “Kutcho Copper Project Prefeasibility Study British Columbia.”
(2) Copper equivalent grade (CuEq%) calculated as copper equivalent recovered and 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) 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.
(4) The economic analysis contained in the 2017 PFS does not include inferred resources.

An excess of C$50 million of historical project expenditures provide the basis for the 2017 updated PFS. Updates to the study include parameter changes consistent with current market conditions, such as capital expenditures, operating costs, metal prices and foreign exchange rate.

Project Design

The Kutcho project is envisioned to be an underground mining operation, supplemented by a starter pit on the Main deposit during the construction phase, to extract ore from the Main and Esso deposits. Two underground mining methods are proposed: sublevel longhole stoping for areas where the dip is greater than 50°, and mechanized cut and fill with paste backfill in shallow dipping areas of less than 50°.

A 2,500 tpd process plant is assumed to operate 365 days per year at 92% availability, with mill feed to be crushed, ground and subsequently subjected to copper and zinc flotation. The tailings will be sent to a paste backfill plant to produce a cemented paste, half of which will be used for backfill while the other half will be sent to the surface tailings disposal. Copper and zinc concentrates will be thickened and dewatered before load-out, with precious metals reporting to the copper concentrate.

Project Economics

The base case scenario below uses metal prices of US$2.75/lb copper, US$1.10/lb zinc, US$17.00/oz silver and US$1250/oz gold, and a forex rate of 0.75 US$:C$.

The Prefeasibility Study 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 32-101 who has verified and approved the technical and scientific information related to the 2017 Prefeasibility Study, and prepared the economic analysis included on this website.

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 7.1 metres @ 1.96% copper, 5.24% zinc, and 18.0 g/t silver in DDH 94-B3. These intercepts could represent extensions to the high-grade Esso deposit or a potential new deposit.
• The FWZ, a relatively narrow sulphide lens (2 to 5 metres thick) which lies beneath the Main zone and which was subject to an historic estimate ⁵ prepared as an internal document for Esso Minerals in 1979, of 230,000 tonnes averaging 1.47% copper, 5.52% zinc, 0.4 g/t gold and 43.7 g/t silver. The FWZ may have potential along strike and down dip for additional mineral resources. This mineralized zone demonstrates that additional horizons across the property are productive for VMS style mineralization.
• Main mineralization is open down-dip along 800 m or 57% of the total strike for this deposit, indicating potential for resource expansion down-dip.
• Esso mineralization is open down-dip along 300 m or 50% of the total strike for this deposit, and is open up-dip along 125 m or 20% of the total strike, indicating potential for resource expansion both up- and down-dip.
• Favourable stratigraphy east of the Main zone, and on the southern portion of the property where the Kutcho time equivalent sulphide horizon is repeated by folding.

⁵A 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 resource estimates as current mineral resources. The historic estimate 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.

Kutcho’s experience management and technical team plans to advance the Kutcho project to a completed feasibility study and permitted for construction within 2.5 years.

Highlights include:

• Focused permitting strategy with dedicated team in place, including Allison Rippin-Armstrong and Rory Kutluoglu to progress community and government relations
• Extensive drilling program to collect additional metallurgical samples and upgrade a portion of the inferred mineral resources to the measured and/or indicated categories so they could potentially be included in a Feasibility study.
• Feasibility study incorporating expanded project size to be completed within 18 months
• Construction decision estimated within 30 months

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 Website. Mr. Kutluoglu is the Company’s Vice President Exploration.