Comet Resources Acquires Santa Teresa Gold Project and Stream Financing up to US$20M

Highlights:

• Binding Heads of Agreement for the acquisition of the high-grade Santa Teresa Gold Project in Baja California, Mexico
• Concurrently negotiated non-binding terms for up to a US$20M financing to fund development activities on the Project via a gold streaming and royalty arrangement to be provided by Raptor Capital International
  32 diamond holes have been drilled into the project1 delivering numerous high grade intersections including:
  • 2m @ 32.4g/t gold from 19m
  • 1m @ 958.4g/t gold from 239m
  • 2.5m @ 38g/t gold from 174m
  • 3.9m @ 39g/t gold from 121m
  • 3m @ 19.9g/t gold from 214m
  • 1m @ 125.9 g/t gold from 83m
  • 3.1 @ 14.4g/t gold from 59m
  • 3.1m @ 16g/t gold from 101m

• Santa Teresa has an existing non-JORC2 Inferred Mineral Resource estimate of 64,000oz Au Inferred grading at 8.7g/t, reported at a 4g/t cut- off. However, individual assay grades were capped to 20g/t
• Historical production in the surrounding El Alamo district estimated between 100,000 to 200,000oz Au
• Exploration upside and opportunity to expand current mineralisation due to the under-explored nature of the tenements and the gold rich nature of the district

Comet Resources Ltd (Comet or the Company) (ASX:CRL) is pleased to announce that it has executed a binding heads of agreement (HOA) with privately owned El Alamo Resources Limited (EARL) for the proposed 100% acquisition (Acquisition) of the Santa Teresa Gold Project (Project), and concurrently executed a non-binding term sheet with Raptor Capital International Limited (Raptor) for a gold streaming and royalty financing (Financing) to fund activities at the Project for up to US$20 million (initial minimum of US$6 million).

Comet Managing Director, Matthew O’Kane, commented, “Santa Teresa contains attractive near-surface high-grade gold mineralisation that is open along strike and at depth. Along with the non-dilutive development funding from Raptor, I believe subject to completion of due diligence, the Project has potential to add significant value to Comet. Whilst we work through the detail on Santa Teresa, we continue preparations for the initial field exploration program at Barraba, likely to commence in Q3.”
The Acquisition will be completed on a staged basis, with Comet acquiring a 50% interest upon satisfaction of due diligence and the initial US$6 million Financing being made available to the Company, with the remaining 50% interest to be acquired upon a decision to mine being made in respect of the Project. Summaries of the material terms and conditions of the Acquisition and Financing are set out in Appendices 1 & 2 respectively.

The Santa Teresa Gold Project is comprised of two mineral claims totalling 202 hectares located in the gold rich El Alamo district, approximately 100 km southeast of Ensenada, Baja California, Mexico; and 250 km southeast of San Diego, California, USA. The Project is prospective for high grade gold, with an existing Inferred Resource of 64,000oz Au at an average grade of 8.7g/t, reported at a cut-off grade of 4g/t. In addition to the two claims of the Project, two additional claims totalling a further 378 hectares in the surrounding El Alamo district are proposed to be acquired from EARL.

Placer gold deposits of the El Alamo district were discovered in 1888. High grade ore-shoots were subsequently discovered on the Aurora-Princess vein within a year. Lode mining continued until 1907, after which leases were worked until 1912 when mining ceased as a result of the Mexican Revolution. The reported gold production of the El Alamo district has been estimated between 100,000 to 200,000 ounces of gold.

The acquisition is further enhanced by anticipated funding from Raptor of $US6M (up to US$20M) via a gold stream and royalty facility for which non-binding terms have been concurrently negotiated by Comet management. The use of proceeds is to fund development activities at Santa Teresa and the facility will be secured only against the Santa Teresa Gold Project itself and any further tenements acquired in the region. Comet has made it a condition of the acquisition of the Project that the stream and royalty financing is concluded to its satisfaction.

Following conclusion of the Project acquisition, Comet proposes to focus physical works at Santa Teresa on assessing near term production opportunities within the Santa Teresa license area itself and the other licenses proposed to be acquired in the El Alamo district, and if this work warrants, commencement of mining activities. All such activities may be financed by the Raptor stream financing.
Comet is developing a portfolio of base/precious metal projects, with the acquisition complimenting and building on Comet’s recent acquisition (refer ASX Announcement 23 January 2020 and 16 April 2020) of the Barraba Copper Project located in NSW, Australia.

Gold, which is currently sitting at decade highs (~US$1,700/oz) may have further upside to price due to the current economic uncertainty caused by the COVID-19 pandemic and the related unrelenting money printing of many central banks.

The Company notes that the acquisition of the Santa Teresa Gold Project and Raptor stream financing are highly conditional and require satisfactory completion of ongoing due diligence on the Project and the provision of financing via the proposed stream and royalty agreement. We encourage investors to exercise caution when making investment decisions. Please also refer to Appendix 1 and Appendix 2 for full details of the terms and conditions pertaining to the proposed transactions.

About the Santa Teresa Gold Project:

The Santa Teresa Gold Project lies immediately to the south of the town of El Alamo. Access to El Alamo is gained via Mexico Federal Highway 3 southeast from Ensenada to Ojos Negros then, west to El Alamo, a distance of about 75 kilometres. (see Figure 1)

The Project lies between 1,100 metres and 1,200 metres above sea level characterized by gently rolling hills. The climate is dry seasonal arid to semi-arid, with long, warm summers and cool winters. Annual rainfall averages 30 centimetres.

Electrical power lines are available approximately 10 kilometres from the Project.

The Project is located within the Central Zone of the Peninsular Ranges Batholith of Baja California. The Central Zone comprises back-arc and slope basin sedimentary rocks that have been intruded by Cretaceous granitoids. Intrusion was accompanied by regional metamorphism, deformation and pervasive foliation development, which records southwest- northeast convergence. Emplacement of a mafic and felsic dyke swarm along the foliation is constrained between 120 and 100 Ma.

The Project is underlain by quartz diorite intrusive cut by older gabbro and hornblende porphyry, and younger diabase dykes. The dykes in part define the trace of the Alamo fault zone, which is host to economically significant, northwest-trending, southwest dipping to near vertical mesothermal lode-gold quartz vein systems. The quartz veins range in width from a few centimetres to 3 metres (m) and commonly occur in sets of 2 or 3 parallel veins that may pinch, swell, bend or split into stringers. The principal surface veins of the Santa Teresa Gold Project from northeast to southwest are the: Princessa, Aurora, Cruda, Borracha, North and South Spider, Quinota, Camion, La Americana, Alamo and Polvorin veins.

Modern exploration at Santa Teresa Gold Project includes the 2008 diamond drilling program of 32 holes totalling 7,025 metres by Premier Gold Mines Limited; 1992 trenching by Dakota Mining Corporation; and various prospecting visits, which define 12 gold-bearing quartz vein lodes over a total strike length of 500 m and to a maximum vertical depth off 230 m. Given the limited extent of the drilling, and the complex, multiple narrow vein nature of the deposit, there is necessarily uncertainty associated with the geological model. Quartz veins of the Project are interpreted to range in estimated true-width from 0.7 to 2.0 metres. They occur in sets of two or three sub-parallel veins typically spaced between 3 and 10 metres apart, one of which may be significantly higher grade. Lower grade veins pairs exhibit somewhat greater lateral continuity. Higher grade values may occur where veins are oriented at low acute angles to the majority or where veins intersect. It is unclear whether a shallow south easterly plunge of high grade gold values is a result of shear zone kinematics or geometric “paneling” of the deposit due to post-mineral diabase dykes. There is insufficient structural data available currently to predict the orientation of ore shoots within the host shear zone.

The Santa Teresa Gold Project Inferred Mineral Resource estimate was estimated within three dimensional solids that were created from cross-sectional lode interpretation. The Borracha, Cruda and Aurora veins were cut off between 20 to 40 m below surface due to post-mineral dykes and the presence of historic underground workings. The upper contact of the remaining veins has been cut by the topographic surface. Grade was estimated into a block model with parent block size of 5 m (X) by 5 m (Y) by 5 m (Z) and sub-blocked down to 1 m (X) by 1 m (Y) by 1 m (Z).

No density measurements have been collected to date on this property, and as such a nominal density of 2.79 kg/m3 was assigned to the mineralization. Grade estimation of gold was performed using the Inverse Distance squared (ID2) methodology.

Due to the uncertainty of the position and extent of the post un mineralised dykes within the Santa Teresa deposit a 30% dilution to the resource has been applied.

The Inferred Mineral Resource estimate has been reported at a range of gold cut-offs. No portion of the current Inferred Mineral Resource has been assigned to the ‘Indicated’ or “Measured” category. The Santa Teresa uses a cut-off grade of 4.0g/t Au, which is considered suitable to demonstrate reasonable prospects for economic extraction. The Santa Teresa Gold Project Inferred Mineral Resource has been calculated at 230,000 tonnes at 8.7g/t Au for 64,000 ounces of gold using a 4g/t lower block cut off.
Historical drilling programs at the Project have generated multiple high grade intercepts, highlighting the potential exploration upside to the current resource, which is open at depth and along strike.

Summary of Key Terms for Acquisition of the Santa Teresa Gold Project:

(Note – Detailed Terms are available in Appendix 1)

The proposed transaction allows for an acquisition of 100% of the Project from current registered holding entity Grupo Alamo S.A de C.V (Grupo) (a wholly owned subsidiary of EARL), which owns the Santa Teresa Gold Project. The key terms are summarised below and presented in more detail in Appendix 1.

Consideration payable by Comet to EARL under the acquisition comprises:

• A$25,000 payable upon execution of the HOA (amount now paid);
• A$275,000 upon Comet signing an unconditional gold streaming agreement with Raptor Capital
• International, with a value for at least US$6,000,000 and up to US$20,000,000;
• The lesser of A$1,000,000 worth (@20 Day VWAP) of Comet fully paid ordinary shares (FPO) or 19.9% of the then issued capital of Comet in FPO shares and
• A$200,000 cash payment upon Comet receiving a 50% interest in the Project; and
• The lesser of AUD$1,000,000 worth of Comet fully paid ordinary shares (parties to agree share price value) or additional shares such that the shareholding of EARL does not exceed 19.9% of the then issued capital of Comet; and
• A$1,000,000 cash payment upon a decision to mine in respect of the Project and the transfer of the final 50% ownership of the Project to Comet.

Issue of securities detailed above will be conditional on shareholder approval. Pricing of the securities is to be finalised in full form documentation for the transaction, however the Company expects a market based reference such as VWAP will be utilised.

In addition, Comet will pay A$1,000,000 in additional consideration to EARL on production of the first 50,000 ounces of gold from the Project.

EARL will be entitled to a 1% NSR royalty of all gold extracted from the Project over the concessions currently held by Grupo.

Empire Capital Partners Pty Ltd have been engaged as advisor to the proposed acquisition and arranger of the Raptor stream financing. They will receive A$60,000 in shares based on a 20 day VWAP upon execution of the Heads of Agreement, plus fees to the value of 3% of the value of the consideration payable for the Acquisition transaction in cash or shares at Empire’s election, in two tranches based on the staged acquisition. They will also receive 6% of the total value of the Financing Transaction in shares (at the 20-day VWAP of the Company on the day prior to the execution of the documents), and 6% in options (Options priced at 30% premium to 20-Day VWAP with expiry June 30, 2023). The Financing Transaction shall be payable on the minimum commitment of US$6M on signing of a binding agreement for the Financing, with the balance of fees to be paid upon drawdown by the Company at the 20-day VWAP of the shares on the day prior to the drawdown and options at a 30% premium to the 20-day VWAP and expiry 2 years from date of issue. A table summarising the fees payable to Empire Capital Partners Pty Ltd, together with a valuation of those fees, is set out in Appendix 5.

Summary of Key Terms of the proposed Raptor stream financing:

(Note – Detailed Terms are available in Appendix 2)

• $US6M (up to $US20M) in funding available
• Requires delivery of 15,000 oz of gold for $US6M advance. Deliveries increase linearly with additional draw-downs beyond $US6M.
• Once gold delivery is complete Raptor to receive a 2.5% net smelter royalty from production from the Santa Teresa Gold Project
• 1% NSR over all future licenses acquired in the area of influence (the San Marcos Dyke swarm)
• Senior security over the Project, plus liens over licenses acquired in the area of influence
• Subject to due diligence by Raptor to their satisfaction and execution of binding agreements

Proposed issue of Options to Management and Board:

The Board has approved the issue of 21 million options to management and the Board. The options will be issued in two classes, with 50% issued at 1.8c and 50% issued at 2.2c. 12 million options will be issued to the Managing Director (which will replace and cancel formerly approved options to the Managing Director), and 3 million to each non-executive director and the Chairman.

The proposed issue of the options will be subject to regulatory and shareholder approvals.

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