ENAMI Strategic Alliance

On June 14, 2016, the Company announced that its Ecuadorean subsidiary, Cornerstone Ecuador S.A. ("CESA"), had signed a definitive agreement (the "Agreement") with Ecuador's State Mining Company, Empresa Nacional Minera Empresa Pública ("ENAMI"), replacing the letter of intent announced April 14, 2015, and creating a structure to jointly prospect and explore for mineral deposits in Ecuador.

In a First Phase, CESA will identify, at its own cost and risk, geologically prospective areas in parts of Ecuador ("Areas of Interest" or "AOIs"), and identify them to ENAMI, which will make application to the Ministry of Mining ("MM") for a concession or concessions covering such areas (which concession will be granted based on the plans, policies and guidelines of MM for the mining sector). Although ENAMI is a state enterprise, the granting of mineral concessions in Ecuador is within the exclusive jurisdiction of MM, which sets its own policies with regard to the timing of opening certain areas of the country to exploration and to whom mineral concessions will be granted, as a result of which there is no guarantee that concessions requested by ENAMI for joint exploration with CESA & Partner will be granted. Once a concession has been granted, ENAMI and CESA will form a specific purpose corporation (the "SPC"). ENAMI will transfer the concession to the SPC as a capital contribution in return for a 16% shareholding in the SPC. CESA, employing its project generator business model, and a funding partner who will earn a majority interest in the projects (collectively, "CESA & Partner"), the exact percentage to be negotiated with CESA, will prospect the concession to identify the most prospective parts. CESA & Partner will have a collective 84% shareholding.

The First Phase will be subdivided into:

  1. Prospecting, with committed expenditures of $5 per hectare within the AOI (e.g., $100,000 per 20,000 hectares),
  2. Initial Exploration (up to 4 years including 18 months of prospecting), with optional expenditures of an additional $600,000;
  3. Advanced Exploration, including drilling (up to 4 years), with optional expenditures of an additional $4.3 million.

Expenditures may be accelerated, amounts in excess in any period will be credited to the next succeeding periods, and shortfalls may be paid in cash to maintain the option in good standing. CESA & Partner may abandon their option at any time, except during the prospecting portion of the First Phase where the $5 per hectare expenditures are committed, delivering all technical information to ENAMI and arranging for a re-conveyance of the respective concessions to ENAMI from the SPC. ENAMI will have a "free" carried interest through to completion of a Bankable Feasibility Study, or "BFS".

In a Second Phase, CESA & Partner will fund the SPC to commence Economic Evaluation (e.g., scoping, pre-feasibility and/or feasibility studies) (up to 2 years, renewable for up to an additional 2 years), incurring optional expenditures of an additional $10 million. Total expenditures on each concession (which can by law cover an area up to 5,000 hectares) through completion of a BFS could total a minimum of $15 million - i.e., $100,000 or more in prospecting (assuming an AOI of 20,000 hectares), $600,000 in Initial Exploration, $4.3 million in Advanced Exploration, plus $10 million during Economic Evaluation.

In the event CESA & Partner make a Production Decision to construct a mine/mill and related infrastructure, ENAMI will have the option of financing the totality of its own participating interest, or electing to have CESA & Partner finance the totality of ENAMI's interest (including sustaining capital after commercial production is achieved) at cost of funds plus an agreed financing arrangement fee.

For further detail please see: https://cornerstoneresources.com/site/assets/files/5522/enami-cesa_principal_terms.pdf

See News Releases:

22-15 - Strong assay results from rock sampling confirm the potential of Cu-Mo and Cu-Au porphyry targets on the Espejo Project in NW Ecuador

22-01 - Ecuador Constitutional Court Reaffirms Revocation of the Environmental Permit for Early Stage Exploration at the Rio Magdalena Project within the ENAMI EP Strategic Exploration Alliance in NW Ecuador

21-05 - Drill Targets Defined at the Espejo Project Within the ENAMI EP Strategic Exploration Alliance in NW Ecuador

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