Mr. Guy Goulet reports

CDPR SIGNS TERM SHEET FOR AN ADDITIONAL US$ 12M TO DEVELOP ITS SANTANDER MINE

On July 18, 2023, Cerro de Pasco Resources Inc. signed a term sheet with China Railway No. 10 Engineering Group Co. Ltd. Sucursal del Peru (CREC10), an engineering and construction company, providing $12-million (U.S.) of services to be used for the construction of infrastructure and development of the Santander Pipe project. In addition, CREC10 will provide contract mining services at the Santander mine. CREC10 is part of China Railway Group, a major corporate conglomerate and a Fortune Global 500 company.

The financed construction services with CREC10 meet the requirements for additional subordinated financing, with regard to the signed term sheets dated May 2, 2023, with both Ocean Partners U.K. Ltd. (OPUK) and Arena Investors LP. The total aggregate financing is now $29-million (U.S.) to $32.5-million (U.S.). The financing package consist of a mix of senior debt, offtake revolver, local equity and financed construction services, which will be used to strengthen the company's balance sheet and secure construction of the critical projects needed for the company's Santander Pipe project in Peru.

Jorge Lozano, Cerro's chief operating officer, stated: "We are excited to enter into this funded construction services agreement with CREC10. The group has an extensive track record in infrastructure projects, in both civil and mining, in Peru and globally. In total, we have assembled $29-million (U.S.) to $32.5-million (U.S.) in funding, thus completing the capital requirements for the development and construction of the Santander mine with a focus on the Pipe project. The participation of CREC10 as well as OPUK and Arena evidence the solidity of the information and the work we have done on the Santander Pipe project in relation to the exploration, engineering and sustainability, all of which support our approach."

OPUK prepayment details

OPUK and Cerro will enter into commercial contracts for the supply of zinc, copper and lead concentrates that are both committed and not committed to existing offtaker. OPUK will advance to Cerro $4-million (U.S.) and up to a maximum of $7.5-million (U.S.), against monthly deliveries of concentrate for the life of the commercial contract. Once sufficient material has been delivered to OPUK to repay amounts outstanding plus costs, the facility may be redrawn immediately.

Interest shall accrue on the amounts outstanding under the prepayment facility at the rate of: (i) the three-month London interbank offered rate (LIBOR) (immediately prior to the advance having been made) plus 7.5 per cent, or (ii) the three-month CME term secured overnight financing rate plus 7.5 per cent, if the foregoing LIBOR rate becomes unavailable (or such other interest rate as agreed between the parties), until repaid in full.

Cerro, upon the financing of the first drawdown, will issue warrants to OPUK for a face value of $2.5-million with an exercise price of 25 cents, subject to exchange approval.

Arena loan facility details

Arena will provide a 36-month loan facility up to $8-million (U.S.), secured primarily against Cerro's Santander assets and first-ranking fixed and floating security over the company's interest in the Quiulacocha tailings storage facility, which may be removed once the facility amount is below $4-million (U.S.). The repayment period will contemplate the first six months of interest only followed by 30 months of equal principal plus interest payments. The interest rate shall accrue at 15 per cent per annum.

Cerro, upon obtainment of funds from the loan facility, will issue to Arena $5-million in face value of warrants at an exercise price of 25 cents, subject to exchange approval.

CREC10 infrastructure development and contract details

CREC10 and Cerro will enter into a binding agreement for $12-million of financed construction services for construction and development of the following Santander Pipe-related works:

• Magistral-Pipe tunnel and services, about $5-million (U.S.);
• Santander tailing facility expansion, about $5-million (U.S.);
• La Cunada ramp and services, about $2-million (U.S.).

In addition, CREC10 and Cerro will enter into a binding commercial contract for mining services at the Santander operation for a minimum of eight years covering the following activities:

• Mine development;
• Mine transportation;
• Mining services;
• Project support services.

Last, CREC10 will lease a production fleet for Cerro to own and operate, further reducing the company's unit costs.

The Cerro-CREC10 financed construction services agreement will include a repayment plan and respective warranties to be agreed prior to closing. Repayment will be subordinated to the $8-million (U.S.) Arena loan as further described above.

CREC10 right of first refusal and conditions

Binding documentation will include a master contract, with the following rights of first refusal (ROFR) in favour of CREC10:

• ROFR on future projects at Santander mine (such as transportation of concentrates);
• ROFR on execution of the capital expenditure projects at the Quiulacocha TSF project;
• Contract mining services exclusivity at Santander and Quiulacocha TSF project for the next eight years.

Closing

The company expects to sign the CREC10 master contract and financed construction services agreement, simultaneously with the closing of the previously announced Arena and OPUK financings, during the month of August, 2023.

Technical information

Mr. Lozano, MMSAQP, chief operating officer for Cerro, has reviewed and approved the scientific and technical information contained in this news release. Mr. Lozano is a qualified person for the purposes of reporting in compliance with National Instrument 43-101.

About Cerro de Pasco Resources Inc.

Cerro de Pasco Resources is a mining and resource management company, with the goal of becoming the next mid-tier producer of base metals in Peru. Cerro is currently engaged in mining, developing and exploring its wholly owned 6,000-hectare Santander mine in the highly prospective Antamina-Yauricocha skarn corridor, located 215 kilometres from Lima. Cerro is also focused on the development of its principal 100-per-cent-owned asset, the El Metalurgista mining concession, comprising mineral tailings and stockpiles extracted from the Cerro de Pasco open-pit mine in central Peru. The company's approach at El Metalurgista entails the reprocessing and environmental remediation of mining waste and the creation of numerous opportunities in a circular economy. Cerro is founded on clear objectives, to engender long-term economic sustainability and benefit for the local population, from an economic, social and health point of view.

We seek Safe Harbor.