Mr. Peter Bell reports

KERMODE SIGNS LOI FOR RYE PATCH SILVER MINE IN NEVADA WITH GOLD RANGE

Kermode Resources Ltd. has entered into a non-binding letter of intent to lease the Rye Patch silver mine from Gold Range Company LLC (GRC).

The project comprises two land positions that are approximately 45 kilometres apart: a single patented claim called Alpha, which is fewer than five acres of private land with Apex mining rights covering the Rye Patch mine operated in the 1870s; and 10 claims in a package called the WS, which covers the Green Monster silver mine active intermittently from 1936 to 1967. Both the WS and the Alpha have the potential for high-grade silver discoveries.

The LOI provides for a due diligence period extending to March 1, 2022. During this period, the company can elect to enter into a definitive agreement, which will formalize the transaction. Initial due diligence is under way now by Carrington Consulting LLC, which is owned by Robert Carrington, who also has an interest in GRC. In addition, work is continuing to build a digital model of the mine using a hand-held lidar scanner to estimate historical tonnage, combined with selective rock sampling to estimate historical grades and form a conceptual estimate for the Rye Patch mine.

At any time in the due diligence period, Kermode may decide to exercise the option and lease the project by issuing a number of shares in Kermode equal to 5 per cent of the issued and outstanding shares to GRC with an anti-dilution clause, a future sales interest and other conditions. As an expedited transaction, the company is at arm's length from GRC and plans to spend less than half the total exploration budget at Rye Patch next year.

Peter Bell said: "Kermode plans to spend less than half our budget over the next year on this project, but this LOI is very important. It's my first time to strike an option on a new property, and I think the terms are uniquely bullish. The stock-heavy property payment and anti-dilution clause aligns incentives for the explorer and property vendor. The future sale interest is a bullish feature, too. I see this as a unique deal template that starts a new relationship with Gold Range."

Due diligence period

GRC grants Kermode a sole and exclusive due diligence period during which GRC and Kermode agree to exercise their best efforts to negotiate an agreement for the GRC interest in the project. During this period, Kermode has the exclusive right to conduct such due diligence as it may deem necessary or advisable, including, but not limited to, researching the title of the project and GRC's leasehold interest, and mapping and sampling the surface and underground workings.

Kermode recognizes and agrees that it will not conduct any activities resulting in significant surface or underground disturbance, including drilling, trenching, road building, drilling or blasting during the due diligence period and until it has paid to GRC all of the payments, whether cash or stock, as may be the case as contemplated herein.

Terms of the lease

If the company exercises the option to lease the project, then the following applies.

Payment terms to acquire the full 100-per-cent leasehold interest, subject to all terms and conditions, are as follows:

• On signing this LOI: $4,225 (U.S.);
• On signing option lease agreement: 5 per cent of Kermode.

Anti-dilution clause:

• End of first year payment: $3,650 (U.S.);
• End of second year payment: $3,650 (U.S.);
• End of third year payment: $6,650 (U.S.);
• End of fourth year payment: $6,650 (U.S.);
• End of fifth year payment through 10th year: $50,000 (U.S.);
• End of 10th year and thereafter: $100,000 (U.S.);
• 20-year lease, renewable for 20-year increments: lease payments under the royalty for the previous five years shall be credited cumulatively against royalty payment obligations; all lease payments after the fifth year to be indexed and increased by the compounded U.S. Consumer Prices Index inflation rate each year;
• Half the shares issued on signing the definitive agreement will be subject to an escrow period of one year;
• GRC retains and Kermode grants an area of influence extending one mile from the exterior boundaries of the project, in which all claims or properties as may be acquired by Kermode, or an affiliate or related party, will be subject to the contemplated agreement between Kermode and GRC and will become a part of the property;
• GRC retains and Kermode grants a future sales interest (FSI) such that if Kermode sells or assigns its interest in the property or if an affiliate of Kermode holds such leasehold interest, GRC will receive 5 per cent of any such payments or compensation to Kermode arising out of such merger, agreement, sale, transaction or assignment of the contemplated lease, or affiliate of Kermode that controls such lease;
• GRC retains and Kermode grants a 5-per-cent net smelter return (NSR) production royalty, which shall be subject to a buydown by Kermode to 3-per-cent NSR for $3-million, and subject to an additional buydown by Kermode to 1.5-per-cent NSR for an additional $3-million.

Anti-dilution clause:

• If the company exercises the option to lease the project, then Kermode will issue to GRC that number of common shares of Kermode that will increase GRC's equity ownership in Kermode to 5 per cent. Thereafter, Kermode will have the continuing obligation to issue additional shares of Kermode to GRC to maintain its 5-per-cent interest in Kermode, at no additional cost to GRC, until Kermode has raised a cumulative $2-million (U.S.) in equity. Half the shares issued on signing will be subject to a one-year escrow.
• GRC will have the right to participate pro rata in all future financings for three years following the exercise at its own cost to maintain its 5-per-cent interest in Kermode. When GRC sells shares in Kermode issued under the terms of the lease, the amount of the anti-dilution clause decreases on a pro rata basis.

Work commitments:

• Kermode commits to conduct at least $50,000 (U.S.) on exploration on the property during years two through five and $100,000 (U.S.) per year thereafter.
• Kermode agrees that it will maintain the GRC lease for the project in good and marketable condition, it will protect and defend the title to the project keeping the title free and clear of any and all liens and encumbrances, and it will reimburse GRC or the lessor for payment of annual property taxes and other reasonable costs related thereto.

Description of WS claims

The WS property comprises those unpatented mining claims identified as WS 101 through and including 110 in the Wild Horse mining district, Township 25 north, Range 32 east, sections 14 and 15, MDBM, Pershing county, Nevada.

The WS project is prospective for high-grade silver, gold and antimony. It is a grassroots exploration project situated in the arid Basin and Range province of west-central Nevada on lands administered by the Bureau of Land Management. Mineralization in the area was first discovered about 1906, and limited, though unspecified, production occurred sporadically from 1918 through about 1967. The principal mine on the property, the Green Monster silver mine, was first located during First World War, has produced an uncertain amount of silver-antimony ore and produced intermittently from 1936 through 1967.

Silver-antimony mineralization occurs within a two-mile-long, north-trending area of recessional weathering, as is common of many major mineralized systems in the Basin and Range. High-grade, structurally controlled silver mineralization occurs in structures ranging from a few inches to more than 12 feet in width hosted in intensely altered and fractured gabbro. In general, the WS system occurs within an extensive, north-south-trending corridor of structurally controlled mineralization, which may trend through the nearby Coeur-Rochester open-pit silver mine, owned and operated by Coeur d'Alene Mines Corp. and Midway Gold's Spring Valley project in joint venture with American Barrick. Spatially related rhombic areas of sulphide-rich breccia in a gangue of calcite, ankerite and ferroan dolomite suggest the presence of structurally controlled breccias pipes, potentially similar to those reported in the Spring Valley project. Elevated levels of fluorine are similar to other major mines in the area, including the Florida Canyon and Relief Canyon mines.

Mineralization occurs in highly altered and bleached Jurassic-age gabbro of the Humboldt lopolith, an intrusive regional event with an extent estimated at approximately 956 square miles situated within a sizable volcanotectonic trough. Regionally, the Humboldt lopolith is intrusive into Triassic-age sediments of the Star Peak group, Auld Lang Syne/Grass Valley and related formations.

Primary antimony minerals are stibnite and owyheeite or argentiferous jamesonite. Structures up to 12 feet in true width consisting of crushed quartz with gossanous iron oxides have returned assays up to 16.6 ounces per ton silver, 1.1 per cent stibnite antimony and 5.6 per cent lead. Samples up to 0.023 ounce per ton gold, associated with a separate mineralizing event dominated by structurally controlled silica flooding, and elevated arsenic, selenium and tellurium are present.

The larger quartz breccia veins have associated sulphide-poor barite-calcite zones ranging up to four feet thick as a hangingwall member.

Potential exists to identify a substantial volume of near-surface oxide silver mineralization with the potential to develop high-grade bonanza-grade silver mineralization at redox boundaries near paleo water tables, where secondary enrichment of silver is likely to occur in and near the mineralized structures. Below the redox boundary, there is potential to discover higher-grade quartz-carbonate-stibnite-silver veins in a supergene enrichment setting.

All of the historical work and conclusions described herein were carried out by arm's-length third parties. Kermode has no information about the mining or assay methods used or whether the work was carried out under the supervision of a qualified person as that term is defined in National Instrument 43-101. These historical records should not be relied upon without further work being carried out at and around the project under the supervision of a qualified person.

Description of Alpha patent

The Alpha patented mining claim USMS 38 containing 4.54 acres as surveyed by A. Craven, February and March, 1881, in the Echo mining district, Township 30 north, Range 33 east, sections 25, 26 and 35, MDBM, Pershing county, Nevada.

B.F. Couch and J.A. Carpenter, 1943, Nevada's mineral and metal production (1859 to 1940, inclusive): Nevada Bureau of Mines and Geology Bulletin 38 (originally published as the University of Nevada Bulletin, Volume 37, No. 4).

The Alpha patent covers the historic Rye Patch mines and the entire known extent of the Alpha vein. USGS records show the Rye Patch mine had 24,434 tons for $634,388 in mine production from 1872 to 1881, while the entire district supposedly had less production over the same timelines. It is unclear why the USGS figures reported for the mine are larger than for the entire district.

Discovered in 1864, the Rye Patch mine is the principal mine in the Rye Patch district. During the period from 1871 through 1940, B.F. Couch and J.A. Carpenter (1943) document more than $1.3-million of production from the district, mostly in silver and gold, which at then prevailing prices of 76.3 cents per ounce of silver would equate to more than 1.76 million ounces. The Rye Patch mine itself produced $634,388 in silver and gold from 1871 through 1881 (B.F. Couch and J.A. Carpenter, page 129), or 494,807 silver equivalent ounces at then prevailing metal prices of $1.28 per troy ounce of silver.

Examination of the extensive mine workings indicates the recorded production of only 24,434 tons of ore significantly understates the actual production from the mine. Much of the production from the Rye Patch mine was hauled by wagon to a large milling facility at Oreana, Nev., and the nearby Unionville district. Extensive mine workings at the Rye Patch mine explore the southernmost end of the zone. Beside this, limited surface geochemistry has been conducted, and the property has never been drilled.

Mineralization is hosted in portions of the Permian-age Koipato group and the Triassic-age Prida and Natchez Pass formations. Mineralization is focused in and along the subvertical Alpha vein. The Alpha vein periodically intersects a series of low-angle imbricate structures, where mineralization forms large flat-lying bodies.

Alteration and mineralization consist of pervasive silica flooding and quartz filling of hydrothermal breccias. Primary minerals are pyrite, sphalerite, galena, chalcopyrite, stibnite, molybdenite, scheelite and argentite.

Mineralization may extend up to a mile north of the Rye Patch mine, but there are no records of historically productive mines in that area. Mineralization appears to be terminated by a fault in the Rye Patch Canyon to the south.

Mineralization appears to have a loose spatial relationship with a series of diabase sills and dikes evident in much the same manner as at the nearby Florida Canyon and Standard mines, and mineralization is spatially associated with this series of dikes and sills.

Extensive mine workings at the Rye Patch mine explore the southernmost end of the zone. Other than this, limited surface geochemistry has been conducted, and the property has never been drilled. Situated in the Rye Patch (Echo) mining district, the property is located along U.S. Interstate 80 roughly 30 miles north of Lovelock, Nev., along U.S. Interstate 80, approximately 2.5 and five miles south of the Standard and Florida Canyon mines, respectively.

All of the historical work and conclusions described herein were carried out by arm's-length third parties. Kermode has no information about the mining or assay methods used or whether the work was carried out under the supervision of a qualified person as that term is defined in NI 43-101. These historical records should not be relied upon without further work being carried out at and around the project under the supervision of a qualified person.

Quality assurance/quality control

All samples reported in this release are channel samples taken by a registered professional geologist with nominal sectional channel dimensions of three centimetres deep by five to six centimetres wide over the entire sampled length. All samples are taken as near to normal to the apparent structures as field conditions permit.

All assays were performed at Paragon Laboratories in Sparks, Nev. Gold (Au) was determined by fire assay and atomic absorption finish with samples containing more than five grams gold per metric tonne rerun by fire assay with a gravimetric finish. Silver (Ag) was determined by aqua regia digestion with atomic absorption finish. All samples assaying over 100 g/t Ag were assayed with fire assay and gravimetric finish.

Qualified person

The technical information in this news release has been reviewed and approved by Robert G. Carrington, PGeo, a qualified person responsible for the scientific and technical information contained herein under National Instrument 43-101 standards.

About Kermode Resources Ltd.

Kermode is a junior mining company, hunting for exploration opportunities around the world.

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