Osisko, Clifton Star form JV on Duparquet

Also News Release (C-CFO) Clifton Star Resources Inc

Mr. Sean Roosen of Osisko reports

OSISKO AND CLIFTON STAR SIGN BINDING AGREEMENT TO ENTER INTO JOINT VENTURE ON DUPARQUET PROJECT

Osisko Mining Corp. and Clifton Star Resources Inc. have entered into a binding agreement regarding a joint venture on Clifton's Duparquet project. Located near the town of Duparquet in Duparquet township, Quebec, the project is approximately 45 kilometres northwest of the city of Rouyn-Noranda and 90 kilometres northwest of Osisko's flagship Canadian Malartic construction-stage gold mine.

The Duparquet project comprises two large property blocks. The properties host former-producing underground gold mines (including Beattie, Donchester and Duquesne, which collectively produced over 1.5 million ounces of gold from 1933 to 1991) and two deposits with known gold resources (Central Duparquet and Dumico). The properties cover approximately eight kilometres of strike length along the prolific Porcupine Destor fault zone, which has historically produced over 80 million ounces of gold,

Clifton recently filed a National Instrument 43-101-compliant report based on new drilling at Beattie and Donchester, which outlines significant gold resources on the property (see Clifton's press release in Stockwatch dated Sept. 8, 2009).

Gold mineralization at both Beattie and Donchester is associated with altered porphyry intruded into a sequence of metavolcanics and metasediments. Work on the properties since 1987 has shown indications of gold mineralization along 8.4 kilometres of strike length associated with the porphyry intrusions. The joint venture will focus on exploring the length of the mineralized systems and extensive definition drilling of the known gold-bearing zones on the properties.

Robert Wares, executive vice-president and chief operating officer of Osisko, stated: "We are excited by the prospects at Duparquet, and are happy to be working with Clifton on this project. Duparquet offers good potential for a bulk-minable gold deposit located on a geological structure that has traditionally been mined by underground methods."

The agreement is outlined in a term sheet which describes the joint venture between Osisko and Clifton to be formalized by Dec. 10, 2009. The signing of the joint venture agreement is contingent upon the following:

1. The completion of due diligence by Osisko;
2. Clifton entering into revised agreements in relation to the underlying option agreements governing Clifton's right to earn an undivided 100-per-cent interest in the project on substantially the same terms as announced Clifton in Stockwatch news on Oct. 26, 2009;
3. Receiving the approval of the TSX Venture Exchange.

The agreement provides the following:

• Osisko shall make contributions to the joint venture in the first year, which shall commence on Jan. 1, 2010, of a minimum of $15-million. Thereafter, Osisko agrees:
  • To contribute $15.7-million in earn-in payments to the joint venture in the second year, which shall commence on Jan. 1, 2011;
  • To contribute $23.6-million in earn-in payments to the joint venture in the third year, which shall commence on Jan. 1, 2012;
  • To contribute $15.7-million in earn-in payments to the joint venture in the fourth year, which shall commence on Jan. 1, 2013;
  • By making such payments (total of $70-million) Osisko shall earn a 50-per-cent interest in the joint venture over a period of four years. Osisko shall have the right to increase the rate of earn-in payments and accelerate the term of the option period to acquire the 50-per-cent interest under the joint venture. Earn-in payments shall be used by the joint venture to finance the activities of the joint venture.
• Osisko will act as operator of the joint venture during the option period and thereafter so long as Osisko has a 50-per-cent or greater interest in the joint venture.
• Osisko agrees to advance to Clifton:
  • For a period of 24 months the principal amount of $8.5-million at a rate of interest per year of 5 per cent calculated on the full principal amount and compounded monthly from and including the day the funds are advanced to and including the date of payment. The maturity date on the $8.5-million loan will be the 24-month anniversary of the advance of funds with the option exercisable by Clifton to repay the full amount of principal and interest owing thereunder at any time prior to the maturity date;
  • For a period of 36 months up to an aggregate principal amount of $22.5-million at the rate of interest per year of 5 per cent calculated on the outstanding principal amount compounded monthly from and including the dates that funds are advanced to and including the date of payment. The principal amount and interest owing pursuant to the $22.5-million loan shall be due and payable on the 36-month anniversary of the date of execution of the joint venture agreement with the option exercisable by Clifton to repay the full amount of principal and interest owing thereunder at any time prior to maturity.
• Each of the $8.5-million loan and the $22.5-million loan will be unsecured, will be the subject of a loan agreement, and will be evidenced by promissory notes in such amounts as are specified herein and delivered upon execution of the definitive joint venture agreement.
• The loans from Osisko to Clifton are to facilitate payments to the underlying property owners which will assist Clifton in securing full title to the property. In the event that at any time Osisko determines that it will not proceed to finance the earn-in payments under the joint venture prior to expiry of the option period and abandons its interest in the project, Clifton, at its sole option, may elect to convert the entire amount of principal and interest owing under the loans into common shares of Clifton at a conversion price per share equal to $3.12, provided such conversion shall be subject to prior approval of applicable regulatory agencies and stock exchanges. The loan agreement shall provide for the customary anti-dilution and conversion rights protection for the lender.
• If Clifton (i) does not drawdown on the loans and obtains alternate equity financing to meet the Clifton's obligations for payments required under the revised underlying option agreements related to the project, and (ii) makes the required payments under such agreements, Osisko shall have no further obligation to advance funds under the loans but will contribute an additional $31-million to the joint venture, of which $15.5-million will be advanced on behalf of Clifton's pro rata share of expenditures under the joint venture to be repaid from the Clifton's share of production. Clifton shall have no right to convert such advances into shares of Clifton.
• Upon the execution of the joint venture agreement, Osisko will agree to make an unsecured loan to Clifton for the principal amount of $6-million on or before Jan. 1, 2010, for general corporate purposes. The initial loan will be unsecured, bear interest at the rate of 5 per cent per year and have a term of 12 months from the date of advance. The initial loan will be evidenced by a promissory note. Clifton, at its sole option, may elect at any time to convert the entire amount of principal and interest owing under the initial loan into common shares of Clifton at a conversion price per share of $3.12, provided such conversion is subject to prior approval of applicable regulatory agencies and stock exchanges. The promissory note shall provide for the customary anti-dilution and conversion rights protection for the lender.

The total value of the commitments by Osisko, subject to milestone-driven success, totals $107-million.
Sean Roosen, president and chief executive officer of Osisko, stated: "We are very much looking forward to being partners with Clifton Star on their exciting Duparquet project. We believe that Duparquet hosts very promising gold deposits, with excellent potential for future development. The planned joint venture between our two companies will maximize the chances for future success at Duparquet. Osisko's seasoned exploration team and engineering group will have a large and strong project to tackle, and we plan to outline an aggressive and detailed work program immediately. Our full experience at Canadian Malartic will be put to work at Duparquet."

Harry Miller, president and chief executive officer of Clifton Star, commented: "This is a seminal event in the history of Clifton Star. We are extremely pleased to have successfully negotiated favourable terms to fully fund this exciting and promising project. With this deal we are bringing the technical and financial expertise that has built Osisko's $2.3-billion market capitalization value to Clifton Star. Osisko has successfully permitted their project and raised over $1-billion in the last year to build the Canadian Malartic mine. With the talent and experience of the Osisko team we have complete confidence that our goal to develop Duparquet into Quebec's next major gold mine will be achieved."