Darnley Bay Closes Purchase of Pine Point Zinc Project and Completes $7.65 Million First Tranche of Private Placement

TORONTO, ONTARIO--(Marketwired - Dec. 20, 2016) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAWS.

Darnley Bay Resources Ltd. (TSX VENTURE:DBL) ("Darnley Bay" or the "Company") is pleased to announce the closing of the first tranche of its previously-announced non-brokered private placement financing (the "Offering") and following the closing of the Offering, it has completed the acquisition of the Pine Point zinc project near Hay River, N.W.T. as previously announced on October 20, 2016.

Part of the proceeds from the Offering were used by the Company to complete the acquisition of the Pine Point transaction (as detailed below), and the remaining funds will be used to complete a preliminary economic analysis on the Pine Point project, for exploration and drilling, and for working capital purposes. The former-producing Pine Point assets contain 42 known zinc-lead deposits over a strike length of approximately 68 kilometres. Ten of these deposits were subjected to a National Instrument 43-101 technical report in 2014 prepared for Tamerlane Ventures, a previous owner.

Further to its press release dated December 8, 2016, the Company completed the first tranche of the Offering ("First Tranche") through the issuance of 25,000,000 units (each a "Unit") at a price of $0.20 per Unit for gross proceeds of $5,000,000 and 10,635,400 flow through common shares (each an "FT Share") at a price of $0.25 per FT Share for gross proceeds of $2,658,850.

Each Unit consists of one common share of the Company (a "Common Share") and a one-half Common Share purchase warrant (a "Warrant"). Each whole Warrant entitles the holder to acquire one additional Common Share (a "Warrant Share") for a period of twenty-four (24) months from the date of closing of the Offering at an exercise price of $0.30 per Warrant Share. All securities issued under the Offering are subject to a four-month and one day statutory hold period. A second tranche of the Offering consisting of FT Shares is expected to close on or prior to January 9, 2017.

The Company is extremely pleased to announce that Zebra Holdings and Investments S.à.r.l ("Zebra"), a company controlled by a trust settled by the late Adolf H. Lundin, subscribed for $2.5 million comprised of 12.5 million Units of the Offering. The Company further announces McEwen Mining and Evanachan Limited, a corporation controlled by Mr. Rob McEwen, have subscribed for in the aggregate $1 million comprised of 5 million Units of the Offering.

PowerOne Capital Markets Limited acted as a finder in connection with a portion of the Offering.

Pine Point Transaction

Further to the Company's press release dated October 20, 2016, Darnley Bay has completed its acquisition (the "Acquisition") of the Pine Point property (the "Property") today pursuant to a definitive agreement dated December 9, 2016 (the "Definitive Agreement") between Darnley Bay and KSV Kofman Inc., in its capacity as Court-appointed receiver of Tamerlane Ventures Inc. and Pine Point Holding Corp. (the "Receiver"). The Definitive Agreement was approved by the Ontario Superior Court of Justice (Commercial List) on December 19, 2016. 

Pursuant to the terms of the Definitive Agreement, Darnley Bay has agreed to pay to the Receiver an amount of CDN$3,000,000 (plus the value of certain prepaid assets) and issue 26,250,000 Common Shares (the "Consideration Shares") as the total purchase price for the Property. The Receiver will re-distribute the Consideration Shares to Global Resource Fund ("GRF"), having a registered address of c/o Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman KY1-9008, Cayman Islands, the principal secured creditor of the Company, in one or more distributions, provided that the Receiver shall not make a distribution of incremental Common Shares to GRF at any time if, immediately following such distribution, GRF would own or control aggregate Common Shares which, as a percentage of all issued and outstanding Common Shares at the time of such distribution, exceeds 19.99% of the issued and outstanding Common Shares of the Company. If the Receiver remains in possession of any Consideration Shares following the expiry of an eight-month period commencing on the completion of the transaction, the Definitive Agreement provides that such remaining Consideration Shares will be sold by the Receiver and the resulting net proceeds distributed to GRF.

In accordance with the early warning requirements of National Instrument 62-103 with respect to the acquisition of the Common Shares, GRF is required to report certain information in respect of its holdings of securities of the Company. As of the date hereof, immediately following the Acquisition, GRF owns or controls, directly and indirectly, an aggregate of 23,195,232 Common Shares, representing 19.92% of the issued and outstanding Common Shares of the Company following completion of the Acquisition. The deemed value of each Common Shares acquired by GRF is $0.179 per Common Share.

Prior to the transactions GRF owned no securities of the Company, however, David Lewis, who is a director of GRF and who indirectly controls GRF, beneficially owned 15,000 Common Shares, representing 0.02% of the issued and outstanding Common Shares prior to completion of the Acquisition.

Depending on market and other conditions, or as future circumstances may dictate, GRF may from time to time increase or decrease its holdings of Common Shares.

The Pine Point property consists of a semi-contiguous group of 45 mineral claims and mining leases in the Pine Point District, about 40 km east of Hay River, NWT, accessed by a year-round highway which parallels the mining lease block. Hay River in turn can be reached by 825 km of paved road north from Edmonton, Alberta. Hay River has all major services including an airport with scheduled jet service from Edmonton and Yellowknife, a rail terminal and a port from which all barge traffic travels down the Mackenzie River. An airstrip suitable for small aircraft is also present 4 km SSE of the former Pine Point mill site and 2 km east of the former Pine Point town site. The property is subject to a 3% net smelter return royalty.

Pine Point was a productive zinc mine for several decades in the past. ComInco Ltd. commenced large-scale mine production in 1964 with reported reserves of 21.5 million tonnes averaging 4 per cent lead and 7.2 per cent zinc (a historical figure reported by Giroux and McCartney in 2001). The Pine Point mine was actually an assemblage of 46 separate open pits and two underground deposits, lying along a 35-kilometre trend, including the concentrator at the Pine Point town site. Approximately 64 million tonnes of ore at a grade of 7.2 per cent zinc and 4 per cent lead were mined between 1964 and 1987. Previous drilling on the property totals approximately 1.3 million metres in 18,422 holes by Pine Point Mines (Cominco), Westmin and Tamerlane.

Further Details on The Offering

The Offering constituted a related party transaction within the meaning of TSX Venture Exchange Policy 5.9 and Multilateral Instrument 61-101 ("MI 61-101") as insiders of the Company subscribed for an aggregate of 675,000 Units. The Company is relying on the exemptions from the valuation and minority shareholder approval requirements of MI 61-101 contained in sections 5.5(a) and 5.7(1)(a) of MI 61-101, as the fair market value of the participation in the Offering by insiders does not exceed 25% of the market capitalization of the Company, as determined in accordance with MI 61-101. The Company did not file a material change report in respect of the related party transaction at least 21 days before the closing of the Offering, which the Company deems reasonable in the circumstances so as to be able to avail itself of the proceeds of the Offering in an expeditious manner.

Jamie Levy, a director and officer of the Company, through a company owned and controlled by him, acquired 450,000 Common Shares and 225,000 Warrants in connection with the Offering. Following the completion of the Offering, Mr. Levy owns or controls, directly and indirectly, an aggregate of 4,436,000 Common Shares, representing approximately 4.86% of the issued and outstanding Common Shares of the Company following the completion of the Offering (and approximately 3.81% following the completion of the Offering and the Pine Point Transaction). If Mr. Levy were to exercise all of his convertible securities he would own, directly and indirectly, 9,181,000 Common Shares, representing approximately 9.13% of the Company's then outstanding Common Shares, on a partially diluted basis (and approximately 7.30% following the completion of the Offering and Pine Point Transaction).

Kerry Knoll, a director of the Company, through a company owned and controlled by him, acquired 225,000 Common Shares and 112,500 Warrants in connection with the Offering. Following the completion of the Offering, Mr. Knoll owns or controls, directly and indirectly, an aggregate of 3,448,020 Common Shares, representing approximately 3.77% of the issued and outstanding Common Shares of the Company following completion of the Offering (and approximately 2.96% following the completion of the Offering and the Pine Point Transaction). If Mr. Knoll were to exercise all of his respective convertible securities he would own, directly and indirectly, 7,525,430 Common Shares, representing approximately 7.61% of the Company's then outstanding Common Shares, on a partially diluted basis (and approximately 6.07% following the completion of the Offering and Pine Point Transaction). 

Mr. Levy and Mr. Knoll have acquired the Units for investment purposes and they may, depending on market and other conditions, increase or decrease their beneficial ownership, control or direction over the Common Shares, or other securities of the Company, through market transactions, private agreements, treasury issuances, exercise of convertible securities or otherwise.

In connection with the closing of the First Tranche, certain eligible persons ("Finders") were paid a cash commission equal to 7% of the proceeds raised from subscribers introduced to the Company by such Finder in the amount of $497,269 and the Company also issued an aggregate of 2,277,475 broker warrants, each broker warrant entitling the holder to acquire one common share at a price of $0.30 for a period of two years from the date of issuance. Pro group participation in the Offering totaled 750,000 Units and 1,215,000 FT Shares.

John Key, Mining Engineer and Qualified Person under NI 43-101, reviewed and approved the scientific and technical information presented in this press release.

For further information or to obtain a copy of the early warning report filed by GRF:

Forward-Looking Information

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

This news release contains certain "forward-looking information" within the meaning of applicable securities law. Forward looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "would", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur. These statements are only predictions. Forward-looking information is based on the opinions and estimates of management at the date the information is provided, and is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. For a description of the risks and uncertainties facing Darnley Bay and its business and affairs, readers should refer to Darnley Bay's Management's Discussion and Analysis. Darnley Bay undertakes no obligation to update forward-looking information if circumstances or management's estimates or opinions should change, unless required by law. The reader is cautioned not to place undue reliance on forward-looking information.

Contact

Jamie Levy
President and CEO
(416) 567-2440
(416) 361-2519
jlevy@darnleybay.com
www.darnleybay.com