Kutcho

Project Overview

The Kutcho project is a high grade copper-zinc-gold-silver deposit in the advanced development stage. The deposit is currently being advanced towards a production decision. , In May 2008 Capstone's predecessor company, Sherwood Copper Corp., acquired 100% ownership in Western Keltic Mines Ltd., owner of the high grade Kutcho copper-zinc-gold-silver deposit in north-western British Columbia. The project is now operated by Kutcho Copper Corp., a wholly-owned subsidiary of Capstone.

Location

The Kutcho property is located approximately 100 kilometres due east of Dease Lake and 330 kilometers north of Smithers in the Liard mining district in Northern British Columbia. The site is located at approximately 1500 metres above sea level and has an average annual temperature of -1o C.

The site is accessible via a 900 metre long gravel airstrip located 10 kilometres from the deposit and a
100 kilometre long seasonal road from Dease Lake that is only suitable for off-highway vehicles during
the summer months.

The PFS contemplates that access will be via an all-weather road to be constructed, connecting with Highway 37 to the port of Stewart where it will be shipped to world markets.

Moving Forward

After the acquisition of the Kutcho project, Capstone began reassessing the development plans by focusing on the development of a smaller scale, lower capital cost operation, focussing on high grade production.

In June of 2008, Capstone completed a preliminary economic assessment which evaluated the potential for a smaller scale open pit operation. Subsequent to this study, Capstone conducted a detailed resource definition drill program within the Main deposit, as well as metallurgical and environmental baseline studies. The results of this work were incorporated into a new preliminary economic assessment published in September 2009, revised in July 2010 and further refined in a Pre-feasibility Study filed in March 2011.

Capstone is proceeding with permitting and further engaging stakeholders in consultations regarding the development of the Kutcho project. With the 2011 Pre-feasibility Study in hand, Capstone is now proceeding towards submission of an Environmental Assessment Certificate (EAC) Application, and is in discussions with First Nations and other stakeholders. Detailed engineering could also continue in order to enhance project economics and further mitigate risk. If First Nations discussions and detailed engineering attain corporate objectives in a timely fashion, a production decision could be made in the last quarter of 2012.

Project Milestones
May/08	Sherwood Copper and Western Keltic Mines, owner of the Kutcho Cu-Zn-Ag-Au deposit, close business combination
Feb/09	High grade resources reported for Kutcho project
Sep/09	Results of Preliminary Economic Assessment ("PEA") reported
Jul/10	Enhanced PEA results reported
Dec/10	Updated mineral resource estimate; all mineral resources converted to indicated category
Feb/11	Results of Pre-feasibility study reported
May/11	Submitted revised Project Description to provincial and federal agencies initiating the informal pre-application phase
Dec/11	Pre-application stage of EA review process re-activated

Exploration, Resources and Reserves

During the Current Period, Capstone completed a 35-hole, 17,970 meter drill program on the Esso
deposit at the Kutcho Project. The drilling program was a success and led to the completion of a new mineral resource estimate of 10.4 million tonnes with an average grade of 2.01% copper, 3.19% zinc with an expected mine life of 12 years and an average throughput of 2,500 tonnes per day producing separate copper and zinc concentrates.

Additional information can be obtained in this new release.

Outlook

With the 2011 PFS in hand, Kutcho Copper Corp. can now proceed towards submission of an Environmental Assessment Certificate (EAC) Application, currently anticipated at the end of Q2/12 and also commence discussions with First Nations and other stakeholders. Detailed engineering could also continue in order to enhance project economics and further mitigate risk. Should the permit process, First Nations discussions and detailed engineering attain corporate objectives in a timely fashion, it is feasible that a production decision could be made in Q4/12 and assuming a positive decision this could enable construction to commence in the second half of 2013.

Kutcho Project - Mining Reserve used in 2011 PFS

	Tonnes	Classification	Cu %	Zn %	Ag g/t	Au g/t
Main	8,106,267	Probable	1.92	2.51	28.02	0.31
Esso	2,334,894	Probable	2.32	5.53	57.48	0.59
Total	10,441,161	Probable	2.01	3.19	34.61	0.37

Kutcho Project - Mineral Resource Estimate at a 1.5% Copper Cut-Off for All Deposits

Class	Tonnes (000's)	Grade				Contained Metal
Class	Tonnes (000's)	Copper (%)	Zinc (%)	Gold (g/t)	Silver (g/t)	Copper (millions lb)	Zinc (millions lb)	Gold (000s oz)	Silver (000s oz)
Measured (M)	5,421	2.15	2.86	0.34	31.4	256.6	341.8	59	5,482
Indicated (I)	5,859	2.24	3.67	0.45	41.6	289.2	473.5	84	7,831
M & I	11,280	2.19	3.28	0.39	36.7	545.8	815.3	143	13,313
Inferred	1,090	1.74	2.04	0.35	30.7	41.9	49.1	12	1,077

Project History

Mineralization was first discovered on the Kutcho property in 1968 by a joint venture exploration company operated by Imperial Oil Ltd. The property has changed hands a number of times with ownership by companies such as; Sumac Mines Ltd., a subsidiary of Sumitomo Metal Mining Co. Ltd, Homestake Canada Ltd, American Reserve Mining Corporation, Teck Cominco Ltd and Barrick Gold Corp.

Western Keltic Mines Ltd. purchased the property from Barrick and Sumitomo in early 2004. Western Keltic carried out diamond drilling within the Main and Esso deposits to confirm historical results and obtain material for metallurgical studies. The Sumac deposit was also drilled in 2005 to test for higher grade zones. In September 2007, Western Keltic completed a pre-feasibility study evaluating the potential development of the Kutcho Creek deposit.

In May 2008, Capstone successfully acquired 100% ownership in Western Keltic and the project is now operated by Kutcho Copper Corp., a wholly-owned subsidiary of Capstone.. Prior to the acquisition, Western Keltic had been advancing the project towards completion of a feasibility study by conducting geotechnical and environmental baseline studies, as well as advancing the permitting process for approval of production. Western Keltic had also been actively engaged in discussions with the Talhtan and Kaska First Nations, as well as other local communities to ensure there was broad based support for the development of a mine at Kutcho Creek, while taking into account the concerns of the First Nations and other stakeholders.

Capstone's first objective was to reassess the development options and, in March of 2008, commenced work on a preliminary assessment aimed at a re-scoped and redesigned project that is focused on a smaller, less capital intensive high grade open pit and/or underground project that could be developed faster than that previously planned. Remodelling and re-estimating mineral resources for all three known VMS deposits was initiated. It immediately highlighted several large gaps in the Main deposit mineral resource that needed to be filled in order to demonstrate continuity of high grade mineralization. In June of 2008, using a newly revamped Main deposit mineral resource based upon drilling by the previous operators as a platform, Capstone completed a Preliminary Economic Assessment (PEA) which demonstrated positive base case economics and outlined several opportunities for significant future enhancements.

Before the recommendations of the PEA study were received, Capstone started revamping the Esso and Sumac deposit mineral resource estimates and embarked upon a 10,000 metre diamond drill program in order to infill the gaps then identified in the Main deposit resource model. This drill program was successful and a new and much more robust NI 43-101 compliant mineral resource for the Main deposit was announced on February 9, 2009. It includes 81 new diamond drill holes and is significantly higher grade than all previous models.

Back In and Off Take Rights

Upon receipt of a feasibility study, Royal Gold, Inc (interest formerly owned by Barrick Gold Inc.) and AMI Resources Inc., or Royal Gold alone, have a 120 day period to provide Kutcho Copper written notice of its intention to earn a 50% back-in interest on the Kutcho property subject to aggregate payments equal to 300% of development expenditures on the Kutcho property. This applies only to that portion of the property on which Royal Gold previously held and interest. This would give Royal Gold and AMI, or Royal Gold alone, a 20% interest in the Main deposit and a 50% interest in the Esso deposit, based on the property definition per the acquisition agreements and as interpreted in the September 2007 Pre-feasibility Study. In addition, Sumitomo Metal Mining Co. Ltd. have right of first refusal on the sale of concentrates from the Kutcho property and Sumac, Royal Gold and AMI are entitled to various royalties on the portion of the project they sold to Kutcho Copper.

Geology and Mineralization

The Kutcho property contains three known Kuroko-type volcanogenic massive sulphide (VMS) deposits. They are aligned in a westerly plunging linear trend and from east to west they are called the Main, Sumac, and Esso deposits. The largest of the three, the Main deposit, comes to surface near the eastern end of this trend, whereas the Esso deposit occurs at depths about 400-600 metres below surface at the western or down plunge end of the trend as it is currently known. The Sumac deposit lies between the Main and Esso deposits both laterally and vertically, but has seen only cursory drilling. The mineralized trend is open down plunge but is poorly explored.