Polar Star announces private placement

/NOT FOR DISTRIBUTION TO UNITED STATES WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES/

TORONTO, Oct. 5, 2012 /CNW/ - Polar Star Mining Corporation ("Polar Star" or the Company") (TSX:PSR) is pleased to announce that it has signed a term sheet with Arlington Group Asset Management Limited ("AGAM") who will act as broker to the Company, on a reasonable endeavours basis, in connection with a proposed private placement of up to 65,000,000 common shares of the Company (the "Private Placement") at a price of $0.10 per common share (the "Subscription Price").

Promissory Note

As previously announced, the Company has signed a $750,000 promissory note ("Promissory Note") in favour of Praetorian Resources Limited ("Praetorian") which bears interest at the rate of twelve per cent per annum (accruing and compounding on a daily basis), with a minimum amount of interest payable after the date that is sixteen (16) days from the date of issuance of the Promissory Note of $15,000.

The principal amount of the Promissory Note plus accrued interest may be convertible into common shares of the Company at the Subscription Price upon the closing of the Private Placement at the election of Praetorian.

Private Placement

The price of the Private Placement represents a 45% discount to the Company's five-day volume weighted average stock price as at October 3, 2012 of $0.18.

The proceeds of the Private Placement will be used to support capital development at the Company's Chépica mine in Chile and for general corporate purposes.

The parties are working diligently to complete the Private Placement, which is expected to close on or around October 15, 2012.

In connection with the Private Placement, AGAM will be paid a cash commission of 2.5% of the gross proceeds and an additional 2.5% commission of the gross proceeds paid via the issuance of common shares at the Subscription Price.

The maximum number of common shares issuable via the Private Placement, assuming the full subscription of the Private Placement is 66,775,000 which represents 67.3% of the issued and outstanding common shares of the Company prior to the Private Placement and 40.2% of the potential issued and outstanding common shares of the Company after the closing of the Private Placement.  Up to 57,500,000 common shares will be issued via the common share subscription, up to a further 7,650,000 common shares will be issued to Praetorian upon the conversion of the Promissory Note to common shares and up to a further 1,625,000 common shares will be issued as commission to AGAM.

Praetorian currently does not own common shares of the Company, but may participate in the private placement.  After the closing of the Private Placement, and including the conversion of the Promissory Note plus accrued interest, it is possible that Praetorian will own greater than 10% of the issued and outstanding common shares of the Company and therefore become an insider.  No other insiders are expected to be created as a result of the Private Placement and no impact on the control of the Company, other than Praetorian's potential ownership, is expected as a result of the transaction.  Praetorian has nominated one director to the board of directors of the Company (the "Board"), being Charles Cannon-Brookes. Mr. Cannon-Brookes holds a 32% interest in AGAM.

The Private Placement was negotiated at arm's length and no insiders will participate.

Financial Hardship Application

As the Private Placement contemplates issuing common shares at a greater than 25% discount to the current market price and in light of the dilutive effects on the existing holders of common shares of the Company being greater than 25%, the Company is normally required to obtain shareholder approval pursuant to Sections 607(g) and 607(e) of the TSX Company Manual, respectively. However, the Company has applied for and received from the TSX a "financial hardship" exemption from the requirement to obtain shareholder approval (pursuant to the provisions of Section 604(e) of the TSX Company Manual) on the basis that the Company is in serious financial difficulty.

In May 2011, Polar Star undertook to re-start the Chépica mine.  Estimated costs to refurbish and develop the mine continued to increase over the life of the development phase and revenue produced during the development phase did not reach forecasted amounts in the initial time-frames contemplated. The Company's liquidity has been negatively impacted during the past several months as a result of operational and development issues at the Chépica mine.  The Company is in a position of severe negative working capital and is currently unable to cure its liabilities.  Without immediate funding, certain of the Company's key suppliers will cease to provide vital services to the development of the mine and operation of the mill, halting the Company's revenue stream and certain properties under option to Polar Star, including the Chépica mine, may be forfeited as option payments will not be made.  In addition, continued development of the mine is required to ensure sufficient mineral resources for mining and an economically viable mill.  Without funding, the Company will be unable to continue the development at the Chépica mine.

The Board has concluded that the Private Placement is reasonable and in the best interests of the Company given the Company's current financial difficulties and the lack of alternate financing arrangements. The Board has made this determination free from any interest in the transaction and unrelated to the parties involved in the transaction. The Private Placement is designed to improve the Company's financial situation and provide the Company sufficient liquidity in the intermediate term.

Forward-Looking Statements 

This news release may contain forward-looking statements based on assumptions, uncertainties and management's best estimates of future events.  Actual events or results could differ materially from the Company's expectations and projections.  Investors are cautioned that forward-looking statements involve risks and uncertainties.  Accordingly, readers should not place undue reliance on forward-looking statements.  When used herein, words such as "anticipate", "will", "intend" and similar expressions are intended to identify forward-looking statements.  For a more detailed discussion of such risks and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, refer to Polar Star's filings with Canadian securities regulators available on www.sedar.com or the Company's website at www.polarstarmining.com.

About Polar Star

Polar Star is an emerging exploration company with a focus on building value in Chile through discovery, development and production.  The company is advancing its flagship exploration property, Montezuma, that covers 40 kilometres of the West Fault zone and the cross-cutting Esperanza Fault systems. The property is located between Codelco's Radomiro Tomic - Chuquicamata - Ministro Hales mines in the north and Antofagasta PLC's El Tesoro - Esperanza - Polo Sur mines to the south.  Polar Star operates the Chépica gold/silver/copper mine located 270 kilometres south of Santiago, Chile.  The head office of Polar Star is located in Toronto.

Share Capitalization
Shares outstanding: 99,276,001 as at October 5, 2012.

SOURCE: Polar Star Mining Corporation

Adam Rochacewich, CFO
Tel: [phone]
Email: [email protected]
www.polarstarmining.com