Karmin Exploration Inc. (“Karmin” or the
“Company”) (TSXV and Lima Stock Exchange: KAR) is pleased to
announce that the Company has entered into a definitive arrangement
agreement (the “Arrangement Agreement”) with Nexa
Resources S.A. (“Nexa”) (TSX and NYSE: NEXA) pursuant to
which Nexa will acquire all of the issued and outstanding shares of
Karmin by way of statutory plan of arrangement (the
“Transaction”).
Under the terms of the Transaction, Karmin shareholders will
receive US$69.3 million or approximately US$0.77 (being C$1.02 at
the date hereof) in cash on a fully diluted basis for each Karmin
share held. In addition, Nexa will provide to Karmin a US$700,000
demand loan (the “Nexa Loan”) to cover certain expenses of
the Transaction the excess amount of which, if any, following the
completion of the Transaction will be transferred to SpinCo
(defined below). The cash consideration per Karmin share represents
an approximately 28% premium to Karmin’s closing price on the TSX
Venture Exchange (‘TSXV”) on August 26, 2019 and a 36%
premium to the 20-day VWAP. The cash offer is not subject to a
financing condition and will be funded through Nexa’s existing cash
reserves.
David Brace, President and Chief Executive Officer of Karmin,
commented, “We are very pleased to announce this transaction, which
represents the fair value of Karmin’s share price. After conducting
a thorough strategic review, we believe the Transaction maximizes
value for our shareholders.”
Benefits of the Transaction
Benefits of the Transaction for Karmin shareholders include:
- Crystallizes a significant premium of 28% to the closing price
of Karmin shares on August 26, 2019, and approximately 36% based on
the 20-day VWAP
- Cash offer is not subject to a financing condition
- In SpinCo Karmin shareholders retain the value of, and
continued exposure to, VI Mining PLC’s (“VI Mining”) (UK NEX
Exchange: VIM) portfolio of Peruvian exploration assets, including
the Cushuro gold project
- Eliminates risks related to the construction and ramp-up of
Aripuanã Zinc project (“Aripuanã”), including negotiation of
an operating agreement with Nexa and financing required for
Karmin’s pro-rata share of the Aripuanã development capex
- Strong deal certainty with support agreements entered into with
Karmin shareholders owning approximately 72% of Karmin shares on a
fully diluted basis
Board Support and Voting Agreements
The board of directors of Karmin (the “Karmin Board”) has
unanimously determined, after receiving financial and legal advice,
that the Transaction is in the best interest of Karmin shareholders
and that the consideration to be received by Karmin shareholders is
fair from a financial point of view. The Karmin Board unanimously
recommends that the Karmin shareholders vote in favour of the
Transaction.
The Karmin Board has obtained a fairness opinion from CIBC
Capital Markets that, as of August 26, 2019, and subject to the
assumptions, limitations, and qualifications on which such opinion
is based, the consideration to be received by Karmin shareholders
pursuant to the Arrangement Agreement is fair, from a financial
point of view to the Karmin shareholders.
All of the directors and senior executive officers of Karmin,
together with each of Karmin’s significant shareholders have
entered into customary support and voting agreements with Nexa
pursuant to which they have agreed to vote their Karmin shares,
representing in aggregate approximately 72% of the issued and
outstanding Karmin shares, in favour of the Transaction.
Transaction Particulars
The Transaction will be effected by way of a court-approved plan
of arrangement pursuant to the Business Corporations Act (Alberta)
and will require approval by at least 66 2/3% of the votes cast by
Karmin shareholders present in person or by proxy at a special
meeting of Karmin shareholders. In addition to shareholder
approvals, the Transaction is subject to the receipt of certain
regulatory and court approvals, the obtaining of material consents
/ waivers, the completion of the Spinout (defined below), and the
satisfaction of other conditions customary in transactions of this
nature.
The Arrangement Agreement provides for, among other things,
customary representations, warranties and covenants, including
customary non-solicitation covenants from Karmin and a “fiduciary
out” that allows the Karmin Board to accept a superior proposal in
certain circumstances subject to a “right to match” in favour of
Nexa and payment by Karmin of a US$2.8 million termination fee to
Nexa. The Nexa Loan is repayable to Nexa in the event the
Transaction is not completed.
Concurrently with the completion the Transaction, Karmin
shareholders will be issued, by way of dividend (the
“Spinout”), a pro rata number of shares in a newly formed
private company Kar Gold Inc. (“SpinCo”), a wholly-owned
subsidiary of Karmin, that will hold 5,753,138 shares of VI Mining,
which shares are currently held by Karmin. The shares of VI Mining
held by SpinCo are coupled with a right by SpinCo to receive
additional VI Mining shares under certain conditions which are tied
to the performance of VI Mining’s shares in the future.
It is anticipated that the Transaction will be completed in the
fourth quarter of 2019.
On August 26, 2019, the indicative exchange rate for Canadian
dollars in terms of the United States dollar, as quoted by the Bank
of Canada, was US$1.00 = C$1.3279.
Further information regarding the Transaction will be included
in the information circular that Karmin will prepare, file, and
mail in due course to its shareholders (together with a letter of
transmittal) in connection with its special meeting to be held to
consider the Transaction which is expected to be in October, 2019.
The Arrangement Agreement will be filed on the SEDAR profiles of
Karmin and Nexa and will be available at www.sedar.com.
Advisors
Karmin has retained CIBC Capital Markets as exclusive financial
advisor, Gowling WLG (Canada) LLP as Canadian legal counsel and
Fraga, Bekierman & Cristiano Advogados as Brazilian
counsel.
Nexa has engaged Scotiabank as its financial advisor, Stikeman
Elliott LLP as its legal advisor in connection with the Transaction
and Lefosse Advogados as its Brazilian legal counsel.
About Karmin
The common shares of Karmin are listed on the TSX Venture
Exchange and the Lima Stock Exchange and trade in both markets
under the symbol “KAR”. The principal business of Karmin is to
acquire, explore and develop resource properties. The Company’s key
asset is its 30% interest in the construction-stage Aripuanã zinc
project in Brazil.
About Nexa
Nexa is a large-scale, low-cost integrated zinc producer with
over 60 years of experience developing and operating mining and
smelting assets in Latin America. The Company currently owns and
operates five long-life underground mines - three located in the
Central Andes of Peru and two located in the state of Minas Gerais
in Brazil - and is among the top five producers of mined zinc
globally in 2018, according to Wood Mackenzie. Nexa is also one of
the top five metallic zinc producers worldwide in 2018, according
to Wood Mackenzie.
Cautionary Note Regarding Forward-Looking Statements
Certain information in this news release constitutes
forward-looking statements under applicable securities laws. Any
statements that are contained in this news release that are not
statements of historical fact may be deemed to be forward-looking
statements. Forward looking statements are often identified by
terms such as “may”, “should”, “anticipate”, “expect”, “potential”,
“believe”, “intend” or the negative of these terms and similar
expressions. Forward-looking statements in this news release
include, but are not limited to, statements with respect to the
anticipated timing of the Karmin special shareholder meeting and
the completion of the Transaction, the satisfaction of conditions
precedent to the Transaction, the amount and nature of the
consideration received by Karmin shareholders in connection with
the Transaction, the completion of the Spinout and any value
attributable thereto, the satisfaction of closing conditions
including, without limitation (i) required Karmin shareholder
approval; (ii) necessary court approval in connection with the plan
of arrangement, (iii) any applicable stock exchange approvals; and
(iv) other closing conditions, including, without limitation,
obtaining certain consents, the operation and performance of
Karmin’s business in the ordinary course until closing of the
Transaction and compliance by Karmin and Nexa with various
covenants contained in the Arrangement Agreement. In particular,
there can be no assurance that the Transaction will be completed.
These forward-looking statements involve numerous risks and
uncertainties and actual results may vary. Important factors that
may cause actual results to vary include, without limitation, the
timing and receipt of certain approvals, and the satisfaction of
the conditions precedent to the Transaction, among others. The
actual results or performance by the Company could differ
materially from those expressed in, or implied by, any
forward-looking statements relating to those matters. Accordingly,
no assurances can be given that any of the events anticipated by
the forward-looking statements will transpire or occur, or if any
of them do so, what impact they will have on the results of
operations or financial condition of the Company.
Forward-looking statements contained in this news release are
expressly qualified by this cautionary statement and reflect our
expectations as of the date hereof, and thus are subject to change
thereafter. Except as required by law, Karmin disclaims any
intention and assumes no obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. Additionally, Karmin undertakes no
obligation to comment on the expectations of, or statements made
by, third parties in respect of the matters discussed above.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in policies of the TSX Venture
Exchange) accepts responsibility for the adequacy or accuracy of
this release.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190826005673/en/
David Brace Chief Executive Officer Email: davidbrace@karmin.com
Tel: (416) 367-0369
John Iannozzi Chief Financial Officer Email: johni@karmin.com
Tel: (519) 337-5302
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