Kria Resources Ltd.
TSX VENTURE : KIA

Kria Resources Ltd.

January 17, 2011 17:58 ET

Kria Resources and Trevali Resources Enter Into Definitive Arrangement Agreement to Create Platform for a New Intermediate Zinc Producer

Combined Company Will Have Multiple Copper-Lead-Zinc-Silver Assets Located in Peru and Canada With Indicated Resources of 1.7 Billion lb Zinc and Inferred Resources of 2.8 Billion lb Zinc

TORONTO, ONTARIO--(Marketwire - Jan. 17, 2011) - Kria Resources Ltd. ("Kria" or the "Company") (TSX VENTURE:KIA) is pleased to announce that it has entered into an arrangement agreement (the "Arrangement Agreement") with Trevali Resources Corp. ("Trevali") (TSX:TV)(FRANKFURT:4TI)(OTCQX:TREVF) to complete a business combination whereby Trevali will acquire all of the issued and outstanding common shares of Kria and Kria will become a wholly owned subsidiary of Trevali (the "Transaction"). The Transaction will occur by way of a plan of arrangement and will be subject to receipt of all necessary regulatory, court, and shareholder approvals, including disinterested shareholder approval by the Kria shareholders in accordance with the provisions of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101").

Pursuant to the terms of the Arrangement Agreement, Trevali intends to acquire all of the issued and outstanding common shares of Kria on the basis of 0.2 of a common share of Trevali for each common share of Kria (the "Exchange Ratio"). Based on the closing price of Trevali on the Toronto Stock Exchange ("TSX") on the date of entering into the letter agreement (See Press Release dated December16, 2010), the Exchange Ratio implies an offer price of C$0.334 per Kria common share and values Kria's equity at approximately C$44 million on a fully diluted in-the-money basis based on a closing price per share of Trevali on December 15, 2010 of $1.67.

The offer price represents a 33.6% premium to the closing price of Kria on the TSX-V on December 15, 2010 and a 25.2% premium based on the 30-day VWAPs of both companies for the period ended December 15, 2010.

Upon completion of the Transaction, the combined company will have approximately 76.4 million issued and outstanding common shares and Trevali and Kria shareholders will own approximately 73.8% and 26.2% of the combined company, respectively. The terms of the Transaction have been unanimously approved by the boards of directors of both Trevali and Kria.

Mr. Mike Hoffman, President and CEO of Kria, stated, "We are very excited with the potential of combining with Trevali to form the basis of a new mid-tier base metal producer in the Americas. With near term cash flow potential coming from our Halfmile Mine in 2011 and from Trevali's Santander towards the end of 2011, the combined company will be positioned to strongly fund future growth."

HIGHLIGHTS OF COMBINED ENTITY

  • Operations diversified across two world-leading mining jurisdictions, Peru and Canada
  • Provides diversification from a single advanced project to two mines with production anticipated in 2011 - 2012
  • Cash flow expected in 2011 once Halfmile begins supplying feed on a toll-milling basis to Xstrata Zinc's Brunswick 12 Mine and Santander mill commissioning commences in late 2011
  • Significant increase in tonnages and contained metal in all resource categories, including over 1.6 billion pounds of in-situ zinc indicated resources and 2.8 billion pounds of in-situ zinc inferred resources (Table 1)
  • Excellent resource expansion potential at Santander where all four newly discovered polymetallic deposits (Magistral North, Central, South and Puajanca South), in addition to the historic Santander Pipe, remain open for expansion at shallow-to-moderate depths
  • Robust, advanced project pipeline (short-to-medium term) including potential mill expansion at Santander and construction of a new mill at Halfmile-Stratmat following planned closure of Xstrata's Brunswick 12 facility
  • Anticipated cash flow from Santander to help offset a portion of the capital requirements for construction of the proposed new Halfmile-Stratmat mill in approximately 2012 - 2013
  • Quality exploration portfolio at the Santander project - numerous high priority targets scheduled for aggressive drill testing in early 2011
  • Company will have significant leverage to commodity price increases, specifically zinc and silver in the near-term
  • Listing on the TSX with a senior Lima Stock Exchange (BVL) listing in progress anticipated to result in improved stock liquidity
  • World-leading partners—Glencore International (Santander) and Xstrata Zinc (Halfmile)
  • Expanded talent pool of experienced geoscientists, mining engineers, management team and board of directors

Note: A feasibility study has not been completed with respect to the properties and accordingly, there is no certainty that the proposed operations will be economically viable.

Table 1 – Trevali and Kria Resource Estimates
  Tonnes %
Zn
%
Pb
%
Cu
Ag
(gpt)
Zn
(Mlbs)
Pb
(Mlb)
Cu
(Mlb)
Ag
(Moz)
Indicated Resources                  
Trevali - Santander 5,858,000 3.86 1.35 0.08 44 498 174 10 8.3
TV Santander Tailings 1,656,000 2.74       100      
Kria - Halfmile 6,262,000 8.13 2.58 0.22 31 1,122 356 30 6.2
Total Indicated 13,776,000 6.07 1.99 0.15 37 1,720 530 41 14.5
                   
Inferred Resources                  
Trevali – Santander 4,806,000 5.08 0.44 0.07 21 538 47 7 3.2
Kria – Halfmile 6,078,000 6.69 1.83 0.14 21 896 245 19 4.0
Kria - Stratmat 5,524,000 6.11 2.59 0.40 54 744 315 49 9.6
Kria – Ruttan 19,750,000 1.47 - 1.17 - 640 - 509 -
Total Inferred 36,158,000 3.54 0.76 0.73 15 2,818 607 584 16.9

Notes:

1. Kria Halfmile and Stratmat resources calculated on 5% Zinc equivalent grades, Ruttan on a 1% copper equivalent and Trevali's Santander resources calculated at 3% Zinc equivalent grades. See Kria Press Releases of September 23, 2008; March 2, 2009; and February 23, 2009, for further information on resource estimates and Trevali Press Release of November 2, 2010, on Trevali resource estimate. In addition detailed technical reports are available on www.sedar.com.

2. A feasibility study has not been completed with respect to the properties of Trevali or Kria and accordingly, there is no certainty that the proposed operations will be economically viable.

BOARD OF DIRECTORS RECOMMENDATIONS

The Transaction will be subject to receipt of all necessary regulatory approvals and the approval of the Kria shareholders and the approval of the Trevali shareholders. The Board of Directors of Kria and the Board of Directors of Trevali have determined to recommend that the shareholders of Kria and the shareholders of Trevali, respectively, vote in favour of the Transaction.

TRANSACTION DETAILS

The terms of the Transaction will be described in detail in the Joint Management Information Circular of Trevali and Kria to be filed with the regulatory authorities and mailed to Trevali and Kria shareholders in accordance with applicable securities laws. Officers, directors and major shareholders of Kria who hold approximately 22.5% of the shares of Kria have agreed to enter into lockup and support agreements with Trevali under which they have agreed to vote in favour of the Transaction. As well, officers, directors and major shareholders of Trevali who hold approximately 26.3% of the shares of Trevali have agreed to enter into lockup and support agreements with Kria under which they have agreed to vote in favour of the Transaction.

The newly combined company will draw on the expertise from both companies to fulfill management responsibilities. The board of the combined company will comprise the current Trevali directors and Mike Hoffman, as a representative of Kria. Dr. Mark Cruise will remain President and CEO of the combined company.

The Arrangement Agreement includes a commitment by Kria not to solicit alternative transactions to the proposed Transaction. Trevali has also been provided with certain other rights customary for a transaction of this nature, including the right to match competing offers made to Kria in the event Kria receives a superior proposal. Pursuant to the terms of the Letter Agreement, the parties have agreed to pay the other party a break fee in the amount of approximately $740,000, in certain circumstances.

The Transaction is subject to the receipt of all necessary regulatory approvals and necessary shareholder and disinterested shareholder approvals at special meetings of Kria and Trevali, respectively, to be held no later than April 29, 2011. Closing of the Transaction is set to occur shortly after the shareholder meetings. The Transaction is a non-arm's length transaction for the purposes of the TSX Venture Exchange as the parties have a common director, being Mark Cruise. Mark Cruise holds 468,000 common shares of Trevali, representing 0.8% of the issued and outstanding common shares of Trevali. Mr. Cruise does not hold any shares of Kria.

Trevali, in conjunction with partner Glencore International A.G., has recently commenced pre-operation construction at its planned 2,000-tonne-per day Santander zinc-lead-silver mine project in the Central Peruvian Polymetallic Belt, Peru. Mine commissioning is currently scheduled for late 2011 with full production to follow immediately thereafter.

Kria's Halfmile zinc-lead-silver-copper project is located in the Bathurst Massive Sulphide Belt of New Brunswick, Canada. Advanced permitting and engineering studies are in progress with proposed production at a rate of 2,000-tonnes-per-day anticipated to commence in 2011.

CARDERO LOAN

Under the terms of the revised Halfmile and Stratmat property purchase agreement dated July 15, 2009, between Kria and Xstrata Canada Corporation ("Xstrata"), Kria is obligated to make a payment of US$8,000,000 to Xstrata on or before January 16th, 2011. Kria has entered into a loan agreement with Cardero Resource Corp. (TSX:CDU) whereby Cardero has advanced Kria US$8,000,000 to fund the property payment to Xstrata (the "Loan"). The Loan will bear interest at 10% per annum, calculated monthly, not in advance and shall be repayable on or before January 14, 2012. As security for the Loan, Kria has granted in favour of Cardero a first charge, mortgage and security interest over all its assets and undertakings.

In connection with the Loan, subject to approval of Kria disinterested shareholders, Kria has agreed to issue Cardero approximately 6,400,000 common share purchase warrants of Kria (the "Bonus Warrants"). Each Bonus Warrant will entitle the holder to acquire a common share of Kria at an exercise price of $0.25 until January 14, 2012.

As Cardero currently holds approximately 20,875,000 common shares of Kria and 9,125,000 common share purchase warrants of Kria, representing approximately 19.9% of the issued and outstanding common shares of the Company on an undiluted basis, Cardero and Kria are related parties within the meaning of MI 61-101. As such, the issuance of the Bonus Warrants and any potential exercise of the Bonus Warrants for common shares of Kria which could result in the creation of a new Control Person will remain subject to receipt of disinterested shareholder approval by the Kria shareholders. Upon receipt of disinterested shareholder approval and all necessary regulatory approvals, including the approval of the TSX Venture Exchange, and the issuance of the Bonus Warrants, the interest rate of the Loan will retroactively be reduced to 8% to be calculated monthly, and not in advance.

Prior to completion of the Transaction, the Bonus Warrants will entitle Cardero to receive approximately 6,400,000 common shares of Kria, which upon exercise would result in Cardero holding approximately 27,275,000 common shares of Kria, representing approximately 26% of the issued and outstanding shares of Kria on an undiluted basis as of the date hereof. Upon completion of the Transaction, the Bonus Warrants will entitle Cardero to receive approximately 1,280,000 warrants in the combined company at an exercise price of $1.25 and Cardero will hold approximately 13% of the combined company. Cardero currently holds approximately 7,032,432 common shares of Trevali and 2,855,866 common shares purchase warrants of Trevali, representing approximately 12% of Trevali as of the date hereof.

ADVISORS

Kria has engaged Raymond James Ltd. ("Raymond James") to act as financial advisor to the special committee of Kria, which is comprised of independent board members (the "Kria Special Committee"). Raymond James has provided a written fairness opinion to the Kria Special Committee and the Kria Board that, subject to certain assumptions and limitations set out therein, the proposed transaction is fair, from a financial point of view, to the shareholders of Kria.

The scientific and technical contents of this press release relating to Kria have been supervised, reviewed and approved by Dayle Rusk, P. Geo., Vice President Exploration of Kria, and Mike Hoffman, P. Eng., both of whom are Qualified Persons as defined under NI 43-101 guidelines.

The scientific and technical contents of this press release relating to Trevali have been supervised, reviewed and approved by Mr. Mark D. Cruise, the President and CEO of Trevali and a Qualified Person under NI 43-101 has supervised the preparation of the scientific and technical information that forms the basis of this press release. Dr. Cruise is not independent of Trevali as he is an officer and shareholder of Trevali.

ABOUT TREVALI RESOURCES CORP.

Trevali in conjunction with its partner, Glencore International A.G., has entered into a definitive development agreement for the Santander silver-lead-zinc project in west-central Peru that will see Glencore provide and operate on the property, a 2,000-tonne-per-day concentrate plant, undertake mining operations on a 'contractor/toll basis' and enter into a long-term concentrate offtake agreement with the Company for 100% of the Santander project's production at benchmark terms.

Additionally, through its wholly owned subsidiary, Trevali Renewable Energy Inc., the Company is undertaking a significant upgrade of the Tingo run-of-river hydroelectric generating facility along with transmission line upgrades and extensions to allow, in addition to supplying power to the mining operation on the property, the potential sale of surplus power into the Peruvian National Energy Grid.

The common shares of Trevali are currently listed on the TSX (symbol TV). For further details on Trevali, readers are referred to the Trevali's web site (www.trevali.com) and to Canadian regulatory filings on SEDAR at www.sedar.com.

ABOUT KRIA RESOURCES LTD.

Kria Resources is a base metal exploration and development company focused on high-quality, advanced-stage base metal assets. Kria's primary asset is the Halfmile Lake and Stratmat properties near Bathurst, New Brunswick. The Halfmile Lake and Stratmat projects are optioned by Kria from Xstrata, which is currently the largest shareholder of Kria. Kria completed a preliminary economic assessment ("PEA") on its Halfmile Lake project in September 2010 that indicated the project's economics improve if the mineral resource from Kria's nearby Stratmat property is combined with the mineral resource from Halfmile Lake. 

Please refer to Kria's technical reports filed on SEDAR for details regarding the NI 43-101 compliant resource estimates on Halfmile, Stratmat and Ruttan. Prices and other assumptions mentioned in this press release are Kria's internal assumptions and estimates. Additional information is available at www.kriaresources.com.

Completion of the Transaction is subject to a number of conditions, including receipt of regulatory approvals and Kria disinterested shareholder approval. The Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the Joint Management Information Circular of Kria and Trevali to be prepared in connection with the Transaction, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Kria and Trevali should be considered highly speculative.

The TSX Venture Exchange has in no way passed upon the merits of the proposed reverse take-over transaction and has not approved or disapproved of the contents of this news release.

This communication does not constitute an offer to purchase or exchange or the solicitation of an offer to sell or exchange any securities of Kria or an offer to sell or exchange or the solicitation of an offer to buy or exchange any securities of Trevali, nor shall there be any sale or exchange of securities in any jurisdiction (including the United States) in which such offer, solicitation or sale or exchange would be unlawful prior to the registration or qualification under the laws of such jurisdiction. The distribution of this communication may, in some countries, be restricted by law or regulation. Accordingly, persons who come into possession of this document should inform themselves of and observe these restrictions. The solicitation of offers to buy Trevali or Kria shares in the United States will only be made pursuant to a prospectus and related offer materials that Trevali and Kria expects to send to holders of its securities, respectively, subject to the requirements of applicable law. The Kria shares may not be sold, nor may offers to buy be accepted, in the United States prior to the time the registration statement (if any is filed) becomes effective or an exemption from such requirements is available. No offering of securities shall be made in the United States except (i) by means of a prospectus meeting the requirements of Section 10 of the United States Securities Act of 1933, as amended, which would contain detailed information regarding Kria and its management, respectively, as well as its financial statements, or (ii) pursuant to an exemption from the registration requirements of the United States Securities Act of 1933, as amended.

Cautionary Note Regarding Forward-Looking Information

THIS NEWS RELEASE CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND "FORWARD-LOOKING INFORMATION" WITHIN THE MEANING OF APPLICABLE CANADIAN SECURITIES LEGISLATION. STATEMENTS CONTAINING FORWARD-LOOKING INFORMATION EXPRESS, AS AT THE DATE OF THIS NEWS RELEASE, THE COMPANY'S PLANS, ESTIMATES, FORECASTS, PROJECTIONS, EXPECTATIONS, OR BELIEFS AS TO FUTURE EVENTS OR RESULTS AND THE COMPANY DOES NOT INTEND, AND DOES NOT ASSUME ANY OBLIGATION TO, UPDATE SUCH STATEMENTS CONTAINING THE FORWARD-LOOKING INFORMATION. SUCH FORWARD-LOOKING STATEMENTS AND INFORMATION INCLUDE, BUT ARE NOT LIMITED TO STATEMENTS AS TO: THE ACCURACY OF ESTIMATED MINERAL RESOURCES, ANTICIPATED RESULTS OF FUTURE EXPLORATION, AND FORECAST FUTURE METAL PRICES, ANTICIPATED RESULTS OF FUTURE ELECTRICAL SALES AND EXPECTATIONS THAT ENVIRONMENTAL, PERMITTING, LEGAL, TITLE, TAXATION, SOCIO-ECONOMIC, POLITICAL, MARKETING OR OTHER ISSUES WILL NOT MATERIALLY AFFECT ESTIMATES OF MINERAL RESERVES. THESE STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE NECESSARILY BASED UPON A NUMBER OF ASSUMPTIONS AND ESTIMATES THAT, WHILE CONSIDERED REASONABLE BY THE COMPANY, ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC, COMPETITIVE, POLITICAL AND SOCIAL UNCERTAINTIES AND CONTINGENCIES.

THESE STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE NECESSARILY BASED UPON A NUMBER OF ASSUMPTIONS AND ESTIMATES THAT, WHILE CONSIDERED REASONABLE BY TREVALI AND KRIA, ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC, COMPETITIVE, POLITICAL AND SOCIAL UNCERTAINTIES AND CONTINGENCIES. MANY FACTORS, BOTH KNOWN AND UNKNOWN, COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM THE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT ARE OR MAY BE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS CONTAINED IN THIS NEWS RELEASE AND TREVALI AND KRIA HAVE MADE ASSUMPTIONS AND ESTIMATES BASED ON OR RELATED TO MANY OF THESE FACTORS. SUCH FACTORS INCLUDE, WITHOUT LIMITATION: STATEMENTS REGARDING SYNERGIES AND FINANCIAL IMPACT OF THE PROPOSED TRANSACTION, THE TERMS AND CONDITIONS OF THE TRANSACTION, THE BENEFITS OF THE PROPOSED TRANSACTION FLUCTUATIONS IN SPOT AND FORWARD MARKETS FOR SILVER, ZINC, BASE METALS AND CERTAIN OTHER COMMODITIES (SUCH AS NATURAL GAS, FUEL OIL AND ELECTRICITY); FLUCTUATIONS IN CURRENCY MARKETS (SUCH AS THE PERUVIAN SOL VERSUS THE U.S. DOLLAR); RISKS RELATED TO THE TECHNOLOGICAL AND OPERATIONAL NATURE OF THE COMPANY'S BUSINESS; CHANGES IN NATIONAL AND LOCAL GOVERNMENT, LEGISLATION, TAXATION, CONTROLS OR REGULATIONS AND POLITICAL OR ECONOMIC DEVELOPMENTS IN CANADA, THE UNITED STATES, PERU OR OTHER COUNTRIES WHERE THE COMPANY MAY CARRY ON BUSINESS IN THE FUTURE; RISKS AND HAZARDS ASSOCIATED WITH THE BUSINESS OF MINERAL EXPLORATION, DEVELOPMENT AND MINING (INCLUDING ENVIRONMENTAL HAZARDS, INDUSTRIAL ACCIDENTS, UNUSUAL OR UNEXPECTED GEOLOGICAL OR STRUCTURAL FORMATIONS, PRESSURES, CAVE-INS AND FLOODING); RISKS RELATING TO THE CREDIT WORTHINESS OR FINANCIAL CONDITION OF SUPPLIERS, REFINERS AND OTHER PARTIES WITH WHOM THE COMPANY DOES BUSINESS; INADEQUATE INSURANCE, OR INABILITY TO OBTAIN INSURANCE, TO COVER THESE RISKS AND HAZARDS;
EMPLOYEE RELATIONS; RELATIONSHIPS WITH AND CLAIMS BY LOCAL COMMUNITIES AND INDIGENOUS POPULATIONS; AVAILABILITY AND INCREASING COSTS ASSOCIATED WITH MINING INPUTS AND LABOUR; THE SPECULATIVE NATURE OF MINERAL EXPLORATION AND DEVELOPMENT,INCLUDING THE RISKS OF OBTAINING NECESSARY LICENSES AND PERMITS AND THE PRESENCE OF LAWS AND REGULATIONS THAT MAY IMPOSE RESTRICTIONS ON MINING; DIMINISHING QUANTITIES OR GRADES OF MINERAL RESERVES AS PROPERTIES ARE MINED; GLOBAL FINANCIAL CONDITIONS; BUSINESS OPPORTUNITIES THAT MAY BE PRESENTED TO, OR PURSUED BY, THE COMPANY; THE COMPANY'S ABILITY TO COMPLETE AND SUCCESSFULLY INTEGRATE ACQUISITIONS AND TO MITIGATE OTHER BUSINESS COMBINATION RISKS; CHALLENGES TO, OR DIFFICULTY IN MAINTAINING, THE COMPANY'S TITLE TO PROPERTIES AND CONTINUED OWNERSHIP THEREOF; THE ACTUAL RESULTS OF CURRENT EXPLORATION ACTIVITIES, CONCLUSIONS OF ECONOMIC EVALUATIONS, AND CHANGES IN PROJECT PARAMETERS TO DEAL WITH UNANTICIPATED ECONOMIC OR OTHER FACTORS; INCREASED COMPETITION IN THE MINING INDUSTRY FOR PROPERTIES, EQUIPMENT, QUALIFIED PERSONNEL, AND THEIR COSTS. INVESTORS ARE CAUTIONED AGAINST ATTRIBUTING UNDUE CERTAINTY OR RELIANCE ON FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY HAS ATTEMPTED TO IDENTIFY IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, THERE MAY BE OTHER FACTORS THAT CAUSE RESULTS NOT TO BE AS ANTICIPATED, ESTIMATED, DESCRIBED OR INTENDED. THE COMPANY DOES NOT INTEND, AND DOES NOT ASSUME ANY OBLIGATION, TO UPDATE THESE FORWARD-LOOKING STATEMENTS OR INFORMATION TO REFLECT CHANGES IN ASSUMPTIONS OR CHANGES IN CIRCUMSTANCES OR ANY OTHER EVENTS AFFECTING SUCH STATEMENTS OR INFORMATION, OTHER THAN AS REQUIRED BY APPLICABLE LAW.

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.

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