Morumbi Resources Inc.
TSX VENTURE : MOC

Morumbi Resources Inc.

September 22, 2016 15:28 ET

Morumbi Resources Inc. to Acquire the Producing El Mochito Zinc Mine From Nyrstar

TORONTO, ONTARIO--(Marketwired - Sept. 22, 2016) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRES OR DISSEMINATION IN THE UNITED STATES

Morumbi Resources Inc. ("Morumbi" or the "Company") (TSX VENTURE:MOC) is pleased to announce that it has entered into a share purchase agreement (the "Agreement") with certain affiliates of Nyrstar NV (collectively "Nyrstar") to purchase 100% of Nyrstar's indirect subsidiary American Pacific Honduras SA de CV ("AMPAC") and its flagship asset, the producing El Mochito Zinc Mine (collectively "El Mochito") in Honduras (the "Transaction"). In connection with the Transaction, Morumbi has engaged Dundee Securities Ltd. ("Dundee" or the "Agent") as financing agent in respect of a brokered private placement offering (the "Offering") of subscription receipts (the "Subscription Receipts") for minimum gross proceeds of C$19,500,000 with an over-allotment option (the "Over-Allotment Option") for up to an additional 15% of the Subscription Receipts (the "Offering") in order to finance the Transaction and capital expenditures and provide working capital, as described below. Subject to the satisfaction of customary closing conditions, including the approval of the TSX Venture Exchange, the Offering is expected to close on or about October 12, 2016.

Investment Highlights

  • El Mochito generates immediate positive cash flow from a mine with an almost continuous operating history dating back to 1948
  • Significant zinc revenue stream with silver and lead credits *
  • In 2015, El Mochito produced 23,000 tonnes of zinc, 9,800 tonnes of lead and 1.1 million ounces of silver *
  • The Transaction provides Morumbi with access to an experienced operations team from the El Mochito mine site, complementing the current Morumbi management

* Source: Nyrstar's 2015 Mineral Resource and Mineral Reserve Statement dated April 27, 2016.

Chris Buncic, President and CEO of Morumbi stated, "El Mochito has a long operating history, supported by the mining community at the nearby town of Las Vegas, Honduras, and has many attractive attributes: promising exploration upside, expansion opportunity, and a long mine life. El Mochito was a cornerstone asset for Nyrstar and before that Breakwater Resources, and after a long search for the right acquisition, we believe El Mochito will be the cornerstone for Morumbi."

He continued, "El Mochito represents a highly accretive opportunity for Morumbi to acquire an asset at the bottom of the valuation cycle. Our operations team and the current mine management believes there are multiple opportunities to unlock value from El Mochito which will structurally change the mine's operations. With an industry standard concentrate off-take agreement between Morumbi and Nyrstar, we look forward to a strong partnership going forward."

El Mochito Overview

The El Mochito mine, located in north-western Honduras, approximately 88 kilometres south-west of San Pedro Sula and 220 kilometres north-west of the capital city, Tegucigalpa, has been in operation since 1948. The underground operation takes advantage of selective and bulk underground mining methods to mine multiple flat lying manto deposits and high-grade vertical chimneys.

As disclosed in Nyrstar's 2015 Mineral Resource and Mineral Reserve Statement dated April 27, 2016, the 2,300 tonne per day operation sees ore crushed and milled before undergoing standard flotation to produce a zinc-silver concentrate as well as a lead-silver concentrate.

Historical Reserves and Resources

The mineral resources and mineral reserves for El Mochito, as disclosed by Nyrstar on 27 April, 2016, as at year end 2015, are set out in the tables below.

Tonnes
(MM)
Zn (%) Pb (%) Ag (g/t) Cont.
Zinc
(M lbs)
Proven Mineral Reserves 0.57 4.59% 2.63% 77.40 57.7
Probable Mineral Reserves 1.34 4.94% 2.27% 47.60 146.0
Total Proven and Probable 1.91 4.84% 2.38% 56.50 204.0
Tonnes
(MM)
Zn (%) Pb (%) Ag (g/t) Cont.
Zn
(M lbs)
Measured Mineral Resources 1.38 5.22% 1.93% 62.10 159.0
Indicated Mineral Resources 4.03 4.72% 1.65% 38.80 419.0
Measured and Indicated Resources 5.40 4.85% 1.72% 44.70 577.0
Inferred Mineral Resources 3.86 5.11% 1.38% 35.00 435.0

The Mineral Resources and Mineral Reserves (as defined in NI 43-101) presented above are historical in nature as described in National Instrument 43-101 - Standards of Disclosure for Mineral Projects (NI 43-101). They have been prepared prior to the date of the Agreement and a Qualified Person (as defined in NI 43-101) has not done sufficient work to classify them as current. At this time the relevance and reliability of the estimates are not known. The estimates are classified using the categories set out in the Canadian Institute of Mining, Metallurgy and Petroleum's CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines as required by NI 43-101. However, Morumbi is not treating the Mineral Resources or Mineral Reserves as current.

The 2015 Mineral Resources and Mineral Reserves are not supported by a NI 43-101 Technical Report. The most recent NI 43-101 report was filed by Breakwater Resources Ltd. in March, 2010, but it can no longer be considered current.

A NI 43-101 technical report supporting the scientific and technical disclosure in this news release is currently being prepared by the Company in conjunction with Micon International Limited and will be filed within 45 days of the date of this news release. This technical report will similarly present the Mineral Resources and Mineral Reserves as historical in nature.

The historic Mineral Resource and Mineral Reserve estimates for the El Mochito mine were developed using Geovia GEMS™ modeling software utilizing a zinc equivalent cut-off grade that is based on net smelter return (NSR) calculation models.

The cut-off grade for Mineral Resources was 3.3% zinc equivalent and for Mineral Reserves it was 7.1% zinc equivalent. Price assumptions for reserves and resources were: Zinc US$2,100/t, Lead US$2,000/t and Silver US$18.00/oz.

Block models have been created for the various zones using an inverse distance squared interpolation. The Mineral Reserves have been estimated by applying dilution and recovery factors to the Mineral Resources in laterally and vertically continuous zones with economic metal grades.

The Mineral Resources are reported inclusive of Mineral Reserves. Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability.

The Transaction

Under the terms of the Agreement, Morumbi will acquire from Nyrstar a 100% interest in AMPAC, the owner of El Mochito. The purchase price of US$500,000 will be funded from the net proceeds of the Offering. The Transaction is an arm's length acquisition within the meaning of TSX Venture Exchange policies. As of August 31, 2016 (unaudited), AMPAC had current assets of US$6,131,099, current liabilities of US$3,970,300 and net working capital of US$2,160,799.

Completion of the Acquisition is subject to a number of conditions, including completion of the Offering, receipt of all government and regulatory approvals, the negotiation of an industry standard off-take agreement with Nyrstar on concentrates produced from El Mochito and the approval of the TSX Venture Exchange. Subject to the satisfaction or, where permitted, waiver of the foregoing conditions, Morumbi expects the Transaction to close in late November 2016.

Share consolidation and name change

At an upcoming special meeting of shareholders to be held on October 7, 2016 (the "Special Meeting"), Morumbi's shareholders will be asked to vote to approve, among other matters, the consolidation of the Company's common shares on a 5:1 basis. A notice of meeting and management information circular in respect of the matters to be considered and approved by shareholders at the Special Meeting have been mailed to shareholders. Neither the Transaction nor the Offering is expected to require shareholder approval under TSX Venture Exchange policies, and these matters will therefore not be considered at the Special Meeting. The share consolidation is not a condition precedent to the closing of the Offering or the Transaction.

At the previous shareholder meeting, shareholders passed a resolution approving the change of Morumbi's name to "Ascendant Resources Inc."

Subject to TSX Venture Exchange approval, the Company anticipates effecting the share consolidation and name change upon closing of the Transaction. A new ticker symbol will be disclosed in a subsequent news release.

Subscription Receipt Financing

In connection with the proposed Transaction, Morumbi has entered into an agreement with Dundee (the "Agent") to complete a best efforts private placement of Subscription Receipts at a price of C$0.50 per Subscription Receipt (the "Issue Price") to raise minimum gross proceeds of C$19,500,000.

(Unless otherwise expressed, all references herein to securities issuable in the Offering and corresponding subscription prices are made on a post 5:1 consolidation basis.)

The proceeds of the Offering (assuming gross proceeds of C$19.5 million, or approximately US$15 million) are expected to be used as follows:

  • Purchase price: US$500,000, subject to working capital adjustments
  • Mine Optimization and Development: US$5 million
  • Rolling Concentrate Working Capital: US$4.5 million
  • Exploration Drilling: US$1.0 million
  • Transaction costs and general working capital: US$4 million

Note: Bank of Canada noon exchange rate on September 21, 2016 was C$1.00 : US$1.3186.
The Company has granted the Agent an Over-Allotment Option to offer for sale up to an additional 15% of the number of Subscription Receipts initially proposed to be sold, on the same terms and conditions as the Offering. The Over-Allotment Option is exercisable in whole or in part up to 48 hours prior to the closing of the Offering.

Each Subscription Receipt will entitle the holder thereof to receive one common share of the Company (a "Common Share"), without payment of additional consideration or further action, provided that the Escrow Release Conditions have been satisfied prior to the Escrow Deadline (as defined below), upon the date (the "Qualification Date") which is the earlier of: (i) four months and a day after the closing of the Offering; and (ii) the third business day following the issuance of a receipt (the "Final Receipt") for a final short form prospectus qualifying the Common Shares underlying the Subscription Receipts.

The Subscription Receipts will be issued pursuant to a subscription receipt agreement (the "Subscription Receipt Agreement") to be entered into among the Corporation, Dundee and a subscription receipt agent to be determined. Pursuant to the Subscription Receipt Agreement, the gross proceeds from the Offering (less 50% of the Agent's cash commission and the Agent's reasonable out-of-pocket expenses) (the "Net Escrowed Funds") will be held in escrow pending satisfaction of certain escrow release conditions (the "Escrow Release Conditions"), including (i) all conditions precedent to the completion of the transactions contemplated by the Agreement, including receipt of all regulatory approvals, shall have been completed or waived on terms previously disclosed to or otherwise reasonably acceptable to the Company and Dundee; (ii) the receipt of all necessary regulatory approvals with respect to the Offering including conditional approval from the TSX Venture Exchange with respect to the listing of (among other things) the Common Shares underlying the Subscription Receipts; (iii) the Company having delivered a certificate to Dundee that the conditions set forth in (i) and (ii) have been satisfied; and (iv) the Company and Dundee having delivered the completion notice and direction pursuant to the Subscription Receipt Agreement to the subscription receipt agent. Upon satisfaction of the Escrow Release Conditions, the remaining 50% of the cash commission will be released to the Agent and the balance of the Net Escrowed Funds, together with any interest earned thereon, will be released to the Company. Notwithstanding the release of the Net Escrowed Funds to the Company and the Agent upon satisfaction of the Escrow Release Conditions and closing of the Transaction, the Subscription Receipts will not convert into Common Shares until the Qualification Date, as described above.

If the Escrow Release Conditions have not been satisfied by 5:00 p.m. (Toronto time) on November 30, 2016 (or, if the sole remaining Escrow Release Condition at such time is the approval of the Honduran Commission for the Defense and Promotion of Competition, on January 31, 2017) (the "Escrow Deadline"), the Subscription Receipts will be deemed to be cancelled and holders of Subscription Receipts will receive a cash amount equal to the Issue Price of the Subscription Receipts and any interest that was earned on the Net Escrowed Funds less any applicable withholding taxes. The Company will be responsible for any shortfall in the amount returnable to holders of Subscription Receipts in this event.

As consideration for its services in connection with the Offering, the Agent will receive a cash commission equal to 6.0% of the gross proceeds of the Offering and such number of compensation warrants (the "Compensation Warrants") equal to 6.0% of the number of Subscription Receipts sold under the Offering. Each Compensation Warrant shall be deemed exercised on behalf of, and without any required action on the part of, the holder thereof into one compensation option (a "Compensation Option") on the Qualification Date. Each Compensation Option will be exercisable into one Common Share at the Issue Price for a period of 24 months following the closing of the Offering.

RSU Grant

Morumbi also wishes to announce the grant, subject to applicable regulatory approvals, of restricted stock units ("RSUs") to certain of its directors, officers and employees at a price of $0.50 cents per RSU (post-Consolidation). The RSUs will have a three year term and will vest as follows: 1/3 upon closing of the Transaction; 1/3 on the first anniversary of closing of the Transaction; and the balance on the second anniversary of closing of the Transaction. The Company's board of directors adopted an RSU plan on September 7, 2016 with immediate effect. The adoption of the RSU plan and the grant of RSUs thereunder remain subject to disinterested shareholder approval.

About Morumbi Resources Inc.

Morumbi is a public company historically focused on evaluating resource opportunities. The Company is currently evaluating producing or advanced development stage mineral resource opportunities principally in Latin America. It also has a legacy light oil property in northwest Alberta. The Company trades on the TSX Venture Exchange under the symbol "MOC".

Qualified Person

The scientific and technical content of this press release was prepared under the supervision of David Makepeace, P.Eng., Senior Geologist for Micon International Limited, who is an independent "qualified person" as such term is defined in NI 43-101. Mr. Makepeace has reviewed and approved the contents of this press release.

Cautionary Notice Regarding Forward-Looking Information

This news release contains certain forward-looking statements or information ("forward-looking statements") as defined by applicable securities laws that involve substantial known and unknown risks and uncertainties, many of which are beyond the Company's control, including the ability of the company to complete the Offering; the ability of the Company to complete the Transaction and related integration risks, the ability of the Company to obtain the necessary regulatory and other third party approvals to complete the Transaction and Offering (including the approval of the TSX Venture Exchange); fluctuations in commodity prices, foreign exchange or interest rates; changes in general global economic conditions; increased competition; the availability of qualified operating or management personnel; changes in laws and regulations including, without limitation, the adoption of new environmental and tax laws and regulations and changes in how they are interpreted and enforced; and stock market volatility. The Company cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. As such, undue reliance should not be placed on forward-looking statements. There is no assurance that the Transaction and Offering or any other acquisition will be completed in the timeframe contemplated above or at all. The forward-looking statements contained in this news release speak only as of the date hereof and the Company does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.

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