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Nexa Will Own 100% of Aripuanã Zinc Project After Acquisition Of Karmin

Nexa Resources S.A. ("Nexa Resources" or "Nexa"), through its subsidiary, Votorantim Metals Canada Inc., is pleased to announce that it has entered into a definitive arrangement agreement (the "Arrangement Agreement") with, among others, Karmin Exploration Inc. ("Karmin"), pursuant to which Nexa has agreed to acquire Karmin for an aggregate acquisition price of US$70 million. Karmin currently indirectly holds a 30% interest in the Aripuanã zinc project located in Mato Grosso, Brazil (the "Aripuanã Project"). Upon the closing of the transaction, Nexa and its affiliates will own 100% of the Aripuanã Project.

Tito Martins, CEO of Nexa, commented: "The acquisition consolidates our ownership of the Aripuanã Project, providing us marketing and sales flexibility to improve our margins. We believe this is a strategic and accretive deal for Nexa, while it also benefits Karmin."

Transaction Rationale

The transaction provides Nexa with 100% ownership of a high-quality asset and provides additional flexibility to Nexa in continuing the development of the Aripuanã Project, taking into account the following value drivers:

  • Declared mineral reserves and potential mine life extension given mineral resources. According to the Technical Report (as defined below), the Aripuanã Project has an estimated mine life of 13 years based on currently defined mineral reserves with a potential mine life extension of up to 6 years based on the significant current inferred mineral resources and Nexa's proven track record of mineral resource conversion.
  • Potential mineral resource expansion at the Project's mineralized zones (Arex, Link, and Ambrex). Nexa believes that the Aripuanã Project has significant untapped exploration potential to extend mine life beyond its mineral reserve and resource life.
  • District exploration potential in satellite regions around the Aripuanã project, which could expand resources with future drilling. Given the existing exploration drilling campaigns, there is a potential to discover new deposits in satellite bodies (i.e. Babaçu and Massaranduba targets), which can be integrated in the future with the Aripuanã Project. Considering the nature and genesis of the deposit, there are important indicators to support the existence of other mineralized structures that could be part of a larger mineral trend.
  • Operational structure. Nexa believes that the transaction will potentially unlock operating and tax synergies within Nexa's operations. Specifically, Nexa would be able to integrate Aripuanã's zinc concentrate within its smelters in Brazil.

Terms of the Transaction

The transaction's aggregate US$70 million acquisition price contemplates (i) the acquisition of 89,945,479 common shares, representing 100% of the issued and outstanding common shares of Karmin (assuming the exercise of all outstanding inthe-money stock options and warrants of Karmin), for an aggregate consideration of US$69.3 million (the "Consideration") to be paid to the shareholders of Karmin (the "Karmin Shareholders") and (ii) a US$700,000 loan from Nexa to Karmin for general corporate purposes (which loan shall be repaid to Nexa if the acquisition is not completed in accordance with the terms of the Arrangement Agreement).

The transaction will be carried out pursuant to the Arrangement Agreement under a court-approved statutory plan of arrangement (the "Arrangement") governed by the Business Corporations Act (Alberta).

Pursuant to the Arrangement, certain assets, including 5,753,138 shares of VI Mining PLC (NEX: VIM), and liabilities of Karmin will be transferred to a new private company, Kar Gold Inc. ("SpinCo") following which, the shares of SpinCo will be distributed to the Karmin Shareholders by way of a dividend. Nexa will not be involved in the management or operations of SpinCo. The residual assets of Karmin following such transfer will be its 30% indirect interest in Mineração Dardanelos Ltda. ("Mineração Dardanelos"), which is the owner of the Aripuanã Project. Mineração Dardanelos is currently owned by Nexa Brasil (which holds a 62.3% interest), Nexa Peru (which holds a 7.7% interest) and Mineração Rio Aripuanã, a subsidiary of Karmin Exploration (which holds a 30% interest).

Under the terms of the Arrangement, the Karmin Shareholders will receive approximately US$0.77 per share (being CAD$1.02 per share at the date hereof) in cash from Nexa. Nexa intends to fund the Consideration with cash on hand.

The Aripuanã Project is being developed as described in the "Technical Report on the Feasibility Study on the Aripuanã Project, State of Mato Grosso, Brazil" dated October 15, 2018 and effective as of July 31, 2018, as prepared by Roscoe Postle Associates Inc. ("RPA")(the "Technical Report"). The Technical Report summarizes the results of a feasibility study, including the disclosure of mineral reserves prepared by Nexa and adopted by RPA in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects.

The board of directors of Karmin has approved the Arrangement and is recommending that the Karmin Shareholders vote in favour of the Arrangement and the directors and officers of Karmin, along with certain key Karmin Shareholders, representing in aggregate approximately 72% of Karmin's issued and outstanding common shares (on a fully-diluted basis), have entered into voting and support agreements to vote their common shares in support of the Arrangement.

The Arrangement Agreement is subject to customary non-solicitation covenants and has the benefit of customary fiduciary-out provisions. In the event a superior proposal is made to Karmin, Nexa will have a 5-business day right to match such proposal. If the Arrangement is not completed as a result of such proposal, Karmin will be required to pay Nexa a termination fee equal to US$2.8 million.

The closing of the Arrangement is subject to the approval of at least 66 (2/3) percent of the votes cast at a special meeting of Karmin Shareholders to be called to consider the Arrangement and certain other customary closing conditions, including court approval and the absence of any material adverse effect with respect to Karmin.

The transaction is expected to be completed by the end of 2019.

Financial and Legal Advisors

Nexa has engaged Scotiabank as its financial advisor, Stikeman Elliott LLP as its Canadian legal counsel, and Lefosse Advogados as its Brazilian legal counsel.

Karmin has engaged CIBC Capital Markets as its financial advisor, Gowling WLG (Canada) LLP as Canadian legal counsel, and Fraga, Bekierman & Cristiano Advogados as its Brazilian legal counsel.


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