Mr. Peter Hawley reports
DEFIANCE SILVER AND VALORO RESOURCES ANNOUNCE MERGER TO CREATE A LEADING DIVERSIFIED MEXICAN EXPLORER
Defiance Silver Corp. and Valoro Resources Inc. entered into a letter of intent on Sept. 5, 2018, to complete a friendly merger that will create a significant Mexico-focused explorer with an advanced portfolio of silver and gold projects. The combined company will continue under the name of Defiance Silver Corp. and will be led by a highly experienced management team from both companies, including Peter J. Hawley (Americas Silver Corp.), Randy Smallwood (Wheaton Precious Metals Corp.), George Brack (Capstone Mining Corp.), Darrell Rader (Minaurum Gold Inc.), Paul Smith (Ocean Partners Holdings Ltd.), Dunham Craig (Valoro Resources Inc.) and Ron Sowerby.
Highlights of the transaction
- Robust resource base with significant exploration potential: High-grade San Acacio silver project containing an initial deposit with an inferred mineral resource estimate of 16.9 million ounces in 2.9 million tonnes grading 181.94 grams per tonne silver (1) and the Tepal gold copper project having a 2017 preliminary economic assessment (PEA) estimating a pretax NPV 5 per cent of $299-million and a 36-per-cent internal rate of return (IRR) with a 1.6-year payback period (2) and a posttax NPV 5 per cent of $169-million and a 24-per-cent IRR with a 2.4-year payback period. The PEA is based on an estimated measured and indicated resource containing four million ounces gold equivalent (3). For further details please refer to the footnotes at the end of this news release.
- Proven management team: Extensive experience in all critical mining and exploration disciplines with demonstrated capabilities in financing, acquiring, developing and operating mines, and a proven record of exploration successes.
- Enhanced market presence: The larger merged company is expected to appeal to a broader institutional shareholder base and improve share trading liquidity.
- Compelling value proposition: Significant leverage among junior Mexico explorer's equities and attractive relative valuation based on net asset value.
Peter J. Hawley, president and chief executive officer of Defiance, stated: "We are extremely pleased with this transformational transaction that represents excellent value for our shareholders. Postmerger, Defiance will boast both the significant exploration potential and initial deposit at the high-grade and wide vein San Acacio silver project as well as the foundational four-million-ounce gold-equivalent resource (3) Tepal gold-copper project. With a best-in-class board of directors, we look forward to aggressively exploring San Acacio as well as seeking other accretive acquisition opportunities."
Dunham Craig, president and CEO of Valoro, said: "Combining Valoro with Defiance presents an opportunity to build a premier exploration company focused on Mexico, driven by an experienced management team and the opportunity to significantly enhance the long-term growth potential of the Tepal gold-copper project. With a 2017 preliminary economic assessment that produced positive economic results coupled with our 2017 and 2018 exploration work in preparation for a drill program to potentially expand the resource and test new targets, this transaction provides further value accretion by coupling our asset with the exploration potential at the San Acacio silver deposit, further providing value accretion for Valoro and our shareholders."
Under the terms of the transaction, which will be effected by a plan of arrangement, shareholders of Valoro will receive 0.71 common share of Defiance for each share of Valoro held. This represents a 54.3-per-cent premium to the closing price of Valoro's shares based on the closing price of Defiance's shares on the TSX Venture Exchange on the date the LOI was signed and a 98.2-per-cent premium to the 60-day VWAP (volume-weighted average price) of Valoro's shares based on the 60-day VWAP of Defiance's shares on the exchange preceding the date the LOI was signed. Shareholders of Defiance will not have to exchange their shares of Defiance in the transaction. Upon completion of the transaction, the combined company will have approximately 119 million common shares outstanding, of which former shareholders of Defiance will own approximately 87 per cent and the former shareholders of Valoro will own approximately 13 per cent.
Management team and board of directors
Upon completion of the transaction, the combined management team will be led by Peter J. Hawley, who will assume the title of president and chief executive officer. The new board will comprise Mr. Hawley together with three directors from each Defiance and Valoro. Biographies of all proposed directors are included later in this press release.
Each of the officers and directors of Defiance and Valoro has stated they will enter into an agreement supporting the transaction and will vote any common shares of the companies held by them in favour of the transaction. In addition, Defiance and Valoro will endeavour to have additional lock-up agreements signed by significant shareholders who agree to vote in favour of the transaction.
Details of the transaction
The transaction will be carried out by the way of court-approved plan of arrangement under the Business Corporations Act (British Columbia) which requires the approval of at least two-thirds of the votes cast by the shareholders of Valoro at a special meeting of its shareholders. In addition, the transaction will be subject to the approval of the TSX Venture Stock Exchange and the Supreme Court of British Columbia.
The transaction will include customary provisions, including fiduciary-out provisions, covenants not to solicit other acquisition proposals and the right to match any superior proposal. In addition, Valoro may be required to pay a termination fee of $217,204 if the transaction is terminated as a result of Valoro accepting a superior proposal or completing an alternative proposal within 12 months of termination of the transaction.
There are no common directors, officers or significant shareholders between Defiance and Valoro and the transaction is an arm's-length transaction under the exchange's policy.
In support of this transaction, Defiance's principal lender has agreed to increase its loan facility from $700,000 to approximately $1.13-million, on similar terms.
The transaction is subject to Defiance and Valoro executing a definitive agreement.
Once the definitive agreement is signed, Valoro will mail its shareholder information circular in respect of its shareholder special meeting.
Defiance and Valoro want to complete the transaction by Dec. 31, 2018.
Proposed board of directories and management biographies
Peter J. Hawley, BSc, BEng, PGeo, president and CEO
Mr. Hawley adds significant depth to the board with his 36 years of geological and mining experience spanning grassroots exploration through to development and production. Having worked extensively with a large number of intermediate and senior mining companies including Teck, Noranda, Placer Dome and Barrick Gold, Mr. Hawley was also the founder and chairman of Scorpio Mining Corp. from 1998 to December, 2014, when Scorpio combined with U.S. Gold and Silver Inc. to form Americas Silver Corp., of which he still remains a director. Mr. Hawley has a record of raising significant funds for private and public companies along with structuring mergers and acquisitions.
Randy V.J. Smallwood, PEng, director
Mr. Smallwood holds a geological engineering degree from the University of British Columbia and a mine engineering diploma from British Columbia Institute of Technology. He was involved in the founding of Wheaton Precious Metals where, in 2010, he was appointed president and, in April, 2011, he was appointed Wheaton's chief executive officer. Mr. Smallwood originally started as an exploration geologist with Wheaton River Minerals Ltd., and in 2001 was promoted to director of project development, his role through its 2005 merger with Goldcorp. Before joining the original Wheaton River group in 1993, Mr. Smallwood also worked with Homestake Mining Company, Teck Corp. and Westmin Resources Ltd. Mr. Smallwood was an instrumental part of the team that built Wheaton River/Goldcorp into one of the largest and most profitable gold companies in the world. He is now focused on continuing to add to the impressive growth profile of Wheaton Precious Metals. Mr. Smallwood has served on the board of Valoro since 2005. In 2015, Mr. Smallwood received the British Columbia Institute of Technology Distinguished Alumni Award.
George Brack, BASc, MBA, CFA, director
Mr. Brack's 30-year career in the mining industry has focused on investment banking and corporate development, specifically identifying, evaluating and executing strategic mergers and acquisitions, and the provision of equity financing. Most recently, he acted as the managing director and industry head, mining group, of Scotia Capital. Prior to joining Scotia Capital in 2006, Mr. Brack spent seven years as president of Macquarie North America Ltd., an investment banking firm specializing in merger and acquisition advice. Previous to that, he was vice-president of corporate development at Placer Dome Inc., vice-president of the investment banking group at CIBC Wood Gundy and worked in Rio Algom's corporate development department. Mr. Brack currently serves as chairman of Capstone Mining Corp. and a director of Alio Gold Inc. and Wheaton Precious Metals. Mr. Brack holds a BASc in geological engineering from the University of Toronto, an MBA from York University and the CFA designation.
Darrell Rader, BBA, director
Mr. Rader is the founder of Defiance Silver. Having directly raised over $100-million for mineral exploration and development, Mr. Rader has significant contacts with institutional investors. He is currently the president and CEO of Mexican-focused Minaurum Gold Inc. and previously oversaw corporate development for Energold Drilling Corp. and IMPACT Silver Corp. Over his eight year tenure, Energold grew from three drill rigs to over 80 in its fleet and IMPACT was transformed from a grassroots silver explorer into a profitable silver miner. Mr. Rader holds a BBA (finance) from Simon Fraser University.
Dunham L. Craig, PGeo, director
Mr. Craig graduated from the University of British Columbia with a degree in geology in 1988. Upon graduation, he served as a project geologist for Cominco Exploration Ltd. and later consulted for Cominco and Kennecott Canada Inc. Subsequently, as the vice-president of exploration and corporate development for Wheaton River Minerals in 1993, he was responsible for the discovery of three mineral deposits at Wheaton River's highly profitable Golden Bear mine and for participating in the project through bankable feasibility and bank financing. He later directed the acquisition of the Bellavista gold project in Costa Rica and oversaw its design through bankable feasibility. From 2002 to 2005, he was a member of the management team of Glencairn Gold Inc. that acquired and developed two operating mines in Central America. Mr. Craig joined Valoro in 2005 as its president and was later appointed CEO and president by the board in 2006.
Paul Smith, director
Mr. Smith, who has an MA in metallurgy and the science of materials, graduated from Oxford University. He spent most of his 36-year career in the non-ferrous mining and smelting industry working with Rio Tinto Zinc, Pasminco, Mount Isa Mines and Pechiney World Trade in the United Kingdom and internationally. Most recently he was a founding shareholder and finance director of Ocean Partners Holdings Ltd., a global trader of copper, zinc and lead concentrates. He left Ocean Partners in May, 2012, to pursue investment opportunities and charitable activities.
Ron Sowerby, CA, director
Mr. Sowerby is a member of the Chartered Professional Accountants of British Columbia and holds a bachelor of commerce degree from the University of British Columbia. Mr. Sowerby was comptroller and chief financial officer of TCG International Inc. (formerly Trans Canada Glass Ltd.) of Burnaby, B.C., from January, 1970, until June, 2007. Mr. Sowerby was a director of Glentel Inc. (since August, 1989) which subsequently was purchased by Bell Inc. for $594-million in May, 2015.
About Defiance Silver Corp.
Defiance Silver is a silver explorer and developer advancing the San Acacio deposit, located in the historic Zacatecas silver district of central Mexico. Defiance is managed by a team of proven mine developers with a record of exploring and developing seven operating mines to date. Defiance's corporate mandate is to expand San Acacio to become one of Mexico's premier high-grade wide vein silver deposits.
About Valoro Resources Inc.
Valoro Resources is a mineral exploration and development company focused on acquiring, exploring and developing mineral resource opportunities with the potential to host profitable mining operations. The company's primary focus is the 100-per-cent-owned Tepal gold/copper project in Michoacan state, Mexico.
Peter J. Hawley, PGeo, interim president and CEO, chairman of the board of Defiance Silver, is a qualified person within the meaning of National Instrument 43-101 Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators, and has approved the disclosure of, and verified the data comprising, the technical information concerning Defiance's material mineral properties contained in this press release.
Dunham L. Craig, interim CEO, president of Valoro, is a qualified person within the meaning of National Instrument 43-101, and has approved the disclosure of, and verified the data comprising, the technical information concerning Valoro's material mineral properties contained in this press release.
(1) Please see Defiance news release dated Jan. 15, 2015, and the attached table.
SAN ACACIO INFERRED RESOURCES
AgEq Tonnes Grade + cut-off Contained metal
cut-off + cut-off Ag Au AgEq Ag Au AgEq
Vein (g/t) (tonnes) (g/t) (g/t) (g/t) (oz) (oz) (oz)
Veta G 100.0 2,150,000 192.43 0.19 204.66 13,302,000 10,000 14,147,000
Veta C 100.0 739,000 153.28 0.08 158.66 3,642,000 1,900 3,770,000
Veta B 100.0 13,000 76.53 0.45 105.98 32,000 190 44,000
Total 100.0 2,902,000 181.94 0.16 192.50 16,976,000 12,090 17,961,000
(2) Please see Valoro news release dated Jan. 19, 2017.
Assumptions used to estimate the 2017 PEA economics: Ninety-eight per cent of the mine plan material is measured and indicated, 2 per cent of the mine plan material is inferred. The base case used metal prices of $1,250 per ounce for gold, $2.50 per pound for copper and $18/oz for silver. Recoveries are based on the attached tables.
FLOTATION CONCENTRATE & TAILS CYANIDATION RECOVERY ESTIMATES
Tepal recovery Flotation Tails cyanidation Combined recovery
Copper % 88.2 88.2
Gold % 62.4 16.5 78.9
Silver % 27.4 15.5 40.2
Copper % 85.9 85.9
Gold % 58.0 16.0 74.0
Silver % 59.6 18.5 78.1
OXIDE LEACH RECOVERY ESTIMATES
Gold % 83.2
Silver % 63.3
Gold % 75.2
Silver % 55.9
OPERATING COST ESTIMATES PARAMETER
Unit Sulphide flotation Sulphide cyanidation Oxide cyanidation
Mining cost -- waste US$/t mined 1.80
Mining cost -- mineralized material US$/t mined 1.80
Processing cost US$/t milled 5.79 1.06 8.70
G&A US$/t milled 0.90 - 0.90
Tailings cost US$/t milled 0.05 - 0.05
Please see Valoro news release dated March 27, 2012, and the attached tables.
Assumptions used to calculate 2012 resource soft pit constraint are in the attached table.
UPDATED TOTAL TEPAL PROJECT RESOURCE ESTIMATE -- MARCH, 2012
Tonnes Au Cu Ag Mo Au Cu AuEq
Category (t) (g/t) (%) (g/t) (%) (oz) (lb) (oz)
Measured 34,100,000 0.48 0.25 0.95 0.002 528,000 185,000,000 1,037,000
Indicated 153,700,000 0.26 0.19 1.67 0.004 1,276,000 628,000,000 3,003,000
indicated 187,800,000 0.30 0.20 1.54 0.004 1,804,000 813,000,000 4,040,000
Inferred 35,700,000 0.16 0.15 1.68 0.006 182,000 120,000,000 512,000
North and South zones Oxide: 78.4% Au, Cu 14.3% -- sulphide
60.7% Au, 87.4% Cu
Tizate Oxide: 68.8% Au, Cu 6.8% -- sulphide
66.2% Au, 85.3% Cu
Metals used and metal prices ($U.S.)
Gold, copper $1,300 Au, $3.30 Cu
Pit slope angle 45 degrees
Operating cost (oxide and sulphide) Mining: $1.35/t, processing: $4.30/t,
general and administrative: 68 cents/t
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