Paragon Minerals announces merger and private placement with Canadian Zinc Corporation

TSX Venture Exchange Symbol: PGR
Shares Issued: 53,649,254

VANCOUVER, July 31, 2012 /CNW/ - Paragon Minerals Corporation (TSX-V: PGR) ("Paragon") is pleased to announce that it has entered into a definitive agreement (the "Arrangement Agreement") with Canadian Zinc Corporation (TSX: CZN) ("Canadian Zinc") whereby Canadian Zinc will acquire all of the outstanding common shares of Paragon in exchange for common shares of Canadian Zinc by way of a statutory plan of arrangement (the "Arrangement").  The Arrangement is subject to approval by the Paragon shareholders, regulatory and court approvals, and other customary closing conditions.

Pursuant to the Arrangement Agreement:

  • Paragon shareholders will receive, in exchange for each Paragon share held, 0.136 shares of Canadian Zinc (the "Exchange Ratio"). The consideration represents a total of CDN$0.061 per Paragon share, based on the volume weighted average price of Canadian Zinc shares on the TSX for the 30 trading days ended July 20, 2012 and a  premium of 52% to the volume weighted average price of Paragon shares on the TSX-Venture for the same period.

  • In addition, all outstanding options and warrants to purchase Paragon common shares will be exchanged for replacement options and warrants to purchase Canadian Zinc common shares and will be exercisable to purchase that number of Canadian Zinc common shares at an exercise price each determined by reference to the Exchange Ratio.

On signing of the Arrangement Agreement, Canadian Zinc has also agreed to immediately purchase, in a non-brokered private placement financing, 7,000,000 Paragon common shares at a price of $0.07 per share for a total consideration of $490,000 (the "Private Placement"). The closing of the Private Placement will be as soon as practicable after acceptance by the TSX Venture Exchange and receipt of other required regulatory approvals for the Private Placement.

John Kearney, Canadian Zinc's Chairman and CEO commented, "The merger is consistent with Canadian Zinc's strategy of building a growth focused base metal producer in North America and represents an excellent value opportunity for shareholders of both companies.  We believe that the addition of Paragon's advanced exploration assets like the South Tally Pond VMS project in central Newfoundland is a major step towards achieving our strategy of creating a strong intermediate base metal company with an attractive growth profile focused on enhancing shareholder value".

Michael Vande Guchte, President and CEO of Paragon, commented, "Canadian Zinc is a well-funded Canadian exploration and development company that is in the process of putting its high grade Prairie Creek silver-lead-zinc deposit into production. Given the prevailing market conditions, it is the Board and management's view that Paragon shareholders will benefit from Canadian Zinc's financial strength and development expertise in unlocking shareholder value in Paragon's base metal assets. The transaction provides Paragon shareholders with the opportunity to participate in the future potential of a near-term producer with a portfolio of production, development and exploration assets".

Canadian Zinc's 100%-owned Prairie Creek Mine is a silver-lead-zinc development project located in the Northwest Territories, 500 km west of Yellowknife.  The Prairie Creek deposit has the potential to be a significant zinc-lead-silver producer, based on NI 43-101Mineral Resource estimates which include:

  • Measured & Indicated Resource: 5.43 million tonnes grading 10.8% zinc, 10.2% lead, 160 g/t silver, and 0.31% copper.
  • Inferred Resource: 6.24 million tonnes grading 14.5% zinc, 11.5% lead, 229 g/t silver and 0.57% copper using a 8% zinc equivalent cut-off.  

A portion of the Mineral Resources was converted to a Mineral Reserve Estimate of 5.2 million tonnes grading 9.4% zinc, 9.5% lead and 151 g/t silver.  A prefeasibility study completed by SNC Lavalin for Canadian Zinc in June, 2012 indicates a pre-tax net present value ("NPV") of $253 million using an 8% discount, with an internal rate of return ("IRR") of 40.4% and payback period of 3 years based on long-term metal price projections of $1.00/lb zinc, $1.00/lb lead, $26.00/oz silver (see Canadian Zinc press release dated June 27, 2012). The Prairie Creek deposit remains open for expansion.  Please note that mineral resources that are not mineral reserves do not have demonstrated economic viability.

Paragon's key asset, the 100%-owned South Tally Pond VMS project is located in a proven mining district in central Newfoundland, immediately southwest of Teck Resources Limited's Duck Pond Cu-Zn mine and mill complex.  In January 2012, Paragon announced an initial NI43-101 Mineral Resource Estimate on the South Tally Pond Lemarchant VMS deposit (see Paragon press release dated January  23, 2012 and related technical report entitled "NI 43-101 Technical Report and Mineral Resource Estimate on the Lemarchant Deposit, South Tally Pond VMS Project, Central Newfoundland, Canada" and dated effective March 2, 2012). The resource estimate includes:

  • Indicated Resource: 1.24 million tonnes grading 5.38% zinc, 1.19% lead, 0.58% copper, 1.01 g/t gold and 59.17 g/t silver using a 7.5% zinc equivalent grade cut-off
  • Inferred Resource: 1.34 million tonnes at 3.70% zinc, 0.86% lead, 0.41% copper, 1.00 g/t gold and 50.41 g/t silver using a 7.5% zinc equivalent grade cut-off

The Lemarchant Deposit remains open along strike and to depth, and there are numerous, other untested priority VMS targets on the property.

Transaction Benefits

  • Implements Canadian Zinc's strategy of building a base metal producer with a combined portfolio of operating mines and pipeline of high-potential growth projects in mining friendly jurisdictions.
  • Further asset diversification in a proven mining area.
  • Financial strength to review potential for consolidating resources in central Newfoundland.
  • Establish a pipeline of zinc deposits for the time when it is believed the zinc price will see significant upside improvement.

Highlights for Paragon Shareholders

  • Opportunity to participate in the future potential of a growth-oriented base metal company.
  • Exposure to an exceptional portfolio of near producing, development, and exploration base metal assets.
  • A platform through which to participate in future sector consolidation.
  • Increased trading liquidity through ownership of Canadian Zinc shares.

Transaction Overview

The proposed transaction will be carried out by way of a court-approved plan of arrangement whereby Canadian Zinc will acquire all of the issued and outstanding common shares of Paragon.  Paragon will become a wholly owned subsidiary of Canadian Zinc.

Paragon shareholders will be entitled to receive, in exchange for each Paragon share held, 0.136 shares of Canadian Zinc. The proposed transaction is subject to certain customary conditions including the approval of not less than 66-2/3% of the votes cast at a special meeting of Paragon security holders that is expected to be held in September 2012.  Approval will also be required from the majority of votes cast by "disinterested" shareholders pursuant to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions.

Pursuant to the terms of the Arrangement Agreement, the proposed transaction is also subject to applicable regulatory approvals and the satisfaction of certain closing conditions customary for transactions of this nature. The Arrangement Agreement also provides for, among other things, customary board support and non-solicitation covenants from Paragon (subject to customary "fiduciary out" provisions that entitle Paragon to consider and accept a superior proposal).  The Arrangement Agreement also provides for the payment of a break fee of C$150,000 to Canadian Zinc on the occurrence of certain termination events.

After giving effect to the Arrangement, Canadian Zinc and Paragon shareholders will own approximately 95.5% and 4.5%, respectively, of the Canadian Zinc issued and outstanding common shares.

The Paragon Board of Directors have determined that the proposed transaction is in the best interest of Paragon, is fair to the Paragon shareholders, and intend to recommend in the Information Circular that Paragon shareholders vote in favour of the proposed transaction. The Paragon Board of Directors' determinations are based on the recommendations of a special committee of independent Paragon directors; Roman Friedrich & Company Ltd., Paragon's financial advisor; and Evans & Evans Inc, the fairness opinion provider to the special committee.  Evans & Evans have provided an opinion to the effect that the consideration to be received by Paragon shareholders is fair from a financial point of view. Paragon's directors and senior management representing, in aggregate, approximately 2.7% of Paragon's issued and outstanding shares, have entered into customary voting support agreements pursuant to which, among other things, they have agreed to vote their Paragon shares in favour of the proposed transaction.

If it is approved by shareholders of Paragon, the proposed transaction is expected to be completed in September 2012 and is subject to certain customary conditions, including receipt of all necessary court, TSX, TSX-Venture and shareholder approvals. The terms and conditions for the proposed transaction will be summarized in the Paragon Management Information Circular to be mailed to Paragon shareholders in August 2012. Copies of the Arrangement Agreement, the Management Information Circular, and certain related documents and agreements will be filed with Canadian securities regulators and will be available at the SEDAR website at www.sedar.com under Canadian Zinc and Paragon profiles, as applicable.

Advisors

Roman Friedrich & Company is acting as financial advisor to Paragon and its board of directors and a success fee is payable upon closing of the transaction to Roman Friedrich & Company in respect to the Arrangement Agreement.  Evans & Evans Inc is acting as fairness opinion provider to the special committee of the board of directors of Paragon. Paragon's legal counsel is Davis LLP.  Canadian Zinc's legal counsel is DuMoulin Black LLP.

About Canadian Zinc Corporation

Canadian Zinc Corporation is a Toronto-listed junior exploration and development company trading under the symbol CZN on the Toronto Stock Exchange, under "CZICF" on the Over the Counter OTCOB in the US, and under the symbol "SAS" on the Frankfurt Exchange.  The company's main project is the Prairie Creek Zinc, Silver, Lead Mine in the Northwest Territories, Canada with Measured and Indicated Resources of 5.43 million tonnes grading 10.8% zinc, 10.2% lead, 0.31% copper and 160 g/t silver and Inferred resources of 6.24 million tonnes grading 14.5% zinc, 11.5% lead, 0.57% copper and 229 g/t silver. A portion of the Mineral Resources was converted to a Mineral Reserve Estimate of 5.2 million tonnes grading 9.4% zinc, 9.5% lead and 151 g/t silver. For further information on Canadian Zinc visit the website at www.canadianzinc.com

About Paragon Minerals Corporation

Paragon Minerals Corporation is a Canadian-based mineral exploration company focused on gold and base-metal exploration in Newfoundland and northwest Ontario.  Paragon's flagship project is the 100%-owned South Tally Pond VMS project where it is advancing a significant precious metal rich massive sulphide deposit located in producing base metal mining district in central Newfoundland. Paragon is also exploring a portfolio of gold properties through partner and company-funded exploration programs.

PARAGON MINERALS CORPORATION

"Michael J. Vande Guchte"

_______________________________
President & CEO

Qualified Person: This news release has been prepared under the supervision of Michael J. Vande Guchte, P.Geo., who serves as the qualified person under National Instrument 43-101 for Paragon Minerals Corporation.

Forward-looking Statements: This news release contains certain statements that may be deemed "forward-looking statements".  All statements in this release, other than statements of historical fact, that address events or developments that Paragon expects to occur, are forward looking statements.  Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words "expects", "plans", "anticipates", "believes", "intends", "estimates", "projects", "potential" and similar expressions, or that events or conditions "will", "would", "may", "could" or "should" occurForward-looking statements in this document include statements regarding current and future exploration programs, activities and results, resource and reserve estimates and other projections based on such estimates, and statements regarding approvals for, and completion of, the proposed plan of arrangement.  Although Paragon believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results may differ materially from those in forward-looking statements.  Factors that could cause the actual results to differ materially from those in forward-looking statements include market prices, exploitation and exploration success, continued availability of capital and financing, inability to obtain required regulator, shareholder or governmental approvals and general economic, market or business conditions.  Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements. Forward-looking statements are based on the beliefs, estimates and opinions of Paragon's management on the date the statements are made. Except as required by securities laws, Paragon undertakes no obligation to update these forward-looking statements in the event that management's beliefs, estimates or opinions, or other factors, should change. These statements are based on a number of assumptions, including, among others, assumptions regarding general business and economic conditions, the timing of the receipt of regulatory, shareholder and governmental approvals for the transactions described herein, the ability of Paragon and other relevant parties to satisfy stock exchange and other regulatory requirements in a timely manner, the availability of financing for Paragon's proposed transactions and exploration and development programs on reasonable terms and the ability of third-party service providers to deliver services in a timely manner. The foregoing list of assumptions is not exhaustive.  Events or circumstances could cause results to differ materially.

Information concerning Estimates of Indicated and Inferred Resources: This news release uses the terms "indicated resources" and "inferred resources".  Paragon advises investors that although these terms are recognized and required by Canadian regulations (under National Instrument 43-101 Standards of Disclosure for Mineral Projects), the U.S. Securities and Exchange Commission does not recognize them. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves.  In addition, "inferred resources" have a great amount of uncertainty as to their existence, and economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies, or economic studies except for Preliminary Assessment as defined under 43-101.  Investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally mineable.

"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."


SOURCE: Paragon Minerals Corp.

For further information:

For more information, please visit the company website or contact Michael Vande Guchte at (604) 629-2353.