Cancana Announces Disposition of MLB Mining Claims, Execution of Shareholders' Agreement and US$1.5 Million Convertible Debenture Financing

TSX-V: CNY

TORONTO, Dec. 22, 2014 /CNW Telbec/ - Cancana Resources Corp.  (TSXV: CNY) (the "Company" or "Cancana") is pleased to announce that it has entered into a binding term sheet (the "Agreement") with its joint venture partner, Ferrometals BV ("Ferrometals"), with respect to the transfer of mining tenements formerly held by M.L.B. de Nogueira – E.P.P. ("MLB") to Brazil Manganẽs Corporation Mineração  S.A. ("BMC") (formerly Rio Madeira Comércio Importação e Exportação de Minérios Ltda.), the joint venture between Cancana and Ferrometals. Cancana is also pleased to announce that is has entered into a shareholders' agreement with Ferrometals (the "BMC Shareholders' Agreement") in order to regulate the relations between Cancana and Ferrometals as shareholders of BMC. In addition, Cancana is pleased to announce a proposed US$1.5 million financing through the issuance by the Company of a US$1.5 million secured convertible debenture to Ferrometals.

Disposition of MLB

Pursuant to the terms of the Agreement, which was entered into between Cancana, Ferrometals and Sentient Global Resources Fund III, L.P. and Sentient Global Resources Fund IV, L.P. (collectively with Ferrometals, the "Sentient Group"), as soon as practicable after the execution of the Agreement, and subject to the receipt of required regulatory approvals (including the final approval of the TSX Venture Exchange (the "TSXV")) and the satisfaction of certain customary closing conditions, the Company will transfer to BMC all of the shares in the capital of Cancana Brasil Mineração Ltda. ("Cancana Brazil"), Cancana's wholly-owned Brazilian subsidiary which currently owns mining tenements formerly held by MLB (the "MLB Tenements"), in exchange for shares of BMC. Pursuant to the Agreement, Ferrometals and Cancana have agreed that the value of the MLB Tenements is US$2.5 million. Cancana will be issued shares of BMC as consideration for the transfer of the MLB Tenements to BMC, which shall be completed by way of the transfer of all of the shares of Cancana Brazil to BMC. Upon completion of the transfer of the MLB Tenements and the issuance of such BMC shares to Cancana, Cancana will own approximately 32.5% of the issued and outstanding shares of BMC. Currently Cancana holds approximately 23.87% of the shares of BMC and Ferrometals owns the remaining 76.13% of BMC.

The sale of the MLB Tenements to BMC was originally contemplated in the term sheet ("December 2013 Term Sheet") and revised binding term sheet ("February 2014 Term Sheet") entered into between the Company and the Sentient Group as previously announced in the press releases of the Company on December 4, 2013 and February 25, 2014.  As disclosed in the Company's press release dated April 15, 2014, the Company deferred a vote of the shareholders of the Company on the disposition of the MLB Tenements in order for the Company to restructure how the MLB Tenements are held, to allow the Company to complete the disposition of the MLB Tenements in the most tax efficient manner. The restructuring of MLB has been completed subject to receipt of final governmental approval in Brazil and the Company expects to be in a position to complete the transfer of the MLB Tenements shortly.

Pursuant to the Agreement, the MLB Tenements will be transferred to BMC for aggregate consideration of US$2.5 million, representing a reduction of US$3.5 million from the initial US$6 million value attributed to the MLB Tenements contemplated in the December 2013 Term Sheet and the February 2014 Term Sheet and as disclosed in the management information circular of the Company dated March 18, 2014 (the "Special Meeting Information Circular"). As a result of this reduction in the consideration to be paid to Cancana for the transfer of the MLB Tenements, Cancana will own approximately 32.5% of BMC upon completion of the sale, as opposed to the 50% ownership of BMC previously disclosed in the December 2013 Term Sheet, the February 2014 Term Sheet and the Special Meeting Information Circular.

Pursuant to the Agreement, Cancana also has a one-time option to purchase from BMC, within six (6) months following the closing of the transfer of the MLB Tenements to BMC, US$2,654,348 worth of shares of BMC, with such shares to be issued at the same issue price as the last investment of Ferrometals in the capital of BMC. Upon exercise of this option, it is expected that Cancana will own approximately 39.47% of the shares of BMC, with Ferrometals owning the remaining approximately 60.53% of the shares of BMC.

As both (i) the value of the MLB Tenements comprises less than 50% of the Company's current assets, and (ii) the transfer of the shares of Cancana Brazil is subject to an exemption from the minority shareholder approval requirement set out in Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101"), as disclosed below, the Company is no longer required to seek the approval of its shareholders for the transfer of the MLB Tenements to BMC.

Debenture Financing

Pursuant to the terms of the Agreement, Ferrometals will purchase a secured convertible note, (the "Convertible Note"), to be issued by Cancana for a purchase price of US$1.5 million (approximately C$1,744,350). The Convertible Note will have a term of 3 years and will be non-interest bearing. The principal shall be convertible at the option of Ferrometals, in whole or in part, into common shares in the capital of the Company ("Common Shares") at a price of C$0.175 per Common Share at the option of Ferrometals.

The Convertible Note and any Common Shares issuable upon conversion of the Convertible Note will be subject to a four (4) month and one (1) day statutory hold commencing from the date of issuance.

Assuming the conversion of the Convertible Note in full, Ferrometals will own approximately 53.3% of Cancana, calculated on a partially diluted basis assuming the conversion of the Convertible Note only.  Of the proceeds from the sale of the Convertible Note, US$192,000 will be used to pay certain costs associated with the restructuring of the ownership of the MLB Tenements and US$345,000 will be used to pay certain tax expenses associated with the cost of the transfer of the shares of Cancana Brazil to BMC. The balance of the net proceeds from the sale of the Convertible Note shall be used by the Company for general working capital purposes.

Anthony Julien, President & CEO of Cancana, commented; "It has taken Cancana eight months to complete the restructuring of the MLB Tenements and to receive the required approvals from the Brazilian regulators and very shortly we will be in a position to complete the vending in of the MLB Tenements to the joint venture. During this time, BMC has operated on the MLB Tenements and has conducted various exploration activities as part of developing the mining operations for BMC. BMC has required US$4.07M in working capital since Cancana contributed its initial US$5M to the joint venture, and the BMC Shareholders' Agreement gives Cancana 6 months to contribute to this US$4.07M and maintain its pro rata shareholding in the joint venture, as well as acknowledge monies spent on behalf of BMC by Cancana's joint venture partner. Lastly, the terms of the Convertible Note are favourable to the shareholders of Cancana, and Cancana appreciates the ongoing support from Ferrometals. I look forward to 2015, when we hope to start making assay announcements from the drill program slated to commence in April."

Pursuant to MI 61-101, the issuance of the Convertible Note and the sale of the MLB Tenements by way of the transfer of the shares of Cancana Brazil to BMC, are "related party transactions". The Company was exempt from the requirements to obtain a formal valuation or minority shareholder approval in connection with (i) the issuance of the Convertible Note, and (ii) the sale of the MLB Tenements by way of the transfer to BMC of all of the shares of Cancana Brazil, in reliance on sections 5.5(a) and 5.7(a), respectively, of MI 61-101, as neither the fair market value of the securities received by such parties nor the proceeds for such securities received by the Company exceeds 25% of the Company's market capitalization as calculated in accordance with MI 61-101. The material change report will be filed less than 21 days before the closing of the issuance of the Convertible Note as the Company requires the consideration it will receive in connection with this financing immediately for working capital purposes.

The completion of (i) the sale of the MLB Tenements by way of the sale by Cancana to BMC of all of the shares of Cancana Brazil, and (ii) the issuance of the Convertible Note, remain subject to receipt by Cancana of all required regulatory approvals, including without limitation the final acceptance by the TSX Venture Exchange (the "TSXV") of requisite regulatory filings and the final approval of the TSXV

BMC Shareholders' Agreement

In connection with the Agreement, Cancana is also pleased to announce that is has entered into the BMC Shareholders' Agreement in order to regulate the relations between Cancana and Ferrometals as shareholders of BMC. The material terms of the BMC Shareholders' Agreement were previously disclosed by the Company in the Special Meeting Information Circular and a copy of the BMC Shareholders' Agreement will be filed under the Company's issuer profile on www.sedar.com.

Certain material terms of the BMC Shareholders' Agreement which were previously disclosed in the Special Meeting Information Circular have been amended and revised through negotiations with Ferrometals. These changes include but are not limited to the following:

• Pursuant to the BMC Shareholders' Agreement, any expenditure incurred on behalf of BMC by either Cancana or Ferrometals shall be recognized as a loan to BMC, and shall be compensated as between Cancana and Ferrometals on the basis of their respective shareholdings in BMC. This compensation shall be effected on a quarterly basis by way of a cash payment between Cancana and Ferrometals;
• The drag-along right which Cancana has granted to Ferrometals is effective immediately upon execution of the BMC Shareholders' Agreement, as opposed to becoming effective beginning 2 years after execution of the BMC Shareholders' Agreement; and
• Each of Cancana and Ferrometals agree that it shall not, during the four-year period following the date of the BMC Shareholders' Agreement, in any way carry on business (directly or indirectly) in a manner substantially similar to or in competition with the business of the joint venture (except in so far as such activity relates to one certain property located in the State of Rondonia, Brazil).

About Cancana

Cancana is a Brazilian exploration and production company with a focus on manganese production in Rondonia, Brazil. The Company has entered into a joint venture with Ferrometals which acquired an interest in BMC, a producing Manganese mine that has been in operation for the past 8 years. BMC produces manganese ore and is located adjacent to, and mainly contiguous with, Cancana's existing Manganese claims and operations. All available resource reports and information on the Company's properties are located on the Company website www.cancanacorp.com.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release. This press release contains forward-looking information under Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to completion of the restructuring of the MLB Tenements, the completion of the transfer of the shares of Cancana Brazil and the issuance of the Convertible Note; the development potential and timetable of the BMC joint venture project; costs of future activities; capital and operating expenditures; success of exploration activities; mining or processing issues; currency exchange rates; government regulation of mining operations; and environmental risks. Generally, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Cancana to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Cancana and in its public documents filed on SEDAR from time to time. Although management of Cancana has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Cancana does not undertake to update any forward-looking statements, except in accordance with applicable securities laws.

Issued on behalf of the Board of Directors of Cancana Resources Corp.

"Senator J. Trevor Eyton"

Senator J. Trevor Eyton, Chairman of the Board

SOURCE: Cancana Resources Corp.

For further information about Cancana Resources Corp., please visit the Company's website or contact the Company at [phone] or preferably email: [email protected].