| Tue 25 Mar 2008, 14:06 | | DRC - DNR Capital Limited - Acquisitions And Reverse Take-Over |
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DRC
DRC
DRC - DNR Capital Limited - Acquisitions And Reverse Take-Over
DNR Capital Limited
(Previously Independent Financial Services Limited)
(Registration No. 1950/037061/06)
Share Code: DRC ISIN Code: ZAE000110375
("DNR Capital" or "the company")
ACQUISITIONS AND REVERSE TAKE-OVER
BACKGROUND
At the general meeting held on 7 December 2007, shareholders approved the
change of name of the company to DNR Capital Limited. The company`s listing
was transferred from the Development Capital Market to the "Equity Investment
Instruments" sector of the Main Board of the JSE Limited ("JSE") with effect
from 8 January 2008.
At the general meeting, shareholders approved the specific issue of
100 000 000 ordinary shares at an issue price of 100 cents per share to a
collection of leading financial institutions, hedge funds and high net worth
individuals, thus raising R100 million.
THE TRANSACTIONS
Further to the cautionary announcement on 26 February 2008 shareholders are
advised that the company has concluded an agreement with Jonah Mining
(Proprietary) Limited ("Jonah Mining"), Abalengani Equities (Proprietary)
Limited ("Abalengani Equities") and Xeedan Holdings (Proprietary) Limited
("Xeedan Holdings") in terms of which-
- Jonah Mining and Abalengani Equities (collectively, the "AMI vendors")
will sell to the company 85% of both the entire issued share capital in and
AMI vendors` claims on loan account against Abalengani Mining Investment
(Proprietary) Limited ("AMI") (collectively, the "AMI Equity") (the "AMI
transaction"); and
- the AMI vendors are granted a put option to dispose of and the company a
call option to acquire the remaining 15% of the shares in and the AMI
vendors` remaining claims on loan account against AMI (collectively, the "AMI
option equity") (the "AMI option transaction"); and
- Xeedan Holdings and Jonah Mining (collectively, the "JPH vendors") are
granted a put option to dispose of and the company a call option to acquire
the JPH vendors` entire shareholding in and all claims on loan account
against JoBrouze Platinum Holdings (Proprietary) Limited ("JPH") (the "JPH
equity") (the "JPH option transaction"); and
- the AMI vendors are granted the non-transferable right to subscribe, at
any time prior to the first anniversary of the effective date (as defined
below), for up to R200,000,000 of ordinary shares in the company at an issue
price of 100 cents per share on the terms more fully detailed below (the
"shares for cash transaction"), (collectively, "the transactions").
RATIONALE FOR THE TRANSACTIONS
The intention of the parties is that the company be constituted as the JSE
listed entity housing the future South African mining investment
opportunities (excluding any coal related investments) of the Jonah group
(comprising Jonah Capital (Proprietary) Limited, Jonah Mining and their
respective subsidiaries) (headed by Sir Sam Jonah KBE) and the Abalengani
group (headed by Zunaid Moti).
AMI owns 49,63% and JPH owns 33,96% (collectively, 83,59%) of the entire
issued share capital of Kilken Platinum (Proprietary) Limited ("Kilken").
Kilken is a party to a joint venture agreement with Imbani Minerals
(Proprietary) Limited, a black economic empowered entity, in terms whereof
Kilken participates in the ratio of 70% to Kilken and 30% to Imbani ("joint
venture"). Kilken is the primary operating partner of the joint venture.
The joint venture is engaged in the business of metallurgy, the processing of
tailings concentrate and the related mining of platinum group metals being
platinum, palladium, rhodium and gold.
The joint venture has concluded a `life of mine` sale of tailings and
concentrate agreement with Rustenberg Platinum Mine ("Rustplat"), an Anglo
Platinum Limited subsidiary, and operates from leased premises owned by
Rustplat at the platinum mine known as Amandelbult, near Rustenburg in the
North West Province of South Africa. The joint venture purchases tailings
from Rustplat, processes the tailings and sells the resultant concentrate and
platinum group metals back to Rustplat. The joint venture`s agreement with
Rustplat will continue for so long as Rustplat produces tailings from the
Amandelbult site estimated to be at least 50 years.
The company intends to maintain the current Kilken and joint venture
management teams post implementation of the transactions.
The Jonah group, in its capacity as vendor of 50% of the AMI equity will,
upon implementation of the AMI transaction, become the holder of 182 million
of the company`s ordinary shares (constituting 43% of the company`s enlarged
issued ordinary share capital). In its capacity as a vendor of the JPH equity
and on the implementation of the JPH option transaction, the Jonah group will
acquire an additional shareholding in the company.
The Abalengani group, in its capacity as vendor of 50% of the AMI equity
will, upon implementation of the AMI transaction, become the holder of
107 million of the company`s ordinary shares (constituting 25% of the
company`s enlarged issued ordinary share capital). In its capacity as a
vendor of the JPH equity and on the implementation of the JPH option
transaction, the Abalengani group will acquire an additional shareholding in
the company.
The Abalengani group is a black-owned group of companies (which includes
Abalengani Equities and Xeedan Holdings) headed by Zunaid Moti. The
Abalengani group is invested in a wide range of industries with a focus on
land banking, property development and financial services. One of the
Abalengani group`s landmark developments is the Nondela Drakensberg Mountain
Estate currently under construction in the Drakensberg region of the KwaZulu-
Natal Province. The Abalengani group`s financial services arm is well known
under the FutureFin finance banner and the group`s Future Exotics lifestyle
emporium in the Western Cape.
TERMS OF THE TRANSACTIONS
The AMI transaction
- Subject to the fulfilment and/or waiver of the conditions precedent to
the transactions (as detailed below) (the "conditions precedent") and with
effect from the first business day after the date of fulfilment or waiver of
the last of the conditions precedent (the "effective date") the AMI vendors
will sell the AMI equity to the company.
The purchase price of the AMI equity shall be the amount of R454,218,750,
payable as follows:
* R90,218,750 in cash on the effective date;
* R75,000,000 on the effective date by way of the issue to the AMI vendors
of cumulative, compulsory redeemable preference shares having an issue price
of 100 cents with a coupon equal to 65% of the prime rate of Investec Bank
Limited, which coupon shall be serviced quarterly in arrears. These
preference shares shall not be tradeable on the JSE; and
* R289,000,000 on the effective date by way of the issue to the AMI
vendors of ordinary par value shares in the company at 100 cents per share,
which shares will be listed on the JSE.
AMI option transaction
- The AMI option equity comprises the remaining 15% of the shares in and
all of the AMI vendors` remaining claims on loan account against AMI.
- During the period commencing 1 October 2009 and ending on 31 December
2009, subject to the fulfilment of the condition detailed below:
* the AMI vendors will be entitled to put the AMI option equity to the
company;
* the company shall be entitled to call on the AMI vendors to sell the AMI
option equity to the company,
at a price equal to the higher of R80,156,250 or the fair market price of 1
425 shares in Kilken (ignoring any minority discount or marketability
discount) as agreed to between the AMI vendors and the company or failing
agreement to be determined by an independent third party;
- The exercise of the AMI option shall be conditional on the company and
the AMI vendors having received the consent from Rustplat to the
implementation of the sale of the AMI option equity pursuant to the exercise
of the option;
- At the election of the AMI vendors the purchase price of the AMI option
equity shall be discharged either:
* in cash (to the extent that the company has cash resources available to
it or the company is able to raise cash to discharge the purchase
consideration in cash); and/or
* by way of the allotment and issue of ordinary shares in the company to
be issued at a price equal to the volume weighted average traded price at
which the company`s ordinary shares traded on the JSE over the 30 trading
days immediately prior to the date on which the put/call option is exercised.
The JPH equity transaction
The JPH equity comprises the entire issued share capital in and all claims on
loan account against JPH, which has as its sole asset 6 500 shares in the
issued share capital of Kilken.
During the period commencing on 1 October 2009 and ending on 31 December
2009, subject to the fulfilment of the condition detailed below:
* the JPH vendors will be entitled to put the JPH equity to the company;
* the company shall be entitled to call on the JPH vendors to sell the JPH
equity to the company,
at a price equal to the higher of R365,625,000 or the fair market price of 6
500 shares in Kilken (ignoring any minority discount or marketability
discount) as agreed between the JPH vendors and the company or failing
agreement to be determined by an independent third party;
- The exercise of the JPH option shall be conditional on the company and
the JPH vendors having received consent from Rustplat to the implementation
of the sale of the JPH equity pursuant to the exercise of the option; and
- The purchase of the JPH equity shall be payable on the same payment
terms as the AMI option transaction as detailed above.
Shares for cash transaction
The AMI vendors are granted a non-transferable right to subscribe, at any
time prior to the first anniversary of the effective date, for up to 200
million ordinary par value shares in the company at an issue price of 100
cents per share.
Conditions precedent to the transactions
The transactions will be conditional on the fulfilment of the following
conditions precedent namely:
- the conclusion to the sole satisfaction of the company of a due
diligence investigation in respect of AMI and Kilken and their respective
assets, liabilities and contractual arrangements;
- the conclusion to the sole satisfaction of the AMI vendors of a due
diligence investigation in respect of the company and its assets, liabilities
and contractual arrangements;
- the securing, to the extent necessary, of any contractual approvals
required from Rustplat to the conclusion and implementation of the AMI
transaction;
- the passing and registration, where appropriate, of the requisite
special and ordinary resolutions by the company`s shareholders for the
purpose of approving and implementing the transactions;
- the approval of the implementation by the company of the transactions
by:
* if applicable, by the Competition Commission in terms of Section 13(3)
of the Competition Act, 1998;
* Investec Bank Limited, insofar as Investec Bank Limited`s approval is
required to substitute certain security arrangements currently in place
between Investec Bank Limited and AMI;
- the Securities Regulation Panel agreeing to dispense with any obligation
on the part of the AMI vendors and/or the JPH vendors to make a mandatory
offer in terms of the Securities Regulation Code on Takeovers and Mergers
("the Code"), which mandatory offer would otherwise be occasioned by the
issue of DNR Capital shares issued to discharge the purchase consideration
for the AMI equity and/or on the implementation of all or any of the AMI
option transaction, the JPH option transaction and/or the shares for cash
transaction, subject only to a majority of the independent votes at a general
meeting of shareholders of the company waiving any requirement for such
mandatory offer;
- a majority of the independent votes at a meeting of shareholders of the
company agreeing to waive the requirement for the AMI vendors and/or the JPH
vendors to make a mandatory offer under the Code occasioned by the issue of
any shares in the company pursuant to the implementation of the transactions;
- the confirmation from the JSE that post implementation of the AMI
transaction, the company will be suitable for listing as if it were a new
applicant and that the company will continue to satisfy the conditions for
listing as set out in section 4 of the JSE Listings Requirements.
REVERSE TAKE-OVER
The implementation of the transactions will result in a reverse take-over of
the company. The JSE will only permit the company to retain its listing,
following the reverse take-over, if the JSE is satisfied that the company
still qualifies for listing. The directors are confident that the company
will continue to qualify for listing after implementation of the transactions
and the reverse take-over.
NEW CORPORATE IDENTITY AND BOARD
Subject to shareholder approval it is proposed that the name of the company
will be changed to suitably reflect the nature of the company as an empowered
entity investing in the South African Mining Sector.
On implementation of the AMI transaction, the board of directors of the
company will be reconstituted to reflect the new business focus and strategy
of the company. Sir Sam Jonah will be appointed as the non-executive chairman
of the company and Mr Zunaid Moti the non-executive deputy chairman of the
company.
FINANCIAL EFFECTS
The unaudited pro forma financial effects for which the board of DNR Capital
is responsible are presented for illustrative purposes only and may not
fairly present DNR Capital`s financial position, changes in equity, results
of operations or cash flows following the implementation of the transactions.
The table below sets out the unaudited pro forma financial effects of the
transactions based on the reviewed published interim financial results of DNR
Capital for the six months ended 31 December 2007 as published today ("DNR
Capital`s interim results") and on the unpublished management accounts of the
joint venture for the six months ended 31 December 2007.
The pro forma financial effects are presented for three scenarios:
Scenario 1: after the specific issue of 100 million shares and the completion
of the AMI transaction;
Scenario 2: after the completion of both the AMI and JPH option transactions;
and
scenario 3: after the shares for cash transaction in terms of which the
company will issue 200 million shares to the AMI vendors.
Before After the transactions
the
trans-
actions
Scenario % Scenario % Scenario %
1 change 2 change 3 change
(cents) (cents) (cents) (cents)
Earnings (5.48) 1.17 121% 1.72 131% 1.70 131%
per share
(EPS)
Headline (5.48) 1.17 121% 1.72 131% 1.70 131%
earnings
per share
(HEPS)
Net asset (9.3) 89.65 1 064% 95.48 1 126% 95.48 1 126%
value per
share
(NAV)
Net (9.3) 89.65 1 064% (5.18)* 44% (5.18) 44%
tangible
asset
value per
share
(NTAV)
Number of 34 000 423 000 868 781 1 068 781
ordinary
shares in
issue
(`000)
* In scenario 1 the investment in associate gives rise to the recognition of
a tangible asset whilst in scenario 2 the recognition of goodwill on
application of IFRS 3 "Business Combinations" results in a lower NTAV.
Notes / Assumptions
The "Before the transactions" column reflects the EPS, HEPS, NAV and NTAV as
disclosed in DNR Capital`s interim results.
- The "After the transactions" column reflects what the NAV and NTAV would
have been at 31 December 2007 had the transactions taken place on 31 December
2007 and what the EPS and HEPS would have been had the transactions taken
place on 1 July 2007.
- In respect of scenario 1:
* The company has issued 100 000 000 ordinary shares in terms of the
specific issue at R1,00 per ordinary share.
* The proceeds of the specific issue, net of costs, were received on 1
July 2007 and that the aforementioned costs were set off against the
company`s share premium.
* The purchase consideration of R454,218,750 is settled as follows:
R90,218,750 in cash settled out of the proceeds of the specific share
issue;
R75,000,000 by way of issue to the AMI vendors of cumulative, compulsory
redeemable preference shares, bearing a coupon rate of 9.43%, being 65% of
the prime lending rate;
R289,000,000 by way of issue to the AMI vendors of ordinary par value
shares in the company at R1,00 per share.
* AMI has been accounted for as an associate company.
* The calculation in the "After the transactions" column is based on 423
million DNR Capital shares in issue.
_ In respect of scenario 2:
* The purchase consideration of R445,781,250 is settled by way of the
issue to the AMI vendors of ordinary par value shares in the company at R1,00
per share.
* Share issue expenses have been written off against the company`s share
premium.
* The calculation in the "After the transactions" column is based on 868
million DNR Capital shares in issue.
* The difference between the purchase consideration and the attributable
net asset value has been accounted for as goodwill.
_ In respect of scenario 3:
* The AMI vendors will fully exercise their right to subscribe for 200
million ordinary shares at R1,00 per share in terms of the shares for cash
transaction.
* Taxation has been provided for at 29%.
IRREVOCABLE UNDERTAKINGS
Irrevocable undertakings in favour of and otherwise in support of the
transactions have been received from shareholders of the company representing
77% of all shareholders of the company entitled to vote.
FURTHER DOCUMENTATION
A circular and revised listing particulars containing further details of the
transactions will be sent to the company`s shareholders in due course.
Houghton
25 March 2008
Corporate advisor, legal advisors and transaction sponsor
Java Capital (Proprietary) Limited
Attorneys to the company
Fluxmans Attorneys
Company sponsor
PSG Capital (Proprietary) Limited
Date: 25/03/2008 14:06:50 Produced by the JSE SENS Department.
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