| Wed 21 May 2008, 16:22 | | KCM - KCM - Abridged pre-listing statement |
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JSE
KCM
KCM - KCM - Abridged pre-listing statement
Kimberley Consolidated Mining Limited
(formerly Hidden Riches Trading 81 Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2007/010470/06)
Share code: KCM ISIN: ZAE000119996
("KCM")
ABRIDGED PRE-LISTING STATEMENT
This abridged pre-listing statement is not an invitation to the public to
subscribe for shares in KCM, but is issued in compliance with the
Listings Requirements of the JSE Limited ("JSE") for the purpose of
providing information to the public with regard to KCM.
The information in this abridged pre-listing statement has been extracted
from a full pre-listing statement ("the detailed pre-listing statement")
issued by KCM on 19 May 2008, copies of which are available as set out in
paragraph 12 below.
1 Introduction
The JSE has formally approved the listing of the entire issued share
capital of KCM, being 449 975 000 shares, with a par value of R0.00001
each, on the Alternative Exchange of the JSE, in the "Diamonds and
Gemstones" sector. The listing is by way of introduction and will be
effective from the commencement of business on Tuesday, 27 May 2008. The
shares will trade under the abbreviated name "KCM", with share code "KCM"
and ISIN: ZAE000119996.
2 Background and history
KCM is a diamond mining, exploration and development company with
kimberlite and alluvial diamond projects located primarily in the
Kimberley and surrounding regions of South Africa. The KCM group was
established in 2007, through the acquisition by KCM of the entire issued
ordinary share capital of each of Kimberley Consolidated Mining and
Exploration (Proprietary) Limited ("KCME") and Channal Mining
(Proprietary) Limited ("Channal") ("the merger"), two privately owned
diamond exploration companies holding various prospecting rights in the
Northern Cape and North West Provinces of South Africa, both directly and
in terms of joint venture agreements, as follows:
* KCME is the holder of a new order prospecting right over the Carter
Block area in the Northern Cape Province; and
* Channal has entered into joint venture agreements ("the original
joint venture agreements") with each of Taung Giant Diamond Miners
(Proprietary) Limited ("TGDM"), Teehmaneh Trading and Investments
(Proprietary) Limited ("Teehmaneh") and Batloung Mining Services CC
("Batloung") which are companies representing certain communities in
the Taung and Barkly West regions ("the community companies"), in
respect of three new order prospecting rights in these areas. In
terms of the original joint venture agreements, Channal will provide
services to the community companies in respect of the prospecting
rights, and in terms of subsequent new joint venture agreements
entered into with the same parties, KCM will ultimately hold an
effective 70% interest in each of these rights, subject to the
consent of the Department of Minerals and Energy ("DME") in terms of
section 11 of the Minerals and Petroleum Resources Development Act
28 of 2002, as amended. The original joint venture agreements
remain in place until such time as the new joint venture agreements
become unconditional.
Following the merger, KCM acquired 100% of the issued share capital in Bo-
Karoo Diamond Mining (Proprietary) Limited ("Bo-Karoo"), which is the
owner of the operating alluvial Bo-Karoo mine located on the middle
Orange River ("the Bo-Karoo acquisition"), and the mining and prospecting
assets owned by Graven Mining CC ("Graven"), the mining contractor at Bo-
Karoo, including a cession of the rights of Graven to conduct the
prospecting and mining operations at the Bo-Karoo mine ("the Graven
acquisition").
The KCM group, comprising Bo-Karoo, KCME and Channal, has the resources
and expertise to realise the maximum benefit and economic potential of
projects ranging from early stage exploration to operational mining and
has, as a result, established a diversified portfolio of diamond assets
at various stages of their life cycles.
3 Overview of the KCM group
3.1 The Bo-Karoo mine
Bo-Karoo holds an old order mining right over a 622 hectare area located
on the Farm Rietsdrift No. 18, Magisterial District Hopetown, Northern
Cape Province, for which it has submitted an application to the DME for a
new order mining right, which application has been granted by the DME.
In order to complete the formalities of the conversion which has been
granted, the DME will issue a new order mining right in the name of Bo-
Karoo, which is anticipated to be issued after 26 May 2008. Mining
operations at the Bo-Karoo mine are currently being carried out in terms
of the old order mining right, which the DME has confirmed is valid until
such time as the formalities pertaining to the issue of the new order
mining right are completed.
Trial mining and diamond recovery commenced at the Bo-Karoo mine in July
2005, and a total of 8 030 carats has been produced by the Bo-Karoo mine
up to 29 February 2008, with average monthly production of 250 carats and
an average stone size of 1.63 carats. Bo-Karoo is forecasting to produce
4 840 carats in the financial year ending 28 February 2009 and 6 000
carats in the financial year thereafter.
Bo-Karoo has indicated diamond resources and probable diamond reserves of
13.35 million tons and 25 490 carats. The resource and reserve
statements have been prepared in accordance with the South African Code
for reporting of Mineral Resources and Mineral Reserves and the Listings
Requirements of the JSE, and have been incorporated into the Competent
Persons` Report ("CPR") prepared by Venmyn Rand (Proprietary) Limited
("Venmyn") incorporated in the detailed pre-listing statement.
Diamonds produced by the Bo-Karoo mine are of excellent gem quality and
of large average stone size, with some exceptionally large stones being
recovered, notably a 98.36 carat stone in March 2006 and a 123 carat
stone in August 2007. Most of the stones recovered from the Bo-Karoo
mine are white but some exceptional quality coloured stones have also
been recovered, in particular various Cape yellows and a 10.5 carat pink
stone. The average selling price achieved for the financial year ended
February 2008 was USD1 913/carat including the figure for the 123 carat
stone.
In addition to its mining right, Bo-Karoo has applied for a new order
prospecting right over an area on the Farm Rietsdrift No. 18, measuring 3
471 hectares. No exploration has been carried out on this area to date.
3.2 The Carter Block
KCME holds a new order prospecting right over a 25 053 hectare area
located on the Farm Carter Block 458, Magisterial District Hay, Northern
Cape Province, adjacent to the Finsch diamond mine owned by De Beers
Consolidated Mines Limited ("De Beers").
There are three known kimberlites on the Carter Block area, namely the
Shone, Bowden and PPC pipes, as well as known diamondiferous alluvial
deposits.
KCM is currently carrying out exploration on the Shone kimberlite and the
alluvial gravels located in the Carter Block area. The results of a
diamond drilling programme on the Shone pipe indicate that the pipe is
2.16 hectares in extent and is multiphase with at least two intrusive
events. The indicator mineral chemistry is suggestive of origins within
the diamond stability field and the garnet chemistry is very similar to
that known from the Finsch pipe. On the strength of these results a bulk
sampling exercise has been designed and will be implemented. The
alluvial gravels in the Carter Block may be genetically linked to the
Finsch kimberlite pipe and are presently being drilled.
3.3 Taung area
TGDM and Teehmaneh are the holders of two new order prospecting rights
over three areas, more commonly known as T/1, T/2 and T/3, totalling 5
281 hectares, located on portions of the Farm Taung 894, Vryburg
District, Northwest Province, in the vicinity of the Dry Harts River.
KCM has commenced bulk sampling on the T/1 and T/2 areas and the pilot
mining project has produced 3 657 carats since its inception in June
2005. The diamonds produced from the project are of a high quality
ranging, with an average value of USD751/carat. 90% of the diamonds are
of gem quality and approximately 40% of the production is greater than
one carat in size. A 42 carat Cape yellow diamond was recovered in
August 2007 which was sold for USD6 918/carat.
3.4 Batloung
Batloung is the holder of a new order prospecting right over a 736
hectare area located on the Farm Erf 687, Barkly West District, Northern
Cape Province.
The Batloung prospecting right area hosts both primary kimberlite dykes
and alluvial gravels that have been historically mined, and KCM has
recently commenced exploration of the asset.
3.5 Black Economic Empowerment ("BEE")
In terms of each of the joint venture agreements entered into with the
community companies, development programmes will be put in place to
enable historically disadvantaged individuals to acquire the necessary
skills to participate in the management structures of the incorporated
joint ventures. It is the intention of the parties that the employees
and executives of the community companies will participate in and be
exposed to the provision of the services to be provided by Channal, and
that through such participation and exposure, skills will be transferred
to the communities.
To the extent possible, manpower required for the operations in the Taung
and Barkly West areas will be sourced from the local workforce. Channal
will make available qualified employees and contractors where required,
and has undertaken to use its best endeavours to transfer skills to the
local workforce in order to establish truly empowered successful
operating entities.
In terms of legislation relating to mining companies in South Africa,
these companies are required to meet a minimum overall BEE target through
scoring points in respect of different aspects of their business
including ownership, management, employment, skills development,
procurement, enterprise development and socio-economic development. In
terms of the BEE ownership requirement set out in the Broad-based Socio
Economic Empowerment Charter for the South African Mining Industry ("the
Mining Charter"), mining companies are required to have a minimum BEE
shareholding of 15% by 2009 and 26% by 2014. KCM currently has a BEE
shareholding of 17.2%, which is in excess of the minimum BEE shareholding
of 15% required by mining companies by 2009.
The KCM group is committed to complying with the provisions of the Mining
Charter and to promote socio-economic empowerment within its operations.
4 Prospects
There is a scarcity of well developed and well understood diamond
projects in South Africa in a global environment of high demand and high
stone prices. KCM has created a substantial deal flow and presence in
prime South African diamond real estate areas and has the ability to
acquire prospective projects and to enter into favourable joint ventures
with significant players in the diamond industry.
KCM has established a diversified portfolio of diamond assets, including
assets held directly by the KCM group and assets operated by KCM in terms
of joint venture agreements, incorporating a range of both alluvial and
kimberlite projects. In addition, KCM is in a unique position for a new
exploration company in that it owns the Bo-Karoo mine, which is a cash
generative operation with a diamond resource base, and has entered into a
joint venture agreement in respect of the developmental mine in the Taung
area T/1.
The Bo-Karoo mine is a valuable asset, showing both the grades and
diamond values that make middle Orange River alluvials so prospective.
The indicated diamond resources on approximately one third of the licence
area of the Bo-Karoo area have been established and can be extended with
a minor amount of additional exploration. Furthermore, the gravels
present on the remainder of the Bo-Karoo area offer considerable upside
potential.
The Carter Block area is a uniquely prospective project boasting both
kimberlite and alluvial targets. The proximity and possible genetic links
with the De Beers` owned Finsch diamond mine, adjacent to which the
Carter Block area is situated, are being investigated.
The projects in the Taung areas T/1 and T/2 have demonstrated the
economic potential of the gravels in the Harts River both in terms of
recovered grades and value of the diamonds. The Taung area T/3 is
prospective in that historic mining has taken place on the prospect and
adjacent properties have demonstrable but unclassifiable diamond
resources. KCM has created a unique, co-operative agreement with local
tribal leaders which bodes well for future co-operative arrangements in
the Taung areas.
In terms of the Batloung project, KCM intends bulk sampling the dyke to
confirm grades and define an indicated diamond resource, and the alluvial
gravels are being percussion drilled to establish the extent and nature
of the deposit.
KCM has an experienced management team in the operational, legal and
corporate aspects of the diamond prospecting and mining process, and in
particular has a skilled team of alluvial diamond operators, to enable it
to take advantage of the shortfall in the supply of rough diamonds
worldwide. KCM management has a proven track record of sourcing and
implementing deals both with other established players in the diamond
industry and with community based BEE companies, and is well placed to
grow the group through the development and expansion of its existing
operations and prospecting opportunities as well as by way of
acquisitions and the establishment of new joint venture relationships
going forward.
5 Rationale for listing
KCM`s vision is to become a significant junior diamond mining and
exploration company through both organic and acquisitive growth. The
group has access to various prospecting rights which have been explored
in terms of percussion and diamond drilling, indicator mineral chemistry
and micro-diamond analysis and KCM intends to use its expertise to
maximise the economic potential of these opportunities. As a listed
company, KCM will have the ability to raise capital to supplement the
group`s existing cash reserves and to fund its exploration programmes and
working capital requirements. In addition, listed shares will provide
the group with flexibility to take advantage of potential acquisition
opportunities.
6 Profit estimate and profit forecasts
The consolidated profit estimate of the KCM group for the period from 5
April 2007 to 29 February 2008 and the profit forecasts for the years
ending 28 February 2009 and 28 February 2010, the preparation of which is
the responsibility of the directors, are set out below. The estimate and
forecasts should be read in conjunction with the independent reporting
accountants` report thereon as set out in the detailed pre-listing
statement.
The consolidated profit estimate and profit forecasts have been prepared
on a basis consistent with the accounting policies of KCM in accordance
with International Financial Reporting Standards ("IFRS") and in terms of
The Revised Guide on Forecasts issued by The South African Institute of
Chartered Accountants, in line with the Listings Requirements of the JSE.
Profit Forecast Forecast
R`000 Notes estimate for the for the
for the year year
11 month ending ending
period 28 28
ended 29 February February
February 2009* 2010*
2008*
Revenue 1 49 783.9 91 579.5 127 901.3
Gross profit 2 17 486.0 31 610.3 55 556.6
Operating costs 3 (36 620.4) (28 474.0) (26 392.1)
(Loss)/Profit (19 134.4) 3 136.3 29 164.5
from operations
Net finance costs 4 (222.3) (37.0) (40.7)
(Loss)/Profit (19 356.7) 3 099.3 29 123.8
before taxation
Taxation 5 704.5 1 409.0 1 409.0
Net (loss)/profit (18 652.2) 4 508.3 30 532.8
for the year
Earnings per (5.59) 1.11 6.79
share (cents)
Diluted earnings (5.59) 1.11 6.79
per share (cents)
Headline earnings (5.59) 1.11 6.79
per share (cents)
Diluted headline (5.59) 1.11 6.79
earnings per
share (cents)
Dividend per - - -
share (cents)
Weighted average 333 795 405 107 449 975
number of shares
in issue (`000)
Diluted weighted 333 795 405 107 449 975
average number of
shares in issue
(`000)
* The profit estimate for the period ended 29 February 2008 includes the
contract fee earned in respect of the Graven assets for the period
commencing
22 August 2007, being the effective date of the Graven acquisition, and
production for the period commencing 22 November 2007, being the
effective date of the Bo-Karoo acquisition, which collectively constitute
KCM`s key operating asset. The forecasts for the years ending 28
February 2009 and 28 February 2010 incorporate, inter alia, full years of
production for these operating assets. Production is expected to commence
in respect of the Carter Block area in the latter part of the financial
year ending 28 February 2009. Where KCM operates under joint-venture
agreements (i.e. in respect of Channal) only KCM`s proportionate share of
income and expenses has been included.
Profit estimate
The profit estimate is based on the unaudited and unreviewed consolidated
management accounts of KCM for the period ended 29 February 2008.
Included in estimated operating costs are transaction costs of
approximately R4.0 million. An additional R1.5 million in transaction
costs has been included in the forecast for the year ending 28 February
2009.
Estimated operating costs have been adjusted for the amortisation of the
mining rights acquired in respect of the Bo-Karoo acquisition. The mining
rights recognised in terms of IFRS 3: Business Combinations have been
amortised over their remaining useful life, being nine years.
Estimated operating costs have also been adjusted for R17.4 million in
respect of the IFRS 2: Share Based Payments adjustment in respect of
shares issued to suppliers in lieu of cash payments.
Profit forecasts
The main assumptions and comments on the forecast financial information
are set out as follows:
1 Revenue
1.1 Forecast mining and processing volumes are based on the average
pan capacity and average expected yields. Average expected
yields are based on information provided by Venmyn as set out
in the CPR incorporated in the detailed pre-listing statement.
Monthly production volumes are expected to remain constant over
the forecast period. The factors influencing the assumptions
regarding pan capacity can be influenced by the directors.
Average yields are outside the control of the directors.
1.2 Average export prices per carat have been based on the current
USD market prices with no increase forecast in USD selling
prices. A R/USD exchange rate of R7.50 has been assumed for the
year ending 28 February 2009 and a R/USD exchange rate of R8.25
has been assumed for the year ending 28 February 2010. Factors
influencing assumptions regarding future export prices and
future exchange rates are outside the influence of the
directors.
2 Gross profit
2.1 Direct labour costs comprise approximately 25% of forecast
direct production costs. Forecast labour costs are based on
historical payroll costs, plus labour costs in terms of new
additions to support forecast production levels. The factors
related to this assumption can be influenced by the directors.
2.2 Fuel costs comprise approximately 21% of forecast direct
production costs. Fuel consumption is based on usage per
equipment type and average number of hours per month. The
factors relating to this assumption can be influenced by the
directors. Fuel prices are based on the international
commodity prices and prevailing R/USD exchange rates. The
factors influencing this assumption are outside the influence
of the directors.
2.3 Other significant categories of production costs include
depreciation, which has been calculated as per the accounting
policies, and repairs and maintenance which has been based on
historical costs as well as the expected repairs and
maintenance on new plant and equipment. The factors related to
this assumption can be influenced by the directors.
3 Operating costs
3.1 Forecast operating costs have been based on historical costs.
Inflation of 10% has been assumed. The factors influencing
inflation rates are outside the influence of the directors.
3.2 Forecast operating expenses have been adjusted for the IFRS 2:
Share-based Payments charge in respect of the options issued to
directors and staff. 15 million options have been granted at a
strike price of 50 cents. The options are American-style
options that lapse on the 3-year anniversary of the date of
listing. The options granted to a BEE consortium, as set out in
further detail in the detailed pre-listing statement, are
included within the scope of IFRS 2. It has been assumed for
the purposes of the profit forecast that the exercise price of
the options equates to the market price. If the fair value of
the KCM shares on the date of the exercise of the options
granted to the BEE consortium is R1.00, then an IFRS 2 charge
of approximately R50 million will be debited to the income
statement. This equates to a potential decrease in the
earnings, diluted earnings, headline earnings and diluted
headline earnings per share of 9.89 cents.
3.3 Forecast operating costs have been adjusted for the
amortisation of the mining rights acquired in respect of the Bo-
Karoo acquisition. The mining rights recognised in terms of
IFRS 3: Business Combinations have been amortised over their
remaining useful life, being nine years.
4 Net finance costs
Finance costs are in respect of existing finance leases.
5 Taxation
No tax charges have been included as existing assessed tax losses
will be utilised. Deferred tax has been adjusted for the effects of
the amortisation of mining rights acquired in respect of the Bo-
Karoo acquisition.
7 Details of directors
The full names, ages, businesses addresses and functions of the directors
are set out as follows:
Full name and age Business address Function
Executive directors
Hein Puren le Riche Unit 204B Chief executive
(42) 2nd Floor officer
The Colosseum
Century City
Jacobus Johannes Unit 204B Financial director
Pieterse (41) 2nd Floor
The Colosseum
Century City
Phemelo Ohentse Unit 204B Executive director
Robert Sehunelo 2nd Floor
(41) The Colosseum
Century City
David Johannes Unit 204B Executive director
Scholtz van Tonder 2nd Floor
(43) The Colosseum
Century City
Johann Jacobus Unit 204B Executive director
Cillers (44) 2nd Floor
The Colosseum
Century City
Independent non-executive directors
Ranthoko Jeremiah 6 Danie Pienaar Chairman
Rakgoale (50) Crescent
Pentagon Park
Bloemfontein
Dr Alexander Unit 204B Non-executive
Sergeyevich 2nd Floor director
Rodionov (65) The Colosseum
Century City
Trevor Da Silva 57 Jacobus-Smith Non-executive
Pikwane (57) Street director
Royaldene
Kimberley
All of the directors are South African citizens, with the exception of Dr
Alexander Rodionov, who is Russian.
The directors of KCM:
* have considered all statements of fact and opinion in the detailed
pre-listing statement;
* collectively and individually accept full responsibility for the
accuracy of the information provided;
* certify that, to the best of their knowledge and belief, there are
no other facts the omission of which would make any statement in the
detailed pre-listing statement false or misleading;
* confirm that they have made all reasonable enquiries in this regard;
and
* confirm that the detailed pre-listing statement contains all
information required by the Listings Requirements of the JSE.
8 Major shareholders
The current major shareholders of KCM are as follows:
Number of shares beneficially held
Name Directly Indirectly Percentage
shareholding
in KCM
Centreville, Inc 40 000 000 - 8.9
Stone Gecko Solutions 31 835 912 - 7.1
(Proprietary) Limited
T Pikwane* 25 200 000 - 5.6
Estate late JC Kriek 22 614 005 - 5.0
JJ Pieterse* 22 452 771 - 5.0
C Gentle* 20 000 000 - 4.4
Graven Mining CC 20 000 000 - 4.4
HP Le Riche* 20 000 000 - 4.4
202 102 - 44.8
688
* Directors of KCM and/or its subsidiaries
The shareholders disclosed above are, directly or indirectly,
beneficially interested in 5% or more of the issued ordinary share
capital of KCM as at the date of listing.
The company has a public shareholding of at least 100 shareholders who
will hold a minimum of 10% of the issued ordinary shares on the day of
listing.
9 Share capital
R
Authorised
1 000 000 000 shares of R0.00001 each 10 000
Issued
449 975 000 shares of R0.00001 each 4 500
Share premium 177 402
296
All the authorised and issued shares are of the same class and rank pari
passu in every respect.
10 Dividends and dividend policy
It is the intention of the board to implement a policy of regular
dividend payments in compliance with the provisions of section 90 of the
Companies Act, 61 of 1973, as amended. However, such payments will be
made only after consideration of the need for retention of sufficient
funds for operating requirements, loan repayments and capital programmes
applicable to current and potential new operations. Major growth
opportunities outside of current operations may be funded through a
combination of internal and external sources. Funds, surplus to the above
requirements, may be declared and paid as dividends at the discretion of
the board.
11 Shareholders wishing to trade their KCM shares
* All shareholders should note that on the listing date the company
will issue new KCM share certificates to all shareholders and
accordingly original certificates for the unlisted KCM shares will
not be valid for delivery from listing date.
* After the listing date, shareholders who receive share certificates
will need to take the appropriate steps to dematerialise their
shares should they wish to trade therein. These steps include
opening a Central Securities Depository Participant/broker`s account
(if shareholders have not already done so).
* The dematerialisation process for such new share certificates can
take between five and ten business days.
12 Copies of the pre-listing statement
Copies of the detailed pre-listing statement, in English, may be obtained
during business hours from Friday, 23 May 2008 to Tuesday, 27 May 2008
from KCM, the designated advisor and the corporate advisor as follows:
* KCM`s registered office, Unit 204B, 2nd Floor, The Colosseum,
Century City, 7441;
* Questco Sponsors (Proprietary) Limited, The Campus, First Floor,
Wrigley Field, 57 Sloane Street, Bryanston, 2021; and
* Tlotlisa Corporate Finance (Proprietary) Limited, Block A, Freestone
Office Park, 135 Patricia Road, Sandton, 2146.
Cape Town
21 May 2008
Corporate advisor Designated advisor Attorneys
T-Corporate Questco Sponsors (Pty) Edward Nathan
Ltd Sonnenbergs
Reporting Reporting accountants Techno-economic
accountants and and auditors to KCME advisor and
auditors to KCM, competent person
Channal, Bo-Karoo
and Graven
Moore Stephens PricewaterhouseCoopers Venmyn Rand
Date: 21/05/2008 16:22:20 Produced by the JSE SENS Department.
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