| Mon 28 Sep 2009, 7:40 | | PGL - Pallinghurst - Joins with OM Holdings Limited in creating a new manganese |
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PGL
PGL
PGL - Pallinghurst - Joins with OM Holdings Limited in creating a new manganese
leader
PALLINGHURST RESOURCES LIMITED
(Previously Pallinghurst Resources (Guernsey) Limited)
(Incorporated in Guernsey)
(Guernsey registration Number: 47656)
(South African external company registration number 2009/012636/10)
Share code on the BSX: PALLRES ISIN: GG00B27Y8Z93
Share code on the JSE: PGL
("Pallinghurst" or the "Company")
Pallinghurst joins with OM Holdings Limited in creating a new manganese leader
1 Introduction
The directors are pleased to announce that, subject to the conditions
precedent set out in paragraph 7 hereafter ("conditions precedent") , the
Company will exchange its indirect interest in Tshipi e Ntle Manganese
Mining (Pty) Ltd ("Tshipi") for new shares in OM Holdings Limited ("OMH")
(the "proposed transaction"). A conditional Memorandum of Understanding
("MOU") has been signed by OMH, Ntsimbintle Limited ("Ntsimbintle") and the
Pallinghurst co-investors, including the Company (the "Pallinghurst co-
investors").
OMH is an integrated manganese business with a strong trading capacity into
the Chinese market, which is likely to be the primary market for Tshipi`s
carbonate ore. OMH`s international operations comprise the wholly-owned
Bootu Creek manganese mine, located 110 km north of Tennant Creek in the
Northern Territory of Australia, which has been in production since 2006, a
ferroalloy smelting facility in China, and a Singapore-based metals
marketing arm. OMH listed on the Australian Stock Exchange (ASX code: OMH)
in March 1998 and has a current market capitalisation of approximately AUD
890 million.
Once concluded, the proposed transaction is expected to create a leading
global manganese company with a long-life resource base operating in the
key strategic geographical locations of the manganese business, with
operations spanning across the full value chain from mine to market. The
Pallinghurst co-investors, including the Company, will become significant
shareholders in OMH, and will take an important step towards the
realisation of the Pallinghurst co-investors` Steel Feed Corporation
strategy.
2 Background to the Company`s existing investment in Tshipi
The Company currently owns a 9.98% indirect interest in Tshipi. Tshipi is
a joint venture vehicle between the Company and the Pallinghurst co-
investors (who collectively own 49.9% of Tshipi) and Ntsimbintle, a Black
Economic Empowerment consortium (who own the remaining 50.1%).
Tshipi`s primary asset is located in South Africa`s Kalahari basin,
contiguous to Samancor Manganese (Proprietary) Limited`s Mamatwan Mine.
The Tshipi manganese project is an extension of the Mamatwan ore body,
which has been mined for over 45 years.
The results of the recent feasibility study on the Tshipi property, carried
out by Turgis Consulting (Proprietary) Limited, were announced on 18 June
2009, and established an indicated mineral resource of 61.82Mt at 37.07%
Mn, and an inferred mineral resource of 101.41Mt at 37.11% Mn (total
163.23Mt) (SAMREC compliant) of open-pit "Mamatwan-type" ore, to a depth of
250 metres.
The feasibility study estimated that project construction could commence in
2010, to achieve steady state production by early 2013, in line with
expected rail and port infrastructure developments. The open pit mine life
would be over 60 years at expected production rates, excluding deeper ore
in the project area. A "fast track" mine development schedule with earlier
logistics options is under investigation and could result in an earlier
entry to market.
3 Key features of the MOU with OMH
OMH has agreed to acquire:
1 the 49.9% equity interest controlled by the Pallinghurst co-investors
in Tshipi in exchange for 139,906,729 OMH shares constituting 22% of
the enlarged OMH. The value of the shares is approximately US$222
million, based on the OMH share price of AUD1.82 per share at 23
September 2009 (the last date before trading in OMH shares was halted
on 24 September 2009), and a US$/ AUD foreign exchange rate of
US$0.87023=AUD1 at 25 September 2009; and
2 a 20% equity interest in Ntsimbintle, which equates to a 10% indirect
interest in Tshipi, for the cash equivalent of 28,093,495 OMH shares
at the 30 day OMH volume weighted average price of AUD1.75 per share
and worth approximately AUD49.2 million. The volume weighted average
price per share has been calculated based on the 30 days to 23
September 2009.
Other details of the proposed transaction are as follow:
- The proposed transaction has the unanimous approval of the OMH Board,
the Ntsimbintle Board and each of the Pallinghurst co-investors,
subject to satisfaction or waiver of certain conditions precedent;
- Following the execution of the proposed transaction, Brian Gilbertson
will join the OMH Board in the capacity of non-executive Deputy
Chairman. He will also chair a newly formed Corporate Development and
Investment Committee of the OMH Board.
- The Company`s interest in OMH post the completion of the proposed
transaction will be 3.4%.
- A break fee may be payable by OMH or the Pallinghurst co-investors/
Ntsimbintle under certain circumstances. This would be receivable in
the event of OMH corporate activity after today`s announcement
resulting in the non-completion of the proposed transaction, and would
be payable if the Pallinghurst co-investors withdraw their support for
the proposed transaction other than as a result of the due diligence
investigation.
4 Rationale for the proposed transaction
The key benefits of the proposed transaction are as follows;
- OMH is an operating company with net cash inflows, an established
manganese mining and marketing team, and unique access to the Chinese
manganese market. However, OMH currently lack a long-life resource on
the scale of Tshipi;
- Tshipi has a mineral resource estimate of 163.23Mt at 37.1% Mn with an
expected mine life based on its mineral resource of over 60 years and
a projected production capacity of between 2.2 to 2.3Mt per annum of
run-of-mine manganese ore. OMH`s Mineral Resource (as at 31 December
2008) for Bootu Creek stands at 30.6Mt at 24.1% Mn, and OMH expects to
have production capacity from Bootu Creek expandable to 1.5Mt per
annum by 2011. Together the assets provide a strong platform for OMH
to become one of the leading global manganese companies;
- Tshipi carbonate ore and the Bootu Creek`s siliceous ore are
complementary and together represent a unique product offering which
should be well-received by the manganese market. It may therefore be
possible to increase production volumes at Tshipi to cater for this
market;
- The combined group will benefit from the project development,
operating and marketing expertise of OMH and the strategic focus and
financial strength of the Pallinghurst co-investors.
5 Previous part disposal of partial interest in Tshipi to POSCO
Effective 1 July 2009, the Company disposed of an indirect interest of
2.27% in Tshipi for US$6.9 million to a subsidiary of South Korea`s POSCO,
resulting in its remaining indirect interest in Tshipi being reduced to
7.71%. The disposal is subject to certain conditions. Shareholders are
referred to the Company`s announcement on 1 July 2009 for more details.
6 Calculation of unrealised gain if the proposed transaction is concluded
Number of Closing US$/AUD Amount (US$)
OMH shares OMH share rate on
received price in 25
AUD on 23 September
September 2009*
2009*
Fair value of assets
disposed of to OMH
Fair value of 7.71% indirect (23,079,501)
shareholding in Tshipi vended into OMH
Fair value of 21,612,202 1.82 0.87023 34,229,808
consideration received
Fair value of OMH shares
receivable
Unrealised potential gain on disposal to 11,150,307
OMH
The closing share price on 23 September 2009 has been used to calculate the
provisional gain on the receipt of OMH shares. A trading halt in OMH
shares was called on 24 September 2009. The closing US$/ AUD foreign
exchange rate on 25 September 2009 has been used for the calculation as it
was the last practical date before the announcement of the transaction.
The actual results of the completion of the proposed transaction could be
materially different from the estimated figures disclosed above as the US$/
AUD foreign exchange rate and the OMH share price could differ.
Additionally, the effects of the potential gain on the proposed transaction
above ignores any related tax and transaction costs, as the impact of these
has not yet been determined, although it is likely to be significant.
7 Financial effects of the proposed transaction on the Company
The unaudited pro forma financial effects set out in the table below have
been prepared to enable the Company`s shareholders to assess the impact of
the proposed transaction on the Company`s key earnings measures (earnings
per share, headline earnings per share, diluted earnings per share, net
asset value ("NAV") and tangible NAV per share) for the 6 month period
ended 30 June 2009. For the purposes of these calculations, there is no
difference between earnings, headline earnings and diluted earnings per
share, nor between NAV and tangible NAV per share.
The pro forma financial effects have been calculated based on the
assumption that the adjustments were effective from 1 January 2009 for
income statement purposes and 30 June 2009 for balance sheet purposes These
pro forma financial effects have been prepared for illustrative purposes
only and because of the nature of the calculations they may not fairly
present the impact of the proposed transaction on the company`s financial
position at 30 June 2009, or on the income statement for the period from 1
January 2009 to 30 June 2009.
The directors of the Company are responsible for the preparation of the
financial effects of the proposed transaction, which have not been reviewed
by the auditors.
Before Scenario Scenario Scenario Scenario Scenario Scenar
proposed 1- After 1- % 2- Before- 2-% 3- After- io 3-
transact - key change key change key %
ion- key earnings from the earnings from the earnings change
earnings measures before measures before measures from
measures at 30 earnings at 30 earnings at 30 scenar
at 30 June measure June 2009 measure June io
June 2009 at 30 including at 30 2009 24,5
20091 includin June impact of June includin
g impact 20092 US$100 20093,4 g impact
of million of
proposed rights US$100
transact offer, million
ion2 but rights
excluding offer,
the and
proposed includin
transacti g the
on3,4 proposed
transact
ion4,5
(US$) (US$) % (US$) % (US$) %
Earnings 0.11 0.16 39.63% 0.06 (48.04%) 0.08 39.63%
per
share,
headline
earnings
per
share
and
diluted
earnings
per
share
NAV and 0.76 0.80 5.94% 0.60 (21.61%) 0.62 3.93%
tangible
NAV per
share
Earnings 28,134,3 39,284,6 39.63% 28,134,36 0% 39,284,6 39.63%
61 68 1 68
Net 187,861, 199,011, 5.94% 283,431,8 50.87% 294,582, 3.93%
asset 600 907 20 127
value
Number 247,232, 247,232, 0% 475,803,8 92.45% 475,803, 0%
of 484 484 60 860
shares
in issue
Notes
1) The "Before" column has been extracted from the Company`s interim financial
statements for the six month period to 30 June 2009, as published on the
Securities Exchange News Service of the JSE Limited ("SENS"). These
results were reviewed by the Company`s auditors, Saffery Champness.
2) The "Scenario 1- After" column includes the pro forma financial effects of
the proposed transaction on the Company`s key earnings measures from the 30
June 2009 reviewed interim financial statements.
3) The "Scenario 2- Before" column shows the pro forma financial effects of
the Company`s capital raising of US$100 million by way of a renounceable
rights offer on the Company`s key earnings measures. It excludes the
impact of the proposed transaction.
4) Shareholders are reminded that the Company is carrying out a renounceable
rights offer, to raise US$100 million to pursue the strategic objectives
for each investment platform. The rights offer was announced on SENS on
Tuesday, 8 September 2009 and the rights offer circular was posted to
Pallinghurst shareholders on Monday, 7 September 2009. The rights offer
circular included a pro forma financial effects table, which applied the
impact of the rights offer to the audited 31 December 2008 annual results.
Since that date, the Company has released its 30 June 2009 reviewed interim
financial statements, and therefore shareholders may find the illustration
of the impact of the proposed transaction on the Company`s key earnings
measures at 30 June 2009 more useful. The same assumptions as used in the
pro forma effects calculation in the circular have been used; that ZAR800
million equates to US$100 million (using an FX rate of ZAR8: US$1), and
that transaction costs of US$4,429,780 have been incurred.
5) The "Scenario 3- After" column includes the pro forma financial effects of
both the Company`s US$100 million capital raising, and the impact of the
proposed transaction, on the company`s key earnings measures from the 30
June 2009 reviewed interim financial statements. The % changes column
therefore illustrates to shareholders the specific impact of the proposed
transaction including a 3.93% increase in NAV per share.
8 Conditions precedent
The proposed transaction is subject to certain conditions precedent, including:
- The satisfactory completion of comprehensive commercial, technical
and legal due diligence, which is to commence immediately;
- The formalisation of comprehensive final agreements (including Sale
and Purchase Agreements, Shareholders` Agreements at both Tshipi and
Ntsimbintle level, and a Marketing Services Agreement between the
relevant parties);
- The formal approval of the proposed transaction by the shareholders of
OMH; and
- The approval of all applicable regulatory and statutory bodies, to the
extent required.
It is envisaged that the OMH shareholders will consider and vote on the proposed
transaction by mid-December 2009, following completion of the due diligence,
execution of formal agreements, independent experts` reports, the compilation
and despatch of the documents required for shareholder approval and the receipt
of the requisite regulatory and statutory approvals.
9 Categorisation of transaction
In terms of the Listings Requirements of the JSE Limited the proposed
transaction has been categorised as a Category 2 transaction.
Pallinghurst Resources Limited Chairman Brian Gilbertson, commented:
"I see this as a transformational transaction for all parties. It establishes a
robust supplier of manganese ores and alloys to the global steel industry, able
to source, blend and deliver internationally for optimum customer satisfaction.
With its long-life reserves in South Africa`s Kalahari Basin, home to 80% of the
world`s resources, the new OMH will be a strong and growing competitor in the
industry for many decades to come."
Pallinghurst Resources Limited Chief Executive Arne H. Frandsen commented:
"We have come a long way in two years. This is a key step in our Steel Feed
Corporation strategy, and realises significant value for our shareholders. As
the logic is compelling for all concerned, we anticipate approval of the
transaction and look forward to working closely with OMH in the future. The
attractions of creating the world`s largest publicly listed pure manganese
player, taking ore from Australia and South Africa, beneficiating it and
delivering it directly to the end-users in mainly Asia are obvious, and provide
incremental opportunities and flexibilities".
Guernsey
28 September 2009
Investment bank and Sponsor
Investec Bank Limited
Date: 28/09/2009 07:40:10 Produced by the JSE SENS Department.
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