| Fri 2 Oct 2009, 8:48 | | SIM - Simmer & Jack Mines Limited - Letter from the chairman to simmers |
|
SIM
SIIF
SIM - Simmer & Jack Mines, Limited - Letter from the chairman to simmers
shareholders
Simmer & Jack Mines, Limited
(Incorporated in the Republic of South Africa)
(Registration number 1924/007778/06)
Share code: SIM
ISIN Code: ZAE000006722
("Simmers" or the "company")
LETTER FROM THE CHAIRMAN TO SIMMERS SHAREHOLDERS
"Dear fellow shareholder,
On 21 September 2009, Simmer and Jack Mines Limited ("Simmers") announced the
resignation of independent non-executive director Kevin Wakeford and non-
executive directors Siviwe Mapisa, Baba Njenje and Ayanda Sisulu-Dunstan, all
three of whom are directors of Vulisango Holdings (Pty) Limited ("Vulisango").
You are no doubt aware of recent events pertaining to a dispute between the
board of Simmers and the aforementioned former directors of Simmers.
In the wake of the unfortunate spotlight that your company finds itself in, this
letter serves to provide:
- clarity on the nature of the dispute; and
- an update on strategic, operational and other matters pertinent to -
shareholders` interests.
CLARITY ON THE NATURE OF THE DISPUTE
Who is Vulisango?
Vulisango is an empowerment shareholder, as designated under the requirements of
the Minerals and Petroleum Resources Development Act ("MPRDA") and the South
African Mining Charter ("Mining Charter").
Vulisango was introduced to Simmers` management as the new empowerment partner
to be included in the JCI/Simmers "vendor financed" joint management/BEE
controlling shareholder structure implemented in 2005.
The company`s records reflect that Vulisango is held by: Lizo Njenje (22%),
Valence Watson (22%), Archie Mkele (16.5%), Zola Yeye (16.5%), Siviwe Mapisa
(8%), Ayanda Sisulu (7%) Baba Njenje (4%), Nozuko Pikoli (2%), Margaret Ndlovu
(1%) and the Blue Crane Trust (1%).
The nature of the dispute: the key issues
Vulisango has attempted to deflect the debate by pointing to the weakness in the
Simmers share price, accusing certain Simmers executives of non-delivery and,
more recently, contending that Vulisango may have been used as a front by
Simmers to obtain mining rights. The key issues to the dispute are simple:
- Vulisango is demanding that the company restore its interest in Simmers to
26%. Vulisango has done so by, amongst other things, attempting and failing
to interdict Simmers from executing the board-approved acquisition of Tau
Lekoa Mine.
- Vulisango has also lobbied (and continues to lobby) the South African
Department of Mineral Resources ("DMR") to adopt a different set of rules
for Simmers than what currently applies to other mining companies operating
in South Africa. In essence, Vulisango has informed (and continues to
inform) the DMR that Simmers` mining rights should be called into question
unless:
- Vulisango holds a minimum of 26% and is the only recognised BEE owner in
Simmers;
- Vulisango holds a management contract with Simmers; and
- Vulisango has the right to appoint the majority of the directors to the
Simmers board - despite not holding a controlling stake.
This led to considerable debate and conflict on the Simmers board. In the
interests of clarity, Simmers sought legal opinion on Vulisango`s assertions.
The legal opinion was clear: Simmers` mining rights could not be based solely on
its relationship with Vulisango and the Vulisango position set out above was not
founded in law.
Background to the dispute
Over the past few months, it became clear to the board of Simmers that the
actions of the directors of Vulisango, in their capacity as directors of
Simmers, were not in the interests of Simmers shareholders. Instead, these
directors` actions were primarily focused on pursuing the interests of Vulisango
to the detriment of the remaining shareholders of Simmers. The first such
indication was an attempt by Vulisango to interdict the Simmers board-approved
acquisition of Tau Lekoa Mine.
On 18 February 2009, Simmers announced that it had entered into an agreement
with AngloGold to purchase 100% of Tau Lekoa Mine for ZAR600 million, on the
basis that this acquisition would transform Simmers from a marginal operation
into a mid-tier mining house and the fourth largest gold producer in South
Africa. Tau Lekoa is a relatively low-cost, low-risk asset that provides Simmers
with an ideal platform to benefit from regional synergies through utilising
existing plant capacity at Buffelsfontein Gold Mine. Over the next three years,
Tau Lekoa is expected to produce some 130 000 ounces per annum at cash costs of
between ZAR180 000 and ZAR190 000 per kilogram. This excludes any potential up-
side from the Weltevreden project, a shallow extension of the Tau Lekoa Mine.
To fund the Tau Lekoa acquisition Simmers issued 49 million new Simmers shares
during March 2009, raising approximately ZAR110 million, at the same time
disposing of 19,6 million First Uranium Corporation Limited ("First Uranium")
shares, raising approximately ZAR735 million. This general issue diluted
Vulisango`s holding in Simmers from 26% to 24%.
Subsequently, in June 2009, Simmers issued a further 109 million Simmers shares,
raising approximately ZAR289 million to fund its bid for Pamodzi`s Orkney mine
("Orkney"). This issue further diluted Vulisango`s holding in Simmers from 24%
to 22%. The Simmers bid for Orkney was unsuccessful and the proceeds raised
through the issue of the 109 million Simmers shares have been allocated towards
fast-tracking the development of Weltevreden.
Even without taking Simmers` other BEE shareholders into consideration, this 22%
equity holding is in excess of the BEE holding requirements of current mining
legislation and well beyond that held by most mining companies in South Africa
today.
It is detrimental to Simmers for certain Simmers directors to lobby the
regulator to impose a higher standard on Simmers than that applied to other
mining companies. It is also strange as Vulisango stands to benefit materially
from the company`s acquisition of Tau Lekoa and the development of Weltevreden.
Certainly, such actions are contrary to the interests of Simmers and in conflict
with such individuals` position as Simmers directors. This creates uncertainty
about the company`s commercial rights and puts Simmers at a distinct
disadvantage to peers. This does not detract from Simmers` commitment to
exceeding the requirement of the Mining Charter. However, it is the board`s view
that this should be balanced with the need to ensure the appropriate capital and
corporate structure to enable growth and value-enhancing opportunities in a
manner that is fair to all Simmers shareholders, equally.
On the basis of these actions and a host of others, which are detailed in the
SENS announcement of 21 September 2009, it became evident to the board that the
directors of Vulisango were not pursuing the interests of all Simmers
shareholders but were focused on:
- the preservation of Vulisango`s percentage holding at all costs;
- the maximisation of value for Vulisango first and foremost, ahead of growth
considerations and shareholder returns for Simmers; and
- Vulisango acquiring control of the board of Simmers in pursuance of these
objectives.
STRATEGIC AND OPERATIONAL UPDATE
Simmers and the DMR
Recent media reports have stated that the DMR will probe "fronting" claims
against Simmers and that the department is concerned about the effect the
continuing dispute could have on empowerment in mining.
Simmers welcomes any investigations that leads to a speedy resolution on this
matter. We are comfortable that Simmers meets and exceeds the requirements of
the Mining Charter based on legal opinion obtained on the application of the
MPRDA.
Corporate Governance at Simmers
In similar attempts to shift the emphasis away from the key issues, Vulisango
has added oppression and corporate governance to its list of grievances.
Vulisango claims that its directors resigned in protest at the company having
acted unilaterally and without board approval specifically in respect of the
issue of Simmers shares, causing a dilution of Vulisango`s holding in Simmers.
There is no truth in any of these claims. The requisite shareholder approval for
the issue of shares as well as board approval was obtained.
Until recently, the board of directors of Simmers was composed of three
Vulisango nominated directors, three independent directors, three executive
directors and a non executive chairman. This structure provided Vulisango with
more than adequate representation relative to their stake. Restoring the board`s
composition to ensure that it complies with best practice is a key priority. A
process is already underway to recruit reputable, value-adding independent non-
executive directors who will ensure that the company reflects the values, spirit
and requirements of transformation in South Africa.
Management update
Vulisango`s charges of non-performance rest almost entirely on the movement of
the share price between 2007 and the present, completely ignoring external
market pressures and thereby nullifying the extraordinary achievements of the
Simmers team. Let us consider the facts:
In execution of a board-approved strategy, management has grown Simmers from a
marginal 10 000 ounce per annum producer to the point where:
- It employs more than 10 000 employees against less than 250 five years ago;
- The share price has risen by 1626%, between 1 January 2005 and 21 September
2009, compared to the JSE gold index, which rose by 58% during the same
period;
- The net asset value doubled year on year to ZAR3.4 billion in FY2009, and
has increased a cumulative 17-fold over the past five financial years;
- The mineral resource base has grown from 2 million ounces of gold to 37.5
million ounces of gold and 142.1 million pounds of uranium; and
- Production has increased 20-fold over the past five years.
Nevertheless, the board is acutely aware of the discount and value overhang on
the share price. As previously communicated, various options are being
considered to provide value unlock and these will be presented to shareholders
in due course. Management will, in the short term, continue to focus on delivery
of growth projects and corporate "value unlock" opportunities. Simmers is in the
final stages of completing four major capital projects, the last of which will
be completed by June next year. All these projects will grow production
significantly from the existing 20 times production uplift since 2004, while
contributing to reduced production risk and reduced unit costs.
Operational update
On the operational front, our focus remains on the delivery of our four major
growth projects, namely the rehabilitation of Buffelsfontein Gold Mine`s high
grade five shaft, the integration of Tau Lekoa and ramping up of gold and
uranium production at Mine Waste Solutions and Ezulwini Mine. Arguably one of
the most exciting new growth projects is Weltevreden, which is the shallow up-
dip extension of the Tau Lekoa Mine. This development presents substantial up-
side for Simmers, with the potential to almost double Tau Lekoa`s current
production profile and create around 1 000 new jobs in the medium term. That we
have the funds to develop this mine at all is thanks to the general issues of
Simmers shares, which the Vulisango directors are now questioning on the grounds
that it diluted their stake in Simmers to below 26%.
We are in the process of restructuring the Simmers gold division to mitigate the
combined impact of the weak Rand per kilogram gold price and higher than
expected increases in the cost of fuel, energy and mining consumables. Once this
is completed, we will be well placed to deliver on our promises. We have a
clear obligation to all our shareholders - Vulisango included - to produce the
goods, on budget and according to plan. By achieving this, we will prove our
detractors wrong and the simple act of delivery will go a long way to unlocking
the value inherent in the company.
The way forward
Simmers will continue to bolster its corporate and capital structure in support
of the company`s growth ambitions to unlock value and deliver shareholder
returns. We will continue to pursue the value unlock opportunities available to
us between First Uranium and Simmers, particularly with regard to the financial
and technical synergies which could be very beneficial to both companies.
We remain committed to the principles of BEE and the spirit of the Mining
Charter. We have made good progress and, according to the criteria used by the
DMR to measure a company`s ownership by Historically Disadvantaged South
Africans, Simmers scores 42%, well above what is required under the MPRDA. On
the same basis, First Uranium scores 22.5%.
Nigel Brunette
Non-executive chairman
Simmer and Jack Mines Limited"
Johannesburg
2 October 2009
Sponsor
Macquarie First South Advisers (Pty) Ltd
Date: 02/10/2009 08:48:36 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
