| Tue 6 Apr 2010, 10:55 | | MML - Metmar - Acquisition by Metmar Africa Limited a group of investors |
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MML
MML
MML - Metmar - Acquisition by Metmar Africa Limited, a group of investors
represented by Metmar, and withdrawal of cautionary announcement
Metmar Limited
Incorporated in the Republic of South Africa
Registration number: 1998/007269/06
Share code: MML
ISIN code: ZAE000078747
("Metmar" or "the Company")
Acquisition by Metmar Africa Limited, a group of investors represented by
Metmar, and withdrawal of cautionary announcement
1 Introduction
Metmar shareholders are referred to the cautionary announcement published
on the Securities Exchange News Service of the JSE Limited ("JSE") on 12
February 2010, in which shareholders were advised that Metmar, representing
a group of investors, had entered into a heads of agreement with Zimbabwe
Alloys Limited ("Zim Alloys") to acquire a 40% interest in a Newco to be
registered in Zimbabwe, for a purchase consideration of USD 51.3 million.
Subsequent to the aforementioned announcement, Metmar shareholders are
advised that Metmar Africa Limited ("Metmar Africa"), a company
incorporated and registered in Mauritius and in which Metmar has a 25%
interest, has entered into an agreement with Zim Alloys dated 24 March
2010 ("the Acquisition Agreement").
Metmar`s investment in Metmar Africa is held by Metmar Mauritius Limited
("Metmar Mauritius"), a company incorporated and registered in Mauritius.
Metmar Mauritius is a wholly owned subsidiary of Metmar Limited.
The shareholders of Metmar Africa have access to capital required for the
acquisition. In addition they have the necessary expertise to effectively
and efficiently:
* Design, construct, operate and manage new washing plants, and refurbish the
existing washing plants;
* Design, construct, operate and manage DC furnaces;
* Design, construct, operate, manage and refurbish an AC furnace; and
* Execute and manage the logistics, sales and marketing of chrome ore,
concentrates and alloys.
In terms of the Acquisition Agreement, Metmar Africa has acquired 70 shares
("the ZAC Shares") constituting 40% of the issued share capital of Zimbabwe
Alloys Chrome (Pvt) Limited ("ZAC"), a company incorporated and registered
in Zimbabwe and which is a wholly owned subsidiary of Zim Alloys ("the
Acquisition"), for a purchase consideration of USD 51.3 million, subject to
downward adjustment relating to a Competent Person`s Report ("CPR") as
detailed in paragraph 2.3 below. Metmar`s portion of the purchase
consideration amounts to USD12.8 million. The effective date of the
Acquisition is 24 March 2010 ("Effective Date").
2. The Acquisition
2.1 Nature of the Acquisition
ZAC is a mining and production company whose business includes, inter alia,
the mining of Contained Chromite, the processing thereof into concentrates
and alloy and the sale of the resultant material.
In terms of the Acquisition Agreement, ZAC will own the following assets:
1 Stands 1891 and 1899, Bristol Road, Heavy Industrial Sites, Gweru, Zimbabwe
("Immovable Properties") and all improvements thereof, inter alia, all
fixed plant, equipment and infrastructure relating to the metal recovery
plant located on the immovable property ("Metal Recovery Plant"),
including number 1 and number 2 packaging and dispatch, raw material
handling plants and the batching plant, the A-furnace complex, the S-
furnace complex, the M-furnace complex, the briquetting plant and all
weighbridges, rail heads and the wagon tippler, but excluding the main
office block and a workshop belonging to the ZAL Pension Fund;
2 the plant, equipment and related infrastructure at the washing plants at
Lalapansi, Inyala and Sutton Mines, Zimbabwe ("Washing Plants");
3 all waste, slimes and middling stockpiles at the Washing Plants;
4 the metal recovery plant slag stockpile located at the Metal Recovery Plant
(in quantum approximately 4 million tons);
5 the claims and mining rights in respect of Contained Chromite ("Claims")
as verified by a CPR, procured at the cost of Zim Alloys, to be delivered
to Metmar Africa within 180 days of the signature date of the Acquisition
Agreement, being 24 March 2010 ("Signature Date"); and
6 a lease concluded between Zim Alloys and ZAC, at a nominal rental of USD 1
per month in respect of the Washing Plant premises ("Washing Plant Lease").
The assets detailed above are collectively referred to as the ZAC Assets.
With regards to paragraph 2.1 (5) above, in the event that the CPR
determines 30 million tons or less of Contained Chromite, measured,
indicated and economically mineable, or Zim Alloys fails to deliver the
CPR, then all of the Claims will be transferred to ZAC. In the event that
the CPR determines more than 30 million tons of Contained Chromite,
measured, indicated and economically mineable, then Metmar Africa will be
entitled to select which Claims will be transferred to ZAC, provided that
the aggregate Claims selected shall not exceed 30 million tons ("Selected
Claims").
Zim Alloys and Metmar Africa will jointly unlock the value of the Claims
that remain following the transfer to ZAC of the Selected Claims
("Remaining Claims") in the same ratio as their respective shareholdings in
ZAC, through an entity and in a manner to be determined by Zim Alloys and
Metmar Africa in writing.
The Selected Claims will be transferred to ZAC on the earliest of the
following dates:
* in the event that no CPR is delivered to Metmar Africa within 180 days of
Signature Date, the 181st day following the Signature Date; and
* in the event that the CPR is delivered to Metmar Africa within 180 days of
the Signature Date and Metmar Africa:
* examine and verifies the CPR without objection within 28 days of
delivery of the CPR or does not give notice of a dispute within such
28 days, the 208th day following the Signature Date; or
* if Metmar Africa disputes the CPR, the 10th day following the
resolution of such dispute ("CPR Approval Date");
* CPR Approval Date is subject to extension in the event that Zim Alloys
is unable to deliver the CPR within 180 days from the Signature Date,
then Zim Alloys shall be entitled to an extension of 60 days, provided
written notice is given to Metmar Africa prior to the expiry of 180
days.
If Zim Alloys fails to deliver the CPR to Metmar Africa by the CPR Approval Date
then it shall be obliged to transfer all Claims to ZAC at an aggregate purchase
price of USD 1.
Zim Alloys undertakes by no later than the CPR Approval Date, that it will use
its best endeavours to procure adequate water and electricity supply to ZAC and
provide Metmar Africa with copies of the agreements pertaining to such supplies.
2 Rationale for the Acquisition
The Acquisition is in line with Metmar`s stated objective to take strategic
stakes in mining and related projects to secure sales and marketing of the
production.
Within 30 days or the later of the following dates ("Closing Date"):
* the Signature Date; and
* the first business day following the date on which the Zim Alloys has
complied with the following obligations:
* procured the transfer of the ownership of the ZAC Assets, all of which
will be unencumbered, except for the Claims which will be transferred
to ZAC as detailed in paragraph 2.1 (5) above, to ZAC in such a manner
that ZAC has no outstanding obligation in respect of the ZAC Assets.
The transfer of the ZAC Assets shall be undertaken at market value and
such that, after the transfer thereof, the aggregate purchase price
paid by Metmar Africa shall equate to 40% of the aggregate value of
ZAC`s assets;
* procured the delivery of the ZAC Shares to a nominated attorney to be
held in escrow;
* procured that Zim Alloys and ZAC enter into the Washing Plant Lease;
and
* procured that Zim Alloys and Metmar Africa entered into a shareholders
agreement to regulate their relationship as shareholders of ZAC
("Obligations"),
it is the obligation of Zim Alloys to procure that Zim Alloys and ZAC enter
into an agreement with Metmar Africa or an entity nominated by it, in terms
of which control of the sales and marketing will vest in Metmar Africa or
any entity nominated by it. It is an obligation of Metmar Africa to
negotiate with Cometal, S.A., Spain regarding the marketing of certain
products produced by ZAC.
The trading of South African chrome is currently a large part of Metmar`s
activities. The proposed Acquisition expands these trading activities into
higher quality Zimabawean chrome and provides the Company with the
opportunity to realise synergistic benefits.
2.3 Acquisition purchase consideration
The Acquisition purchase consideration of USD 51.3 million is payable by
Metmar Africa as follows (Metmar`s pro rata share amounting to USD 12.8
million):
1 an amount of USD 10.0 million which was paid to Zim Alloys on 26 March
2010, following independent confirmation that Zim Alloys had fulfilled its
Obligations as detailed in paragraph 2.2 above ("Initial Payment");
2 an amount of USD 6.3 million which shall be paid as an advance to ZAC, on
behalf of Zim Alloys, in settlement of Metmar Africa`s subscription price
for the ZAC Shares ("the Advance"). The Advance shall be paid as and when
required by ZAC, commencing on the Closing Date, for the purposes of
settling the costs of new or refurbishment of the Washing Plants and the
Metal Recovery Plant;
3 an amount of USD 5 million which is payable on the CPR Approval Date.
4 an amount of USD 15 million against transfer of the Selected Claims to ZAC.
The Selected Claims must be transferred to ZAC by no later than the CPR
Approval Date. This amount will be subject to any pro-rata downward
adjustment as described below ; and
5 an amount of USD 15 million, 6 months after the CPR Approval Date, subject
to the transfer of the Selected Claims to ZAC and either, the transfer of
the Remaining Claims to an entity as determined by Zim Alloys and Metmar
Africa in writing, or, if Zim Alloys and Metmar Africa have not determined
an entity in writing, the transfer of the Remaining Claims by Zim Alloys to
ZAC for a consideration of USD 1. This amount will be subject to any pro-
rata downward adjustment as described below. The amounts detailed in
paragraphs (3), (4) and (5) collectively comprise the Deferred Purchase
Considerations.
6 USD 30 million of the purchase consideration referred to in paragraphs (4)
and (5) above is in respect of the anticipated value of the Claims and is
based on the CPR proving that the Claims comprise a minimum of 30 million
tons of Contained Chromite, measured, indicated and economically mineable.
If the Contained Chromite is in excess of this tonnage, the USD 30 million
will not be increased. In the absence of a CPR or if the Contained
Chromite, as determined by the CPR, is less than 30 million tons, the USD
30 million will be adjusted downwards by USD 1 for every ton that the
Claims as proven by the CPR fall short of the anticipated 30 million tons,
subject to a minimum aggregate price of USD 1 in respect of all Claims.
7 Payment of the purchase consideration referred to in paragraphs (1), (2)
and (3) will be made from Metmar Africa`s own cash resources, whereas it is
Metmar Africa`s intention to obtain funding in respect of USD 30 million
referred to in paragraphs (4) and (5).
2.4 DC Furnace
The Board of ZAC will determine within 12 months of the Signature Date
whether in their opinion it would be commercially advantageous for ZAC to
proceed with the DC Furnace. Should the Board of ZAC decide to proceed,
Metmar Africa will procure the preparation and delivery to ZAC of a
bankable feasibility study for the installation of a DC Furnace on the
Immovable Properties. The costs of the feasibility study shall be borne by
Metmar Africa but will be funded by Metmar Africa on loan account.
2.5 Warranties
Zim Alloys has warranted the following in favour of Metmar Africa:
* it is the registered and beneficial owner of the ZAC Shares and is entitled
to dispose of them, free and unencumbered to Metmar Africa;
* ZAC is the owner of the ZAC Assets, which assets are free and unencumbered;
* ZAC has no liabilities (contingent or otherwise);
* ZAC has all consents, permits, licences and authorisations required to
enable it to conduct its business;
* ZAC has no environmental or other liabilities relating to its mining
activities conducted prior to the Effective Date pursuant to the Claims;
* no person has conducted any mining operations in relation to the Claims,
nor disposed of any proceeds of mining in relation thereto ;
* ZAC is not bound by any contractual arrangements;
* ZAC is not engaged in any litigation, nor is Zim Alloys aware of any
litigation which may arise;
* Zim Alloys has disclosed to Metmar Africa all information which it would
regard as being reasonably material in the Zimbabwean context to the
purchaser of the ZAC Shares;
* in terms of Zimbabwean law, all current employees of ZAL will automatically
become employees of ZAC. ZAC will be entitled to decide at its discretion
which employees will be retained in the employ of ZAC. Zim Alloys warrants
that it has the necessary funds to meet its obligations in respect of all
employees that may be subject to retrenchment.
* Zim Alloys and ZAC have both complied with all regulatory approvals
required by the Zimbabwean Regulatory Authorities for the transfer of the
ZAC Assets to ZAC and the transfer of the ZAC Shares to Metmar Africa; and
* the Claims are transferable to ZAC in terms of the Zimbabwean Mines and
Minerals Act Chapter 21.05.
3 Financial effects
The unaudited pro forma financial effects set out in the table below have
been prepared in accordance with the Listings Requirements of the JSE and
the Guide on Pro Forma Financial Information issued by The South African
Institute of Chartered Accountants in order to assist Metmar shareholders
in their assessment of the impact of the Acquisition on the earnings and
headline earnings per Metmar ordinary share as at 31 August 2009 and for
the six months then ended. The pro forma financial effects have been
prepared for illustrative purposes only and, because of their nature, they
may not fairly present Metmar`s pro forma financial position at 31 August
2009 and the results of its operations for the six months then ended.
The pro forma financial effects are based on the following assumptions:
* the Acquisition took place with effect from 1 March 2009 for Income
Statement purposes;
* the Initial Payment and the Advance as described in points (1) and (2) of
paragraph 2.3 above, were paid by Metmar Africa on 1 March 2009; and
* ZAC will produce limited income in the short term due to the required
refurbishments of the Washing Plants and the Metal Recovery Plant,
alternatively the construction of a new Metal Recovery Plant and,
therefore, income from the associate has been excluded in the pro forma
financial information presented below. The results of Metmar Africa will
be equity accounted by Metmar Mauritius.
The Directors of Metmar are responsible for the preparation of the pro forma
financial effects.
Per Metmar share (cents) Before After the Percentage
(1) Acquisition Change
Published Pro forma
Basic earnings 72.6 69.0 (2) (5.0)
Headline earnings 8.6 5.0 (2) (42.0)
Net asset value 232.3 232.0 (3) (0.1)
Net tangible asset value 200.4 200.2 (3) (0.1)
Weighted average number of 197 159 197 159
shares in issue (000`s)
Number of shares in issue 202 122 202 122
(000`s)
Notes and assumptions:
1 The "Before" financial information has been extracted without adjustment
from the unaudited, published financial results for the six months ended 31
August 2009.
2 Basic earnings and headline earnings per share have been adjusted to
include the following:
A a reduction in interest received as a result of the payment of the
Initial Payment and the Advance on 1 March 2009, amounting to R1.04
million (net of taxation);
B interest charged in unwinding the Deferred Purchase Considerations of
R76.0 million (based on the prime interest rate of 14% and the USD
exchange rate of USD1: R9.59 on 1 March 2009), amounting to R5.6
million;
C transaction costs amounting to R0.5 million;
3 An exchange rate of USD1.00:ZAR7.79 has been applied;
4 Net asset value and net tangible asset value per share have been adjusted
to include the following:
A the investment in ZAC amounting to R95.0 million;
B the raising of the Deferred Purchase Considerations amounting to R63.3
million on 31 August 2009;
C the reduction in cash and cash equivalents due to the payment of the
Initial Payment and the Advance on 31 August 2009; and
D the payment of transaction costs amounting to R0.5 million.
4 JSE requirements
The Acquisition is classified as Category 2 transaction in terms of the JSE
Listings Requirements and, accordingly, no further documentation or
shareholder approval is required for implementation of the Acquisition.
5 Withdrawal of cautionary announcement
Shareholders are advised that caution is no longer required to be exercised
when dealing in their securities.
Bryanston
6 April 2010
Sponsor
BJM Corporate Finance (Pty)
Limited
Date: 06/04/2010 10:55:01 Produced by the JSE SENS Department.
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