| Fri 11 Jun 2010, 11:16 | | PAM - Palabora Mining Company Limited - Announcement regarding the proposed |
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PAM
PAM
PAM - Palabora Mining Company Limited - Announcement regarding the proposed
Broad Based Black Economic Empowerment ("BBBEE") transaction ("THE TRANSACTION")
and withdrawal of cautionary announcements
PALABORA MINING COMPANY LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1956/002134/06)
JSE code: PAM ISIN: ZAE000005245
("PMC" or "the Company")
ANNOUNCEMENT REGARDING THE PROPOSED BROAD BASED BLACK ECONOMIC EMPOWERMENT
("BBBEE") TRANSACTION ("THE TRANSACTION") AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENTS
Matt Gili, Managing Director of PMC said:
"PMC is very pleased to announce the conclusion of our Black Economic
Empowerment transaction with our new BEE partners. The Company has worked
closely with these partners to create a new company, Palabora Copper, which
will acquire and own the assets of PMC and which will be 26% owned by our
BBBEE partners. We are proud to welcome the tribal communities of Phalaborwa,
the employees of Palabora Copper and an entrepreneurial group led by the
Company`s former Chairman of the Board, George Negota, as significant
shareholders of Palabora Copper, alongside PMC"
1. Introduction
Shareholders of PMC ("PMC Shareholders") are referred to the further
cautionary announcement dated 28 April 2010 ("the Cautionary Announcement")
and are advised that PMC has entered into a suite of agreements on 10 June
2010 ("the Transaction Documents") in terms of which PMC will dispose of
the bulk of its business operations and assets to Palabora Copper
(Proprietary) Limited, a newly incorporated PMC subsidiary ("Palabora
Copper").
The consideration for the aforementioned sale will be calculated with
reference to the 60-day volume weighted average trading price of PMC`s
shares on the JSE Limited (the "JSE") on the date on which the conditions
to the Transaction are fulfilled or waived, less any cash retained by
PMC (adjusted for Secondary Tax on Companies ("STC")). The acquisition
by Palabora Copper will be vendor financed by the advance of an
interest-bearing convertible loan from PMC to Palabora Copper.
As the purchase price for PMC`s business will be fully funded through
such vendor financing on loan account, Palabora Copper will have a nominal
net asset value. The BBBEE partners and PMC will then subscribe for
shares in Palabora Copper at nominal value, as a result of which the BEE
partners will hold 26% and PMC 74% of the issued share capital of Palabora
Copper.
The Transaction is classified as a Category 1 transaction in terms of the
Listings Requirements of the JSE ("Listings Requirements") as a result of a
specific valuation and accordingly, the Transaction is conditional upon the
approval by PMC Shareholders in a general meeting .
2 The BBBEE Shareholders
The new BBBEE shareholders in Palabora Copper will comprise of:
* the Palabora Copper Employee Trust ("the Employee Trust");
* the Leolo Community Trust ("the Community Trust"); and
* a consortium led by the Company`s former chairman, Mr George Negota
("Negota") ("the Consortium"). Negota was a director of PMC from 1998
to 2009 (and served as chairman of the PMC board of directors ("the
Board") from 2007 to 2009). The Consortium also includes other key
business persons, and will acquire its shares in Palabora Copper
through a special purpose vehicle created for such purpose, being
Palabora BEE Investment Company (Proprietary) Limited ("BEECo"),
(collectively "the BBBEE Shareholders").
Following an extensive key-stakeholder engagement process undertaken by PMC
since 2007, the Company has involved the five communities of the Ba-
Phalaborwa area in the Transaction through the Community Trust. The
Community Trust will be for the benefit of the said communities, being the
Makhushane, Selwane, Maseke, Mashishimale and Majeje tribes. The Community
Trust will acquire 10 percent of the shares in Palabora Copper.
All of Palabora Copper`s approximately 2 200 permanent employees,
approximately 75 percent of whom are Historically Disadvantaged South
Africans ("HDSAs"), 9 percent are women and 42 percent are HDSAs in senior
management, will participate in the Employee Trust. All of Palabora
Copper`s employees will participate in the Employee Trust on an equal basis
regardless of race, gender or seniority. The Employee Trust will acquire
10 percent of the shares in Palabora Copper.
The Consortium will acquire 6 percent of the shares in Palabora Copper on a
similar basis as the Community Trust and the Employee Trust. It is
envisaged that the key business individuals included in the Consortium will
spearhead business development and job creation in the Ba-Phalaborwa area.
3 Nature of Business
PMC is 57.7 percent held by Rio Tinto plc and 16.8 percent by Anglo
American plc. PMC is listed on the JSE and the balance of its shares are
held by public shareholders. Situated in the Ba-Phalaborwa area of
Limpopo, PMC operates a large block cave copper mine and a smelter complex,
a vermiculite open pit mine and a 240 million ton magnetite stockpile. PMC
has a planned mine life for the copper business of seven years, with plans
for further expansion. When including the magnetite and vermiculite
businesses, the combined life of the mine is more than 30 years. In 2009,
the mine continued to produce 32,000 tonnes per day and produced one third
of the world`s vermiculite. The mine is one of the most productive single
shaft mines in the world and provides South Africa with 70 percent of its
copper requirements and has achieved significant technical success with the
underground expansion now operating at 6 percent above design capacity.
4 Rationale for the Transaction
The rationale for the Transaction is to conclude a sustainable and
meaningful BBBEE transaction that complies with the requirements and spirit
of the Broad-Based Socio-Economic Empowerment Charter for the South African
Mining Industry ("the Charter"), the Mineral and Petroleum Resources
Development Act ("MPRDA") and the Broad-Based Codes of Good Practice on BEE
issued by the Department of Trade and Industry. The Board views BBBEE as a
strategic imperative and the Transaction will supplement the existing
transformation initiatives that PMC has implemented in the areas of
employment equity, corporate and social investment and enterprise
development, thereby significantly advancing the BBBEE credentials of PMC.
5 The Transaction Consideration
The purchase price payable by Palabora Copper to PMC for the acquisition of
PMC`s business is equal to the market capitalisation of PMC at the time of
the fulfilment of the sale conditions, less cash retained by PMC (which
retained cash is adjusted for STC). The market capitalisation of PMC will
be calculated with reference to the 60-day volume weighted average of the
price of the PMC shares on the JSE as at the day on which the suspensive
conditions to the Transaction are fulfilled ("the Purchase Consideration").
The Purchase Consideration will be vendor funded by an interest-bearing
convertible loan from PMC to Palabora Copper, which will have a floating
interest rate of 6.87 % (NACS) over the six month JIBAR rate ("the Loan").
PMC may (but is not obligated to) convert the Loan (or part thereof) to
preference shares in the event that, among others, interest on the Loan is
not serviced.
Palabora Copper will issue shares to the BBBEE Shareholders for a nominal
aggregate consideration of R12 568.53, being the aggregate par value of the
26% interest subscribed for by the BBBEE Shareholders. This amount
comprises:
* R2 900.43, payable by the Consortium for 290 043 ordinary shares
having a par value of R0.01 in the share capital of Palabora Copper;
* R4 834.05, payable by the Employee Trust for 483 405 ordinary shares
having a par value of R0.01 in the share capital of Palabora Copper;
and
* R4 834.05, payable by the Community Trust for 483 405 ordinary shares
having a par value of R0.01 in the share capital of Palabora Copper.
6 Minimum dividend payments
Subject to certain conditions (which will be addressed in more detail in
the circular to PMC Shareholders setting out full details of the
Transaction ("the Circular")), Palabora Copper will declare (on an
after-tax basis) to its shareholders a minimum annual dividend ("Minimum
Dividend") of R76 924 000 that will be escalated at 5.5% (NACA) at each
anniversary from its commencement.
In the event that Palabora Copper is not able to pay the portion of the
Minimum Dividend that is attributable to the Community Trust in any
particular year, then PMC shall pay such shortfall through an appropriate
mechanism to be determined by PMC (in its sole discretion), either directly
to the Community Trust or through Palabora Copper.
7 Effective Date
The Transaction is conditional upon various suspensive conditions as set
out in paragraph 9 below (and also more fully described in the Circular)
having been fulfilled or waived It is expected that the Transaction will be
implemented before the end of 2010.
8 Pro Forma Financial Effects of the Transaction
The table below sets out the unaudited pro forma financial effects of the
Transaction on the earnings, headline earnings, diluted earnings, diluted
headline earnings, net asset value and tangible net asset value per PMC
ordinary share in issue.
The unaudited pro forma financial effects are prepared for illustrative
purposes only, and due to their nature, may not fairly present PMC`s
financial position, changes in equity, results of operations or cash flows
after the implementation of the transaction. The pro forma financial
effects are the responsibility of the Board.
Per PMC share Before the After the Change
Transaction(3) Transaction4
(cents) (cents) (%)
Earnings 587 457 (22%)
Headline earnings 598 468 (22%)
Diluted earnings 587 432 (26%)
Diluted headline 598 442 (26%)
earnings
Net asset value 3 475 3 464 0%
Tangible net asset 3 465 3 454 0%
value
Weighted average 48 337 48 337 -
number of shares in
issue (000`s)
Notes and assumptions:
1 It has been assumed for the purposes of the pro forma financial effects
that the Transaction was effective 1 January 2009 for income statement
purposes and 31 December 2009 for the statement of financial position
purposes.
2 The pro-forma financial effects have been prepared in accordance with the
accounting policies of PMC as disclosed in the Company`s 2009 Annual Report
which is in accordance with International Financial Reporting Standards.
3 The "Before the Transaction" column has been extracted from PMC`s audited
results for the year ended 31 December 2009 as set out in the latest annual
report.
4 The "After the transaction" column takes the following adjustments into
account:
a. The incremental transaction costs of R5 million. Full transaction
costs amount to R26 million of which R21 million has already been
included in the actual results for the 2009 financial year. These
transaction costs are non recurring in nature.
b. Interest after tax forfeited of R0.2 million on the incremental
transaction costs.
c. A once-off IFRS 2 (share based payment) charge of R57,7 million in
respect of the subscription for shares in Palabora Copper at par by
the Consortium. The adjustment is based on the current valuation.
The actual charge recorded in the consolidated PMC accounts, when all
the suspensive conditions to the Transaction are fulfilled, may
however differ as an updated valuation will be performed on the
effective date.
d. Diluted earnings and diluted headline earnings are calculated on the
assumption that the earnings of Palabora Copper will be diluted by 6%
(the Consortium portion) on the day of the transaction. Average
interest rates were assumed for the calculation.
9 Suspensive Conditions
The Transaction is subject to the fulfilment or waiver (where waiver is
possible) of all of the following suspensive conditions:
* the written approval of the Department of Mineral Resources under
section 11 of the MPRDA to the cession to Palabora Copper of the new
order mining rights forming part of PMC`s business on terms acceptable
to each of PMC and Palabora Copper and reasonably acceptable to the
initial shareholders in the Consortium, the Community Trust and the
Employee Trust;
* to the extent necessary, the written approval of HM Treasury under the
provisions of section 765 of the United Kingdom and Corporation Taxes
Act, 1988 to the Transaction contemplated on terms satisfactory to
PMC;
* the conversion of the old order mining rights held by PMC in relation
to its business to new order mining rights in accordance with the
MPRDA, such conversion to be to the satisfaction of each of PMC and
Palabora Copper and to the reasonable satisfaction of the initial
shareholders in the Consortium, the Community Trust and the Employee
Trust;
* PMC confirming in writing in its sole and absolute discretion that it
is satisfied that, through the implementation of the Transaction,
Palabora Copper will meet the equity ownership requirements of the
empowerment requirements for the purposes of and in connection with
the conversion of all of the mining and prospecting rights forming
part thereof to new order mining rights (as the case may be) in terms
of Schedule II of the MPRDA;
* the receipt of such favourable rulings in relation to any aspect of
the Transaction from the Commissioner for the South African Revenue
Service or opinion from tax experts as are required by PMC in relation
to the Transaction, such rulings or opinions to be on terms acceptable
to PMC in its sole discretion;
* the receipt by each of PMC and Palabora Copper of all other regulatory
approvals or consents (or written confirmation from the relevant
authorities that such consents or approvals are not required) as each
may consider to be required for the purposes of the implementation of
the Transaction, such approvals and consents to be given in
unconditional and unqualified form or, if subject to any conditions or
qualifications, such approvals to be on terms acceptable to each of
PMC and Palabora Copper (as applicable) in its sole discretion and
acceptable to the initial shareholders in the Consortium, the
Community Trust and the Employee Trust acting reasonably;
* to the extent necessary, PMC obtaining the consent of the
counterparties to certain contracts identified in the Sale of the
Business Agreement in terms of which PMC disposes of its business to
Palabora Copper (together with any consequential amendments which it
considers reasonably to be required), where such consent is either
required under the relevant contract or where it is advisable in order
to avoid any later exercise of other contractual rights that those
counterparties may have as a result of such sale, such consents to be
obtained in unqualified and unconditional form or subject to any
conditions or qualifications on terms acceptable to each of PMC and
Palabora Copper in its sole discretion and satisfactory to the initial
shareholders in the Consortium, the Community Trust and the Employee
Trust acting reasonably ;
* Palabora Copper is registered as a Value Added Tax ("VAT") vendor in
terms of the VAT Act;
* the constitutional documents of each of BEECo, the Community Trust and
the Employee Trust being adopted or amended such that they are in the
form and substance acceptable to PMC;
* the appropriate Board and/or shareholder approvals by and in respect
of PMC and Palabora Copper for the Transaction having been obtained
and, in respect of any special resolutions, registered with the
Companies and Intellectual Property Registration Office ("CIPRO")
pursuant to the Companies Act, 1973 (and, for the avoidance of doubt,
also the Companies Act, 2008, if applicable) (collectively referred to
herein as "the Companies Act") on terms acceptable to PMC, including:
* the passing of a special resolution of PMC Shareholders under
section 228 of the Companies Act; and
* due registration thereof by the CIPRO pursuant to the Companies
Act;
* the appropriate Board and/or shareholder and/or trustee approvals of
the BBBEE Shareholders for the Transaction having been obtained and,
in respect of any special resolutions, registered with the CIPRO
pursuant to the Companies Act on terms reasonably acceptable to PMC;
* in PMC`s opinion, as at the 1st business day after the fulfilment or
waiver (where applicable) of all of the other conditions there is not
and there is not likely to be:
* any default by any of the BBBEE Shareholders and the shareholders
of the Consortium of any of the warranties, representations
and/or undertakings given by them in the Completion Agreement
(which regulates inter alia the implementation mechanics
applicable to the Transaction) and/or any Transaction document,
including any undertaking, representation and/or warranties set
out in any annexures thereto; and
* any matter, fact, event or circumstance existing, or which may
reasonably arise, which results or is likely to result (with or
without the giving of notice or exercise of any election and
disregarding any period to terminate the matter, fact, event or
circumstance) in (i) a deemed offer event by any BBBEE
Shareholder under the Shareholders Agreement in respect of
Palabora Copper, and/or (ii) a deemed offer event in respect of
the equity in BEECo by any of the shareholders in the Consortium
under the Relationship Agreement which regulates inter alia the
empowerment status and restrictions applicable in respect of the
BBBEE Shareholders (were such agreements to be in force); and/or
* any matter, fact, event or circumstance which may arise after the
signature date such that the implementation of the Transaction
will or may reasonably be expected to be materially adverse to
PMC (or any member of the PMC group, including Palabora Copper)
or otherwise constitute a material adverse change;
* the signature (or adoption, as applicable) of the Transaction
Documents to the satisfaction of PMC and to the reasonable
satisfaction of the initial shareholders in the Consortium, the
Community Trust and the Employee Trust. As of the date of this
announcement, the relevant Transaction Documents have been signed, and
only the adoption of conforming constitutional documents for Palabora
Copper and BEECo remain outstanding;
* each of the Transaction Documents becoming unconditional in accordance
with its terms;
* the receipt by Palabora Copper of written confirmation from Webber
Wentzel that the cessions of the new order mining rights into the name
of Palabora Copper have been registered in the Mineral and Petroleum
Titles Registration Office; and
* the obtaining of all consents and/or approvals, in writing, as may be
required under its senior facilities for the implementation by the
parties of the Transaction, and the fulfilment of all conditions to
which such consents and/or approvals may be subject in accordance with
their terms.
10 Circular to shareholders
The Circular, including full details of the Transaction and incorporating a
notice of general meeting, will be issued to PMC Shareholders in due
course. PMC Shareholders will be advised of the salient dates and times of
the general meeting accordingly.
1 Withdrawal of Cautionary Announcement
PMC Shareholders are advised that they no longer need to exercise caution
when dealing in their PMC securities.
By order of the Board
Phalaborwa
11 June 2010
Corporate Advisors Sponsor
Barnard Jacobs Mellet
Bravura Equity Services Corporate Finance (Pty) Ltd
N M Rothschild & Sons (South
Africa) (Proprietary) Limited
Legal Advisor
Webber Wentzel
Date: 11/06/2010 11:16:01 Produced by the JSE SENS Department.
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