| Thu 5 Apr 2001, 0:00 | | Sachrome - Acquisition Of Shareholding In Hernic |
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South African Chrome & Alloys Limited
(Incorporated in the Republic of South Africa)
(Registration number 1987/003452/06)
("SAChrome")
Agreement to purchase the entire shareholding IN
Hernic (Proprietary) Limited ("Hernic"); and
Hernic Ferrochrome (Proprietary) Limited ("Hernic Ferrochrome")
1. Introduction
SA Chrome is pleased to announce that it has entered into an agreement ("the
agreement") with the majority shareholders in Hernic and Hernic Ferrochrome,
regarding the purchase of the entire shareholding in Hernic and Hernic
Ferrochrome ("the Transaction").
In terms of the agreement, SA Chrome will immediately commence with a due
diligence investigation; and
The purchase price and conditions will be determined pursuant to:
- the due diligence investigation; and
- mechanisms and procedures set out in the agreement.
Significant benefits and synergies will accrue to SA Chrome shareholders as a
result of the Transaction.
2. The Transaction
2.1 Business overview
Hernic Ferrochrome, located near Brits in the North West Province, is the 4th
largest ferrochrome producer in the world, producing 260 000 tonnes of
ferrochrome per annum, approximately 6% of the world's production.
Hernic Ferrochrome has rapidly established itself since inception in 1995, as a
leading international ferrochrome supplier. It enjoys a proven track record of
success, employs state-of-the-art production technology, and has become one of
the world's leading low cost ferrochrome producers.
Hernic Ferrochrome's primary shareholders are German industrialist Wilfried
Pabst, his late partner, the Herman van Rooyen Family Trust, ELG Haniel and
Mitsubishi Corporation. Senior management has a 15% equity interest.
Hernic Ferrochrome, together with its exclusive and internationally respected
shareholders/marketing partners, ELG Haniel (the world's largest stainless
steel scrap supplier) and Mitsubishi Corporation (a leading Japanese trading
house), have established proven long-term supply to 95% of the world's primary
stainless steel producers.
Hernic Ferrochrome currently operates 2 x 37 MVA semi-closed furnaces, a 54MVA
closed furnace which is coupled to an Outokumpu (Finnish) preheater, and a 370
000 tonne per annum pelletiser and sintering plant - very similar to the
facility being installed by SA Chrome. There is only one other ferrochrome
producer outside of Finland that successfully employs this Outokumpu
state-of-the-art ferrochrome technology.
Hernic Ferrochrome's supply capability, together with SA Chrome's planned 235
000 tonne per annum facility located near Rustenburg, will result in a world
class, independent and low cost producer of approximately 500 000 tonnes of
ferrochrome per annum.
2.2 Management
The current senior management team of Hernic Ferrochrome, consisting of:
Mr. Paddy Probert (Marketing Director);
Mr. Colin Bain (Finance Director); and
Mr. Jasper Pieters (Operations Director);
will, together with the proven Hernic Team, form an integral part of the
Transaction due to their considerable experience in the ferrochrome industry.
The management team will personally commit themselves to SA Chrome for a period
of up to five years.
2.3 Rationale for the Transaction
The Transaction is in line with SA Chrome's strategic objective of growing
organically and through acquisition, especially at the bottom of the
ferrochrome cycle.
Meaningful cost savings, economy of scale benefits and synergies will accrue
through the creation of this world class and internationally competitive 500
000 tonne per annum ferrochrome facility.
The synergies to be enjoyed by SA Chrome through the acquisition of Hernic
Ferrochrome, include, inter alia:
Both plants, in addition to their own 20 year plus chrome reserve life, will
have access to abundant low-cost UG2 chrome concentrate supply and, subject to
negotiations, the Royal Bafokeng Nation's substantial LG6 chromite reserves.
This may enable the deferral of the R120 million underground mine planned for
Hernic Ferrochrome at Brits. More importantly it will provide critical
long-term support for the envisaged doubling of the combined operations of SA
Chrome and Hernic - a world class player - to 1 million metric tonnes
ferrochrome 5 years hence.
SA Chrome will move from being a "small-cap" company to having a market
capitalisation well in excess of R1 billion thereby attracting a new range of
investors.
SA Chrome will have immediate access to Hernic Ferrochrome's cash flow.
The Transaction will amalgamate two similar sized, low cost South African
operations, propelling SA Chrome into a world class player with approximately
12% of the world ferrochrome market.
Significant savings, economies of scale and reduced personnel costs will accrue
by combining the two operations.
Further cost saving opportunities are envisaged in view of the joint purchasing
power of a 500 000 tonne per annum facility, as well as a reduction in working
capital and spares requirements.
SA Chrome will immediately benefit from a proven operating team, relationships,
procedures, controls and general going concern benefits.
SA Chrome will initially have surplus sintered pellet capacity, which can be
readily consumed at Hernic Ferrochrome's facility.
Hernic Ferrochrome introduces new markets for the sales of SA Chrome's chrome
ore concentrates.
SA Chrome's exclusive marketing partner, ThyssenKrupp Metallurgie, together
with Hernic's exclusive marketing partners ELG Haniel and Mitsubishi, will
ensure the optimal long-term placement of the combined 500 000 tonne per annum
ferrochrome supply capability.
2.4 The conditions precedent
The Transaction is conditional upon, inter alia:
The satisfactory completion by SA Chrome of the due diligence investigation;
The determination of the purchase price and conditions pursuant to mechanisms
and procedures set out in the agreement;
The acceptance of the Transaction by all the shareholders of Hernic Ferrochrome
The approval of the Transaction by shareholders of SA Chrome in general meeting
The approval of the Transaction by The Industrial Development Corporation and
The Royal Bafokeng Nation; and
The approval by the relevant authorities, including the JSE Securities Exchange
South Africa and the Competition Tribunal.
3. Timetable
The due diligence investigation is expected to be completed by mid-May 2001,
following which a further announcement will be made.
4. New Board appointments of SA Chrome
In addition to the existing executive consisting of Mr. Jack Dorfan (Chairman),
Mr. Terence McConnachie (Managing Director) and Mr. Zed van der Walt
(Technical/Operations Director) SA Chrome is pleased to announce the
appointment of the following new directors to the Board of SA Chrome:
Executive directors
- Mr. Bruce McBride (BA., LLB, MBA) as Commercial Director.
- Mr. Stuart Elliot ((CA) SA, H.Dip. Co. Law) as Financial Director.
Non-executive directors
- Mr. Steve Phiri and Mr. Bob Moepie representing The Royal Bafokeng Nation;
- Dr. Todor Vlajcic representing ThyssenKrupp Metallurgie; and
- Mr. Reinier Meyjes representing Bateman Titaco (Pty) Ltd.
A reconfiguration of the Board could materialise following the successful
completion of the Transaction.
Johannesburg
Thursday, 5 April 2001
Sponsor to the Transaction
Brait
Corporate advisor to Hernic
Brait
