| Tue 4 Sep 2001, 0:00 | | East Daggafontein Mines Limited - Acquisition By E |
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East Daggafontein Mines Limited
(Incorporated in the Republic of South Africa)
(Registration number 1980/001395/06)
("East Dagga")
Share Code: EDG ISIN number: ZAE000010666
Mvelaphanda Holdings
(Proprietary) Limited
(Incorporated in the Republic of South Africa)
(Registration number 1997/021524/07)
("Mvela")
Acquisition by East Dagga of Mvela's interests in Northam Platinum Limited
and certain of Mvela's interests in Trans Hex Group Limited ("the
transaction")
1. Introduction
Further to the cautionary announcement dated 21 August 2001, it is announced
that East Dagga and Mvela have reached agreement in principle, in terms of
which East Dagga will acquire Mvela's interests in Northam Platinum Limited
("Northam") and certain of Mvela's interests in Trans Hex Group Limited
("Trans Hex"). These interests are held by Mvela's subsidiaries, Mvelaphanda
Platinum (Proprietary) Limited ("Mvela Platinum") and Mvelaphanda Diamonds
(Proprietary) Limited ("Mvela Diamonds"), respectively. The transaction is
subject to certain conditions precedent as set out in paragraph 8 below.
The consideration payable by East Dagga to Mvela in terms of the transaction
will be satisfied by the issue of 41 454 429 new East Dagga linked units to
Mvela ("the new linked units").
2. Overview of East Dagga
East Dagga was incorporated in 1932 as a gold mining company with its
operations situated on the East Rand.
During the 1970s, East Dagga secured the rights to a number of gold-bearing
slimes dams on the East Rand. These were exploited in a joint venture with
East Rand Gold & Uranium Company Limited ("Ergo") until 1998 when the joint
venture was terminated by mutual consent. East Dagga sold its residual
slimes dams to AngloGold Limited ("AngloGold") in exchange for AngloGold
shares. These AngloGold shares were unbundled to East Dagga linked unit
holders in 1998.
In 1992, East Dagga entered into a joint venture with Impala Platinum
Limited ("Implats") and Ergo to exploit the platinum group metals ("PGMs")
refinery tailings on Slimes Dam 6L13 owned by East Dagga. During 1999, East
Dagga and Implats purchased Ergo's interest in the joint venture. This
resulted in East Dagga having an effective 56.5% interest in the joint
venture. This joint venture is expected to continue to produce PGMs until
2003.
As a consequence of its involvement in the joint venture, East Dagga's
listing moved to the Platinum sector of the JSE Securities Exchange South
Africa ("JSE") lists during 2000.
In April 2001, East Dagga secured, in joint venture with Implats,
prospecting rights in respect of slimes dams owned by Witwatersrand Gold
Mining Realisation Trust ("WGMRT"). Certain PGMs enriched material was
identified on Slimes Dam 4L39 and as a consequence East Dagga and Implats
exercised their option to exploit this material. East Dagga, WGMRT and
Implats each have a 33.33% interest in the future exploitation of this
material. Any exploitation will be followed by the rehabilitation of the
site.
3. Overview of Mvela
The Mvela group of companies is primarily focused on the resources sector.
Its strategy is to contribute to the meaningful participation of
historically disadvantaged persons in southern Africa's mineral resources,
by seeking to add significant value to the assets over which it has
influence. Mvela's direct and indirect shareholders reflect a broad base of
historically disadvantaged South Africans and include:
- Woman's Development Bank Investment Company (Proprietary) Limited;
- Makana Investment Company (Proprietary) Limited;
- Mabutho Investment Company (Proprietary) Limited;
- The Steve Biko Foundation;
- Sedibeng Mining (Proprietary) Limited; and
- a trust incorporating a large number of historically disadvantaged
persons.
Mvela has built up a significant track record over the past three years and
has grown into a substantial unlisted resource company. Mvela's primary
assets comprise investments in Northam and Trans Hex, which are well-
established South African mining companies.
In 2000, Mvela Platinum acquired a 22.5% shareholding in Northam from Anglo
American Platinum Corporation Limited ("Angloplats") and Remgro Limited
("Remgro"). This acquisition was funded by Standard Corporate and Merchant
Bank ("SCMB"). Northam has subsequently been identified as the potential
empowerment participant in the Pandora joint venture between Angloplats and
Lonmin plc.
In 1999, Mvela Diamonds acquired a 34.9% shareholding in Gem Diamond
Corporation Limited ("Gem"). Gem subsequently merged with Trans Hex
resulting in Mvela Diamonds obtaining control over 3.8% of Trans Hex. In
2000, Mvela Diamonds secured an option over Benguela Concessions Limited
("Benguela"), a marine and alluvial diamond mining and exploration company
which owned 7% of Diamond Fields International Limited. Benguela merged with
Trans Hex in April 2000.
Subject to certain conditions precedent, detailed in the Trans Hex
announcement published in the press on Thursday, 30 August 2001, Trans Hex
will issue 16 million 13.5% unsecured participating compulsorily convertible
debentures ("the Trans Hex debentures") to Mvela Diamonds.
In a separate transaction, Remgro has granted a call option to Mvela
Diamonds to acquire 5 million of its Trans Hex shares.
4. Rationale for the transaction
East Dagga has a long history of value creation for its linked unit holders.
However, its current projects have a limited life. Despite East Dagga's
strong short term cash flows, its business is mature and opportunities for
growth currently appear to be limited.
Mvela has a track record that reflects its superior growth potential. Its
mining and mineral assets have reached critical mass and require a listed
vehicle with additional management capacity to access capital markets and to
take advantage of and accelerate the development of future opportunities.
The strategic fit between East Dagga and Mvela is substantial. East Dagga's
short-life, high-yield projects complement Mvela's excellent long-term
growth prospects.
The transaction has the following benefits for East Dagga linked unit
holders:
- the acquisition of significant shareholdings in quality assets (namely
Trans Hex and Northam) at fair value;
- participation in future mining and mineral transactions as one of South
Africa's leading black empowerment resource companies;
- excellent long-term growth prospects; and
- potential for greater trading liquidity on the JSE.
The objective of this transaction is to create a significant listed African
mining and minerals company that will provide the base from which Mvela will
launch its future growth strategy, focusing on the precious metals and
minerals sectors.
5. Change of control
Pursuant to the transaction and as a consequence of the issue of the new
linked units, Mvela will control 70% of the total number of issued East
Dagga linked units and will accordingly become the controlling linked unit
holder of East Dagga. In effect the transaction is a reverse takeover of
East Dagga by Mvela and will therefore constitute an affected transaction in
terms of the Securities Regulation Code on Take-overs and Mergers ("the
Code"). This obligates Mvela to make a mandatory offer to all the existing
linked unit holders of East Dagga. However, the Securities Regulation Panel
("SRP") has indicated that, subject to being satisfied with the circular to
linked unit holders, it will dispense with the requirement for a mandatory
offer to be made. This is subject to the condition that a majority of linked
unit holders vote to waive the right to such a mandatory offer at a meeting
of East Dagga linked unit holders in terms of Rule 8.7 of the Code. East
Dagga intends to propose such a waiver at the general meeting, which will be
called to pass the resolutions required to implement the transaction.
6. Salient features of the transaction
The salient features of the transaction are as follows:
6.1 East Dagga will issue 41 454 429 new linked units to Mvela in
consideration for the entire share capital of Mvela Platinum and Mvela
Diamonds, whose interests will include:
- 51 728 305 Northam shares and associated debt which was R352 623 754 at
29 August 2001 and which will be reduced by the Northam dividend of R69 833
212, declared on 1 August 2001 in respect of such shares ;
- 16 000 000 Trans Hex debentures and associated debt of R152 000 000; and
- an option to acquire 5 000 000 Trans Hex shares from Remgro at a current
strike price of R8.70, escalating at the rate of 8.94% p.a. compounded
monthly in arrears;
6.2 East Dagga will declare a special distribution of 125 cents per linked
unit to its linked unit holders registered as such immediately prior to the
transaction.
7. Financial effects
The pro forma financial effects of the transaction are based on the historic
financial statements and have been stated based on the application of AC 131
as regards reverse acquisitions. This principle assumes that Mvela Platinum
and Mvela Diamonds are the acquirers.
The historic earnings do not necessarily represent or indicate sustainable
earnings or future profits. Furthermore, due to the nature of accounting for
the assets, the net asset value does not necessarily represent the current
value of the assets.
Accordingly, the pro forma financial effects, outlined below, should not be
the sole basis for determining the benefits of the transaction to East Dagga
linked unit holders. East Dagga linked unit holders are referred to the
opinions and recommendations in this regard as set out in paragraph 10
below.
Before1 After2 Change
(cents) (cents) (%)
Earnings per ordinary share 679 181 (73)
Earnings per linked unit
before debenture interest 749 202 (73)
Headline earnings per
ordinary share 679 189 (72)
Headline earnings per linked
unit before debenture interest 749 210 (72)
Net asset value per linked unit 333 522 57
Net tangible asset value
per linked unit 332 178 (46)
Market value per linked unit 1 524 1 380 3 (9)
Notes:
1. The "Before" column has been calculated based on the unaudited interim
results of East Dagga for the 12 months ended 31 March 2001.
2. The "After" column has been calculated based on:
- the unaudited interim results of East Dagga for the 12 months ended 31
March 2001; and
- the audited results of Mvela Platinum and Mvela Diamonds for the 12 months
ended 28 February 2001.
In respect of earnings and headline earnings, it has been assumed that:
- the fair value adjustment to East Dagga's net assets of R233.9 million
(based on the market price of R16.50 at 31 March 2001) is amortised over
three years;
- Mvela Platinum's interest in Northam was held for the full year to 28
February 2001; and
- Mvela Diamonds' interest in the convertible debentures of Trans Hex was
held for the full year to 28 February 2001 and financing for the acquisition
was raised at 14.5%, being the prime lending rate for that period.
In respect of net asset value and net tangible asset value, it has been
assumed that:
- East Dagga's net assets are recorded at a fair market value of R293.1
million (based on a market price of R16.50 at 31 March 2001) as opposed to
their reported net asset value at 31 March 2001 of R59.2 million; and
- Mvela's net assets are recorded at their reported historical cost of R15.9
million, as opposed to their fair market value of R300.9 million (based on
the relevant market prices of Northam and Trans Hex at 31 March 2001).
3. The market value per linked unit has been calculated based on:
- the 60 day dividend adjusted weighted average market price per East Dagga
linked unit at 25 July 2001, being the date on which the transaction was
agreed in principle, of R15.24 (after adjusting for the special dividend of
R1.25 per linked unit);
- the 60 day weighted average market price per Northam share of R15.42 and
debt of R348 691 970 at 25 July 2001;
- the 60 day weighted average market price per Trans Hex share of R13.84 and
debt of R152 000 000 at 25 July 2001; and
- the Trans Hex option valued on a commercial basis at R28 million at 25
July 2001.
8. Conditions precedent
The transaction is subject, inter alia, to the fulfilment of the following
conditions precedent:
8.1 the signing of a formal agreement in respect of the transaction;
8.2 the approval by East Dagga linked unit holders in general meeting of the
special and ordinary resolutions necessary to:
- increase its authorised share capital by creating new linked units;
- implement the transaction;
- waive the requirement for Mvela to make a mandatory offer to minority
linked unit holders in terms of the Code;
8.3 the acquisition of the Trans Hex debentures by Mvela Diamonds, as
described in paragraph 3 above, details of which are contained in the Trans
Hex announcement published in the press on Thursday, 30 August 2001;
8.4 the consent of SCMB in terms of the financing agreement between Mvela
Platinum and SCMB regarding the acquisition by Mvela of its interests in
Northam;
8.5 the consent of Angloplats in terms of the equity sale agreement in terms
of which Angloplats sold 17.5% of Northam to Mvela Platinum;
8.6 the registration by the Registrar of Companies of the special
resolutions;
8.7 the approval of the Competition Commission;
8.8 the approval of the JSE for the continued listing of East Dagga and the
listing of the new linked units;
8.9 SRP approval to dispense with the requirement to make a mandatory offer
to East Dagga linked unit holders; and
8.10 such other regulatory approval that may be required.
9. Reconstitution of the East Dagga board
Subject to the requisite approvals, and implementation of the transaction,
it is proposed that East Dagga's board of directors will be reconstituted to
reflect the new shareholding structure.
10. Opinions and recommendations
PricewaterhouseCoopers Corporate Finance (Proprietary) Limited, the
independent adviser to East Dagga, has considered the terms and conditions
of the transaction and is of the opinion that they are fair and reasonable
to East Dagga linked unit holders and has advised the board of directors of
East Dagga accordingly.
The board of directors of East Dagga is of the opinion that the terms and
conditions of the transaction are fair and reasonable to its linked unit
holders and that the implementation of the transaction will be to the
benefit of East Dagga.
Furthermore, the board of directors of East Dagga recommends that linked
unit holders vote in favour of the resolutions to be proposed at the general
meeting to be held to approve the implementation of the transaction. Those
directors of East Dagga who hold linked units have indicated in writing that
they intend to vote in favour of the transaction.
11. Additional opportunities and capital raising
The boards of directors of East Dagga and Mvela are currently evaluating a
number of opportunities in the mining and minerals industries and are
considering the possibility of raising further capital by way of an issue of
linked units for cash. A further announcement in this regard will be made in
due course.
12. Documentation and meeting
Documentation, which is subject to the approval of the JSE and the SRP,
containing full details of the transaction, a notice of general meeting and
revised listing particulars will be posted to East Dagga linked unit holders
in due course.
Johannesburg
4 September 2001
Merchant bank to the transaction
RMB RESOURCES
Merchant bank to Mvela
SCMB
Standard Corporate and Merchant Bank
(A Division of The Standard Bank of South Africa Limited)
(Registration number 1962/000738/06)
Attorneys to Mvela
WERKSMANS
ATTORNEYS
Accountants to Mvela
CHARLES ORBACH
& COMPANY
Independent financial adviser to East Dagga linked unit holders
PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers
Corporate Finance (Pty) Ltd
(Registration number 1970/003711/07)
Attorneys to East Dagga
CLIFFE DEKKER FULLER MOORE INC
(Registration number 1998/018173/21)
Accountants to East Dagga
PricewaterhouseCoopers Inc.
(Registration no 1998/012055/21)
Chartered Accountants (SA)
Registered Accountants and Auditors
Sponsor to the transaction
RAND MERCHANT BANK
CORPORATE FINANCE
A Division of FirstRand Bank Limited
