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ZARARA ENERGY LIMITED
(Formerly Mawenzi Resources Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1895/001078/06)
("Zarara" or "the company")
Share code:ZRR ISIN : ZAE 00003277
FAIR VALUE OF THE ACQUISITION OF THE LYSINE MANUFACTURING BUSINESS OF AECI
AND THE IDC ("BIOPRODUCTS")
1. INTRODUCTION
Further to the announcement dated 16 November 2001 ("announcement") and the
circular to shareholders dated 8 December 2001 ("circular"), in which
shareholders were informed that Zarara and a consortium comprising certain
senior managers of Bioproducts had agreed, subject to the fulfilment of
certain suspensive conditions, to acquire the lysine manufacturing business
of AECI Limited ("AECI") and the Industrial Development Corporation of South
Africa Limited ("IDC") and the entire issued share capital of, and the
claims which AECI and the IDC may have against AECI Bioproducts (Pty)
Limited (collectively, "Bioproducts").
2. FAIR VALUE ADJUSTMENTS
In terms of the purchase agreement, R1.00 of the initial purchase
consideration of R23.5 million has been allocated to the amino acid plant
("the plant"), which reflected a carrying value of R164 million at 30 June
2001 in the accounting records of Bioproducts. The financial effects as
illustrated in the announcement and the circular had been prepared by
reference to the acquisition agreement and therefore no adjustments had been
made to the value of the assets and liabilities acquired. In terms of South
African Statements of Generally Accepted Accounting Practice, AC 131
(Business Combinations) a fair value adjustment is required to reflect the
fair value of the assets and liabilities of Bioproducts.
The directors have obtained valuations to establish fair value of the assets
and liabilities of Bioproducts. According to these valuations the assets and
liabilities, excluding the plant, were acquired at fair value, whilst fair
value for the plant was estimated at R270 million.
3. FINANCIAL EFFECTS
The financial effects of the acquisition as illustrated in the announcement
and the circular and the effect of the fair value adjustment on the loss per
share ("LPS"), headline loss per share ("HLPS"), net asset value ("NAV") and
tangible net asset value ("TNAV") are illustrated in the table below:
Per Before After Change After fair
Zarara acquisition acquisition (%) value Change
share (cents) (cents) adjustments (%)
(cents)
LPS (19.1) (27.6) (44.5) (27.6) 0
HLPS (19.1) (27.6) (44.5) (27.6) 0
NAV 886.9 878.4 (0.9) 878.4 0
TNAV 749.5 741.0 (1.1) 1 496.3 99.6
The financial effects of the acquisition as previously reported were
calculated having had regard to the following:
- the "before" column uses the latest published unaudited interim accounts
of Zarara for the six months ended 31 March 2001;
- the "before" column assumes that the 10-for-1 consolidation of Zarara's
issued and authorised share capital which was implemented on 3 September
2001 was effective for the six months ended 31 March 2001;
- the "after" column assumes that the acquisition of Bioproducts was
effective from 1 October 2000, but uses the unaudited reviewed results of
Bioproducts for the six months ended 30 June 2001;
- the "after" column does not ascribe any value to the plant which reflected
a carrying value of R164 million at 30 June 2001, but includes the
depreciation of the plant for the six months ended 30 June 2001; and
- interest paid on the cash component of the purchase consideration was
calculated at a rate of 9.5% as Zarara was in a net interest received
position and taxed at a tax rate of 30%.
It is not anticipated that the fair value adjustments relating to the plant
will have any impact on the LPS, HLPS and NAV the for the following reasons:
- an increase in the depreciation charge relating to the plant will be set-
off against the amortisation of negative goodwill; and
- an adjustment to reflect the fair value would result in an increase in the
value of the plant and the creation of negative goodwill thereby not
affecting the NAV.
4. GENERAL MEETING
Shareholders are reminded that the general meeting where an ordinary
resolution will be proposed to approve the acquisition will be held on
Monday 24, December 2001 and that the last date for lodging forms of proxy
is Thursday 20, December 2001. The valuation reports of the independent
experts are available for inspection at the registered office of the
company.
Illovo
19 December 2001
Corporate advisor and sponsor
BRAIT
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