| Tue 24 Feb 2004, 8:53 | | SA CHROME AND XSTRATA PLC ESTABLISH A |
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South African Chrome and Alloys Limited - SA CHROME AND XSTRATA PLC ESTABLISH A
VENTURE TO CREATE THE WORLD"S LEADING FERROCHROME PRODUCER -DETAILED CAUTIONARY
ANNOUNCEMENT
South African Chrome and Alloys Limited
(Incorporated in the Republic of South Africa)
(Registration number 1987/003452/06)
(Share code: SCE ISIN code: ZAE000022943)
("SA Chrome")
SA CHROME AND XSTRATA PLC ESTABLISH A VENTURE TO CREATE THE WORLD"S LEADING
FERROCHROME PRODUCER -DETAILED CAUTIONARY ANNOUNCEMENT
1 INTRODUCTION
SA Chrome announces that it has reached agreement with Xstrata South Africa
(Proprietary) Limited ("Xstrata"), a subsidiary of Xstrata plc, to establish a
shared venture (the "Xstrata - SA Chrome Venture" or "the Venture") in which
they will pool their respective South African chrome and ferrochrome assets* and
share in the earnings therefrom. From the third year following the commencement
of the agreement, SA Chrome and Xstrata will hold 17.5% and 82.5%, respectively,
in the Xstrata - SA Chrome Venture, with the relative proportions changing from
Year 1 as follows:
SA Chrome Xstrata
Year 1: 11.0% 89.0%
Year 2: 14.0% 86.0%
Year 3 onwards: 17.5% 82.5%
* Excluding Xstrata"s two furnaces at the Wonderkop plant, which form part of
the Xstrata -Samancor (Pty) Limited joint venture
SA Chrome is an empowerment company, controlled by Royal Bafokeng Resources
Holdings (Proprietary) Limited ("RBR") (33.2%) and the Industrial Development
Corporation of South Africa Limited ("IDC") (25.2%). The relationship between
these parties is managed in terms of a voting pool arrangement. The RBR has pre
emptive rights over the IDC"s SA Chrome shares.
Xstrata plc is a major global diversified mining company, listed on the London
and Swiss stock exchanges, with meaningful positions in six major international
commodity businesses: copper, coking coal, thermal coal, ferrochrome, vanadium
and zinc, and additional exposures to gold, lead and silver. Xstrata plc, which
is headquartered in Switzerland, employs some 18,000 people worldwide with
operations across four continents in six countries: Australia, South Africa,
Spain, Germany, Argentina and the UK. Its Alloys business, Xstrata Alloys, is
the world"s largest producer of ferrochrome, with current annual production
capacity of 1.3 million tonnes from its three chrome mines and 16 smelters in
South Africa (representing some 25% of global ferrochrome production).
Based on the SA Chrome share price at the close of business on 20 February 2004,
the Xstrata - SA Chrome Venture will have an imputed enterprise value of ZAR8.2
billion** and pro-forma annual ferrochrome capacity of 1.45 million tonnes
(representing around 26% of current global output).
** Calculated as SA Chrome"s 30-day volume weighted average price at 20 February
2004 plus SA Chrome"s net debt of R390 million, divided by 17.5%, which
represents SA Chrome"s long-term participation interest in the Xstrata - SA
Chrome Venture.
2 RATIONALE FOR THE TRANSACTION AND PROSPECTS FOR SA CHROME
The transaction enables SA Chrome and Xstrata to participate jointly in the
world"s leading ferrochrome producer and to realise significant operational
efficiencies for both parties through the transfer of best operational practice,
the optimisation of ore feed from the reserves of the two parties, and the
introduction of new technology.
For shareholders in SA Chrome, the establishment of the Xstrata - SA Chrome
Venture represents a unique opportunity to participate in significant future
growth and to increase their exposure from one mine and two furnaces to the
output of six mines and sixteen furnaces, significantly reducing operational
risk.
For Xstrata, the transaction represents a strategic opportunity to introduce
meaningful and sustainable empowerment ownership and involvement in its
ferrochrome assets, while participating in the benefits of future synergies
between the two parties.
The Xstrata - SA Chrome Venture"s position as the world"s leading ferrochrome
producer, its exceptional growth profile and its industry-leading technology
provides SA Chrome with meaningful participation in the high-growth global
ferrochrome industry. The Xstrata - SA Chrome Venture will continue the
progress made by both SA Chrome and Xstrata in initiatives that facilitate
further broad-based empowerment in the mining industry, including skills
transfer, social upliftment, the employment and advancement of the communities
surrounding the Venture"s operations and application of preferential procurement
practices.
3 PARTICIPATION IN THE XSTRATA - SA CHROME VENTURE
SA Chrome and Xstrata will pool the risks and rewards associated with beneficial
ownership of their ferrochrome businesses in the Xstrata - SA Chrome Venture, in
exchange for agreed participation interests in the Venture. Both parties will
share in the earnings before interest, tax, depreciation and amortisation
(EBITDA) of the Xstrata - SA Chrome Venture in proportion to their respective
participation interests.
SA Chrome has the option to acquire an additional 2.5% in the Xstrata - SA
Chrome Venture. This option is available for one year following the
commencement of the agreement at a value of US$11 million for each percentage
point acquired. If exercised, this will increase SA Chrome"s interest in the
Venture to 20% from the third year onwards, with Xstrata holding the remaining
80%.
SA Chrome and Xstrata will retain ownership of their respective assets, mining
rights and land, with both parties undertaking to contribute to the Xstrata - SA
Chrome Venture the right to use all such assets.
For a diagrammatic representation of the resultant SA Chrome structure please
refer to the paid announcement to be published tomorrow, 25 February 2004.
4 MANAGEMENT OF THE XSTRATA - SA CHROME VENTURE
Following the conclusion of the transaction, overall responsibility for the
Xstrata - SA Chrome Venture will rest with a board (the "Joint Board")
comprising six members, with SA Chrome and Xstrata each appointing three
members. The parties have agreed that the Joint Board will be chaired by Peet
Nienaber, Chief Executive of Xstrata Alloys. In the case of certain defined
major matters, decisions will be made unanimously, thereby protecting SA
Chrome"s interests in the Venture. In the event of a deadlock on other matters,
the Xstrata appointed members collectively will have one additional vote.
The Xstrata - SA Chrome Venture"s day-to-day operations will be managed by an
Executive Committee appointed by the Joint Board, with members drawn from both
SA Chrome and Xstrata.
5 EXCLUSIVITY AND EXPANSIONS
SA Chrome and Xstrata undertake to offer all ferrochrome and chrome
opportunities in Africa, south of the equator, to the Xstrata - SA Chrome
Venture. SA Chrome has the right to increase its effective interest in the
Venture over time to 26%, with any further increase by mutual consent, by
contributing proportionately more than its pro rata Venture share of the cost of
any growth project/acquisition. Should the Joint Board fail to reach consensus
in regard to the exploitation of a particular ferrochrome or chrome opportunity,
either party may exploit such opportunity outside of the Venture. In addition,
SA Chrome is free to pursue other activities outside the Xstrata - SA Chrome
Venture, provided such activities do not compete with the Venture.
The Xstrata - SA Chrome Venture will therefore participate in Phase One of
Xstrata"s recently announced Lion Project, a one million tonne per annum
ferrochrome complex, located in Mpumalanga Province, which will be constructed
in three phases, each comprising 330,000 tonnes of annual smelting capacity.
The Lion Plant will utilise Xstrata"s exclusive "Premus Technology", which has
been developed and successfully implemented at its Lydenburg facility. The
Premus process, which is a substantial modification of the highly efficient
closed furnace and pelletising technology, is expected to deliver operating
costs around 20% below alternative technologies due to significant substitution
of anthracite for coke and power costs that are between 25% and 45% lower per
tonne of ferrochrome produced than the industry"s prevailing processes.
Phase One comprises two 63MVA closed submerged arc furnaces with a capital cost
of ZAR1.25 billion, which will be funded by Xstrata and SA Chrome in proportion
to their participation in the Xstrata - SA Chrome Venture. The Project is
progressing on schedule, with design work on track for completion by mid 2004
and production expected early in 2006.
6 SUSPENSIVE CONDITIONS AND UNDERTAKINGS
Implementation of the transaction is subject to obtaining the necessary
statutory, regulatory (including Competition approvals) and third party
approvals and approval by shareholders of SA Chrome. In this respect, RBR has
given an irrevocable undertaking to vote in favour of the resolutions to be
proposed at a general meeting of SA Chrome shareholders to approve the
transaction.
7 JSE APPROVAL AND FURTHER CAUTIONARY ANNOUNCEMENT
The proposed transaction is subject to certain JSE approvals. Accordingly,
shareholders of SA Chrome are advised to continue to exercise caution when
dealing in their SA Chrome securities until a further announcement is made on
the Securities Exchange News Service and in the press.
8 ADVICE TO MINORITY SHAREHOLDERS
The Board of Directors of SA Chrome has appointed Morgan Stanley, subject to
compliance with the JSE"s Listing Requirements, as the independent adviser to SA
Chrome minority shareholders in respect of the proposed transaction.
9 CIRCULAR TO SHAREHOLDERS
A circular to SA Chrome shareholders setting out the details of the transaction
and containing a notice of general meeting is being prepared and will be posted
to shareholders in due course.
Johannesburg
24 February 2004
Steve Phiri, Chief Executice Officer of SA Chrome, Invites you to a presentation
on a venture concluded with Xstrata plc.
Johannesburg
Date : Tuesday, 24 February 2004
Time : 10:30 am for 11:00am
Venue: Crown Plaza Hotel
Grayston Dricve
Sandton
SA Chrome contacts
Steve Phiri Stuart Elliot
Tel +27 11 478 1112 Telephone +27 11 478 1112
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one
Mob +27 82 371 6136 Mobile +27 82 372 1046
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Ema steve@sachrome.co.za Email stuart@sachrome.co.z
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Bruce McBride
Tel +27 11 478 1112
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one
Mob +27 82 894 4804
ile
Ema bruce@sachrome.co.za
il
Xstrata contacts
Marc Gonsalves Brigitte Mattenberger
Tel +44 20 7968 2812 Telepho +41 41 726 6071
eph ne
one
Mob +44 7775 662 348 Mobile +41 793 811 823
ile
Ema mgonsalves@xstrata.c Email bmattenberger@xstrata.c
il om om
SA Chrome shareholders are referred to the Xstrata plc announcement regarding
this transaction, released on the London Regulatory News Service this morning,
for information purposes.
Financial adviser and transactional sponsor
Deutsche Securities (SA) (Proprietary) Limited
Sponsor
Rand Merchant Bank Corporate Finance
Independent advisor
Morgan Stanley South Africa (Proprietary) Limited
Attorneys to SA Chrome
Bowman Gilfillan Inc
Date: 24/02/2004 08:30:06 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
