| Fri 6 Aug 2004, 12:37 | | Proposed acquisition of diamond mining business |
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African Gem Resources Limited - Announcement regarding:
Proposed acquisition of diamond mining business and the entering into
management, loan and conditional sale of shares agreements;
and cautionary announcement
African Gem Resources Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/007292/06)
Share code: AFG
ISIN: ZAE000025540
CUSIP code (Level 1 ADR programme): 008283103
Announcement regarding:
- proposed acquisition of diamond mining business and the entering into
management, loan and conditional sale of shares agreements; and
- cautionary announcement
INTRODUCTION
Shareholders are advised that on 5 August 2004 Afgem entered into agreements,
subject to the conditions precedent set out below, with Rex Diamond Mining
Corporation (`Rex Corporation`), a company listed on the Toronto Stock Exchange
and certain of its subsidiaries, the key terms of which are set out below.
AGREEMENTS
Afgem has entered into three key agreements with Rex Corporation and associated
parties, details of which are set out below.
Management agreement
Afgem has entered into an agreement with, inter alia, Rex Corporation and Loxton
Exploration (Proprietary) Limited (`Loxton`), a wholly-owned subsidiary of Rex
Corporation, to act as manager of the business owned by Loxton (the `management
agreement`). Loxton has the mining licence to mine various Kimberlite-fissure
properties near Barkly-West in the Northern Cape Province.
The key terms of the management agreement include:
- Afgem to second such employees of Afgem to Loxton which will enable Afgem
to fulfill its obligations under the management agreement;
- Loxton to pay Afgem a monthly fee of R1 million for the management services
rendered by Afgem in terms of the management agreement;
- the management agreement shall continue until 30 October 2004 whereafter it
may be terminated by any party giving not less than five business days` written
notice; and
- the management agreement is in place to cover the period until completion
of the transaction.
Loan agreement
Afgem has entered into an agreement with, inter alia, Rex Corporation to lend R5
million to Rex Mining Corporation Limited (`Rex Mining`), a wholly-owned
subsidiary of Rex Corporation (the `loan agreement`). Rex Mining is the vendor
of certain of the shares to be acquired by Afgem in terms of the sale of shares
agreement, detailed below.
The key terms of the loan agreement include:
- the loan bears no interest;
- save in certain specified circumstances, the loan is repayable to Afgem
within five business days` written notice, which notice may be given only after
the first anniversary of the signing of the loan agreement; and
- Rex Corporation stands as surety for the loan amount, and security has been
furnished in the form of the pledge of the entire issued share capital of
Loxton, Rex Diamond Corporation (Proprietary) Limited (`Rex Diamond`) and
Bellsbank Consolidated Diamond Mine (Proprietary) Limited (`Bellsbank`),
collectively referred to as the `target companies`, and the cession of the loan
accounts in the target companies.
The loan is not conditional upon the implementation of the sale of shares
agreement.
Sale of shares agreement
Afgem has entered into an agreement, subject to the conditions precedent set out
below, with, inter alia, Rex Corporation to acquire the entire issued share
capital of, and claims on loan account against, the target companies for a
consideration of approximately R60 million. The purchase consideration shall be
discharged as follows:
- R2,5 million thereof in cash which shall be off-set against R2,5 million of
the amount that is owed to Afgem by Rex Mining in terms of the loan agreement
detailed above;
- R25 million thereof through the issue of 50 million Afgem shares at 50
cents each; and
- the balance by paying Rex Mining four percent of the gross revenue on rough
diamond sales of Loxton, Rex Diamond and Bellsbank for the period commencing on
1 January 2006 and ending on 31 December 2021, to which a net present value of
approximately R32,5 million has been attributed.
The implementation of the sale of shares agreement is subject, inter alia, to
the following conditions precedent:
- obtaining of the necessary regulatory approvals, including the JSE
Securities Exchange South Africa (`JSE`), Competition Commission/Tribunal and
Exchange Control of the South African Reserve Bank, if required;
- the approval by the shareholders of Afgem and the approval by the
shareholders of Rex Corporation; and
- the approval of the JSE for the continued listing on the JSE of the
enlarged capital of Afgem.
The JSE regards the sale of shares transaction as a reverse listing and
therefore Afgem is required to satisfy the JSE Listings Requirements for a new
listing.
Both the board and the controlling shareholder of Rex Corporation have provided
Afgem with irrevocable undertakings to vote in favour of the sale of shares
transaction and shareholders holding approximately 25% of the issued share
capital of Afgem have also provided Afgem and Rex Corporation with irrevocable
undertakings to vote in favour of the sale of shares transaction. Rex
Corporation and Afgem currently have no shareholding in each other.
RATIONALE
At an Afgem shareholders meeting held on Friday, 21 May 2004, shareholders
approved the disposal by Afgem of its Tanzanite business, resulting in Afgem
becoming a cash shell. Management has been actively pursuing alternative
investment opportunities for Afgem in the diamond mining sector and is of the
view that the target companies provide Afgem with a suitable opportunity to
enter the diamond mining sector and apply its expertise and experience gained
during the period the company owned its Tanzanite business.
CAUTIONARY ANNOUNCEMENT
An announcement containing further details of the acquisition of the target
companies, including financial effects, will be made in due course. Shareholders
are advised to exercise caution when dealing in Afgem shares until a further
announcement is made.
Johannesburg
6 August 2004
Corporate advisor and transactional sponsor
ACMB Corporate Finance
Legal advisor to Afgem
HR Levin
Attorneys, Notaries and Conveyancers
Legal advisor to Rex Corporation
ENF
Sponsor
Java Capital
Date: 06/08/2004 12:20:06 PM
Produced by the JSE SENS Department
