| Wed 4 May 2005, 10:52 | | Announcement Of Wonderkop Acquisition |
|
Merafe Resources Limited - Announcement Of Wonderkop Acquisition
MERAFE RESOURCES LIMITED
Merafe Resources Limited
(formerly South African Chrome and Alloys Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1987/003452/06)
Share code: MRF ISIN Code: ZAE 000060000
(`Merafe` or `the Company`)
ANNOUNCEMENT TO SHAREHOLDERS OF MERAFE REGARDING:
* The acquisition by Merafe of a:
* 50% participation interest in the Wonderkop Joint Venture;
* 50% interest in the Kroondal Resources; and
* 26% interest in the Marikana Resources;
from Samancor Holdings (Proprietary) Limited (`Samancor`) and subsequent
incorporation into the existing Xstrata-Merafe Chrome Venture, resulting in:
* The increase of Merafe`s participation interest in an enlarged Xstrata-Merafe
Chrome Venture from 17.5% to 20.5%
1. INTRODUCTION
Investec Bank Limited is authorised to announce that Merafe will, subject to
fulfilment of certain conditions precedent, increase its ultimate participation
interest in an enlarged Xstrata-Merafe Chrome Venture from 17.5% to 20.5% as a
result of Merafe entering into an agreement with Samancor (`the agreement`) to
acquire:
* a 50% participation interest in the unincorporated production joint venture
established between Xstrata and Samancor (`the Wonderkop JV`);
* 50% of all the rights in chrome in, on and under the Kroondal mining area
(`the Kroondal Resources`); and
* 26% of all the rights to chrome in, on and under the Marikana mining area
(`the Marikana Resources`), - (the Kroondal Resources and the Marikana
Resources are collectively referred to as the `New Resources`),
from Samancor (collectively known as the `Wonderkop Acquisition`), with effect
from the first business day following the fulfilment of the last of the
conditions precedent referred to in paragraph 8 below (`effective date`).
In addition, Xstrata SA (Pty) Limited (`Xstrata`) will acquire the remaining:
* 50% of the Kroondal Resources; and
* 74% of the Marikana Resources
from Samancor.
2. THE TRANSACTION
Following the Wonderkop Acquisition, Merafe and Xstrata will each contribute
their respective rights and interests in the Wonderkop JV and the New Resources
to the existing Xstrata-Merafe Chrome Venture.
This will increase the total annual capacity of the Xstrata-Merafe Chrome
Venture by 13.5% to 1.59 million tonnes of ferrochrome per annum from the
current 1.4 million tonnes.
As a result of the transactions, Merafe will increase its share of the earnings
before interest, tax, depreciation and amortisation (`EBITDA`) in an enlarged
Xstrata-Merafe Chrome Venture by 3%. Merafe`s share will ultimately increase
from 17.5% to 20.5% from 1 July 2006 onwards. In terms of the current Xstrata-
Merafe Chrome Venture, Merafe has the right to increase its effective interest
in the Xstrata-Merafe Chrome Venture over time to 26%.
Following the Wonderkop Acquisition, Merafe will therefore share in the EBITDA
of 20.5% of the increased annual production capacity of 1.59 million tonnes.
This is equivalent to the EBITDA from 325,745 tonnes, an increase of 33% from
the current 245,000 tonnes prior to the acquisition.
3. NATURE OF BUSINESS OF MERAFE
Merafe`s current focus is its chrome venture with Xstrata. The Xstrata-Merafe
Chrome Venture is the world`s market leader in ferrochrome with an annual
capacity of 1.4 million tonnes of ferrochrome per annum. The Xstrata-Merafe
Chrome Venture commenced on 1 July 2004 and increased Merafe`s exposure from one
mine and two furnaces to the output of six mines and sixteen furnaces,
significantly reducing operational risk and sharing in the cost benefits of the
world leader in ferrochrome production.
4. NATURE OF BUSINESS OF THE WONDERKOP JV AND THE NEW RESOURCES
The Wonderkop JV is situated adjacent to the site of furnaces 1 to 4 at the
Wonderkop ferrochrome plant and is managed by Xstrata. The Wonderkop JV, is an
unincorporated joint venture between Xstrata (50%) and Samancor (50%) consisting
of two semi-closed furnaces and a recovery plant with a ferrochrome production
capacity of 191,000 tonnes per annum.
The New Resources are situated within close proximity to the Wonderkop plant and
will be an immediate source of chrome for future ferrochrome production.
5. THE CONSIDERATION
The consideration payable by Merafe to Samancor will be R331 700 000 allocated
as follows:
R
50% participation interest in the Wonderkop JV 234,980,000
50% of the Kroondal Resources 49,600,000
26% of Marikana Resources 47,120,000
Merafe shall pay the consideration in cash to Samancor on the effective date.
6. RATIONALE FOR THE WONDERKOP ACQUISITION
The rationale for the Wonderkop Acquisition is as follows:
* The primary benefit of the Wonderkop Acquisition is that Merafe will
ultimately increase its share of EBITDA from the Xstrata-Merafe Chrome
Venture from 17.5% to 20.5% of an operation with a ferrochrome capacity of
1.59 million tonnes per annum.
* The Wonderkop Acquisition is in line with Merafe`s growth strategy of
acquiring further quality chrome and ferrochrome assets and reversing such
assets into the Xstrata-Merafe Chrome Venture in exchange for a higher
participation interest for Merafe in the Xstrata-Merafe Chrome Venture.
* The acquisition allows Merafe to enter into the Wonderkop JV with Xstrata,
its current partner of all its other operations. Xstrata currently manages
the Wonderkop JV, allowing Merafe to benefit from its established operating
expertise.
* The additional purchase of strategic reserves and resources (Marikana
Resources and Kroondal Resources) provides the Xstrata-Merafe Chrome Venture
with an increased reserve base, mine output and quality chrome ore in the
Western mining area that will result in reduced operating costs.
* The contribution of the Wonderkop Acquisition to the Xstrata-Merafe Chrome
Venture will result in increased smelting capacity and ferrochrome resources,
which will assist the Xstrata-Merafe Chrome Venture in meeting the increased
demand for ferrochrome as a result of continued growth in stainless steel
production and demand.
* The Wonderkop Acquisition allows Merafe to increase its participation at cost
in Project Lion (as announced to shareholders on 2 March 2005) from 17.5% to
20.5%.
7. UNAUDITED PRO FORMA FINANCIAL EFFECTS
The table below sets out the unaudited pro forma financial effects on Merafe
shareholders based on the assumptions set out below. The unaudited pro forma
financial effects have been prepared by the board of Merafe for illustrative
purposes only, in order to provide information about how the Wonderkop
Acquisition may have affected the results, changes in equity and financial
position of Merafe, had the transaction been implemented on 1 July 2004 for
income statement purposes and 31 December 2004 for balance sheet purposes. Due
to their nature unaudited pro forma financial effects may not give a true
reflection of the actual financial effects of the Wonderkop Acquisition. The
directors of Merafe are responsible for the unaudited pro forma financial
effects.
Before the After the Percentage
Wonderkop Wonderkop increase
Acquisition Acquisition (%)
(cents per (cents per
share) share)
Net asset value per share 20.99(1) 29.50(2) 40.54
(`NAV`)
Tangible net asset value per 20.99(1) 26.06(3) 24.15
share (`TNAV`)
Earnings per share (`EPS`) 0.45(4) 0.65(5) 44.44
Headline earnings per share 0.45(4) 0.65(5) 44.44
(`HEPS`)
Notes
1. The NAV and TNAV per share as set out in the `Before the Wonderkop
Acquisition` column are based on the reviewed balance sheet of Merafe at
31 December 2004 and have been calculated using 1 237 917 518 Merafe shares
in issue at 31 December 2004.
2. The NAV per share as set out in the `After the Wonderkop Acquisition` column
has been adjusted for the NAV of the Wonderkop Acquisition (being R331,7
million) less the debt of R117,49 million raised to partly fund a portion of
the purchase consideration. Management of Merafe anticipates that the
consideration will be funded through equity except for the acquisition of the
50% participation interest in the Wonderkop JV that will be financed through
a combination of debt and equity in a 1:1 ratio. The `After the Wonderkop
Acquisition` NAV per share calculation is based on 1 607 245 105 shares in
issue, assuming that 369 327 587 shares will be issued at 58 cents per share
in order to raise the required R214,21 million equity funding.
3. The TNAV per share as set out in the `After the Wonderkop Acquisition` column
has been adjusted for the TNAV of the Wonderkop Acquisition of
R276,52 million (being R331,70 million less R55,18 million goodwill raised on
the acquisition of the 50% participation interest in the Wonderkop JV) less
the debt of R117,49 million raised to partly fund a portion of the purchase
consideration. Management of Merafe anticipates that the consideration will
be funded through equity except for the acquisition of the 50% participation
interest in the Wonderkop JV that will be financed through a combination of
debt and equity in a 1:1 ratio. The `After the Wonderkop Acquisition` TNAV
per share calculation is based on 1 607 245 105 shares in issue, assuming
that 369 327 587 shares will be issued at 58 cents per share in order to
raise the required R214,21 million equity funding.
4. The EPS and HEPS as set out in the `Before the Wonderkop Acquisition` column
have been extracted, without adjustment, from the reviewed results of Merafe
for the nine months ended 31 December 2004. The `Before the Wonderkop
Acquisition` EPS and HEPS calculations are based a weighted average of
1 236 676 723 shares in issue for the nine months ended 31 December 2004.
5. The EPS and HEPS as set out in the `After the Wonderkop Acquisition` column
have been adjusted for:
- Merafe`s 3% increased participation in the Xstrata-Merafe Chrome Venture`s
unaudited EBITDA and Merafe`s new 14% participation, through the Xstrata-
Merafe Chrome Venture, in the Wonderkop Acquisition`s unaudited EBITDA, for
the six months ended 31 December 2004;
- the finance charges resulting from the debt of R117.49 million for the six
months ended 31 December 2004. A pre-taxation interest rate of 8.75% has
been used, based on the contractual rate of Johannesburg Inter-Bank
Acceptance Rate plus 1.25%;
- the depreciation charge on the Wonderkop Acquisition`s plant, property and
equipment for the six months ended 31 December 2004, using a straight line
method of depreciation over 20 years;
- no tax adjustment has been included, as Merafe did not incur any tax for
the nine months ended 31 December 2004;
- the estimated transaction costs of R4.6 million; and
- the `After the Wonderkop Acquisition` EPS and HEPS calculations are based
on 1 606 004 310 shares in issue, assuming that 369 327 587 shares will be
issued at 58 cents per share in order to raise the required R214.21 million
equity funding.
8. CONDITIONS PRECEDENT
The Wonderkop Acquisition is subject to the fulfillment of, inter alia, the
following conditions precedent:
* Merafe obtaining from its shareholders the necessary consent to conclude this
agreement. To date shareholders holding 32.1% of the issued share capital
have given irrevocable undertakings to vote in favour of the Wonderkop
Acquisition;
* the obtaining by the parties of all governmental and other regulatory
approvals necessary for the conclusion and implementation of the agreements,
including but not limited to any necessary Competition Commission approvals;
and
* Merafe obtaining the necessary funding required in terms of the agreement for
the Wonderkop Acquisition on or before 1 September 2005.
9. PROJECT LION
As announced on SENS on 2 March 2005 and in the press on 3 March 2005, the
Company has assessed phase one of the R1.7 billion Project Lion, 360,000 tonnes
per annum ferrochrome expansion. As a result of the Wonderkop Acquisition
increasing Merafe`s ultimate share in the EBITDA of the Xstrata-Merafe Chrome
Venture to 20.5%, the board of Merafe has decided to increase its investment in
Project Lion to 20.5%. The consideration payable by Merafe for Project Lion
would increase from R298 million (17.5% of R1.7 billion) to R349 million (20.5%
of R1.7 billion). Merafe`s share of working capital is anticipated to be R59
million.
10. FUND RAISING
Merafe is planning on raising equity capital as part of its contribution to
Project Lion as well as the Wonderkop Acquisition (the balance of the funding
will be raised via debt). The total amount to be raised will be in the order of
R850 million, with approximately R300 million debt and R550 million would be
financed through equity. Xstrata will provide a corporate guaranteed to a local
bank for the debt to be raised by Merafe.
11. FURTHER ANNOUNCEMENTS AND DOCUMENTATION
As the Wonderkop Acquisition qualifies as a Category 1 transaction under the
Listings Requirements of the JSE Securities Exchange of South Africa, the
shareholders of Merafe will have to approve the Wonderkop Acquisition in general
meeting. A further announcement regarding the notice of general meeting of
Merafe shareholders will be made in the near future.
A circular, providing further information on the Wonderkop Acquisition is
expected to be posted to Merafe shareholders within 28 days of this
announcement.
Johannesburg
4 May 2005
Corporate Advisor to Merafe Transactional sponsor Auditors and reporting
accountants to Merafe
Investec Corporate Finance Investec Bank KPMG
Legal advisor to
Merafe
Bowman Gilfillan
Independent technical Legal advisor to the Sponsor
advisor transaction
Mineral Corporation Werkmans ABSA
Consultancy
