| Mon 18 Jul 2005, 14:05 | | Diamond Core - Diamond Core merges with Samadi SA |
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Diamond Core - Diamond Core merges with Samadi SA and plans capital raisings
DIAMOND CORE RESOURCES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/013468/06)
Share code: DMR ISIN Number: ZAE000045688
(`Diamond Core` or `the company`)
Terms of the merger of-
Diamond Core and Samadi Resources (SA) Pty Limited (`Samadi SA`)
and details of proposed issues of shares and options for cash
to raise capital
1. Introduction
On 28 January 2005, the company announced that it had been granted, for no
consideration, an exclusive option to acquire all of the shares in and claims
against Samadi SA from Samadi Resources Limited (`Samadi UK`), the UK-
incorporated holding company of Samadi SA (`the option`).
Samadi SA has four subsidiaries:
Sandstraat Eksplorasie (Edms) Bpk, which has applied for prospecting and mining
rights over the farm Hospitaal 365, portions 10 and RE - `the Silverstreams
project`;
Prieska Diamond Mining (Pty) Limited, which has applied for a prospecting right
over the farm Uitdraai 33, portion RE1 - `the Uitdraai project`;
Samadi (Douglas) Exploration (Pty) Limited, which has applied for a prospecting
right over the farm De Kalk 37 - `the De Kalk project`; and
Samadi Exploration (Pty) Limited, which has applied for prospecting rights over
a number of unexplored `blue sky` projects including the Koa River Valley area
(collectively, `the Samadi subsidiaries`). In terms of an agreement with the
Sefalana consortium, comprising Sefalana Mineral Resources (Pty) Limited and The
National Resources Empowerment Fund, a broad based, black-empowered entity, 50%
of the equity in the Samadi subsidiaries will be acquired by this consortium,
subject to certain conditions and upon the grant of the various rights which
have been applied for.
Agreement has now been reached on the terms of the exercise of the option, which
will result in the merger of Diamond Core with Samadi SA (`the merger`). The
merger agreement was signed on 13 July 2005.
2. Terms of the merger
a) The vendors
Subsequent to the announcement relating to the granting of the option, Samadi UK
distributed all of its shares in and claims against Samadi SA to its
shareholders, namely the Three Cities Trust (which had a 36% interest in Samadi
UK), the Titan Trust (which had a 20% interest in Samadi UK), Newstead
Investment Holdings Limited, a company duly registered and incorporated in the
British Virgin Islands, BVI registration number 597093, (which had a 20%
interest in Samadi UK) and Mr Shalom Nachom (who had a 24% interest in Samadi
UK) (`the Samadi UK shareholders`). Diamond Core will therefore be purchasing
from the Samadi UK shareholders their entire equity interests in and claims
against Samadi SA (`the Samadi SA shares and claims`).
b) The purchase consideration
The purchase consideration in respect of the Samadi SA shares and claims is the
par value of the shares, which amounts to R100.00 and is payable in cash, and
R1.00 for the claims, which claims amount to GBP 617 603.14. Ownership in and
to the Samadi SA shares and claims will pass upon payment of this purchase
consideration.
In addition, and subject to the conditions set out in paragraph 7 below, the
Samadi UK shareholders will receive, on a pro rata basis:
(i) 273 422 357 Diamond Core shares which are to be allotted and issued in three
tranches:
- 129 875 620 shares upon the grant of the mining right in respect of the
Silverstreams project;
- 95 697 825 shares upon the grant of the prospecting right in respect of the
Uitdraai project; and
- 47 848 912 shares upon the grant of the prospecting right in respect of the De
Kalk project;
and
(ii) 273 422 357 Diamond Core shares which are to be allotted and issued upon
any one or more of the three projects listed above generating, in aggregate,
sufficient operating profit such that Diamond Core`s attributable share of the
operating profit (`the attributable operating profit`) in the first full year of
operation of either the Silverstreams or the Uitdraai projects is R35 million.
Should the attributable operating profit amount to levels of between R20 million
and R45 million, the number of Diamond Core shares to be issued will be adjusted
on a proportional basis. If the attributable operating profit achieved amounts
to less than R20 million, no Diamond Core shares shall be issued and if the
attributable operating profit equals or exceeds R45 million, 351 543 030 Diamond
Core shares shall be issued.
(The Diamond Core shares are to be issued at a price of 13 cents per share which
is equal to the trade weighted average price of Diamond Core shares on JSE
Limited (`JSE`) during the 30 day period which ended on 2 June 2005, being the
date on which Diamond Core and the Samadi UK shareholders agreed in principle to
the terms of the merger.)
In addition, Diamond Core will issue to the Samadi UK shareholders, on a pro
rata basis, 50 000 000 options, each of which is convertible into one Diamond
Core share and each of which can be exercised at any time between the date of
their issue and 30 September 2007 at a strike price of 20 cents per option.
These payments were based upon valuations conducted by Venmyn Rand (Pty) Limited
(`Venmyn Rand`), the independent competent person for the merger. The technical
report prepared by Venmyn will be included in the circular to be posted to
shareholders in due course (`the circular`).
c) Effective date
The effective date for the merger is 1 July 2005.
3. Rationale for the merger
Samadi SA was originally formed by Samadi UK during the period that Diamond
Core`s listing was suspended and the company faced an uncertain future due to,
amongst other factors, a liquidation application having been brought against one
of its subsidiaries.
Mr Nachom, a non-executive director of Diamond Core, owned 24% of Samadi UK and
17% of Diamond Core. Messrs Nachom, Botoulas and Levithan are directors of
Samadi SA as well as being directors of Diamond Core.
Subsequent to the implementation of the rescue of Diamond Core and its re-
listing in March 2004, no acquisitions have been made by the Samadi group of
companies. However, the boards of directors of Diamond Core and Samadi SA were
of the view that it was critical to resolve the conflict of interest which
exists between the two companies. Accordingly, the option agreement was signed
which has resulted in the conclusion of the merger agreement.
4. The Samadi SA assets
The Silverstreams and Uitdraai projects are alluvial projects located in the
Middle Orange River downstream from the Saxendrift mine, which is owned by Trans
Hex Group Limited. Although the Uitdraai and Silverstreams terraces are of
slightly lower elevation than the Saxendrift terrace, drilling work conducted to
date as well as modelling of the Silverstreams and Uitdraai ore bodies indicates
that they have similar geological characteristics to those of Saxendrift. In
accordance with the South African Code for Reporting of Mineral Resources and
Mineral Reserves (`the SAMREC Code`), Venmyn Rand has classified the
Silverstreams deposit as an inferred diamond resource with a primary gravel
tonnage of 35m tons, a recovery grade of 0.5 carats per hundred tons and an
average diamond value of US$1 200 per carat. Mine plans for both ore bodies
have been completed by Hatch Africa (Pty) Limited and the respective plant
designs completed by CDM Group (Pty) Limited.
The De Kalk project is also a Middle Orange River alluvial project and is
located in the Northern Cape Province near Douglas. De Kalk is the site of the
first diamond discovery in South Africa. Whilst the surface gravels at De Kalk
have been extensively mined in the past, Samadi SA management believes that the
calcrete layer may overlay a basal gravel deposit.
The Koa River Valley area is located north east of Springbok in the Namaqualand
District of the Northern Cape Province. No exploration work has been conducted
on this project.
5. Capital raising
The company must raise capital in order to continue with its exploration and
mining activities and to commence exploring and mining the alluvial assets
currently held by Samadi once the relevant rights have been granted by the
Department of Minerals and Energy (`the DME`). Diamond Core intends to raise
the capital required through the issue of shares and options to selected local
and offshore institutions. One option is to be issued for every ten shares
issued. Each option will be convertible into one Diamond Core share and will be
exerciseable on or before 30 September 2007 at a strike price of 20 cents.
The company intends to raise the following amounts (depending on which of the
rights applied for have been granted by the DME) through these issues of shares
and options (`the share and option issues`):
- R100 million for the Samadi projects where R60 million is required for the
Silverstreams project and R40 million is required for the Uitdraai project;
R50 million in order to continue with prospecting and mining activities on the
existing Diamond Core projects, namely the Paardeberg East and Skeyfontein
projects; and
- R20 million for financial, IT and administrative capital requirements.
In terms of the Listings Requirements of the JSE, the share and option issues
are considered to be specific issues of securities for cash and are therefore
subject to the approval of shareholders. The JSE also requires fair and
reasonable opinions to be prepared by an independent professional expert in
respect of each of the share and option issues as certain of the parties that
may participate in the share and option issues are considered to be related
parties as they are material shareholders in Diamond Core.
Due to the uncertainty around the timing of the granting of the mining and
prospecting rights, Diamond Core will be seeking shareholder approval, valid for
one year, to issue sufficient shares and options to raise the maximum amount of
capital required should all the rights applied for be granted, at a price to be
determined at the time the relevant tranche of capital is required. Such
shareholder approval will be conditional upon both the independent professional
expert and the Diamond Core directors confirming, at the time that the price and
the quantum of the relevant share and option issue is determined, that the share
and option issue is fair and reasonable to Diamond Core shareholders.
Subject to the approval of the JSE, price stabilisation mechanisms may be put in
place for some or all of the share and option issues.
6. Amendments to the company`s share capital
The company is also proposing:
- to increase its authorised share capital from 1 000 000 000 shares to 5 000
000 000 shares in order to have available sufficient unissued shares to
implement the merger and the share and option issues;
- to reduce the par value of the shares in order to save on the creation duty
payable on the increase in the company`s authorised share capital set out
above; and
- to undertake a consolidation of its shares on a one for 10 basis (`the
consolidation`) in order to provide local and off-shore investors with a
more accessible and attractive market price.
7. Conditions precedent
The implementation of the merger is conditional upon:
- the approvals of the relevant regulatory authorities including the JSE;
- shareholder approval of the resolution relating to an increase in the
company`s authorised share capital; and
- shareholder approval of the resolution relating to the merger with a simple
majority of the votes cast, excluding those of Messrs Nachom, Levithan,
Botoulas and their respective associates.
Shareholders holding approximately 70% of the shares which are eligible to be
voted have indicated their intent to vote in favour of the merger.
The implementation of the share and option issues is also subject to the
fulfilment of, inter alia, the following conditions precedent:
- the merger becoming unconditional; and
- the approval of the resolution relating to the share and option issues by a
75% majority of the votes cast excluding the votes of any party that has
indicated its intention to participate in the share and option issues.
8. Pro forma financial effects
The pro forma financial effects presented below are the responsibility of the
board of directors of the company and are presented for illustrative purposes
only to provide information on how the consolidation, the merger and the share
and option issues might have impacted on the reported financial information of
Diamond Core if they had been implemented in the six months ended 31 December
2004. Because of their nature, the pro forma financial effects may not give a
fair reflection of Diamond Core`s financial position at 31 December 2004.
Before the After the After the After the %
consoli- consoli- consoli- consoli- Change
dation and dation and dation and dation and (7)
the merger before the the merger the merger
and the merger and and prior and the
share and the share to the share and
option and option share and option
issues (1) issues (2) option issues (4)
issues (3)
Loss per share (0.68) (6.83) (6.31) (5) (0.64) (5) 90.6
for the six
month period
ended 31
December 2004
Headline loss (0.70) (7.03) (6.44) (5) (0.69) (5) 90.2
per share for
the six month
period ended 31
December 2004
Net asset value 4.26 42.58 111.44 (6) 112.78 (6) 164.9
per share at 31
December 2004
Net tangible 2.17 21.74 3.00 (6) 70.04 (6) 222.2
asset value per
share at 31
December 2004
Weighted average
shares in issue 598 711 793 59 871 179 87 213 414 228 880 081
for the period
Shares in issue 647 939 287 64 793 929 92 136 165 233 802 832
at the end of
the period
Assumptions:
1. The figures in this column are extracted from the reviewed interim results
of Diamond Core for the six months ended 31 December 2004.
2. The figures in this column are based on the reviewed interim results of
Diamond Core for the six months ended 31 December 2004 assuming the
consolidation had been implemented.
3. The figures in this column are based on the reviewed interim results of
Diamond Core and Samadi SA for the six months ended 31 December 2004, based on a
net asset value of Samadi SA at 31 December 2004 of R(4 033 066) and assuming
that:
- the consolidation had been implemented;
- all the rights listed in paragraph 1 had been granted by the DME and
accordingly 27 342 236 Diamond Core shares (on a consolidated basis) had
been issued in respect of such rights.
The 27 342 236 shares which will be issued upon the achievement of the
attributable operating profit target of R35 million described in paragraph
2(b)(ii) have not been taken into account for earnings per share or net asset
value per share purposes on the basis that, although the conditions for issue
are likely to be met, they will only be met in the future.
4. The figures in this column are based on the same assumptions as those set
out in Note 3 above and, in addition, the assumption that a total amount of R170
million was raised through the share and option issues. It was assumed that 141
666 667 Diamond Core shares and 14 166 667 options (on a consolidated basis)
were issued
5. For earnings purposes, it was assumed that the merger and the share and
option issues were implemented with effect from 1 July 2004 and the capital
raised in respect of the share and option issues (net of costs) was received on
1 July 2004 and earned interest for the period at a pre tax rate of 6% per
annum; and
6. For asset value purposes, it was assumed that the merger and the share and
option issues were implemented and the capital raised in respect of the share
and option issues (net of costs) was received on 31 December 2004.
7. The figures reflected in this column show the change between the figures
reflected in column 2 (after the implementation of the consolidation) and the
figures in column 4 (after the implementation of the consolidation, the merger
and the share and option issues).
9. Opinions and recommendation
Due to the conflict of interest, Mr Nachom, Mr Botoulas and Mr Levithan have
recused themselves from all negotiations relating to establishing the purchase
consideration and from expressing an opinion on the merger. In addition, the
votes of these directors and their associates will not be taken into account in
determining the results of voting on any resolution relating to the merger.
Mr Andre Louw, the independent non-executive chairman of Diamond Core, is of the
opinion that the merger is fair and reasonable to Diamond Core shareholders. Mr
Louw does not hold any shares in either Diamond Core or the Samadi group of
companies.
In terms of Section 10 of the JSE Listings Requirements, Venmyn Rand has been
appointed as the independent expert to provide an opinion to the board of
Diamond Core and the Diamond Core shareholders as to whether the terms of the
merger are fair and reasonable. Venmyn Rand is of the opinion that the terms of
the merger are fair and reasonable to Diamond Core shareholders. The full text
of this opinion will be included in the circular.
Subject to the approval of the JSE, Diamond Core has appointed EY Corporate
Finance (Pty) Limited to provide an independent professional opinion to the
board of Diamond Core and the shareholders, at the time that the relevant share
and option issues are implemented, as to whether such share and option issues
are fair and reasonable.
10. Documentation and related JSE matters
The circular, which is subject to the approval of the JSE and will contain full
details of the merger and the share and option issues, will be posted to
shareholders as soon as possible.
Application will be made to the JSE for:
- the listing of Diamond Core shares to be amended to reflect the par value
reduction and the consolidation; and
- a listing for the shares and options to be issued in respect of the merger
and the share and option issues.
The articles of association of Samadi SA will be amended to comply with Schedule
10 of the Listings Requirements of the JSE.
18 July 2005
Hyde Park
Corporate advisor and sponsor to Diamond Core
QuestCo (Pty) Limited
Competent person and independent expert for the merger
Venmyn Rand (Pty) Limited
Independent professional expert for the share and option issues
EY Corporate Finance (Pty) Limited
Auditors for Diamond Core and Samadi SA
Charles Orbach & Company
Legal advisor to Diamond Core
Werksmans
Corporate adviser to Samadi SA
River Group
Date: 18/07/2005 01:52:35 PM
Produced by the JSE SENS Department
