| Tue 28 Feb 2006, 7:00 | | African Rainbow Minerals Limited/ Xstrata Plc - Jo |
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ARI
ARIM
African Rainbow Minerals Limited/ Xstrata Plc - Joint
Announcement
JOINT ANNOUNCEMENT
(
African Rainbow Minerals Xstrata plc
Limited (Incorporated in Switzerland)
(Incorporated in the Republic (Registration number 4345939)
of South Africa) ZSE Share code: XTA.S
(Registration number LSE Share code: XTA.L
1933/004580/06) ("Xstrata")
JSE Share code: ARI LSE Share
code: AGM
ISIN: ZAE000054045
("ARM" or the "Company")
ARM AND XSTRATA ESTABLISH A NEW MAJOR SOUTH AFRICAN COAL
MINING COMPANY - DETAILED TERMS ANNOUNCEMENT
1. INTRODUCTION
ARM and Xstrata are pleased to announce that agreement has
been reached to establish a major black controlled coal
mining company ("ARM Coal"), in a transaction valued at
approximately R2.4 billion, which will have significant
operating assets and growth projects in South Africa and a
substantial participation in the export and domestic thermal
coal markets.
In terms of the agreement, ARM will pay R400 million and
Xstrata will pay R384 million to subscribe for 51% and 49%,
respectively, of the issued share capital of ARM Coal. ARM
Coal will hold a 20% equity based participation interest in
the existing coal operations of Xstrata South Africa
(Proprietary) Limited ("XSA") and a 51% interest in an
unincorporated joint venture to be established, in respect
of the Goedgevonden project (collectively, "the
transaction"). This will provide ARM Coal with an effective
interest in XSA"s coal business of approximately 29%.
To enhance ARM"s participation in the South African coal
industry, XSA has agreed to grant ARM an option to acquire a
direct equity based participation interest in XSA"s coal
business of 10%, which may result in Historically
Disadvantaged South African ("HDSA") control of 36% of XSA"s
coal business. The option is described in more detail in
paragraph 6 below.
ARM and Xstrata intend to strengthen their business
relationship further through the pursuit of opportunities in
a range of other commodities in Africa.
ARM is a niche-diversified South African mining company of
which 42.9% is owned by African Rainbow Minerals &
Exploration Investments (Proprietary) Limited ("ARMI").
Negotiations with numerous broad-based empowerment
beneficiaries are being finalised which will result in 56.9%
of ARM being controlled by HDSAs. ARM owns ferrous metals,
nickel and platinum operations and a significant interest in
gold through its holding in Harmony Gold Mining Company
Limited. Furthermore, ARM holds an African exploration
portfolio (copper, cobalt and gold) through a company it
controls and which is listed on the Toronto Stock Exchange,
TEAL Exploration and Mining Incorporated.
Xstrata is a major global diversified mining group, listed
on the London and Swiss stock exchanges with approximately
26,000 employees and contractors world-wide. Xstrata
maintains a meaningful position in six major international
commodity markets: copper, coking coal, thermal coal,
ferrochrome, vanadium and zinc, with additional exposures to
gold, lead and silver with operations and projects across
four continents and seven countries: Australia, South
Africa, Spain, Germany, Argentina, Peru and the UK. Xstrata
Coal is one of the world"s largest producers of export
thermal coal and a significant producer of coking coal.
XSA"s coal operations contribute around one third of
Xstrata"s total annual coal production. In South Africa, XSA
is the third largest exporter of thermal coal and produces
almost 20% of all thermal coal exported. Currently it has
interests in 13 mines, most of which are located within the
two major coalfields - Witbank and Ermelo, with consolidated
annual production capacity of in excess of 20 million tonnes
of thermal coal, the majority of which is exported.
2. RATIONALE FOR THE TRANSACTION
The formation of ARM Coal will result in the creation of a
significant coal participant in South Africa with a balanced
exposure to export and domestic sales, a majority interest
in the Goedgevonden project and access to capital to pursue
future growth opportunities.
The transaction enables ARM to further diversify its asset
portfolio with the addition of quality coal assets and to
establish a strategic relationship with an international
mining house and leading coal producer. As the controlling
shareholder of ARM Coal, ARM will be instrumental in the
formulation and execution of strategic goals inclusive of
the identification and pursuit of growth opportunities. ARM
will also contribute management expertise and assistance to
XSA"s coal operations in growing its business and achieving
its targets in respect of the Mining Charter.
Xstrata is fully supportive of the principles outlined in
the Mineral and Petroleum Resources Development Act and the
Mining Charter and is committed to the empowerment of HDSAs
through their participation in its South African operations.
The transaction achieves meaningful and sustainable
empowerment ownership and involvement in its South African
coal assets, and positions the parties to jointly pursue
future opportunities. Xstrata"s commitment is further
demonstrated through the provision of vendor financing on
preferential terms to ARM Coal and the provision of
management support as more fully described below.
3. DESCRIPTION OF ASSETS
XSA is South Africa"s third largest exporter of thermal
coal. In 2004, consolidated production of thermal coal was
19.2 million tonnes and, of the consolidated sales of 17.5
million tonnes, approximately 74% was exported with the
majority of such going to the Atlantic market. XSA manages
eleven operating mines and has interests in a further two
joint venture mines.
The Goedgevonden project, which includes the prospecting
rights in respect of the Zaaiwater West property, is
expected to produce approximately 3.2 million additional
tonnes for export and approximately 3.4 million tonnes per
annum of domestic thermal generation coal. The feasibility
study for the Goedgevonden project was completed in
September 2005.
ARM Coal will benefit from XSA"s entitlement to export coal
through the Richards Bay Coal Terminal ("RBCT"). ARM Coal
will apply on behalf of the Goedgevonden joint venture for
additional export capacity in the Phase V expansion of RBCT.
Xstrata Coal Marketing AG, a subsidiary of Xstrata, will
continue to market all export coal produced by both the
existing operations and the Goedgevonden joint venture.
4. STRUCTURE OF THE TRANSACTION
The final structure is depicted below: Please refer to the
announcement which has been posted on the Company"s website,
www.arm.co.za, or to the announcement which will be
published in the South African press on Thursday, 2 March
2006 for a diagrammatic representation of the structure.
ARM Coal will subscribe for participating preference shares
("Preference Shares") in the capital of XSA for a cash
consideration of R784 million, by applying the subscription
proceeds received from Xstrata and ARM for its ordinary
shares. The Preference Shares will entitle ARM Coal to
participate in 20% of the free cash flow of XSA"s existing
coal operations. Dividends received from the Preference
Shares will flow directly to ARM Coal"s shareholders.
For the purposes of this transaction, R4 billion of debt has
been attributed to XSA"s existing coal operations. This debt
will bear interest at the prime rate and will be repaid over
a ten year period following a five year vendor facilitation
period during which no interest will accrue and no principal
will be required to be repaid.
ARM Coal will furthermore acquire a 51% participation
interest in an unincorporated joint venture, the
Goedgevonden project, to be established with the objective
of developing and optimally exploiting the Goedgevonden coal
reserves. XSA will provide debt funding of R765 million to
ARM Coal in order to fund its acquisition of its 51%
interest in the Goedgevonden project. This debt will bear
interest at the prime rate and the repayment period will be
linked to the underlying cash flows of ARM Coal.
Furthermore, XSA will provide the project funding required
to bring the Goedgevonden project into commission. The
project funding is expected to peak at approximately R2.3
billion and will be repayable over ten years following an
eight year vendor facilitation period. During this eight
year period, no interest will accrue and no principal will
be required to be repaid in respect of XSA"s portion of the
project funding and ARM Coal will be entitled to share in
this benefit. The project funding will bear interest at the
prime rate.
In order for ARM to gain immediate access to cash flows, a
cash upstream principle will be applied for the first five
years following completion of the transaction, whereby 20%
of Goedgevonden"s operating cash flow will be distributed to
the joint venture parties according to their respective
interests. The remaining 80% of the operating cash flow
will be utilised towards the servicing of the project
funding debt. Furthermore, 80% of the operating cash flow
received from Goedgevonden by ARM Coal will be used to
service ARM Coal"s debt of R765 million and the remaining
20% will be distributed to the shareholders of ARM Coal.
5. MANAGEMENT OF ARM COAL AND ITS OPERATIONS
ARM will be involved in the management of the business at
three levels:
* At ARM Coal - ARM will appoint four out of the seven
directors of ARM Coal, in line with its controlling
interest in ARM Coal.
* At the existing operations - XSA"s existing coal
operations shall be governed by a supervisory committee,
consisting of four representatives appointed by XSA and
two representatives appointed by ARM through ARM Coal.
* The Goedgevonden project - The project will be managed
through a management committee, consisting of three
representatives appointed by XSA and four representatives
appointed by ARM Coal. XSA will manage the Goedgevonden
project on behalf of the joint venture on a cost recovery
basis.
6. EXCLUSIVITY AND OPTION TO INCREASE ARM"S INTEREST IN
XSA"S EXISTING COAL OPERATIONS
ARM and XSA undertake to offer all opportunities to
participate in any prospecting or mining for coal in South
Africa to ARM Coal.
XSA has granted ARM an option, at no cost, to acquire a
direct equity based participation in XSA"s coal business of
10%. The option period commences on the day after the
fulfillment of the conditions precedent and expires on 1
September 2006. The subscription price will be R400 million
and the new preference shares will carry the same rights and
obligations as the Preference Shares except that no
facilitation will be provided by XSA .
7. CONDITIONS PRECEDENT AND UNDERTAKINGS
The implementation of the transaction is subject to the
fulfillment of certain conditions precedent, including,
inter alia, obtaining the necessary regulatory approvals,
including that required in terms of the Exchange Control
Regulations of South Africa and the Competition Act.
Johannesburg
28 February 2006
Financial adviser and sponsor Investment Bank to Xstrata
to ARM
Deutsche Securities (SA) (Pty) Standard Bank
Ltd
Attorneys to ARM Attorneys to Xstrata
Bowman Gilfillan Werksmans Inc.
Date: 28/02/2006 07:00:31 AM Produced by the JSE SENS Department
