| Tue 28 Feb 2006, 7:54 | | Scharrig Mining Limited - Proposed Acquisition And |
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Scharrig Mining Limited - Proposed Acquisition And Withdrawal Of Cautionary
SCHARRIG MINING LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1992/001973/06)
("Schamin" or "the Company")
Share code: SCN ISIN: ZAE000006474
PROPOSED ACQUISITION AND WITHDRAWAL OF CAUTIONARY:
* ACQUISITION BY SCHAMIN OF SPECIFIC ASSETS AND LIABILITIES OF GEOSEARCH
INTERNATIONAL LIMITED (GEOSEARCH INTERNATIONAL") AND THE ASSETS AND
LIABILITIES OF TRANSBOR (PROPRIETARY ) LIMITED ("TRANSBOR") (COLLECTIVELY
"GEOSEARCH") ("THE ACQUISITION")
* THE SPECIFIC ISSUE OF SHARES FOR CASH
* THE RECONSTITUTION OF THE BOARD OF DIRECTORS; AND
* AN INCREASE IN THE AUTHORISED SHARE CAPITAL OF THE COMPANY
1. INTRODUCTION
Further to the cautionary announcement dated 1 February 2006, LPC Manhattan
Moela is authorised to announce that agreements have been concluded for the
acquisition by Schamin of specific assets and liabilities of Geosearch, with
effect from 1 May 2006 for Transbor and 1 May 2005 for Geosearch
International.
2. HISTORY AND NATURE OF BUSINESS OF GEOSEARCH
Geosearch International and Transbor are sister companies and operate mainly
as drilling contractors to the exploration and mining industry in South
Africa, Mozambique, Tanzania, Botswana and the Democratic Republic of Congo.
Geosearch accounts for approximately 20% of the hard rock core drilling in
South Africa, primarily in the platinum mining industry and owns 77 drill
rigs and employs 460 people. 34 of the rigs are deployed in South Africa.
3. RATIONALE FOR THE ACQUISITIONS
Historically, Schamin has been involved in opencast mining and stands to
benefit significantly from the acquisition of Geosearch due to the following
factors:
* Geosearch has a solid reputation and its management team is recognised as
leaders in the hard rock core drilling field. Geosearch"s clients include,
amongst others, Anglo Platinum, Lonplats, Moto Goldmines, CVRD and AngloGold
Ashanti;
* Geosearch is expected to continue to benefit from the buoyant resources
market and the drive to find new mineral deposits throughout Africa
supported in South Africa by the "use it or loose it" principle as defined
in the Mining Charter, all leading to an increase in demand for exploration
drilling - these conditions are expected to continue for years to come.
* Schamin is expected to benefit from the diversification of its earnings
beyond South Africa and contract mining, and from the fact that Geosearch
International"s earnings are primarily US Dollar denominated.
The acquisition fits in well with Schamin"s vision of becoming a significant
Pan-African mining services company.
4. TERMS OF THE ACQUISITION
4.1 Structure of the transaction
Schamin will acquire the assets and trade liabilities from Geosearch
International and Transbor through special purpose vehicles, Holdco 1 and
Holdco 2 respectively. Holdco 1 and Holdco 2 will be 80% owned by Schamin
and 20% by the senior management of Geosearch.
The consideration will be paid in three instalments linked to the future
performance of Geosearch as disclosed below. In order to secure the
acquisition, Schamin was required to make an initial payment of US$11.5
million to Geosearch International on 10 February 2006 and has entered into
an underwriting agreement with a financial institution for such purposes.
4.2 Consideration to be paid - Geosearch International
First instalment:
The first instalment of US$14.375 million has been made by paying Geosearch
International US$11.5 million and crediting a vendor loan account in Holdco
1 with US$2.875 million.
Second instalment:
Within 15 (fifteen) days of producing audited annual financial statements
for the year ended 30 April 2006 (expected in June 2006), the second
instalment will be calculated as follows:
* Profit after tax x 4.25 x 75% less US$14.375 million
Third instalment:
Within 15 (fifteen) days of producing audited annual financial statements
for the year ended 30 April 2007 (expected in June 2007), the third
instalment will be calculated as follows:
* Profit after tax x 4.25 less first and second instalments
The total payments will be capped at US$40.375 million.
Payments will be settled by paying Geosearch International 80% of the amount
due and crediting the vendor loan account in Holdco 1 with the remaining
20%.
The vendor loan account must be repaid by 1 May 2008, to the extent that it
is not pro-rata to the vendor"s shareholding in Holdco 1.
Geosearch International"s cash flows and borrowings can be used to settle
the amounts due to the vendor of the Geosearch International business.
4.3 Consideration to be paid - Transbor
First instalment:
On closing date, being the first day of the calendar month following the
month in which the last of the conditions will have been fulfilled, Schamin
will deposit R24 million into Holdco 2, which will be paid to the vendor of
the Transbor business. The vendor loan account will in addition be credited
with an amount of R16 million.
Second instalment:
After determining the audited earnings before interest and tax ("EBIT") for
the year ended 30 April 2006, the second instalment will be calculated as
follows:
* 2006 EBIT x 3.5 x 75% less R40 million
Third instalment:
After determining the audited EBIT for the year ended 30 April 2007, the
third instalment will be calculated as follows:
* 2007 EBIT x 3.5 less R40 million less the second instalment
The total payments to the vendor of Transbor will be capped at R134 million.
Payments will be settled by paying Transbor 80% of the amount due and
crediting the vendor loan account in Holdco 2 with the remaining 20%.
The vendor loan account must be repaid by 1 May 2008, to the extent that it
is not pro-rata to the vendor"s shareholding in Holdco 2.
Transbor"s cash flows and borrowings can be used to settle the amounts due
to the vendor of the Transbor business.
4.4 Retention of key management
Key Geosearch operational management have entered into agreements with
Schamin whereby they are incentivised to remain committed to the Company to
at least April 2009.
5. FINANCIAL EFFECTS OF THE TRANSACTION
The tables below set out the pro forma financial effects of the acquisition,
for illustrative purposes only, based on Schamin"s interim financial results
for the six months ended 30 September 2005:
Before After Percentag
acquisiti acquisiti e change
on on (%)
Earnings per share 31.0 39.0 25.8
(cents)
Headline earnings per 31.0 39.0 25.8
shares (cents)
Net asset value per 212.4 212.4 0
share (cents)
Net tangible asset 212.4 153.6 (27.7)
value per share
(cents)
Notes:
1. The information in the "before" column has been extracted from the
interim financial information of Schamin as at 30 September 2005.
2. The financial effects assume Geosearch International and Transbor"s six
months unaudited results for the period ended 31 October 2005, as per the
company"s management accounts.
3. The effect on earnings per share ("EPS") and headline earnings per share
("HEPS") has been calculated on the assumption that the acquisition was
effective for six months with effect from 1 April 2005, and is based on the
unaudited results to the six months ended 30 September 2005. The purchase
consideration has been calculated as R65,5 million for Transbor and R118,6
million for Geosearch International.
* The effect on net asset value per share ("NAV") has been calculated on the
assumption that the acquisition was effective on 30 September 2005.
5. Net tangible asset value ("NTAV") after the acquisition is based on the
gross purchase consideration for Geosearch International and Transbor and
their net tangible asset value at 31 October 2005.
6. The exchange rate has been calculated at the rate of R6.10 to US$1.
7. The financial effects assume a 7.1% after taxation interest effect and
transaction costs of R1 million.
8. The total amount paid in excess of the NTAV of Transbor and Geosearch,
being R80,8 million, has been accounted for as goodwill.
6. SUSPENSIVE CONDITIONS
The acquisition is subject to shareholder approval in general meeting,
Competition Commission approval, and South African Reserve Bank approval.
7. RELATED PARTY TRANSACTION
The JSE Limited ("JSE") has ruled that the transaction is a related party
transaction as a division within the Coronation Group ("Coronation"), which
is a shareholder in Schamin, underwrote the initial payment due in terms of
the transaction (referred to in para. 3.1 above). In this regard an
independent expert will be appointed by Schamin, to advise shareholders as
to whether the terms and conditions of the transaction are fair and
reasonable to shareholders. Their opinion will be contained in the circular
to shareholders to be posted in due course. In addition, Coronation will be
precluded from voting their shares at the general meeting.
8. RECONSTITUTION OF THE BOARD OF DIRECTORS OF SCHAMIN
It is proposed that, upon fulfilment of the suspensive conditions, Sam Jonah
will be appointed Non-Executive Chairman of Schamin. Dines Gihwala, the
current Non-Executive Chairman, will then be appointed Non-Executive Deputy
Chairman of Schamin.
9. SPECIFIC ISSUE OF SHARES FOR CASH
Schamin has entered into an agreement with The Sankofa Trust ("Sankofa"),
represented by Sam Jonah, in terms of which Sankofa will subscribe for 15
000 000 ordinary Schamin shares of 1 cent each at an issue price of 525
cents per share, which represents a 12% discount to the 30 day volume
weighted average trading price of a Schamin share as at 1 February 2006, the
date of the publication of the cautionary announcement. At the time of
initial discussion between Schamin and Sankofa regarding the specific issue
of shares for cash, Schamin shares were trading at 525 cents.
Sankofa is currently a shareholder in Schamin, and therefore the specific
issue of shares for cash is regarded as a related party transaction in terms
of section 5.51(f) of the Listings Requirements of the JSE. Accordingly,
the specific issue of shares to Sankofa requires the approval of 75% of
Schamin shareholders present and voting in general meeting. Sankofa, both
directly and indirectly, holds 18 238 440 Schamin shares through the Sankofa
Trust, representing 13.3% of the issued share capital of the company.
The financial effects of the specific issue are reflected below.
Before the After the
specific specific
issue issue
Unaudited Unaudited Percentage
for the six for the six change (%)
months months
ended 30 ended 30
September September
2005 2005
Earnings per share 31.0 29.7 (4.4)
(cents)
Headline earnings per 31.0 29.7 (4.4)
share (cents)
Net asset value per 212.4 243.1 14.5
share (cents)
Net tangible asst 212.4 243.1 14.5
value per share
(cents)
Notes:
1. The figures set out in the "before" column above have been extracted from
the unaudited financial statements of Schamin for the six month period ended
30 September 2005.
2. The specific issue for cash was implemented on 1 April 2005 for earnings
and headline earnings per share and on 30 September 2005 for net asset value
and net tangible asset value per share purposes.
3. The proceeds of the specific issue for cash were utilised to repay
borrowings. Borrowings incurred interest at an average rate of 10% per
annum before taxation.
4. The headline earnings and earnings per share calculations are based on
the weighted average number of shares in issue.
5. The net asset value and tangible net asset value per share calculations
are based on the actual number of shares in issue.
10. APPOINTMENT OF THE INDEPENDENT EXPERT
An independent expert will be appointed by Schamin, subject to JSE approval,
to advise shareholders as to whether the proposed specific issue of shares
for cash is fair and reasonable to shareholders. Their opinion will be
contained in the circular to shareholders to be posted in due course.
11. INCREASE IN AUTHORISED SHARE CAPITAL
In order to enable the Company to acquire new assets or raise additional
capital in the future, it is proposed that the current authorised share
capital be increased from 160 000 000 ordinary shares of 1 cent each, to 260
000 000 ordinary shares of 1 cent each, by the creation of 100 000 000 new
ordinary shares of 1 cent each which will rank pari passu in all respects
with the existing ordinary shares in the equity share capital of the
company.
12. CIRCULAR TO SHAREHOLDERS
A circular to shareholders incorporating a notice of general meeting is
being prepared and will, subject to JSE approval, be posted to Schamin
shareholders in due course.
13. WITHDRAWAL OF CAUTIONARY
Shareholders are referred to the cautionary announcement date 1 February
2006 and are advised that as a result of this announcement, the cautionary
is now withdrawn. A salient dates announcement will be published in due
course.
Shareholders and other interested parties are invited to attend a
presentation at 14:30 on Tuesday 28 February 2006, to be held in Boardroom
1, Level 2, Sandton Convention Centre, Maude Street, Sandown.
BOKSBURG
27 February 2006
Sponsor
LPC Manhattan Moela
Reporting Accountants
PKF (Jhb) Inc.
PricewaterhouseCoopers
Attorneys
Tabacks Inc
HR Levin
Date: 28/02/2006 07:54:26 AM Produced by the JSE SENS Department
