| Fri 28 Jul 2006, 16:08 | | Matodzi - The Proposed Disposal By Letseng Investm |
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MTZ
MTZ
Matodzi - The Proposed Disposal By Letseng Investment Holdings
(South Africa)
Matodzi Resources Limited
(Incorporated in the Republic of South Africa)
(Registration number 1933/004523/06)
Share code: MTZ & ISIN: ZAE000042412
("Matodzi")
THE PROPOSED DISPOSAL BY LETSENG INVESTMENT HOLDINGS (SOUTH AFRICA)
(PROPRIETARY) LIMITED OF ITS 76% EQUITY INTEREST IN LETSENG DIAMONDS
(PROPRIETARY) LIMITED TO GEM DIAMOND MINING COMPANY OF AFRICA LIMITED AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Matodzi shareholders are referred to the announcement released by Matodzi
on the Securities Exchange News Service ("SENS") of the JSE Limited ("the
JSE") and published in the press on Tuesday, 27 June 2006, in terms of
which it was announced that Matodzi, through its 50%-owned subsidiary
company, Letseng Investment Holdings (South Africa) (Proprietary) Limited
("Letseng Holdings"), had entered into a binding legal agreement ("the
sale and purchase agreement") with Gem Diamond Mining Company of Africa
Limited ("Gem") for the acquisition by Gem of Letseng Holdings" entire
76% equity interest in Letseng Diamonds (Proprietary) Limited ("Letseng
Diamonds") for a purchase consideration of R879.5 million, payable in
cash ("the proposed transaction").
Tlotlisa Corporate Finance (Proprietary) Limited ("T-Corp") is authorised
to announce further details relating to the proposed transaction, which
is subject to the fulfilment of certain conditions precedent which are
set out in paragraph 7 below.
2. NATURE OF BUSINESS AND BACKGROUND TO LETSENG DIAMONDS
Letseng Holdings is an investment holding company incorporated in South
Africa, owned 50% by Matodzi, 40% by JCI Limited ("JCI") and 10% by
Letseng Diamonds Limited, a company incorporated in Guernsey ("Letseng
Guernsey"). Letseng Holdings, in turn, has a 76% equity interest in
Letseng Diamonds ("the Letseng interest"), which comprises its sole
operating asset, with the remaining 24% interest in Letseng Diamonds
owned by the Government of the Kingdom of Lesotho ("the Lesotho
Government").
The organisational structure of Letseng Diamonds is set out in the
diagram below:
See press release for diagram.
Letseng Holdings, Gem and the Lesotho Government have agreed that, post
implementation of the proposed transaction, Gem will dispose of 6% of the
issued share capital of Letseng Diamonds to the Lesotho Government ("the
Lesotho Government disposal"), thereby increasing the equity interest of
the Lesotho Government in Letseng Diamonds from 24% to 30%.
The Lesotho Government disposal will be implemented as follows:
* Gem will transfer 3% of the issued share capital of Letseng Diamonds to
the Lesotho Government at zero purchase consideration; and
* Gem will sell a further 3% of the issued share capital of Letseng
Diamonds to the Lesotho Government for a purchase consideration of R37.5
million. This amount will be loaned to the Lesotho Government by Gem on
an interest free basis, and will be repaid by the Lesotho Government to
Gem out of dividends received by the Lesotho Government from Letseng
Diamonds.
Letseng Diamonds is a Lesotho registered company and the holder of the
mining lease and operational assets of the Letseng Diamond Mine located
in the Letseng-la-Terai region of Lesotho ("the Letseng Mine"). The
Letseng Mine consists of two kimberlite pipes and a stockpile of
previously mined lower grade diamondiferous ores.
The Letseng Mine has a proven track record of producing large, high
quality diamonds, with historic records showing that 15% of diamonds
recovered weigh more than 10 carats and 1.5% of diamonds recovered weigh
over 100 carats. A large percentage of production from the Letseng Mine
is graded as D-flawless, and 90% of the diamonds produced are gem quality
and are sold on private auction to the jewellery market.
3. BACKGROUND TO GEM
Gem is registered in the British Virgin Islands and was incorporated in
July 2005, with the objective of developing into an international diamond
mining company with producing assets and a focus on diamond production
from Africa. Gem has a recognised and leading management and technical
team with combined experience of over 150 years in the diamond mining
industry, led by Clifford Elphick, former Managing Director of E
Oppenheimer & Son (Proprietary) Limited.
Gem is currently involved in a number of other diamond projects in the
Central African Republic and the Democratic Republic of Congo, which are
in the exploration and evaluation phase, with the first diamonds from
production expected in the first half of 2007.
4. RATIONALE FOR THE PROPOSED TRANSACTION
Upon implementation of the proposed transaction, the board of directors
of Matodzi ("the Matodzi board") intends applying the net proceeds to be
received by Matodzi to settle Matodzi"s long-term debt and thereafter to
distribute a portion of the remaining proceeds as a dividend to Matodzi"s
shareholders ("the proposed distribution") and to utilise the balance to
exploit the mineral rights Matodzi currently holds.
The Matodzi board believes that the proposed transaction presents
Matodzi"s shareholders with the opportunity to realise substantial value
for their interest in Matodzi.
Post-implementation of the proposed transaction, Matodzi plans to exploit
the mineral rights it currently holds, as well as to partner with Black
Economic Empowerment recipients of new order prospecting rights as a
joint funder of exploration programmes, thereby affording
Matodzi"s shareholders the opportunity to participate in Matodzi"s
minerals projects going forward.
5. EFFECTIVE DATE OF THE PROPOSED TRANSACTION
The effective date of the proposed transaction is 1 July 2006 ("the
effective date").
6. PURCHASE CONSIDERATION
The purchase consideration payable by Gem for the Letseng interest is
R879.5 million, payable in cash, and will attract interest at a rate of
6.75% per annum with effect from the effective date to the date of
payment thereof, being the first business day after the fulfilment of the
last of the conditions precedent, as set out in paragraph 7 below.
In addition, an amount equal to the distributable profit of Letseng
Diamonds for the three-month period ended 30 June 2006 will be
distributed by Letseng Diamonds to its shareholders, being Letseng
Holdings and the Lesotho Government, provided that R30 million in cash,
consumables and diamond stocks will remain in Letseng Diamonds to fund
its short-term working capital requirements. The quantum of such
distribution will be determined by the auditors of Letseng Diamonds
within a period of 90 days from the effective date.
7. CONDITIONS PRECEDENT
The proposed transaction is subject to the fulfilment of the following
conditions precedent:
* the approvals of the JSE and the Securities Regulation Panel ("the
SRP"); and
* the approvals of the shareholders of Matodzi and JCI in general
meetings.
Written approval of the Lesotho Government, which was a condition
precedent to the proposed transaction in terms of the sale and purchase
agreement, was obtained on Thursday, 13 July 2006.
8. FINANCIAL EFFECTS OF THE PROPOSED TRANSACTION
The table below sets out the pro forma financial effects of the proposed
transaction on the earnings, headline earnings, net asset value ("NAV")
and tangible NAV per Matodzi ordinary share. The unaudited pro forma
financial effects, for which the Matodzi board is responsible, are
presented for illustrative purposes only and because of their nature may
not give a fair reflection of Matodzi"s financial position and results of
operations post-implementation of the proposed transaction.
Before the After the
Per Matodzi proposed proposed
ordinary share transaction transaction(3) Change
(cents) (cents) (%)
Earnings 86.6(1) 310.7(4) 259
Headline loss (33.4(1) (87.5(5) 162
Diluted earnings 35.3(1) 126.5(4) 259
NAV 16.9(2) 89.2(6) 426
Tangible NAV 16.9(2) 89.2(6) 426
Ordinary shares
in issue
at 31 March 2006 370 547 286 370 547 286
Weighted average
ordinary shares
in issue for the year 150 887 597 150 887 597
Notes:
The following assumptions have been made for purposes of calculating the
pro forma financial effects of the proposed transaction:
1. The earnings per share, headline earnings per share and diluted
earnings per share reflected in the "Before the proposed transaction"
column have been extracted from the income statement included in the
Matodzi reviewed provisional results for the year ended 31 March 2006, as
released on SENS on Monday, 3 July 2006 and published in the press on
Tuesday, 4 July 2006.
2. The NAV per share and tangible NAV per share reflected in the "Before
the proposed transaction" column have been extracted from the balance
sheet included in the Matodzi reviewed provisional results for the year
ended 31 March 2006, as released on SENS on Monday, 3 July 2006 and
published in the press on Tuesday, 4 July 2006.
3. The "After the proposed transaction" column assumes that the proposed
transaction was implemented on 1 April 2005 for income statement purposes
and on 31 March 2006 for balance sheet purposes.
4. Earnings per share and diluted earnings per share have been calculated
based on after-tax earnings for Matodzi of R468.8 million, taking into
account 50% of the profit realised by Letseng Holdings on the disposal of
the Letseng interest, less Secondary Tax on Companies ("STC") payable by
Letseng Holdings on the distribution to its shareholders of the net
purchase consideration after repayment of loans owing to Consolidated
Mining Management Services Limited ("CMMS") and Matodzi, and payment of
transaction costs by Matodzi, in lieu of the consolidated after-tax
earnings of Letseng Diamonds for the year ended 31 March 2006. No Capital
Gains Tax has been provided for as the proposed transaction constitutes
the disposal of an interest in a foreign company in terms of Section 64B
of Schedule 8 of the Income Tax Act, 1962.
5. Headline loss per share has been calculated based on a headline loss
for Matodzi of R132.0 million, being earnings of R468.8 million less
profit on the restructuring of Matodzi"s preference shares and Matodzi"s
share of the profit on the proposed transaction.
6. NAV per share and tangible NAV per share take into account cash
received by Matodzi from Letseng Holdings of R367.6 million, less
transaction costs and the settlement of all loans between Matodzi and
Letseng Holdings. Cash received by Matodzi of R367.6 million is 50% of
the net proceeds on the proposed transaction distributed by Letseng
Holdings to its shareholders after repayment of loans owing to CMMS and
Matodzi and payment of STC. Post-distribution of the net proceeds,
Matodzi and JCI will settle loans owing to Letseng Holdings and Letseng
Holdings will utilise these proceeds, together with cash on hand, to
settle the loan owing to Investec Bank Limited.
9. JSE AND SRP REQUIREMENTS AND CIRCULAR TO MATODZI SHAREHOLDERS
The proposed transaction is classified as a Category 1 transaction in
terms of the JSE Listings Requirements and, accordingly, Matodzi is
required to obtain shareholder approval for the proposed transaction in a
general meeting of Matodzi shareholders ("the Matodzi general meeting").
In terms of the JSE Listings Requirements, an independent technical
valuation will be performed on Letseng Diamonds by a Competent Person and
the Competent Persons" Report ("CPR") will be included in the circular to
be sent to Matodzi shareholders in due course.
The proposed transaction further constitutes a disposal in terms of
section 228 of the Companies Act, Act 61 of 1973, as amended, and an
affected transaction in terms of the Securities Regulation Code on Take-
overs and Mergers ("the Code") of the SRP and requires an independent
opinion thereon by an appropriate external advisor in terms of Rule 3.1
of the Code. Accordingly, Venmyn Rand (Proprietary) Limited has been
appointed as the independent professional expert ("the independent
expert") to determine that the terms and conditions of the proposed
transaction are fair and reasonable to Matodzi minority shareholders.
The salient dates and times relating to the proposed transaction will be
released on SENS and published in the press in due course, and a circular
incorporating the full terms and conditions of the proposed transaction,
details of the proposed distribution, the CPR, the independent fair and
reasonable opinion and the notice of general meeting will be posted to
Matodzi shareholders in due course.
10. UNDERTAKINGS
At the date of this announcement, shareholders representing approximately
82% of Matodzi"s shares have indicated their support for the proposed
transaction.
11. BOARD RECOMMENDATION
The Matodzi board, excluding Mr P H Gray who recused himself due to any
perceived conflict of interest, has considered the terms and conditions
of the proposed transaction and unanimously recommends that Matodzi
shareholders vote in favour of the proposed transaction at the Matodzi
general meeting to be convened for the purposes of considering and, if
deemed fit, approving the proposed transaction. All the directors of
Matodzi who own shares in Matodzi intend to vote in favour of the
proposed transaction at the Matodzi general meeting.
12. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Having regard to the details provided in this announcement, Matodzi
shareholders are no longer required to exercise caution when dealing in
their Matodzi shares.
Sandton
28 July 2006
Corporate advisor
t-corp
Sponsor
Sasfin Capital
Corporate law advisor to Matodzi
EDWARD NATHAN (Proprietary) Limited
Registration No. 2004/005665/07
Independent reporting accountants
KPMG
Moores Rowland
Chartered Accountants (L)
Independent expert and Competent Person
VENMYN
Corporate law advisor to Letseng Holdings
TABACKS
Date: 28/07/2006 04:08:19 PM Produced by the JSE SENS Department
