| Fri 28 Jul 2006, 16:06 | | JCI - Disposal by Letseng Investment Holdings and |
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JCD
JCD
JCI - Disposal by Letseng Investment Holdings and Further Cautionary
JCI LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 1894/000854/06)
Share code: JCD & ISIN: ZAE000039681 (Suspended)
("JCI")
DISPOSAL BY LETSENG INVESTMENT HOLDINGS (SOUTH AFRICA) (PROPRIETARY)
LIMITED, AN INDIRECT SUBSIDIARY OF JCI, OF ITS 76% EQUITY INTEREST IN
LETSENG DIAMONDS (PROPRIETARY) LIMITED AND FURTHER CAUTIONARY
ANNOUNCEMENT
1. Introduction
JCI shareholders are referred to the SENS announcement published
on 26 June 2006, in terms of which it was announced that Letseng
Investment Holdings (South Africa) (Proprietary) Limited
("Letseng") had entered into a binding legal agreement for the
disposal of its entire 76% equity interest in Letseng Diamonds
(Proprietary) Limited ("Letseng Diamonds") to Gem Diamond Mining
Company of Africa Limited ("Gem") for R879.5 million payable in
cash ("the proposed transaction").
2. The nature of the business of Letseng
Letseng is an investment holding company incorporated in the
Republic of South Africa, owned 50% by Matodzi Resources Limited
("Matodzi"), 40% by JCI and 10% by Letseng Diamonds Limited, a
company incorporated in Guernsey ("Letseng Guernsey"). Letseng
has as its sole operating asset a 76% equity interest in Letseng
Diamonds with the remaining 24% of the shares being owned by the
Government of the Kingdom of Lesotho ("the Lesotho Government").
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-Terae region of the mountains 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.
Letseng, 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.
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 & Sons.
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 transaction
The JCI board of directors believes the proposed transaction
presents JCI with an opportunity to realise substantial value for
JCI"s interest in Letseng.
5. Effective date of the 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 8 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 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
ninety days from the effective date.
7. Unaudited pro-forma financial effects
The table below sets out the unaudited pro forma financial effects
on JCI based on the assumptions set out below. The unaudited pro
forma financial effects have been prepared by the board of JCI for
illustrative purposes only, in order to provide information about
how the proposed transaction may have affected the results,
changes in equity and financial position of JCI, had the
transaction been implemented on 1 April 2005 for income statement
purposes and 30 September 2005 for balance sheet purposes. Due to
their nature the unaudited pro forma financial effects may not
give a true reflection of the results, changes in equity and
financial position of JCI after the proposed transaction. The
directors of JCI are responsible for the unaudited pro forma
financial effects.
Before the After the Percentage
proposed proposed increase
transaction transaction (%)
(cents per (cents per
share) share)
Loss per share ("LPS") -7.74 (1) -3.88 (3) 49.92
Headline loss per share -5.90 (1) 6.64 (4) 212.47
("HLPS")
Net asset value per share -15.12 (2) -11.92 (5) 21.16
("NAV")
Tangible net asset value per -15.12 (2) -11.92 (5) 21.16
share ("TNAV")
Number of ordinary shares in 2 106 476 728 2 106 476 728 0.00
issue6
Weighted average number of 2 063 635 198 2 063 635 198 0.00
ordinary shares in issue7
Notes
1. The LPS and HLPS reflected in the "Before the proposed
transaction" column have been extracted from the income
statement included in the JCI unaudited and unreviewed results
for the six months ended 30 September 2005, as published on
SENS on Tuesday, 7 April 2006 and in the press on Wednesday, 8
April 2006, adjusted for the 112 000 000 treasury shares held
by the share incentive trust and subsidiary companies,
resulting in a difference between the LPS and HLPS disclosed
above and in the unaudited and unreviewed results for the six
months ended 30 September 2005.
2. The NAV and TNAV reflected in the "Before the proposed
transaction" column have been extracted from the balance sheet
included in the JCI unaudited and unreviewed results for the
six months ended 30 September 2005, as published on SENS on
Tuesday, 7 April 2006 and in the press on Wednesday, 8 April
2006. The NAV per share and TNAV per share have been
calculated based on 2 106 476 728 ordinary shares in issue.
3. The LPS as set out in the "After the proposed transaction"
column has been adjusted as follows:
3.1 to include JCI"s share of Letseng"s profit on the
disposal of Letseng Diamonds of R298.2 million;
3.2 to exclude the equity accounted income relating to
Letseng for the six months ended 30 September 2006 of
R13.7 million;
3.3 to include the impairment of JCI"s investment in
Letseng of R171.4 million (the impairment calculated for
income statement purposes is based on the opening
balance of the investment in associate as at 1 April
2005);
3.4 to include the estimated transaction costs of R8.3
million;
3.5 to include Investec"s profit share of R38.0 million
in terms of the loan agreement; and
3.6 to exclude R13 million of interest paid in respect
of interest-bearing liabilities as JCI will utilise the
cash received net of transaction costs to settle a
portion of the interest-bearing liabilities.
4. The HLPS as set out in the "After the proposed transaction"
column has been adjusted as for the LPS except that the
following items have been excluded:
4.1 the impairment of JCI"s investment in Letseng
of
R171.4 million; and
4.2 the estimated transaction costs.
5. NAV per share and tangible NAV per share has been adjusted as
follows:
5.1 to include the dividend to be received by JCI from
Letseng of R294.1 million (40% of the net proceeds on
the proposed transaction distributed by Letseng to its
shareholders after repayment of loans owing to
Consolidated Mining Management Services Limited and
Matodzi and payment of secondary taxation on companies),
less the estimated transaction costs of R8.3 million,
which will be used to settle a portion of the interest-
bearing liabilities;
5.2 to include the provision for payment of the
Investec profit share of R38.0 million;
5.3 to include JCI"s share of the profit on disposal of
Letseng Diamonds of R298.2 million, the dividend
received from Letseng of R294.1 million and the
impairment of JCI"s investment in Letseng of R184.4
million (the impairment calculated for balance sheet
purposes is based on the closing balance of the
investment in associate as at 30 September 2005).
6. The number of ordinary shares in issue reflected in the
"Before the proposed transaction" column has been extracted
from the JCI unaudited and unreviewed results for the six
months ended 30 September 2005, as published on SENS on
Tuesday, 7 April 2006 and in the press on Wednesday, 8 April
2006, less 112 000 000 treasury shares held by the share
incentive trust and subsidiary companies.
7. The weighted average number of ordinary shares in issue
reflected in the "Before the proposed transaction" column has
been extracted from the JCI unaudited and unreviewed results
for the six months ended 30 September 2005, as published on
SENS on Tuesday, 7 April 2006 and in the press on Wednesday, 8
April 2006, less 112 000 000 treasury shares held by the share
incentive trust and subsidiary companies.
8. Conditions precedent
The proposed transaction is subject to the fulfilment of the
following conditions precedent:
8.1 the approval of the JSE Limited ("JSE") and the Securities
Regulation Panel; and
8.2 the approval of the shareholders of Matodzi and JCI in
general meetings.
Written approval by 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.
9. Undertakings
As at the date of this announcement, shareholders representing 53%
of JCI"s shares have indicated their support for the proposed
transaction.
10. Liquidation application
JCI is opposing a liquidation application brought by Trinity
Holdings (Proprietary) Limited in the Witwatersrand Local Division
of the High Court. Notwithstanding the financial effects disclosed
above, JCI shareholders are referred to the Introduction paragraph
of the unaudited and unreviewed results for the six months ended
30 September 2005, as published on SENS on Tuesday, 7 April 2006
and in the press on Wednesday, 8 April 2006, wherein on a
consolidated basis the estimated NAV position of JCI as at 31
March 2006 was R810.2 million or 36 cents per JCI share.
11. Board recommendation
The JCI board has considered the terms and conditions of the
proposed transaction and unanimously recommends that JCI
shareholders vote in favour of the proposed transaction at the JCI
general meeting to be convened for the purposes of considering
and, if deemed fit, approving the proposed transaction.
12. Further announcements and documentation
The proposed transaction is classified as a Category 1 transaction
in terms of the Listings Requirements of JSE and accordingly, JCI
is required to obtain shareholder approval in a general meeting of
JCI shareholders.
An announcement containing the salient dates and times relating to
the proposed transaction will be released on SENS and published in
the press and a circular, incorporating the full terms and
conditions of the proposed transaction is expected to be posted to
JCI shareholders in due course.
13. Further cautionary announcement
Given that the JCI audit, forensic audit and mediation processes
previously announced are still underway and not expected to be
completed in the near future, shareholders are advised to continue
exercising caution in trading their shares (over the counter)
until such time the company is able to give conclusive results
from the aforementioned investigations.
28 July 2006
Sandton
Advisor
Investec Corporate Finance
Sponsor
Sasfin Capital
(a division of Sasfin Bank Limited)
Attorneys
Tabacks
Competent person
Venmyn Rand
Independent reporting accountants
Moores Rowland
Date: 28/07/2006 04:06:42 PM Produced by the JSE SENS Department
