| Thu 7 Dec 2006, 7:00 | | Mvela Resources - Proposed investment by Afripalm |
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MVL
MVL
Mvela Resources - Proposed investment by Afripalm and withdrawal of cautionary
Mvelaphanda Resources Limited
Reg. No. 1980/001395/06
Share Code: MVL
ISIN NUMBER: ZAE000050266
("Mvela Resources" or the "Company")
AFRIPALM RESOURCES (PROPRIETARY) LIMITED
REG No. 2006/011933/07
("Afripalm")
PROPOSED INVESTMENT BY AFRIPALM IN MVELA RESOURCES AND THE DESIGNATION OF MVELA
RESOURCES AS THE CORPORATE VEHICLE FOR THE DEVELOPMENT AND FUNDING OF
OPPORTUNITIES IN THE MINERAL RESOURCES SECTOR ACQUIRED BY AFRIPALM AND:
- withdrawal of cautionary announcement.
1. INTRODUCTION
Shareholders of Mvela Resources are referred to the cautionary announcements,
the last of which was published on 5 October 2006, in terms of which
shareholders were advised that the Company is engaged in negotiations that may
have a material effect on the price of the Company"s shares.
In this regard, Mr Lazarus Zim ("Mr Zim") has formed a broad-based empowerment
consortium under the mantle of Afripalm, to acquire empowerment and other
opportunities in the mineral resources sector, both locally and internationally
("Mineral Opportunities").
As detailed below, Mvela Resources and Afripalm have agreed, subject to the
fulfilment of the conditions precedent set out in paragraph 8, that Afripalm
(through a wholly-owned subsidiary) will subscribe in cash, underwritten by
Nedbank Capital and Blackstar, for Ordinary Shares and "A" Ordinary Shares in
Mvela Resources. Afripalm and Mr Zim will be obliged to offer all Mineral
Opportunities offered to or acquired by them to Mvela Resources. The Mineral
Opportunities, if accepted, will be developed and funded by Mvela Resources.
Simultaneously, Mvela Resources will grant an option to Afripalm (through
another wholly-owned subsidiary) to subscribe, in cash, for up to 10 million
Ordinary Shares in Mvela Resources (the "Option"). The Option will be used by
Afripalm to further the participation of historically disadvantaged South
African ("HDSA") women in Mvela Resources (collectively the "Afripalm
Transaction").
On implementation of the Afripalm Transaction, and taking into account the
shareholding of Mvelaphanda Holdings (Proprietary) Limited ("Mvela Holdings")
(the other Empowerment Shareholder), which, due to the Afripalm Transaction,
will be diluted to approximately 19.6%, Mvela Resources will be a 50.5% black
controlled company in the mineral resources sector. Mr Zim and two other
nominees of Afripalm will be appointed as directors of Mvela Resources and Mr
Zim will assume the Mvela Resources Chairmanship from Mr Tokyo Sexwale. The
board of Mvela Resources is of the opinion that the Afripalm Transaction will
transform Mvela Resources and will generate new opportunities with potential to
create significant value for shareholders.
2. TERMS OF THE PROPOSED AFRIPALM SHARE SUBSCRIPTION
Afripalm will subscribe in cash for:
* Ordinary shares
40 million new Ordinary Shares at a price of R29.20 per share being the 30
day volume weighted average price ("VWAP") of shares in Mvela Resources, on
5 December 2006, less a 15% discount.
* "A" Ordinary Shares
35 million "A" Ordinary Shares at their par value of 2 cents (two cents)
each.
The subscription will raise net R1.15 billion in additional cash resources for
Mvela Resources.
The "A" Ordinary Shares will rank pari passu with the ordinary shares as regards
voting rights, but holders thereof will not be entitled to dividends or other
distributions made to ordinary shareholders (including but not limited to
capital growth and capital distributions). The "A" Ordinary Shares will not be
listed on the JSE Limited ("JSE"). As a result Afripalm will have an economic
interest of approximately 19.3% and an initial voting interest of approximately
31% in Mvela Resources. The issue will dilute the economic interest of Mvela
Holdings from 28.36% to approximately 22.9% and the voting interest to
approximately 19.6%. On a combined basis Mvela Resources will thus be black-
controlled as to approximately 50.5%.
A Mineral Opportunity accepted by Mvela Resources will be valued on the basis of
economic and technical parameters agreed to by the parties. Should the
resultant net cash flow after tax, interest, the redemption of debt and the
acquisition cost, discounted at the ruling prime overdraft rate, produce a
positive amount, 50% thereof ("the excess discounted cash flow ("DCF")") will be
allocated to Afripalm.
Mvela Resources will discharge this allocation by issuing to Afripalm that
number of new Ordinary Shares ranking as fully paid, derived from the division
of the excess DCF by Mvela Resources" volume weighted average share price over
the 30 days preceding the introduction of the Mineral Opportunity by Afripalm to
Mvela Resources. Simultaneously, Mvela Resources will have the right to
repurchase from Afripalm an equal number of "A" Ordinary Shares, at par.
Any "A" Ordinary Shares still held by Afripalm on 1 May 2014 must be repurchased
by Mvela Resources at par.
3. OPTION IN FAVOUR OF AFRIPALM
Mvela Resources will grant an Option to Afripalm (through another wholly-owned
subsidiary) to subscribe for up to 10 million Ordinary shares at a strike price
of R34.35 per share (being the 30 day VWAP of shares in Mvela Resources on 5
December 2006), escalated at 75% of ABSA Bank"s prime overdraft rate ruling from
time to time, compounded monthly in arrears, to the date of exercise of the
Option or any portion thereof. Afripalm has committed to make at least 51% of
these options available to HDSA women.
The Option may not be exercised until 1 July 2010. Thereafter it may be
exercised once per annum in subscription tranches of not less than 2 million
shares. Any unexercised portion will expire on 30 April 2014.
Afripalm will pay an upfront fee of R10 million to Mvela Resources in respect of
the granting of the Option.
4. MR LAZARUS ZIM AND THE AFRIPALM CONSORTIUM
Mr Zim is the founder and Chairman of Afripalm. He will provide Mvela Resources
with strategic direction and will source deal flow in the mineral resources
sector from his extensive network and experience in South Africa and abroad.
Mr Zim currently serves as the President of the Chamber of Mines of South Africa
and is the Chairman of Kumba Iron Ore. As a former Chief Executive Officer of
Anglo American South Africa and senior executive of M Net, Super Sport and MTN
International, he has extensive corporate, business start-up and development
experience across the African Continent.
Afripalm"s broad based component is comprised of more than 20 000 geographically
and demographically diverse, HDSAs. This broad based shareholding is
incorporated into Afripalm through a national investment company, Unipalm
Investment Holdings Limited. Women will represent in excess of 10% of the total
broad based participants and Afripalm aims to increase its total participant
base to more than 50 000 HDSAs.
5. RATIONALE
Afripalm shares Mvela Resources" and Mvela Holding"s vision that the Company
will become the pre-eminent black mining house in South Africa and the principal
consolidator of key opportunities in the mineral resources sector.
Realisation of this vision will be accelerated by the immediate increase in
broad-based black control of Mvela Resources to over 50%, the prospective
further increase in black ownership through the Options granted to Afripalm and
the associated flow of new Mineral Opportunities. These will enable Mvela
Resources to:
* deploy cash resources of R1.3 billion in the cost effective development of
new Mineral Opportunities;
* grow its existing base in the platinum sector and thereby move from an
investment holding role to that of an operating mining company; and
* diversify and balance its portfolio both geographically and in terms of
commodity type.
6. AGREEMENTS
Mvela Resources, Afripalm, Mr Zim, Mvela Holdings and others have entered into
the following agreements regulating the Afripalm Transaction:
The Main Agreement provides, inter alia, for:
* Afripalm and Mr Zim to offer all Mineral Opportunities to Mvela Resources
which has the right (but not the obligation) to accept such Mineral
Opportunities. Afripalm may acquire and/or dispose of rejected
opportunities for its own account.
* The mechanism for the valuation of Mineral Opportunities accepted by Mvela
Resources and the allocation of one half of any excess DCF value to
Afripalm to be discharged by the issue of new Ordinary Shares ranking as
fully paid.
* The lock in of Afripalm and Mvela Holdings until 1 May 2014 and the
granting of mutual rights of pre-emption between Afripalm and Mvela
Holdings with back-stop pre-emptive rights for Mvela Resources should
either of the former parties decline to exercise their pre-emptive rights.
* Mr Zim to be nominated as Chairman of Mvela Resources, with two additional
directors to be nominated by Afripalm; Mvela Holdings to nominate the
deputy Chairman plus two additional directors. These nomination rights
will remain in force for so long as the shareholdings of Afripalm and Mvela
Holdings respectively remain above specified thresholds.
The Option Agreement provides for, inter alia, the grant of the option on the
terms more fully described in paragraph 3 above;
The Subscription Agreement provides, inter alia, for:
* The subscription by Afripalm of 40 million new Ordinary Shares in Mvela
Resources; and
* The subscription by Afripalm of 35 million "A" Ordinary Shares in Mvela
Resources.
7. TERMINATION OF THE MANAGEMENT CONTRACT
Mvela Resources currently has a management agreement with Mvela Holdings. This
agreement will be cancelled against a payment of R20 million to Mvela Holdings.
This transaction is a related party transaction as defined by the JSE Listings
Requirements and constitutes 0.35% of Mvela Resources" market capitalisation.
The cancellation therefore requires a fair and reasonable opinion from an
authorised independent advisor. Ernst & Young has been appointed to supply this
opinion, which will form part of the circular to shareholders of Mvela
Resources, as mentioned in paragraph 14 below.
8. CONDITIONS PRECEDENT
The implementation of the proposed Afripalm Transaction is subject to, inter
alia, the following conditions precedent:
* The approval of Mvela Resources shareholders;
* Finalisation of the funding agreements between Afripalm, Nedbank Capital
and Blackstar; and
* All required regulatory approvals, including the JSE, and (to the extent
required) the Securities Regulation Panel ("SRP");
The JSE has ruled that the proposed Afripalm subscription, together with the
grant of the Options to Afripalm, will be subject to the provision of a fair and
reasonable opinion from an authorised independent advisor. EY Corporate Finance
(Proprietary) Limited has been appointed to supply this opinion, which will form
part of the circular to shareholders of Mvela Resources, as mentioned in
paragraph 14 below.
9. CREATION OF a NEW CLASS OF SHARES
In order to be able to implement the proposed Afripalm subscription, the Option
and to enable Mvela Resources to issue the "A" Ordinary Shares required, it is
proposed that the authorised share capital of Mvela Resources be increased by
the creation of 50 000 000 new "A" Ordinary Shares of 2 cents each. The "A"
Ordinary Shares will not participate in dividends or other distributions and
will not be listed on the JSE. The "A" Ordinary Shares will therefore only have
immediate voting rights.
10. ISSUE and LISTING OF ADDITIONAL ORDINARY SHARES
Afripalm will subscribe in cash for 40 million new Ordinary Shares at a price of
R29.20 per share, which shares will be allotted, issued and listed after the
fulfilment of all the conditions precedent.
11. EFFECT ON MVELA RESOURCES AND its SHAREHOLDERS
11.1 Mvela Resources" authorised and issued share capital
The authorised share capital of Mvela Resources before and after the
creation of "A" Ordinary Shares is as follows:
Before After
R"000 R"000
Authorised
250 000 000 Ordinary Shares of 2 cents each 5 000 5 000
50 000 000 "A" Ordinary Shares of 2 cents each 1 000
Total 5 000 6 000
The issued share capital of Mvela Resources before and after the
specific issue of Ordinary Shares plus "A" Ordinary Shares is as
follows.
Before After
R"000 R"000
Issued
167 214 243 Ordinary Shares of 2 cents each 3 344
207 214 243 Ordinary Shares of 2 cents each 4 144
35 000 000 "A" Ordinary Shares of 2 cents each 700
Total share capital 3 344 4 844
Share premium (after deducting share issue 3 050 843 4 209 043
costs)
Total share capital and premium 3 054 187 4 213 887
11.2 Pro forma Financial effects on Mvela Resources" shareholders
The unaudited pro forma financial effects below are included for the
purposes of illustrating the effect of the Afripalm Transaction on
Mvela Resources" basic earnings, headline earnings and net asset value
(NAV) per share. The directors of the Company are responsible for the
unaudited pro forma financial effects below. These unaudited pro forma
financial effects are presented for illustrative purposes only and
because of their nature may not give a fair reflection of the
Company"s financial position and results of operations after the
Afripalm Transaction.
Income Statement
The pro forma financial effects on the basic earnings and headline
earnings per ordinary share, are prepared on the assumption that the
Afripalm Transaction had been implemented on 1 July 2005:
Before the After the Percentage
Afripalm Afripalm Change
Transaction Transaction
(Note 1) (Note 2)
Cents Cents (%)
Basic earnings per ordinary share 1 594 1 164 (27)
Diluted basic earnings per ordinary 1 586 1 159 (27)
share
Headline earnings per ordinary share 1 663 1 219 (27)
Diluted headline earnings per 1 654 1 214 (27)
ordinary share
Notes:
1. Extracted from the published audited annual financial results of Mvela
Resources for the year ended 30 June 2006.
2. Represents the following adjustments as a result of the Afripalm
Transaction:
a) It is anticipated that the funds received from the issue of the shares
are intended for future investment purposes. Accordingly, the funds
from the Afripalm Transaction would have been invested until a
suitable opportunity arose. The assumption was made that no
opportunity arose during the year ended 30 June 2006 and an adjustment
was made to reflect interest income that would have been earned if the
funds received from the issue of the shares, the upfront Option fees
received of R10 million, less the anticipated transaction costs of R9
million and the management fee of R20 million, had been invested at an
estimated average interest pre-tax rate of 7,5% per annum effective
from 1 July 2005.
b) The discount on the Ordinary Share issue price, being the difference
between the market value of the Ordinary Shares to be issued based on
the 30 day VWAP on 5 December 2006 and the 30 day VWAP taking into
account the contractual discount of 15% thereon. This amounts to an
expense of R206 million.
c) A Share Option expense calculated as the difference between the value
of the Option and the R10 million cash raised. The value of the Share
Option has been computed using option pricing methodologies based on
the following assumptions:
- the Options will be exercised on 30 April 2014 when the value of
the Options is at its highest;
- the strike price was computed based on 75% of the anticipated
prime overdraft rate varying from 12.0% in December 2006 to a
high of 13.5% in April 2007;
- a share price volatility of 40% was used;
- the risk free rate was obtained from the Bond Exchange of South
Africa and was based on the yield to maturity curve;
d) The effective tax on the interest earned in 2(a) above, was calculated
at 29% after bringing into account the computed tax loss at 30 June
2006. The expense arising from the discount on the Share issue price,
share options and the transaction costs are not considered to be tax
deductible.
e) The weighted average number of shares in issue was computed on the
basis that the 40 million ordinary shares were issued on 1 July 2005.
The weighted average numbers of shares are:
- Before 166 407 584
- After 206 407 584
f) The number of dilutive options outstanding during the year are:
- Before 876 284
- After 876 284
3. The accounting value for the Afripalm Transaction will be determined
when all the conditions precedent have been met. The issue price of
the 40 million Ordinary Shares has been fixed contractually.
Accordingly these values may differ. There is uncertainty as to the
expected 30 day VWAP at the date when all the conditions precedent
will be met and, accordingly, no account has been taken of the
financial impact that, for accounting purposes, a further discount may
have to be applied to the issue price of the 40 million Ordinary
Shares and be charged through the income statement.
Balance sheet
The pro forma financial effects of the Afripalm Transaction on the net
asset value and tangible net asset value of Mvela Resources are
prepared on the assumption that the Afripalm Transaction had been
implemented on 30 June 2006 for balance sheet purposes.
Before the After the Percentage
Afripalm Afripalm Change
Transaction Transaction
(Note 1) (Note 2)
Cents Cents (%)
Net asset value per ordinary share
3 674 3 519 (4)
Tangible net asset value per ordinary
share 3 628 3 482 (4)
Notes:
1. Extracted from the published annual audited financial results of Mvela
Resources at 30 June 2006.
2. Represents the following adjustments as a consequence of the Afripalm
Transaction:
a) Net cash of R1.15 billion received resulting from: the issue of the
Shares of R1.17 billion and the upfront Option fees received of R10
million, less the anticipated transaction costs of R9 million and the
management fee of R20 million to be paid to Mvela Holdings.
b) The share capital and share premium reflects the actual 30 day VWAP on
5 December 2006 of R34.35 per Ordinary Share, before the discount of
15%. The retained earnings were reduced by the 15% discount amounting
to R206 million at which the 40 million Ordinary Shares are to be
issued to Afripalm. The actual value at which the share capital might
be disclosed could differ as explained in note 3 below.
c) The equity Share Option costs for the 10 million Ordinary Share
Options, amounting to R123.1 million, were deducted from the retained
earnings and the share based payment reserve, amounting to R133.1
million (including R10 million cash received), was added to the share
capital and reserves.
d) The average number of shares in issue was computed on the basis that
40 million Ordinary Shares were issued on 1 July 2005.
The numbers of shares in issue are:
- Before 167 214 243
- After 207 214 243
e) The expected transaction cost of R9 million was set off against the
share premium account.
f) In terms of IAS 32 the "A" Ordinary Shares are classified as a
financial liability instrument and not as equity.
3. Refer to note 3 to the Income Statement.
12. Nature of MVELA RESOURCES business
Mvela Resources is a broad-based mining and minerals company. Mvela Resources
has significant investments in the South African gold, platinum and diamond
sectors, as well as exploration and development joint ventures in sub-Saharan
Africa, with a focus on South Africa. Listed investments include a 22.4% stake
in Northam Platinum Limited and a fully diluted 20.7% stake in TransHex Limited.
Mvela Resources, through its subsidiary Mvela Gold, holds a deferred 15%
interest in the South African assets of Gold Fields Limited ("GFI"), namely the
Driefontein, Kloof and Beatrix mines. GFI-SA is an unlisted subsidiary of GFI
and is the vehicle which houses GFI"s South African operations. Exploration and
development joint ventures have been established with global mining groups such
as De Beers, Gold Fields Ltd, Trans Hex and Lonmin.
13. DIRECTORS
Mr Zim and two other nominees of Afripalm will be appointed as directors of
Mvela Resources and Mr Zim will assume the Chairmanship. Mr Tokyo Sexwale will
step down as Chairman.
14. DOCUMENTATION, INCLUDING REVISED LISTING PARTICULARS
A circular to shareholders, containing full particulars of the Afripalm
Transaction and all matters in regard thereto, including a notice of general
meeting, will be issued in due course.
Thereafter copies of this circular may be obtained during normal business hours
from the registered offices of Mvela Resources.
15 WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
The cautionary announcement dated 24 August 2006 is hereby withdrawn.
Johannesburg
7 December 2006
Transaction Sponsor
JPMorgan Equities Limited
Corporate Adviser to Mvela Resources
J P Morgan Chase Bank NA
Legal adviser to Mvela Resources
Bowman Gilfillan
Joint Financial Adviser to Afripalm
Absa Capital - Corporate Finance
Legal adviser to Afripalm and Blackstar
Edward Nathan Sonnenbergs
Independent reporting accountants
PricewaterhouseCoopers Inc.
Joint Financial Adviser to Afripalm
Longcross Capital
Sponsor to Mvela Resources
PricewaterhouseCoopers
Corporate Finance (Proprietary) Limited
Independent Professional Expert to Mvela Resources
EY Corporate Finance (Proprietary) Limited
Adviser to Mvela Holdings
Masazane Capital (Proprietary) Limited
Transfer secretaries to Mvela Resources
Computershare
Investment Bank, Sole Arranger and Underwriter to Afripalm
Nedbank Capital
Co-funder to Afripalm
Blackstar
Date: 07/12/2006 07:00:12 AM Produced by the JSE SENS Department
