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Aeci - Sale Of 50% Of Kynoch Fertilizer

Release Date: 21/05/1999 11:01:56      Code(s): AFE AFEPAED5
AECI
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)
(REGISTRATION NUMBER 04/02590/06)
SALE OF 50% OF KYNOCH FERTILIZER CLOSURE OF AMMONIA PRODUCTION FACILITIES
FURTHER TO THE CAUTIONARY ANNOUNCEMENT DATED 14 APRIL 1999, THE BOARD OF AECI
IS PLEASED TO ANNOUNCE THAT AN AGREEMENT IN PRINCIPLE HAS BEEN ENTERED INTO
WITH HYDRO AGRI INTERNATIONAL ("HYDRO"), A DIVISION OF NORSK HYDRO ASA OF
NORWAY, IN TERMS OF WHICH IT WILL ACQUIRE A 50% INTEREST IN KYNOCH FERTILIZER
(PTY) LIMITED ("KYNOCH FERTILIZER"). THE CASH CONSIDERATION RECEIVABLE IS
ESTIMATED TO BE R140 MILLION, BEING 50% OF THE NET WORKING CAPITAL OF THE
BUSINESS ON 1 JULY 1999, THE PROPOSED EFFECTIVE DATE OF THE TRANSACTION. IN
ADDITION, THE JOINT VENTURE COMPANY WILL RENT THE FIXED ASSETS OF THE BUSINESS
FROM AECI AT AN ESTIMATED CHARGE OF R20 MILLION PER ANNUM FOR FIVE YEARS.
FINALISATION OF THE AGREEMENT IS SUBJECT TO THE COMPLETION OF A DUE DILIGENCE
EXERCISE CURRENTLY IN PROGRESS AS WELL AS A NUMBER OF CONDITIONS PRECEDENT,
INCLUDING APPROVAL BY THE BOARDS OF AECI AND NORSK HYDRO. THE FINANCIAL EFFECTS
OF THE TRANSACTION, ONCE CONCLUDED, WILL BE DETAILED IN THE NEXT INTERIM REPORT
TO SHAREHOLDERS.
IN A SEPARATE TRANSACTION, A LONG-TERM SUPPLY AGREEMENT HAS BEEN CONCLUDED WITH
SASOL CHEMICAL INDUSTRIES LIMITED ("SASOL") WHEREBY SASOL WILL SUPPLY AECI'S
TOTAL AMMONIA REQUIREMENTS OF AN ESTIMATED 160 000 TONS PER YEAR AT A
COMPETITIVE PRICE BASED ON LANDED INTERNATIONAL PRICES. THIS WILL RESULT IN THE
IMMEDIATE MOTHBALLING OF THE COMPANY'S AMMONIA PRODUCTION FACILITY AT
MILNERTON, WESTERN CAPE, AND CLOSURE OF THE AMMONIA/UREA COMPLEX AT
MODDERFONTEIN ON 31 MARCH 2000, SHORTLY BEFORE THE NEXT SCHEDULED MAINTENANCE
SHUT DOWN OF THAT FACILITY, WHICH WOULD HAVE COST APPROXIMATELY R100 MILLION.
AN EXCEPTIONAL CHARGE AGAINST INCOME OF APPROXIMATELY R150 MILLION IS EXPECTED
ON CLOSURE, WHICH INCLUDES A CASH EXPENSE OF SOME R90 MILLION. THIS WILL BE
PROVIDED FOR IN THE CURRENT FINANCIAL YEAR AND IS IN ADDITION TO THE PREVIOUSLY
ANNOUNCED RESTRUCTURING PROVISIONS OF R401 MILLION.
THE AGREEMENT ENSURES THE COMPETITIVE LONG-TERM SUPPLY OF A KEY RAW MATERIAL IN
THE MANUFACTURE OF EXPLOSIVES AND FERTILIZERS. AECI AND SASOL WILL CONTINUE
INDEPENDENT OPERATIONS IN THESE DOWNSTREAM BUSINESSES.
THESE TRANSACTIONS WILL CONCLUDE THE RESTRUCTURING OF THE COMPANY'S NITROGEN
BUSINESS, A KEY COMPONENT OF THE OVERALL TRANSFORMATION STRATEGY ANNOUNCED IN
OCTOBER LAST YEAR WHEN THE COMPANY STATED ITS INTENTION TO EXIT THE MANUFACTURE
OF BULK COMMODITY CHEMICALS.
THE CAUTIONARY ANNOUNCEMENT TO SHAREHOLDERS IS HEREBY WITHDRAWN.
WOODMEAD
21 MAY 1999
SPONSORING BROKER
ING BARINGS
ING BARINGS SOUTHERN AFRICA LIMITED
MEMBER OF THE JOHANNESBURG STOCK EXCHANGE
REGISTRATION NUMBER 94/04352/07



                                        
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