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AFE - AECI LIMITED - Cautionary Announcement relating to the proposed

Release Date: 26/07/2011 07:05:16      Code(s): AFE
AFE - AECI LIMITED - Cautionary Announcement relating to the proposed           
acquisition by AECI of the KTH consortium`s 25,1% interest in Aeci`s            
explosives business in exchange for ordinary shares in Aeci                     
AECI LIMITED                                                                    
Incorporated in the Republic of South Africa                                    
(Registration No. 1924/002590/06)                                               
Share code: AFE     ISIN No. ZAE000000220                                       
("AECI" or "the Company" or "the Group")                                        
EXCHANGE FOR ORDINARY SHARES IN AECI                                            
1.   INTRODUCTION                                                               
In  2004,  AECI concluded the sale of an effective 25,1% interest  in  AEL      
Mining  Services, then known as African Explosives Limited,  ("AEL")  (the      
"AEL  Empowerment Transaction"), to an empowerment consortium led  by  the      
Tiso  Group  Limited ("Tiso") ("KTH Consortium"). AEL  is  a  wholly-owned      
subsidiary  of  AEL Holdings Limited ("AELH"). Pursuant to the  merger  of      
Tiso  and Kagiso Trust Investments (Proprietary) Limited ("KTI"), to  form      
Kagiso Tiso Holdings (Proprietary) Limited ("KTH"), which became effective      
on  1 July 2011, KTH acquired Tiso`s interests in AELH. The KTH Consortium      
holds  its 25,1% interest in AELH through a special purpose vehicle, which      
is  75% owned by KTH and 25% owned by the AEL Community Development  Trust      
AECI  has  reached an in-principle agreement with KTH to acquire  the  KTH      
Consortium`s 25,1% interest in AELH, in exchange for the issue  of  4  678      
667  ordinary shares in AECI, subject to the fulfillment of the conditions      
precedent set out in section 5 below ("KTH Transaction"). In terms of  the      
KTH  Transaction, the KTH Consortium has agreed that the earliest date  it      
will be entitled to sell its shares in AECI will be 31 December 2015.  The      
liquidity of the KTH Consortium`s investment will thereby be improved from      
that date.                                                                      
The  KTH  Transaction  is  valued at R397 million,  based  on  the  volume      
weighted average share price of R84,77 per AECI ordinary share on the  JSE      
Limited ("JSE") for the 30 days up to and including Friday, 22 July  2011.      
Post   the   completion  of  the  KTH  Transaction   and   preceding   the      
implementation   of   the  new  broad-based  black  economic   empowerment      
transaction ("New B-BBEE Transaction") announced today, the KTH Consortium      
will  own 4,18% of the issued ordinary share capital of AECI and AELH will      
become a wholly-owned subsidiary of AECI.                                       
2.   TRANSACTION RATIONALE                                                      
AECI  is  committed  to  the  implementation and  success  of  broad-based      
empowerment  throughout  the  Group in  a  comprehensive  and  sustainable      
manner.  It  recognises the social and commercial imperative of  achieving      
economic  transformation  in  South Africa.  As  such,  AECI  has  already      
implemented a number of initiatives relating to employment equity,  skills      
development,   preferential   procurement,  enterprise   development   and      
corporate   social  investment  including  the  initial  AEL   Empowerment      
Transaction  which  created  significant  benefits  for  all  stakeholders      
concerned. AECI`s commitment to broad-based empowerment has been  enhanced      
further with the announcement of its proposed New B-BBEE Transaction,  the      
beneficiaries  of which will be the AECI employees and the AECI  Community      
Education and Development Trust.                                                
The  AEL  Empowerment Transaction has been a successful B-BBEE transaction      
and  has  created substantial benefits for the business  of  AEL  and  the      
communities benefiting from the CDT and KTH. The participation of the  KTH      
Consortium  in the business of AEL enhanced AECI`s empowerment initiatives      
and  helped  maintain AEL`s position as a leading mining services  company      
in  the  South African, African and selected international mining  sectors      
and associated service industries.                                              
The  KTH  Transaction will allow AECI to control 100%  of  AELH  and  will      
provide  AECI with greater flexibility in managing the operations of  AEL,      
a  leading  developer,  producer and supplier  of  commercial  explosives,      
initiating  systems  and blasting services for mining  and  infrastructure      
markets  in  Africa and selected international markets.  Whereas  the  AEL      
Empowerment  Transaction  only benefited AEL,  the  KTH  Transaction  will      
allow  the  AECI Group as a whole to extract the full benefit from  having      
KTH  as  a  long-term strategic investor. Post the completion of  the  KTH      
Transaction  and the New B-BBEE Transaction, it is anticipated  that  AECI      
will  have  effective black ownership in excess of 27%  in  terms  of  the      
Department  of Trade and Industry`s Broad-Based Black Economic Empowerment      
Codes   of   Good  Practice  and  the  principles  relating  to   mandated      
investments and foreign operations defined therein.                             
KTH  is  a diversified investment holding company recently created through      
the  merger  of  two  leading black owned and managed companies,  KTI  and      
Tiso.  KTI and Tiso were founded in 1993 and 2001 respectively,  with  the      
goal  of  achieving  true economic empowerment through active  operational      
involvement  in  strategic investments, to enable meaningful  and  lasting      
contributions  towards  the socio-economic development  of  South  Africa.      
KTH`s  vision  is  to be a leading African diversified investment  holding      
company,  with  interests  across  a range  of  sectors  including  media,      
mining, financial services, power, construction, industrial and property.       
3.   RELATED PARTY TRANSACTION                                                  
In  terms  of  the  JSE  Listings Requirements,  the  KTH  Transaction  is      
classified  as a small related party transaction. AECI is in  the  process      
of  appointing an independent expert ("Independent Expert") to provide the      
Company with a fairness opinion in respect of the KTH Transaction.              
4.   FINANCIAL EFFECTS OF THE KTH TRANSACTION                                   
The  pro forma financial effects of the KTH Transaction on AECI`s headline      
earnings per share and earnings per share for the six months ended 30 June      
2011  and net asset value per share and tangible net asset value per share      
at  30  June 2011, are not expected to be significant in terms of the  JSE      
Listings Requirements.                                                          
5.   CONDITIONS PRECEDENT                                                       
The  implementation  of  the KTH Transaction is subject  to  a  number  of      
conditions precedent, including but not limited to:                             
*    the execution of definitive transaction agreements;                        
*    the approval by the Board of Directors of AECI and KTH;                    
*    the approval by the Board of Trustees of the CDT;                          
*    the approval by the JSE of the relevant documentation;                     
* the  receipt of a positive fairness opinion from the Independent Expert;      
* to the extent necessary, all other regulatory consents and approvals.         
6.   CAUTIONARY ANNOUNCEMENT                                                    
A  further announcement will be published on the Securities Exchange  News      
Service  of  the  JSE  and  in  the press  post  the  fulfillment  of  the      
conditions  precedent relating to the KTH Transaction, which  is  expected      
to  take effect by the end of November 2011. Accordingly, shareholders are      
advised  to exercise caution when dealing in AECI shares until  a  further      
announcement is made.                                                           
Woodmead, Sandton                                                               
26 July 2011                                                                    
Investment bank and transaction sponsor to AECI                                 
Standard Bank                                                                   
Investment Bank to Kagiso Tiso Holdings                                         
Standard Bank                                                                   
Legal advisors to AECI                                                          
Webber Wentzel                                                                  
Corporate Sponsor to AECI                                                       
Date: 26/07/2011 07:05:16 Supplied by www.sharenet.co.za                     
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