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Afe - Aeci Limited - Detailed Cautionary Announcement Relating To The Proposed

Release Date: 26/07/2011 07:06:02      Code(s): AFE
AFE - AECI Limited - Detailed cautionary announcement relating to the proposed  
new Broad-Based Black Economic Empowerment  transaction to be undertaken by AECI
involving employees and a community trust                                       
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")                                        
DETAILED CAUTIONARY ANNOUNCEMENT RELATING TO THE PROPOSED NEW BROAD-BASED BLACK 
ECONOMIC EMPOWERMENT ("B-BBEE") TRANSACTION TO BE UNDERTAKEN BY AECI INVOLVING  
EMPLOYEES AND A COMMUNITY TRUST ("NEW B-BBEE TRANSACTION")                      
Transaction summary                                                             
-    The New B-BBEE Transaction is valued at approximately R1,2 billion         
-    Participants in the New B-BBEE Transaction will comprise AECI`s permanent  
    employees in South Africa, of which approximately 72% are black and 12% are 
black females, and a community trust that will fund educational and         
    developmental initiatives for the benefit of black people                   
-    The New B-BBEE Transaction will have a maximum term of 10 years            
-    The New B-BBEE Transaction will not require any funding from AECI or any   
external parties                                                            
-    Notional vendor finance will be at 85% of the South African prime lending  
    rate                                                                        
-    Participants in the New B-BBEE Transaction will receive a dividend from the
first year                                                                  
-    Participants will be entitled to acquire AECI ordinary shares at the end of
    the transaction term                                                        
-    The economic cost to AECI shareholders is approximately R348 million or    
3,7% of AECI`s net market capitalisation post the Kagiso Tiso Holdings      
    Transaction also announced today, in line with market norms                 
-    The New B-BBEE Transaction will contribute to AECI achieving an effective  
    27,4% B-BBEE equity ownership in terms of the Department of Trade and       
Industry`s Broad-Based Black Economic Empowerment Codes of Good Practice    
    ("Codes")                                                                   
1    Introduction                                                               
    In February 2011, AECI announced its intention to facilitate meaningful and 
sustainable B-BBEE participation in AECI through the establishment of       
    employee and community trust share schemes. Further to the simultaneous     
    announcement today on the Securities Exchange News Service ("SENS") of the  
    JSE Limited ("JSE") regarding the proposed issue of 4,18%, post issuance,   
of the net issued ordinary share capital of AECI to a consortium led by     
    Kagiso Tiso Holdings (Proprietary) Limited ("KTH") ("KTH Consortium"), in   
    exchange for the acquisition by AECI of the KTH Consortium`s 25,1% interest 
    in AEL Holdings Limited ("KTH Transaction"), AECI is pleased to announce    
the key terms of its New B-BBEE Transaction, which will achieve additional  
    B-BBEE participation in the Company.                                        
    In terms of the New B-BBEE Transaction, AECI intends to facilitate the      
    subscription by an AECI employee share trust and an AECI community share    
trust (as detailed below) of an effective 11,5% of AECI`s net issued share  
    capital post this transaction and the KTH Transaction. The New B-BBEE       
    Transaction requires no external bank funding and will be facilitated by    
    notional funding from AECI.                                                 
Post the implementation of the KTH Transaction and the New B-BBEE           
    Transaction, it is expected that AECI will have an effective 27,4% B-BBEE   
    equity ownership, after applying the principles relating to mandated        
    investments and foreign operations, as defined in the Codes.                
The ultimate size of the New B-BBEE Transaction may change, depending on,   
    inter alia, financial and market conditions at the time of implementation,  
    and the finalisation of beneficiary participation. The terms of the New B-  
    BBEE Transaction are expected to be finalised during the third quarter of   
2011 and, subject to the fulfillment of the conditions precedent set out in 
    section 6 below, the New B-BBEE Transaction is expected to be implemented   
    before 31 December 2011.                                                    
2    Rationale for the New B-BBEE Transaction                                   
AECI supports the South African government`s B-BBEE initiatives and         
    recognises the importance of these in achieving a sustainable economic and  
    political environment in South Africa through meaningful participation by   
    black people in the mainstream economy. AECI is committed to the            
implementation and success of broad-based empowerment throughout the Group  
    and has already implemented a number of initiatives relating to employment  
    equity, skills development, preferential procurement, enterprise            
    development and corporate social investment including the initial           
empowerment of AEL Mining Services Limited.                                 
    The New B-BBEE Transaction will advance AECI`s empowerment objective of     
    increasing black participation in the Group by providing long-term economic 
    benefits of its success to a broad spread of black South Africans.          
Furthermore, the New B-BBEE Transaction will complement the KTH Transaction 
    and will ensure that AECI maximises its equity ownership scorecard in terms 
    of the Codes and the Amended Broad-Based Socio-Economic Empowerment Charter 
    for the South African Mining and Minerals Industry, to the benefit of       
AECI`s businesses.                                                          
3    Participants                                                               
    The following groups will participate in the New B-BBEE Transaction:        
    -    All permanent employees of AECI employed in the Group`s South African  
operations, who do not already participate in any existing Group long- 
         term incentive schemes, and additional participation by black managers 
         employed in the Group`s South African operations ("AECI Qualifying     
         Employees"). Participation will be through an employee share trust     
(the "EST"), which will hold a direct interest of 8,0% of AECI`s       
         enlarged issued share capital; and                                     
    -    The AECI Community Development and Education Trust (the "CST"), which  
         will hold a direct interest of 3,5% of AECI`s enlarged issued share    
capital.                                                               
    The inclusion of AECI employees as shareholders in the Company will advance 
    broad-based black ownership in AECI and will distribute a significant       
    portion of the benefits of the B-BBEE Transaction to them. The Group`s      
sustainability and growth prospects will be enhanced by its ability to      
    attract and retain employees. Employee interests will thus be aligned more  
    closely with those of the Company`s shareholders and employees who enabled  
    the business to succeed will be rewarded.                                   
The CST will enhance broad-based initiatives by enabling the Group to       
    augment its initiatives aimed at improving science and mathematics          
    education and uplifting further the black communities in geographical       
    locations where AECI operates.                                              
4    New B-BBEE Transaction structure                                           
    4.1  Structure                                                              
    The New B-BBEE Transaction will be implemented through a specific issue of: 
    -    4 426 604 new AECI ordinary shares to the CST, equivalent to 3,5% of   
AECI`s issued share capital post this transaction and the KTH          
         Transaction ("CST Shares"); and                                        
    -    10 117 951 newly created redeemable convertible B Ordinary Shares in   
         AECI to the EST (the "B Ordinary Shares"), equivalent to 8,0% of       
AECI`s issued share capital post this transaction and the KTH          
         Transaction.                                                           
    Whilst the B Ordinary Shares issued to the EST will represent a separate    
    class of shares in AECI, they will rank pari passu in respect of voting     
rights with AECI ordinary shares. Together, the EST and the CST will hold   
    approximately 11,5% of AECI`s issued share capital over a maximum           
    transaction period of 10 years (the "New B-BBEE Transaction Term"). This    
    equates to an effective 21,2% B-BBEE equity ownership at an AECI level, if  
mandated investments and foreign operations, as defined in the Codes, are   
    excluded from AECI`s enlarged share capital.                                
    Participants in the New B-BBEE Transaction will, from inception, via the    
    two trusts, exercise full voting and economic rights that will arise from   
their respective shareholding in AECI.                                      
    Assuming the value of the CST Shares and the B Ordinary Shares are R84,77,  
    equivalent to the volume weighted average price per AECI ordinary share on  
    the JSE for the 30 days up to and including 22 July 2011, on                
implementation, the New B-BBEE Transaction will have a value of             
    approximately R1,2 billion.                                                 
    4.2  Funding                                                                
    The New B-BBEE Transaction will not require any funding, whether from AECI  
or from an external source. The EST and the CST will not be required to     
    make any cash contribution for their participation. Prior to the            
    commencement of the New B-BBEE Transaction, AECI will make a minor capital  
    contribution to the EST and the CST to enable them to subscribe for the     
relevant shares in AECI.                                                    
    4.3  Benefits delivered to participants                                     
    4.3.1     Dividends                                                         
    During the New B-BBEE Transaction Term, the CST Shares will receive         
dividends on a pari passu basis with AECI ordinary shares. The Directors of 
    the Company may declare dividends on the B Ordinary Shares up to a maximum  
    of 100% of the dividends declared per financial year on AECI ordinary       
    shares, with 10% expected to be paid on the B Ordinary Shares. The CST will 
distribute the dividends it receives in accordance with the CST Trust Deed. 
    Dividends will be distributed to AECI Qualifying Employees in accordance    
    with the EST Trust Deed.                                                    
    4.3.2     Conversion of the B Ordinary Shares and cancellation of the CST   
Shares                                                            
    At the end of the New B-BBEE Transaction Term, AECI will convert that       
    number of B Ordinary Shares to which AECI Qualifying Employees are entitled 
    into AECI ordinary shares ("Entitlement Shares"). The Entitlement Shares    
will be based on the difference between:                                    
    -    the value of the B Ordinary shares at the end of the New B-BBEE        
         Transaction Term determined in accordance with the then market price   
         of AECI ordinary shares; and                                           
-    the initial value of the B Ordinary Shares issued, escalated by 85% of 
         the South African prime interest rate over the New B-BBEE Transaction  
         Term, less the difference between the dividends which would have been  
         paid on AECI ordinary shares over the New B-BBEE Transaction Term and  
the actual dividends paid to the EST on the B Ordinary Shares.         
    The balance of the B Ordinary Shares then remaining will be redeemed by the 
    Company for no further consideration.                                       
    At the end of the New B-BBEE Transaction Term, the CST will retain such     
number of CST Shares based on the difference between the value of the AECI  
    ordinary shares at such date and the initial value of the CST Shares        
    issued, escalated by 85% of the South African prime interest rate over the  
    New B-BBEE Transaction Term.                                                
The CST Shares not retained by the CST will be repurchased and cancelled by 
    the Company for no further consideration.                                   
5    Economic cost                                                              
    The underlying economic cost of the New B-BBEE Transaction to AECI ordinary 
shareholders will be calculated in accordance with the statement on share-  
    based payments in terms of International Financial Reporting Standards      
    ("IFRS 2"). The cost of the New B-BBEE Transaction will be determined once  
    the transaction terms have been finalised and implemented. Based on the     
current proposed structure and current market conditions, the cost is       
    estimated at R348 million, equivalent to 28,2% of the transaction value and 
    3,7% of AECI`s net market capitalisation post the KTH Transaction. The      
    economic cost will be charged to AECI`s income statement, with the cost     
relating to the CST being charged as a once-off upfront cost and the cost   
    relating to the EST being amortised over the employee service period. The   
    New B-BBEE Transaction is expected to become effective before the end of    
    2011 and, as such, will impact AECI`s earnings for the current financial    
year.                                                                       
    Full details of the financial effects on AECI will be disclosed when the    
    detailed terms announcement is made.                                        
6    Conditions precedent                                                       
The implementation of the New B-BBEE Transaction is subject to a number of  
    conditions precedent, including but not limited to:                         
    -    finalisation of the KTH Transaction;                                   
    -    the execution of definitive New B-BBEE Transaction agreements;         
-    the approval of the EST and CST terms by the Board of Directors of     
         AECI;                                                                  
    -    approval by AECI shareholders in general meeting of the necessary      
         resolutions to create the B Ordinary Shares;                           
-    approval by AECI shareholders in general meeting of the necessary      
         special and ordinary resolutions; and                                  
    -    the approval of the New B-BBEE Transaction by the JSE.                 
7    Circular to shareholders                                                   
A circular providing details of the New B-BBEE Transaction and a notice     
    convening a general meeting of AECI ordinary shareholders to approve the    
    resolutions necessary to give effect to the New B-BBEE Transaction will be  
    posted to AECI ordinary shareholders in due course.                         
8     Cautionary announcement                                                   
    It is expected that the full terms, salient dates and pro forma financial   
    effects of the New B-BBEE Transaction will be finalised during the third    
    quarter of 2011, whereafter a further announcement setting out the full     
details of the New B-BBEE Transaction will be released on SENS and          
    published in the press. 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                                                                   
Legal advisors to AECI                                                          
Webber Wentzel                                                                  
Corporate sponsor to AECI                                                       
RMB                                                                             
Programme implementation managers                                               
Barnstone                                                                       
Date: 26/07/2011 07:06:01 Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                             .                  
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