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Exx - Exxaro Resources Limited - Proposed Transaction With Tronox Incorporated

Release Date: 26/09/2011 09:00:03      Code(s): EXX
EXX - Exxaro Resources Limited - Proposed transaction with Tronox Incorporated  
and cautionary announcement                                                     
Exxaro Resources Limited                                                        
(Incorporated in the Republic of South Africa)                                  
(Registration number 2000/011076/06)                                            
Issuer Code: EXX                                                                
ISIN: ZAE000084992                                                              
("Exxaro")                                                                      
PROPOSED TRANSACTION WITH TRONOX INCORPORATED AND CAUTIONARY ANNOUNCEMENT       
INTRODUCTION                                                                    
Exxaro shareholders are advised that Exxaro and Tronox Incorporated ("Tronox"), 
a leading international pigment company based in the United States and Exxaro`s 
joint venture partner at Tiwest in Australia, have reached agreement in respect 
of a proposed transaction, which entails the combination of Exxaro`s mineral    
sands operations (the "Exxaro Mineral Sands Operations") with the businesses of 
Tronox under a newly-formed Australian holding company ("New Tronox"). Exxaro   
will dispose of the Exxaro Mineral Sands Operations in exchange for             
approximately 38.5% of the shares in New Tronox (the "Proposed Transaction").   
This will result in Exxaro becoming the largest single shareholder in New       
Tronox.                                                                         
The Exxaro Mineral Sands Operations that will form the subject of the Proposed  
Transaction comprise:                                                           
(i)   74% of the shares and intercompany debt in Exxaro`s South African mineral 
sands operations (the Namakwa Sands and KZN Sands mines and smelters)       
    (collectively the "South African Operations"); and                          
(ii)  Exxaro`s 50% interest in the Tiwest Joint Venture in Australia ("Tiwest").
Exxaro will retain a direct 26% shareholding in each of the South African       
Operations in order to comply with the requirements of the Mineral and Petroleum
Resources Development Act, 28 of 2002 ("MPRDA") and the Broad-Based Socio-      
Economic Empowerment Charter for the South African Mining and Minerals Industry 
("the Mining Charter"). The 26% interests in the South African Operations will  
be held until the earlier of the 10th anniversary of the completion of the      
Proposed Transaction and the date when the Department of Mineral Resources      
determines that ownership requirements are no longer required under existing    
Black Economic Empowerment ("BEE") legislation ("the Empowerment Period"). At   
the end of the Empowerment Period, Exxaro has the right to exchange the shares  
in the South African Operations for approximately 3.2% in additional shares in  
New Tronox (based on the number of New Tronox shares in issue on implementation 
of the Proposed Transaction), resulting in Exxaro holding approximately 41.7% of
New Tronox after such exchange (the "Flip-Up").                                 
The purchase price will be settled by the issue of 9 950 856 New Tronox Class   
"B" shares, which excludes 1 449 207 Class "B" shares to be issued to Exxaro in 
the event of the exercise of the Flip-Up ("Flip-Up Shares").                    
The Proposed Transaction, which is subject to the fulfilment or waiver, where   
applicable, of the conditions precedent referred to below, will create a leading
global integrated mine-to-processing-to-pigment producer and is in pursuance of 
Exxaro`s stated mineral sands strategy described in more detail below. The pro  
forma equity value of New Tronox is estimated at R27.8 billion (R29.3 billion   
including the Flip-up Shares), based on the volume weighted average price at    
which Tronox`s shares traded for the 30 trading days to 23 September 2011 ("30  
day VWAP"), being USD130.42 (R1,078.95 using a ZAR/USD exchange rate of 8.27 on 
23 September 2011). This implies an Exxaro`s Mineral Sands Operations equity    
value of R10.7 billion (R12.3 billion including the Flip-Up Shares).            
Upon completion of the Proposed Transaction, it is intended that New Tronox will
list its Class "A" shares on a major exchange, such as the New York Stock       
Exchange ("NYSE").                                                              
The Proposed Transaction constitutes a Category 2 Transaction for the purposes  
of the JSE Limited Listings Requirements. Exxaro shareholder approval will      
therefore not be required for the implementation of the Proposed Transaction.   
RATIONALE                                                                       
Exxaro believes that its mineral sands business is best configured as an        
integrated mining-to-processing-to-pigment business and has been evaluating     
various opportunities over the past four years. The benefits of an integrated   
mine-to-processing-to-pigment producer include:                                 
*    further efficiencies as demonstrated in the integrated model at Tiwest,    
    where Exxaro and Tronox are joint venture partners as described below;      
*    reduction in risk due to involvement in two key value creating segments of 
the mineral sands value chain (mining/processing and pigment                
    manufacturing);                                                             
*    providing a consistent grade of quality feedstock supply to the New Tronox 
    pigment plants; and                                                         
*    providing a stable earnings base that mitigates the cyclical nature of     
    feedstock demand.                                                           
The Proposed Transaction will create a global leader in this industry with a    
significant asset base that is expandable and low on the cost curve.            
The Proposed Transaction will continue to position the Exxaro group as an       
international resources leader with geographical and commodity diversification. 
OVERVIEW OF THE EXXARO MINERAL SANDS OPERATIONS                                 
KZN Sands                                                                       
Exxaro`s KZN Sands operation is located on the East Coast of South Africa,      
around the Esikhawini area near Richards Bay, and consists of four operational  
phases, namely: mining, mineral separation, smelting and bulk terminal. The     
current mine at KZN Sands, known as Hillendale, is near the end of its useful   
life, and is scheduled to be replaced by a new mine at Fairbreeze, which is     
adjacent to the existing mine.                                                  
It is expected that the Fairbreeze expansion will increase KZN Sands` life-of-  
mine by at least 12 years. KZN Sands produces ilmenite, rutile, zircon, slag,   
slag fines and pig iron. Ilmenite, rutile, slag and slag fines are used as      
feedstocks in the production of titanium dioxide pigment. Zircon is mainly      
consumed as an opacifier in the decorative ceramics industry and pig iron is    
used mainly in the production of steel.                                         
Namakwa Sands                                                                   
The heavy mineral resources mined by Namakwa Sands are found on the coastal     
plain along the West Coast of South Africa. Namakwa Sands is comprised of three 
operational phases, namely: mining at Brand-se-Baai (approximately 400km from   
Cape Town), mineral separation at Koekenaap (approximately 350km from Cape Town)
and smelting at Saldanha (approximately 150km from Cape Town). Like KZN Sands,  
Namakwa Sands produces ilmenite, rutile, zircon, slag, and pig iron, but it also
produces tiokwa and zirkwa. These mineral sands (with the exception of zircon,  
zirkwa and pig iron) are used as feedstocks in the production of titanium       
dioxide pigment.                                                                
Exxaro`s 50% joint venture interest in Tiwest                                   
Tiwest, a 50/50 joint venture between Exxaro and Tronox, is situated in Western 
Australia and is an integrated mineral sands and titanium dioxide pigment       
producer. Tiwest`s operations include mining and dry separation of titanium     
minerals and zircon, upgrading ilmenite into synthetic rutile and producing     
titanium dioxide pigment. Tiwest consists of the Cooljarloo mine (170km north of
Perth), the Chandala mineral separation and synthetic rutile plants (70 km north
of Perth) and the Kwinana pigment facility (just south of Perth).               
OVERVIEW OF TRONOX                                                              
Tronox emerged from bankruptcy on 14 February 2011, two years after it filed for
Chapter 11 protection in the United States. The filing was primarily due to     
certain historical environmental liabilities which were related to its former   
corporate parent, and from which Tronox has since been relieved. Tronox emerged 
after the Chapter 11 bankruptcy proceedings, with a total enterprise value of   
approximately USD1.1 billion.                                                   
Hamilton                                                                        
The Hamilton titanium dioxide pigment facility is Tronox`s largest manufacturing
facility, one of Mississippi`s biggest industrial operations and the third-     
largest of its kind in the world. Tronox produces titanium dioxide at Hamilton. 
Titanium dioxide is a white inorganic pigment primarily used in paints/coatings,
plastics and paper industries. It is used primarily for its opacifying strength 
and brightness. The facility also includes an electrolytic plant that produces  
sodium chlorate used in an environmentally preferred pulp-bleaching process by  
the pulp and paper industry.                                                    
Botlek                                                                          
Tronox`s Netherlands plant is based in the Botlek area of Rotterdam. Production 
of titanium dioxide pigment started at this site in 1960 under the name of      
"Titaandioxide Fabriek," which later became TDF Tiofine B.V. Tronox acquired the
plant in 2000.                                                                  
Henderson                                                                       
Tronox`s Henderson facility, located in southern Nevada, is dedicated to the    
production of electrolytic chemicals. The facility produces electrolytic        
manganese dioxide, which is used in the manufacture of alkaline batteries;      
elemental boron, a component of automotive safety igniters; and boron           
trichloride, used in the pharmaceutical and semiconductor industries and in the 
manufacture of high-strength boron fibres for products including sporting       
equipment and aircraft parts.                                                   
TERMS OF THE PROPOSED TRANSACTION                                               
As stated above, the Proposed Transaction entails the combination of the        
Exxaro Mineral Sands Operations and the businesses of Tronox under New Tronox   
in exchange for shares in New Tronox. The parties have agreed on an enterprise  
value attribution of 61.5% for the Tronox businesses and 38.5% for the Exxaro   
Mineral Sands Operations, subject to certain net working capital and net debt   
adjustments in cash on implementation of the Proposed Transaction. In order     
to comply with the requirements of the MPRDA and the Mining Charter, Exxaro     
will retain a direct 26% interest in the South African Operations, which        
Exxaro is entitled to exchange for shares in New Tronox under certain           
circumstances, including upon the termination of the Empowerment Period.        
Exxaro will receive an approximately 38.5% shareholding in New Tronox at        
Closing.                                                                        
Other significant terms of the Proposed Transaction include:                    
*    the Proposed Transaction will become effective on the Closing Date, which  
    will occur following the satisfaction or waiver of the conditions precedent 
    to the implementation of the Proposed Transaction, as set out below (the    
"Closing");                                                                 
*    in order to easily distinguish/administer Exxaro`s agreed rights and       
    obligations as the major shareholder in New Tronox, a dual class share      
    structure has been agreed by the parties, with Exxaro receiving Class "B"   
shares and Tronox`s shareholders receiving Class "A" shares. The Class "A"  
    shares are anticipated to be publicly traded on the NYSE. The Class "B"     
    shares will have separate board representation rights and minority          
    protections;                                                                
*    Exxaro will receive the right to elect 3 out of 9 directors to New Tronox`s
    board of directors ("the New Tronox Board"). Exxaro`s appointees will be    
    non-executive directors. Exxaro will be entitled to elect 2 non-executive   
    director to the New Tronox Board if its holding in New Tronox reduces to    
between 20% and 30%, and one non-executive director if its holding reduces  
    to between 10% and 20%;                                                     
*    Exxaro will have pre-emptive rights to subscribe for shares in certain     
    instances to avoid dilution of its ownership interest in New Tronox for as  
long as its holding in Tronox is at least 7.5%;                             
*    New Tronox`s constitution will include restrictions on the ability of any  
    person or group to acquire an ownership interest greater than 20% without   
    approval by the New Tronox Board or a 75% vote of unaffiliated shareholders 
(the "20% Rule"); Exxaro is exempted from this rule in respect of any Class 
    "A" shares or Class "B" shares it acquires as permitted under a             
    shareholders` agreement between Exxaro and New Tronox;                      
*    For 3 years following the Closing, Exxaro has agreed not to (i) purchase   
New Tronox shares in excess of 45% of the total issued shares of New        
    Tronox; or (ii) sell any of the New Tronox shares it owns, except in        
    limited circumstances (including acceptance by Exxaro of any take over      
    offer made by a non-affiliated shareholder). After expiration of this       
lockup period, Exxaro may (i) acquire shares in New Tronox in excess of 45% 
    of the total issued shares of New Tronox, but can only increase its stake   
    above 50% either through an agreed transaction with the New Tronox Board or 
    by making an offer for all of the outstanding shares, which offer is        
accepted by a majority of the unaffiliated shareholders or (ii) sell its    
    shares subject to the 20% Rule (to the extent Exxaro is not exempted from   
    this rule), in accordance with Australian takeover rules and the            
    limitations on an affiliate`s ability to acquire and sell shares under the  
U.S. securities laws; and                                                   
*    Exxaro agrees to take all reasonable steps necessary to maintain the BEE   
    status of the South African Operations under current HDSA ownership         
    requirements, including retaining a direct 26% shareholding in the South    
African Operations until the end of the Empowerment Period.                 
CONDITIONS PRECEDENT                                                            
The Proposed Transaction will be subject to the fulfilment or waiver, where     
applicable, of certain conditions precedent by not later than the Closing (which
the parties have agreed must occur by not later than 30 June 2012 subject to a  
one-off extension in limited circumstances to 30 September 2012), including the 
following:                                                                      
*    all required regulatory approvals (including, inter alia, customary        
competition (anti-trust) approvals, South African exchange control approval 
    and approval from the Minister of Mineral Resources, and Australian Foreign 
    Investment Review Board approval) having been obtained;                     
*    no material adverse effect (being, with respect to either Exxaro or Tronox,
any change materially adverse to the financial condition, businesses or     
    results of operations of the relevant group) having occurred;               
*    certain required third party contractual and finance consents having been  
    obtained;                                                                   
*    a Registration Statement in respect of the registration of New Tronox`s    
    Class "A" shares with the U.S. Securities Exchange Commission (the "SEC")   
    having been filed by New Tronox and declared effective by the SEC; and      
*    Tronox stockholder approval having been obtained.                          
UNAUDITED PRO FORMA FINANCIAL EFFECTS AND CAUTIONARY ANNOUNCEMENT               
The unaudited pro forma financial effects of the Proposed Transaction on Exxaro 
are in the process of being finalised and will be released in due course.       
Pending further announcements, Exxaro shareholders are advised to exercise      
caution when dealing in Exxaro securities.                                      
FORWARD-LOOKING STATEMENTS                                                      
This announcement contains "forward-looking statements" within the meaning      
of the Private Securities Litigation Reform Act of 1995 (a United States Act).  
Forward-looking statements are statements that are not historical facts,        
including statements concerning the anticipated timing of filings and           
approvals relating to the Proposed Transaction; the expected timing of the      
completion of the Proposed Transaction; the expected benefits and costs of      
the Proposed transaction; management plans relating to the Proposed transaction;
the ability to complete the Proposed Transaction in view of the various closing 
conditions; the possibility that the Proposed Transaction may not be completed; 
any projections of earnings, revenues, synergies, accretion, margins or other   
financial items; any statements of operations, including the execution of       
integration plans; any statements of expectation or belief; and any statements  
of assumptions underlying any of the foregoing.  Any statement in this          
announcement that expresses or implies Tronox`s, Exxaro`s or New Tronox`s       
intentions, beliefs, expectations or predictions (and the assumptions           
underlying them) is a forward-looking statement.  Forward-looking statements    
involve inherent risks, uncertainties and assumptions, including, without       
limitation, risks related to the timing or ultimate completion of the           
Proposed Transaction; the possibility that expected benefits may not            
materialize as expected; that, prior to the completion of the Proposed          
Transaction, Tronox`s business or Exxaro`s business may not perform as          
expected due to uncertainty; that the parties are unable to successfully        
implement integration strategies or otherwise realize the synergies             
anticipated for the Proposed Transaction; and other risks and uncertainties     
that are beyond the parties` control.  If such risks or uncertainties           
materialize or such assumptions prove incorrect, actual results could differ    
materially from those expressed or implied by such forward-looking statements   
and assumptions.  The forward-looking statements contained in this announcement 
are made as of the date hereof, and Tronox and Exxaro each expressly disclaim   
any obligation to update or correct any forward-looking statements made         
herein due to the occurrence of events after the issuance of this               
announcement.                                                                   
IMPORTANT ADDITIONAL INFORMATION                                                
This announcement is for informational purposes only and is not an offer to     
sell or the solicitation of an offer to purchase or exchange any securities,    
nor shall there be any sale of securities, in any jurisdiction in which such    
offer, solicitation or sale would be unlawful prior to registration or          
qualification under the securities laws of any such jurisdiction.  The          
publication and distribution of this announcement and any separate documentation
regarding the Proposed Transaction, the making of any offer for shares or the   
issuance and offer to purchase New Tronox`s shares may be subject to specific   
regulations or restrictions in certain jurisdictions.  As a result, persons in  
possession of this announcement must seek information as to any applicable      
local restrictions and comply therewith.  None of Tronox, Exxaro, New Tronox or 
any of their respective affiliates undertakes any liability of any kind for     
any violation of applicable law.  The solicitation of Tronox shareholder        
consent for Proposed Transactions and the offer of the New Tronox`s shares      
will only be made pursuant to a solicitation and information statement and      
related materials that are intended to be filed with the SEC.                   
Tronox and Exxaro intend for New Tronox to file a registration statement and    
solicitation and information statement, together with other related materials,  
with the SEC in connection with the Proposed Transaction.  Information regarding
the participants in the Proposed Transaction and a description of their direct  
and indirect interests, by security holdings or otherwise, will be contained    
in the relevant materials to be filed with the SEC when they become available.  
TRONOX SHAREHOLDERS ARE URGED TO READ THESE MATERIALS REGARDING THE PROPOSED    
TRANSACTION CAREFULLY PRIOR TO MAKING ANY DECISIONS WITH RESPECT TO THE         
PROPOSED TRANSACTION, IF AND WHEN THESE MATERIALS BECOME AVAILABLE, BECAUSE     
THEY WILL CONTAIN IMPORTANT INFORMATION, INCLUDING THE TERMS AND CONDITIONS     
OF THE PROPOSED TRANSACTION.                                                    
Exxaro shareholders and Tronox stockholders will be able to obtain a free       
copy of such materials without charge at the SEC`s website (www.sec.gov) or     
from the information agent named in such materials once they have been filed    
with the SEC. These materials will also be made available for inspection at     
Exxaro`s registered offices, Exxaro Corporate Centre, Roger Dyason Road,        
Pretoria West, 0183, South Africa.                                              
For enquiries:                                                                  
Wim de Klerk                                                                    
Exxaro Resources Limited                                                        
Finance Director                                                                
Tel: + 27 12 307 4848                                                           
Mobile: +27 82 652 5145                                                         
Email: wim.deklerk@exxaro.com                                                   
TELECONFERENCES                                                                 
For more information, investor and media stakeholders are invited to take       
part in an Exxaro teleconference taking place today (26 September 2011)         
from 13h00 - 14h00 SA time.                                                     
To access the teleconference, dial one of the following numbers:                
South Africa - Johannesburg: 011 535 3600 / 011 201 6616                        
South Africa - Cape Town: 021 819 0900                                          
South Africa (Toll-Free): 0 800 200 648                                         
United States (Toll-Free): 1 800 860 2442                                       
Australia (Toll-Free): 1 800 350 100                                            
Other Countries (Intl Toll): +27 11 535 3600                                    
A teleconference for international investors will take place on Tuesday,        
27 September 2011 from 15h00 - 16h00 SA time.                                   
To access the teleconference, dial one of the above-mentioned numbers.          
26 September 2011                                                               
Pretoria                                                                        
Financial advisor to Exxaro                                                     
J.P. Morgan                                                                     
US, European and Asian legal counsel to Exxaro                                  
Orrick, Herrington & Sutcliffe LLP                                              
SA legal counsel to Exxaro                                                      
Norton Rose South Africa                                                        
SA legal counsel to Exxaro                                                      
CLS Attorneys                                                                   
Australian legal counsel to Exxaro                                              
Freehills                                                                       
Corporate Broking Adviser and Sponsor to Exxaro                                 
Deutsche Securities SA (Proprietary) Limited                                    
Financial advisor to Tronox                                                     
Goldman, Sachs & Co.                                                            
Financial advisor to Tronox                                                     
Moelis & Company                                                                
US legal counsel to Tronox                                                      
Kirkland and Ellis LLP                                                          
SA legal counsel to Tronox                                                      
Werksmans                                                                       
Australian legal counsel to Tronox                                              
Blake Dawson                                                                    
Date: 26/09/2011 09:00:03 Supplied by www.sharenet.co.za                     
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