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Wescoal Holdings Limited - Financial Effects Of The Minoscape Acquisition, Specific Repurchase And Withdrawal Of Cautionary Announcement

Release Date: 09/05/2014 10:04:00      Code(s): WSL     
      Wescoal Holdings Limited
      (Incorporated in the Republic of South Africa)
      (Registration number 2005/006913/06)
      JSE Share Code: WSL ISIN: ZAE000069639
      (?Wescoal? or ?the company?)


      FINANCIAL EFFECTS OF THE MINOSCAPE ACQUISITION, SPECIFIC REPURCHASE AND WITHDRAWAL OF
      THE CAUTIONARY ANNOUNCEMENT


      1)      Introduction

      Shareholders are referred to the SENS announcements dated 6 March 2014 and 28 November 2013 regarding
      the Minoscape acquisitions.

      2)      Specific repurchase of shares

      As a consequence of the Vlaklaagte disposal and Elandspruit acquisition, 14 285 714 Wescoal ordinary shares
      were issued to Proudafrique at 70 cents per share in terms of a specific issue of shares as detailed in the circular
      sent to shareholders on 15 January 2013 and approved by shareholders on 14 February 2013.

      The Minoscape acquisitions will result in Wescoal owning 100% of Proudafrique, resulting in a specific
      repurchase of shares by Wescoal. The attributed price from an accounting point of view for the specific
      repurchase was 200 cents per share, payable by a combination of shares and cash.

      The general meeting to approve the specific repurchase is expected to be on 27 June 2014.

      The intention is to repurchase these shares on 30 June 2014 and de-list these shares on 1 July 2014 once the
      resolution to approve the specific repurchase has been approved by shareholders.

      3)      Financial effects

      Below are the financial effects of the Minoscape acquisition and specific repurchase:

      The pro forma financial effects of the Minoscape acquisition and specific repurchase on Wescoal shareholders
      set out below are based on the unaudited results of Wescoal for the six months ended 30 September 2013. The
      pro forma financial effects are the responsibility of the board of directors of Wescoal and have been prepared for
      illustrative purposes only and because of their pro forma nature may not fairly present Wescoal?s financial
      position or results of operations after the Minoscape acquisition and specific repurchase. The directors of
      Wescoal are responsible for the preparation of the pro forma financial effects.

      The revised pro forma financial effects based on the results for the year ended 31 March 2014, will be released
      on SENS in due course.




                                                                                        Wescoal           Wescoal
                                                    Wescoal           Wescoal          pro forma         pro forma
                                   Wescoal         pro forma         pro forma          after the         after the
                                   ?before?         after the         after the             First          Second
                                  unaudited         MacPhail        Vlaklaagte        Minoscape         Minoscape
                             interim results      acquisition         dividend        acquisition      Acquisition
                              30 September     30 September      30 September      30 September      30 September           %
                                       2013             2013              2013              2013              2013      change
Earnings per share
(cents) 6) -10)                        37.2              41.9              38.4               41.1              47.2          15
Diluted earnings per
share (cents) 6) -10)                  36.6              41.2              37.8               40.5              46.4          15
Headline earnings per
share (cents) 6) -10)                  11.4              16.1              14.7               15.4              13.5         (13)
Diluted headline                       11.2                                                                     13.3         (13)
earnings per share6) -10)                                15.8              14.5               15.2
Net asset value per
share (cents) 1) ? 5)                  140.2             139.5             133.8              137.3             135.0         (2)
Tangible net asset value
per share (cents) ) 1) ? 5)            107.8              68.7             68.8               74.7              65.5        (12)
Weighted average
number of shares in
issue (?000)                        157 931             157 931             172 217            178 717         174 431
Diluted Weighted
average number of
shares in issue (?000)              160 638             160 638             174 924            160 638         160 638
Total shares in issue
(?000)                              157 931             157 931             172 217            178 717         174 431

       Notes:

       1.  The ?Wescoal Before? column has been extracted without adjustment from the published un-audited results
           of Wescoal Holdings Limited for the six months ended 30 September 2013.
       2. The ?Pro forma after the MacPhail acquisition? column represents the pro forma financial position after the
           MacPhail acquisition, which is assumed to have taken place on 30 September 2013 and is derived from the
           historical financial information relating to the MacPhail Combined Entity for the six months ended 31 August
           2013 (?Carved Out?) historical financial information and adjusted for the following:
          a) The following balances have been excluded from the pro forma financial information relating to the
               MacPhail Combined Entity as these assets, equity components and liabilities associated with the
               business acquired have not been acquired in terms of the sale agreement:
              i. deferred taxation asset amounting R2 764 000;
              ii. trade and other receivables R112 617 000;
              iii. retained earnings R27 058 000;
              iv. employee share option reserve R5 547 000;
              v. interest bearing loans R4 076 000 (long term R2 221 000, short term R1 855 000);
              vi. trade and other payables R97 690 000;
              vii. taxation payable R3 628 000; and
              viii. bank overdraft R1 120 000.
          b) The purchase price for the acquisition of the business and related assets (excluding the properties) was
               set at R65 500 000 with a maximum purchase price of R72 900 000, subject to a stock adjustment on
               the effective date. The transaction became effective during November 2013 and on at this date the stock
               value amounted to R9 613 000, resulting in an increase in the purchase price of R2 013 000 to R67 513
               000. The additional purchase price of R2 013 000 was settled in cash from the bank overdraft facility and
               the balance of the purchase price of R65 500 000 has been funded by Investec Bank Limited. In
               addition to the aforementioned, the purchase consideration for the properties was set at R13 500 000
               and was funded by Investec Bank Limited.
          c) Provisional accounting of the assets acquired (excluding the properties), based on balances as at 31
               August 2013 (but adjusted for stock movements up to the effective date of the transaction), are as
               follows:

                                                                                 MacPhail
                                                                                 business       Provisional fair   Recognised
                                                                                  carrying               value       values on
                                                                                   values         adjustments       acquisition
                                                                  Notes              R'000               R'000           R'000
             Plant and equipment                                       i             6 953                     -         6 953
             Inventories                                               i             9 613                     -         9 613
             Intangible assets - brands and
             trademarks                                                ii                  -               9 522             9 522
             Intangible assets - client relationships                  ii                  -             25 442            25 442
             Deferred tax on intangible assets                        iii                  -             (9 790)           (9 790)
             Net identifiable assets and liabilities                                  16 566             25 174            41 740
             Residual Goodwill                                        Iv                                                   25 773
             Total consideration                                                                                           67 513
             Consideration paid in cash                                                                                    67 513
             Total consideration                                                                                           67 513
        i.  The carrying values of plant and equipment and inventory approximates their fair value.
        ii. Based on the provisional assessment, marketing and customer related intangible assets were
            identified and will be amortised over five years.
       iii. The deferred taxation is as result of the intangible assets identified at 28%.
       iv. Goodwill of R25 773 000 is a result of the excess of the purchase consideration over the identifiable
            assets acquired.
       The values attached to the above business and related assets are based on a provisional assessment of
       fair values. The fair values of the business and related assets will be finalised within one year from the
       acquisition date. The fair values of the assets identified may change, based on the final assessment
       which will impact on the final Goodwill amount recorded.
    d) Properties acquired relate to the following:
       i. the acquisition of the properties from the FSW Property Trust; and
       ii. assets have been recorded at their fair values as follows:

                                                                  Land         Buildings                 Total
          Property                                               R'000             R'000                 R'000
          George                                                  2,000            1,800                 3,800
          Wells Estate                                            3,100                 -                3,100
          Worcester                                               5,780              820                 6,600
                                                                10,880             2,620                13,500
        The fair market values were based on valuation reports. The Property, plant and equipment
        balance has been adjusted by removing the book value of the properties at R1 531 000 and to
        include the fair value of the properties purchased at R13 500 000.
   e) The purchase consideration for the MacPhail business (excluding the properties and the additional
        purchase consideration) amounting to R65 500 000 and related transaction costs amounting to R1 910
        000 (exl VAT) are funded by Investec Bank Limited. The total funded value assumed is R67 593 000
        (incl VAT on transaction costs). This loan bears interest at Prime plus 1% and is repayable in quarterly
        instalments over 36 months.
   f) The purchase consideration for the MacPhail properties acquired amounts to R13 500 000 and, in
        addition to transaction costs amountint to R135 000 (excl VAT), is funded by Investec Bank Limited.
        The total funded value assumed is R13 653 000 (incl VAT on transaction costs). The loan bears interest
        at Prime minus 0.5% and is repayable in monthly instalments over 60 months.
3. The ?Pro forma after ther Vlaklaagte dividend? column represents the pro forma financial position after the
    Vlaklaagte dividend and includes the following:
    a) declaration of dividends amounting to R16 761 000 to minority shareholders (Proudafrique) following the
         disposal of the Vlaklaagte Prospecting Right;
    b) issue of 14 285 714 Wescoal shares in lieu of R10 000 000 of the above dividend; and
    c) raising a liability for the remaining balance of the above dividend.
4. The ?Pro forma after First Minoscape Acquisition? column represents the revised pro forma financial position
    before the Second Minoscape Acquisition by accounting for the acquisition of a 30% interest in
    Proudafrique, which is equity accounted as a result of this transaction, is assumed to have taken place on
    30 September 2013, and includes the following adjustments:
    a) the purchase price comprises cash of R5 000 000 and the issue of 6 500 000 Wescoal shares;
    b) it is assumed that the cash consideration is funded from an increase in loan facilities at an interest rate of
         Prime plus1%; and
    c) for accounting purposes, the assumed share price for the issue of Wescoal shares is 231 cents per
         share, being the share price at the end of November 2013 when this transaction became effective.
5. The ?Pro forma after the Second Minoscape Acquisition? column accounts for the acquisition of the
    remaining 70% interest in Proudafrique, resulting in it becoming a wholly owned subsidiary and is assumed
    to have taken place on 30 September 2013.

     Prior to the acquisition by Wescoal, Proudafrique acquired 14 285 714 Wescoal shares in lieu of a R10 000
     000 dividend that was due to Proudafrique by Wescoal Exploration (refer 6(b) above). As a consequence of
     acquiring Proudafrique, Wescoal effectively and specifically repurchases the Wescoal shares that are
     owned by Proudafrique.

     Proudafrique owns a non-controlling interest of 40% in Wescoal Exploration. Wescoal Exploration already
     owns the various mining prospects that are being exploited by it and as such these mining and prospecting
     rights are already accounted for in Wescoal Exploration, which is controlled and consolidated by Wescoal.
     The acquisition by Wescoal of Proudafique therefore does not result in any additional mining or prospecting
     rights being owned or controlled by Wescoal, however the non-controlling interest is being bought out.
     Proudafrique is entitled to a royalty of R5.00 per ton of any future saleable coal that is mined at the
     Elandspruit mining area. In addition, Proudafrique is also entitled to royalties on any future coal operations
     that are established at the Silverbank or Verblyden prospects that are owned by Wescoal Exploration. As a
     consequence of acquiring Proudafrique, Wescoal not only eliminates the obligation to pay any future
     royalties on the Silverbank and Verblyden prospects, but also effectively pre-pays R1.50 per ton of the
     royalty payable on saleable coal to be mined at the Elandspruit mining area.

     In summary and in substance, the First and Second Minoscape Acquisitions effectively result in the
     following:
     - Wescoal having repurchased the 14 285 714 Wescoal shares that has been issued to Proudafrique
          (refer 6(b) above);
     - Wescoal having settled the dividend that was due to Proudafrique (refer 6(c) above; and
     - Wescoal having pre-paid R1.50 per ton of the royalty that was due to Proudafrique before the First and
          Second Minoscape Acquisitions.

     The Second Minoscape Acquisition is not classified as a business combination and therefore no goodwill
     arises on this transaction.

     The amounts in this column have been adjusted for the following:
     (a) reversal of the investment in associate, that was raised to give effect to the First Minoscape Acquisition,
          as Proudafrique will now be a wholly owned subsidiary;
     (b) reversal of non-controlling interest that existed before the First and Second Minoscape Acquisitions;
     (c) the purchase price of the Second Minoscape Acquisition comprises cash of R5 600 000 and the issue of
          10 000 000 Wescoal shares;
     (d) it is assumed that the cash consideration is funded from an increase in loan facilities at an interest rate of
          Prime +1%;
     (e) for accounting purposes, the assumed share price for the issue of Wescoal shares is 200 cents per
          share, being the share price at the last practical date before the issue of this circular;
     (f) reversal of the 14 285 714 Wescoal shares effectively re-purchased at the same share price as noted
          above;
     (g) transaction costs amounting to R1 293 000 are accounted for as an increase in accounts payable and a
          reduction in retained earnings; and
     (h) account for a Prepaid royalty amounting to R9 319 000, representing the R1.50 per ton of saleable coal
          mined at Elandspruit that has effectively been prepaid in terms of the Minoscape Acquisitions.
     (i) It is noted that the additional purchase commitment of R3.50 per ton of saleable coal mined at
          Elandspruit will be paid and expensed as and when the related coal is mined.
6.       The ?Pro forma after MacPhail? column represents the pro forma results after the MacPhail acquisition,
         which is assumed to have taken place on 1 April 2013 and includes the historical financial information
         relating to the MacPhail Combined Entity for the six months ended 31 August 2013 (?Carved Out?) after
         adjusting for the following:
     a) Included in operating expenses an amount of R4 622 000 relating to the following adjustments:
            i. R1 100 000 transaction costs. This expense has been assumed to be non-tax deductible;
            ii. Amortisation of identifiable intangible assets based on the provisional fair value assessment
                 amounting to R3 496 000 for the period; and
            iii. Depreciation on the buildings amounting to R26 200 for the period, calculated on a straight-line basis
                 over 50 years.
     b) Included in the finance costs an amount of R3 809 000 relating to the following adjustments:
            i. Reversal of finance costs of R583 000. These finance cost relate to interest-bearing liabilities that do
                 not form part of the business being acquired; and
            ii. R4 392 000 representing interest on the funding raised for the MacPhail Acquisition, net of the
                 amortisation of capitalised transaction costs (R332 000 for the six month period). It has been
                 assumed that the amortisation of the capitalised transaction costs are non-tax deductible.
     c) Included in taxation an amount of R1 954 000, being the tax effects of the adjustments made to
          operating expenses and finance costs at 28% (taking account for the non-tax deductible items noted
          above).
7.       The ?Pro forma after the Vlaklaagte dividend? column represents the pro forma financial position after the
         Vlaklaagte dividend and includes the following:
     a) declaration of dividends amounting to R16 761 000 to minority shareholders (Proudafrique) following the
          disposal of the Vlaklaagte Prospecting Right. This has no impact on the net profit during the period;
     b) issue of 14 285 714 Wescoal shares in lieu of R10 000 000 of the dividend paid to Proudafrique as noted
          above.
8.      The ?Pro forma after First Minoscape Acquisition? column represents the pro forma results before the
        Second Minoscape Acquisition by accounting for the acquisition of a 30% interest in Proudafrique, which
        is equity accounted as a result of this transaction, is assumed to have taken place on 1 April 2013, and
        includes the following adjustments:
    a) equity accounting the net profit of Proudafrique for the six months to 31 August 2013;
    b) accounting for finance costs of R250 000, being interest on the cash portion of the purchase
         consideration at Prime plus 1%. It has been assumed that this interest is non-tax deductible as it
         relates to the purchase of shares; and
    c) the issue of an additional 6 500 000 Wescoal shares.
9.      The ?Pro forma after the Second Minoscape Acquisition? column accounts for the acquisition of the
        remaining 70% interest in Proudafrique, resulting in it becoming a wholly owned subsidiary and assumes
        that the transaction was effective on 1 April 2013. In substance, the First and Second Minoscape
        Acquisitions effectively result in the following:
    - Wescoal having repurchased the 14 285 714 Wescoal shares that had been issued to Proudafrique;
    - Wescoal having settled the dividend that was due to Proudafrique; and
    - Wescoal having pre-paid R1.50 per ton of the royalty that was due to Proudafrique before the First and
         Second Minoscape Acquisitions.
    The amounts in this column have been adjusted for the following:
    (a) reversal of the equity accounted profit of associate, that was raised to give effect to the First Minoscape
         Acquisition, as Proudafrique will now be a wholly owned subsidiary;
    (b) reversal of non-controlling interest in profit that existed before the First and Second Minoscape
         Acquisitions;
    (c) the purchase price of the Second Minoscape Acquisition comprises cash of R5 600 000 and the issue of
         10 000 000 Wescoal shares;
    (d) it is assumed that the cash consideration is funded from an increase in loan facilities at an interest rate of
         Prime plus 1%. Interest of R280 000 has therefore been raised at 10% for the six month period. It has
         been assumed that this interest is non-tax deductible as it relates to the purchase of shares;
    (e) reversal of the 14 285 714 Wescoal shares effectively re-purchased; and
    (f) transaction costs amounting to R1 293 000 are expensed and assumed to be non-tax deductible.
    (g) It is noted that Wescoal Mining has an obligation to pay a royalty of R5.00 per ton of saleable coal to be
         mined at Elandspruit to Proudafrique. Following the Minoscape Acquisitions, the royalty payable to the
         owners of Proudafrique is reduced to R3.50 per ton of saleable coal to be mined at Elandspruit, with
         R1.50 per ton having been pre-paid as part of the Minoscape Acquisitions. A prepaid royalty amounting
         to R9 319 000 has been accounted for as part of the pro forma statement net assets and this
         prepayment will be amortised in earnings as and when the related coal is mined at Elandspruit. No
         adjustment is included in the pro forma earnings for these royalties as mining operations at Elandspruit
         had not commenced during the period under review.
10.     All the above adjustments, with the exception of transaction costs, are expected to have a continuing
        effect.

4)      Withdrawal of cautionary announcement

Shareholders are advised that caution is no longer required to be exercised by shareholders when dealing in
Wescoal?s securities.

5)      Update on the circular

The circular in respect of the Minoscape acquisition and specific repurchase is expected to be posted to
shareholders by the 21 May 2014. Shareholders will be notified once this circular has been posted.




Corporate adviser & Sponsor to Wescoal                             Legal Adviser to Wescoal
Exchange Sponsors                                                  KWA Attorneys

9 May 2014
Johannesburg

Date: 09/05/2014 10:04:00 Supplied by www.sharenet.co.za                     
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