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Exxaro Resources Limited - Exxaro Acquires Total Coal South Africa Proprietary Limited

Release Date: 28/07/2014 13:17:00      Code(s): EXX     
EXXARO RESOURCES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2000/011076/06)
ISIN: ZAE000084992
JSE Share Code: EXX
ADR Code: EXXAY
("Exxaro" or "the Company")

EXXARO ACQUIRES TOTAL COAL SOUTH AFRICA PROPRIETARY LIMITED

1.    INTRODUCTION

      Shareholders are advised that, on Friday, 25 July 2014 ("Signature Date"), Exxaro entered into
      a binding sale and purchase agreement (the "SPA") with Total S.A. ("Total"), subject to certain
      conditions precedent as listed in paragraph 3 below, for the acquisition of 100% of the issued
      share capital of Total Coal South Africa Proprietary Limited ("TCSA") and its related export
      marketing rights under primary Richards Bay Coal Terminal ("RBCT") allocation ("the
      Acquisition").

      The Acquisition constitutes a Category 2 acquisition for the Company in terms of Section 9 of
      the JSE Limited Listings Requirements ("Listings Requirements").

2.    THE ACQUISITION

2.1   Terms of the Acquisition

      In terms of the Acquisition, Exxaro will acquire 100% of the issued share capital of TCSA from
      Total as well as settle all outstanding loan claims of Total Finance S.A.S ("Total Finance")
      against TCSA.

      Exxaro confirms that in terms of Section 9.16 of the Listings Requirements, after the completion
      of the Acquisition, TCSA will be a wholly-owned subsidiary of Exxaro and the Memoranda of
      Incorporation of TCSA and its subsidiaries will not frustrate Exxaro from compliance with its
      obligations in terms of the Listings Requirements.

2.2   Overview of TCSA

      TCSA is the fifth largest coal producer in South Africa and has a majority interest in two main
      operating complexes, Dorstfontein and Forzando, located in the Witbank coal basin in South
      Africa's Mpumalanga province. TCSA recorded combined sales of approximately 4.5 million
      tonnes per annum ("Mtpa") in the year ended 31 December 2013. The majority of TCSA's
      production is export coal which is shipped via RBCT to international markets, mainly India and
      China. TCSA also sells its production into the South African domestic market.

      TCSA has a 74% direct shareholding in the Dorstfontein and Forzando mines. The remaining
      26% of the Dorstfontein and Forzando mines are owned by Mmakau Mining Proprietary Limited
      ("Mmakau").

      TCSA also owns a 49% interest in the Tumelo coal mine, with the remaining shareholding held
      by Mmakau, which is currently not in operation, and holds a 51% interest in the potential Eloff
      greenfields project, an undeveloped domestic thermal coal resource in Mpumalanga province.

2.3   Rationale for the Acquisition

      The Acquisition is closely aligned with Exxaro's long-term growth strategy and will provide
      Exxaro with a large-scale acquisition that will complement Exxaro's existing coal portfolio. The
      potential benefits of the Acquisition include:

      - Large-scale operating assets

         The Acquisition provides Exxaro with an opportunity to acquire a large-scale, operating coal
         business in South Africa which has an estimated remaining life of mine in excess of 20
         years. TCSA has a remaining resource base estimated at 1 498Mt gross tonnes in-situ and
         395Mt of run-of-mine resources. Furthermore, TCSA's operations are in close proximity to
         Exxaro's existing Witbank operations and Exxaro has a good understanding of geological
         and mining conditions in the region.

      - Strong investment thesis for the Acquisition

         The Acquisition significantly increases the scale of Exxaro's coal portfolio and further
         entrenches Exxaro as one of the premier coal producers in South Africa. Exxaro sees its
         investment in coal assets as a core part of its diversified mining portfolio and believes that it
         will be able to leverage its extensive experience in coal mining to unlock additional value
         from the existing TCSA operations and the Eloff greenfields project.

      - Access to primary RBCT entitlement

         Exxaro is currently the fourth largest exporter of coal from South Africa and the Acquisition
         will provide it with access up to an additional 4.09Mtpa of primary phase 1 ? 3 RBCT
         entitlement. Exxaro currently leases entitlement from other operators in the industry in order
         to meet its export requirements. The Acquisition will allow Exxaro to utilise Exxaro controlled
         entitlement to meet its export requirements in future.

      - Optimisation of Exxaro's existing portfolio

         Exxaro believes that the Acquisition will allow it to optimise production at its existing
         operations through the reconfiguration of production in order to maximise the value of its
         portfolio. Access to additional allocation could enable Exxaro to reconfigure and expedite its
         development plans for current brownfields and greenfields projects in the Waterberg region
         by either increasing the scale of existing operations or changing planned projects to multi-
         product mines.

         Furthermore, the development of infrastructure in the Waterberg region has been designated
         a priority in the South African National Development Plan. It is anticipated that coal from the
         Waterberg can be used to replace the rapidly diminishing thermal coal being supplied to
         Eskom from existing Mpumalanga coal mines. Development of the Waterberg region coal
         assets has historically been limited due to, among others, the lack of expansion of rail
         capacity supplied by Transnet Freight Rail. Exxaro currently owns the only operating coal
         mine in the Waterberg region, Grootegeluk, and has various other potential greenfields
         projects that it plans to develop in the region, including its large-scale Thabametsi project.
         Having access to additional primary RBCT export allocation will facilitate Exxaro's
         commitment to the development of these projects, potentially as multi-product mines.

2.4   The Purchase Consideration

      The terms of the Acquisition provide that all risk and reward inherent in TCSA will transfer to
      Exxaro from 1 January 2014.

      Exxaro has agreed a total purchase consideration, as at the Signature Date, of US$472 million
      ("the Purchase Consideration"). As explained below, the Purchase Consideration may vary
      between Signature Date and the closing of the Acquisition ("Closing Date"). The Purchase
      Consideration comprises two components:

      - Purchase consideration for the acquisition of the TCSA shares

         Exxaro has agreed to pay US$386.5 million for the Acquisition of 100% of the issued share
         capital of TCSA ("the Equity Consideration"). A purchase price adjustment has been
         included, whereby the Equity Consideration will be increased by 3% per annum from
         1 January 2015 until Closing Date of the Acquisition. The Equity Consideration will further be
         reduced for certain leakage payments that may be paid by TCSA to any member of the Total
         group between Signature Date and Closing Date.

      - Loan Consideration

         In terms of the Acquisition, Exxaro has also agreed to settle the outstanding loan claims of
         Total Finance against TCSA ("Loan Consideration"), as at Closing Date. The outstanding
         balance of the Loan Consideration as at the Signature Date was US$85.5 million, however
         this amount may vary to the extent that Total Finance extends further draws to TCSA prior to
         Closing Date.

2.5   Transaction funding

      Exxaro anticipates financing the Purchase Consideration using its existing corporate debt
      facilities, which have been reserved for the Acquisition. Exxaro is required to provide a
      US$-based guarantee for the Purchase Consideration.

2.6   Expected benefits

      Exxaro is delighted with its success regarding the Acquisition and for the growth opportunities it
      will provide for Exxaro as well as the contribution to the South African economy in terms of
      continuing employment and foreign earnings. The consolidation of ownership of coal assets
      within South Africa is a welcome opportunity.

2.7   Unaudited pro forma financial effects of the Acquisition

      The table below sets out the unaudited pro forma financial effects of the Acquisition on earnings
      per share ("EPS"), headline earnings per share ("HEPS"), diluted EPS and diluted HEPS based
      on the audited results of the Company for the year ended 31 December 2013 as well as the net
      asset value ("NAV") and net tangible asset value ("NTAV") per share as at 31 December 2013.

      The unaudited pro forma financial effects are the responsibility of the directors and have been
      prepared for illustrative purposes only, to provide information on how the Acquisition may
      impact shareholders of Exxaro on the relevant reporting date. Because of its nature, the
      unaudited pro forma financial effects may not give a fair reflection of the Company's financial
      position, changes in equity, results of operations or cash flows after implementation of the
      Acquisition or of the Company's future earnings.

      Unaudited Pro forma financial effects of the Acquisition:


                                                    Before the                  After the 
                                                 Acquisition 1            Acquisition 2,3           Change
                                                       (cents)                    (cents)              (%)

       EPS                                               1,751                      1,670           (4.63)
       Diluted EPS                                       1,746                      1,666           (4.58)
       HEPS                                              1,463                      1,382           (5.54)
       Diluted HEPS                                      1,459                      1,378           (5.55)
       NAV per share                                    10,129                     10,060           (0.68)
       TNAV per share                                    9,800                      9,302           (5.08)
       Number of shares in                                 358                        358             0.00
       issue (million)
       Weighted average
       number of shares in issue                           355                        355             0.00
       (million)
       Fully diluted weighted
       average number of                                   356                        356             0.00
       shares in issue (million)


     Notes:
     1.       Extracted from the published audited results of the Company for the year ended
              31 December 2013.
     2.       Adjustments to EPS and HEPS have been made assuming:
              2.1.    the Acquisition was effective on 1 January 2013;
              2.2.    an attributable net loss of TCSA of R55 million for the year ended
                      31 December 2013;
              2.3.    the Purchase Consideration was financed using Exxaro's Rand (ZAR) based
                      corporate debt facilities, incurring interest at an average interest rate of 7.8%
                      and assuming a ZAR/US$ exchange rate of R10.70/US$; and
              2.4.    a company tax rate of 28%.
     3.       Adjustments to NAV and TNAV per share have been made assuming:
              3.1.    the Acquisition was effective on 31 December 2013;
              3.2.    a net asset value of R2.4 billion and a tangible net asset value of R2.3 billion
                      of TCSA as at 31 December 2013; and
              3.3.    the Purchase Consideration was financed using Exxaro's ZAR based corporate debt facilities and assuming 
                      a ZAR/US$ exchange rate of R10.70/US$.

3.   CONDITIONS PRECEDENT AND REGULATORY APPROVALS

     The implementation of the Acquisition is subject to the fulfilment of the following conditions
     precedent:

     - the Competition Authorities conditionally or unconditionally approving the implementation of
       the Acquisition, provided that to the extent that the Competition Authorities conditionally
       approve the implementation of the Acquisition, then such conditions must be satisfactory to
       Exxaro (acting reasonably);

     - consent by the Minister of Mineral Resources of South Africa for the Acquisition being
       granted in terms of Section 11 of the Mineral and Petroleum Resources Development Act 28
       of 2002;

     - approval of the Acquisition by the Financial Surveillance Department of the South African
       Reserve Bank or any commercial bank in South Africa authorised by the South African
       Reserve Bank to deal in foreign exchange;

     - the board of directors of RBCT approving the change of control in TCSA from Total to
       Exxaro.

     In terms of the SPA all conditions precedent need to be fulfilled before the drop dead date
     ("Drop Dead Date"), being six months post the Signature Date. The Drop Dead Date can be
     extended once, by either party unilaterally to a date no later than six months post the Drop
     Dead Date, and once, after the aforementioned extension, by Total unilaterally to a date no later
     than six months after the date of the prior extension.

     Furthermore, the Acquisition is subject to no material adverse change in respect of TCSA or its
     operations having occurred between the Signature Date and Closing Date.

     Exxaro will continue to work with TCSA, relevant authorities and affected stakeholders to fulfil
     the conditions precedent in order for the Acquisition to be effective within the shortest time
     possible.

4.   BALANCING ENERGY REQUIREMENTS AND CLIMATE RISK

     Exxaro is conscious of the impact of its coal mining activities on the climate through its carbon
     dioxide equivalent emissions (CO2e). The Acquisition will increase the resources in the ground
     as well the future mining production, contributing further to the Company's emissions profile, in
     the absence of carbon management efforts.

     However, Exxaro has been an active participant of the Carbon Disclosure Project, an international, 
     not-for-profit organisation providing the only global system for companies and cities to measure, disclose,
     manage and share vital environmental information. For the past two years, Exxaro has been placed amongst the 
     top ten global leaders of the carbon performance leadership index (CPLI), which assesses how companies incorporate
     emissions reductions into their strategies and meet their emissions reduction targets, as well as the associated
     carbon disclosure leadership index (CDLI), which measures transparency and data management of greenhouse gas emissions.
     Therefore the Acquisition will be incorporated into the Company's carbon management strategy and continue along this performance. 
     Further, Exxaro has invested in the renewable energy sector through its 50/50 JV in Cennergi Proprietary Limited,which is developing
     two wind energy projects to generate 239MW of electricity for the South African electricity grid. South Africa has embarked on
     an intensive diversified energy development programme in order to support economic growth and social development. 
     Coal will remain a primary energy input in this development, but renewables are expected to increase substantially 
     in the national energy portfolio. Exxaro is well positioned to contribute to both South Africa's economic and social development
     and is committed to responsible and accountable development through its environmental stewardship.

5.    CONFERENCE CALL DETAILS

      A tele-conference call regarding the details of this announcement will be held on Monday,
      28 July 2014, at 16h00 Republic of South Africa Time (GMT+2:00): the live call is open to
      the public via telephone and also via an audio webcast available on http://www.exxaro.com/

      Dial-in telephone numbers:
      - Republic of South Africa toll-free: 0800 200 648
      - Johannesburg: 011 535 3600 or 010 201 6800
      - Cape Town: 021 819 0900
      - Australia toll-free: 1 800 350 100
      - United Kingdom toll-free: 0808 162 4061
      - United States of America and Canada toll-free: 1 855 481 5362
      - Conference ID: Exxaro Tele-conference

      Webcast Conference Call Replay: available via the Internet and telephone beginning on
      29 July 2014, at 08h00 RSA Time (GMT+2:00): until 04 August 2014.

          Internet Replay: www.exxaro.com
          Play-back telephone numbers:
          -   Republic of South Africa: 011 305 2030
          -   Australia toll-free: 1 800 091 250
          -   United Kingdom toll-free: 0 808 234 6771
          -   United States of America and Canada toll-free: 1 855 481 5363
          -   Other countries: +27 11 305 2030
          -   Playback Code: 32075#

Editor's note:
Exxaro is one of the largest South African based diversified resources companies, with interests in the
coal, titanium dioxide and iron ore commodities. www.exxaro.com

Enquiries:
Wim de Klerk
Finance Director
Tel: + 27 12 307 4848
Mobile: +27 82 652 5145
Email: wim.deklerk@exxaro.com

Pretoria
28 July 2014

Merchant bank and transaction sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)

Legal adviser
Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc.)

Sponsor
Deutsche Securities (SA) Proprietary Limited

Date: 28/07/2014 01:17:00 Supplied by www.sharenet.co.za                     
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