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Keaton Energy Holdings Limited - Detailed Terms Announcement Relating To The Proposed Flip Up Of Rutendo Mining To Keaton Energy

Release Date: 04/09/2015 14:45:00      Code(s): KEH     
Keaton Energy Holdings Limited
(Incorporated in the Republic of South Africa)
Registration number: 2006/011090/06
JSE share code: KEH ISIN ZAE000117420
(?Keaton Energy? or ?the Company?)

DETAILED TERMS ANNOUNCEMENT RELATING TO THE PROPOSED FLIP UP OF RUTENDO MINING
PROPRIETARY LIMITED (?RUTENDO MINING?), A RELATED PARTY AND SHAREHOLDER IN KEATON
MINIING PROPRIETARY LIMITED (?KEATON MINING?) TO KEATON ENERGY, THEREFORE
BECOMING A SHAREHOLDER OF THE COMPANY.

Introduction

The Keaton Energy board of directors is pleased to confirm that Keaton Energy has concluded an
agreement with Rutendo Mining, a related party, whereby Rutendo Mining will exchange its 26%
shareholding in Keaton Mining for 21.83% of the issued shares of Keaton Energy. Rutendo Mining
will subscribe for 63,731,714 fully paid up Keaton Energy shares ("New Keaton Energy Shares") at
R2.3638 per Keaton Energy Share equaling R150,649,026. In addition a cash payment of R6 million,
payable in six equal interest free monthly instalments commencing on 29 January 2016 will be made
to Rutendo Mining (?the Rutendo Flip Transaction").

The purpose of the Rutendo Flip Transaction is to give effect to an exchange agreement ("Exchange
Agreement") which arose on the exercise of an exchange option by Rutendo Mining in terms of the
original shareholders agreement in place between Keaton Energy, Rutendo Mining and Keaton
Mining ("Company Shareholders Agreement") and to ensure that a certain number of Keaton Energy
shares remain in the hands of BEE shareholders.

Background

Keaton Energy and Rutendo Mining entered into the Company Shareholders Agreement for the
purpose of regulating the rights of Keaton Energy and Rutendo Mining as shareholders in Keaton
Mining on 3 August 2007.

At all material times and as far as the Company Shareholders Agreement is concerned:
    - Keaton Energy held 74% of all the issued ordinary shares in Keaton Mining; and
    -   Rutendo Mining held 26% of all the issued ordinary shares in Keaton Mining.

In order to implement the Rutendo Flip Transaction, the parties have entered into an addendum to
the Company Shareholders Agreement, wherein the parties amended the terms and conditions of
the Exchange Agreement to allow for Rutendo Mining to exchange its 26% shareholding in Keaton
Mining for New Keaton Energy Shares, to receive a cash payment and to incorporate certain required
conditions precedent, (?the Amended Exchange Agreement?) being the Rutendo Flip Transaction.


In terms of the Rutendo Flip Transaction, Rutendo Mining will be restricted from trading in or
disposing of any of its New Keaton Energy Shares for a period of 3 (three) years provided that in the
event that the BEE regulations or codes are amended so as to allow for companies to retain their BEE
status once they have received such status despite a subsequent reduction in BEE score (known as
the ?once empowered always empowered? principle) the trading restriction will be lifted.

Rutendo Mining is classified as a related party in terms of paragraph 10.1 (b)(ii) of the JSE Listings
Requirements as:
    -   AB Glad (?Glad?) and APE Sedibe (?Sedibe?) are directors of Rutendo Mining and Keaton
        Energy; and
    -   Glad and Sedibe are the sole shareholders of Rutendo Mining, indirectly owning 49% and
        51% respectively.

Rationale

The Rutendo Flip Transaction enables Keaton Energy to retain and secure its BEE credentials on a
group level whilst providing Rutendo Mining access to a more liquid shareholding within the limits of
the contractually agreed share restriction provisions.

Purchase Consideration

Rutendo will receive a consideration of R156,649,026 which will be settled as follows:

    -   the issue of 63,731,714 New Keaton Energy Shares at R2.3638 per share totalling
        R150,649,026 representing 21.83% of Keaton Energy?s issued share capital; and
    -   a cash payment of R6 million payable in six equal interest free monthly instalments
        commencing on 29 January 2016.

Conditions Precedent

The Rutendo Flip Transaction is subject to the following conditions precedent:

    -   The approval of Keaton Energy shareholders of the Rutendo Flip Transaction at a General
        Meeting to be convened;
    -   The directors of Rutendo Mining having passed all such resolutions as would be required to
        approve and implement the agreements pertaining to the Rutendo Flip Transaction;
    -   The shareholders of Rutendo Mining having passed all such resolutions as may be required
        to approve the agreements pertaining to the Transaction;
    -   Keaton Energy having complied with and obtained all approvals necessary in respect of the
        JSE Listing Requirements; and
    -   Keaton Mining having obtained Investec Bank Limited?s approval in accordance with the
        facility agreement in place between Keaton Mining and Investec Bank Limited.

Pro forma financial effects

The pro forma financial effects set out in this announcement have been prepared for illustrative
purposes only in order to provide information about the impact of the Rutendo Flip Transaction on
the Keaton Energy group had the Rutendo Flip Transaction occurred on 1 April 2014 for purposes of
the statement of profit or loss and on 31 March 2015 for statement of financial position purposes.

The pro forma financial effects are presented in accordance with the JSE Listings Requirements, the
Guide on Pro Forma Financial Information issued by SAICA, ISAE 3420 and the measurement and
recognition requirements of IFRS.

The pro forma financial information is the responsibility of the directors. Due to the nature of the
pro forma financial information, it may not give a fair reflection of the Keaton Energy group financial
position, changes in equity and results of operations or cash flows after the Rutendo Flip Transaction.

The accounting policies applied in quantifying pro forma adjustments are consistent with the Keaton
Energy group accounting policies as at 31 March 2015. The pro forma financial information
incorporates the reviewed results of Keaton Energy for the twelve months ended 31 March 2015.

The table below sets out the pro forma financial effects of the Rutendo Flip Transaction for the
following key metrics in respect of the Keaton Energy group financial year ended 31 March 2015:

                                                             As Reported     Pro Forma     Change (%)
                                                                 (1)            After
                                                                            Rutendo Flip
                                                                                 (2)
  Headline earnings per share (cents)(3)                     0.4           5.3             1225.0
  Fully diluted headline earnings per share (cents)(3)       0.4           5.2             1200.0
  Basic earnings per share (cents)(3)                        -13.8         -5.9            57.3
  Diluted earnings per share (cents)(3)                      -13.8         -5.9            57.3
  Net asset value per share (cents)(4 and 5)                 373.5         288.0           -22.9
  Tangible net asset value per share (cents)(4 and 5)        54.3          40.0            -26.3
  Number of shares in issue (million)(6)                     224.4         288.2           28.4
  Weighted average number of shares in issue                 224.4         288.2           28.4
  (million)(6)
  Fully diluted weighted average number of shares in         228.0         291.8           28.0
  issue (million)(6)
  The value of the net assets as it relates to the Rutendo   838.3         831.0           -0.9
  Flip Transaction (million)(4 and 5)
  Additional shares issue attributable to the                              63.7
  Rutendo Flip Transaction (million)(4)

Notes and assumptions:

1. The "As Reported" column represents Keaton Energy?s reviewed results for the year-ended 31
   March 2015.

2. Assumed that Keaton Energy in terms of the Amended Exchange Agreement acquires the 26%
   non-controlling interest in Keaton Mining, and as a result owns 100% of Keaton Mining. The share
   of profits for the year ended 31 March 2015 related to the 26% interest was R13,952,425.

3. Earnings per share and headline earnings per share adjusted for:
     - the inclusion of the 26% earnings of R13,952,425 relating to Keaton Mining for the year
       ended 31 March 2015 as noted in (2) above;
     - estimated transaction cost of R274,683 incurred by Keaton Energy in acquiring the 26%
       non-controlling interest in Keaton Mining. The cost reflects the portion of total estimated
       transaction cost accounted for in the statement of comprehensive income; and
     - taxation deduction of R482,669 on the total transaction costs of R1,723,817 incurred.

4. Net asset value adjusted for:
       - the Amended Exchange Agreement entered into between Keaton Energy and Rutendo
         Mining resulted in the sale of 26% interest in Keaton Mining held by Rutendo Mining to
         Keaton Energy for a consideration of R156,649,026. The purchase consideration was
         settled as follows:
                (i)      R6,000,000 in cash and
                (ii)     the issue of 63,731,714 Keaton Energy shares at R2.3638 per share totaling
                         R150,649,026 recorded in stated capital;
       - the non-controlling interest balance related to Keaton Mining of R72,171,782 was
         derecognised;
       - estimated transaction cost of R1,449,134 incurred by Keaton Energy that have been
         capitalised in terms of IAS 32 (Financial Instruments). The cost reflects the portion of
         total estimated transaction cost associated with the issue of Keaton Energy shares and
         thus accounted for against stated capital.

5. Retained earnings adjusted for:
       - the effect of the loss on the purchase of the 26% interest in Keaton Mining of
         R228,820,741 (refer to (4) above);
       - transaction cost of R274,683 incurred by Keaton Energy in acquiring the 26% non-
         controlling interest in Keaton Mining. The cost reflects the portion of total estimated
         transaction cost accounted for in the statement of comprehensive income;
       - the taxation deduction of R482,669 on the total transaction costs of R1,723,817 incurred.

6. Number of shares in issue and weighted number of shares in issue has been adjusted with
   63,731,714 as referred to in note (4) above.

Categorisation

The Rutendo Flip Transaction has been categorised as a Related Party and Category 1 transaction in
terms of paragraph 9.5 and 10.1 (b) of the JSE Listings Requirements.

BDO Corporate Finance (Proprietary) Limited, an independent professional expert acceptable to the
JSE, are in the process of confirming that that the Rutendo Flip Transaction is fair to the shareholders
of Keaton Energy (?the Fairness Opinion?) and their Fairness Opinion will be included in the circular
to shareholders.

General Meeting

The Company will convene a general meeting of Keaton Energy shareholders in order to obtain the
necessary shareholder approvals to implement the Rutendo Flip Transaction ("General Meeting").

Documentation

A circular, detailing the Rutendo Flip Transaction and a notice of General Meeting, will, subject to the
approval of the JSE, be distributed to Keaton Energy shareholders by no later than 1 October 2015.
The fairness opinion will be available for inspection at Keaton`s registered office from the date of
distribution of the circular.

By order of the Board
Bryanston

4 SEPTEMBER 2015

Sponsor
Investec Bank Limited

Legal Advisor
Cliffe Dekker Hofmeyr

Date: 04/09/2015 02:45:00 Supplied by www.sharenet.co.za                     
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