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Exxaro Resources Limited - Exx - Update On The Unwind Of Existing Bee Transaction; Terms Of Replacement Bee Transaction; Renewal Of Cautionary

Release Date: 26/06/2017 07:06:00      Code(s): EXX     
Exxaro Resources Limited
(Incorporated in the Republic of South Africa)
Registration number: 2000/011076/06
JSE share code: EXX
ISIN: ZAE000084992
ADR code: EXXAY
(?Exxaro? or the ?Company?)

UPDATE ON THE UNWIND OF EXXARO?S EXISTING BEE TRANSACTION, TERMS OF
REPLACEMENT BEE TRANSACTION AND RENEWAL OF CAUTIONARY ANNOUNCEMENT

1.     BACKGROUND AND INTRODUCTION

1.1.   Exxaro shareholders are referred to the SENS announcement released by the Company on 22
       November 2016 (the ?Initial Announcement?), relating to the unwind of Exxaro?s existing BEE
       transaction (the ?Existing BEE Transaction?) and the proposed implementation of a replacement
       BEE transaction (the ?Replacement BEE Transaction?) with amongst others, the direct and/or
       indirect shareholders of Main Street 333 Proprietary Limited (?MS333?).

1.2.   Since the Initial Announcement, significant progress has been made through engagement between
       Exxaro, MS333 and other Exxaro shareholders, to reach agreement on the optimal unwind of the
       Existing BEE Transaction (the ?MS333 Unwind?) as well as agreeing to the key terms of the
       Replacement BEE Transaction.

1.3.   On Sunday, 25 June 2017, Exxaro, MS333, the Industrial Development Corporation (the ?IDC?) and
       two special purpose vehicles (?BEE SPV and New BEECo?, separately defined below) incorporated
       for the purposes of holding ordinary shares in Exxaro (?Exxaro Shares?) pursuant to the
       Replacement BEE Transaction, entered into the following agreements (together, the ?Signed
       Agreements?):
       1.3.1. a framework agreement setting out the framework within which the MS333 Unwind and the
              consequential implementation of the Replacement BEE Transaction will take place; and
       1.3.2. a relationship agreement detailing the terms and restrictions of the Replacement BEE
              Transaction over the transaction term.

1.4.   The implementation of the Replacement BEE Transaction remains subject to various conditions precedent, 
       including those set out in paragraph 2.3.6, which include the finalisation and agreement of the remaining
       suite of agreements required to implement the Replacement BEE Transaction and the MS333
       Unwind (the ?Detailed Transaction Agreements?).

1.5.   The purpose of this announcement is to provide Exxaro shareholders with an overview of the key
       terms of the Replacement BEE Transaction and the way forward with regards to implementing the
       MS333 Unwind and the Replacement BEE Transaction.

2.     OVERVIEW OF THE TERMS OF THE REPLACEMENT BEE TRANSACTION

2.1.   Introduction
       Exxaro, MS333 and the IDC have agreed the key terms relating to the Replacement BEE
       Transaction and the MS333 Unwind which are set out in the Signed Agreements, excluding the
       outstanding matters described in paragraph 2.3.5 (the ?Outstanding Matters?) which will be agreed
       in the Detailed Transaction Agreements. The reinvestment of Exxaro Shares by MS333
       shareholders, including the IDC, required to effect the Replacement BEE Transaction will be
       enabled by the MS333 Unwind.

2.2.   Rationale for the Replacement BEE Transaction
       Since inception, Exxaro has maintained its status as one of the largest Black controlled companies
       in the South African mining sector. Exxaro is aware of the current uncertainty around the legislative
       requirements for BEE in the South African mining sector.  However, the independent sub-committee
       of the Exxaro board of directors (the ?Independent Board Sub-Committee?) firmly believes that
       Exxaro?s empowerment status and ownership is a significant part of its strategy and is an
       imperative for the sustainability of Exxaro?s operations. Remaining empowered is essential for
       Exxaro to maintain sustainable relationships with critical stakeholders in the industry and to ensure
       ongoing compliance with customer requirements, as well as to further the imperative for
       transformation in South Africa.
       The recent release of the Reviewed Broad-Based Black Economic Empowerment Charter for the
       South African Mining and Minerals Industry has created increased uncertainty for South African
       mining companies.  However, as Exxaro has been pursuing the Replacement BEE Transaction for
       more than 18 months, it firmly believes the implementation of the Replacement BEE Transaction to
       be appropriate as it will further contribute to transformation in the South African mining industry in a
       responsible manner.

2.3.   Key terms of the Replacement BEE Transaction
       2.3.1. Salient features of the Replacement BEE Transaction
              a.    Exxaro and MS333 have agreed that Exxaro will repurchase 22 684 767 Exxaro
                    Shares from MS333 (the ?Second Repurchase?) at a 5% discount to the Reference
                    Price (defined in paragraph 2.3.5 below), still to be determined, as part of the
                    implementation of the Replacement BEE Transaction, in order to reduce its dilutionary
                    impact, subject to Exxaro shareholder approval. The Second Repurchase will only be
                    implemented on the final implementation date and will be conditional on the
                    Replacement BEE Transaction being approved and implemented.
              b.    A new special purpose vehicle, incorporated for the purpose of being the
                    empowerment vehicle which will hold Exxaro Shares (?New BEECo?) will ultimately
                    own 30% of the Exxaro Shares, after the implementation of the Replacement BEE
                    Transaction. This 30% will be acquired as follows:
                    -    certain MS333 direct and/or indirect shareholders, excluding the IDC (the
                         ?Reinvesting MS333 Shareholders?) will reinvest a minimum of 26 623 276
                         Exxaro Shares into New BEECo through a separately incorporated special
                         purpose vehicle (?BEE SPV?) (the ?MS333 Reinvestment?);
                    -    the IDC will reinvest 12 337 616 Exxaro Shares (the ?IDC Reinvestment?); and
                    -    New BEECo will subscribe for additional Exxaro Shares (the ?New Exxaro Share
                         Issue?) at an agreed discount which will be equal to 22.6% of the Replacement
                         BEE Transaction value (the ?Exxaro Facilitation Discount?), using the cash raised
                         as described in paragraph 2.3.2.e.
              c.    The net dilution to Exxaro shareholders, after the implementation of the Second
                    Repurchase and the Replacement BEE Transaction will be 7.4%, based on the
                    Exxaro value per share.
              d.    For illustrative purposes, the table below shows the potential change in Exxaro?s
                    market value as a result of the Second Repurchase and the New Exxaro Share Issue:

                                                                                      Illustrative
                                   Exxaro market value       Exxaro Shares (m)        Exxaro share
                                   (ZAR?bn)                                           price (ZAR)

           Before Second           27.1                      314.2(1)                 86.41(2)
           Repurchase and
           New Exxaro Share
           Issue
           Second Repurchase       (1.9)                    (22.7)(3)                 82.09(4)
           New Exxaro Share         3.6(5)                   69.3(6)                  51.77
           Issue
           After Second             28.9                     360.7                    80.03(7)
           Repurchase and
           New Exxaro Share
           Issue
           Percentage               6.3%                    (12.9%)                  (7.4%)
           dilution/(accretion)

           Notes:
           1. Current Exxaro Shares.
           2. Exxaro share price at 23 June 2017. 
           3. Exxaro Shares repurchased pursuant to Second Repurchase.
           4. 5% discount to Exxaro share price at 23 June 2017.
           5. New cash funding raised. Explained further below in paragraph 2.3.2.e.
           6. Additional Exxaro Shares required to be issued in order for New BEECo to own 30% of
              the Exxaro Shares post implementation of the Replacement BEE Transaction.
           7. Pro-forma Exxaro share price assuming the Second Repurchase and the Replacement BEE Transaction 
              are implemented on 23 June 2017.

        2.3.2. Transaction structure and participants
               a.    New BEECo will ultimately own 30% of the Exxaro Shares, after the implementation of
                     the Replacement BEE Transaction.
               b.    New BEECo will have three shareholders:
                     -    BEE SPV, which will own a minimum of 51% of the ordinary shares in New
                          BEECo;
                     -    Exxaro, through the investment described in paragraph (e) below; and
                     -    the IDC, which has the option to reinvest an agreed number of its Exxaro Shares,
                          received through the MS333 Unwind, directly into New BEECo or indirectly into
                          New BEECo through (as a shareholder of) BEE SPV.
               c.    The Reinvesting MS333 Shareholders will reinvest a minimum of 26 623 276 Exxaro
                     Shares into New BEECo pursuant to the MS333 Reinvestment:
                     -    Reinvesting MS333 Shareholders have the option to reinvest additional Exxaro
                          Shares over and above the minimum required; and
                     -    the final number of Exxaro Shares that Reinvesting MS333 Shareholders reinvest
                          remains subject to a formal election process to be conducted by MS333 (the
                          ?MS333 Election Process?), after the finalisation of all other Outstanding Matters.
               d.    The IDC will reinvest 12 337 616 Exxaro Shares pursuant to the IDC Reinvestment.
                     The IDC Reinvestment will be made either directly into New BEECo or indirectly into
                     New BEECo, through BEE SPV. The level at which the IDC Reinvestment occurs is at
                     the discretion of the IDC and will be confirmed before the finalisation of the Detailed
                     Transaction Agreements.
               e.    In addition to the MS333 Reinvestment and the IDC Reinvestment, New BEECo will
                     subscribe for Exxaro Shares pursuant to the New Exxaro Share Issue at the Exxaro
                     Facilitation Discount, funded through:
                     -     raising third party funding (?Third Party Funding?); and
                     -     Exxaro subscribing for ordinary shares in New BEECo (the ?Exxaro Equity
                           Investment?).
               f.    Some of the New BEECo ordinary shares which Exxaro will own as a result of the
                     Exxaro Equity Investment will be ?warehoused? for allocation to relevant employees
                     and communities of Exxaro. The exact form, size and identity of participation in this
                     regard will be finalised after implementation of the Replacement BEE Transaction.
               g.    The Replacement BEE Transaction capital structure is summarised below:

                            Percentage                                           Indicative value
                            of                                                   post
                            Replacement                                          implementation
           Funding          BEE              Comment              Number of      of the
           source           Transaction                           Exxaro         Replacement
                            capital                               Shares (m)     BEE Transaction
                            structure                                            (ZAR?bn) (1)                            
                                                                       
                                                                  
                                          Equating to 30%
           Total funding    100.0%        of Exxaro Shares        108.2           8.7
                                          
           Exxaro           22.6%         Fixed percentage        24.5            2.0
           Facilitation            
           Discount
                                          Percentage varies
           Reinvestments:   36.0%         with MS333              38.9            3.1
                                          Reinvestment
           
                                          Variable
           MS333                          percentage, with
           Reinvestment     24.6%         24.6% being the         26.6            2.1
           (2)                            minimum
                                          percentage
           
           IDC
           Reinvestment     11.4%         Fixed percentage        12.3            1.0
           (3)
                                          
                                          Percentage varies
           New cash                       with Third Party
           funding:         41.4%         Funding                 44.8            3.6
           
                                          
           Exxaro Equity
           Investment       19.9%         Fixed percentage        21.5            1.7
      
           Third Party                    Variable
           Funding (2, 4)   21.5%         percentage, with        23.3            1.9
                                          21.5% being the
                                          maximum
                                          percentage which
                                          is reduced by the
                                          percentage by
                                          which the MS333
                                          Reinvestment
                                          exceeds 24.6%
         
          Notes:
          1. Based on a ZAR80.03 Exxaro share price post the Second Repurchase and New
             Exxaro Share Issue. Refer to the table in paragraph 2.3.1.c.
          2. The 24.6% MS333 Reinvestment represents 26 623 276 Exxaro Shares reinvested.
             Should the MS333 Reinvestment exceed 24.6% of the Replacement BEE
             Transaction?s capital structure, the Third Party Funding will be reduced by the
             percentage by which the MS333 Reinvestment exceeds 24.6%.
          3. The 11.4% IDC Reinvestment represents 12 337 616 Exxaro Shares reinvested.
          4. The IDC has principally agreed to provide a partial debt guarantee in favour of the new
             third party funders, guaranteeing the obligations of NewBEECo, with a maximum value
             of R700 000 000 over the term of the Replacement BEE Transaction (the ?IDC
             Guarantee?). The IDC Reinvestment can occur either directly into New BEECo, or
             indirectly into New BEECo through BEE SPV.
            
        2.3.3. Term and liquidity mechanisms
               The period during which Exxaro Shares owned by New BEECo cannot be disposed of, will
               be staggered between seven and ten years, with the Exxaro Shares reinvested by
               Reinvesting MS333 Shareholders and the IDC vesting on the 7th anniversary of the
               Replacement BEE Transaction and the remaining Exxaro Shares held by New BEECo
               becoming unrestricted equally at the end of the 8th , 9th and 10th anniversary of the
               Replacement BEE Transaction.

        2.3.4. The Second Repurchase
               Exxaro and MS333 have agreed the high-level terms of the Second Repurchase, including
               the size (22 684 767 Exxaro Shares) and the pricing mechanism (5% discount to the
               Reference Price). The rationale for the Second Repurchase is that it will reduce the
               dilutionary impact and ultimate economic cost of implementing the Replacement BEE
               Transaction.
               The detailed terms of the Second Repurchase, including the Reference Price, will be
               negotiated as part of a repurchase implementation agreement which forms part of the
               Detailed Transaction Agreements and will be subject to Exxaro shareholder approval.

        2.3.5. The Outstanding Matters
               The following material terms and related matters pursuant to the Replacement BEE
               Transaction, the Second Repurchase and the MS333 Unwind are subject to agreement and
               finalisation, which, once agreed in the Detailed Transaction Agreements, will be announced
               in a separate announcement (the ?Terms Announcement?):
               -     the terms of the Third Party Funding;
               -     the reference price at which the Replacement BEE Transaction (before the Exxaro
                     Facilitation Discount) and the Second Repurchase (before to the 5% discount) will be
                     effected. The reference price of the Replacement BEE Transaction and the Second
                     Repurchase will be the same price (the ?Reference Price?);
               -     parameters of the MS333 Election Process. The MS333 Election Process will take
                     place after the Terms Announcement has been released and the outcome thereof will
                     be captured in a finalisation announcement as well as in a circular which will be sent
                     to Exxaro shareholders in order to approve the Replacement BEE Transaction and the
                     Second Repurchase; and
               -     finalisation and signing of the Detailed Transaction Agreements

        2.3.6. Conditions for the Replacement BEE Transaction and Second Repurchase to be
               implemented
               The implementation of the Replacement BEE Transaction and the Second Repurchase will
               be subject to the fulfilment of various conditions precedent, including the following:
               -     the Replacement BEE Transaction resulting in NewBEECo holding 30% of the Exxaro
                     Shares;
               -     Reinvesting MS333 Shareholders reinvesting at least 26 623 276 Exxaro Shares
                     pursuant to the MS333 Reinvestment and the IDC reinvesting 12 337 616 Exxaro
                     Shares pursuant to the IDC Reinvestment;
               -     the Independent Board Sub-Committee approving the remaining terms to be agreed,
                     as will be captured in the Detailed Transaction Agreements, as well as being satisfied
                     that the shareholder composition of the Replacement BEE Transaction is sufficiently
                     broad-based;
               -     the Detailed Transaction Agreements being duly executed by the parties thereto and
                     becoming unconditional in accordance with their terms;
               -     the relevant funding agreements, pursuant to the Third Party Funding and the IDC
                     Guarantee, being duly executed by the parties thereto and becoming unconditional in
                     accordance with their terms;
               -     the Exxaro shareholders (excluding MS333) passing the necessary resolutions
                     required to approve the implementation of the Replacement BEE Transaction and the
                     Second Repurchase; and
               -     the receipt of all other necessary regulatory approvals.

3.     MS333 UNWIND AND REGULATED PLACEMENT

3.1.   MS333 shareholding in Exxaro
       3.1.1.  Reconciliation of current MS333 shareholding in Exxaro with its shareholding as at
               implementation of the Existing BEE Transaction:
                                                                                           MS333
                                           Number of Exxaro                                shareholding
                                           Shares owned by        Total Exxaro Shares      percentage   
                                           MS333 (million)        (million)                in Exxaro
                                            
                                                                                                   
                  Initial shareholding     186.6                  358.1                    52.1%
                  as at 31 December 2015   
                 
                  Sale of shares in the    (6.8)                   -
                  market during 2016                
                  to alleviate debt
                  
                  Shares sold in           (17.4)                  -
                  December 2016 as
                  part of the Anglo
                  American placement
                 
                  Specific repurchase      (43.9)                  (43.9)
                  by Exxaro in                     
                  January 2017
                 
                  Current                  118.4                   314.2                   37.7%
                  shareholding

       3.1.2.  It is anticipated that MS333?s shareholding in Exxaro will reduce as illustrated in the below
               table, due to the Second Repurchase and the Replacement BEE Transaction:

                                                                                            MS333
                                           Number of Exxaro                                 shareholding       
                                           Shares owned by         Exxaro Shares (m)        percentage
                                           MS333 (m)                                        in Exxaro
                 
                  Current                  118.4                   314.2                    37.7%
                  shareholding
                 
                  Second Repurchase (1)     (22.7)                 (22.7)
                                      
                  Minimum MS333             (26.6)                 -
                  Reinvestment (2)
                 
                  IDC Reinvestment (3)      (12.3)                 -  
                 
                  New Exxaro Share          -                      69.3
                  Issue
                 
                  MS333 remaining           56.8                   360.7                    15.7%
                  shareholding in                   
                  Exxaro
                 
                  Notes:
                  1. 22 684 767 Exxaro Shares to be repurchased pursuant to the Second Repurchase,
                     subject to Exxaro shareholder approval.
                  2. Assuming Reinvesting MS333 Shareholders reinvest 26 623 276 Exxaro Shares
                     pursuant to the MS333 Reinvestment to contribute 24.6% of the Replacement BEE
                     Transaction capital structure.
                  3. 12 337 616 Exxaro Shares are reinvested pursuant to the IDC Reinvestment to
                     contribute 11.4% of the Replacement BEE Transaction capital structure.
                  4. Additional Exxaro Shares required to be issued in order for New BEECo to own 30% of
                     the Exxaro Shares post implementation of the Replacement BEE Transaction.
       
       3.1.3.   The remaining 56.8 million Exxaro Shares owned by MS333 will be subject to the following:
                a.       it may be reduced if MS333 shareholders elect to reinvest more than 26 623 276
                         Exxaro Shares;
                b.       subject to the MS333 Election Process, some MS333 shareholders may elect to retain
                         some of these Exxaro Shares outside of the Replacement BEE Transaction structure
                         (It has been agreed that these shareholders will not be able sell their retained 
                         Exxaro Shares for at least 90 days after any sale of Exxaro Shares by MS333 as 
                         contemplated in paragraph (c) below); and
                c.       the balance of these Exxaro Shares will be sold in the market over time:
                         -     MS333 has indicated its intention to sell, to the extent possible, up to 40
                               million Exxaro Shares prior to the implementation of the MS333 Unwind and the
                               Replacement BEE Transaction; and
                         -     Any sale of Exxaro Shares will be subject to the conditions imposed on MS333
                               in accordance with the regulated sale of Exxaro Shares as described in
                               paragraph 3.3.
3.2.   The MS333 Unwind explained
       MS333 will not be retained as the empowerment vehicle for the Replacement BEE Transaction.
       The MS333 Unwind will therefore apply to all the Exxaro Shares owned by MS333 after taking into
       account the effect of the Second Repurchase and the Exxaro Shares reinvested into the
       Replacement BEE Transaction structure.
       The terms of the Existing BEE Transaction allow MS333 shareholders to determine the most
       efficient manner to effect the MS333 Unwind. Detailed terms of the MS333 Unwind will be agreed
       in the Detailed Transaction Agreements.

3.3.   Regulated sale of Exxaro Shares
       As communicated in the Initial Announcement, the sale of Exxaro Shares by MS333 and/or any of
       its direct or indirect MS333 shareholders pursuant to the MS333 Unwind is overseen by the joint
       advisory committee that has been established between Exxaro and MS333 to regulate any sales of
       Exxaro Shares in the market.

4.     TIMING AND WAY FORWARD

4.1.   Exxaro and MS333 will seek to finalise and agree the Outstanding Matters in the Detailed
       Transaction Agreements, after which the Terms Announcement will be released and a detailed
       circular will be sent to Exxaro shareholders in order to consider and approve the Second
       Repurchase and the Replacement BEE Transaction.

4.2.   It is anticipated that the Second Repurchase and the Replacement BEE Transaction will be
       concluded in Q4 2017.

5.     INVESTOR CALL
       A dial-in teleconference call on the details of this announcement will be held on Monday,
       26 June 2017 at 13:00 South African time.

       Live call access numbers for participants
       Country                                  Access number
       Other Countries - International          +27 11 535 3600
       Other Countries - International          +27 10 201 6800
       South Africa - Johannesburg Neotel       011 535 3600
       South Africa - Johannesburg Telkom       010 201 6800
       UK - Toll-Free                           0808 162 4061
       USA and Canada - Toll Free               1 855 481 5362

       Playback access numbers
       Playback code: 14615#
       Country                                  Access number
       Australia - Toll Free                    1 800 091 250
       Other Countries - International          +27 11 305 2030
       South Africa                             011 305 2030
       UK - Toll Free                           0 808 234 6771
       USA and Canada - Toll Free               1 855 481 5363

6.    CAUTIONARY ANNOUNCEMENT

      Further to the renewal of the cautionary announcement issued on 14 June 2017, Exxaro
      shareholders are advised that the Company has entered into the Signed Agreements to bring into
      effect, subject to agreement of the Outstanding Matters in the Detailed Transaction Agreements,
      the MS333 Unwind, the Second Repurchase and the Replacement BEE Transaction which, if
      successfully concluded, may have a material effect on the Company?s securities. Accordingly,
      Exxaro shareholders are advised to continue to exercise caution when dealing in the Company?s
      securities until the Terms Announcement is made.

CH Wessels
Group Company Secretary
Pretoria
26 June 2017

Financial advisor and transaction sponsor to Exxaro
Rand Merchant Bank, a division of FirstRand Bank Limited

Legal advisor to Exxaro
Norton Rose Fulbright South Africa

Company sponsor to Exxaro
Absa Bank Limited, acting through its corporate and investment banking division

Tax advisor to Exxaro
Cliffe Dekker Hofmeyr Incorporated

Financial advisor to MS333
Tamela

Legal advisor to MS333
Fasken Martineau

Date: 26/06/2017 07:06:00 Supplied by www.sharenet.co.za                     
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