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Transactions in relation to Isizinda Aluminium Proprietary Limited
HULAMIN LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1940/013924/06
JSE Code: HLM
ISIN: ZAE000096210
(“Hulamin” or “the Company”)
TRANSACTIONS IN RELATION TO ISIZINDA ALUMINIUM
1. Background
Hulamin, through its wholly-owned subsidiary, Hulamin Operations Proprietary Limited (“Hulamin
Opco”), currently has ownership of 38.74% in Isizinda Aluminium Proprietary Limited (“Isizinda”), with
the remaining shares being held 58.74% by Bingelela Capital Proprietary Limited (“Bingelela”) and
2.53% by the Isizinda Employee Share Incentive Scheme Trust (“the Isizinda Trust”). Notwithstanding
the ownership structure, Isizinda is accounted for in the Hulamin consolidated financial results as a
wholly owned subsidiary.
Isizinda owns the Bayside casthouse, which included a rolling slab casting operation (“Slab Business”),
which it operates from its fixed property situated in Richards Bay (“Property”).
2. Overview of the Bayside Business
Isizinda was created as a partnership between Hulamin Opco and Bingelela in 2014 in order to
purchase the Bayside casthouse from Billiton Aluminium Proprietary Limited (“Billiton”) in 2015. The
Bayside casthouse provides rolling slab on an exclusive basis to Hulamin and the purchase of the
casthouse was necessary to ensure the continuity of rolling slab supply to Hulamin Opco. The partners
in Isizinda also recognised the opportunity to start, or restart, the production of other aluminium value-
added products at the Bayside casthouse.
Bingelela has decided to pursue the production of other aluminium products at the Bayside site,
particularly aluminium rim alloy and extrusion billet, outside the Isizinda structure. In order to free up
funding for these ventures, the partners in Isizinda have agreed on the disposal of the assets of Isizinda,
partly to Hulamin Opco and partly to others.
3. The Transaction
On 22 May 2019 Hulamin Opco agreed a term sheet (“Term Sheet”) with Isizinda, Bingelela, the
Isizinda Trust, Bingelela Alloys Proprietary Limited (“RimCo”) and Bingelela Extrusion Billets
Proprietary Limited (“BilletCo”) (collectively, the “Parties”). The Term Sheet resulted in further definitive
transaction agreements that were entered into on 16 July 2019 between Hulamin Opco, Isizinda, and
certain employees of Isizinda (“Agreements”), to give effect to the following transactions:
- the purchase by Hulamin Opco from Isizinda of the Slab Business (“Sale of Business
Agreement”), as a going concern, for a cash consideration of R68.5 million, being R20.3 million for
the fixed assets (“Fixed Assets”) and R48.2 million in respect of trading stock reflected in Isizinda’s
books on the day immediately preceding the effective date of the transaction (“Trading Stock”). In
addition, Hulamin Opco employed the personnel engaged in the Slab Business and assumed
responsibility for employee liabilities (“Employee Liabilities”) of R6.1 million;
- a funding agreement between Hulamin Opco and Isizinda in terms of which Hulamin Opco agreed
to advance a sum of R50 million to Isizinda (“Funding Agreement”), which has been used by
Isizinda to declare and pay a dividend of R35 million to Bingelela in August 2019, with a further
dividend of R15 million to be declared and paid (“the Dividends”) upon Hulamin Opco concluding
a long-term liquid metal supply agreement with Hillside Aluminium Proprietary Limited, including
the fulfilment of all conditions precedent. Both Hulamin Opco and the Isizinda Trust have waived
their rights to participate in the Dividends;
- the agreement in the Term Sheet that Isizinda declare and pay a dividend of R15 million (“Further
Dividend”) on the sale of the Property. Should the proceeds of the sale of the Property be
insufficient to support the payment of the Further Dividend, then Hulamin Opco will subordinate or
write off a portion of its loan or otherwise provide the support necessary for Isizinda to pay the
Further Dividend. Both Hulamin Opco and the Isizinda Trust have waived their rights to participate
in the Further Dividend;
- an evergreen lease agreement between Hulamin Opco and Isizinda for the lease of the portion of
the Property on which the Slab Business is situated, at a monthly rental determined as set out in
the lease agreement. The lease is capable of termination on agreement by both parties (“Lease
Agreement”); and
- an operational support agreement between Hulamin Opco and Isizinda, in terms of which Isizinda
will supply utilities and services to Hulamin Opco as previously utilised by Isizinda in the conduct of
the Slab Business, including energy, water and other services (“Operational Support
Agreement”).
(collectively, the “Isizinda Business Transactions”)
In addition to the Isizinda Business Transactions, the Term Sheet provides that:
- Hulamin Opco, at its sole discretion, has an option to purchase up to 15% of the shares in RimCo
from Bingelela. Hulamin has waived its right to exercise this option;
- Hulamin Opco, at its sole discretion, has an option to purchase up to 15% of the shares in BilletCo
from Bingelela. If the option is exercised within one year of the effective date of the Isizinda
Business Transactions, then the price for the shares will be the same price as that paid by Bingelela,
and if the option is exercised thereafter, then the price will be calculated as a reasonable multiple
of future earnings;
(collectively, “the Options”); and
- Isizinda will enter into an agreement with Billetco for the sale of those assets of Isizinda relevant to
the production of billet for a purchase price of R10 million; and
- upon the implementation of the transactions described in the Term Sheet, including the sale of the
Property, Isizinda shall be wound up and/or deregistered.
The Agreements contain warranties that are usual for transactions of this nature.
4. Rationale for the Transactions
Hulamin Opco produces the majority of its rolling slab requirements at its Pietermaritzburg plant and
sources the balance from Isizinda. The operation of slab casting facilities is therefore one of Hulamin
Opco’s core business competencies and a strategic element of its business.
Bingelela wished to exit the slab casting business to pursue the production of rim alloys and extrusion
billet on the Property. Accordingly, it was agreed that Hulamin Opco would purchase the Slab Business
from Isizinda, effective 1 January 2020 and that Isizinda would use the proceeds from the disposal of
the slab business assets to reduce its loan from Hulamin Opco. The Lease Agreement ensures that
Hulamin Opco can continue to operate the Slab Business from the Property without interruption.
The purchase of the Property from Billiton in 2015 resulted in Isizinda realising a bargain purchase gain
of R51.9 million, which arose primarily from the recognition of the Property at its fair value. Isizinda is
in negotiations for the sale of the Property which, if successful, could result in this gain being realised
in cash. This gain was recognised in Hulamin’s 2015 consolidated annual financial statements but was
offset by the recognition of a R27.2 million charge, representing Bingelela’s interest therein.
In the interim, Hulamin Opco has agreed to provide funding to Isizinda to allow the payment of the
Dividends. The Dividends are targeted at providing Bingelela with funds to pursue the objective of
owning and operating the Rimco and Billetco businesses as separate entities from Isizinda, with R20
million of the Dividends ring-fenced for this purpose.
The expansion of the range of products produced at the Bayside casthouse is fundamental to the long-
term growth of the local aluminium industry. Hulamin Opco has therefore agreed to the payment by
Isizinda of the Further dividend of R15m to Bingelela to support this initiative.
The payment of the Dividends and the Further Dividend, together totalling R65 million, to Bingelela
represents an incremental cost to Hulamin’s shareholders of R37.8 million over the book value of the
option held by Bingelela, previously recognised at R27.2 million.
At the conclusion of the Transaction, Hulamin Opco will have gained full ownership and control of the
production of rolling slab at Bayside, at a cost that is well below replacement value, and will have
realised significant productivity gains from the integration of the Pietermaritzburg and Bayside
casthouses.
4. Conditions precedent and effective date
The effective date of the Term Sheet was 22 May 2019, the effective date of the Funding Agreement
was 16 July 2019 and the effective dates of the Sale of Business Agreement, the Lease Agreement
and the Operational Support Agreement were 1 January 2020. All conditions precedent contained in
these agreements have been fulfilled.
5. Financial information
The net asset value of the Slab Business, comprising the Fixed Assets, Trading Stock and Employee
Liabilities, as at 31 December 2019, was R62.5 million. The net profit after taxation in respect of the
Slab Business for the six months ended 30 June 2019 was R1.8 million. The financial information has
been extracted from Isizinda’s unaudited financial results for the six months ended 30 June 2019.
The above financial information has been prepared in accordance with International Financial Reporting
Standards.
6. JSE Classification of the Transactions
In terms of the JSE Listings Requirements, the Sale of Business Agreement, read with the Funding
Agreement, the Dividends and the Lease Agreement classify as a “Category 2 transaction”. The Options
will only be categorised as transactions in terms of the JSE Listings Requirements when these are
exercised by Hulamin, if at all.
No related parties, as defined in the JSE Listings Requirements, are involved in the Transactions.
Pietermaritzburg
3 April 2020
Sponsor
Questco Corporate Advisory Proprietary Limited
Date: 03-04-2020 08:05:00
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