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EXX - Exxaro - Acquisition Announcement
Exxaro Resources Limited (Previously Kumba Resources Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2000/011076/06)
Share code: EXX & ISIN: ZAE000084992)
("Exxaro" or "the company")
Acquisition of the Namakwa Sands business and a 26% interest in Black
Mountain Mining (Proprietary) Limited
1. Introduction
Pursuant to the empowerment transaction recently implemented by Exxaro, the
company, acting through its wholly-owned subsidiaries, Exxaro Base Metals
(Proprietary) Limited ("Exxaro Base Metals") and Exxaro Sands (Proprietary)
Limited ("KZN Sands"), acquired options to acquire the assets and business
of Namakwa Sands ("Namakwa Sands") and a 26% interest in Black Mountain
Mining (Proprietary) Limited ("Black Mountain Mining"), which will own the
Black Mountain zinc and lead mine as well as the Gamsberg zinc project
(collectively, "Black Mountain") from Anglo Operations Limited ("AOL"), a
wholly-owned subsidiary of Anglo American plc.
Shareholders are advised that Exxaro, acting through Exxaro Base Metals and
KZN Sands, has exercised the options referred to above and will,
accordingly, subject to the fulfilment of the conditions precedent referred
to below, acquire Namakwa Sands ("the Namakwa Sands acquisition") and a 26%
interest in Black Mountain("the Black Mountain acquisition") (collectively,
"the transaction").
2. Rationale for the transaction
The transaction will position Exxaro strategically as one of the world`s
largest suppliers of titanium dioxide feedstock and zircon and strengthen
its position in the South African zinc market.
Exxaro already enjoys a prominent position in the mineral sands
business, with operations in KwaZulu-Natal and a 50% ownership in the
Tiwest Joint Venture, a fully integrated mineral sands and pigment producer
in Western Australia.
Exxaro currently owns the only zinc metal refinery in South Africa and also
holds a controlling interest in the Rosh Pinah zinc mine in Namibia.
3. Terms of the Black Mountain acquisition
3.1 Purchase consideration
Exxaro will acquire, through Exxaro Base Metals, with effect from the Black
Mountain effective date, being the date on which the last of the conditions
precedent referred to in paragraph 3.2 below is fulfilled, or to the extent
possible, waived, a 26% interest in Black Mountain from AOL for a purchase
consideration of R180 million payable in cash.
The purchase consideration will be adjusted for movements in the working
capital balances at the Black Mountain effective date, as well as for any
exploration expenditure incurred by AOL in respect of areas of proximity to
the Gamsberg ore body, subject to Exxaro`s proportional share of a maximum
of R17 million. The maximum purchase price will, however, not exceed R450
million.
3.2 Conditions precedent
The Black Mountain acquisition is conditional upon the fulfilment of the
following conditions precedent:
- conversion of the old order mining rights relating to Black Mountain
into new order mining rights in terms of the Mineral and Petroleum
Resources;
- Development Act of 2002 ("MPRDA");
- the consent of the Minister of Minerals and Energy in terms of the
MPRDA to the cession of the converted new order mining rights to Black
Mountain Mining;
- cession and transfer of the new order mining rights and other assets
relating to the Black Mountain business from AOL to Black Mountain
Mining;
- approval by Exxaro shareholders in general meeting;
- AOL receiving written confirmation acceptable to it that Exxaro has
sufficient funding available to satisfy its obligations in terms of
the Black Mountain acquisition; and
- the approval of the competition authorities in South Korea.
3.3 Shareholders` arrangements
Exxaro Base Metals, AOL and Black Mountain Mining have entered into an
agreement to regulate the relationship between Exxaro Base Metals and AOL,
being the shareholders in Black Mountain Mining ("the shareholders") and
the relationship between the shareholders and Black Mountain Mining.
4. Terms of the Namakwa Sands acquisition
4.1 Purchase consideration
Exxaro will acquire from AOL, through KZN Sands, Namakwa Sands, as a going
concern, with effect from the Namakwa Sands effective date, being the date
on which the last of the conditions precedent referred to in paragraph 4.2
below is fulfilled, or to the extent possible, waived, for a purchase
consideration of R2 015 million payable in cash. The purchase consideration
will be subject to the adjustments set out below, subject to the total
purchase price not exceeding R3 350 million.
4.1.1 Capital expenditure on Project 1000
In November 2005, AOL announced the approval of a R320 million expansion of
Namakwa Sands ("Project 1000"). Any capital expenditure incurred by AOL in
respect of Project 1000 from 1 January 2006 until the Namakwa Sands
effective date (being the date on which the last of the conditions
precedent referred to below is fulfilled, or to the extent possible,
waived), will be added to the cash consideration.
4.1.2 Tax recoupment
AOL is likely to be required to pay a tax recoupment to the South African
Revenue Service for tax allowances previously claimed on capital assets in
Namakwa Sands. KZN Sands, as the new owner of the Namakwa Sands assets,
will receive the benefit of the tax allowances on the acquired capital
value, which will reduce future tax payments. Therefore, the cash
consideration will be increased by the net present value of the future
benefit received by KZN Sands once the recoupment suffered by AOL has been
determined.
The increased consideration (arising as a result of the tax recoupment
incurred by AOL) will be vendor funded by AOL on terms no less favourable
than the Exxaro long-term loan facilities.
4.1.3 Working capital
The consideration will be increased or decreased to take into account any
movements in the working capital balances of Namakwa Sands at the Namakwa
Sands effective date.
4.2 Conditions precedent
The Namakwa Sands acquisition is conditional upon the fulfilment of the
following conditions precedent:
- conversion and registration of the old order prospecting and mining
rights relating to Namakwa Sands into new order prospecting and mining
rights
- in terms of the MPRDA;
- the consent of the Minister of Minerals and Energy in terms of the
MPRDA to the cession of the converted new mining rights to KZN Sands;
- cession of the prospecting and mining rights relating to Namakwa
Sands by AOL to KZN Sands;
- approval by Exxaro shareholders in general meeting;
- AOL receiving confirmation from Exxaro`s funders that Exxaro has
sufficient funding available to satisfy its obligations in terms of
the Namakwa Sands acquisition; and
- the approvals of the competition authorities in Spain.
5. Information on Black Mountain
5.1 Overview of operations
The Black Mountain base metal mine, which is located adjacent to the town
of Aggeneys in the Northern Cape Province of South Africa, exploits lead,
zinc, copper and silver from the mining of ore from various deposits.
The mine produces three concentrates with the zinc concentrate delivered to
Exxaro`s zinc refinery located in Springs, Gauteng Province, South Africa.
Lead and copper concentrates, from which silver is also extracted, are
exported to various smelters world-wide through the port of Saldanha Bay.
5.2 Information on the Gamsberg zinc project
The Gamsberg zinc project has an estimated production capacity of up to
300ktpa. A small quantity of production from Gamsberg is currently being
mined by underground methods and this is being processed at the established
Black Mountain process plant. The presence of manganese precludes the
possibility of the export of concentrate product. This has necessitated the
development of a refinery at the site.
The Gamsberg zinc project provides for a possible life-of-mine of
approximately 30 years, which at 300ktpa of zinc, would be the largest
single mine and concentrator in the world.
5.3 Production data
The following table sets out the salient production data for Black
Mountain:
Six months
Year ended Year ended ended
31 December 31 December 30 June
2004 2005 2006
Ore mined (kt) 1 518 1 413 759
Ore processed (kt) 1 500 1 350 715
Ore grade processed (%)
Zinc 2,7 3,3 3,2
Lead 3 3,7 3,9
Copper 0,5 0,4 0,4
Production (kt)
Zinc in concentrate 28 32 15
Lead in concentrate 38 42 21
Copper in concentrate 5 3 2
5.4 Financial information
The following table sets out the salient financial information relating to
Black Mountain:
Six months
Year ended Year ended ended
31 December 31 December 30 June
US$ million 2004 2005 2006
Turnover 49 80 64
EBITDA 2 12 13
6. Information on Namakwa Sands
6.1 Overview of operations
The mining operations of Namakwa Sands are located at Brand-se-Baai,
approximately 60km west of Koekenaap on the west coast of South Africa. Its
major assets are:
- a mineral sands mine at Brand-se-Baai in the Western Cape Province,
consisting of a mineral sands mine, primary concentrator plants and a
secondary concentrator plant;
- a mineral separation plant, located 7 kilometers west of Koekenaap
which is used to separate ilmenite, rutile and zircon products; and
- the smelter located near Saldanha Bay at which ilmenite is smelted to
produce titanium dioxide slag and pig iron.
6.2 Production data
The following table sets out salient production data for Namakwa Sands for
the year ended 31 December 2005 and for the interim period ended 30 June
2006:
Six months
Year ended ended
31 December 30 June
kt 2005 2006
Ore mined 18 100 8 700
Production
Ilmenite 316 165
Rutile 29 14
Zircon 129 64
Smelter production
Slag 164 81
Iron 105 53
6.3 Financial information
The following table sets out the salient financial information for Namakwa
Sands:
Six months
Year ended Year ended ended
31 December 31 December 30 June
US$ million 2004 2005 2006
Revenue 146 175 89
EBITDA 37 48 26
7. Related party
AOL is a wholly-owned, indirect subsidiary of Anglo American plc, which is
a material shareholder of Exxaro. Accordingly AOL, the vendor of Namakwa
Sands and Black Mountain, is a related party in terms of the JSE Limited
("JSE") Listings Requirements and the transaction will be treated as a
related party transaction.
Anglo American plc and its associates will be taken into account in
determining the quorum at the general meeting, but their votes will not be
taken into account in determining the results of the voting at the general
meeting.
8. Financial effects
The Black Mountain acquisition and Namakwa Sands acquisition will have an
effect of less than 3% on Exxaro`s pro forma earnings per share and
headline earnings per share for the six months ended 30 June 2006 and on
Exxaro`s pro forma net asset value per share and net tangible asset value
per share as at 30 June 2006, as published in the circular to shareholders
dated 9 October 2006, relating to the empowerment transaction recently
implemented by the company.
9. Further documentation
A circular setting out the terms of the transaction and convening a general
meeting of Exxaro shareholders is in the process of being prepared and will
be posted to shareholders within 30 days of the date of this announcement.
Pretoria
19 January 2007
MERCHANT BANK AND JOINT SPONSOR
Rand Merchant Bank
(A division of FirstRand Bank Limited)
LEAD SPONSOR
J.P. Morgan Equities Limited
ATTORNEYS
Deneys Reitz Attorneys
CORPORATE LAW ADVISERS
CLS
FINANCIAL ADVISER TO ANGLO AMERICAN PLC
Deutsche Securities
Member of the Deutsche Bank Group
ATTORNEY TO ANGLO AMERICAN PLC
Webber Wentzel Bowens
Date: 19/01/2007 16:00:01 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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