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KEH - Keaton Energy Holdings Limited - Keaton Energy to acquire 74% of Leeuw
Mining and exploration withdrawal of cautionary announcement
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")
Leeuw Mining and Exploration (Pty) Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/000483/07)
("Leeuw Mining and Exploration" or "LME")
Keaton Energy to acquire 74% of Leeuw Mining and Exploration
Withdrawal of cautionary announcement
1 Introduction
Keaton Energy announces that it has entered into a suite of agreements,
details of which are set out in paragraph 3 below, that will, subject to
the relevant regulatory approvals and fulfilment or waiver of conditions
precedent set out in paragraph 4 below, result in the acquisition by Keaton
Energy of:
* preference shares in the share capital of LME and various loans and
claims against LME ("the Refinancing");
* a 64% interest in the ordinary share capital of LME("the
Acquisition"); and
* an additional 10% interest in the ordinary share capital of LME
pursuant to the settlementof a R10 millionconvertible loan recently
provided by Keaton Energy to LME("the Conversion"),
collectively, "the Transaction".
2 Information on LME and rationale for the Transaction
LME is a privately held coal exploration, development and mining company.
It owns and operates the Vaalkrantz Anthracite Colliery near Vryheid,
Kwazulu-Natal ("Vaalkrantz Colliery") and holds a number of new order
prospecting rights and mining rights over other coal properties in Kwazulu-
Natal.
LME`s objective is to remain a long-term participant in the coal industry,
within a group that can provide financial and technical resources and a
portfolio of complimentary projects.
Keaton Energy`s longer term objective is to grow to become a mid-tier coal
producer with a robust, sustainable business across a portfolio of domestic
and export coal projects at different stages of development. The
combination of Keaton Energy`s Vanggatfontein and Sterkfontein projects and
LME`s Vaalkrantz Colliery, with its export allocation, and LME`s
Braakfontein and Koudelager projects, will provide a platform for Keaton
Energy to achieve this objective.
Since its establishment in 2002, LME has developed the Vaalkrantz Colliery
and advanced the Braakfontein and Koudelager projects to the point that
they have, or are about to be granted, mining rights in terms of the
Minerals and Petroleum Resources Development Act ("MPRDA").
LME is, however, undercapitalised and is in need of funds to optimally
utilize its Vaalkrantz Colliery and to continue the development of its
other projects. The task of recapitalising the Vaalkrantz Colliery and the
raising of development capital for the Koudelager and Braakfontein projects
will be better achieved within a listed group, which has both access to
capital markets and a combination of producing and development projects.
As a consequence of the Refinancing and Acquisition, LME will reschedule
the repayment terms of its existing preference share and debt facilities
with theIndustrial Development Corporation of South Africa Limited ("IDC").
3 Details of the Transaction
3.1 The Refinancing
3.1.1 As the first stage of the Transaction, Keaton Energy will immediately
acquire from Anglo Operations Limited, acting through its Anglo
American Thermal Coal division ("AOL"), various loans and claims in
LME for a total consideration of R46 999 998 to be satisfied by the
issue of 10 444 444 new Keaton Energy ordinary shares at a price of
R4.50 per share.
3.1.2 Keaton Energy will also acquire 40 preference shares in the share
capital of LME from the Anglo Khula Mining Fund (Proprietary) Limited
("AKMF"), representing 40% of LME`s issued preference share
capital("AKMF preference shares"),for a total consideration of R8 000
001 to be satisfied by the issue of 1 777 778 new Keaton Energy
ordinary shares at a price of R4.50 per share. The balance of the
preference shares in the share capital of LME are held by the IDC.
3.1.3 The total purchase consideration for the loans, claims and preference
shares is R54 999 999, which will be satisfied through the issue of 12
222 222 new Keaton Energy ordinary shares at a price of R4.50 per
share.
3.1.4 The Refinancing is expected to be implemented on 20 February 2011,
with an effective date of 30 September 2010.
3.1.5 AOL and AKMF intend to enter into agreements with Plusbay Limited
("Plusbay") to dispose of the abovementioned 10 444 444 and 1 777 778
new Keaton Energy ordinary shares,received by them as a result of the
Refinancing, to Plusbay.Plusbay currently holds 5 555 556 (3.8%)
Keaton Energy ordinary shares. Plusbay is currently classified as a
"public shareholder" in terms of paragraph 4.25 of the JSE Limited
("JSE") Listings Requirements and is not a related party. Plusbay
will acquire a further 28 844 444 Keaton Energy ordinary shares as a
consequence of the Refinancing and the Acquisition (see paragraph
3.2.4 below), which will result in Plusbay holding a 19.2% interest in
Keaton Energy. Plusbay is an affiliate of Gunvor Group Limited
(www.gunvorgroup.com), a Geneva-based energy trading group. It is
expected that Plusbay will nominate a representative to the Keaton
Energy board.
3.2 The Acquisition
3.2.1 In the second stage of the Transaction, Keaton Energy will acquire 64%
of the ordinary shares in LME from existing shareholders, being 54%
from JPI Leeuw and Associates (Proprietary) Limited ("JPI") and 10%
from Anglo American Zimele Limited ("Anglo Zimele"), respectively.
3.2.2 Once all regulatory approvals have been received and conditions
precedent fulfilled or waived, Keaton Energy will issue 14 177 778new
Keaton Energy ordinary shares to JPI and 2 444 444 new Keaton Energy
ordinary shares to Anglo Zimele in consideration for the LME ordinary
shares acquired.
3.2.3 The new Keaton Energy ordinary shares will be issued at a price of
R4.50 per share, resulting in an aggregate purchase consideration of
R74 799 999.
3.2.4 Anglo Zimele and JPI intend to enter into agreements with Plusbay to
dispose of the 16 622 222 new Keaton Energy ordinary shares, received
by them as a result of the Acquisition, to Plusbay. JPI will placethe
cash proceeds from the sale of the Keaton Energy ordinary shares to
Plusbay into an escrow account for a period of 3 months after the
closing date,as defined in the agreement concluded between JPI and
Keaton Energy, to secure any warranty or other claims which may arise
under theagreement with JPI contemplated in paragraph 3.2.1 above.
3.2.5 The effective date of theAcquisition will be determined by the
fulfilment or waiver of the last of the conditions precedentset out in
paragraph 4 below which include, inter alia, regulatory approvals.
3.3 The Conversion
10% of LME`s issued ordinary share capital is presently held as treasury
shares by a wholly-owned subsidiary of LME. In addition to the
Acquisition, Keaton Energy will acquirethese shares from LME`s subsidiary,
LeeuwBraakfontein Colliery (Proprietary) Limited ("LBC"),through the
settlement of a R10 millionconvertible loan recently provided by Keaton
Energy to LME.
4 Conditions precedent
4.1 The Refinancing is subject to the fulfilment or waiver, as the case may be,
of the following conditions precedent:
4.1.1 the pre-emptive rights of IDC to acquire the AKMF preference shares
are waived;
4.1.2 the board of directors of LME and AKMF pass such resolutions as are
necessary to approve and implement the Refinancing;
4.1.3 the ordinary shareholders of LME and LME consent to the cession of all
the rights and delegation of all of the obligations of AKMF, in terms
of the preference share subscription agreement concluded between the
relevant parties thereto in relation to the AKMF preference shares, to
Keaton Energy;
3.1.4 the shareholders of JPI consent to AOL waiving its rights arising from
the option agreement concluded between JPI, AOL and the shareholders
of JPI on 4 June 2010.
4.1.5 special resolutions are passed by each of the ordinary and preference
shareholders of LME in order to amend the articles of association of
LME, which set out the rights and privileges attaching to the
preference shares in LME held by IDC and AKMF, respectively ("the LME
preference shares") and such special resolutions are registered with
the Companies and Intellectual Property Registration Office ("CIPRO");
and
4.1.6 the conclusion of agreements relating to the rescheduling of the
repayment terms of LME`s preference shares on the terms approved by
the IDC credit committee, so as to accord with the amendments to be
made to the articles of association of LME.
4.1.7 the agreement referred to in 3.1.5 above is concluded and becomes
unconditional.
4.1.8 the agreement relating to the acquisition by JPI of the ordinary
shares held by certain minority shareholders in JPI, is concluded.
4.2 The Acquisition is subject to the fulfilment or waiver, as the case
may be, of the following conditions precedent by no later than the
dates stated below, or such other date as may be agreed to between
Keaton Energy, JPI and Anglo Zimele in accordance with the terms
contained in the agreements giving effect to the Acquisition:
4.2.1 by no later than 31 March 2011:
4.2.1.1 the pre-emptive rights of the ordinary shareholders of LME to acquire
any of the ordinary shares in LME referred to in paragraphs3.2.1 and
3.3, are waived in order to give effect to the Acquisition;
4.2.1.2 the written consent of IDC is obtained for the Acquisition;
4.2.1.3 the release by IDC of the ordinary shares in LME which have been
pledged to it by the ordinary shareholders of LME and the cancellation
of the relevant suretyships provided by the ordinary shareholders of
LME in favour of IDC, in order to give effect to and implement the
Acquisition;
4.2.1.4 the board of directors of the respective parties to the Acquisition
pass such resolutions as are necessary to approve and implement the
Acquisition,
4.2.1.5 special resolutions are passed by the shareholders of JPI in order to
give effect to the disposal of JPI`s 54% equity interest in LME to
Keaton Energy, and sale of the resulting new Keaton Energy shares to
Plusbay, and such special resolutions are registered with CIPRO;
4.2.1.6 special resolutions are passed by each of the ordinary shareholders
and preference shareholders of LME in order to give effect to the sub-
division of the authorised and issued share capital of LME, which sub-
division is required in order to give effect to the Acquisition and
such special resolutions are registered with CIPRO;
4.2.1.7 special resolutions are passed by each of the ordinary shareholders
and preference shareholders of LME and by LME, the sole shareholder of
LBC, in order to amend the articles of association of LME and LBC to
comply with Schedule 10 of the JSE Listing Requirements and such
special resolutions are registered with CIPRO;
4.2.1.8 Keaton Energy obtains undertakings on terms acceptable to it from at
least 50% (fifty percent) of the shareholders of Keaton Energy,
registered as such as at 31 March 2011, who are entitled to attend and
vote at a general meeting of shareholders in terms of which they
undertake to vote in favour of all resolutions required to be passed
in order to approve and implement the Acquisition;
4.2.2 by no later than 30 June 2011:
4.2.2.1 the approval of the competition authorities established under the
South African Competition Act, 89 of 1998, as amended, to the
Acquisition is obtained;
4.2.2.2 the approval, to the extent necessary, of the JSE to the Acquisition
is obtained;
4.2.2.3 the approval of the shareholders of Keaton Energy, to the extent
necessary, in general meeting, approving the Acquisition (alone, or if
aggregated by the JSE with any other transaction to which Keaton
Energy is or may become a party, the approval of such other
transactions); and
4.2.2.4 the shareholders of Keaton Energy pass a resolution placing sufficient
authorised but unissued ordinary shares in the share capital of Keaton
Energy at the disposal, and under the control, of the directors of
Keaton Energy in order to give effect to and implement the
Acquisition;
4.2.3 by no later than 30 December 2011:
4.2.3.1 the consent of the Minister of Mineral Resources in terms of Section
11 of the MPRDA is obtained; and
4.2.3.2 the agreements referred to in paragraph 3.2.4 above are concluded and
become unconditional.
4.3 While Keaton Energy`s right to exercise the Conversion is not subject to
any conditions precedent, it is presently Keaton Energy`s intention not to
convert its loan in LME into ordinary shares in LME until the Acquisition
is unconditional.
5 Categorisation
The Transaction, which includes the Refinancing, the Acquisition and the
Conversion, has been aggregated in terms of Section 9 of the JSE Limited
("JSE") Listings Requirements and falls within the requirements of a
Category 2 transaction, which requires an announcement containing the
details set out herein. In addition, as the Transaction requires the issue
of a maximum of 28 844 444 new Keaton Energy ordinary shares (being 19.2%
of Keaton Energy`s current issued share capital), and Keaton Energy`s
shareholders have only granted authority to the directors to issue up to
10% of Keaton Energy`s ordinary shares in issue from time to time, Keaton
Energy will seek shareholder approval to enable it to issue the proposed
new Keaton Energy ordinary shares to fulfill its obligations in terms of
the Acquisition.
6 Unaudited pro forma financial effects of the Transaction ("financial
effects")
Based on Keaton Energy`s reviewed interim condensed group results for the
six months ended 30 September 2010, the financial effects of the
Transaction on Keaton Energy`s earnings per share ("EPS"), headline EPS
("HEPS"), diluted EPS and net asset value per share ("NAV") are set out
below.
The financial effects are prepared for illustrative purposes only, and
because of their nature, may not give a fair presentation of Keaton
Energy`s financial position or the effect and impact of the Transaction.
The financial effects are the responsibility of Keaton Energy`s board.
Published Effect % Effect % Change
Before after the Change after the
(1) Refinanci Refinanci
ng(2)(3)( ng, the
4) Acquisiti
on and
the
Conversio
n(2)(3)(5
)
NAV (cents)
313.0 331.8 6.0 361.9 15.6
1.7 9.5 458.8 8.1 376.5
EPS (cents)
1.7 2.5 47.1 1.8 5.9
HEPS (cents)
1.7 9.5 458.8 8.1 376.5
Diluted EPS
(cents)
Number of 144 841 157 063 173
shares in 293 515 8.4 685 737 19.91
issue
Weighted 144 841 157 063 173
average number 293 515 8.4 685 737 19.91
of shares in
issue
Notes:
1. Based on Keaton Energy`s reviewed interim condensed group
results for the six months ended 30 September 2010.
2. In calculating the financial effects on EPS, diluted EPS and
HEPS, it was assumed that the Transaction was implemented on 1
April 2010 for consolidated statement of comprehensive income
purposes.
3. In calculating the financial effects on NAV and TNAV, it was
assumed that the Transaction was implemented on 30 September 2010
for consolidated statement of financial position purposes.
4. The Refinancing entails the acquisition of various loans and
claims in LME from AOL and 40 preference shares in the share
capital of LME from AKMF as described in paragraph3.1above. The
book values of the loans and claims, and the preference shares are
R55.76 million and R11.6 million, respectively. They will be
acquired through the issue of new Keaton Energy ordinary shares
equivalent to R47 million and R8 million, respectively, yielding an
illustrative profit of R12.365 million on the acquisition of the
instruments.
5. The Acquisition and the Conversion are described in paragraphs 3.2 and
3.3above and involve the acquisition by Keaton Energy of a 64% interest in LME
for an aggregate purchase consideration of R74 799 999 and the conversion of a
R10million loan to LME into a 10% equity interest in LME for a total investment
of R84 799 999.
7 Withdrawal of cautionary announcement
Keaton Energy shareholders are referred to the cautionary announcement and
renewals of cautionary announcement dated 7 October 2010, 18 November 2010
and 4 January 2011 respectively, and are advised that they are no longer
required to exercise caution when dealing in Keaton Energy ordinary shares.
Bryanston
14 February 2011
Investment bank and sponsor
Nedbank Capital
Attorneys to Keaton Energy
Eversheds
Attorneys to LME
Deneys Reitz
Attorneys to Anglo Operations Limited
Glyn Marais
Attorneys to Anglo Zimele and Anglo Khula Mining Fund
Cliffe Dekker Hofmeyer
Attorneys to Plusbay
Webber Wentzel
Date: 14/02/2011 16:31:01 Supplied by www.sharenet.co.za
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