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EXX - Exxaro Resources Limited - Proposed transaction with Tronox Incorporated
and cautionary announcement
Exxaro Resources Limited
(Incorporated in the Republic of South Africa)
(Registration number 2000/011076/06)
Issuer Code: EXX
ISIN: ZAE000084992
("Exxaro")
PROPOSED TRANSACTION WITH TRONOX INCORPORATED AND CAUTIONARY ANNOUNCEMENT
INTRODUCTION
Exxaro shareholders are advised that Exxaro and Tronox Incorporated ("Tronox"),
a leading international pigment company based in the United States and Exxaro`s
joint venture partner at Tiwest in Australia, have reached agreement in respect
of a proposed transaction, which entails the combination of Exxaro`s mineral
sands operations (the "Exxaro Mineral Sands Operations") with the businesses of
Tronox under a newly-formed Australian holding company ("New Tronox"). Exxaro
will dispose of the Exxaro Mineral Sands Operations in exchange for
approximately 38.5% of the shares in New Tronox (the "Proposed Transaction").
This will result in Exxaro becoming the largest single shareholder in New
Tronox.
The Exxaro Mineral Sands Operations that will form the subject of the Proposed
Transaction comprise:
(i) 74% of the shares and intercompany debt in Exxaro`s South African mineral
sands operations (the Namakwa Sands and KZN Sands mines and smelters)
(collectively the "South African Operations"); and
(ii) Exxaro`s 50% interest in the Tiwest Joint Venture in Australia ("Tiwest").
Exxaro will retain a direct 26% shareholding in each of the South African
Operations in order to comply with the requirements of the Mineral and Petroleum
Resources Development Act, 28 of 2002 ("MPRDA") and the Broad-Based Socio-
Economic Empowerment Charter for the South African Mining and Minerals Industry
("the Mining Charter"). The 26% interests in the South African Operations will
be held until the earlier of the 10th anniversary of the completion of the
Proposed Transaction and the date when the Department of Mineral Resources
determines that ownership requirements are no longer required under existing
Black Economic Empowerment ("BEE") legislation ("the Empowerment Period"). At
the end of the Empowerment Period, Exxaro has the right to exchange the shares
in the South African Operations for approximately 3.2% in additional shares in
New Tronox (based on the number of New Tronox shares in issue on implementation
of the Proposed Transaction), resulting in Exxaro holding approximately 41.7% of
New Tronox after such exchange (the "Flip-Up").
The purchase price will be settled by the issue of 9 950 856 New Tronox Class
"B" shares, which excludes 1 449 207 Class "B" shares to be issued to Exxaro in
the event of the exercise of the Flip-Up ("Flip-Up Shares").
The Proposed Transaction, which is subject to the fulfilment or waiver, where
applicable, of the conditions precedent referred to below, will create a leading
global integrated mine-to-processing-to-pigment producer and is in pursuance of
Exxaro`s stated mineral sands strategy described in more detail below. The pro
forma equity value of New Tronox is estimated at R27.8 billion (R29.3 billion
including the Flip-up Shares), based on the volume weighted average price at
which Tronox`s shares traded for the 30 trading days to 23 September 2011 ("30
day VWAP"), being USD130.42 (R1,078.95 using a ZAR/USD exchange rate of 8.27 on
23 September 2011). This implies an Exxaro`s Mineral Sands Operations equity
value of R10.7 billion (R12.3 billion including the Flip-Up Shares).
Upon completion of the Proposed Transaction, it is intended that New Tronox will
list its Class "A" shares on a major exchange, such as the New York Stock
Exchange ("NYSE").
The Proposed Transaction constitutes a Category 2 Transaction for the purposes
of the JSE Limited Listings Requirements. Exxaro shareholder approval will
therefore not be required for the implementation of the Proposed Transaction.
RATIONALE
Exxaro believes that its mineral sands business is best configured as an
integrated mining-to-processing-to-pigment business and has been evaluating
various opportunities over the past four years. The benefits of an integrated
mine-to-processing-to-pigment producer include:
* further efficiencies as demonstrated in the integrated model at Tiwest,
where Exxaro and Tronox are joint venture partners as described below;
* reduction in risk due to involvement in two key value creating segments of
the mineral sands value chain (mining/processing and pigment
manufacturing);
* providing a consistent grade of quality feedstock supply to the New Tronox
pigment plants; and
* providing a stable earnings base that mitigates the cyclical nature of
feedstock demand.
The Proposed Transaction will create a global leader in this industry with a
significant asset base that is expandable and low on the cost curve.
The Proposed Transaction will continue to position the Exxaro group as an
international resources leader with geographical and commodity diversification.
OVERVIEW OF THE EXXARO MINERAL SANDS OPERATIONS
KZN Sands
Exxaro`s KZN Sands operation is located on the East Coast of South Africa,
around the Esikhawini area near Richards Bay, and consists of four operational
phases, namely: mining, mineral separation, smelting and bulk terminal. The
current mine at KZN Sands, known as Hillendale, is near the end of its useful
life, and is scheduled to be replaced by a new mine at Fairbreeze, which is
adjacent to the existing mine.
It is expected that the Fairbreeze expansion will increase KZN Sands` life-of-
mine by at least 12 years. KZN Sands produces ilmenite, rutile, zircon, slag,
slag fines and pig iron. Ilmenite, rutile, slag and slag fines are used as
feedstocks in the production of titanium dioxide pigment. Zircon is mainly
consumed as an opacifier in the decorative ceramics industry and pig iron is
used mainly in the production of steel.
Namakwa Sands
The heavy mineral resources mined by Namakwa Sands are found on the coastal
plain along the West Coast of South Africa. Namakwa Sands is comprised of three
operational phases, namely: mining at Brand-se-Baai (approximately 400km from
Cape Town), mineral separation at Koekenaap (approximately 350km from Cape Town)
and smelting at Saldanha (approximately 150km from Cape Town). Like KZN Sands,
Namakwa Sands produces ilmenite, rutile, zircon, slag, and pig iron, but it also
produces tiokwa and zirkwa. These mineral sands (with the exception of zircon,
zirkwa and pig iron) are used as feedstocks in the production of titanium
dioxide pigment.
Exxaro`s 50% joint venture interest in Tiwest
Tiwest, a 50/50 joint venture between Exxaro and Tronox, is situated in Western
Australia and is an integrated mineral sands and titanium dioxide pigment
producer. Tiwest`s operations include mining and dry separation of titanium
minerals and zircon, upgrading ilmenite into synthetic rutile and producing
titanium dioxide pigment. Tiwest consists of the Cooljarloo mine (170km north of
Perth), the Chandala mineral separation and synthetic rutile plants (70 km north
of Perth) and the Kwinana pigment facility (just south of Perth).
OVERVIEW OF TRONOX
Tronox emerged from bankruptcy on 14 February 2011, two years after it filed for
Chapter 11 protection in the United States. The filing was primarily due to
certain historical environmental liabilities which were related to its former
corporate parent, and from which Tronox has since been relieved. Tronox emerged
after the Chapter 11 bankruptcy proceedings, with a total enterprise value of
approximately USD1.1 billion.
Hamilton
The Hamilton titanium dioxide pigment facility is Tronox`s largest manufacturing
facility, one of Mississippi`s biggest industrial operations and the third-
largest of its kind in the world. Tronox produces titanium dioxide at Hamilton.
Titanium dioxide is a white inorganic pigment primarily used in paints/coatings,
plastics and paper industries. It is used primarily for its opacifying strength
and brightness. The facility also includes an electrolytic plant that produces
sodium chlorate used in an environmentally preferred pulp-bleaching process by
the pulp and paper industry.
Botlek
Tronox`s Netherlands plant is based in the Botlek area of Rotterdam. Production
of titanium dioxide pigment started at this site in 1960 under the name of
"Titaandioxide Fabriek," which later became TDF Tiofine B.V. Tronox acquired the
plant in 2000.
Henderson
Tronox`s Henderson facility, located in southern Nevada, is dedicated to the
production of electrolytic chemicals. The facility produces electrolytic
manganese dioxide, which is used in the manufacture of alkaline batteries;
elemental boron, a component of automotive safety igniters; and boron
trichloride, used in the pharmaceutical and semiconductor industries and in the
manufacture of high-strength boron fibres for products including sporting
equipment and aircraft parts.
TERMS OF THE PROPOSED TRANSACTION
As stated above, the Proposed Transaction entails the combination of the
Exxaro Mineral Sands Operations and the businesses of Tronox under New Tronox
in exchange for shares in New Tronox. The parties have agreed on an enterprise
value attribution of 61.5% for the Tronox businesses and 38.5% for the Exxaro
Mineral Sands Operations, subject to certain net working capital and net debt
adjustments in cash on implementation of the Proposed Transaction. In order
to comply with the requirements of the MPRDA and the Mining Charter, Exxaro
will retain a direct 26% interest in the South African Operations, which
Exxaro is entitled to exchange for shares in New Tronox under certain
circumstances, including upon the termination of the Empowerment Period.
Exxaro will receive an approximately 38.5% shareholding in New Tronox at
Closing.
Other significant terms of the Proposed Transaction include:
* the Proposed Transaction will become effective on the Closing Date, which
will occur following the satisfaction or waiver of the conditions precedent
to the implementation of the Proposed Transaction, as set out below (the
"Closing");
* in order to easily distinguish/administer Exxaro`s agreed rights and
obligations as the major shareholder in New Tronox, a dual class share
structure has been agreed by the parties, with Exxaro receiving Class "B"
shares and Tronox`s shareholders receiving Class "A" shares. The Class "A"
shares are anticipated to be publicly traded on the NYSE. The Class "B"
shares will have separate board representation rights and minority
protections;
* Exxaro will receive the right to elect 3 out of 9 directors to New Tronox`s
board of directors ("the New Tronox Board"). Exxaro`s appointees will be
non-executive directors. Exxaro will be entitled to elect 2 non-executive
director to the New Tronox Board if its holding in New Tronox reduces to
between 20% and 30%, and one non-executive director if its holding reduces
to between 10% and 20%;
* Exxaro will have pre-emptive rights to subscribe for shares in certain
instances to avoid dilution of its ownership interest in New Tronox for as
long as its holding in Tronox is at least 7.5%;
* New Tronox`s constitution will include restrictions on the ability of any
person or group to acquire an ownership interest greater than 20% without
approval by the New Tronox Board or a 75% vote of unaffiliated shareholders
(the "20% Rule"); Exxaro is exempted from this rule in respect of any Class
"A" shares or Class "B" shares it acquires as permitted under a
shareholders` agreement between Exxaro and New Tronox;
* For 3 years following the Closing, Exxaro has agreed not to (i) purchase
New Tronox shares in excess of 45% of the total issued shares of New
Tronox; or (ii) sell any of the New Tronox shares it owns, except in
limited circumstances (including acceptance by Exxaro of any take over
offer made by a non-affiliated shareholder). After expiration of this
lockup period, Exxaro may (i) acquire shares in New Tronox in excess of 45%
of the total issued shares of New Tronox, but can only increase its stake
above 50% either through an agreed transaction with the New Tronox Board or
by making an offer for all of the outstanding shares, which offer is
accepted by a majority of the unaffiliated shareholders or (ii) sell its
shares subject to the 20% Rule (to the extent Exxaro is not exempted from
this rule), in accordance with Australian takeover rules and the
limitations on an affiliate`s ability to acquire and sell shares under the
U.S. securities laws; and
* Exxaro agrees to take all reasonable steps necessary to maintain the BEE
status of the South African Operations under current HDSA ownership
requirements, including retaining a direct 26% shareholding in the South
African Operations until the end of the Empowerment Period.
CONDITIONS PRECEDENT
The Proposed Transaction will be subject to the fulfilment or waiver, where
applicable, of certain conditions precedent by not later than the Closing (which
the parties have agreed must occur by not later than 30 June 2012 subject to a
one-off extension in limited circumstances to 30 September 2012), including the
following:
* all required regulatory approvals (including, inter alia, customary
competition (anti-trust) approvals, South African exchange control approval
and approval from the Minister of Mineral Resources, and Australian Foreign
Investment Review Board approval) having been obtained;
* no material adverse effect (being, with respect to either Exxaro or Tronox,
any change materially adverse to the financial condition, businesses or
results of operations of the relevant group) having occurred;
* certain required third party contractual and finance consents having been
obtained;
* a Registration Statement in respect of the registration of New Tronox`s
Class "A" shares with the U.S. Securities Exchange Commission (the "SEC")
having been filed by New Tronox and declared effective by the SEC; and
* Tronox stockholder approval having been obtained.
UNAUDITED PRO FORMA FINANCIAL EFFECTS AND CAUTIONARY ANNOUNCEMENT
The unaudited pro forma financial effects of the Proposed Transaction on Exxaro
are in the process of being finalised and will be released in due course.
Pending further announcements, Exxaro shareholders are advised to exercise
caution when dealing in Exxaro securities.
FORWARD-LOOKING STATEMENTS
This announcement contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 (a United States Act).
Forward-looking statements are statements that are not historical facts,
including statements concerning the anticipated timing of filings and
approvals relating to the Proposed Transaction; the expected timing of the
completion of the Proposed Transaction; the expected benefits and costs of
the Proposed transaction; management plans relating to the Proposed transaction;
the ability to complete the Proposed Transaction in view of the various closing
conditions; the possibility that the Proposed Transaction may not be completed;
any projections of earnings, revenues, synergies, accretion, margins or other
financial items; any statements of operations, including the execution of
integration plans; any statements of expectation or belief; and any statements
of assumptions underlying any of the foregoing. Any statement in this
announcement that expresses or implies Tronox`s, Exxaro`s or New Tronox`s
intentions, beliefs, expectations or predictions (and the assumptions
underlying them) is a forward-looking statement. Forward-looking statements
involve inherent risks, uncertainties and assumptions, including, without
limitation, risks related to the timing or ultimate completion of the
Proposed Transaction; the possibility that expected benefits may not
materialize as expected; that, prior to the completion of the Proposed
Transaction, Tronox`s business or Exxaro`s business may not perform as
expected due to uncertainty; that the parties are unable to successfully
implement integration strategies or otherwise realize the synergies
anticipated for the Proposed Transaction; and other risks and uncertainties
that are beyond the parties` control. If such risks or uncertainties
materialize or such assumptions prove incorrect, actual results could differ
materially from those expressed or implied by such forward-looking statements
and assumptions. The forward-looking statements contained in this announcement
are made as of the date hereof, and Tronox and Exxaro each expressly disclaim
any obligation to update or correct any forward-looking statements made
herein due to the occurrence of events after the issuance of this
announcement.
IMPORTANT ADDITIONAL INFORMATION
This announcement is for informational purposes only and is not an offer to
sell or the solicitation of an offer to purchase or exchange any securities,
nor shall there be any sale of securities, in any jurisdiction in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction. The
publication and distribution of this announcement and any separate documentation
regarding the Proposed Transaction, the making of any offer for shares or the
issuance and offer to purchase New Tronox`s shares may be subject to specific
regulations or restrictions in certain jurisdictions. As a result, persons in
possession of this announcement must seek information as to any applicable
local restrictions and comply therewith. None of Tronox, Exxaro, New Tronox or
any of their respective affiliates undertakes any liability of any kind for
any violation of applicable law. The solicitation of Tronox shareholder
consent for Proposed Transactions and the offer of the New Tronox`s shares
will only be made pursuant to a solicitation and information statement and
related materials that are intended to be filed with the SEC.
Tronox and Exxaro intend for New Tronox to file a registration statement and
solicitation and information statement, together with other related materials,
with the SEC in connection with the Proposed Transaction. Information regarding
the participants in the Proposed Transaction and a description of their direct
and indirect interests, by security holdings or otherwise, will be contained
in the relevant materials to be filed with the SEC when they become available.
TRONOX SHAREHOLDERS ARE URGED TO READ THESE MATERIALS REGARDING THE PROPOSED
TRANSACTION CAREFULLY PRIOR TO MAKING ANY DECISIONS WITH RESPECT TO THE
PROPOSED TRANSACTION, IF AND WHEN THESE MATERIALS BECOME AVAILABLE, BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION, INCLUDING THE TERMS AND CONDITIONS
OF THE PROPOSED TRANSACTION.
Exxaro shareholders and Tronox stockholders will be able to obtain a free
copy of such materials without charge at the SEC`s website (www.sec.gov) or
from the information agent named in such materials once they have been filed
with the SEC. These materials will also be made available for inspection at
Exxaro`s registered offices, Exxaro Corporate Centre, Roger Dyason Road,
Pretoria West, 0183, South Africa.
For enquiries:
Wim de Klerk
Exxaro Resources Limited
Finance Director
Tel: + 27 12 307 4848
Mobile: +27 82 652 5145
Email: wim.deklerk@exxaro.com
TELECONFERENCES
For more information, investor and media stakeholders are invited to take
part in an Exxaro teleconference taking place today (26 September 2011)
from 13h00 - 14h00 SA time.
To access the teleconference, dial one of the following numbers:
South Africa - Johannesburg: 011 535 3600 / 011 201 6616
South Africa - Cape Town: 021 819 0900
South Africa (Toll-Free): 0 800 200 648
United States (Toll-Free): 1 800 860 2442
Australia (Toll-Free): 1 800 350 100
Other Countries (Intl Toll): +27 11 535 3600
A teleconference for international investors will take place on Tuesday,
27 September 2011 from 15h00 - 16h00 SA time.
To access the teleconference, dial one of the above-mentioned numbers.
26 September 2011
Pretoria
Financial advisor to Exxaro
J.P. Morgan
US, European and Asian legal counsel to Exxaro
Orrick, Herrington & Sutcliffe LLP
SA legal counsel to Exxaro
Norton Rose South Africa
SA legal counsel to Exxaro
CLS Attorneys
Australian legal counsel to Exxaro
Freehills
Corporate Broking Adviser and Sponsor to Exxaro
Deutsche Securities SA (Proprietary) Limited
Financial advisor to Tronox
Goldman, Sachs & Co.
Financial advisor to Tronox
Moelis & Company
US legal counsel to Tronox
Kirkland and Ellis LLP
SA legal counsel to Tronox
Werksmans
Australian legal counsel to Tronox
Blake Dawson
Date: 26/09/2011 09:00:03 Supplied by www.sharenet.co.za
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