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TRANS HEX GROUP LIMITED - Updated transaction details and extension of cautionary annoucement

Release Date: 08/08/2012 15:47
Code(s): TSX     PDF:  
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Updated transaction details and extension of cautionary annoucement

Trans Hex Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1963/007579/06)
Share code: TSX
ISIN: ZAE000018552
("Trans Hex" or the "Company")

UPDATED TRANSACTION DETAILS RELATING TO THE ACQUISITION OF NAMAQUALAND
MINES AND EXTENSION OF CAUTIONARY ANNOUNCEMENT

1. Introduction and Rationale

Shareholders are referred to the announcement dated 6 May 2011 (the “previous
announcement”) relating to an agreement with De Beers Consolidated Mines Limited
("DBCM") in terms of which, and subject to certain conditions precedent, Trans Hex’s 50%
held associate, Emerald Panther Investments 78 (Proprietary) Limited (the "Purchaser"),
would acquire assets and liabilities relating to Namaqualand Mines ("Namaqualand Mines"),
a division of DBCM (the "Proposed Transaction").

On the date of the previous announcement, the environmental rehabilitation liability
associated with the Proposed Transaction was an estimate. The Department of Mineral
Resources (“DMR”) has subsequently approved revised environmental rehabilitation plans .
Following subsequent negotiations between the Purchaser and DBCM, the terms of the
Proposed Transaction have been amended such that DBCM will retain in excess of 50% of
the Namaqualand Mines environmental rehabilitation liability.

The key amendments to the Proposed Transaction are as follows:

    1. certain assets and liabilities relating to the Namaqualand Mines’ Buffels Marine
       Complex (“BMC”) are to be removed from the proposed transaction (including the
       environmental rehabilitation liability);
    2. the Purchaser and DBCM will enter into a put, call and pre-emptive arrangement in
       respect of these BMC assets and liabilities; and
    3. the revised transaction, excluding the abovementioned put, call and pre-emptive
       arrangement, is now valued at R166 million.

Trans Hex believes that the exclusion of the BMC assets and liabilities from the Proposed
Transaction significantly reduces risk for Trans Hex as the environmental liability associated
with the BMC constitutes a substantial proportion of the original environmental
rehabilitation liability, whilst the BMC itself is a lower priority asset in comparison with the
Buffels River and Koingnaas Complex assets which remain in the proposed transaction.

The salient details of this amended transaction (the “Amended Proposed Transaction”) are
set out in more detail below.

2. The Amended Proposed Transaction

2.1 Shareholding in the Purchaser
As set out in the previous announcement, the shares in the Purchaser are beneficially owned
as follows:

2.1.1   50% by Trans Hex;
2.1.2   34% by RECM and Calibre Limited, an investment company listed on the JSE Limited
        ("JSE");
2.1.3   11% by Dinoka Investment Holdings (Proprietary) Limited, an entity with the
        majority of its shares being held by historically disadvantaged members of the Trans
        Hex management team; and
2.1.4   5% by the Namaqualand Diamond Fund Trust (“NDFT”), a trust representing the
        interests of various communities in the Namaqualand region.

As referred to in the conditions precedent set out in the previous announcement,
engagement with the DMR continues in relation to the DMR`s interest in Namaqualand
Mines and related terms. The future shareholding structure of the Purchaser may therefore
be subject to change.

2.2 Description of assets and liabilities to be acquired

In terms of the Proposed Transaction, the Purchaser would acquire a diamond prospecting
right, various diamond mining rights, mining and processing equipment, certain immovable
properties and infrastructure relating to Namaqualand Mines. The Purchaser would also
assume liabilities relating to Namaqualand Mines and the environmental rehabilitation
liability associated therewith, which were to be transferred to the Purchaser pursuant to the
Mineral and Petroleum Resources Development Act, No. 28 of 2002 ("MPRDA") (collectively
the “Original Sale Package”).

In terms of the Amended Proposed Transaction, the diamond mining right, mining and
processing equipment, certain immovable properties and processing equipment relating to
the BMC, as well as the environmental rehabilitation liability associated therewith
(collectively the “BMC Sale Package”) no longer form part of the sale package. (The Original
Sale Package excluding the BMC Sale Package is hereinafter referred to as the “Remaining
Sale Package”). Instead, the Purchaser has entered into a put, call and pre-emptive
arrangement with DBCM (the “BMC Option Agreement”), the salient terms of which are as
follows:

2.2.1   The Purchaser will hold a call option (the “BMC Call Option”) to purchase the BMC
        Sale Package.
2.2.2   DBCM will hold a corresponding put option (the “BMC Put Option”) to sell the BMC
        Sale Package to the Purchaser in the event that the net rehabilitation liability in
        terms of Section 41 of the MPRDA in relation to the BMC, as approved by the DMR,
        is less than or equal to R80 million.
2.2.3   The duration of both the BMC Call Option and the BMC Put Option shall be four
        years from the effective date of the Amended Proposed Transaction (the “Option
        Period”).
2.2.4   The Purchaser will hold a pre-emptive right over the BMC Sale Package for a period
        of two years from the end of the Option Period.
2.2.5   Both the BMC Put Option and the BMC Call Option shall terminate if DBCM disposes
        of any diamonds recovered in the BMC area during the Option Period and shall be
        replaced by a pre-emptive right over the BMC Sale Package in favour of the
        Purchaser for the remaining duration of the Option Period.

The Purchaser will continue to support the sustainability initiatives started and developed by
DBCM, both in respect of the Remaining Sale Package and in respect of the BMC Sale
Package if acquired in terms of the BMC Option Agreement. These initiatives should help to
create alternative employment and a resultant sustainable economy in the region. They
include, inter alia, the lease of lands to South Africa National Parks, abalone and oyster
farms and wind farms.

2.3 Purchase Consideration

The purchase consideration in respect of the Amended Proposed Transaction has been
reduced from R225 million to R166 million, which provides for the acquisition of assets and
liabilities relating to the Remaining Sale Package, including the environmental rehabilitation
liability.

2.4 Conditions precedent

The Amended Proposed Transaction is subject to the fulfillment or, where applicable, waiver
of, inter alia, the following conditions precedent:

2.4.1   the parties reaching agreement with the DMR in relation to the DMR`s interest in
        Namaqualand Mines;
2.4.2   DBCM being satisfied that the guarantee provided by the Purchaser to the DMR has
        the effect that the environmental rehabilitation liability relating to Namaqualand
        Mines is transferred to the Purchaser;
2.4.3   that all necessary statutory and regulatory approvals required for
        entering into and implementing the Amended Proposed Transaction have been duly
        given, including approval from the DMR for the purposes of the transfer of the
        relevant mining rights and prospecting right to the Purchaser; and
2.4.4   the approval of the Amended Proposed Transaction by Trans Hex shareholders in
        accordance with the JSE Listings Requirements.

2.5 Effective date

As set out in the previous announcement, the Amended Proposed Transaction will be
implemented ten business days after the fulfillment or, where appropriate, waiver of all of
the conditions precedent, which is expected to be within 6 to 12 months of this
announcement.

3. Shareholder approval and circular

The Amended Proposed Transaction remains a Category 1 related party transaction in terms
of the JSE Listings Requirements and is therefore subject to shareholder approval. In
addition, the grant of the BMC Call and Put Options is also subject to shareholder approval.
A circular seeking such shareholder approvals will therefore be posted to Trans Hex
shareholders in due course.

4. Extension of cautionary announcement
Certain aspects of the Amended Proposed Transaction, as well as the pro forma financial
effects, have not yet been finalised. As a result, shareholders are advised to continue to
exercise caution when dealing in the Company`s securities until further information is
released.

For and on behalf of the board
Cape Town
8 August 2012

Transaction Advisor
QuestCo (Pty) Limited

Attorneys
Bowman Gilfillan Inc.

JSE Sponsor
Sasfin Capital
A division of Sasfin Bank Limited

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