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PAN AFRICAN RESOURCES PLC - Update regarding the acquisition of Evander Gold Mines Limited and further cautionary announcement

Release Date: 07/11/2012 17:48
Code(s): PAN     PDF:  
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Update regarding the acquisition of Evander Gold Mines Limited and further cautionary announcement

                                           Pan African Resources PLC
           (Incorporated and registered in England and Wales under Companies Act 1985
                       with registered number 3937466 on 25 February 2000)
                                            AIM Code: PAF
                                            JSE Code: PAN
                                         ISIN: GB0004300496
                                     (“Pan African” or “Company”)

UPDATE REGARDING THE ACQUISITION OF EVANDER GOLD MINES LIMITED (“EVANDER”)
AND FURTHER CAUTIONARY ANNOUNCEMENT

HIGHLIGHTS:
      CIRCULAR POSTED TO SHAREHOLDERS AND AVAILABLE ON PAN AFRICAN’S
      WEBSITE TODAY
      PRO FORMA FINANCIAL EFFECTS PERTAINING TO THE ACQUISITION OF EVANDER
      FINALISED
      RIGHTS OFFER OF 25.5 NEW SHARES FOR EVERY 100 SHARES HELD TO RAISE
      R700 MILLION
      EXTENSION OF FULFILMENT DATE OR RIGHT TO WAIVE CERTAIN CONDITIONS
      PRECEDENT
      NEW DEBT FACILITY EXPECTED TO BE AVAILABLE BY CLOSING DATE

Commenting on the successful developments on the Evander acquisition, Jan Nelson, CEO of Pan
African Resources said: “Evander continues to prove its worth as a quality asset and game changer
for Pan African. The pro forma financial effects highlight the impressive fundamentals of the project
and the significant benefit the project will contribute improving Pan African’s current earnings per
share by 163% to 5.32 pence per share after the rights offer from 2.02 per share as reported for Pan
African’s financial year ended 30 June 2012.

Production improvements at Evander were also highlighted in Harmony’s quarterly results reported
today. The Evander operations reported an 18% increase in gold production and a 14% improvement
in cash operating costs at R259 613/kg, which resulted in an operating profit of R141 million. Gold
production for the quarter at Evander increased to 817kg, due to a net increase of 8% in tonnes milled
at 159 000t as well as an increased grade to 5.14g/t.

The Rights Offer is expected to open to all entitled shareholders in early December and will run until
mid-January 2013, pending shareholder and regulatory approval. We are in a strong cash position of
some R500 million, including a R200 million contribution from Evander since 1 April 2012 and a
further available R270 million as documented at 31 October 2012.

We are excited at the prospect of the imminent conclusion of this deal and are of the opinion that the
Company has secured a combination of sufficient funding to settle the purchase price in full.

The Board would like to thank shareholders for their ongoing support and we look forward to a
successful outcome at the general meeting on 30 November 2012.”

1. INTRODUCTION

Pan African shareholders (“Shareholders”) are referred to the announcements published on 30 May
2012 and 17 August 2012 (“Announcements”), wherein they were advised and provided details of
the agreement entered into by the Company (“Agreement”) with¸ inter alia, Harmony Gold Mining
Company Limited (“Harmony”) in terms of which Pan African (via a wholly-owned subsidiary) will
acquire Evander (“Transaction”) for a total purchase consideration of R1.5 billion (“Purchase
Consideration”), subject to certain terms and conditions.

Significant progress has been made to date with regard to the implementation of the Transaction with
the following key milestones achieved since 17 August 2012:
  •        the requisite circular (“Circular”), providing details of the Transaction and incorporating a
           notice of general meeting (“General Meeting”) to be held on Friday, 30 November 2012, was
           posted today;

  •        the rights offer, in the ratio of 25.5 new shares for every 100 ordinary shares held (“Rights
           Offer”), to raise approximately R703 million to fund (in part) payment of the Purchase
           Consideration, is expected to open in early December 2012 to all Shareholders, save for
           those in certain excluded territories, subject to regulatory approvals and the requisite
           approvals being obtained at the General Meeting;

  •        the unaudited pro forma financial effects of the Transaction and the Rights Offer have been
           finalised and are set out in paragraph 2 below and detailed in the Circular;

  •        the date for fulfilment of certain of the conditions precedent to the Transaction has been
           extended; and

  •        a new debt facility is expected to be available upon the closing date of the Transaction.

  Further details of these events are set out below.

  2. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE TRANSACTION AND THE RIGHTS
     OFFER

  The table below sets out the unaudited pro forma financial effects of the Transaction and the Rights
  Offer (“Financial Effects”). The Financial Effects have been prepared for illustrative purposes only, in
  order to provide information about how the Transaction and the Rights Offer might have affected
  Shareholders had the Transaction and Rights Offer been implemented on the dates indicated in the
  notes below.

  The Financial Effects have been prepared using accounting policies that comply with International
  Financial Reporting Standards (“IFRS”) and are consistent with those applied in the published audited
  results of Pan African for the year ended 30 June 2012.

                                                      Before the            After the       After the Rights     Percentage
                                                   Transaction and      Transaction and           Offer           Change
                                                                                                   (2)
                                                   the Rights Offer        before the
                                                           (1)
                                                                          Rights Offer
                                                                               (2)




Basic earnings per share (pence)                                 2.02                6.69                 5.32          163.4%
Diluted earnings per share (pence)                               2.01                6.65                 5.30          163.7%
Headline earnings per share (pence)                              2.03                2.98                 2.37           16.7%
Diluted headline earnings per share (pence)                      2.02                2.96                 2.36           16.8%
Net asset value per share (pence)                                7.09                9.01                10.02           41.3%
Tangible net asset value per share (pence)                       4.73                6.65                 8.14           72.1%
Weighted average number of shares in issue            1 445 202 485       1 445 202 485       1 815 274 388              25.6%
Diluted number of shares in issue                     1 453 287 941       1 453 287 941       1 823 359 844              25.5%
Number of shares in Issue                             1 448 262 361       1 448 262 361       1 818 334 263              25.6%

  Notes and assumptions:

   1.   Extracted from the audited annual financial statements of Pan African for the financial year ended 30 June 2012.
   2.   Prepared on the assumption that the Transaction and Rights Offer took place on 1 July 2011 for purposes of the pro
        forma statement of comprehensive income and on 30 June 2012 for purposes of the pro forma statement of financial
        position utilising the audited financial statements of Evander for the year ended 30 June 2012.
   3.   The Financial Effects have been prepared on the assumption that 370 071 902 Rights Offer Shares are issued at a price
        of R1.90 per share.
   4.   The Financial Effects incorporate the adjustments pertaining to a purchase price allocation exercise which has been
        completed in terms of IFRS 3.
5.    An exchange rate as at 30 June 2012 of 12.91 ZAR/£ was utilised for purposes of the statement of financial position and
      an average exchange rate for the financial year ended 30 June 2012 of 12.27 ZAR/£ for purposes of the statement of
      comprehensive income.
6.    The unaudited pro forma statement of comprehensive income and statement of financial position incorporating the pro
      forma financial effects of the Transaction and the Rights Offer are included in Annexure 5 of the Circular.
7.    Due to their nature, the Financial Effects may not fairly present the financial position or the effect on earnings of Pan
      African after the Transaction and the Rights Offer. The preparation of the Financial Effects is the responsibility of the
      directors of Pan African.

3. FUNDING THE TRANSACTION

Payment of the Purchase Consideration, as reduced by the R50 million break fee which has been
paid in full, shall be effected in two parts:

•         first, through the payment of a deposit of R950 million (“Deposit”) within 10 business days of
          the fulfilment or waiver of all the conditions precedent to the Transaction other than the
          condition relating to obtaining the necessary consent for the Transaction from the Department
          of Mineral Resources in terms of section 11 of the Mineral and Petroleum Resources
          Development Act No.28 of 2002 (“Ministerial Consent”) by no later than 30 June 2013; and

•         secondly, through the payment of R500 million on the date that the Ministerial Consent is
          obtained (“Closing Date”).

In accordance with the Agreement, all the profits generated by Evander from 1 April 2012 have
accrued for the benefit of Pan African.

With this is mind, Pan African intends to fund the Transaction through a combination of:
•        the Rights Offer;
•        its current cash reserves and cash generated through the operations of and potential strategic
         disposals of non-core assets by Pan African and Evander until the Closing Date (“Cash
         Reserves”); and
•        third party debt financing (“Debt Financing”).

3.1       Rights Offer

Following a detailed financial review of the various sources of financing available to Pan African for
purposes of the acquisition, the board of directors of Pan African (“Board”) has resolved to raise
approximately R703 million through the issue of new Pan African ordinary shares (“Rights Offer
Shares”) by way of a Rights Offer.

The Rights Offer will be effected in the ratio of 25.5 Rights Offer Shares for every 100 Pan African
ordinary shares held at a price of R1.90 per Rights Offer Share. To the extent permitted,
Shareholders recorded on the Company’s UK register of members will be required to subscribe for
Rights Offer Shares in Pound Sterling (“GBP”). The GBP price will be finalised closer to the Rights
Offer opening date and shall be calculated using prevailing and forward Rand/GBP exchange rates.

All ordinary Shareholders recorded on Pan African’s register of members on the record date of the
Rights Offer, save for those in certain excluded territories, will be entitled to participate in the Rights
Offer and to apply for excess shares (being Rights Offer Shares in excess of a Shareholder’s pro rata
entitlement to Rights Offer Shares).

The opening of the Rights Offer is subject to Shareholders voting in favour of the requisite resolutions
to implement the Transaction and the Rights Offer at the General Meeting as well as regulatory
approval of documentation relating to the Rights Offer. At the time of finalising the Circular, Pan
African had received irrevocable undertakings (representing 54.1% of Pan African shares in issue)
from certain Shareholders to vote in favour of the resolutions to be proposed at the General Meeting,
in respect of Pan African shares under their control at the date of the General Meeting. It is important
for Shareholders to note that all the resolutions pertaining to the Transaction and the Rights Offer are
required to be approved in order to allow the Company to fulfil the conditions precedent to the
Transaction. Therefore, in the event that the resolutions pertaining to the implementation of the Rights
Offer are not passed, the Company shall be unable to proceed with the implementation of the
Transaction and vice versa.

Subject to the requisite Shareholder and regulatory approvals being obtained, it is intended that the
Rights Offer will open in early December 2012 and close in mid-January 2013. The principal dates
and times of the Rights Offer, which may be adjusted if required, are expected to be as follows:

 Event                                                                                        2012/2013
 Finalisation announcement confirming the dates of the Rights Offer published              30 November
 Prospectus relating to the Rights Offer published on or after                             30 November
 Record date to participate in the Rights Offer                                            14 December
 Last day to participate in the Rights Offer                                                 11 January
 Rights Offer Shares issued to Shareholders                                                  14 January

As more fully detailed in the Announcements, Pan African has obtained commitments from various
Shareholders to subscribe for Rights Offer Shares in the approximate amount of R700 million
(“Subscription Undertakings”) thereby ensuring its full subscription and securing the equity funding
necessary for the implementation of the Transaction.

Further details pertaining to the Rights Offer, including the salient dates and times, will be published
by the Company by the end of November 2012.

3.2     Cash Reserves

As at 31 October 2012, Pan African had available cash resources in the amount of approximately
R270 million, a portion of which may be utilised for purposes of partially settling the Purchase
Consideration. Cash generated from Pan African’s Barberton Mines and Phoenix Platinum operations
up until the Closing Date may also be utilised to partially settle the Purchase Consideration.

The Purchase Consideration and the Deposit shall be reduced by, inter alia, any distributions made
by Evander before the Closing Date thereby potentially allowing for the cash resources of Evander to
also be utilised to settle a portion of the Purchase Consideration and / or the Deposit. Evander
currently has available cash resources of approximately R200 million.

The Group therefore has close to R500 million in cash to fund part of the Transaction.

3.3     Debt Financing

Pan African currently has an unutilised R300 million revolving credit facility with Nedbank Limited in
place (“Current Facility”) at Barberton Mines. Furthermore, Pan African has executed a term sheet
pursuant to which a new R600 million revolving credit facility (“New Facility”) is being arranged for
the Pan African group to replace the Current Facility. It is intended that the New Facility shall be
available for draw-down from the Closing Date. The terms of the New Facility are considered usual
for facilities of this nature.

The amount to be drawn down from the New Facility to contribute to settling a portion of the Purchase
Consideration will vary according to the timing of the Closing Date. Based on the current projections
the amount to be drawn from the New Facility is estimated to be approximately between R200 million
and R300 million.

3.4     Sufficiency of Funding

The Company is of the opinion that further to the Rights Offer, Cash Reserves and the Debt
Financing, the Pan African group will have sufficient funding available to it for purposes of settling the
Purchase Consideration in full.
4. CONDITIONS PRECEDENT

As previously announced, the Transaction remains subject to the following conditions precedent:
•       Evander entering into a new electricity supply agreement with Eskom on terms and conditions
        acceptable to Pan African (“Eskom Agreement”);
•        Shareholder and regulatory approval (“Shareholder and Regulatory Approval”) by no later
        than 30 November 2012; and
•       the Ministerial Consent which is required to be obtained by no later than 30 June 2013.

The parties to the Agreement have agreed to extend the date for fulfilment of the conditions precedent
pertaining to the Eskom Agreement (with an additional right for Pan African to waive this condition
precedent) and Shareholder and Regulatory Approval to 30 November 2012.

5. FURTHER CAUTIONARY ANNOUNCEMENT

Shareholders are advised that certain information pertaining to the disposal of the Manica Gold
Project by Pan African remains unpublished and may have a material effect on the price of Pan
African securities. Accordingly, Shareholders are advised to continue to exercise caution when
dealing in Pan African`s securities until a further announcement in this regard is published.

7 November 2012
Johannesburg



Lead Corporate Adviser, Transaction Sponsor and JSE Sponsor

One Capital

Joint Corporate Adviser and Independent Sponsor

Nedbank Capital

SA Legal Counsel

Werksmans Inc.
Enquiries

South Africa                                       UK

Pan African Resources                              Canaccord Genuity Limited – Nomad and Joint Broker
Jan Nelson, Chief Executive Officer                Rob Collins / Sebastian Jones / Joe Weaving
+27 (0) 11 243 2900                                +44 (0) 20 7523 8350

One Capital                                        finnCap Limited – Joint Broker
Sholto Simpson / Megan Young                       Elizabeth Johnson / Joanna Weaving
+27 (0) 11 550 5000                                +44 (0) 20 7220 0500

Vestor Investor Relations                          St James’s Corporate Services Limited
Louise Brugman                                     Phil Dexter
+27 (0) 11 787 3015                                +44 (0) 20 7499 3916

                                                   Gable Communications
                                                   Justine James
                                                   +44 (0) 20 7193 7463 / +44 (0) 7525 324431

For further information on Pan African, please visit the website at www.panafricanresources.com

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