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SENTULA MINING LIMITED - Disposal of Benicon Coal Proprietary Limited and Renewal of cautionary announcement

Release Date: 28/02/2014 16:00
Code(s): SNU     PDF:  
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Disposal of Benicon Coal Proprietary Limited and Renewal of cautionary announcement

SENTULA MINING LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1992/001973/06)
Share code: SNU ISIN: ZAE000107223
(“Sentula” or “the Company”)


DISPOSAL OF BENICON COAL PROPRIETARY LIMITED AND RENEWAL OF CAUTIONARY
ANNOUNCEMENT


1. INTRODUCTION
  Shareholders are referred to the ‘Further Cautionary Announcement’ dated 29 January 2014 regarding,
  inter alia, the proposed disposal by Sentula of its shares in its wholly-owned subsidiary, Benicon Coal
  Proprietary Limited (“Benicon Coal”), through which Sentula holds its 60% equity interest in the mine
  operated by Nkomati Anthracite Proprietary Limited (“Nkomati”), which proposed disposal was subject
  to, inter alia, the conclusion of a binding legal agreement, regulatory approvals (to the extent required),
  and other conditions typical for a transaction of this nature. The board of directors of Sentula (“the
  Board”) is pleased to inform shareholders that Sentula, Miranda Mineral Holdings Limited (“Miranda”),
  Mochiba Investments Proprietary Limited (“Mochiba”), a special purpose vehicle being Kutlwano
  Investment Holdings Proprietary Limited (“the Purchaser”), and Benicon Coal (collectively referred to
  hereinafter as “the Parties”) have entered into a Sale of Shares and Claims Agreement (“Sale
  Agreement”) contemporaneously with a Guarantee, Pledge and Cession Agreement (and a subsequent
  addendum to the Guarantee, Pledge and Cession Agreement dated 27 February 2014) (“Guarantee,
  Pledge and Cession Agreement”), on 26 February 2014 (“Signature Date”) (collectively referred to
  hereinafter as “the Agreements”). In terms of the Agreements, Sentula will sell to the Purchaser, which
  will purchase, the “Sale Equity”, as detailed hereafter, as one indivisible transaction (“the Benicon Coal
  Disposal”). The effective date of the Benicon Coal Disposal is the later of the first business day after
  which the last outstanding condition precedent is fulfilled, and 31 May 2014 (“Closing Date”).
  
  The "Sale Equity" comprises the Sale Shares and the Sale Claims.
  
  The "Sale Shares" comprise 100% of the issued shares held by Sentula in Benicon Coal.
  
  The "Sale Claims" comprise:
  o    all amounts owing by Benicon Coal to Sentula on the Closing Date; and
  o    all amounts owing by Nkomati to Sentula on the Closing Date after the payment of the “Initial Loan
       Repayment” (being a repayment of R100 million by Nkomati to Sentula under an existing “Loan
       Facility Agreement” entered into between Sentula and Nkomati on or about 1 April 2009) but
       excluding the “Residual Loan Claim” being a claim retained by Sentula under the Loan Facility
       Agreement for an amount of R50 million as at the Closing Date.

2. THE BENICON COAL DISPOSAL
   2.1 Nature of Benicon Coal
       The mine operated by Nkomati is located close to Komatipoort in eastern Mpumalanga. The mine
       has the ability to produce anthracite, which is utilised as a coke blend for domestic and export
       consumption, from opencast and underground operations. Operations at the mine, which is fully
       licenced, were placed on care and maintenance, by management, at the end of May 2011, pending
       the resolution of regulatory and environmental issues. Following the approval by the Department of
       Mineral Resources (“DMR”) of the amended environmental management programme, for the
       Madadeni open pit operation, application to the Department of Environmental Affairs, the seeking of
       condonation for certain permitted activities and the issuing of the mine’s Integrated Water Use
       Licence, the dewatering of the opencast operation began in November 2012. In preparation for the
       resumption of mining operations, the open pit has been dewatered and the infrastructure
       refurbished.

   2.2 Rationale for the Benicon Coal Disposal
       As set out in the Audited Summary Consolidated Financial Results for the Year Ended 31 March
       2013, it has been the intention of the Board to monetise the asset, through the disposal of Sentula’s
       interest in the mine.

   2.3 Purchase Consideration and Payment
       As set out in the Sale Agreement:
       2.3.1   The Purchaser will procure that the full Initial Loan Repayment is made to Sentula in
               accordance with the provisions of the Loan Facility Agreement on or before the Closing
               Date.
       2.3.2   The purchase consideration (“Purchase Consideration”) payable for the Sale Equity, which
               will be paid by the Purchaser to Sentula on or before the Closing Date, is a nominal amount
               of R1 000.00.
   
   Notwithstanding the nominal amount comprising the Purchase Consideration, the Benicon Coal
   Disposal will have the net effect of realising not less than R150 million cash for Sentula through the
   Initial Loan Repayment and the repayment of the Residual Loan Claim, which the Board intends to
   utilise to unlock shareholder value and commensurately reduce Sentula’s senior debt.
   Sentula has provided warranties which are normal in a transaction of this nature.

2.4 Conditions precedent
   Risk in and all benefit attaching to the Sale Equity will, against payment of the full Purchase
   Consideration as set out in paragraph 2.3 above, and the full Initial Loan Repayment, pass to the
   Purchaser on the Closing Date.
   
   The Benicon Coal Disposal is subject to the fulfilment of the following conditions precedent:
   2.4.1   by no later than close of business on 31 May 2014:
            2.4.1.1 the “Bankfontein Transfer”, being the transfer by Benicon Coal (at book value, of
                    the immovable property over which the Bankfontein mining right is held) to Sentula
                    or any subsidiary of Sentula, having been completed;
            2.4.1.2 the Guarantee, Pledge and Cession Agreement having become unconditional in
                    accordance with its terms, save for any condition which requires the Sale
                    Agreement to become unconditional;
            2.4.1.3 shareholders of Sentula having, to the extent required, approved the Benicon Coal
                    Disposal and all other transactions contemplated in the Sale Agreement in terms of
                    the Listings Requirements of the JSE Limited (“JSE”); and
            2.4.1.4 Sentula having received a copy of a special resolution passed by Miranda’s
                    shareholders approving the granting by Miranda of financial assistance to Nkomati
                    pursuant to the Guarantee Pledge and Cession Agreement, in compliance with the
                    Companies Act.
   In order to procure the payment of a portion of the Initial Loan Repayment, Miranda will undertake a
   capital raising process comprising a “specific issue/s for cash” as contemplated in the Listings
   Requirements of the JSE. In terms of the Sale Agreement, Sentula is entitled to cancel such Sale
   Agreement at any time prior to the Closing Date in the event that Miranda fails to complete any one
   or more of certain key milestone deliverables within five business days of the target date set out in
   Miranda's capital raising timetable. However, in the event that the Purchaser provides Sentula with a
   payment guarantee (acceptable to Sentula), issued by a recognised major bank in South Africa, in
   favour of Sentula for an amount not less than R60 million in order to procure payment in full of the
   Initial Loan Repayment, Sentula will no longer be entitled to cancel the Sale Agreement, in reliance
   on this particular provision, prior to Closing Date.

2.5 Miranda / Mochiba Guarantees
   
   In terms of the Sale Agreement each of Miranda and Mochiba irrevocably and unconditionally
   guarantees to Sentula the performance of all of the Purchaser's obligations under, in terms of, and
   arising from the Sale Agreement.
   
   2.6 Guarantee, Pledge and Cession
       
       As set out in the Guarantee, Pledge and Cession Agreement, each of the “Creditors” being,
       individually or collectively as the context requires, the Purchaser, Miranda, Mochiba and Benicon
       Coal, irrevocably and unconditionally, inter alia,:
       
       2.6.1   guarantees to Sentula the due and punctual payment and performance by Nkomati of the
               “Guaranteed Obligations”, being all liabilities and any other obligations of any nature
               whatsoever of Nkomati owed to Sentula under the Loan Facility Agreement, as well as all
               and any other amounts which Nkomati may now or from time to time in the future owe to
               Sentula under the “Transaction Documents” (which are comprised of the Sale Agreement,
               the Guarantee, Pledge and Cession Agreement and the Loan Facility Agreement);
       
       2.6.2   guarantees to Sentula that Nkomati will make the following payments in respect of the
               Guaranteed Obligations:
               2.6.2.1 an initial payment of R25 million on or before the first anniversary of the Closing
                       Date, plus all accrued interest as calculated in accordance with the Loan Facility
                       Agreement (save that interest will accrue at the prime rate plus one percent) in
                       respect of the Guaranteed Obligations as at the first anniversary of the Closing
                       Date; and
               2.6.2.2 a further payment of R25 million on or before the second anniversary of the Closing
                       Date, plus all accrued interest (as calculated in accordance with the Loan Facility
                       Agreement (save that interest will accrue at the prime rate plus one percent) in
                       respect of the Guaranteed Obligations as at the second anniversary of the Closing
                       Date.
       In terms of the guarantee contained in the Guarantee, Pledge and Cession Agreement, the liability of
       Miranda and Mochiba are limited to R24 million and R26 million, respectively.

       Furthermore, as set out in the Guarantee, Pledge and Cession Agreement:
       2.6.3   the Purchaser pledges the “Pledged Shares” (being one third of the Benicon Coal Shares
               held by the Purchaser immediately after Closing (constituting 33 Benicon Coal Shares
               rounded down to the nearest whole share), and cedes in securitatem debiti all of its Rights
               and Interests to Sentula as security for the due, proper and timeous payment and
               performance in full of the “Secured Obligations” (being any and all indebtedness or
               obligations of any nature whatsoever of the Purchaser (whether actual or contingent, present
               or future) to Sentula from time to time in terms of the guarantees, indemnities and
               undertakings contained the Guarantee, Pledge and Cession Agreement).

3. CATEGORISATION OF THE BENICON COAL DISPOSAL
   The the categorisation of the Benicon Coal Disposal is currently being discussed with the JSE pursuant
   to the Listings Requirements and shareholders will be advised accordingly.

4. PRO FORMA FINANCIAL EFFECTS OF THE BENICON COAL DISPOSAL AND RENEWAL
   CAUTIONARY ANNOUNCEMENT
   As the pro forma financial effects of the Benicon Coal Disposal on the reported financial information of
   Sentula are still to be finalised, shareholders are advised to continue exercising caution when dealing in
   Sentula’s securities until a further announcement incorporating the pro forma financial effects of the
   Benicon Coal Disposal, is made.

Johannesburg
28 February 2014

Sponsor
Merchantec Capital

Legal advisors
Cliffe Dekker Hofmeyr

Date: 28/02/2014 04:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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