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NAIC update - Unlocking value for Petmin shareholders and withdrawal of cautionary announcement
PETMIN LIMITED
Incorporated in the Republic of South Africa
Registration Number 1972/001062/06
Share Code JSE: PET
ISIN: ZAE000076014
("Petmin" or "the Company")
NAIC UPDATE - UNLOCKING VALUE FOR PETMIN SHAREHOLDERS AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Positive results from the Pre Economic Assessment (PEA) undertaken by
North Atlantic Iron Corporation (NAIC) and unlocking shareholder value by
way of a special dividend to Petmin shareholders
Further to the cautinonary published on 9 June 2014 and the update on NAIC
published in the Company’s interim results in March 2014, Petmin is pleased to
announce:
• NAIC PEA completed;
• The viability of NAIC’s project based on the PEA work to date, yielding an
unlevered after tax IRR of up to 19.3%;
• Petmin to exchange its equity in NAIC at a circa ZAR 300m for equity in
Muskrat Minerals Incorporated (“MMI”);
• MMI to list on a major Canadian Stock Exchange with a secondary listing on
the JSE and Petmin to distribute the MMI shares to shareholders by way of
a special dividend (estimated value approximately ZAR0,50 cents per Petmin
share).
Shareholders are reminded that NAIC is a private Canadian company established
to develop a low cost merchant pig iron (MPI) business in Canada and the United
States. NAIC’s strategy is to develop into a value-added manufacturing company
producing low cost MPI. The primary region for the sale of NAIC’s MPI is North
America with a secondary market being Europe.
Petmin currently owns 32.5% of NAIC and has the right to invest a further $6m
into NAIC for a further 7.5%, and an option to acquire a further 9.9% at a market
related price. Petmin will be issued a further 1% of the NAIC upon completion of
the PEA and further 1.5% of NAIC upon completion of the Bankable Feasibility
Study (BFS) .
Petmin’s investment in NAIC to date is R210m.
Petmin is also entitled to receive management consulting fees of $600 000 over 2
years from NAIC.
NAIC engaged the following specialists:
• Tenova Core, a global supplier of Electric ARC furnaces (EAF) and potential
furnace supplier to undertake the Initial MPI plant design.
• Worley Parsons, provider of professional services to the resources & energy
sectors and complex process industries to design the concentration plant for
the operation at Goose Bay.
• SRK, key provider in the field of geological, resource/reserve evaluation and
exploration services, were appointed to update the resource estimates in Goose
Bay.
• STANTEC, supplier of comprehensive packages for environmental services and
testing to the resources industry, to evaluate the environmental aspects of the
Goose Bay operations.
• CRU, respected independent market analysts and experts in the global metallic
markets.
• An independent supplier of global engineering, project construction,
management services, process and business consulting services to the mining,
metallurgical, energy and infrastructure industries were appointed to
undertake the technical review of the MPI manufacturing process and oversee
the melt tests conducted by NAIC at its facility in Forks Pennsylvania.
Through the numerous PEA work streams, NAIC has been able to refine its strategy
and has developed a business model which affords significant flexibility in capital
investment and operating costs. NAIC aims to produce 810 ktpa of MPI from iron
ore sands extracted from its deposit located in Goose Bay, Newfoundland, or circa
915 ktpa of MPI using iron ore fines purchased from current iron ore producers.
NAIC has developed a production flow sheet of (i) composite briquettes production
followed by (ii) pre-reduction and metallization of the briquettes in a rotary hearth
furnace followed by (iii) melting in a submerged arc furnace to produce MPI.
Preliminary Valuation Commentary
The financial modelling has been performed purely on project payback analysis i.e.
on a pure equity basis, and excludes inter alia any leverage and government
incentives.
A scenario using 62,5% iron ore fines, reduced Capex and reduced natural gas
consumption due to potential design optimization was modelled. This results in an
unlevered after-tax IRR of between 11.9% and 19 .3 %, 15% being the common
threshold for the Iron and Steel industry in North America.
Using typical reverts or waste materials from steel plants in place of fines results in
a significant improvement in IRR to 27%. Additional developmental and research
work will be required to implement this case.
Opex
The Opex has been estimated to be $305/t MPI for the 62,5% fines case. Making
NAIC one of the lowest cost producers on a delivered basis to North America.
NAIC’s principal competitors delivered cost ranges from $375/t to $425/t MPI.
Capex
The overall Capex has been estimated to be $515 m for the fines case.
Sensitivity Analysis
Applying the CRU-projected prices for pig iron and iron ore fines leads to
significantly improved project economics. For the 62,5% fines case, the after-tax
IRR goes up to 19.3% from 11.9%.
For the Opex, the most important factor is the cost of the fines being produced or
purchased. This cost accounts for 46% of the overall Opex.
Board Approves the Proposed further investment by Petmin in NAIC
On the basis of the PEA work performed to date, Petmin intends to invest a further
$6m to take its interest in NAIC to 40% (“Final Investment”). This funding will be
from Petmin’s own resources and no further capital will be required from Petmin
thereafter. NAIC will be expected to raise the capital required for further
development.
UNLOCKING OF VALUE FOR PETMIN SHAREHOLDERS
MMI is currently listed on the Canadian National Stock Exchange and currently
holds have 40% of Grand River Iron Sand Inc. (GRI) which will own 60% of NAIC
once Petmin makes the Final Investment.
Petmin has entered into a binding Letter of Intent (“LOI”) with MMI, in terms of
which, Petmin will transfer its shares in NAIC to MMI on a tax deferred basis
pursuant to section 85 of the (Canadian) Act in exchange for shares in MMI (the
Transaction ).
The ratio of shares to be allotted will result in Petmin holding 40% of the issued
and outstanding shares of MMI at an approximate value of ZAR 300m (post the
Final Investment), or approximately ZAR0.50 cents per Petmin share.
Petmin intends to distribute the MMI shares to shareholders by way of the
proposed special dividend before the end of 2014.
The Transaction will provide greater transparency to Petmin’s shareholders with
regard to the value of their investment in NAIC and will provide a Petmin
shareholder with a direct shareholding in a viable North-American business.
Principle terms and Conditions
The principle terms and conditions of the Transaction are set out below.
1. The Transaction will be completed once NAIC has sufficient capital to
complete a BFS, estimated to be in region of $20 m, and Petmin has invested
the balance of its commitment in the amount of $6,000,000. Petmin will
have satisfied its full commitment of $25,000,000 to receive the 40% of the
issued and outstanding shares of MMI.
2. On implementation of the Transaction or as soon as reasonably possible
thereafter, Petmin intends to unbundle and distribute ("Distribution") its
shares in MMI to its shareholders in order to provide transparency to
Petmin’s shareholders with regards to the value of their investment in NAIC.
3. MMI will undergo a name change to “North Atlantic Iron Corporation” or
such other name as may be agreed to by GRI and Petmin.
4. MMI will be listed on a major Canadian Exchange and the JSE Limited
(collectively, the “Exchanges”), subject to satisfying the minimum listing
conditions, immediately following the completion of the Transaction.
5. The Board of Directors of MMI shall consist of no less than five (5) directors.
The initial executive directors will be Francis MacKenzie (currently President
of MMI and GRI) and Bradley Doig (Petmin’s Business Development Director)
(collectively, the “Executive Directors”), and the resulting Board will consist
of a ratio of 60% elected by GRI and 40% elected by Petmin. The Executive
Directors will each enter into the required agreements with MMI. It is
understood that this board will be responsible for overseeing the conclusion
of a fully funded BFS.
6. The initial officers of MMI shall be Francis MacKenzie and Bradley Doig. It is
understood and agreed that the officers of MMI shall be represented by a
ratio of 60% appointed by GRI and 40% appointed by Petmin.
7. The Transaction Documents will be in compliance with the policies of the
Exchanges and the Canadian Securities Exchange (“CSE”), as applicable,
and may require various documents and instruments to be submitted and
provided in connection with Stock Exchange and CSE review and approval of
the Transaction.
Conditions Precedent
The transaction documents required to give effect to the Transaction will be subject
to such conditions precedent which are customary for transactions of this nature.
Without limiting the generality of the forgoing, the conditions precedent will
include, but not be limited to, the following:
a) receipt of all regulatory approvals, authorizations and consents as are
required to be obtained in connection the Transaction and the Distribution,
if applicable, including matters to be voted on by shareholders of the Parties,
the approvals of the Exchanges and the CSE, and any other applicable
regulatory authorities;
b) the holders of the issued and outstanding shares of GRI holding marketable
title thereto, free and clear of any and all encumbrances, liens, charges and
demands of whatsoever nature;
c) the shareholders of each of the MMI, GRI and Petmin, to the extent required
approving the Transaction;
d) the directors of each of MMI, GRI and Petmin approving the Transaction.
Further details of this transaction will be announced upon conclusion of the
definitive agreements.
Petmin will continue with its global strategy of investing in quality projects and
cash producing assets that produce commodities that feed into the steel value
chain, as well as considering various opportunities in the thermal coal market in
South-Africa.
Withdrawal of cautionary
Shareholders are referred to the cautionary announcement dated 9 June
2014, and caution is no longer required to be exercised by shareholders when
dealing in their securities.
Petmin
Bradley Doig
+27 11 706 1644
Media
Jonathon Rees
+27 76 185 1827
Sponsor and Corporate Advisor
River Group
Andrew Lianos
+27 834 408 365
Johannesburg
11 June 2014
Date: 11/06/2014 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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