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Exxaro acquires Total Coal South Africa Proprietary Limited
EXXARO RESOURCES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2000/011076/06)
ISIN: ZAE000084992
JSE Share Code: EXX
ADR Code: EXXAY
("Exxaro" or "the Company")
EXXARO ACQUIRES TOTAL COAL SOUTH AFRICA PROPRIETARY LIMITED
1. INTRODUCTION
Shareholders are advised that, on Friday, 25 July 2014 ("Signature Date"), Exxaro entered into
a binding sale and purchase agreement (the "SPA") with Total S.A. ("Total"), subject to certain
conditions precedent as listed in paragraph 3 below, for the acquisition of 100% of the issued
share capital of Total Coal South Africa Proprietary Limited ("TCSA") and its related export
marketing rights under primary Richards Bay Coal Terminal ("RBCT") allocation ("the
Acquisition").
The Acquisition constitutes a Category 2 acquisition for the Company in terms of Section 9 of
the JSE Limited Listings Requirements ("Listings Requirements").
2. THE ACQUISITION
2.1 Terms of the Acquisition
In terms of the Acquisition, Exxaro will acquire 100% of the issued share capital of TCSA from
Total as well as settle all outstanding loan claims of Total Finance S.A.S ("Total Finance")
against TCSA.
Exxaro confirms that in terms of Section 9.16 of the Listings Requirements, after the completion
of the Acquisition, TCSA will be a wholly-owned subsidiary of Exxaro and the Memoranda of
Incorporation of TCSA and its subsidiaries will not frustrate Exxaro from compliance with its
obligations in terms of the Listings Requirements.
2.2 Overview of TCSA
TCSA is the fifth largest coal producer in South Africa and has a majority interest in two main
operating complexes, Dorstfontein and Forzando, located in the Witbank coal basin in South
Africa's Mpumalanga province. TCSA recorded combined sales of approximately 4.5 million
tonnes per annum ("Mtpa") in the year ended 31 December 2013. The majority of TCSA's
production is export coal which is shipped via RBCT to international markets, mainly India and
China. TCSA also sells its production into the South African domestic market.
TCSA has a 74% direct shareholding in the Dorstfontein and Forzando mines. The remaining
26% of the Dorstfontein and Forzando mines are owned by Mmakau Mining Proprietary Limited
("Mmakau").
TCSA also owns a 49% interest in the Tumelo coal mine, with the remaining shareholding held
by Mmakau, which is currently not in operation, and holds a 51% interest in the potential Eloff
greenfields project, an undeveloped domestic thermal coal resource in Mpumalanga province.
2.3 Rationale for the Acquisition
The Acquisition is closely aligned with Exxaro's long-term growth strategy and will provide
Exxaro with a large-scale acquisition that will complement Exxaro's existing coal portfolio. The
potential benefits of the Acquisition include:
- Large-scale operating assets
The Acquisition provides Exxaro with an opportunity to acquire a large-scale, operating coal
business in South Africa which has an estimated remaining life of mine in excess of 20
years. TCSA has a remaining resource base estimated at 1 498Mt gross tonnes in-situ and
395Mt of run-of-mine resources. Furthermore, TCSA's operations are in close proximity to
Exxaro's existing Witbank operations and Exxaro has a good understanding of geological
and mining conditions in the region.
- Strong investment thesis for the Acquisition
The Acquisition significantly increases the scale of Exxaro's coal portfolio and further
entrenches Exxaro as one of the premier coal producers in South Africa. Exxaro sees its
investment in coal assets as a core part of its diversified mining portfolio and believes that it
will be able to leverage its extensive experience in coal mining to unlock additional value
from the existing TCSA operations and the Eloff greenfields project.
- Access to primary RBCT entitlement
Exxaro is currently the fourth largest exporter of coal from South Africa and the Acquisition
will provide it with access up to an additional 4.09Mtpa of primary phase 1 – 3 RBCT
entitlement. Exxaro currently leases entitlement from other operators in the industry in order
to meet its export requirements. The Acquisition will allow Exxaro to utilise Exxaro controlled
entitlement to meet its export requirements in future.
- Optimisation of Exxaro's existing portfolio
Exxaro believes that the Acquisition will allow it to optimise production at its existing
operations through the reconfiguration of production in order to maximise the value of its
portfolio. Access to additional allocation could enable Exxaro to reconfigure and expedite its
development plans for current brownfields and greenfields projects in the Waterberg region
by either increasing the scale of existing operations or changing planned projects to multi-
product mines.
Furthermore, the development of infrastructure in the Waterberg region has been designated
a priority in the South African National Development Plan. It is anticipated that coal from the
Waterberg can be used to replace the rapidly diminishing thermal coal being supplied to
Eskom from existing Mpumalanga coal mines. Development of the Waterberg region coal
assets has historically been limited due to, among others, the lack of expansion of rail
capacity supplied by Transnet Freight Rail. Exxaro currently owns the only operating coal
mine in the Waterberg region, Grootegeluk, and has various other potential greenfields
projects that it plans to develop in the region, including its large-scale Thabametsi project.
Having access to additional primary RBCT export allocation will facilitate Exxaro's
commitment to the development of these projects, potentially as multi-product mines.
2.4 The Purchase Consideration
The terms of the Acquisition provide that all risk and reward inherent in TCSA will transfer to
Exxaro from 1 January 2014.
Exxaro has agreed a total purchase consideration, as at the Signature Date, of US$472 million
("the Purchase Consideration"). As explained below, the Purchase Consideration may vary
between Signature Date and the closing of the Acquisition ("Closing Date"). The Purchase
Consideration comprises two components:
- Purchase consideration for the acquisition of the TCSA shares
Exxaro has agreed to pay US$386.5 million for the Acquisition of 100% of the issued share
capital of TCSA ("the Equity Consideration"). A purchase price adjustment has been
included, whereby the Equity Consideration will be increased by 3% per annum from
1 January 2015 until Closing Date of the Acquisition. The Equity Consideration will further be
reduced for certain leakage payments that may be paid by TCSA to any member of the Total
group between Signature Date and Closing Date.
- Loan Consideration
In terms of the Acquisition, Exxaro has also agreed to settle the outstanding loan claims of
Total Finance against TCSA ("Loan Consideration"), as at Closing Date. The outstanding
balance of the Loan Consideration as at the Signature Date was US$85.5 million, however
this amount may vary to the extent that Total Finance extends further draws to TCSA prior to
Closing Date.
2.5 Transaction funding
Exxaro anticipates financing the Purchase Consideration using its existing corporate debt
facilities, which have been reserved for the Acquisition. Exxaro is required to provide a
US$-based guarantee for the Purchase Consideration.
2.6 Expected benefits
Exxaro is delighted with its success regarding the Acquisition and for the growth opportunities it
will provide for Exxaro as well as the contribution to the South African economy in terms of
continuing employment and foreign earnings. The consolidation of ownership of coal assets
within South Africa is a welcome opportunity.
2.7 Unaudited pro forma financial effects of the Acquisition
The table below sets out the unaudited pro forma financial effects of the Acquisition on earnings
per share ("EPS"), headline earnings per share ("HEPS"), diluted EPS and diluted HEPS based
on the audited results of the Company for the year ended 31 December 2013 as well as the net
asset value ("NAV") and net tangible asset value ("NTAV") per share as at 31 December 2013.
The unaudited pro forma financial effects are the responsibility of the directors and have been
prepared for illustrative purposes only, to provide information on how the Acquisition may
impact shareholders of Exxaro on the relevant reporting date. Because of its nature, the
unaudited pro forma financial effects may not give a fair reflection of the Company's financial
position, changes in equity, results of operations or cash flows after implementation of the
Acquisition or of the Company's future earnings.
Unaudited Pro forma financial effects of the Acquisition:
Before the After the
Acquisition 1 Acquisition 2,3 Change
(cents) (cents) (%)
EPS 1,751 1,670 (4.63)
Diluted EPS 1,746 1,666 (4.58)
HEPS 1,463 1,382 (5.54)
Diluted HEPS 1,459 1,378 (5.55)
NAV per share 10,129 10,060 (0.68)
TNAV per share 9,800 9,302 (5.08)
Number of shares in 358 358 0.00
issue (million)
Weighted average
number of shares in issue 355 355 0.00
(million)
Fully diluted weighted
average number of 356 356 0.00
shares in issue (million)
Notes:
1. Extracted from the published audited results of the Company for the year ended
31 December 2013.
2. Adjustments to EPS and HEPS have been made assuming:
2.1. the Acquisition was effective on 1 January 2013;
2.2. an attributable net loss of TCSA of R55 million for the year ended
31 December 2013;
2.3. the Purchase Consideration was financed using Exxaro's Rand (ZAR) based
corporate debt facilities, incurring interest at an average interest rate of 7.8%
and assuming a ZAR/US$ exchange rate of R10.70/US$; and
2.4. a company tax rate of 28%.
3. Adjustments to NAV and TNAV per share have been made assuming:
3.1. the Acquisition was effective on 31 December 2013;
3.2. a net asset value of R2.4 billion and a tangible net asset value of R2.3 billion
of TCSA as at 31 December 2013; and
3.3. the Purchase Consideration was financed using Exxaro's ZAR based corporate debt facilities and assuming
a ZAR/US$ exchange rate of R10.70/US$.
3. CONDITIONS PRECEDENT AND REGULATORY APPROVALS
The implementation of the Acquisition is subject to the fulfilment of the following conditions
precedent:
- the Competition Authorities conditionally or unconditionally approving the implementation of
the Acquisition, provided that to the extent that the Competition Authorities conditionally
approve the implementation of the Acquisition, then such conditions must be satisfactory to
Exxaro (acting reasonably);
- consent by the Minister of Mineral Resources of South Africa for the Acquisition being
granted in terms of Section 11 of the Mineral and Petroleum Resources Development Act 28
of 2002;
- approval of the Acquisition by the Financial Surveillance Department of the South African
Reserve Bank or any commercial bank in South Africa authorised by the South African
Reserve Bank to deal in foreign exchange;
- the board of directors of RBCT approving the change of control in TCSA from Total to
Exxaro.
In terms of the SPA all conditions precedent need to be fulfilled before the drop dead date
("Drop Dead Date"), being six months post the Signature Date. The Drop Dead Date can be
extended once, by either party unilaterally to a date no later than six months post the Drop
Dead Date, and once, after the aforementioned extension, by Total unilaterally to a date no later
than six months after the date of the prior extension.
Furthermore, the Acquisition is subject to no material adverse change in respect of TCSA or its
operations having occurred between the Signature Date and Closing Date.
Exxaro will continue to work with TCSA, relevant authorities and affected stakeholders to fulfil
the conditions precedent in order for the Acquisition to be effective within the shortest time
possible.
4. BALANCING ENERGY REQUIREMENTS AND CLIMATE RISK
Exxaro is conscious of the impact of its coal mining activities on the climate through its carbon
dioxide equivalent emissions (CO2e). The Acquisition will increase the resources in the ground
as well the future mining production, contributing further to the Company's emissions profile, in
the absence of carbon management efforts.
However, Exxaro has been an active participant of the Carbon Disclosure Project, an international,
not-for-profit organisation providing the only global system for companies and cities to measure, disclose,
manage and share vital environmental information. For the past two years, Exxaro has been placed amongst the
top ten global leaders of the carbon performance leadership index (CPLI), which assesses how companies incorporate
emissions reductions into their strategies and meet their emissions reduction targets, as well as the associated
carbon disclosure leadership index (CDLI), which measures transparency and data management of greenhouse gas emissions.
Therefore the Acquisition will be incorporated into the Company's carbon management strategy and continue along this performance.
Further, Exxaro has invested in the renewable energy sector through its 50/50 JV in Cennergi Proprietary Limited,which is developing
two wind energy projects to generate 239MW of electricity for the South African electricity grid. South Africa has embarked on
an intensive diversified energy development programme in order to support economic growth and social development.
Coal will remain a primary energy input in this development, but renewables are expected to increase substantially
in the national energy portfolio. Exxaro is well positioned to contribute to both South Africa's economic and social development
and is committed to responsible and accountable development through its environmental stewardship.
5. CONFERENCE CALL DETAILS
A tele-conference call regarding the details of this announcement will be held on Monday,
28 July 2014, at 16h00 Republic of South Africa Time (GMT+2:00): the live call is open to
the public via telephone and also via an audio webcast available on http://www.exxaro.com/
Dial-in telephone numbers:
- Republic of South Africa toll-free: 0800 200 648
- Johannesburg: 011 535 3600 or 010 201 6800
- Cape Town: 021 819 0900
- Australia toll-free: 1 800 350 100
- United Kingdom toll-free: 0808 162 4061
- United States of America and Canada toll-free: 1 855 481 5362
- Conference ID: Exxaro Tele-conference
Webcast Conference Call Replay: available via the Internet and telephone beginning on
29 July 2014, at 08h00 RSA Time (GMT+2:00): until 04 August 2014.
Internet Replay: www.exxaro.com
Play-back telephone numbers:
- Republic of South Africa: 011 305 2030
- Australia toll-free: 1 800 091 250
- United Kingdom toll-free: 0 808 234 6771
- United States of America and Canada toll-free: 1 855 481 5363
- Other countries: +27 11 305 2030
- Playback Code: 32075#
Editor's note:
Exxaro is one of the largest South African based diversified resources companies, with interests in the
coal, titanium dioxide and iron ore commodities. www.exxaro.com
Enquiries:
Wim de Klerk
Finance Director
Tel: + 27 12 307 4848
Mobile: +27 82 652 5145
Email: wim.deklerk@exxaro.com
Pretoria
28 July 2014
Merchant bank and transaction sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal adviser
Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc.)
Sponsor
Deutsche Securities (SA) Proprietary Limited
Date: 28/07/2014 01:17:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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