KEATON ENERGY HOLDINGS LIMITED - Detailed terms announcement relating to the call option granted to Moneybox Investments 156 Proprietary Limited

Detailed terms announcement relating to the call option granted to Moneybox Investments 156 Proprietary Limited

Keaton Energy Holdings Limited
(Incorporated in the Republic of South Africa)
Registration number: 2006/011090/06
JSE share code: KEH ISIN ZAE000117420
(“Keaton Energy or “the Company”)


DETAILED TERMS ANNOUNCEMENT RELATING TO THE CALL OPTION GRANTED TO MONEYBOX
INVESTMENTS 156 PROPRIETARY LIMITED

Introduction

The Keaton Energy board of directors is pleased to confirm that Keaton Energy and its subsidiary
Keaton Mining Proprietary Limited (“KM”) have concluded an agreement with Moneybox
Investments 156 Proprietary Limited (“Moneybox”) (a shareholder in the Keaton Energy group)
regarding the grant of call options by Keaton Energy and KM to Moneybox to acquire all of the
ordinary shares, preference shares and associated preference dividends rights held by Keaton
Energy ("Labohlano Sale Equity") in Labohlano Trading 46 Proprietary Limited (“Labohlano”), a
subsidiary of Keaton Energy and the prospecting rights (“KM Prospecting Rights”) and related
geological and technical reports ("KM Reports") owned by KM relating to the Sterkfontein Project,
respectively (the “Transaction”) as an indivisible transaction.

Background

In terms of the Transaction, the Sterkfontein Project is defined as:

    -   the 5082 hectare coal exploration project in the Bethal district, Mpumalanga, comprised of
        the KM Prospecting Rights and KM Reports (“Sterkfontein Project Portion 1”); and
    -   the 2844 hectare coal exploration project in the Bethal district, Mpumalanga, comprised of
        the prospecting right which Labohlano holds (“Sterkfontein Project Portion 2”).

Moneybox wishes to pursue certain exploratory studies with regard to the Sterkfontein Project
with a view to acquiring 100% of the interest of KM in the Sterkfontein Project Portion 1 and all of
the Labohlano Sale Equity.

Therefore KM has agreed to grant Moneybox:

    -   an option to purchase the KM Prospecting Rights and KM Reports relating to the
        Sterkfontein Project Portion 1; and
    -   an exclusive right to pursue exploratory studies in respect of Sterkfontein Project Portion 1;
        and

Keaton Energy has agreed to:

    -   grant Moneybox an option to purchase the Labohlano Sale Equity; and
    -   grant and to procure that Labohlano grants Moneybox an exclusive right to pursue
        exploratory studies in respect of Sterkfontein Project Portion 2;
        (collectively the “Options”).

Furthermore, should Moneybox, within 12 months of the date of fulfilment of the last of the
suspensive conditions relating to the sale of the KM Prospecting Rights, KM Reports and the
Labohlano Sale Equity, dispose of all or a portion of the Sterkfontein Project at a premium to the
option price, then 25% (twenty five percent) of the premium will be due and payable to Keaton
Energy.

The Options shall only become effective on the fulfilment of the last condition precedent as set out
below.

Rationale

Keaton Energy recognises Moneybox's desire to acquire 100% of the Sterkfontein Project and that
such an acquisition cannot take place without further studies being completed to support a
fundraising.

Purchase Consideration

Moneybox shall be entitled to exercise the Options from the date of fulfilment of the last of the
conditions precedent until 23:59 on 31 January 2017.

The price payable for the sale of the Labohlano Sale Equity will be an aggregate base sum of
R49,309,823. The portion of this amount allocated to the dividends due to Keaton Energy in respect
of the preference shares held by Keaton Energy in Labohlano will, with effect from the signature
date of the Transaction agreement until the date the sale is effective, escalate and will be subject
to an expert’s certification.

The price payable for the sale of the KM Prospecting Rights and KM Reports, will be an aggregate
base sum of R102,682,956. The price payable for the sale of the KM Prospecting Rights will be
R74,840,036 and comprise of:

    -   KM’s capital contribution to Sterkfontein Project Portion 1, being an amount equal to
        R7,000,000 and
    -   the amount of accrued and unpaid dividends due to Keaton Energy in respect of the Keaton
        Energy preference shares in KM of R67,840,036.

The price payable for the sale of the KM Reports will be approximately R27,842,920. The portion of
the aggregate base sum allocated to Keaton Energy’s preference shares in KM will, with effect from
the signature date of the Transaction agreement until the date the sale is effective, escalate and
will be subject to an expert’s certification.

Therefore, the total approximate purchase price for the sale of the Labohlano Sale Equity and KM
Prospecting Rights and KM Reports will be R151,992,779.

Conditions Precedent

The Transaction will be subject to the fulfillment of, inter alia, the following conditions precedent
and as the contracting parties may agree in writing:

    -   All board resolutions, by the respective parties, that may be necessary to enter into the
        agreement;
    -   Necessary agreed upon irrevocables to support the Transaction;
    -   KM has obtained Investec Bank Limited’s approval in accordance with the facility
        agreement in place; and
    -   The shareholders of Keaton Energy have passed all resolutions as may be necessary in
        terms of the JSE Listings Requirements for Keaton Energy to enter into the Transaction.

Unless the conditions precedent have been fulfilled or waived, the provisions of the Transaction
will never become of any force or effect and the status quo ante will be restored as near as may be
possible and none of the parties will have any claim against the others in terms hereof or arising
from the failure of the conditions precedent.

Pro forma financial effects

The pro forma financial effects set out in the announcement have been prepared for illustrative
purposes only in order to provide information about the impact of the Transaction on the Keaton
Energy group had the Transaction occurred on 1 April 2014 for purposes of the statement of profit
or loss and on 31 March 2015 for statement of financial position purposes.

The pro forma financial effects are presented in accordance with the JSE Listings Requirements, the
Guide on Pro Forma Financial Information issued by SAICA, ISAE 3420 and the measurement and
recognition requirements of International Financial Reporting Standards (IFRS).

The pro forma financial information is the responsibility of the directors. Due to the nature of the
pro forma financial information, it may not give a fair reflection of the Keaton Energy group
financial position, changes in equity and results of operations or cash flows after the Transaction.

The accounting policies applied in quantifying pro forma adjustments are consistent with the
Keaton Energy group accounting policies as at 31 March 2015. The pro forma financial information
incorporates the audited results of Keaton Energy for the twelve months ended 31 March 2015.

The table below sets out the pro forma financial effects of the Exchange Agreement as defined
below and the Transaction for the following key metrics in respect of the Keaton Energy group
financial year ended 31 March 2015:
                                                                   As      Pro Forma       Change (%)
                                                             Reported          After
                                                                         Transaction

Headline earnings per share (cents)                               0.4           3.2            638.2

Fully diluted headline earnings per share (cents)                 0.4           3.2            638.4

Basic earnings per share (cents)                                -13.8          12.9            193.5

Diluted earnings per share (cents)                              -13.8          12.7            192.3

Net asset value per share (cents)                               373.5         392.5              5.1

Tangible net asset value per share (cents)                       54.3         107.4             98.0

Number of shares in issue (million)                             224.4         228.3              1.7

Weighted average number of shares in issue (million)            224.4         228.2              1.7

Fully diluted weighted average number of shares in              228.0         231.8              1.7
issue (million)

The value of the net assets as it relates to the                838.3         895.8              6.9
Transaction (million)

The profits attributable to the net assets that are the                        60.6
subject of the Transaction (million)

The Equity attributable to the Exchange Agreement for the                       9.0
acquisition of the minority interest in Labohlano (million)

Additional shares issue attributable to the Exchange                            3.8
Agreement (million)


Notes and assumptions:

The application of the sale proceeds attributable to KM will be applied towards the payment of
accrued dividends in respect of the preference shares held by Keaton Energy in KM and the
redemption of such preference shares, subject to the terms and conditions of the loan facility
agreements in place amongst Keaton Energy and KM and their bankers.

1.    The "As Reported" column represents the reviewed Basic earnings, Headline earnings,
      Diluted earnings and Diluted headline earnings per share as reported in respect of the year
      ended 31 March 2015.

2.    The "Pro Forma After Transaction" column represents the reviewed numbers, but adjusted
      firstly for the effects of the Exchange Agreement whereby Keaton Energy acquires
      Moneybox’s interest in Labohlano and thereafter for the effects of the Transaction whereby
      Keaton Energy grants the option to Moneybox to acquire the Labohlano Sale Equity.

3.    The agreement entered into between Keaton Energy, Labohlano and Moneybox resulting in
      the sale of 4 ordinary shares in Labohlano held by Moneybox to Keaton Energy for
      consideration of R1.5 million in cash and the exchange of 22 ordinary shares in Labohlano
      held by Moneybox to Keaton Energy for 3.8 million Keaton Energy shares with a fair market
      value of R9.0 million at R2.37 per share as calculated in accordance with the agreement
      (“Exchange Agreement”).

4.    Keaton Energy realises net assets of R65.9 million of which R65.8 million was included under
      intangible assets as reported at 31 March 2015. As a result of the realisation Keaton Energy
      generated a profit of R60. 6 million which accounted for R16.1 million taxation payable and
      R15.7 million shared with the minorities of KM.

5.    Once-off transaction costs of R2.9 million would be deducted against profit from the sale as a
      result of the Transaction.

6.    Interest received on the purchase consideration for the 12 months ended 31 March 2015
      resulted in an additional profit of R10.5 million.

Categorisation

The Transaction has been categorised as a category 1 transaction in terms of paragraph 9.1 (b) of
the JSE Listings Requirements.

General Meeting

The Company will convene a general meeting of Keaton Energy Shareholders in order to obtain the
necessary shareholder approvals to implement the Transaction ("General Meeting").

Documentation

A circular, detailing the Transaction and a notice of General Meeting, will, subject to the approval of
the JSE, be posted to Keaton Energy Shareholders by no later than 1 October 2015.


By order of the Board

Bryanston
17 July 2015

Sponsor
Investec Bank Limited

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