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A proposed Black Economic Empowerment ("BEE") Transaction, Special Dividend Declaration and Withdrawal of Cautionary
Wescoal Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/006913/06)
Share Code: WSL ISIN Code: ZAE000069639
(“Wescoal” or the “Company”)
ANNOUNCEMENT RELATING TO:
- A PROPOSED BLACK ECONOMIC EMPOWERMENT (“BEE”) TRANSACTION;
- SPECIAL DIVIDEND DECLARATION; AND
- WITHDRAWAL OF CAUTIONARY
1. INTRODUCTION TO THE PROPOSED TRANSACTION
1.1. Wescoal shareholders (“Shareholders”) are referred to the announcement released on the Stock
Exchange News Service (“SENS”) on 17 August 2016, wherein Wescoal communicated that it had
entered into a long term coal supply agreement (“Coal Supply Agreement”) in respect of coal from
its flagship operation Elandspruit Colliery and Wescoal Processing Plant with Eskom Holdings SOC
Limited (“Eskom”). In terms of the Coal Supply Agreement, the Company undertook to achieve and
maintain a direct black ownership of at least 51% by the end of December 2016. Pursuant to this
undertaking, the Company announced on SENS on 23 August 2016 that it had entered into
negotiations to increase its black ownership to more than 51% by the end of December 2016.
1.2. The board of directors of Wescoal (the “Board”) is pleased to inform Shareholders that Wescoal has
entered into a subscription agreement (“Subscription Agreement”) with K2016316243 (South
Africa) Proprietary Limited (registration number 2016/316243/07) (“BEE SPV”), whose shareholders
comprise a consortium of existing Wescoal shareholders, namely Muthanyi Robinson Ramaite
(“Ramaite”), Simeka Capital Holdings Proprietary Limited (“Simeka”) and Eric Nthuthuko Mzimela
(“Mzimela”) (collectively the “BEE Consortium” or “BEE SPV Shareholders”) in terms of which the
BEE SPV will, subject to the fulfilment and/or waiver of certain conditions precedent, subscribe for
124 995 373 Wescoal shares (“Subscription Shares”), for an aggregate amount R211 410 862
(“Subscription Amount”) (the “Proposed Transaction” or the “Specific Issue”).
1.3. The BEE Consortium will consolidate their existing shareholding in Wescoal under the BEE SPV. The
BEE SPV has been incorporated for the sole purpose of holding shares in Wescoal and implementing
the Proposed Transaction. The BEE Consortium’s aggregate shareholding in Wescoal, through the
BEE SPV, will increase from ca.37% to ca.59% post implementation of the Proposed Transaction.
1.4. Accordingly, the Proposed Transaction will be implemented, subject to the fulfilment, or waiver of
certain suspensive conditions, the material ones of which are detailed in paragraph 3 below, as
follows:
- the BEE Consortium and the BEE SPV will give effect to a restructuring in terms of which each
member of the BEE Consortium, pursuant to a share exchange agreement, will contribute all of
the Wescoal shares held by him to the BEE SPV (“Share Exchange Agreement”) in consideration
of the allotment and issue of new ordinary shares in the BEE SPV to the relevant BEE Consortium
member (the "Restructuring");
- the BEE SPV will subscribe for the Subscription Shares, and Wescoal shall allot and issue such
Subscription Shares to the BEE SPV as a specific issue of shares for cash in accordance with the
applicable requirements of the Listings Requirements ("Listings Requirements") of the JSE
Limited ("JSE") and the provisions of the Companies Act, 71 of 2008, as amended ("Companies
Act") at a subscription price of ca. R1.69 per Wescoal share (“Subscription Price”), being a 10%
discount to the 30-day volume weighted average price (“VWAP”) of Wescoal shares calculated
as at close of trade on Wednesday, 21 September 2016 (being the date on which the
independent board of Wescoal comprising Mrs DMT van Gaalen, Mrs KM Maroga and Dr MH
Mathe (the “Independent Board”) resolved to set the price); and
- the Restructuring will be implemented before the Specific Issue and the funding transactions
outlined below.
1.5. The Proposed Transaction constitutes a specific issue of shares for cash to a related party in terms
of paragraph 10.1(b)(ii) of the Listings Requirements, as the BEE SPV will be majority-owned by
Ramaite, who is also the non-executive Chairman of Wescoal. In terms of section 5.51(f) of the
Listings Requirements, as the Proposed Transaction entails the issue of shares for cash to a related
party at a 10% discount to the 30-day VWAP, the Board is required to provide the JSE with written
confirmation from an independent professional expert (“Independent Expert”) that the terms of the
Proposed Transaction are fair insofar as Shareholders are concerned (“the Fairness Opinion”).
Accordingly, the Board has appointed an Independent Expert to provide the Fairness Opinion.
Furthermore, as the BEE SPV is a related party to Wescoal, the Independent Board is responsible for
providing guidance and oversight of the Proposed Transaction.
1.6. The Proposed Transaction will result in the BEE SPV controlling more than 35% of Wescoal shares.
In terms of section 123 of the Companies Act, the BEE SPV may be required to make a mandatory
offer to the minority shareholders of Wescoal, offering to acquire their shares at the Subscription
Price (the “Mandatory Offer”). It is intended that a request for a waiver of this requirement will be
proposed to the Shareholders in terms of Regulation 86(4) of the Companies Regulations 2011,
promulgated in terms of section 223 of the Companies Act and item 14 of Schedule 5 of the
Companies Act. Accordingly the Board has appointed the Independent Expert to provide an opinion
as to whether the terms and conditions of the waiver of the Mandatory Offer are fair and reasonable
insofar as Shareholders are concerned (the “Fair and Reasonable Opinion”).
1.7. The Fairness Opinion and the Fair and Reasonable Opinion will be provided to the Independent
Board for the sole purpose of assisting the Independent Board in forming and expressing an opinion
for the benefit of the Shareholders. The opinions will not purport to cater for each individual
Shareholder’s perspective, but rather that of the general body of the Shareholders.
1.8. In order to give effect to the Proposed Transaction, the BEE Consortium, through the BEE SPV, has
procured funding from the Industrial Development Corporation SOC Limited (the “IDC”) in terms of
which the IDC will subscribe for class A cumulative redeemable, preference shares in the BEE SPV
for an aggregate amount of R178 121 292 to fund the Subscription Amount (“Class A Preference
Share Subscription Agreement”). The BEE Consortium and the BEE SPV will provide certain security
in connection with the Class A Preference Share Subscription Agreement to the IDC.
1.9. Wescoal will provide funding to the BEE SPV for the balance of the Subscription Amount and other
related capitalised BEE SPV costs, in terms of which Wescoal will subscribe for class B cumulative
redeemable, preference shares in BEE SPV for an aggregate amount of R35 500 000 (“Class B
Preference Share Subscription Agreement”). The BEE Consortium and the BEE SPV will provide
certain security in connection with the Class B Preference Share Subscription Agreement to
Wescoal, which security will rank behind the IDC’s security.
2. THE BEE CONSORTIUM AND THE BEE SPV
2.1. In terms of the Share Exchange Agreement, each of the members of the BEE Consortium who
currently, collectively, hold 37.31% of Wescoal shares will give effect to the Restructuring which will
result in the formation of the BEE SPV. Below are the details of the BEE SPV Shareholders.
2.1.1 Ramaite
- Ramaite is the current non-executive chairman of Wescoal and is the registered and
beneficial holder of 18.76% of Wescoal shares. Pursuant to the Share Exchange
Agreement, Ramaite will have a direct beneficial interest of 50.26% in the BEE SPV, thus
making him the majority shareholder of the BEE SPV in his personal capacity.
- In addition, Ramaite, through his family trust, holds a 38% non-controlling interest in
Simeka.
- Ramaite has a personal financial interest in the Proposed Transaction by virtue of his
shareholding in the BEE SPV and in Simeka. Section 75 of the Companies Act requires
that if a director has a personal financial interest in a transaction, he/she must not,
among other things, take part in the consideration of the transaction. Accordingly,
Ramaite has not taken part in the consideration of the Proposed Transaction by the
Board.
2.1.2 Simeka
- Simeka is currently a registered and beneficial holder of 12.76% of Wescoal shares.
Pursuant to the Share Exchange Agreement, Simeka will hold a direct interest of 34.19%
in the BEE SPV.
- Simeka became a shareholder of Wescoal in 2015 through underwriting a significant
portion of the rights offer capital raising process undertaken at the time for an
aggregate amount of R40 000 000 which saw the Company realising its objective of
further developing the Elandspruit Colliery.
- Founded in 2013, Simeka is an investment holding company with interests in the coal
mining, pharmaceutical and property sectors in South Africa. The company is led by a
number of investment professionals with extensive experience in various South African
industries.
- The company has concluded a number of acquisitions since its inception and these
include, inter alia, the following:
– a joint venture with Amayeza Abantu Biomedical Proprietary Limited to form Ameka
Health which focuses on the distribution of medical devices into the private and
public health sectors in South Africa and the rest of the African continent;
– during June 2014, Simeka concluded a buyout transaction of Specpharm, a South
African based pharmaceutical company. The transaction was concluded in
partnership with the IDC, management as well as Specpharm staff; and
– acquisition of a significant minority interest in Kangala Colliery, which is controlled
and managed by Universal Coal plc, an ASX-listed company.
2.1.3 Mzimela
- Mzimela is currently the registered and beneficial holder of 5.80% of Wescoal shares.
Pursuant to the Share Exchange Agreement, Eric Mzimela will hold a direct interest of
15.55% in the BEE SPV.
2.2 The Company, the BEE SPV and the BEE Consortium have finalised a relationship agreement, which
agreement is currently being executed by the parties, whose purpose will be to regulate their
relationship as direct and indirect Shareholders of the Company (“Relationship Agreement”). Below
are some of the salient features of the Relationship Agreement:
2.2.1 In terms of the Relationship Agreement, for at least a period of 5 years starting from when
the Relationship Agreement becomes unconditional:
- the BEE SPV and the BEE SPV shareholders’ ability to dispose of any of the Subscription
Shares or the BEE SPV shares or encumber any of the Subscription Shares or the BEE
SPV shares will be restricted; and
- the BEE SPV and the BEE SPV shareholders have undertaken to maintain their BEE status
as at the date of signature of the Relationship Agreement, save as otherwise agreed to
by the Company in writing; and
- for the duration of the Coal Supply Agreement, the BEE SPV and the BEE SPV
shareholders have undertaken to take all necessary steps to (i) maintain the
requirements imposed by Eskom in terms of the Coal Supply Agreement, insofar as
those requirements relate to black ownership; and (ii) prevent Wescoal from being in
breach of the Coal Supply Agreement, insofar as that breach relates to black ownership.
3. SUSPENSIVE CONDITIONS TO THE PROPOSED TRANSACTION
3.1 The implementation of the Proposed Transaction is subject to the fulfilment, by no later than 31
March 2017 or such later date as the Company and the BEE SPV may agree upon in writing
(“Longstop Date”), of the suspensive conditions that:
- resolutions required to implement the Proposed Transaction are approved by the requisite
majority of the voting Shareholders. In this regard it is noted that the BEE SPV shareholders will
be precluded from voting (where applicable) on the resolutions relating to the Specific Issue and
the resolution in connection with the waiver of the Mandatory Offer, due to their participation
in the Proposed Transaction;
- all necessary approvals from the Competition Authorities, in terms of the Competition Act, No
89 of 1998, as amended, to enter into and implement the Proposed Transaction are obtained;
- the Share Exchange Agreement, the Class A Preference Share Subscription Agreement and the
Class B Preference Share Subscription Agreement are entered into and fully implemented in
accordance with their terms; and
- all and any necessary approvals from the Takeover Regulations Panel (“TRP”) to enter into and
implement the Proposed Transaction are obtained, including the granting of the waiver ruling
envisaged in the TRP guideline which is required for the waiver of the Mandatory Offer.
3.2 The Company and the BEE SPV may, by written agreement, waive any suspensive condition, in full
or in part, save for any suspensive condition which is regulatory in nature, unless both the Company
and the BEE SPV are satisfied that such regulatory requirement is no longer applicable, in which case
the applicable suspensive condition can be waived in full or in part by written agreement between
the Parties on or before the Longstop Date.
4. THE PROPOSED TRANSACTION RATIONALE
4.1 The main rationale for the Proposed Transaction is the fulfilment of BEE requirements under the
Coal Supply Agreement with Eskom, which requirement Wescoal is required to meet by 31
December 2016. The Board believes that the Coal Supply Agreement is important to the success of
Wescoal going forward.
4.2 In addition to addressing Eskom’s BEE requirement, the implementation of the Proposed
Transaction will result in the following benefits for all the Shareholders:
- position Wescoal as a truly empowered publicly traded junior coal mining company, well
positioned to potentially secure more medium to long term coal supply contracts with Eskom
for its existing and future operations in the portfolio;
- a sustainable BEE structure with the necessary lock-in provisions, thus securing the Company’s
mining and prospecting rights required in terms of the Mineral and Petroleum Resources
Development Act, 28 of 2002, as amended Mining Charter; and
- provide highly sought after equity funding which Wescoal can deploy towards its organic and
inorganic growth strategy, thus continuing along its current growth trajectory to become a mid-
tier, sustainable and consistent dividend paying company on the JSE.
4.3 The subscription of Wescoal shares by the BEE SPV, in terms of the Specific Issue, not only adds to
the capital war chest of Wescoal, but also shows continued support by the BEE SPV Shareholders
and their positive expectations on the growth prospects of the Company.
4.4 An important differentiating feature of the Proposed Transaction is the low level of facilitation being
provided by Wescoal relative to many precedent BEE transactions in the market. Wescoal’s
facilitation will be limited to providing partial funding for the Subscription Amount, equivalent to
only 16.79% of the Subscription Amount. No other facilitation, security, guarantee or support is
required from the Company by the BEE SPV and/or the IDC.
4.5 The direct cost of the Specific Issue to Shareholders is accounted for in terms of the guidance
provided in IFRS 2: Share Based Payments and can be calculated as the difference between the
market value of the Subscription Shares and the Subscription Amount as at 21 September 2016, i.e.
the “BEE discount”. The BEE discount represents only 2.62% of the Company’s market capitalisation
as at 21 September 2016.
4.6 The BEE SPV shareholders have a long association history with Wescoal. Through their stable
shareholding and by virtue of being black people, Wescoal has over the last several years used,
among others, the BEE SPV shareholders’ BEE credentials in order to secure its mining and/or
prospecting rights required in terms of the MPRDA, for the benefit of all Shareholders in the
Company, without any direct and/or indirect benefit or preferential treatment given to these
shareholders.
4.7 Simeka, one of the BEE SPV shareholders, was introduced into the share register of the Company
through the rights offer capital raising process undertaken in the last quarter of the 2015 calendar
year wherein Simeka underwrote 61.54% of the targeted proceeds, which in turn was the minimum
capital that was required by the Company at the time. Thus, the Proposed Transaction represents a
further strengthening of the already strong relationship between Wescoal and the BEE SPV
shareholders, which shareholders are actively supporting the growth ambitions of the Company for
the benefit of all Shareholders.
5 INTENDED USE OF PROCEEDS
The Board and management of Wescoal are committed to growing the asset base and earnings of the
Company while driving shareholder value. The implementation of the Proposed Transaction will result in
an injection of approximately R178 121 292 of fresh equity into Wescoal, thereby significantly
strengthening the equity capitalisation and liquidity of the Company to facilitate this growth drive.
The proceeds of the Proposed Transaction will be used to fund organic (capital expenditure projects)
and/or inorganic (asset and business acquisitions) growth plans of Wescoal which may include inter alia:
- the acquisition of resources adjacent or close to existing operations;
- the acquisition of business or controlling stakes in identified listed mining companies;
- the acquisition of or investments in businesses which have access to key strategic logistics infrastructure
such as rail sidings;
- brownfield capacity expansion in current mining assets, in particular the Elandspruit Colliery’s
underground section and Khanyisa Colliery;
- increasing existing coal beneficiation capacity through acquisitions or expansions at the existing
Elandspruit Processing Plant; and
- reducing short term debt as an interim measure, on the revolving credit facility via Wescoal’s invoice
discounting facility, until drawn down, subject to board approval, over a period of time for purposes of
the intended use as described above.
6 PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED TRANSACTION
The table below sets out the pro forma financial effects of the Proposed Transaction and related proposed
subscription for the Class B Preference Shares on the published audited consolidated financial results of
Wescoal for the year ended 31 March 2016.
The pro forma financial effects are the responsibility of the directors of Wescoal and have been prepared
for illustrative purposes only and because of their pro forma nature, may not fairly present Wescoal's
financial position, changes in equity, results of operations or cash flows, nor the effect and impact of the
Proposed Transaction and related proposed subscription for the Class B Preference Shares going forward.
Before the Pro forma %
Proposed after the Change
Transaction Proposed
and related Transaction
proposed and related
subscription proposed
for the Class subscription
B for the Class
Preference B
Shares Preference
(cents)1 Shares
(cents)2
(A) (B) (B/A)
Basic earnings per share 26.23 13.65 (47.9%)
Diluted earnings per share 26.22 13.65 (47.9%)
Headline earnings per share 27.06 14.16 (47.7%)
Diluted headline earnings per share 27.05 14.16 (47.7%)
Net asset value per share 171.32 168.35 (1.7%)
Net tangible asset value per share 128.48 140.82 9.6%
Weighted average number of Wescoal shares in issue ('000) 197,361 322,356 63.3%
Weighted diluted number of Wescoal shares in issue ('000) 197,399 322,395 63.3%
Number of Wescoal shares in issue ('000) 224,760 349,755 55.6%
Notes and assumptions:
1 The Wescoal information reflected in the "Before the Proposed Transaction and related proposed
subscription for the Class B Preference Shares" column has been extracted from the published audited
consolidated financial statements of Wescoal for the year ended 31 March 2016.
2 The effects on basic earnings, diluted earnings, headline earnings and diluted headline earnings per
share are calculated on the basis that the Proposed Transaction and related proposed subscription for
the Class B Preference Shares was effective 1 April 2015, while the effects on the net asset value and
net tangible asset value per share are calculated on the basis that the Proposed Transaction and related
proposed subscription for the Class B Preference Shares was effective 31 March 2016.
3 The Wescoal information reflected in the "Pro forma after the Proposed Transaction and related
proposed subscription for the Class B Preference Shares" column has been calculated on the basis that
the Proposed Transaction and related proposed subscription for the Class B Preference Shares has been
implemented.
4 The subscription by Wescoal for the Class B Preference Shares is accounted for as a non-current
receivable.
5 The Subscription Price for the Subscription Shares is at a 10% discount of the 30 -day VWAP Wescoal
share price on 21 September 2016. The Specific Issue is accounted for in terms of the guidance provided
in IFRS 2: Share Based Payments and consequently, the difference between the market value of the
Subscription Shares and the Subscription Price is described as a “BEE Discount” and is accounted for as
a once-off, non-cash expense in the pro forma consolidated income statement. For accounting
purposes, the BEE Discount will be calculated on the Subscription Date. For the purposes of these pro
forma financial effects the BEE Discount was calculated on the last practicable date before this
Announcement. The BEE Discount has no tax effect.
6 The proceeds of the Specific Issue, net of the cash outflow from the subscription for the Class B Preference
Shares, will initially be placed within existing short term debt facilities until drawn down over a period of time
for purposes of the intended use as detailed in paragraph 5 of this announcement. The assumed interest
saving has been limited to, and is based, on the actual interest incurred on short term debt facilities during
the year ended 31 March 2016. Furthermore, no effect is given to potential interest income earned to the
extent that net the proceeds of the Specific Issue exceeds the outstanding short term debt facility, as such
interest savings cannot be factually supportable.
7 It should be noted that the pro forma financial effects include the earnings effects of the application of the
proceeds from the Specific Issue as described above. However, to the extent that amounts are drawn down
for purposes of the intended use, the interest saving illustrated for purposes of presenting the pro forma
financial information may not be realised in full.
8 Transaction costs (non-recurring) of R7.7 million (including VAT) relating to the Proposed Transaction were
assumed and capitalised to equity.
7 TIMING REGARDING DISTRIBUTION OF CIRCULAR AND NOTICE OF GENERAL MEETING
Full details pertaining to the Proposed Transaction will be included in a circular to Shareholders regarding,
inter alia, the Specific Issue and a waiver of the requirement for the BEE SPV and the BEE SPV Shareholders
to make the Mandatory Offer to all other holders of Wescoal shares (excluding the BEE SPV) ("Circular"). It
is anticipated that the Circular will be posted to Shareholders on or about Monday, 17 October 2016. The
Circular will incorporate, among other things, (i) the Fairness Opinion; (ii) the Fair and Reasonable Opinion;
(iii) a notice of general meeting to be held on or about Tuesday, 15 November 2016 for the purpose of
considering and, if deemed fit, passing the resolutions required to implement the Proposed Transaction;
and (iv) a form of proxy.
A further announcement setting out the salient dates and times of the Proposed Transaction will be
released on SENS in due course.
8 SPECIAL DIVIDEND ANNOUNCEMENT
The Board has considered the financial position, the year-to-date operational performance and growth
prospects of the Company, and has therefore resolved to distribute R10 million to Shareholders in the form
of a special dividend (“Special Dividend”) to be paid out before the Proposed Transaction becomes effective
on its own terms. A further announcement on the Special Dividend will be released on SENS in due course.
9 MANAGEMENT PRESENTATION
A management presentation on the salient features of the Proposed Transaction will be uploaded and
available for viewing on the Company’s website (www.wescoal.com) from Thursday, 29 September 2016.
10 WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
As this announcement sets out the full terms of the Proposed Transaction, caution is no longer required to
be exercised by Shareholders when dealing in their Wescoal shares.
Woodmead, Johannesburg
29 September 2016
Enquiries:
Jacques De Bie - Investor Relations
Telephone: +27 (0) 82 691 5384
Investment Bank, Corporate Advisor and Sponsor:
Nedbank CIB
Legal Advisor:
Bowman Gilfillan Inc
Independent Expert
BDO Corporate Finance
Independent Reporting Accountants and Auditors:
PricewaterhouseCoopers Inc
Date: 29/09/2016 10:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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