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WESCOAL HOLDINGS LIMITED - Category 2 transaction announcement: Sale and purchase agreement with Aztolinx and Uju

Release Date: 15/02/2019 14:00
Code(s): WSL     PDF:  
 
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Category 2 transaction announcement: Sale and purchase agreement with Aztolinx and Uju

WESCOAL HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 2005/006913/06)
Share code: WSL
ISIN: ZAE000069639
(“Wescoal” or the “Company” or the “Group”)

CATEGORY 2 TRANSACTION ANNOUNCEMENT: SALE AND PURCHASE AGREEMENT WITH AZTOLINX
AND UJU

1. INTRODUCTION AND BACKGROUND

   Wescoal shareholders are advised that Wescoal, through its wholly-owned subsidiary, Wescoal
   Mining Proprietary Limited (“Wescoal”), has entered into a sale and purchase agreement (the
   “Agreement”) with Aztolinx Proprietary Limited (“Aztolinx”), Uju Resources Proprietary Limited
   (“Uju”) and Mwelase Mining Proprietary Limited.

   During 2016, Wescoal and Uju agreed to jointly exploit the mining area known as the Khanyisa
   Triangle (the “Khanyisa Mining Right”). In order to exploit the coal resources at the Khanyisa
   Triangle, Uju and Wescoal incorporated Aztolinx as the special purpose vehicle through which the
   joint venture operations were conducted (the “Khanyisa Triangle Joint Venture”). Wescoal and
   Uju were shareholders holding 35% and 65% respectively in Aztolinx, the Khanyisa Triangle Joint
   Venture.

   During 2018 a dispute arose between the parties impacting production and sales (the “Dispute”).
   The Dispute resulted in litigation. Dissolving the Dispute, the Agreement also terminates the
   Khanyisa Triangle Joint Venture while Wescoal retains title to the Khanyisa Mining Right.

   Wescoal will accrue value from the Agreement on an on-going basis from the opportunity to
   exploit the coal resource exclusively. The Agreement dissolves the Khanyisa Triangle Joint Venture
   in which Aztolinx was entitled to buy all the coal from the Khanyisa Triangle reserve at cost-based
   pricing.

   The terms of the Agreement include:

    1.1   Aztolinx will relinquish, waive and abandon any and all of its rights and interest related to
          the Khanyisa Triangle, including its right to purchase, on cost based pricing, all of the coal
          extracted from the Khanyisa Triangle from Wescoal (the “AZT Khanyisa Interest”) (the
          “Khanyisa Interest Transaction”);

    1.2   Aztolinx will purchase Wescoal’s entire shareholding in Aztolinx which constitutes 35% of
          Aztolinx’s issued shares (the “Share Buy-Back Transaction”);

   (collectively the “Transactions”),

    1.3   Uju will withdraw and settle the application of interdictory relief instituted by it against
          Wescoal and which Wescoal opposed (the “Litigation”); and

    1.4   Uju and Wescoal thus dissolved the Khanyisa Triangle Joint Venture.

2. DETAILS OF THE TRANSACTIONS

   2.1.   The Share Buy-Back Transaction

          On the effective date, being 7 February 2019 (the “Effective Date”), Wescoal will sell its
          35% share in Aztolinx to Aztolinx for R100.

          In addition, Aztolinx will pay an amount of R29 000 000 to Wescoal in full and final
          settlement of the full balance of Wescoal’s loan account against Aztolinx (the “Loan
          Account”) as at the date of signature of the Agreement (the “Signature Date”).

   2.2.   The Khanyisa Interest Transaction

          2.2.1   On the Effective Date, Aztolinx will relinquish, waive and abandon any and all of its
                  right, and interest in the Khanyisa Triangle for the benefit of Wescoal. Wescoal will
                  pay a consideration of R185 000 000 (the “Purchase Consideration”) to Aztolinx
                  for the AZT Khanyisa Interest, to be settled as follows:

                  2.2.1.1       R29 000 000 within one business day after the settlement of the Loan
                                Account;

                  2.2.1.2       R71 000 000 to be paid within three days from the Effective Date;

                  2.2.1.3       R85 000 000, payable over a period of nine months in equal
                                instalments of R9 444 444.44 each per month (“Monthly
                                Instalments”), commencing on 1 March 2019 and thereafter on the
                                first Business Day of each subsequent month;

          2.2.2   In addition to the payment of the Purchase Consideration, within 30 days from the
                  last payment of the Monthly Instalments, Wescoal will pay Aztolinx the total
                  interest accrued on the amount of R85 000 000 (referred to in paragraph 3.2.1.3
                  above), calculated at the prime rate, with effect from the Signature Date (the
                  “Deferred Interest Amount”) which will not exceed R5 000 000.

          2.2.3   In order to cover the Monthly Instalments and the Deferred Interest Amount,
                  Wescoal will irrevocably cede to Aztolinx the proceeds due to Wescoal in such coal
                  supply agreement/s with a third party approved by Aztolinx, as security, for as long
                  as the amounts in paragraphs 2.2.1.3 and 2.2.2 above remain unpaid.

3. OVERVIEW OF KHANYISA TRIANGLE

   The Khanyisa Triangle comprises the Triangle resource area and the Catwalk resource area, all of
   which have been consolidated into one mining complex. This complex is located some 10km west
   of the town of Ogies in Mpumalanga. It comprises portions of the farm Heuvelfontein 215 IR. The
   location of the complex is 26.042950°S latitude and 28.973325°E longitude.

   At the current mining rate, the life of the Khanyisa Mining Right is estimated at slightly more than
   4 years.

4. RATIONALE
   The Transactions as set out in the Agreement resolve the Dispute and result in Wescoal retaining
   title to the Khanyisa Mining Right, including the Khanyisa Triangle’s coal reserve with remaining
   life of mine being 4 years.

   Wescoal will accrue value from the Agreement on an on-going basis from the opportunity to
   exploit the coal reserve exclusively. The Agreement dissolves the Khanyisa Triangle Joint Venture
   in which Aztolinx was entitled to buy all the coal from the Khanyisa Triangle reserve at cost-based
   pricing.

   Wescoal, through the Agreement, effectively gains the full commercial value of the Khanyisa
   Triangle, whereas previously, in terms of the Joint Venture it had been entitled to only 35% of the
   commercial benefit from the coal reserve.

5. CONDITIONS PRECEDENT

   There are no conditions precedent relating to the Transactions that are outstanding.

6. VALUE OF THE NET ASSETS AND PROFITS ATTRIBUTABLE TO THE NET ASSETS OF THE
   TRANSACTIONS

   The net book value of the assets that are the subject of the Transactions is R7.912 million.

   Wescoal reported net profit of R7.912 million as its 35% share of the Joint Venture income from
   the assets that are subject of the Transactions for the year ended 31 March 2018, as extracted
   from Wescoal’s audited consolidated results for the year ended 31 March 2018 which have been
   prepared in terms of International Financial Reporting Standards.

   For the six months ended 30 September 2018, due to the Dispute impacting operations, Wescoal
   reported zero net profit as its share of the Joint Venture income from the assets that are the
   subject of the Transactions, as extracted from Wescoal’s reviewed condensed interim
   consolidated results for the six months ended 30 September 2018 which have been prepared in
   terms of International Financial Reporting Standards.

7. CATEGORISATION OF THE TRANSACTIONS

   The Transactions are classified as a Category 2 transaction in terms of the JSE Limited Listings
   Requirements, and accordingly no shareholder approval is required.


15 February 2019

Investment bank, corporate advisor and sponsor
Nedbank Corporate and Investment Banking

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