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ECSPONENT LIMITED - Terms announcement in relation to a mining and exploration joint venture agreement

Release Date: 05/11/2019 17:25
 
Wrap Text
Terms announcement in relation to a mining and exploration joint venture agreement

ECSPONENT LIMITED
Incorporated in the Republic of South Africa
Registration number: 1998/013215/06
JSE Code: ECS - ISIN: ZAE000179594
Debt Issuer Code: ECSD
(“the Company” or “Ecsponent”)

Terms announcement in relation to a mining and exploration joint venture agreement

1.    Overview

The Board of Directors of Ecsponent (“the Board”) is pleased to announce that Ecsponent Botswana Limited
(“EBL”), a wholly owned subsidiary of the Company, has concluded an agreement (“the Joint Venture
Agreement”) with Makaha Mining Cooperative Society Limited (“Makaha Mining”). Makaha Mining is a
Zimbabwean company owned by a consortium of Zimbabwean residents involved in the mining industry, in
terms of which EBL and Makaha Mining will create a special purpose vehicle (“the JVC”). The JVC’s purpose
is for the exploration, development and exploitation of the existing chrome mineral claims currently owned
by Makaha Mining, with reference numbers 39899 BM – 39906 BM, 39702BM – 39725 BM and 37682 BM –
37703 (“the Mining Claims”).

The JVC will be created as a private company limited by shares in Zimbabwe and owned 51% by EBL and
49% by Makaha Mining (collectively, “the Parties”).

2.    Description of the business of the JVC and the Mining Claims

The JVC to be incorporated has no financial history, but will own, as its only asset, the Mining Claims, which
will be transferred from Makaha Mining to the JVC.

The Mining Claims cover a total of 2400 hectares (“ha”) in the north part of the Great Dyke of Zimbabwe in
the complex chamber known as the Msengezi, located approximately 40 kilometers Northeast of the Guruve
town centre.

The Mining Claims currently relate only to an early chrome exploration project (Straiform/Podiform), with
exploration currently being in the third planned stage of trenching, and with additional exploratory work
required to update the mineral resources into the measured and indicated categories. The estimates of the
mineral resources of the Mining Claims as set out in the table below:

                                Estimated Chrome Ore Resources
                       Estimated Mineral Resources as at 31st August 2019
 Category                Parameter       Seam 1       Seam 2       Seam 3       Seam 5      Elluvial           Total
                                                                             
                         Tonnes_t               -            -            -          -              -           -
 Measured
                         Grade_%                -            -            -          -              -           -

                         Tonnes_t               -            -            -          -         14.175         14.175
 Indicated
                         Grade_%                -            -            -          -             15             15

                         Tonnes_t          93.600      140.400       292.500         -        212.625        739.125
 Inferred
                         Grade_%               53           52            45         -             15           38.7

                         Tonnes_t          93.600      140.400       292.500         -        226.800        753.300
 Total
                         Grade_%               53           52            45         -             15           38.3
                                  

                       Estimated Potential Chrome Resources as at 31st August 2019
 Category                Parameter      Seam 1       Seam 2      Seam 3          Seam 5       Elluvial     Total
                                                                      
 Exploration             Tonnes_t       93.600      140.400     1,170,000         73.700       425.250     1,903,000
 Potential               Grade_%            53           52            45            42             15          39.1

Notes
No cut off grades were used.
The tonnages and grades are not quoted as mining width tonnes.
Inclusive Reporting of Mineral Resources and Mineral Reserves adopted.

The initial trenching work done from July to August 2019 focused mainly on the 600ha first phase 1 the
project, comprising about 25% of the total Mining Claims. 753kt (about 40%) of the Chrome mineral
resources potential was upgraded to the inferred category after the trenching exercise. Further exploration,
appraisal and evaluation are required to determine the existence of a significant quantity of potentially
extractable chrome deposits, and therefore the estimated mineral resource tonnage and grade have an
associated risk of discovery and development. It is anticipated further planned assessments during the
diamond drilling exercise will result in an increase in confidence and an upgrade of the mineral resources
from the exploration potential category.

The business of mining and mineral exploration, development and production by their nature contain
significant operational risks. The business depends upon, amongst other things, successful prospecting
programmes and competent management. Profitability and asset values can be affected by unforeseen
changes in operating circumstances and technical issues. There is a risk associated with the low confidence
of the mineral resource as it is still in the exploratory phase. The table below sets out the principal risks:

 Principal Risk                  Detail
 Depth                           Depth extension and behaviour of the chrome deposits is yet to be probed.
 Scale of Project                Vast, full scale feasibility required.
 (Resource)
 Mining/ Process Method          Either open pit or underground mining.
 Infrastructure                  No infrastructure exists or any mining has taken place on the property
 Title/Ownership                 The extension of the claims beyond the 2400ha is still to be finalised with
                                 the relevant authorities.
                                 The area has a huge density of faults and it appears there is so much
                                 displacement of the chrome seams. Fracturing was observed and hence
 Geological Complexity           issues of rock competency will need to be assessed in detail. The seams
                                 also have a pinch and swell nature along strike and hence some portions of
                                 the strike extent may not show mineralisation.
 Deposit type                    Straiform/Podiform.
 Stage of development            Early stage Exploration.
 Strategic                       Neutral/Premium.
 Ability to increase             High, 1800ha of the claims are yet to be explored.
 resource

An independent valuation was undertaken to obtain the mineral asset valuation of the chrome mines covered
by the Mining Claims. The valuation was performed by the Berians Exploration and Mining Services Private
Limited (“TBEMS”) in compliance with all sections relevant to exploration companies of the South African
Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (“the SAMREC
Code”) and the South African Code for the Reporting of Mineral Asset Valuation (“the SAMVAL Code”).

The value of the Mining Claims, as at 9 September 2019, is estimated to be between USD 2.3 million and
USD 2.9 million (ZAR 34 million and ZAR 42.8 million respectively, at the exchange rate at the date of this
announcement).

The Competent Person, Mr. Mathew Magagula, and the Competent Valuer, Sydney Mandidi, have approved
the information contained in this announcement.

3.    Rationale of the entering into the Joint Venture Agreement

Zimbabwe holds the world’s second largest deposits for chrome and platinum group metals, second only to
South Africa, with the chrome ore reserves estimated at 10 billion metric tonnes. The Zimbabwean chrome
ore industry has significant potential for growth with the region holding an estimated 12% of the global
chromite resources while production for the region amounted to 1.4 million tonnes during 2018,
approximately 3.5% of the global production. (Source: Zimbabwe Annual Mining Conference 31 May 2019,
Mining Technology, Roskill).

Makaha Mining sought a financial and technical partner to conduct chrome exploration and mining operations
and approached EBL in this regard. The Board, after considering Makaha Mining’s proposal, concluded that
the investment would diversify its operations and that the future prospects thereof are promising.

EBL will be responsible for the day to day management of the activities of the JVC in operating the mine,
including, inter alia, negotiating agreements with contractors, appointing the appropriate mining and
administrative personnel to run the operation and administering security, labour, taxation and logistical
matters.

Makaha Mining will be responsible for ensuring inter alia, compliance of the mine with all laws and
regulations; registration of all Mining Claims in the name of the JVC, and marketing the JVC to ensure
business growth.

4.    Terms of the Joint Venture Agreement

4.1. Consideration

EBL will contribute funding of up to USD 1.5 million (equal to ZAR 22.2 million at the exchange rate at the
date of this announcement) in exchange for its 51% interest in the JVC. The contribution will be funded from
capital raised through the Company’s listed preference share and bond programmes, with contributions to
the JVC to commence from April 2020.

Makaha Mining will contribute the Mining Claims in exchange for their 49% interest in the JVC.

4.2. Effective date and conditions subsequent

The effective date of the Joint Venture Agreement will be equal to the date of signature of the Joint Venture
Agreement, being 01 November 2019.

The Joint Venture Agreement will terminate if any of the following conditions are not fulfilled by 31 December
2019:
    •   the JVC being incorporated in terms of the Joint Venture Agreement;
    •   the Reserve Bank of Zimbabwe or the Zimbabwe Investment Authority granting exchange control
        approval for the subscription of shares in the JVC by EBL, together with the capital commitments;
        and
    •   Makaha Mining registering all Mining Claims in the name of the JVC*.

* Note that the Mining Claims with reference numbers 39702 BM – 39725 BM and 37682 BM – 37703 BM
are currently in the name of Undertreasure Mining Consultancy (Pvt) Ltd, but are already in the process of
being transferred to be in the name of Makaha Mining.

4.3. Appointment of directors of the JVC

Both parties will be able to appoint one director for every full 20% shareholding owned in the JVC. All
decisions of the JVC board shall be carried by a majority vote. In the event of an equality of votes, the
chairman of the JVC board, who will be appointed by EBL, will have a casting vote.

4.4. Pre-emptive rights

The Joint Venture Agreement contains certain standard pre-emptive rights in favour of the Parties, provided
that the Parties have agreed in advance certain valuation methodologies for determining the selling price of
the shares in the JVC between the Parties.

4.5. Non-compete provisions

If any of the Parties ceases to be a Party of the JVC, the Joint Venture Agreement stipulates that for 24
months thereafter, such Party(ies) will not be able to carry on or be interested in any business within
Zimbabwe competing with the business of the JVC without prior written consent of the JVC. Furthermore,
the Parties undertake to ensure that all third parties directly or indirectly under its control will not act in any
way that prevents the JVC from carrying on its business.

4.6. Other terms and conditions of the Joint Venture Agreement

Prior to incorporation of the JVC and fulfilment of all the conditions, the Joint Venture Agreement can be
terminated by either Party by providing three months’ notice or by mutual agreement between the Parties
in the case of a serious breach. The Party electing to exit the Joint Venture Agreement shall nominate the
remaining Party to take its place and stead, together with all rights and obligations accompanied therewith,
and shall be entitled to restitution of all monetary performances contributed.

The Joint Venture Agreement contains warranties and terms that are usual for a transaction of this nature.

5.    Confirmation in relation to the constitutional documents of the JVC

In compliance with section 9.16 of the JSE Listings Requirements, Ecsponent undertakes to ensure that
nothing contained in the constitutional documents of the JVC will frustrate Ecsponent in any way from
compliance with its obligations in terms of the JSE Listings Requirements or relieve Ecsponent from
compliance with the JSE Listings Requirements.

6.    Categorisation and approvals required for the transaction

In terms of the JSE Listings Requirements, the acquisition in terms of the Joint Venture Agreement is
categorised as a Category 2 Transaction and involves no related parties (as defined by the JSE Listings
Requirements) and is accordingly not subject to approval by shareholders.

For more information about this announcement or the Ecsponent group, email
investor.relations@ecsponent.com or visit www.ecsponentlimited.com/investor-relations

5 November 2019
Pretoria

Sponsor to Ecsponent
Questco Corporate Advisory (Pty) Ltd

Date: 05/11/2019 05:25:00
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