Withdrawal of Cautionary Announcement
October 03 2008 - 10:04AM
UK Regulatory
RNS Number : 0746F
Petmin Limited
03 October 2008
PETMIN LIMITED
("Petmin" or "the Company")
(Registration No 1972/001062/06)
� WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
� DISPOSAL OF SPRINGLAKE COLLIERY
� SOMKHELE EXPANSION PLANS ON TRACK
� VEREMO PROJECT AND OTHER UPDATES
Petmin COO Bradley Doig: "The Board of Petmin has considered very carefully the options available to the company and how its assets and
unique position in the market can best be used to deliver value for shareholders. Today's announcements are an integral part of the plan for
Petmin's development. Our management attention is now focused on three core assets - Somkhele, SamQuarz and Veremo - and we expect to report
further progress on our growth plans in the coming months."
Withdrawal of cautionary announcement
Shareholders are advised that the negotiations referred to in the cautionary announcement published on 10 September 2008 have been
terminated owing to the unprecedented volatility in the global financial markets.
Therefore, caution is no longer required to be exercised by shareholders when dealing in their securities.
Disposal of Springlake Colliery ("Springlake")
In a transaction unrelated to the withdrawal of the cautionary announcement, Petmin has concluded an agreement to dispose of 100% of its
interest in the Springlake Colliery to Shanduka Coal (Pty) Ltd for a cash consideration of R145 million ("the Sale"), which is subject to
normal warranties applicable to a transaction of this nature.
Petmin acquired Springlake Holdings (Pty) Ltd ("SPH") for R90 million in November 2005. SPH comprised Springlake, the Somkhele
Anthracite Development Project and a 50% interest in the Baobab Exploration Project. Petmin subsequently disposed of its interest in Baobab
for R35 million, and developed the Somkhele project, which commenced production in June 2007. The Somkhele project was independently valued
by Snowden Mining Industry Consultants (Pty) Ltd at R1.47 billion in July 2007 (based on a 15 % discount rate).
Shareholders are advised that this Sale will have no significant (less than 3%) effects on the Net Assets or Profits of Petmin.
Rationale for the Sale
Petmin specifically acquired SPH with the view to developing the Somkhele Project. At that time, Springlake was an under-performing
asset. Petmin has restructured the mine and implemented a successful turnaround, while simultaneously developing Somkhele, which has
remained the key focus of the acquired assets. The disposal will free up management time as well as providing additional cash resources to
be deployed, inter alia, in accelerating the expansion programme at Somkhele and focussing on the management and development of the Veremo
Project as detailed below.
The Sale is subject to the following key conditions:
1.1.1 by 31 December 2008, the transfer of Tendele Coal Mining (Pty) Ltd
(*Tendele*) ((which houses Somkhele as its sole asset), from SPH to
Petmin;
1.1.2 by 31 December 2008, the Sale being unconditionally or conditionally
approved by the Competition Authorities in terms of the South African
Competition Act;
1.1.3 by 31 December 2008, the Sale and all agreements and transactions
contemplated having been unconditionally or conditionally approved by
the South African Minister of Minerals and Energy in terms of section
11 of the Mineral and Petroleum Resources Development Act (MPRDA).
Operational update - Petmin well-positioned for growth
Petmin reported its results for the year ended June 2008 on 17 September 2008. Key features were:
* Revenue increased by R285 million or 74% to R667 million compared with R382 million in FY2007.
* Profit for the year increased by 411% from R74 million to R380 million.
* Cash of R252 million (2007: R75 million) was generated by operations before outflows from changes in working capital of R84
million (2007: R42 million), tax of R7.2 million (2007: R4.5 million) and net finance expense of R3.8 million (2007: R1.1 million).
* The ratio of interest bearing debt to equity at 30 June 2008 was 7.01% (2007: 11.22%). An amount of R31 million was drawn on the
plant finance facility at Somkhele in the year ended 30 June 2008 to fund the expansion of the project.
* As at 30 June 2008, the Company had cash of approximately R88 million and additional debt facilities of approximately R75 million
with its bankers that have not been utilised.
Management is considering the use of these debt facilities and existing cash resources (and enhanced by the proceeds of approximately
R145 million from the Sale announced today) for funding, inter alia, future expansion plans at Somkhele and pursuing value-enhancing
acquisitions.
Somkhele's expansion plans
The construction of a destoning plant has begun at Somkhele and the plant is on track to be in production in the last quarter of the
Company's 2009 financial year. Management expects the current production of saleable tonnes to increase by approximately 10% for the year to
30 June 2009 as the impact of the destoning plant will only be felt in the last quarter of the year ending 30 June 2009. Thereafter it is
expected that the sales tonnes will increase by some 25% as a result of the decision to commission the destoning plant.
Somkhele has mineral rights over some 28 000 hectares, of which only 1 430 hectares is being mined. The Company's aggressive exploration
programme to delineate additional resources is on track. Management anticipates that an updated SAMREC-compliant reserve and resource
statement will be procured before the end of December 2008 and which management expects significantly increase the current proven and
probable reserves of 25.4 million tonnes.
Despite market conditions, demand for metallurgical coals in the medium term remains firm and Somkhele has experienced an overall
increase in the price of its product. As a result, Petmin is investigating additional capital projects at Somkhele which will more than
double its coal processing capacity and consideration will be given to the construction of a second coal processing plant should the
exploration programme deliver promising results and should market conditions justify the investment.
In order to facilitate the continued growth in Somkhele's export business, Petmin acquired, a further 30% interest in Petmin Logistics
(Pty) Ltd ("Petmin Logistics") (formerly ZMS Logistics (Pty) Ltd) and now controls 100% of Petmin Logistics. Petmin Logistics has contracted
with the South African Port Authorities to provide export facilities for a minimum of 600,000 tonnes per annum for four years at the
Richards Bay Dry Bulk Terminal ("DBT"). Petmin is currently evaluating additional export capacity, which will enable the Company to export
in excess of 1 million tonnes per annum.
Update on SamQuarz
The programme to delineate the ore body at SamQuarz (Pty) Limited, the pre-eminent silica producer in South-Africa, has now been
concluded and the updated SAMREC compliant report of the reserves and resources will be published in the next quarter. Management expects
that the proven reserves should increase from the current 10 million tonnes of quartzite to approximately 45 million tonnes.
Update on Veremo Iron Ore Project
Following the conclusion of the joint acquisition of Veremo Holdings (Pty) Ltd ("Veremo") by Petmin and Framework Investments Limited
("Framework") whereby Petmin acquired 25% and Framework 75%, the parties have agreed on the appointment of Bradley Doig and Lebo Mogotsi as
directors of Veremo and as Petmin's representatives on the Veremo executive management team.
The Veremo executive management team will focus on delivering a feasibility study sufficient for the purposes of listing the Veremo
Project on the LSE and/or other stock exchange by no later than 30 June 2010.
Dark Capital (Proprietary) Limited ("Dark")
Dark is a member of the Black Economic Empowerment (BEE) anchor consortium in Petmin, controlling approximately 157 million shares in
Petmin. As outlined in a circular to shareholders dated 7 November 2005, Dark obtained 7 million options in Petmin at 65 cents. Dark has
notified Petmin that it intends to exercise these options once the Cautionary Announcement referred to above is withdrawn.
Renewal of management contracts
Petmin directors and management collectively control 220 million shares in Petmin and 47 million options. In total, this amounts to 45%
percent of the fully diluted shares in Petmin.
The contractual arrangement between Petmin and its management team was a three-year agreement that expired on 30 June 2008. Management
has subsequently reached agreement with the Remuneration Committee to renew its arrangement for a further three years on similar terms and
conditions, which ensures alignment with shareholders. The broad principles are as follows:
* Guaranteed Remuneration between zero and R1 million each for the Management Team
* 5% of Pre-Tax profits payable as an incentive on the condition that the Headline Earnings per share (after taking into account the
management fee and the 5% fee) increases by at least 20% on a year on year basis
* 1.5% management fee on all assets under management as at 30 June 2008 and 1% on any increase in the assets under management after
30 June 2008
* The new remuneration scheme also provides for a share option incentive scheme for which shareholder approval will be requested
once the details have been finalized.
Prospects
Petmin has secured the services of its executive management team, has a strong balance sheet, with gearing of 7% as at 30 June 2008 and
cash reserves in excess of R200 million (post the Springlake disposal). The Somkhele and SamQuarz assets are strongly cash generative. The
Company is therefore, well positioned to evaluate growth opportunities and potential acquisition targets, including a share buy-back, in
order to enhance shareholder value.
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