The company is specifically acquiring 60% of Diro Manganese and Diro Iron Ore from Diro Resources, following the business’s operations halt because they are under financial distress. As a result, it was placed into formal business rescue on 7 June 2016.
Afrimat is furthermore purchasing a cession and delegation agreement with Investec to purchase all of its security.
Afrimat approached the shareholders of the business, the Business Rescue Practitioner (BRP) and Investec, a major creditor who hold securities over all the moving and unmoving assets of the business, with the intention to rescue the business and in the process obtaining a controlling share in the business.
Diro Resources is an iron-ore producer based in the Northern Cape and has accumulated debt of approximately R483 million which was compromised according to the BRP approved by the requisite majority of creditors on 23 September 2016.
Diro Iron Ore still has a proven iron ore reserve of 5.6 Mt which could be mined and upgraded through its existing beneficiation plants.
In addition to the 5.6 Mt reserve there are also approximately 1.3 Mt of sellable fine ore stockpiles.
Diro Iron Ore currently sells its products via Sishen to the Saldanha iron ore export channel.
Given Afrimat’s track record in turning struggling business around and as part of its diversification and growth strategy, Afrimat has decided to enter the iron ore sector the company said in a statement.
“The acquisition will complement and augment Afrimat’s product offering and further expand its footprint across South Africa.”
However, given the nature of Diro’s reserves and the access to infrastructure, together with Afrimat’s existing competencies, the transaction allows the ability to leverage the combined strengths which will result in developing new revenue opportunities for Afrimat in the iron ore space.
The aggregate purchase consideration payable for the acquisition of Diro is R 276 million.
The total consideration will be payable as follows:
- R 118 million plus an additional deferred amount of R 33 million to be paid after 36 months following the signature date, to acquire 100% of Investec’s claims and security of R 167 million
- R 50 million as post commencement financing (PCF) required to re-commission the operations and resume operations
- R 75 million for the compromise of the creditors, of which R25 million is payable immediately under the instruction of the BRP.
- R50 million is payable on the latest of the 24th month after the approval of the BRP, the date after which all conditions precedent have been fulfilled and the subscription for shares, representing 60% of the Diro, including 100% of all claims against the business will be acquired for R1 and subject the following conditions precedent.
Moreover, all funding provided by Afrimat to Diro will be treated as loan funding and will attract interest at an interest rate that is above the prime lending rate.
The company will receive a market related management fee based on the gross turnover of the business in accordance with a formal management agreement.
The acquisition is subject to the approval in writing of the applicable competition authorities, in terms of the Competition Act, 1998 to the extent required.
Also, section 11 approval in writing from the Department of Mineral Resources (DMR) and obtaining all other regulatory approvals or clearances as may be required.
The Effective date of the acquisition is first business day following the date on which the conditions precedent are fulfilled or waived and the agreement becomes unconditional and enforceable in all respects.