The total purchase consideration by Trans Hex is valued at R39.1 million – to be settled through the issue of approximately 9.4 million new ordinary shares in the share capital of Trans Hex.
Rationale for and effect of the transaction
As at the date of this announcement, Trans Hex holds a 40% interest in West Coast Resources (WCR), through its wholly-owned subsidiary, Trans Hex Diamante.
Following implementation of the transaction, WCR will become a 67.2% held subsidiary of the group, further enhancing Trans Hex’s management and operational control over WCR and bolstering Trans Hex’s South African footprint.
Trans Hex will ensure that the provisions of WCR’s memorandum of incorporation do not frustrate or relieve Trans Hex in any way from compliance with its obligations in terms of the JSE Limited Listings Requirements.
Overview of WCR
WCR is a diamond mining company with operations in the Namaqualand region of the Northern Cape.
Effective 28 October 2014, WCR acquired the assets and liabilities relating to Namaqualand Mines from the De Beers group.
Trans Hex has been contracted by WCR to manage the day-to-day operations of its Namaqualand project and to market the diamonds it produces.
The mine is situated approximately 60 km south of Port Nolloth along the West Coast of the Northern Cape and spans a total geographical area of more than 2 750 km2.
Production commenced in December 2015.
The 40% investment in WCR is accounted for by the group as an investment in an associate under the equity method.
The net assets and loss attributable to 100% of WCR for the year ended 31 March 2017 (2017 Financial Year), as per the audited annual financial statements of WCR for the 2017 Financial Year, amounted to R226.0 million and R178.1 million, respectively.
The carrying value of the group’s investment in WCR, as at 31 March 2017, as per the audited annual financial statements of the group for the period then ended, amounted to R98.5 million, after adjustments relating to a preferential loan and capitalised interest.
Included in the annual financial results of the group for the 2017 Financial Year was a loss of R71.3 million, representing the group’s share of the losses of WCR, which included an impairment charge to mining rights after tax of R43.4 million.
Salient terms of the transaction
Trans Hex or its subsidiary will acquire a further 27.2% shareholding in WCR for the purchase consideration.
In settlement of the purchase consideration, Trans Hex will issue the Consideration Shares to RAC, at the issue price of R4.14 per Trans Hex ordinary share being a 44% premium to the 30 day volume weighted average price of a Trans Hex Share on the exchange operated by JSE Limited immediately prior to the date on which the terms of the transaction were agreed to between the parties thereto.
The implementation of the transaction is subject to the fulfilment or waiver of the following conditions precedent:
- the entering into, by Trans Hex and RAC, of formal agreements in respect of the Transaction
- the approval by shareholders of the Transaction, including the issue of the consideration shares, at a general meeting of shareholders
- the Industrial Development Corporation of South Africa Limited (IDC) providing written consent(s) as required in terms of the loan agreement between WCR and the IDC
- the IDC providing written consent to the release of the Sale Shares from the cession in securitatem debiti given by RAC in favour of the IDC; and
- the receipt of all approvals, consents or waivers from those South African regulatory authorities as may be necessary to implement the transaction, including approval by competition authorities
Categorisation, related party relationship and fairness opinion
The consideration shares amount to approximately 8.93% of the total Trans Hex Shares in issue, excluding treasury shares.
Accordingly, the transaction is considered to be a category 2 transaction, as contemplated in the listings requirements.
RAC currently holds approximately 25.6% of the voting shares and is therefore considered to be a material shareholder of Trans Hex.
Furthermore, RAC is an associate of PG Viljoen, a director of Trans Hex.
Accordingly, RAC is considered to be a related party in terms of paragraph 10.1 of the listings requirements.
In the circumstances, the transaction is classified as a category 2 related party transactions in terms of paragraphs 9.5(a) and 10.1(a), as read with paragraphs 9.15 and 10.4, of the listings requirements.
In terms of paragraph 10.4(f) of the listings requirements, as read with the guidance letter issued by the JSE dated 25 October 2012, a fairness opinion is required in respect of the transaction.
Trans Hex has appointed Snowden Mining Industry Consultants as the independent expert to opine on the fairness of the transaction.
Potential future specific issue of shares for cash
In terms of the agreement entered into between Cream Magenta 140, Metcap 14 and RAC on 12 June 2017, which agreement regulates the relationship between the parties as shareholders, the parties agreed that they will, as far as is possible, maintain an equal shareholding in Trans Hex.
Feature image credit: Wikimedia