Petra Diamonds Regulatory News (PDL)

1 Mar 2007 07:04

Petra Diamonds Ld01 March 2007 JOINT NEWS RELEASE For release: 1 March 2007 Petra Diamonds Limited and Xceldiam Limited Proposed Acquisition of Frannor Investments and Finance Limited Petra Diamonds Limited ("Petra") (AIM / ASX: PDL) and Xceldiam Limited ("Xceldiam") (AIM: XLD), the diamond mining and exploration groups, announce that they have entered into a conditional agreement ("the Agreement") wherebyPetra will acquire the entire issued share capital of Frannor Investments andFinance Limited ("Frannor BVI") from Xceldiam Limited ("Xceldiam") ("theTransaction"). Frannor BVI and its subsidiary hold Xceldiam's interests in theLuangue diamond exploration project ("Luangue"), which borders Petra's AltoCuilo project ("Alto Cuilo") in north-eastern Angola. Highlights • The Transaction, which is conditional on the approval of Xceldiam shareholders at an extraordinary general meeting ("EGM") scheduled to be held on 19 March 2007, is an all share transaction and Petra will issue 19,674,584 shares ("the Consideration Shares"), representing 13.1% of Petra's current issued share capital, to Xceldiam in consideration for the sale of the entire issued share capital of Frannor BVI to Petra. It is proposed that, subject to the approval of Xceldiam shareholders, the Consideration Shares will in turn be distributed to shareholders of Xceldiam (excluding Petra), by way of an interim dividend ("the Interim Dividend"). Xceldiam shareholders will therefore maintain an interest in Luangue, as well as having an interest in Petra's other operations. • Based on the number of Consideration Shares, each Xceldiam shareholder (other than Petra which holds 1,555,555 Xceldiam shares that it subscribed for when Xceldiam was admitted to AIM in November 2005) is expected, assuming none of Xceldiam's quoted warrants ("the Warrants") or warrants held by WH Ireland (that were issued to WH Ireland at the time of Xceldiam's admission to AIM) ("the WHI Warrants") are exercised before the record date, to receive (subject to rounding) 368.65 Petra shares for every 1,000 Xceldiam shares held. Petra has waived its right to receive any Petra shares by way of the Interim Dividend. Certain of Xceldiam's shareholders will be subject to a twelve month orderly market undertaking in respect of the shares they will hold in Petra. • Based on Petra's mid market closing price on 27 February 2007 of 157 pence, the Transaction values Frannor BVI at £31.79 million. Taking into account the US$1.25 million cash that will remain in Xceldiam when the Transaction is completed, the Transaction values Xceldiam at £32.43 million, representing a 20.5% premium to the Xceldiam share price on 27 February 2007 and a 44% premium to the Xceldiam share price on 19 January 2007, being the trading day prior to Xceldiam's announcement that it was in advanced stage negotiations which may lead to an offer being made for Xceldiam or one of its subsidiaries. • Timothy George (Chairman and CEO, Xceldiam), Robert Kaplan (Finance Director, Xceldiam) and Richard Rice (Technical Director, Frannor BVI) will work with Petra to ensure a smooth and effective integration of Frannor BVI into the Petra group. Timothy George, Robert Kaplan and Tobin Prior, who are currently directors of Xceldiam, will resign from Xceldiam when the Transaction is completed. • It is proposed that Xceldiam's shares continue to trade on AIM and that Xceldiam pursues new investment opportunities in the mining sector in accordance with an investing strategy, details of which will be announced separately by Xceldiam in due course ("the Investing Strategy"). Xceldiam acknowledges that on 21 February 2007 it announced that it had receivedan unsolicited second offer for either Xceldiam or its subsidiaries which wasbeing considered by the Board. However, on 27 February 2007, Xceldiam received aletter formally withdrawing that second offer and accordingly the offer by Petrais the only offer available for consideration. Xceldiam Extraordinary General Meeting The Transaction requires under the AIM Rules (as a disposal resulting in afundamental change in business under AIM Rule 15) the approval of a simplemajority of Xceldiam's shareholders. A notice of EGM (the "EGM Notice"),including an explanatory letter from the Xceldiam Board, will be dispatched byXceldiam to its shareholders and a further announcement confirming that it hasbeen sent will be made in due course. The EGM Notice will include three ordinary resolutions ("the Resolutions") asset out below: (i) that the Transaction be approved; (ii) that the Xceldiam Investing Strategy as set out in the Xceldiam circular be approved; and (iii) that the Interim Dividend in specie of the 19,674,584 Petra shares be approved and declared payable to Xceldiam shareholders on record as at 9 March 2007 in proportion to the number of shares held by such Xceldiam shareholders. It is also a requirement, under the AIM Rules, that following a fundamentaldisposal which results in a company holding only cash, it must adopt aninvesting strategy which outlines, inter alia, the nature of the investments itintends to make over the next twelve months. The Investing Strategy will beincluded within the EGM Notice and explanatory letter from the Xceldiam Board tobe dispatched by Xceldiam to its shareholders in due course. The directors of Xceldiam have confirmed to the Petra Board that they intend tounanimously recommend to Xceldiam shareholders that they vote in favour of theTransaction and have themselves irrevocably undertaken to vote in favour of theResolutions in respect of a total of 16,950,000 Xceldiam shares, representingapproximately 30.8 % of Xceldiam's issued share capital. The Company holdsirrevocable undertakings from the holders of a further 11,646,555 Xceldiamshares to vote in favour of the Resolutions, which together with the Directors'irrevocable undertakings, represents in total approximately 52% of Xceldiam'sissued share capital. Adonis Pouroulis, Chairman of Petra, said "We are delighted to announce theproposed acquisition of Frannor BVI which will significantly enhance ourpresence in Angola. We are confident that Luangue has the potential to match theexceptional exploration developments announced at the neighbouring Alto Cuilo.We believe that Angola offers substantial potential for the discovery of majornew diamond deposits, a view which we believe is shared by majors who are nowfocusing their diamond exploration programmes in this area." Timothy George, Chairman and CEO of Xceldiam, commented "Our progress andpromising exploration developments on Luangue have been followed by Petra sincewe started activities in Angola. It is sensible now that Luangue continues to bedeveloped alongside Alto Cuilo, improving the potential for the development of akimberlite mine in the area." Background Petra also has diamond interests in Angola, the main focus being the Alto Cuiloconcession which borders Xceldiam's interests in the Luangue concession. Petrahas extensive experience of operating in this region and, in addition, Petra andXceldiam share a common joint venture partner, Endiama, on their respectiveprojects. Xceldiam's current activities are focused on the Luangue concession, whereXceldiam, through its interest in Frannor BVI, is prospecting for kimberlite andalluvial diamond deposits. Frannor BVI, through its wholly owned subsidiary,holds a 39% interest in the Luangue exploration licence for kimberlitic diamonddeposits and a 40% interest in the Luangue exploration licence for alluvialdiamond deposits. Frannor BVI and its wholly owned subsidiary do not currentlygenerate any profits. Luangue and Alto Cuilo are situated in a highly prospective diamond area ofnorth east Angola. The concession areas share a common border, with Luanguebeing directly north of Alto Cuilo, and it is the area either side of thiscommon border that each concession is, based on geology and diamondprospectivity, focusing its exploration activities. Petra and Xceldiam considerthat there is potential for the geology of the northern part of Alto Cuilo, thearea which has so far led to exceptional exploration developments, to continueinto the Luangue area. Petra and Xceldiam have had a close working relationship since Xceldiam'sformation in late 2004 and this relationship was formalised in May 2006 when astrategic co-operation agreement was executed. This agreement enabled Xceldiamto use exploration and other data from Alto Cuilo to accelerate explorationactivities in Luangue. As detailed information emerges on the Alto Cuilokimberlitic occurrences from the large diameter drilling ("LDD") and bulksampling campaign underway there, it will significantly enhance the selectionand prioritisation of LDD targets at Luangue. Rationale for the Transaction For Petra, the Transaction represents a further step in its long-term growthstrategy of becoming a significant player in the diamond industry, by building aquality exploration portfolio to complement its current producing mines. One ofPetra's objectives has been to increase its geographical spread of assets acrossthe African continent, focusing on areas that are known to hold major diamonddeposits, and the Transaction gives Petra an enhanced geographical spread ofdiamond assets in the diamond belt of north east Angola. For Xceldiam, the Transaction offers its shareholders continued exposure toLuangue alongside a broader exposure to Petra's production and advancedexploration activities. The combined Petra and Frannor management teams will have the depth andknowledge to develop diamond opportunities anywhere on the African continent.The combination of the management teams and corporate structures will also giverise to costs savings. Terms of the Agreement Xceldiam owns 100% of Frannor BVI, which in turn manages the interests ofXceldiam in both the kimberlite and alluvial exploration activities on theLuangue concession. Pursuant to the Agreement, the entire issued share capitalof Frannor BVI will be transferred by Xceldiam to Petra. In view of this change in ownership, the ultimate responsibility for ensuringFrannor BVI complies with its responsibilities and obligations with regards tothe Luangue exploration licenses will no longer rest with Xceldiam but will beassumed by Petra. In order to effect the change of responsibility with a minimumof disruption, Xceldiam and Petra have agreed details of transitionalarrangements: (i) Timothy George, Robert Kaplan and Tobin Prior will resign from the board of Xceldiam and Mark Summers will resign from the board of Frannor BVI when the Transaction is approved at the EGM; (ii) the remaining directors of Xceldiam will remain on the board to guide Xceldiam in accordance with the Investing Strategy; (iii) Robert Kaplan will sign a permanent employment contract with Petra and also enter into a short term consultancy agreement with Xceldiam to manage the Interim Dividend distribution; and (iv) Timothy George and Richard Rice will enter into consultancy agreements with Petra for a minimum of six months to ensure a smooth handover period of Frannor BVI and Luangue. An amount of US$1.25 million of the approximate US$3.5 million cash reserves ofXceldiam will be retained by Xceldiam to cover ongoing overhead costs and toprovide working capital in pursuit of the new interests outlined in theInvesting Strategy, the balance being transferred to Frannor BVI's bank accountin accordance with the terms of the Agreement. Xceldiam anticipates that both the Warrants and WHI Warrants will be re-pricedin due course following the completion of the Transaction. Conditions Precedent Completion of the Proposed Transaction is conditional, inter alia, upon thefollowing key conditions being satisfied: • the posting of the circular to Xceldiam shareholders by 2 March 2007; • the passing of the Resolutions at the EGM; • Admission of the Consideration Shares to trading on AIM; • Xceldiam transferring the entire balance held in its bank accounts, less US$1.25m, to Frannor BVI's bank account; • Xceldiam surrendering all loan accounts that it holds against Frannor BVI to Petra; • Frannor confirming to Petra that the expenditure under the Luangue kimberlite and alluvial exploration contracts is in accordance with the terms of such contracts; and • no event, change or circumstance becoming known to Petra or Xceldiam from 28 February 2007 to completion which would render any of the warranties in the Agreement materially inaccurate. It is expected that the conditions will be satisfied on or before 31 March 2007. Anticipated Timetable • Xceldiam circular to be sent to Xceldiam shareholders around 28 February 2007 • Xceldiam EGM to approve the Transaction around 19 March 2007 • Completion and Transaction becomes unconditional around 31 March 2007 Ends For further information with regards to Petra Diamonds, please contact: Parkgreen Communications, London Cathy Malins / Annabel Leather Telephone: +44 (0) 20 7851 7480 For further information with regards to Xceldiam, please contact: WH Ireland David Youngman Tel: +44 (0) 161 832 2174 Xceldiam Timothy George Tel: +27 82 573 4199 Conduit PR Ed Portman Tel: +44 (0) 207 429 6607 This information is provided by RNS The company news service from the London Stock Exchange