Proposed Acquisition

20 Dec 2006 07:30

Pan African Resources PLC20 December 2006 20 December 2006 Pan African Resources PLC ("Pan African" or "the Company") Proposed acquisition of producing gold mines & Notice of suspension Pan African Resources PLC (AIM: PAF), the African based gold explorationCompany, announces the signing of a conditional Sale of Shares Agreement ("SSA")with Metorex Limited ("Metorex") to acquire 74% of Barberton Mines (Proprietary)Limited ("Barberton Mines"), with ownership of producing gold mines, in SouthAfrica ("the Acquisition"). Barberton Mines comprises Fairview, Sheba and NewConsort Mines, located in the Mpumalanga Province. Highlights Completion of the Acquisition will: • Establish Pan African as a gold producer • Add additional premium exploration potential close to the mines being acquired • Build on the Company mission of growth through the acquisition and development of mine and exploration properties in Africa Completion of the Acquisition is subject to certain conditions precedent. Theseinclude a valuation from an auditor on the assets to be acquired for a non-cashconsideration (to comply with section 103 of the UK Companies Act of 1985),South African Reserve Bank ("SARB") approval, South African CompetitionCommission Approval, to the extent that it is required, secondary listing on theJSE Limited of Pan African Shares, Pan African Shareholder approval, a waiver ofthe mandatory cash bid requirements of the UK City Code on Takeovers andMergers, waiver of pre-emptive rights of the remaining shareholder in BarbertonMines and Pan African's re-admission to AIM (see "Notice of suspension" below"). The Pan African - Metorex Sale of Shares Agreement The SSA with Metorex contemplates the purchase of 74% of Barberton Mines, for aconsideration of £35.62 million satisfied by the issue of 593.74 millionordinary Pan African shares to Metorex credited as fully paid at 6p per share.The remaining 26% of Barberton Mines is held by a black empowerment group, inorder to comply with the Mineral and Petroleum Resources Development Act ("MPRDA") and Broad Based Socio-economic Empowerment Charter ("BBEC") for the SouthAfrican Mining Industry. Pan African will have the first right of refusal toacquire the remaining 26% of Barberton Mines conditional upon compliance to theMPRDA and BBEC. Metorex intends to hold the Pan African shares as an investment, conditional on approval from the SARB and will comply with all conditions imposed on it by theSARB, if any. Should Metorex receive approval to hold the Pan African shares, ithas undertaken not dispose of any of its Pan African shareholding for a periodof 12 months from the date of issue other than by way of distribution in specie.Pan African has the right to place such shares if required. Metorex will beallowed to appoint at least 2 directors to the board of Pan African for as longas they remain a direct shareholder in the Company. Pan African will have theright to appoint 3 directors onto the board of Barberton Mines, which will havea total of 5 directors. As a further condition precedent of the SSA, Pan African will issue anadditional 60 million ordinary shares to Pangea Exploration (Pty) Ltd ("Pangea")credited as fully paid up at 6p per share to acquire the 20% free carriedinterest it holds in the Manica project (taking the Company's stake to a 100% inthe Manica project) and to cancel the remaining payments due to Pangea on thegold projects in the Central African Republic. The Acquisition will increase Pan African's issued share capital from 407.7million shares to 1.07 billion shares in issue. This includes an outstandingobligation to issue 10.25 million shares for the acquisition of mineral rightsin the Central African Republic and Mozambique upon certain conditions beingfulfilled (as announced by the Company on 13 March 2006 and 9 January 2006respectively). As part of the re-admission process Pan African may contemplate ashare consolidation. The assets Barberton Mines comprises Fairview, Sheba and New Consort Mines with the miningoperations situated approximately 10km north of the town of Barberton in theMpumalanga Province of South Africa. The acquisition of Barberton Mines willgive Pan African title to all the mining rights for the current mine reserve andresource, mine site infrastructure and mining equipment, metallurgicalprocessing plants and certain surface rights. As at 30 June 2006 the SAMREC compliant reserves and resources were: Mineral Reserves Tons g/t Au Kg Au Proved: 1,264,800 7.56 9,562Probable: 696,232 9.21 6,412Total mineral reserves: 1,961,032 8.15 15,974 Mineral resources Measured: 2,831,118 8.53 24,149Indicated: 2,383,938 6.85 16,330Inferred: 2,596,438 5.73 14,887Total mineral resources: 7,811,494 7.09 55,357 Source: Metorex website www.metorexgroup.co.za Barberton Mines produced approximately 100,000 ounces of gold for the financialyear ended 30 June 2006 at a recovered grade of 9.8g/t. The mine's productionfor that financial year was in line with that of the previous year. The recentintroduction of larger underground machines at the Fairview mine and theestablishment of underground access between the Fairview mine and Sheba mine byMetorex, are targeted at a 10% increase in gold production during the year toJune 2007. Total operating costs for the year ended 30 June 2006 were US$428/oz of goldwith a profit margin of approximately16%, resulting in an operating profit ofUS$9.8 million in that year (source: Metorex Limited - Published consolidatedreviewed provisional results for the Financial Year ended 30 June 2006). An independent technical review is currently being undertaken on the assets. ACPR will be included in the re-admission document, which will also address PanAfrican's intent on how the assets will be developed in the future. Pan African: current and future strategy Alongside the exploration and development of the Barberton Mines assets, theCompany will continue the acquisition of a portfolio of mineral deposits withworld-class potential in favourable areas of Africa and develop them to enhanceshareholder value. The Acquisition will allow the Company to continue to pursueits current exploration and growth strategy. Pan African is currently completing a pre-feasibility study on the viability ofa 1Moz open pit mining operation at its Manica gold project in Mozambique. Asannounced by the Company on 14 November 2006, preliminary results withoutoptimisation indicate a pre-tax NPV of US$39 million and IRR of 31%. The miningscoping study on the project was calculated on a annual production rate of86,000 ounces per annum at a cash cost of US$387/oz over a 8.5 year period. In the Central African Republic the Company holds title through 4 exclusiveexploration licences, as part of a contributory Joint Venture, to the Bogoin andDekoa gold projects. These projects cover over 4000km2 which the Pan Africanboard considers to be some of the most prospective greenstone belts in thecountry. At the Bogoin project, a gold-in-soil anomaly 12km in strike-length hasbeen identified. Some of the best historical boreholes drilled within theanomaly include values of 17.38g/t over 19m, 5.05g/t over 20m and 3.90g/t over18m. Drilling to test the depth extension of this gold-in-soil anomaly isexpected to start in Q1 of 2007. Stream sediment sampling is currently underwayat the Dekoa gold project. Assuming a successful completion of a Bankable Feasibility Study at the Manicagold project in Mozambique, together with the production from Barberton mines,the Company will be targeting a combined production output of approximately180,000 ounces per annum. The BIOX(R) process which Pan African is envisaging to utilise at its Manicagold project in Mozambique was developed at the Fairview mine. The metallurgicalplant at the Fairview mine is one of the world's most efficient BIOX(R) plants.The technical skills available to Pan African upon completion of the Acquisitionwill as a result of such project synergies further add to the prospect ofsuccessful development of the Manica gold project in Mozambique. Management comments Jan Nelson, CEO, of Pan African commented: "This transaction represents thefirst in the board's search for production ounces in addition to explorationounces, with the objective of organic growth sustained by cash flow. The boardof Pan African believes that the successful completion of the Acquisition willdeliver significant shareholder value as it will allow the Company to become agold producer and explorer that will be well positioned for further growth." Colin Bird, Chairman of Pan African adds: "This significant acquisition isexpected to form the core of a balanced portfolio of gold production andexploration for Pan African. Our Manica project is showing tremendous potentialto which is added the significant geological prospects of the remainder of ourexploration portfolio. The resource industry has suffered over the last 2 yearsfrom a shortage of skilled individuals. A further advantage of this Acquisitionis the access to industry skilled personnel throughout the engineeringdiscipline. We look forward to working with Barberton Mines management tosustain the excellent performance that this operation has delivered." Notice of suspension The proposed transaction constitutes a reverse takeover under the rules of AIM.Accordingly the Acquisition will be subject to the publication of an admissiondocument on the Company as enlarged by the Acquisition and Pan Africanshareholders' approval. In accordance with the rules of AIM, dealings in PanAfrican shares have been suspended on AIM today and will remain suspended untilthe publication of the re-admission document. On behalf of the board, Colin Bird Jan NelsonChairman Chief Executive Officer NOTES TO THE EDITOR • The BIOX(R) process is a registered trademark of Gold Fields. BIOX(R)- is a process whereby bacteria is used to pre-treat refractory sulphide goldores such as pyrite, arsenopyrite and pyrrhotite. The gold in these sulphideores is often encapsulated in sulphide minerals which prevent gold from beingleached by cyanide. The BIOX(R) process destroys the sulphide minerals andexposes the gold for subsequent cyanidation, increasing recovery rates • SAMREC - South African Mineral Resource Code • Average ZAR : US$ exchange rate of 6.4, which was the average for the12 month period ending 30 June 2006, and was used in calculations concerningoperating profit and costs • JSE Limited - JSE Securities Exchange of South Africa Enquiries: Pan African Resources Ambrian Partners Limited Parkgreen CommunicationsJan Nelson, CEO Richard Brown Justine Howarth / Victoria Thomas+27 11 886 1211 +44 (0)20 7776 6417 +44 (0) 20 7493 3713Colin Bird, Chairman+44 (0) 20 7584 2155 For further information on Pan African Resources please visit the website atwww.panafricanresources.com This information is provided by RNS The company news service from the London Stock Exchange