Aquarius in $790m Impala share buyback

16/04/2008 - 14:25

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Miner Aquarius Platinum is to spend $790 million buying back all the shares held in it by Impala Platinum (Implats) and all the shares that company holds in its subsidiary, Aquarius Platinum (South Africa).

Aquarius in $790m Impala share buyback

Miner Aquarius Platinum is to spend $790 million buying back all the shares held in it by Impala Platinum (Implats) and all the shares that company holds in its subsidiary, Aquarius Platinum (South Africa).

Aquarius said the buybacks will remove the only corporate shareholding in the companies and will result in a 100 per cent free float.

"It leaves Aquarius strategically positioned as a strong, independent platinum player, with full control of its cashflows post completion of the approved Savannah Consortium share exchange," Aquarius said today.

The transaction was expected to be earnings accretive in the first full year post completion, Aquarius said.

Aquarius also says it will raise up to $400 million through an accelerated bookbuild placing to institutional investors to finance the buy-back and to assist its subsidiary to finance its own buy-back.

The sole book runner is RMB Morgan Stanley with co-leads Euroz Securities Ltd and Investc Bank (UK) Ltd

Implats approached Aquarius late last year with a proposal to exit its shareholdings in both AQP and AQPSA as a result of a portfolio review.

 

The announcement from Aquarius is pasted below:

 

Aquarius Platinum Ltd has entered into agreements with Impala Platinum Holdings Ltd (Implats) to repurchase all the shares Implats currently holds in Aquarius and that its subsidiary Aquarius Platinum (South Africa) (Pty) Ltd (AQPSA) will repurchase all the shares Implats' holds in AQPSA.


The combined consideration for these repurchases is $790 million.

The Directors of Aquarius believe that the terms of the transactions are highly attractive to shareholders:

  • the share repurchase removes the only corporate shareholding in Aquarius and will result in the company having a 100% free float;
  • it leaves Aquarius strategically positioned as a strong, independent platinum player, with full control of its cashflows post completion of the approved Savannah Consortium share exchange; and
  • the transaction is expected to be earnings accretive in the first full year post completion.

Background:

Implats approached Aquarius late last year with a proposal to exit its shareholdings in both AQP and AQPSA as a result of a portfolio review. Implats has made an exceptional return on its investments in the Aquarius group.

Implats' decision to exit is mutually beneficial and leaves Aquarius strategically positioned as a strong, independent platinum player, with full control of its cashflows (pending the completion of the approved Savannah Consortium ("SavCon") share exchange).

A simultaneous disposal of Implats' stakes was viewed as desirable by both parties and this is achieved by these transactions. Aquarius' Black Economic Empowerment ("BEE") credentials remain intact and SavCon are fully supportive of the transactions.

SavCon is pursuing the final phase of the BEE transaction approved by shareholders in Special General Meeting on 11 October 2004 which will result in SavCon's constituent members receiving shares in Aquarius in exchange for SavCon's shareholding in AQPSA.

The number of new Aquarius shares to which SavCon will be entitled upon the disposal of its revised equity interest of 32.5% in AQPSA to AQP remains 65,042,856 On completion of the final phase of the BEE transaction Aquarius will own 100% of AQPSA.

Key Terms of the Agreements:

Aquarius will repurchase the 21,425,898 common shares (approximately 8.4% of Aquarius' issued share capital) currently held by Implats for £6.71 ($13.34) per share, representing a total consideration of £143.8 million ($285 million).

The price was determined using the 30-day volume weighted average price ("VWAP") per share of £7.46 on the London Stock Exchange to 19 March 2008 (the day the principals agreed the pricing of a potential transaction) less an agreed discount.

The closing share price on the London Stock Exchange on 14 April, the last trading day prior to this announcement, was £8.10. The repurchased shares will be cancelled.

AQPSA will also repurchase Implats' 20% stake in AQPSA for a total consideration of $504.9 million; comprising a cash payment of $459.0 million to Implats and a Secondary Tax on Companies ("STC") charge of $45.9 million, as required under South African tax legislation.

The STC payment will be incurred by AQPSA and will be treated as a once-off charge against its 2008 earnings.

Following the transaction Aquarius' shareholding in AQPSA will increase from 54% to 67.5% and SavCon, AQPSA's BEE Partner will increase it's shareholding from 26% to 32.5%.

The acquisition price agreed for Implats' AQPSA stake took into account the parties respective views of value, future cashflows, and dividend potential for the Implats minority stake in an unlisted company, with appropriate discounts applied for both liquidity issues and pre-emption rights.

Both repurchase transactions are inter-conditional and neither will be independently implemented.

Aquarius intends to raise up to $400,000,000 through an accelerated bookbuild placing to institutional investors immediately following this announcement to finance the buy-back of Implats' shareholding in Aquarius and to assist AQPSA with the financing of its buyback.

The sole book runner is RMB Morgan Stanley with co-leads Euroz Securities Limited and Investec Bank (UK) Limited.

The remainder of the consideration for the AQPSA buyback will be funded through a combination of available cash resources (approximately $250 million) and debt provided to AQPSA by Rand Merchant Bank.

Taking into account existing cash and borrowings, it is not anticipated that the Group will have more than $275 million of debt funding outstanding subsequent to the transaction at a time of continued strong operational cashflows.

AQPSA's financial obligations in respect of its rehabilitation obligations are not affected by this transaction and the cash backed guarantee remains in place.

On completion of the book build, Aquarius will issue an Appendix 3B to the ASX detailing the number of common shares placed and pricing thereof.

No shareholder approvals are required for completion of this transaction as the number of shares to be issued following the capital raising will be below 15% of the present issued capital of the Company.

The implementation of the buy-back agreements is conditional upon:

  • Aquarius raising the requisite funding to finance the respective transactions; and
  • Aquarius, AQPSA and Implats obtaining the relevant South African regulatory approvals (as necessary) for the implementation of the transactions.

It is envisaged that the completion of these transactions will be achieved by 25 April 2008.

Aquarius customarily prepares quarterly operating and trading reports which are released by the end of the month following the close of the operating quarter. As shareholders are aware, the Company will publish its third quarter production and financial results on Thursday 24 April 2008.

As the repurchase agreements and associated financing are being announced before consolidated accounts are available, AQP is providing Investors a detailed operating and trading update.

Consolidated Profit & Loss, Balance Sheet and Cashflow Statement for the quarter ended March 2008 will be published as planned in the third quarter results on 24 April 2008.


Highlights :

  • Attributable production for the third quarter of approximately 111,524 4E PGM ounces (first 9 months: 389,337 ounces)
  • Record 4E PGM basket prices achieved in the first two months of the quarter for the group of $2,473 per PGM ounce. Underlying PGM prices have remained strong in both March and April.
  • An estimated net profit for the third quarter of between $70 and $75 million; actual net profit for the first two months of the quarter was $56.6 million on revenues of $153 million.

 

The quarter ended March 2008 was an operationally challenging but unusually profitable one for the Company.

Our management teams in both South Africa and Zimbabwe had to cope with significant electrical power shortages.

Both countries experienced a number of new challenges, with reductions in power supply that ultimately impacted production at all of our mines.

By the quarter end the power situation in Zimbabwe had stabilised and a new power supply contract with HCB is in preparation.

The third quarter is traditionally the lowest production quarter in the mining calendar of Aquarius, as the number of days 'lost' to public holidays (Christmas and New Year) is the highest of each operating quarter.

Additionally, at Marikana, production at the open-pit was closed for 5 days by unusually high levels of rainfall in February and March. As previously announced, AQPSA took over the mining operations at Everest at the end of January.

The Company has been able to transition to owner-operator at its Everest mine faster and more seamlessly than was expected, with output at revised targeted levels at the end of March.

At AQPSA a number of previously reported labour related issues also impacted mining performance, most notably at Everest and Marikana.

In Zimbabwe the political situation in the run up to the 29 March elections was calm.

The economic environment, however, remains challenging, impacting both the price and availability of goods.

The mine initiative to assist with provisioning of basics has been instrumental in keeping the workforce motivated and productive.

Ultimate production rates should be achieved in the fourth quarter, and; at Mimosa the short-term commissioning problems should be resolved and with a large stockpile ahead of the plant the benefits of the Wedza Phase 5 expansion should start to materialise.

Subject to the final regulatory approvals for the Platinum Mile transaction, some additional production from that operation will be added to group output.

Based on the production levels achieved to date, full year production is envisaged to be in the range 520,000 to 530,000 PGM ounces, a level comparable to the last financial year's production.

Profitability:

The Company has not in the past given profit guidance as several factors that affect profits are beyond the control of the Company.

It is however, appropriate to draw shareholders' attention to the very strong run up in the prices of platinum and rhodium in recent months.

Aquarius benefited from the exceptional commodity pricing environment and a higher proportion of rhodium in its production mix to achieve record 4E basket prices in the third quarter.

As reported the net profit for the Company for the half year to December 2007 was $106.6 million.

Net profit for the first two months of the third quarter (January and February 2008) amounted to $56.6 million on revenues of $153 million, demonstrating the benefit of the current high price environment.

Based on the production and cost data provided above, management estimates that the quarterly Net Profit for Q3 will be approximately $70 to $75 million.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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