Acquisition and Vendor Placing

Pan African Resources PLC

(Incorporated and registered in England and Wales under Companies Act 1985
with registered number 3937466 on 25 February 2000)

Share code on AIM: PAF

Share code on JSE: PAN

ISIN: GB0004300496

(“Pan African” or the “Company”)

ACQUISITION OF A FURTHER INTEREST IN SHANDUKA GOLD AND VENDOR PLACING

1, INTRODUCTION

Pan African shareholders (“Shareholders”) are referred to the announcement published by the Company on 23 February 2016 (“SBSA Announcement”), wherein Shareholders were advised that the Company had entered into an agreement to acquire the Standard Bank of South Africa Limited’s (“SBSA”) 16.9% interest in Shanduka Gold Proprietary Limited (“Shanduka Gold”) (“SBSA Transaction”).

Shanduka Gold’s only assets are its 23.8% interest in Pan African’s issued ordinary share capital and its interest in a notional loan (as more fully described in section 2 below). Shanduka Gold is currently (i.e. before implementation of the SBSA Transaction) owned by the following entities:

• The Mabindu Business Development Trust (“Mabindu”) (49.5%);
• Jadeite Limited (“Jadeite”) (33.6%); and
• SBSA (16.9%).

Further to the SBSA Announcement, Shareholders are advised that, pursuant to Shanduka Gold’s memorandum of incorporation (“MOI”), Jadeite has exercised a tag-along right in terms of which Pan African was required to make an offer to acquire Jadeite’s Shanduka Gold shares. Accordingly, Pan African will present an offer (“Offer”) to Jadeite to acquire its 33.6% interest in Shanduka Gold subject to certain terms and conditions (“Jadeite Transaction”) on materially the same terms as the SBSA Transaction. The Offer remains subject to acceptance by Jadeite.

If Jadeite accepts the Offer, the SBSA Transaction and the Jadeite Transaction (the “Transactions”) are expected to be concluded simultaneously on or about 7 June 2016. The aggregate purchase consideration payable by Pan African pursuant to the Transactions is approximately R545.6 million (£23.9 million) (“Purchase Consideration”) which shall be settled in cash from the Company’s existing reserves and facilities, and from the proceeds of a vendor consideration placing (“Vendor Placing”) of new Pan African ordinary shares (“PAR Shares”), as explained below.

A maximum of 111 711 791 PAR Shares (“Placement Shares”) are to be issued in consideration of a portion of the Purchase Consideration and will be issued by Pan African to certain Shareholders and new institutional investors (“Investors”) pursuant to a vendor consideration placing (“Vendor Placing”). The Transactions are not conditional upon the implementation of the Vendor Placing. Completion of the Vendor Placing is subject to, inter alia, the Jadeite Transaction becoming unconditional in all respects and approval for the listing and admission of the Placement Shares to trading on AIM and the exchange operated by the JSE Limited (“Main Board”).

In anticipation of completion of the Vendor Placing, Pan African has concluded a bookbuild in terms of which it has secured undertakings from the Investors to acquire the Placement Shares. Should the Vendor Placing proceed, the Placement Shares shall be acquired by the Investors for R3.25 (approximately 14.25 pence) per share (the “Placing Price”), being a premium of 5.1% to the 30 day volume weighted average traded price of a PAR Share as at 25 May 2016, to raise a maximum of R363.1 million (£15.9 million) and the remaining portion of the Purchase Consideration will be settled in cash by Pan African using its existing cash reserves and funding facilities.

The Vendor Placing comprises two separate but simultaneous and co-ordinated vendor placings in the United Kingdom and South Africa. The Company has entered into a placing agreement (the “Placing Agreement”) with Numis and Peel Hunt (together the “UK Bookrunners”), pursuant to which the UK Bookrunners have agreed, in accordance with its terms, to use their reasonable endeavours to procure on behalf of the Company subscribers for the Placement Shares at the Placing Price in the United Kingdom.

The Placing Agreement contains customary warranties given by the Company to the UK Bookrunners as to matters relating to the Company and its business and a customary indemnity given by the Company to the UK Bookrunners in respect of liabilities arising out of or in connection with the Vendor Placing. The UK Bookrunners are entitled to terminate the Placing Agreement in certain circumstances prior to admission of the Placement Shares, including circumstances where any of the warranties are found not to be true or accurate or were misleading and upon the occurrence of certain other events. The Placing Shares will represent, in aggregate, approximately 5.7% of the enlarged issued share capital of the Company following the Vendor Placing. The Placement Shares will be issued to Investors credited as fully paid and will, upon issue, rank pari passu in all respects with the Pan African ordinary shares then in issue, including all rights to receive all dividends and other distributions declared, made or paid following admission and listing of such Pan African ordinary shares. The Placement Shares are not being made available to the public or being offered or sold in any jurisdiction where it would be unlawful to do so. The Vendor Placing is not underwritten by the UK Bookrunners or any other person.

Application will be made to the London Stock Exchange for admission of the Placement Shares to trading on AIM. The Company will also apply to the JSE Limited for the listing and trading of the Placement Shares on the Main Board. It is expected that admission and listing of the Placement Shares on AIM and the Main Board will become effective on or about 3 June 2016.

2. RATIONALE FOR THE TRANSACTIONS

The Transactions allow Pan African to:

• address operational and value dilution risks presented by the possible dilution of its black economic empowerment (“BEE”) ownership;
• gain further flexibility and commensurate certainty as to its ability to comply with the prevailing BEE legislation from time to time;
• partner with Mabindu in furthering Pan African’s BEE ownership in a meaningful and mutually beneficial manner on an ongoing basis;
• through the Vendor Placing, retain the Company’s funding headroom necessary for swift access to potential future organic and acquisitive growth opportunities; and
• realise further value for Shareholders through a reinvestment in the Company via Shanduka Gold on an earnings and dividends accretive basis, as more fully explained below.

Mabindu is a black owned and controlled trust and constitutes a Historically Disadvantaged South African (“HDSA”) for the purposes of South Africa’s BEE legislation. Shanduka Gold (and, indirectly, Mabindu) is Pan African’s primary BEE shareholder. Pursuant to legislation governing BEE and the granting and retention of South African mining licences and rights, Pan African is required to have a minimum level of HDSA ownership and Shanduka Gold contributes significantly towards the Company’s continued compliance with these requirements. The Transactions allow Pan African to ensure that its current HDSA ownership structures are unaffected by retaining Shanduka Gold and, indirectly, Mabindu as Shareholders.

A draft Mining Charter has been published by the Minister of Mineral Resources for comment. Companies have until 31 May 2016 to submit their comments. It is anticipated that there may be a number of significant amendments to this draft version of the Charter following the submissions made by the mining industry and, therefore, it is unclear at this stage in what form the final version of the Charter will be published.  The Transactions will provide Pan African with flexibility in terms of ensuring compliance with future BEE regulations.

Approximately 0.6% of the Shanduka Gold shares to be acquired from Jadeite will be retained by Jadeite for sale, at a future date, to an independent third party nominated by Pan African. Pursuant to the Transactions, Pan African will therefore acquire a 49.9% direct interest in Shanduka Gold. Shanduka Gold shall accordingly not be a subsidiary of Pan African and further details of the intended application of the 0.6% interest in Shanduka Gold will be determined after completion of the Transactions. Jadeite shall retain ownership of these shares and all the benefits and rights associated therewith until they are transferred to the selected recipient.

Mabindu’s 49.5% interest in Shanduka Gold was acquired at a discounted value but created a notional loan, to be settled by Mabindu, with a notional value of R536 039 493 (“Notional Loan”) as at 11 December 2015. The Notional Loan accrues notional interest at the South African prime rate plus 5% and is required to be notionally settled on 11 December 2018. Whilst the Notional Loan is outstanding, 95% of the dividends payable to Mabindu are waived by Mabindu and the Notional Loan is notionally reduced by the aggregate value of all dividends paid and payable to Mabindu. On 11 December 2018, the Notional Loan will be notionally settled by the repurchase by Shanduka Gold of all or a portion of Mabindu’s Shanduka Gold shares at the same price per share as originally paid by Mabindu. The number of Shanduka Gold shares to be repurchased shall be calculated by dividing the Notional Loan value by the fair value of a Shanduka Gold share calculated at that time.

Pursuant to, inter alia, the Notional Loan, implementation of the Transactions will result in Pan African consolidating all the PAR Shares (436 358 059 shares) held by Shanduka Gold for accounting purposes. Accordingly, the net effect will be a reduction of 324 646 268 PAR Shares (as increased by the issue of the Placement Shares) in issue for purposes of the Company’s earnings per share calculations. Furthermore, Pan African will receive the benefit of indirectly participating in dividends it declares to Shareholders on a continuing basis.

3. SUSPENSIVE CONDITIONS

Subject to the acceptance of the offer by Jadeite, the Jadeite Transaction is expected to be conditional upon the fulfilment or waiver of, inter alia, the following suspensive conditions:

• the SBSA Transaction becoming unconditional; and
• Mabindu waiving its pre-emptive rights pursuant to the MOI.

1. CATEGORISATION

Pursuant to the JSE Limited Listings Requirements, the Purchase Consideration payable pursuant to the Transactions represents 9.2%, being more than 5% but less than 30%, of the Company’s current market capitalisation. Accordingly, the Transactions, on an aggregated basis, are classified as a category 2 transaction.

The net asset value of Shanduka Gold is materially equal to approximately 23.8% of Pan African’s market capitalisation, from time to time, and, its earnings primarily comprise dividends received from Pan African according to the number of PAR Shares held by it from time to time.

Rosebank, Johannesburg

26 May 2016

For further information on Pan African, please visit the Company’s website at http://www.panafricanresources.com/     

Sole Corporate Advisor in respect of the Transactions, South African Bookrunner
and JSE Sponsor to Pan African

One Capital

South African Legal Advisors to Pan African

Webber Wentzel

UK Bookrunners

Numis Securities Limited                                                Peel Hunt LLP

UK Legal Advisors to Pan African

Fladgate LLP

Legal Advisors to UK Bookrunners

Memery Crystal

Contact Details

Corporate Office

The Firs Office Building

1st Floor, Office 101

Cnr. Cradock and Biermann Avenues

Rosebank, Johannesburg

South Africa

Office:   + 27 (0) 11 243 2900

Facsimile: + 27 (0) 11 880 1240

Registered Office

Suite 31

Second Floor

107 Cheapside

London

EC2V 6DN

United Kingdom

Office:   + 44 (0) 207 796 8644

Facsimile: + 44 (0) 207 796 8645

Cobus Loots                                         Deon Louw

Pan African Resources PLC                               Pan African Resources PLC

Chief Executive Officer                                      Financial Director

Office: + 27 (0)11 243 2900                                Office: + 27 (0)11 243 2900

Phil Dexter                                           John Prior / James Black / George Fry

St James's Corporate Services Limited Numis Securities Limited

Company Secretary                              Nominated Adviser and Joint Broker

Office: + 44 (0)207 796 8644                 Office: + 44 (0)207 260 1000

Sholto Simpson                                                Matthew Armitt / Ross Allister

One Capital                                                     Peel Hunt LLP

JSE Sponsor and Transaction Advisor Joint Broker

Office: + 27 (0)11 550 5009                              Office: + 44 (0)207 418 8900

Gareth Driver / Huneiza Goolam                       Julian Gwillim

Webber Wentzel                                              Aprio Strategic Communications

South African Legal Advisor                            Public & Investor Relations SA

Office: + 27 (0)11 530 5000                              Office: + 27 (0)11 880 0037

Daniel Thöle

Bell Pottinger

Public & Investor Relations UK

Office: + 44 (0)203 772 2500

Numis and Peel Hunt, who are authorised and regulated in the United Kingdom by the Financial Conduct Authority, are acting for the Company and for no-one else in relation to the Vendor Placing, and will not be responsible to any person other than the Company for providing the protections afforded to their clients nor for providing advice in connection with the matters contained in this announcement. No representation or warranty, express or implied, is or will be made, and to the fullest extent permitted by law no responsibility or liability is or will be accepted by any of Numis or Peel Hunt, or by any of their affiliates or agents, as to or in relation to, the accuracy or completeness of this announcement, or any other written or oral information made available to or publicly available to, any interested party or its advisers, and any liability therefor, or in connection therewith, is expressly disclaimed.

DISCLAIMER – INTENDED ADDRESSEES

NOT FOR PUBLICATION, RELEASE, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN, OR INTO THE UNITED STATES, AUSTRALIA, NEW ZEALAND, HONG KONG, CANADA, JAPAN, OR SWITZERLAND OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL OR TO U.S. PERSONS (WITHIN THE MEANING OF REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED).

This announcement is for information purposes only and does not constitute an invitation or offer to subscribe for, underwrite or otherwise acquire or dispose of any securities in any jurisdiction. This announcement is only intended to be accessed and reviewed by persons to whom it can lawfully be addressed and is not intended to be transmitted or distributed, directly or indirectly, into the United States, Australia, New Zealand, Hong Kong, Japan, Canada or Switzerland or any jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction. The transmission and distribution of this announcement may be restricted by law in various jurisdictions, and persons who access this announcement should inform themselves about, and observe, any such restrictions.

The securities described in this announcement have not been, and will not be, registered under the U.S. Securities Act 1933, as amended (the “Securities Act”), or under any relevant securities laws of any state of the United States of America and, subject to certain exceptions, the securities may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons or to persons within the United States of America, as such terms are defined in Regulation S under the Securities Act. There will be no public offering of the securities in the United States.