Disposal of PAR Coal & Uitkomst

Pan African Resources PLC (Incorporated and registered in England and Wales under Companies Act 1985 with registered number 3937466 on 25 February 2000) AIM Code: PAF JSE Code: PAN ISIN: GB0004300496 (“Pan African” or “the Group”)

DETAILED TERMS ANNOUNCEMENT RELATING TO THE DISPOSAL BY PAN AFRICAN RESOURCES PLC (“PAN AFRICAN”) OF PAN AFRICAN RESOURCES COAL HOLDINGS PROPRIETARY LIMITED (“PAR COAL”) AND UITKOMST COLLIERY PROPRIETARY LIMITED (“UITKOMST”) TO COAL OF AFRICA LIMITED (“CoAL”)

1. Introduction

The Pan African board of directors is pleased to announce that Pan African has concluded an agreement with CoAL, whereby Pan African will dispose of all its shares and loan accounts in its wholly-owned subsidiary, PAR Coal, the holding company of Uitkomst, to CoAL for a total consideration of R275 million (two hundred and seventy five million rand) (the “Purchase Consideration”), (the “Transaction”).

Uitkomst is a high-grade thermal coal producer, situated in the Utrecht coalfields in KwaZulu-Natal and the Transaction will result in Pan African disposing of its entire interest, comprising ordinary shares and claims on loan account, in PAR Coal and Uitkomst.

2. Background

Uitkomst

PAR Coal holds 91% of the issued share capital of Uitkomst, with the balance of the shares in Uitkomst held by broad-based trusts (including employees and communities) and a black-owned and controlled strategic entrepreneur’s trust.

For the six months ended 31 December 2016, the operation processed 236,011 tonnes of coal and sold, including bought-in coal, 327,202 tonnes of coal. Uitkomst currently employs approximately 520 employees (including contractors). Uitkomst had a net asset value of R209 million and made profits after taxation of R21.3 million for the six months ended 31 December 2016, as disclosed in the latest interim accounts of Pan African.

CoAL

CoAL is an emerging coal mining, development and exploration company operating in South Africa. CoAL is incorporated in Australia and its shares are traded on the Australian Securities Exchange (“ASX”), the AIM market of the London Stock Exchange (“AIM”) and the main board of the JSE Limited (“JSE”). CoAL’s recent focus has been to restructure its balance sheet, operations and project pipeline to be better positioned to unlock shareholder value and provide an attractive platform for growth in the junior coal sector.

CoAL’s principal coking and thermal coal assets and projects include:

• Makhado hard coking and thermal coal project (“Makhado Project”), which has been granted a New Order Mining Right and has the potential to produce approximately 5.5-million tonnes of saleable product. Currently, the majority of hard coking coal consumed in South Africa is imported and the Makhado Project will contribute to the import substitution of the majority of this coal;
• Vele Colliery, a semi-soft coking and thermal coal mine, currently under care and maintenance, with the potential to supply approximately 1.2-million tonnes of saleable product per annum;
• the Mooiplaats Colliery near Ermelo, currently on care and maintenance, and subject to a formal sale process; and
• a portfolio of exploration stage coking and thermal coal projects in the Soutpansberg Coalfield.

Further information on CoAL can be found at http://www.coalofafrica.com/.

3. Rationale and application of the sale proceeds

The Transaction provides Pan African with an opportunity to crystallise the value created from its acquisition of Uitkomst, and achieves the following objectives:

• Gold focus: The Transaction allows Pan African’s management to focus on the development of the Elikhulu Tailings Retreatment Plant, the Group’s existing gold operations and its strategic objective of geographically diversifying its operations.
• Cash flow: The immediate cash inflow of R125 million will supplement the Group’s existing cash resources for the development of its growth opportunities. Further, the R125 million to be settled with CoAL equity is not subject to any trading restrictions.
• Value unlock: The Transaction results in an attractive profit of R157 million (inclusive of dividends received in an amount of R30 million) on the original investment of R148 million, which represents a total return of 106% over a 12-month period.

Cobus Loots, chief executive officer of Pan African commented: “Pan African is pleased to have concluded this transaction with Coal of Africa.  The transaction reaffirms Pan African’s focus on our gold mining business and, again, demonstrates our ability to conclude value-accretive transactions to the benefit of our shareholders.”

4. Purchase consideration

The Purchase Consideration of R275 million will be settled by CoAL as follows:

• R125 million in cash from CoAL’s available cash resources, payable on the effective date of the Transaction (“Effective Date”).
• A deferred consideration of R25 million (the “Deferred Consideration”). The Deferred Consideration may be paid by CoAL at any time prior to the second anniversary of the Effective Date. The Deferred Consideration will bear interest at the South African prime overdraft rate from the Effective Date. If the Deferred Consideration and any interest accrued thereon is not paid to Pan African by the second anniversary of the Effective Date, Pan African may elect to have the amount due to it settled through the issue of new CoAL ordinary shares at a price per share equal to the 30-day volume weighted average price (“VWAP”) of a CoAL ordinary share as traded on the exchange operated by the JSE prevailing on the last trading day immediately prior to the date that such election is made.
• 261,287,625 newly-issued CoAL shares (equivalent to R125 million) (“Share Component”). The issue price of the Share Component is based on an 8% discount to the CoAL 30-day VWAP as at 3 April 2017, being R0.52.

5. Conditions precedent

The implementation of the Transaction is conditional upon the fulfilment and / or waiver of various conditions precedent, customary for a transaction of this nature and include, inter alia:

• regulatory approvals;
• approval by the Competition Authorities in terms of the Competition Act, No. 89 of 1998;
• CoAL obtaining all of the requisite shareholder, AIM, JSE and ASX approvals;
• the replacement of Pan African as a guarantor to all Uitkomst environmental guarantees;
• South African exchange control approval, to the extent required; and
• the finalisation of certain coal marketing arrangements on terms satisfactory to CoAL.

6. Categorisation

The Transaction is classified as a Category 2 transaction in terms of the JSE Limited Listings Requirements.

By order of the Board

Johannesburg

04 April 2017

Contact information
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     Pan African Resources PLC   Chief Executive Officer Office: + 27 (0) 11 243 2900	Deon Louw Pan African Resources PLC Financial Director Office: + 27 (0) 11 243 2900
Phil Dexter St James's Corporate Services Limited Company Secretary Office: + 44 (0) 207 796 8644	John Prior / Paul Gillam Numis Securities Limited Nominated Adviser and Joint Broker Office: [phone]
Sholto Simpson One Capital JSE Sponsor Office: + 27 (0) 11 550 5009	Matthew Armitt / Ross Allister Peel Hunt LLP Joint Broker Office: [phone]
Julian Gwillim Aprio Strategic Communications Public & Investor Relations SA Office: [phone]	Jeffrey Couch/Neil Haycock/Thomas Rider BMO Capital Markets Limited Joint Broker Office: [phone]
Bobby Morse/Chris Judd Buchanan Communications Public & Investor Relations UK Office: [phone]	Marius Saaiman M Squared Resources Transaction advisor Office: [phone]

http://www.panafricanresources.com/