SOURCE: Zambia Copper Investments Limited

April 17, 2009 02:05 ET

Zambia Copper Investments Limited - Binding Offer to African Copper PLC

HAMILTON, BERMUDA--(Marketwire - April 17, 2009) -


Zambia Copper Investments Limited
(Registered in Bermuda)
(South African registration number 1970/000023/10)
JSE share code: ZCI & ISIN: BMG988431240
Euronext share code: BMG988431240
("ZCI" or "the Company")

Introduction

Following the Company's announcement of 16 April 2009 on the JSE, the board of ZCI notes the announcement of African Copper PLC ("ACU") (the "ACU Announcement") made on 16 April 2009 at 7:00 a.m. BST that it has received an offer of finance from the Company (the "ZCI Offer") and setting out certain terms of that offer. ZCI confirms that it has made a binding offer to ACU that, in ZCI's opinion, represents a superior proposal in all respects to that currently offered to shareholders and creditors of ACU by Natasa Mining Ltd. ("Natasa") which was announced on 16 March 2009 (the "Natasa Offer"). The ZCI Offer remains open for acceptance by ACU at any time prior to 20 May 2009. ACU has stated that it, in view of its legal agreements with Natasa, it does not currently intend to respond to the Offer prior to the completion of its extraordinary general meeting which has been convened for 7 May 2009 to approve the terms of the Natasa Offer.

Highlights

In ZCI's opinion, the ZCI Offer is considerably more attractive than the Natasa offer to all parties for the following reasons

--  The comprehensive US$22.5 million ZCI Offer consisting of equity and
    debt refinancing is 50% greater than the US$15 million Natasa financing
    offer and includes a significantly larger (US$2.5 million) bridge loan
    facility;
    
--  The ZCI Offer would return significantly more cash (approximately
    US$8.8 million in total) to both bondholders and trade creditors and allows
    bondholders to retain a proportion of their bonds (US$2.5 million) giving
    an aggregate cash and bond offer of approximately US$11.3 million versus
    Natasa's US$5.9 million;
    
--  The ZCI Offer would preserve far greater value for existing
    shareholders, there being significantly less equity dilution than the
    Natasa Offer;
    
--  The ZCI Offer is not subject to additional due diligence;
    
--  The ZCI Offer has been approved by the board of ZCI saving more time;
    
--  The ZCI Offer is easily financed using ZCI's internal cash resources
    ensuring completion;
    
--  The ZCI Offer should not, prior to completion and the advancement of
    any funds, on the information publicly available, require approval of ACU's
    shareholders as the Offer has been designed to fall within the ACU board's
    existing authorities to allot shares;
    
--  There is no significant risk to completion compared to the Natasa
    Offer; and
    
--  ZCI provides ACU with a supportive, financially well resourced African
    centered mining parent, more likely to add further value to the company and
    its shareholders over the long-term.
    

Background on ACU and details of the ZCI Offer are set out in the Appendix, which should be read in conjunction with this summary.

ZCI strongly disagrees with the statement in the ACU Announcement that ZCI would be unlikely to be able to advance the US$2.5 million bridge loan portion of the ZCI Offer before Natasa could enforce its security rights under Natasa's bridge loan facility. The statement is made in the ACU Announcement without further explanation. ZCI wishes to confirm, as has been expressed to ACU's advisers on behalf of ZCI, that ZCI is committed to making the bridge loan available immediately once ACU is able to accept it and that ZCI is prepared to accept the form of security that ACU has already agreed with Natasa. This should make the execution of any necessary security documentation in relation to the ZCI bridge loan facility a mere formality that can be achieved very quickly. ZCI also wishes to confirm that it will not require Natasa to release its existing security prior to advancing funds to ACU under the bridge loan and therefore ZCI is not aware of any reason why such funds could not be used to immediately repay the Natasa bridge loan facility and in any event long before Natasa could enforce any security rights.

The directors of ZCI are extremely keen to enter into a dialogue with ACU to provide a quick and workable solution to ACU's immediate financial difficulties that is in the best interests of all ACU stakeholders.

Commenting, ZCI Chairman Tom Kamwendo said:

"The board of ZCI is of the strong belief that our offer to African Copper is a demonstrably much more attractive proposition than the one tabled by Natasa Mining.

The immediate availability of bridge financing to repay the Natasa bridge loan, the improved package for all stakeholders and the greater long-term investment in African Copper means that we are certain that the board of African Copper should be doing all that it can to make this deal available to African Copper creditors and shareholders.

This really is a deal in everyone's interest where all parties can work together to create value"

Cautionary announcement and circular to shareholders

In the event that the ZCI Offer is accepted by African Copper, a circular to shareholders setting out full details of the ZCI Offer and incorporating the notice of the general meeting and form of proxy will be distributed to shareholders. Shareholders are advised to exercise caution when dealing in the Company's shares until a further announcement is made.

Bermuda
16 April 2009

About ZCI

ZCI is a Johannesburg Stock Exchange ("JSE") and Euronext (Paris) listed, Bermuda incorporated, mining investment company. ZCI previously owned 65 per cent. of the Konkola Copper Mine ("KCM") in Zambia but sold its residual stake in 2008 and is looking to invest in exciting African-based mining companies.

Canaccord Adams Limited, which is authorised and regulated by the Financial Services Authority (the "FSA"), is acting exclusively for the Company and no-one else in relation to the ZCI Offer and will not be responsible to any person other than the Company under the Financial Services and Markets Act 2000,, the rules of the FSA or otherwise for providing the protections afforded to its clients or for any matter concerning the ZCI Offer or for providing advice in relation to the ZCI Offer or in relation to the contents of this announcement or any other transaction, arrangement or matter referred to herein. Canaccord Adams Limited can be contacted at Cardinal Place, 7th Floor, 80 Victoria Street, London SW1E 5JL.

The release, publication or distribution of this announcement into certain jurisdictions other than the United Kingdom and Canada may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws or regulations of such jurisdictions.

APPENDIX

Background to African Copper

African Copper is an international exploration and development company incorporated in England and Wales and tri-listed on the AIM market of the London Stock Exchange, the Toronto Stock Exchange and the Botswana Stock Exchange.

African Copper is involved in the exploration and development of copper deposits in Botswana and is currently developing its first copper mine at the Mowana Mine and holds permits in exploration properties at the Matsitama Project. The Mowana Mine is located in the northeastern portion of Botswana and the Matsitama Project is contiguous to the southern boundary of the Mowana Mine.

The ZCI Offer

ZCI is offering a total financing package of approximately US$22.5 million (compared to approximately US$15 million of the Natasa Offer), comprising:

--  a share subscription by ZCI for 676,570,543 new ordinary shares at an
    issue price of 1 pence per share (the "Share Subscription") for gross
    proceeds to ACU of approximately US$9.9 million, giving ZCI a post-ZCI
    Offer interest in ACU of 69.73 per cent.;
    
--  provision by ZCI of a four year secured convertible credit facility
    (the "Convertible Loan Facility") to ACU of US$8.1 million with a coupon of
    12 per cent. per annum and a conversion price of 1p exercisable at any time
    during its term;
    
--  provision by ZCI of a short-term, secured credit facility (the "Short-
    Term Facility") to ACU of US$2 million bearing interest at a rate of 14 per
    cent. per annum;
    
--  the continuation, to the benefit of bondholders, of  US$2.5 million of
    the outstanding Pula bond; and
    
--  in order to meet the immediate working capital needs of ACU and to
    repay the US$1.5 million bridge financing advanced to ACU by Natasa, the
    ACU Offer provides for an immediate advance of an interest-free, secured
    bridge loan (the "Bridge Loan") of US$2.5 million.  The security that would
    be provided for the Bridge Loan would be identical to that put in place for
    the Natasa bridge loan and funds, would be payable immediately on signature
    of the Bridge Loan facility and security documentation, with registration
    of the security and deregistration of the Natasa security to follow the
    immediate repayment of the Natasa bridge loan.  Upon completion of the ZCI
    Offer, the Bridge Loan would be repaid out of the proceeds of the Share
    Subscription.
    

ZCI proposes that ACU's large trade creditors -- currently believed by ZCI to be the mining contractor and the engineering, procurement, contracting and management contractors -- would be paid in cash 40 per cent. of monies owed (equating to approximately US$3.8 million -- calculated assuming amounts due to such creditors equal approximately US$9.6m, the figure extracted from ACU's 16 March 2009 announcement) and issued with 48,952,986 new ordinary shares in full and final settlement of debts due from ACU. Following completion of the ZCI Offer, such creditors would have an interest of 5.05 per cent. of the enlarged ACU share capital. Small creditors (which we understand represent approximately US$4.6 million) would be repaid in full in cash from the proceeds of the ZCI Offer as their debts become due.

ZCI proposes that ACU's bondholders be paid 25 per cent. of the face value of their bonds (equating to approximately US$5.0 million)and retain existing bonds or be issued with new bonds equivalent to US$2.5 million on terms and conditions, as a whole, no worse than the current ACU bonds, with the balance of the bonds to be retired. The retained bonds would greatly benefit from the restored financial position of ACU. Bondholders would also be issued with 97,905,971 ordinary shares as final and total discharge of their debts due from ACU. Following completion of the ZCI Offer, they would have an interest of 10.09 per cent. of the enlarged ACU share capital

Overall, the ZCI Offer would ensure over US$5 million of net cash is injected into ACU for working capital post settlement of creditors (based on the assumptions regarding creditors above) , including the US$2 million Short-Term Facility, which would be available for drawn down at any time should ACU require additional working capital. The proposed post-ZCI Offer shareholding structure would be as follows:

Description                                        New Share Structure
                                              Ordinary Shares  % of total
Shares to be issued to large trade creditors    48,952,986         5.05
Shares to be issued to Bondholders              97,905,971        10.09
Existing shares in issue                       146,858,957        15.14
Shares to be issued to ZCI                     676,570,543        69.73
TOTAL                                          970,288,457       100.00

Management of ACU

Although ZCI has been limited in the level of due diligence it has been able to undertake, it currently intends to work within the existing management and board structure of ACU. Nevertheless, in light of its significant investment in ACU, it is a condition of the ZCI Offer that ZCI has the right to appoint two non-executive directors to the board of ACU, one of whom shall be chairman. In addition, ZCI intends that, upon signature of the Bridge Loan, three senior and experienced mining personnel be appointed into executive positions at the level immediately below the board.

Conditions precedent

The ZCI Offer is subject to certain conditions precedent including the following:

--  ACU and its subsidiaries arranging the compromise detailed above with
    its large creditors and bondholders;
    
--  ACU's agreement to the legal documentation in relation to the
    Subscription Agreement and in relation to the Bridge Loan,  Short-term
    Facility and Convertible Loan Facility;
    
--  the management changes referred to above;
    
--  any shareholder or regulatory approvals required by ACU under the
    Companies Act, TSX or AIM rules; and
    
--  the approval of ZCI shareholders as required under the rules of the
    JSE.  No shareholder approval is required prior to any advances being made
    under the Bridge Loan.  Further, ACU has obtained a signed comfort letter
    from The Copperbelt Development Foundation ("CDF" - the holder of 71.5 per
    cent. of the issued ZCI share capital) indicating that they intend to vote
    all of their shares in favour of all necessary resolution(s) approving the
    transaction.
    

Rationale for and merits of the Offer

The purpose of the ZCI Offer is to achieve the Company's objective of enhancing meaningful value to shareholders. At present, the Company's assets comprise of cash and the ZCI Offer to African Copper is one of the steps being taken by the board of ZCI in implementing the Company's new business plan.

The total funding and debt retention package of US$22.5 million is, by ZCI's calculation, at least US$7.5 million or 50 per cent. higher than that offered by Natasa. In addition, the ZCI Offer provides ACU with estimated net proceeds (depending on drawdown of the Short-term Facility) of more than US$5 million which provides almost double the working capital compared to the estimated US$3 million being offered by Natasa. This would allow ACU to focus on implementing its five year plan and allow it to make progress with bringing the Mowana mine back into production -- offering the best chances for success in the future which all stakeholders would benefit from. As ZCI has the cash for the ZCI Offer free and unencumbered on its balance sheet and is prepared to move very quickly, it considers that there is minimal completion risk.

Unlike in the Natasa Offer, existing shareholders would retain a 15.14 per cent. interest in ACU, leaving them with over twice the percentage interest than is the case under the Natasa Offer (excluding the potential effects of conversion of the Convertible Debt Facility). Unlike the Natasa Offer, all shares to be issued in connection with the Offer will be issued at par.

In formulating the ZCI Offer, ZCI has sought to focus its terms on those elements of greatest concern to existing investors and creditors including immediate cash value for creditors and bondholders, restoring value to the bondholders' retained bond investment, reducing dilution to equity investors and certainty of execution. Accordingly, ZCI considers that the ZCI Offer provides significantly better terms to all of ACU's creditors and investors than the Natasa Offer. ZCI's Offer envisages the 100 per cent. cash repayment of small creditors as their debts fall due and the large creditors would receive double the cash -- 40 per cent. as opposed to the 20 per cent.-- being offered by Natasa. Large creditors would also get the potential long term uplift of 5.05 per cent. of the shares in the enlarged group. Similarly, bondholders would receive an attractive cash, share and bond offer with 25 per cent. of amounts owing being immediately repaid in cash, as well as retaining a portion of their bonds (including their coupon entitlement) and a 10.09 per cent. stake in the ordinary shares. ZCI considers that the recapitalisation of ACU would ensure a return to value for the retained bonds in issue.

From an operating perspective under the terms of the ZCI Offer, although the main operating assets of ACU and its subsidiaries will be subject to security, ZCI would agree to subordinate its security should project financing be secured, putting ACU on the best possible footing for securing project finance for the Mowana mine at the appropriate time.

Pro forma financial effects

In the event that the ZCI Offer is accepted by African Copper, in compliance with paragraph 9.15 of the Listings Requirements, pro forma financial effects will be disclosed.

ZCI controlling shareholder's undertaking

ZCI confirms that it has received a comfort letter from The Copperbelt Development Foundation ("CDF"), which holds 71.5% of the issued share capital of ZCI confirming that CDF intends to vote all of its shares in favour of all resolutions required to approve the ZCI Offer.

Contact Information

  • For more information, please contact:

    ZCI
    Tom Kamwendo (Chairman)
    +260 977 752 371

    Bridge Capital Advisors (Pty)
    Limited (Sponsors)
    Pieter Veldtman/ Zayd Laher
    +27 (0) 11 268 6231

    Canaccord Adams Limited
    (Financial Adviser to ZCI)
    Robert Finlay/ Mike Jones/
    Andrew Chubb
    +44 207 050 6500

    iCapital
    (Financial Adviser to ZCI)
    Jordan Soko
    +260 966 751 993

    College Hill
    (Public Relations adviser to ZCI)
    Paddy Blewer (UK)
    +44 207 457 2020
    Jacques de Bie (SA)
    +27 (0) 11 447 3030