Jun 6, 2012 - In the event that the operational management team is unable to ... confluence of the Kao and the Malibamot
THIS DOCUMENT AND ANY ACCOMPANYING DOCUMENTS ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this document or as to the action you should take, you are recommended to seek immediately your own personal financial advice from your stockbroker, bank manager, solicitor, accountant or other appropriate independent professional adviser, who specialises in advising on the acquisition of shares or other transferable securities and who is authorised under the Financial Services and Markets Act 2000 (the “FSMA”) if you are resident in the UK or, if not, from another appropriately authorised independent financial adviser. If you have sold or otherwise transferred all of your Ordinary Shares or Depository Interests representing Ordinary Shares please send this document and the accompanying documents, at once to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for onward delivery to the purchaser or transferee except that such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations. If you have sold or otherwise transferred only part of your holding of Ordinary Shares in certificated form, you should consult the bank, stockbroker or other agent through whom the sale or transfer was effected. The distribution of this document and/or the accompanying documents into jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession these documents come should inform themselves about and observe any such restrictions applicable to them. Any failure to comply with any such restrictions may constitute a violation of the securities laws or regulations of such jurisdictions. This document, which comprises: (i) a circular to Shareholders prepared in compliance with the Listing Rules; and (ii) a prospectus relating to Namakwa and the Open Offer prepared in accordance with the Prospectus Rules, has been approved by the Financial Services Authority (the “FSA”) in accordance with Section 87A of the FSMA and sent to you in order to provide you with details of the Open Offer (which requires the approval of Shareholders at the Special General Meeting). This document has been filed with the FSA and has been made available to the public in accordance with Rule 3.2.1 of the Prospectus Rules. Namakwa and its Directors (whose names appear on page 25) accept responsibility for the information contained in this document. To the best of the knowledge and belief of Namakwa and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and contains no omission likely to affect the import of such information.
Namakwa Diamonds Limited (Incorporated and registered in Bermuda in accordance with the laws of Bermuda with registered number 39031) 60 for 23 Open Offer to Qualifying Shareholders and Qualifying DI Holders of up to 794,629,171 New Shares at a price of 4.5 pence per New Share and
Notice of Special General Meeting Shore Capital and Corporate Limited Shore Capital Stockbrokers Limited Sponsor and Financial Adviser Sole Broker The Ordinary Shares are listed on the premium segment of the Official List and traded on the Main Market. Application has been made to the UK Listing Authority and to the London Stock Exchange for the New Shares to be admitted to the premium segment of the Official List and to trading on the Main Market respectively. It is expected that Admission will become effective, and that dealings will commence in the New Shares on the London Stock Exchange, at 8.00 a.m. (London time) on 28 June 2012. The New Shares to be issued pursuant to the Open Offer will, on Admission, rank pari passu in all respects with the Existing Shares. The Open Offer is being made to (i) Qualifying Shareholders, being holders of Existing Shares as set out on the register of members of the Company on the Record Date, and (ii) Qualifying DI Holders, being holders of Depository Interests representing Existing Shares as set out on the register of Depository Interest Holders of the Depository on the Record Date, other than Qualifying Shareholders or Qualifying DI Holders in any of the Excluded Territories. If you are a Qualifying Shareholder, the procedure for participating in the Open Offer is set out in paragraph 4 entitled “Procedure for application and payment for Qualifying Shareholders” of Part III: “Terms and Conditions of the Open Offer” of this document. If you are a Qualifying DI Holder, the procedure for participating in the Open Offer is set out in paragraph 5 entitled “Procedure for application and payment for Qualifying DI Holders” of Part III: “Terms and Conditions of the Open Offer” of this document.
Your attention is drawn to the letter from the Chairman which is set out in Part I: “Letter from the Chairman of Namakwa Diamonds Limited” of this document recommending that you vote in favour of the Resolutions to be proposed at the Special General Meeting. You should read the whole of this document and any documents incorporated herein by reference but your attention is, in particular, drawn to the risk factors set out on pages 6 to 17 for a discussion of certain risks that might affect the Group’s business and the Open Offer and which should be taken into account when considering what action to take in relation to the Open Offer. Notice of a Special General Meeting of Namakwa to be held at the offices of Taylor Wessing LLP, 5 New Street Square, London EC4A 3TW at 4.00 p.m. (London time) on 27 June 2012 will be published in the Royal Gazette newspaper in Bermuda on 7 June 2012 in accordance with Namakwa’s Bye-laws and is also set out in Part XVI: “Notice of Special General Meeting” of this document. Shareholders will find enclosed a Form of Proxy and Depository Interest Holders will find enclosed a Form of Direction, in each case for use in connection with the Special General Meeting. To be valid, the Form of Proxy or the Form of Direction (as the case may be) should be completed, signed and returned, in accordance with the instructions printed on it, to PXS, 34 Beckenham Road, Beckenham, BR3 4TU as soon as possible and, in any event, so as to arrive no later than 4.00 p.m. on 22 June 2012 for the Form of Direction and 4.00 p.m. on 25 June 2012 for the Form of Proxy. The return of a completed Form of Proxy shall not prevent a Shareholder from attending the Special General Meeting and voting in person, if such Shareholder wishes and is so entitled. DI Holders wishing to attend the Special General Meeting should contact the Depository, as per the instructions on the Form of Direction, in order to request a Letter of Representation. Shore Capital, which is regulated by the FSA, and SCS, which is a member of the London Stock Exchange and is regulated in the United Kingdom by the FSA, is acting as sponsor/financial adviser and broker respectively to the Company and no one else in connection with the Open Offer and Admission and will not regard any other person (whether or not a recipient of this document) as its client in relation to the Open Offer and Admission and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Shore Capital, or for providing advice in relation to the Open Offer or Admission or any transaction or arrangement referred to in this document save as imposed by the FSMA. Shore Capital is not underwriting the Open Offer. Save as required or imposed by the FSMA, no representation or warranty, express or implied, is made by Shore Capital or SCS as to the accuracy, completeness or fairness of any information in this document and Shore Capital and SCS accept no responsibility or liability for this document and accordingly they disclaim all and any liability, whether arising in tort, contract or otherwise, which they might otherwise be found to have in respect of this document. No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied upon as having been so authorised. Nothing in this paragraph shall serve to include or limit any responsibilities or liabilities Shore Capital or SCS may have under the FSMA or the regulatory regime established thereunder. Apart from the responsibilities and liabilities, if any, which may be imposed on Shore Capital by the FSMA or the regulatory regime established thereunder and the Bermuda Companies Act, Shore Capital does not accept any responsibility whatsoever, or make any representation or warranty, express or implied, for or in respect of the contents of this document, including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with Namakwa, the New Shares or the Open Offer, and nothing in this document is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. Shore Capital accordingly disclaims to the fullest extent permitted by applicable law all and any responsibility and liability whether arising in tort, contract or otherwise which it might otherwise be found to have in respect of this document or any such statement. This document does not constitute or form part of any offer or invitation to sell or issue or the solicitation of any offer to buy or subscribe for securities in any jurisdiction in which such an offer, invitation or solicitation is unlawful. The New Shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the US or any US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the New Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the US. The Ordinary Shares and the New Shares have not been and will not be registered under the United States Securities Act of 1933 (as amended) (the “Securities Act”) or under any securities laws of any state or other jurisdiction of the United States and may not be taken up, offered, sold, resold, delivered or distributed, directly or indirectly, within, into or from the United States except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with the securities laws of any state or other jurisdiction of the United States. The Ordinary Shares and the New Shares have not been and will not be registered
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under the relevant laws of any other territory or any state, province or territory thereof and may not be taken up, offered, sold, resold, delivered or distributed, directly or indirectly, within, into or from any other territory or to or for the account or benefit of, any person with a registered address in, or who is ordinarily resident in, or a citizen of, any other territory except pursuant to an applicable exemption. There will be no public offer in any other territory. Consent under the Exchange Control Act 1972 (the “ECA”) (and its related regulations) has been obtained from the Bermuda Monetary Authority (the “BMA”) for the issue and transfer of the Ordinary Shares up to the amount of Namakwa’s authorised capital from time to time to and between persons resident and non-resident of Bermuda for exchange control purposes provided the Ordinary Shares remain listed on an appointed stock exchange, which includes the London Stock Exchange. This document will be filed with the Registrar of Companies in Bermuda in accordance with Bermuda law. In granting such consent and in accepting this document for filing, neither the BMA nor the Registrar of Companies in Bermuda accepts any responsibility for the financial soundness or the correctness of any of the statements made or opinions expressed in this document.
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TABLE OF CONTENTS Page
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IMPORTANT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXPECTED TIMETABLE OF PRINCIPAL EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OPEN OFFER STATISTICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SUMMARY OF ACTIONS TO BE TAKEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS . . . . . . . . . . . . . . . . Part I — LETTER FROM THE CHAIRMAN OF NAMAKWA DIAMONDS LIMITED . . . . . . . . . . . . . . Part II — SOME QUESTIONS AND ANSWERS ABOUT THE OPEN OFFER . . . . . . . . . . . . . . . . . . . . . Part III — TERMS AND CONDITIONS OF THE OPEN OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part IV — INFORMATION ON THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part V — OPERATING AND FINANCIAL REVIEW OF NAMAKWA . . . . . . . . . . . . . . . . . . . . . . . . . . . Part VI — FINANCIAL INFORMATION ON NAMAKWA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part VII — UNAUDITED PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . Part VIII — GROUP MINING LICENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part IX — TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part X — ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part XI — GLOBAL RESOURCE STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part XII — DOCUMENTATION INCORPORATED BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . Part XIII — CREST AND DEPOSITORY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part XIV — OBLIGATIONS OF AN AIM COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part XV — DEFINITIONS AND GLOSSARY OF SELECTED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . Part XVI — NOTICE OF SPECIAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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1 6 18 22 23 24 25 27 38 45 60 68 108 112 115 118 121 181 183 185 189 190 198
SUMMARY The following summary information should be read as an introduction to the more detailed information appearing elsewhere in this document, including the documents incorporated by reference. Any decision to invest pursuant to the Open Offer should be based on consideration of this document, the documents incorporated by reference and the accompanying documents as a whole by the investor. Where a claim relating to the information contained in this document is brought before a court in a member state of the European Economic Area (the “EEA”), the claimant investor may, under the national legislation of that member state where the claim is brought, be required to bear the costs of translating this document before legal proceedings are initiated. Following the implementation of the relevant provisions of the Prospectus Directive (Directive 2003/71/EC) in each member state of the EEA, civil liability attaches to those persons who are responsible for this summary, including any translation of this summary, but only if this summary is misleading, inaccurate or inconsistent when read together with other parts of this document. 1.
Introduction
Namakwa has announced a proposal to raise c.US$55 million (c.US$53.5 million net of expenses) by the issue of up to 794,629,171 New Shares through an Open Offer at 4.5 pence per New Share. Namakwa is a diamond resource group, which seeks to extract maximum value from the mining, marketing and sale of Group production. The Group’s mining activities are focused on the Kao Mine in Lesotho (in which Namakwa holds a 62.5% interest), which is expected to become the largest producer of diamonds in Lesotho within the next 12 months. 2.
Background to and reasons for the Open Offer
The Company is seeking to address anticipated future liquidity constraints caused by its short-term borrowings and in particular, the need to re-finance: (a) the Sputnick Facility by 30 June 2012; and (b) the Jarvirne Facility before the financial covenants and the interest rate become prohibitive in FY2013. Re-financing the Facilities will avoid the possibility of default, which could lead to Jarvirne exercising security rights over, inter alia, the Company’s shares in Storm Mountain Diamonds. 3.
Current trading and prospects
As at 25 May 2012, FY2012 year-to-date production at: •
the Kao Mine was 68,240 carats from 651,810 tonnes processed, with an average grade of 10.47cpht. Unit costs remain in line with budgets and May 2012 tender sales of diamonds from the Kao Mine achieved average prices of US$395/ct. Operational challenges and the impact of measures undertaken to ensure optimisation of current water resources, have resulted in FY2012 production targets being reduced to 150,000 carats;
•
the alluvial operations in the North West Province of South Africa was 16,569 carats from 2,341,770 tonnes processed, with an average grade of 0.71cpht. Unit costs remain in line with budgets and average year-to-date sale prices are at US$764/ct. Recent significant discoveries, include a high value 44.47ct diamond and an exceptionally rare 11.36ct pink diamond. Production targets for FY2012 remains unchanged at 20,000 carats.
The Company remains on line to move into a cash-flow positive position in Q4’FY2012. Thereafter, the Company’s restructured balance sheet would be expected to provide a platform for revenue growth, positive EBITDA and free cash-flow. 4.
Going concern
The financial performance and position of the Group indicates the existence of a material uncertainty which may cast significant doubt over its ability to continue operating as a going concern, unless: (i) the Sputnick Facility remains available to the Company pursuant to its terms; and (ii) such facility is refinanced before 30 June 2012. If such conditions are met, the Board is satisfied that the Group is a going concern.
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Given the nature of Namakwa’s current financial position, the Group’s auditors, PricewaterhouseCoopers Inc, have issued a modified review conclusion on the interim results for the six months ended 29 February 2012 by including in their report an emphasis of matter over the Group’s ability to continue operating as a going concern. 5.
Legal and arbitration proceedings
On 30 November 2011, the High Court of Lesotho dismissed Batla Minerals’ claim to a 50% interest in Namakwa’s 62.5% shareholding in SMD. Batla Minerals has a right to file an appeal, which Namakwa understands would be heard later this year. Namakwa considers this claim to be without merit and will continue to defend its rights vigorously. 6.
Principal terms of the Open Offer
Upon to the terms and conditions of the Open Offer, the Company is proposing to issue up to 794,629,171 New Shares to Qualifying Shareholders and Qualifying DI Holders at the Offer Price pro rata to their existing holdings of Existing Shares or DIs, on the following basis: 60 New Shares for every 23 Existing Shares Qualifying Shareholders and Qualifying DI Holders will also be entitled to apply for additional New Shares through the Excess Application Facility. The Open Offer will remain open for at least 21 days and is conditional, inter alia, upon: •
the passing of the Open Offer Resolutions;
•
Admission becoming effective by not later than 8.00 a.m. on 28 June 2012.
If the Jarvirne Undertaking is withdrawn (in accordance with statutory withdrawal rights) the Open Offer shall lapse. Statutory withdrawal rights would be available if a supplementary prospectus were to be published where, prior to the completion of the Open Offer and/or of Admission, a significant new factor, material mistake or inaccuracy relating to the information provided in this document arises or is identified. On completion of the Open Offer, the New Shares will represent approximately 72.3% of the enlarged issued share capital of Namakwa. Following the issue of the New Shares, Shareholders who do not subscribe for any New Shares will suffer a substantial dilution of approximately 61.7% to their aggregate interests in the Company. If sufficient Qualifying Shareholders and Qualifying DI Holders do not take up their Open Offer Entitlements to the New Shares, it is possible that less than 25% of the enlarged share capital of Namakwa could be held in public hands (thereby breaching the Listing Rules). In this situation, subject to Shareholder approval having been given pursuant to Resolution 7, the Company will cancel its listing of Ordinary Shares on the premium segment of the Official List and remove such Ordinary Shares from trading on the Main Market on 26 July 2012. In such circumstances, the Company would immediately seek the admission of its Ordinary Shares to trading on AIM but such admission, or admission to any alternative exchange cannot be guaranteed. 7.
Open offer by NDHL to holders of “A” Preference Shares
NDHL has determined that it will offer “A” Preference Shareholders the opportunity to participate in an open offer of NDHL on similar terms to the Open Offer in order to maintain the relative economic rights of the “A” Preference Shares, vis-à-vis the Ordinary Shares. 8.
Jarvirne Undertaking and effects of the Open Offer on Jarvirne
Jarvirne has irrevocably undertaken to: •
subscribe for 257,387,369 New Shares, being its Open Offer Entitlement;
•
subscribe for up to 536,675,926 New Shares under the Excess Application Facility;
•
vote in favour of each of the Relevant Resolutions (although the Company understands that Jarvirne will be voting against Resolutions 4 and 6).
As at the date of this document, Jarvirne owns 98,665,158 Ordinary Shares representing 32.39% of Namakwa’s issued share capital. If the Open Offer proceeds, and only Jarvirne subscribes for New Shares, Jarvirne would own 81.3% of Namakwa’s enlarged issued share capital. Pursuant to the Bye-laws, this increase could require Jarvirne to make an offer to all other Shareholders to buy their Ordinary Shares unless the Board approves such an increase. Such Board approval has been provided in the context of the Open Offer.
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If Jarvirne holds over 50% of Namakwa’s enlarged share capital: •
it will be able to exert dominant control over the outcome of matters relating to Namakwa, and to block ordinary (and special) resolutions or pass ordinary resolutions of Namakwa;
•
Bye-law 82 would cease to apply to any acquisitions of Ordinary Shares made by Jarvirne resulting in any such acquisitions no longer requiring Board approval or for an offer to be made by Jarvirne to purchase Ordinary Shares from Shareholders;
•
the Amended Relationship Agreement would become effective, in place of the Relationship Agreement allowing: (i) the Amended Relationship Agreement to terminate where the Ordinary Shares are no longer admitted to the Official List and to trading on the London Stock Exchange; (ii) Jarvirne to vote in favour of a Directors’ resolution or Shareholders’ resolution to cancel the Company’s status as a company whose Ordinary Shares are on the Official List; and (iii) removal of restrictions upon Jarvirne exercising voting rights attached to its Ordinary Shares before 1 November 2012 in connection with any proposed Board change;
•
certain provisions of the Second Waiver and Amendment Letter would become effective, resulting in the removal of restrictions under the Waiver and Amendment Letter on Jarvirne acquiring Ordinary Shares from KFF (such existing restrictions including the requirement for Shareholders to approve any such acquisition).
The Waiver and Amendment Letter restricts Jarvirne or its associates from acquiring further Ordinary Shares before 1 November 2012 (subject to certain customary exceptions). The Second Waiver and Amendment Letter removes this restriction. If Jarvirne holds 75% or more of Namakwa’s enlarged share capital, it would be able to pass special resolutions of Namakwa. 9.
Use of proceeds
The net proceeds of the Open Offer will be c.US$53.5 million. The Directors intend to use these proceeds to: •
repay the principal amount and accrued interest of c.US$10.24 million in respect of the Sputnick Facility;
•
repay the principal amount of US$35.2 million in respect of the Jarvirne Facility;
•
meet ongoing working capital requirements.
10.
Special General Meeting
Approval for the Resolutions will be sought at the Special General Meeting to be held at 4.00 p.m. on 27 June 2012 at Taylor Wessing LLP, 5 New Street Square, London EC4A 3TW. Refer to “Summary of Actions to be Taken” on page 24 of this document for guidance on voting on the Resolutions and/or accepting the Open Offer. 11.
Working capital
The Company is of the opinion that, taking into account existing cash resources and the net proceeds of the Open Offer, the Group has sufficient working capital for its present requirements, that is for at least a twelve month period from the date of this document. 12.
Importance of vote
If the Open Offer Resolutions are not passed, the Open Offer will not proceed, in which case, the Directors believe that: •
Namakwa will be unable to repay and will be in default of the Sputnick Facility. As at the date of this document, the Sputnick Facility was fully drawn down (US$10 million);
•
a default under the Sputnick Facility would also lead to a cross-default under the Jarvirne Facility, making that facility repayable on demand which could result in Jarvirne becoming entitled to enforce its security, including its security over the Company’s shares in SMD. As at the date of this document, US$35.2 million was drawn down under the Jarvirne Facility;
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•
re-financing the Facilities with proceeds of the Open Offer would not be possible and there is no guarantee that alternative financing could be found on commercially reasonable terms (if at all), which could lead to the appointment of a liquidator. The Directors believe that the only reasonable options available to the Company to refinance its current debt in a suitable timeframe would be an assets sale or a structured securities transaction;
•
Namakwa could become unable to continue to finance Kao Mine operations resulting in: (i) the Kao Mining Agreement being liable to termination; and (ii) SMD potentially losing the Kao Mining Lease.
The Directors therefore believe that the Group’s future viability is dependent upon the passing of the Open Offer Resolutions. 13.
Directors’ recommendation
The Board believes that the proposals described in this document, including the Open Offer, are in the best interests of Namakwa and Shareholders as a whole. Accordingly, the Board recommends that you vote in favour of the Resolutions, as each Director voting intends to do so in respect of his own beneficial holdings which amount in aggregate to 287,786 Ordinary Shares, representing approximately 0.095% of the Existing Shares as at the date of this document. In accordance with the Bye-laws, Allen Gessen and Gerard Holden, as Directors nominated by Jarvirne, have been excluded from voting on Board resolutions (due to their conflicted interests resulting from Jarvirne being a major Shareholder and due to the Jarvirne Facility) on the terms and conditions of the Open Offer and any other conflict of interest arising as a result of such conflicted interests between the Company and Jarvirne in connection with the Open Offer. 14.
Risk factors
Shareholders should carefully consider all the risks associated with the Open Offer, the Ordinary Shares, the Group’s operations and industry, the countries in which the Group operates, Namakwa’s structure, and Bermuda, but in particular: •
if the Open Offer Resolutions are not passed, or otherwise the Open Offer does not proceed, the Company will likely breach its Facilities;
•
following completion of the Open Offer, Jarvirne may have an interest up to 81.3% of Namakwa’s enlarged share capital, which could allow Jarvirne to block or pass ordinary and special resolutions of Namakwa as well as reducing the percentage of Ordinary Shares held independently from Jarvirne;
•
there may be an insufficient number of Ordinary Shares in public hands, which may result in the Company being required to cancel its listing on the Official List;
•
Namakwa’s share price may fluctuate and a small size of market float can exacerbate price movements due to lack of liquidity;
•
the Group has a history of operating losses;
•
the Kao Mine represents the Group’s principal asset and key source of revenue and any material impact on steady-state production at the Kao Mine could have a material adverse affect on the Group’s financial position;
•
operations at the Kao Mine are dependent on the availability of sufficient process water to ensure continuous production;
•
Namakwa is subject to litigation in Lesotho, which, if unsuccessful, could result in the loss of 31.25% of its 62.5% equity interest in SMD;
•
the Group’s operations are dependent on locally sourced employees and contractors for elements of its mining activities;
•
the volume and grade of the diamondiferous ore that the Group recovers may not conform to current expectations;
•
the profitability of the Group’s operations is highly dependent on rough diamond prices and consumer demand for and perception of polished diamonds;
•
the business of mining is highly competitive;
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•
fluctuations in currency and exchange rates may, together with exchange control regulations, adversely affect the Group’s results of operations and financial condition;
•
the Group is subject to significant laws and governmental regulations, and their related costs may negatively affect the Group’s business;
•
the Group’s operational licences and permits may be changed, revoked, withdrawn or terminated in certain circumstances, or may otherwise result in significant costs for the Group or delays in its operations;
•
political, regulatory and economic instability in the countries where the Group’s assets and operations are located may have a material adverse effect on the Group’s financial condition or results of operations;
•
Namakwa is not subject to the Takeover Code.
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RISK FACTORS The Open Offer, the diamond industry and the Ordinary Shares are subject to a number of risks. You should carefully consider the following risks and uncertainties and all of the other information contained in this document and incorporated by reference into this document prior to making any decision with respect to the Open Offer. The risks and uncertainties described below are all those of which the Directors are aware and which they, as at the date of this document, consider to be material. However, some risks and uncertainties may not yet be known to the Directors and some that are not currently considered material by the Directors could later turn out to be material. Any or a combination of these risks could materially and adversely affect the Group’s business, financial condition, results or operations and future prospects. In such a case, the market price of Ordinary Shares may decline and investors may lose all or part of their investment. A Risks relating to the Open Offer If, for any reason, the Open Offer Resolutions (i.e. Resolutions 1 and 2, which are themselves conditional upon the passing of Resolution 7, save where the Company is not in breach (or would not be in breach) of the Free Float requirements at Admission) are not passed, or otherwise the Open Offer does not proceed, then the Company will likely be in breach of the Facilities. If the Open Offer Resolutions (i.e. Resolutions 1 and 2, which are themselves conditional upon the passing of Resolution 7, save where the Company is not in breach (or would not be in breach) of the Free Float requirements at Admission) are not passed, the Open Offer will not proceed, in which case, the Directors believe that: • Namakwa will be unable to repay and will be in default of the Sputnick Facility. As at the date of this document, the Sputnick Facility was fully drawn down (US$10 million); • a default under the Sputnick Facility would also lead to a cross-default under the Jarvirne Facility, making that facility repayable on demand. If Jarvirne made such a demand and Namakwa was unable to satisfy it, Jarvirne would be entitled to enforce its security, including its security over the Company’s shares in Storm Mountain Diamonds. The latter security, a share charge executed by Namakwa on 29 May 2012, provides that a continuing event of default under the Jarvirne Facility, would entitle Jarvirne to immediately enforce its rights under this share charge. If Jarvirne enforced its rights under the share charge, Namakwa would likely lose control of Storm Mountain Diamonds as a result of the shares in Storm Mountain Diamonds being sold to such third party as Jarvirne nominated in order to repay the monies owed by Namakwa to Jarvirne under the Jarvirne Facility. As at the date of this document, US$35.2 million was drawn down under the Jarvirne Facility; • the re-financing of the Facilities with the proceeds of the Open Offer would not be possible. There is no guarantee that alternative financing could be found on commercially reasonable terms (if at all). In such circumstances, the Directors believe that the only reasonable options available to the Company to refinance its current debt in a reasonable timeframe would be to sell Group assets or enter into a structured securities transaction with a third party willing to provide the necessary finance. Any such securities transaction would be unlikely to be on a pre-emptive basis and as such, Shareholders would face significant dilution. In the event that such transactions were not available to the Company in a reasonable timeframe, then the only other option for the Company would be to consider the requirements for appointing a provisional liquidator in Bermuda; and • there is a risk that Namakwa would be unable to continue to finance the operations of Storm Mountain Diamonds at the Kao Mine which would have the effect that: (i) the Kao Mining Agreement (which grants Storm Mountain Diamonds the exclusive right to prospect for and mine diamonds in the Kao Production Area) could be terminated, as is permitted where, inter alia, the Company or Storm Mountain Diamonds become insolvent or where a lack of financing results in missed production targets (being an average rate of not less than 100,000 metric tonnes per month over any 12 month period unless otherwise authorised by the Minister responsible for mining in Lesotho); and (ii) Storm Mountain Diamonds could lose the Kao Mining Lease. As the majority of the Group’s revenues are likely to be derived from the Kao Mine, if the Kao Mining Agreement is terminated and/ or the Kao Mining Lease is transferred, it is likely that the Group’s results of operations or financial condition would be materially and adversely affected. Following completion of the Open Offer, Jarvirne may have an interest in Ordinary Shares representing up to 81.3% of the enlarged share capital of Namakwa, which could allow Jarvirne to block or pass ordinary and special resolutions of Namakwa as well as reducing the percentage of Ordinary Shares held independently from Jarvirne. Immediately following completion of the Open Offer and assuming Jarvirne subscribes for 794,063,295 New Shares, being the maximum number it is required to subscribe for pursuant to the Jarvirne Undertaking in circumstances where no other Shareholders subscribe for their Open Offer Entitlements, Jarvirne will have an interest in Ordinary Shares representing 81.3% of the enlarged share capital of Namakwa. As Namakwa is incorporated in Bermuda, the Takeover Code does not apply to Namakwa and Bermuda law does not contain any provisions similar to those in the United Kingdom which are designed to regulate the way in which takeovers are conducted. However, to the extent permitted under the Bermuda Companies Act, Bye-law 82 adopts 6
certain of the provisions of the Takeovers Code, including provisions dealing with compulsory takeover offers, which are to be administered by the Board. In particular, Bye-law 82.1(b) provides that (except in certain permitted circumstances) a person must not acquire whether by himself or with persons determined by the Board to be acting in concert with him) an interest in Ordinary Shares in Namakwa which increase his percentage of voting rights of the Company whilst he (together with persons determined by the Board to be acting in concert with him) is interested in Ordinary Shares which carry between 30% and 50% of the voting rights of the Company. The Board has determined that Jarvirne’s subscription for New Shares under the Excess Application Facility is a ‘Permitted Acquisition’ for the purposes of Bye-law 82.4. The effect of such determination is that Shareholders will not be required to approve such acquisition, and Jarvirne will not be required to make an offer for the Ordinary Shares not already owned by it as may have been the case had the Takeover Code applied. If Jarvirne holds an interest in Ordinary Shares representing over 50% of the enlarged share capital of Namakwa: (i)
it will be in a position to exert dominant control over the outcome of matters relating to Namakwa, and by exercise of its voting rights, would be in a position to block the passing of ordinary (and special) resolutions and procure the passing of ordinary resolutions of Namakwa;
(ii)
Bye-law 82 would cease to apply to any further acquisitions of Ordinary Shares made by Jarvirne with the effect that any such acquisitions would no longer need to qualify as ‘Permitted Acquisitions’ pursuant to Bye-law 82 would therefore not require Board approval, and no offer to purchase Ordinary Shares from Shareholders on the same terms would need to be made;
(iii)
the Amended Relationship Agreement would become effective, resulting in the Relationship Agreement being amended to: (a) allow the Amended Relationship Agreement to terminate where the Ordinary Shares are no longer admitted to the Official List and to trading on the London Stock Exchange; (b) allow Jarvirne to encourage the Directors to vote in favour of a Directors’ resolution, or to vote in favour of, or encourage others to vote in favour of, a Shareholders’ resolution, to cancel the Company’s status as a Company whose Ordinary Shares are on the Official List; and (c) remove restrictions upon Jarvirne exercising the voting rights attached to its Ordinary Shares before 1 November 2012 in connection with any proposal to change the structure of the Board; and
(iv)
certain provisions of the Second Waiver and Amendment Letter would become effective, resulting in the removal of existing restrictions under the Waiver and Amendment Letter on Jarvirne acquiring Ordinary Shares from KFF in satisfaction of amounts owing to Jarvirne pursuant to the KFF Loan Agreement (such existing restrictions including the requirement for Shareholders to approve any such acquisition).
The Waiver and Amendment Letter currently restricts Jarvirne or its associates from acquiring further Ordinary Shares in the period to 1 November 2012 (subject to certain customary exceptions). This restriction has been removed by the Second Waiver and Amendment Letter. If Jarvirne holds an interest in Ordinary Shares representing 75% or more of the enlarged share capital of Namakwa, it would be in a position to pass special resolutions of Namakwa. The interests of Jarvirne may be different from the interests of Namakwa or Namakwa’s other Shareholders. Such control may have the effect of making certain transactions difficult or impossible without the support of Jarvirne, and may for example have the effect of delaying or preventing any financing or refinancing transactions proposed to be undertaken by Namakwa or an acquisition of Namakwa or other change in control of Namakwa. There may be an insufficient number of Ordinary Shares in public hands, which may result in the Company being required to cancel its listing on the Official List. The Listing Rules require, as a continuing obligation to admission of the Ordinary Shares (including the New Shares) to the Official List, that at least 25% of the Ordinary Share (including the New Share) capital remains in public hands (the “Free Float obligation”). Depending upon the level of take-up by Qualifying Shareholders and Qualifying DI Holders of their Open Offer Entitlements to the New Shares, it is possible that there could be a breach of the Free Float obligation. If sufficient Qualifying Shareholders and Qualifying DI Holders do not take up their Open Offer Entitlements to the New Shares, it is possible that less than 25% of the enlarged share capital following completion of the Open Offer could be held in public hands (thereby breaching LR9.2.15 of the Listing Rules). In this situation, subject to Shareholder approval having been given pursuant to Resolution 7, the Company will cancel its listing of Ordinary Shares (and New Shares) on the premium segment of the Official List and remove such Ordinary Shares (and New Shares) from trading on the Main Market on 26 July 2012. In such circumstances, the Company would immediately seek the admission of its Ordinary Shares (including the New Shares) to trading on AIM, where no such Free Float requirement applies. 7
Shareholder approval of not less than 75% of holders of Ordinary Shares is required under LR5.2.5 of the Listing Rules for the cancellation of the Company’s listing. For this reason, approval of Resolution 7 will be sought by the Board at the Special General Meeting in order to authorise it to cancel the listing of Ordinary Shares (including the New Shares) on the premium segment of the Official List and to remove such Ordinary Shares (and New Shares) from trading on the Main Market. Separately, Resolution 7, if passed, would allow the Company to seek the admission of the Ordinary Share (including New Share) capital to trading on AIM. This Resolution is conditional upon less than 25% of the Ordinary Share (and New Share) capital being (or likely to be) held in public hands at Admission. If the Company is not in breach of LR9.2.15 of the Listing Rules at Admission, the Board will otherwise seek to maintain the listing on the premium segment of the Official List and the trading of Ordinary Shares on the Main Market. It is the Company’s understanding that the FSA would not seek to suspend or cancel the listing of the Company’s shares on the Official List during the period above of approximately 20 Business Days, unless there exists a disorderly market in the Ordinary Shares (and New Shares). Following Admission, should less than 25% of the Ordinary Share (and New Share) capital be held in public hands, the Company will inform the FSA as soon as practicable that it is in breach of LR9.2.15 of the Listing Rules and (since Resolution 7 would have been passed) give 20 Business Days’ notice of its intention to cancel the listing of Ordinary Shares (including the New Shares) on the premium segment of the Official List and to remove such Ordinary Shares (and New Shares) from trading on the Main Market. The Company would, in such circumstances, seek admission to AIM under AIM’s streamlined process for companies that have had their securities traded upon on an AIM Designated Market. There is no guarantee that the Directors would be successful in achieving admission to AIM or to an alternative exchange or that there would not be a period during which the Ordinary Share (and New Share) capital will not be admitted to trading on an alternative exchange. There is also no guarantee that (if admitted to AIM) Shareholders will not in the future pass a resolution cancelling trading in the Company’s shares from AIM. If the Ordinary Share (and New Share) capital is unlisted (or is admitted to trading on an alternative investment exchange), the ability to buy and sell shares in the Company could be materially restricted and the Company would no longer be required to comply with any of the additional corporate governance or regulatory requirements applicable to companies admitted to the Official List and to trading on the Main Market. Admission to AIM would not affect the way in which Shareholders buy or sell Ordinary Shares and Depository Interests (including through CREST). Share certificates representing those Ordinary Shares held in certificated form would continue to be valid and no new share certificates would be issued. By virtue of AIM being less regulated than the Official List, an investment in securities traded on AIM carries a higher risk than those listed on the Official List. The future success of AIM cannot be guaranteed. AIM is a market for emerging or smaller, growing companies and may not provide the liquidity normally associated with the Official List or other exchanges. Liquidity on AIM is currently provided by market makers who are member firms of the London Stock Exchange and are obliged to quote a share price for each company for which they make a market between 8.00 a.m. and 4.30 p.m. on Business Days. Further, it may be more difficult for an investor to realise its investment in an AIM-traded company than a company whose securities are listed on the Official List. Shareholders should consider the different obligations of an AIM company, as summarised in Part XIV: “Obligations of an AIM Company” of this document. Shareholders should also consult their own tax advisers in relation to the implications of the move of listing from the Official List (whether to AIM, an alternative exchange or no alternative exchange). B
Risks relating to the Ordinary Shares
Namakwa’s share price may fluctuate and a small size of market float can exacerbate price movements due to lack of liquidity. An investment in the New Shares is only suitable for investors capable of evaluating the risks (including the risk of capital loss) and merits of such investment and who have sufficient resources to sustain a total loss of their investment. An investment in the New Shares should be seen as long-term in nature and complementary to investments in a range of other financial assets and should only constitute part of a diversified investment portfolio. The market price of the Ordinary Shares could be volatile and subject to significant fluctuations due to a change in sentiment in the market regarding the Ordinary Shares. Such risks depend on the market’s perception of the likelihood of completion of the Open Offer and/or the outcome of the Open Offer and/or in response to various facts and events, including any industry sector changes affecting the Group’s operations, variations in the Group’s operating results, business developments of the Group and/or its competitors, the operating and share price performance of other companies in the industries and markets in which Namakwa operates, or speculation about the Group’s business in the press, media or the investment community. 8
Stock markets have, from time to time, experienced significant price and volume fluctuations that have affected the market prices for securities and which may be unrelated to the Group’s operating performance or prospects. In recent years, the amount and frequency of these fluctuations has increased as a result of stress in the global financial markets. Furthermore, the Group’s operating results, prospects or the underlying value of the Group’s assets from time to time may be below the expectations of market analysts and investors. Any of these events could result in a decline in the market price of the Ordinary Shares. The New Shares are subject to exchange rate risk and exchange controls. The New Shares are priced in pounds sterling. Accordingly, any investor outside the United Kingdom is subject to adverse movements in their local currency against pounds sterling. Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. C
Risks relating to the Group’s operations and industry
The Group has a history of operating losses. As a mining and exploration group, Namakwa has a history of operating losses. The Company has made operating losses, before finance costs and taxation, of US$40.09 million in the 12 months ended 31 August 2008, US$89.89 million in the 12 months ended 31 August 2009, US$18.31 million in the 12 months ended 31 August 2010, US$7.05 million in the six months ended 28 February 2011, US$44.51 million in the 12 months ended 31 August 2011 and US$10.00 million in the six months ended 29 February 2012. Accordingly, until the Company has sufficient commercial success to be cash generative, which the Directors believe will be in Q4’FY2012, it will continue to rely on its existing cash resources, the Facilities (which will be repaid following successful completion of the Open Offer) and the proceeds of the Open Offer to continue its activities. The Kao Mine represents the Group’s principal asset and key source of revenue and any material impact on steady-state production at the Kao Mine could have a material adverse affect on the Group’s financial position. Following the restructuring of the Group during FY2012, the principal focus of the Group’s operations is now on the Kao Mine in Lesotho. The mine is operated by Namakwa’s Lesotho subsidiary, Storm Mountain Diamonds, in which it currently maintains a 62.5% equity interest and also carries the entire loan account of US$83.51 million (as at 30 April 2012). The Group anticipates such loan account to be repaid from the operational cash flows of the Kao Mine before distributions are made to shareholders of Storm Mountain Diamonds. However, in order to maintain sufficient cash flows to repay Namakwa’s investment, it will be necessary for the Kao Mine to maintain an adequate state of steady production, with an economically viable throughput of kimberlite ores. Any material impact on production or a materially adverse decline in global diamond prices could have a materially adverse affect on the results of operations, financial condition or prospects for the Group. Maintaining an economically viable level of production is subject to a number of factors, certain of which may be outside of the control of Namakwa, and requires the operational management team to ensure that, inter alia: (i)
the mechanical components of the 500tph processing plant are fit for purpose, including a repaired scrubber and two new cone-crushers for the secondary and tertiary crushing circuits and certain secondhand components (e.g. apron feeders) which were utilised to reduce Phase 1 capital costs during the mine’s construction;
(ii)
there is an adequate supply of water to facilitate processing kimberlite ores to achieve budgeted targets. This equates to utilising approximately 120,000 cubic meters of water per month from a dedicated freshwater storage dam of 400,000 cubic meters and/or pumping water from additional water courses in the vicinity of the mine, which can freeze in winter. This requires a sufficient amount of rainfall during the wet months of October to April to ensure that there is an adequate supply of water in the dry season of May to September. In the event that the mine does not have access to a sufficient amount of water to allow for both the viable processing of kimberlite ores to achieve budgeted targets and the reticulation of civil areas then the Group may have to reduce or suspend operations until sufficient process water is available;
(iii)
there is a satisfactory stockpile of critical and strategic spares to maintain processing operations, together with adequate supplies of diesel, especially during the winter months when access to the mine site can be hampered by heavy snows and winter storms;
(iv)
the mine site is adequately prepared for winter operations, including cladding the processing plant to protect against inclement weather, heating diesel tanks to prevent fuel freezing and ensuring that there are sufficient 9
supplies on-site to accommodate more than 600 people working in freezing temperatures (which can drop lower than -20oC), for sustained periods of time, without additional supplies in the event that the mine is snowed in; and (v)
the remote and sparsely populated location of the Kao Mine remains accessible with adequate infrastructure in place. As such, a continuous road and bridge maintenance programme is essential to ensure that the access points to the mine remain reliable for the delivery of diesel and operating supplies and adequate water and slimes storage facilities are key to ongoing operations.
In the event that the operational management team is unable to maintain a steady-state of production, whether due to operational failings or force majeure events, then a reduction in budgeted targets or the suspension of operations at the Kao Mine could have a material adverse affect on the financial position of the Group. In addition, in such circumstances, there is a risk that: (a) the Kao Mining Agreement (which grants Storm Mountain Diamonds the exclusive right to prospect for and mine diamonds in the Kao Production Area) could be terminated, as is permitted where, inter alia, the Company or Storm Mountain Diamonds become insolvent or where a lack of financing results in missed production targets (being an average rate of not less than 100,000 metric tonnes per month over any 12 month period unless otherwise authorised by the Minister responsible for mining in Lesotho); and (b) Storm Mountain Diamonds could lose the Kao Mining Lease. Operations at the Kao Mine are dependent on the availability of sufficient process water to ensure continuous production. Capacity levels in the mine’s dedicated 400,000 cubic metre freshwater dam are currently significantly lower than anticipated for the time of year, despite the dam holding a substantial amount of water during the construction phase. This is predominately a result of water being released during the delayed completion of the dam’s construction and drought-like conditions in the region during the typically wet months of October to April. Flow levels in the rivers adjacent to the mine are lower than medium and long-term averages for the region. However, there is still flow in the Kao and Mabonyane rivers, and it is expected that this will be sufficient to allow the mine to operate in its current configuration until mid-July 2012. Thereafter, without an alternative source of process water, it is likely that there would be insufficient flow to allow the mine to operate at a rate in excess of 100tph (if at all), which could have a material adverse affect on the financial position of the Group. In addition, in such circumstances, there is a risk that: (a) the Kao Mining Agreement (which grants Storm Mountain Diamonds the exclusive right to prospect for and mine diamonds in the Kao Production Area) could be terminated, as is permitted where, inter alia, the Company or Storm Mountain Diamonds become insolvent or where a lack of financing results in missed production targets (being an average rate of not less than 100,000 metric tonnes per month over any 12 month period unless otherwise authorised by the Minister responsible for mining in Lesotho); and (b) Storm Mountain Diamonds could lose the Kao Mining Lease. Operating the 500tph processing plant at full capacity, process water requirements equate to approximately 120,000 cubic metres per month (based on a rate of 400 litres per tonne). At design capacity, the dam provides sufficient water to cover process water requirements for just over three months, whereas the dry season can be five to six months long based on recent weather patterns. As such, the dam at its current capacity, even when full, may not provide sufficient water to allow for continuous processing throughout the year. This means that an alternative source of water is required in order to prevent disruption to mining operations. To address such alternative source requirements, the Company has initiated the installation of a pipeline from the confluence of the Kao and the Malibamotso rivers (the latter being the most significant water-course in Lesotho) that feeds the Katse dam, at a capital cost of approximately US$1.75 million. Water permits for this pipeline have been obtained and construction is scheduled to be completed during mid-July 2012. If the pipeline: (i) is not completed on time; (ii) construction is not fit for purpose; (iii) is required to be taken offline for prolonged maintenance or other operating issues (such as the line or parts of the line freezing in the winter or the pumps being affected by silt or freezing); or (iv) is affected by a force majeure event (act of God), there is a risk that operations may need to be reduced significantly, or even suspended, until such time as either the winter snows melt and summer rains begin or the operational issues that may have arisen with the line are resolved, allowing water levels to return to a satisfactory level in order to facilitate nameplate production. When in operation, pumping water through the pipeline will result in additional diesel and staff costs but this will only be at limited times of the year when additional water is required to supplement water from the freshwater dam. The capital costs of this project will be funded by the Company from its existing cash resources.
10
Namakwa is subject to litigation in Lesotho, which, if unsuccessful, could result in the loss of 31.25% of its 62.5% equity interest in Storm Mountain Diamonds. On 22 June 2011, Toro Diamonds Lesotho (Pty) Ltd and Batla Minerals SA (together, “Batla Minerals”) instituted proceedings in the High Court of Lesotho against Namakwa, Storm Mountain Diamonds, African Alliance Lesotho Limited, the Government of Lesotho and the Attorney-General of Lesotho. Toro Diamonds Lesotho (Pty) Ltd specifically claimed a joint interest in Namakwa’s 62.5% interest in Storm Mountain Diamonds (the “Batla Claim”). On 30 November 2011, the High Court of Lesotho dismissed the Batla Claim and awarded costs to Namakwa. On 15 December 2011, Batla Minerals informed Namakwa of its intention to exercise its right to appeal the decision of the High Court of Lesotho. Batla Minerals subsequently failed to file its record of appeal within the statutory timeframe and on 27 April 2012 sought leave from the Court of Appeal of Lesotho to file its record late. The court granted Batla Minerals leave to file its record of appeal by 30 June 2012, with the substantive appeal hearing expected, by Namakwa, to be heard during the next session of the Lesotho Court of Appeal in September / October 2012. In the event that the Lesotho Court of Appeal were to overturn the decision of the Lesotho High Court, in favour of Namakwa, then subject to the consent of the Minister of Natural Resources in Lesotho under the Kao Mining Agreement, the Company may be required to transfer 31.25% of its 62.5% equity interest in Storm Mountain Diamonds to Toro Diamonds Lesotho (Pty) Ltd. This would result in Namakwa losing its current majority control of Storm Mountain Diamonds and could have an adverse affect on the Group’s results of operations or financial condition. The Group’s mining business requires substantial capital expenditure and lead-in times to operation and some of the Group’s mining operations may require greater investment than currently planned. The diamond mining business is capital intensive and the exploitation of alluvial and kimberlite resources and the acquisition of the related plant, machinery and equipment requires substantial capital expenditure and lead-in times until such plant, machinery and equipment is operational, especially in respect of kimberlite assets. The Group’s primary mining operation in Lesotho requires significant capital and operational expenditure. Operations during the ramp-up phase in FY2012 have been impacted significantly by failures with the processing plant’s scrubber and crushing circuits and a requirement for additional processing water, all of which were outside budgeted capital for the year and required additional financing from within the Namakwa Group. Furthermore, the Group’s mining operations may require greater investment than currently planned in order to maximise returns. In addition, there can be no guarantee that costs incurred by the Group in exploring and evaluating potential growth targets from within the Namakwa portfolio in order to maximise returns will be translated into revenue producing assets. The Group’s operations are subject to the risk of theft. The Group’s producing mines in Lesotho and South Africa have a range of established security systems, procedures and arrangements in place across the extraction, processing and diamond recovery chain. Operational areas are protected and patrolled. Workers at mines may also be asked to take random polygraph tests during the course of the year. Diamonds are sorted in secure areas into locked boxes, with controlled access, before being stored in safes, ahead of transportation for sale. To supplement the various physical security measures and further reduce the risk of theft, the Group has designed the production process to minimise human contact with diamonds at all stages of production. However, despite the best efforts of management, there can be no guarantee that there will be no occurrences of theft of diamonds from the Group’s operations. Whilst the Group maintains insurance against such theft in an amount it considers to be adequate, liabilities may exceed policy limits, in which case the Group could incur significant costs that could materially and adversely affect its results of operations. The Group depends on its key personnel. If the Group is unable to attract and retain key personnel, its business may be materially and adversely affected. The Group’s business depends in significant part upon the contributions of a number of the Group’s management and its team of diamantaires, engineers, geologists and metallurgists, with specialist diamond mining skills, especially in relation to its flagship investment at the Kao Mine in Lesotho. There can be no certainty that the services of such key personnel will continue to be available to the Group as competition for such personnel is intense in the mining industry. Factors critical to retaining the Group’s present staff and attracting and recruiting additional qualified personnel include, inter alia, the Group’s ability to provide these individuals with competitive compensation arrangements. If the Group is not successful in retaining or attracting qualified individuals in key management and operational positions, its business may be materially harmed. 11
Furthermore, as a result of the significant shortage of higher education in the jurisdictions in which the Group operates, the Group may find it difficult to acquire the qualified or trained and skilled labour upon which the Group is dependent for its operations. To the extent that the Group is unable to recruit and retain such skilled labour, this could result in a decrease in the Group’s production or delays in the mining projects which, in turn, could have a material adverse effect on the Group’s results of operations and financial condition. The Group’s operations are dependent on locally sourced employees and contractors for elements of its mining activities. Much of the earth moving, treatment work and drilling work within the Group’s mining areas is carried out by locally sourced employees and/or outsourced to external contractors, especially in respect of operations at the Kao Mine in Lesotho. Due to its remote location, sourcing sufficient employees and contractors for the Kao Mine is challenging, and there is no guarantee that sufficient numbers will be available to meet the Group’s requirements. The risk of work slow-downs, stoppages or other labour-related developments or disputes involving such employees and contractors (for example, the Company announced on 18 April 2012 that the National Union of Mine Workers in South Africa called a strike at the Group’s operations in the North West Province in South Africa, as a result of a wage dispute) could result in a decrease in the Group’s production or delays in the development of projects which, in turn, could impact upon the Group’s results of operations and financial condition. Should problems arise that lead to a termination of one or more of the most important of these relationships, this could have a significant impact on the Group’s operations, particularly if there were delays before appropriate replacement employees and/or further contractors could be brought in to assist the Group. The volume and grade of the diamondiferous ore that the Group recovers may not conform to current expectations. The Group’s Indicated and Inferred Diamond Resources described in this document and extracted from the Global Resource Statement constitute estimates that comply with standard evaluation methods generally used in the international mining industry and are stated in conformity with the South African Code for the Reporting of Mineral Resources and Mineral Reserves (the “SAMREC Code”). In respect of these estimates, however, no assurance can be given that the anticipated revenues, tonnages and grades will be achieved, that the indicated level of recovery will be realised or that the alluvial and kimberlite resources can be mined or processed profitably, especially as several of the Group’s mining assets are in the early stages of development and exploration. Actual resources may not conform to expectations and the volume and grade of diamondiferous ore recovered may be below the estimated levels. There can be no assurance that recoveries in small-scale laboratory tests will be duplicated in larger-scale tests under on-site conditions or during production. Diamond resource data is not indicative of future results of operations and there can be no assurance that improved operating efficiencies will result in recovered grades being equal to or better than the forecast grade. If the Group’s actual Diamond Resources are less than current estimates, then the Group’s results of operations or financial condition may be materially and adversely affected. In addition, due to the speculative nature of exploration and production it may not always be possible for the Group to accurately forecast cash flow, operating costs and economic returns. The profitability of the Group’s operations is highly dependent on rough diamond prices and consumer demand for and perception of polished diamonds. The profitability and economic viability of any diamond mining operation, project or prospect or beneficiation operation in which the Group is interested will be significantly affected by changes in the market price of diamonds, which is typically denominated in US Dollars. Prices vary for different sizes and qualities of diamonds, dependent ultimately upon consumer demand for polished goods. This demand, driven by many variables including personal sentiment, marketing spend and acceptable profit margins, influences the price relationship between rough and polished diamonds in a complex manner. The availability of a ready market for diamonds to be sold by the Group depends upon numerous factors beyond the Group’s control, the exact effects of which cannot be accurately predicted. These factors include, inter alia, general economic activity, the supply of rough diamonds to the market, liquidity of diamantaires, cutting and polishing manufacturers and/or retail outlets within the diamond pipeline, consumer demand for polished diamonds and the availability and pricing of other substitute minerals (including synthetic diamonds), exchange rates and the extent of governmental regulation and taxation. As a result of the above factors, price forecasting can be difficult and is often imprecise.
12
The diamond industry is also subject to variations in customer preferences, perceptions and spending habits. The Group’s performance depends on factors that may affect the worldwide desirability of diamonds. Such factors include adverse media coverage, consumer incomes and consumer preferences. Media coverage regarding the supply of “conflict diamonds” (diamonds that originate from areas controlled by forces or factions opposed to legitimate and internationally recognised governments and/or are used to fund military action in opposition to those governments) may reduce worldwide consumer demand for diamonds. Although the Group adheres to the requirements of the Kimberley Process, there can be no guarantee that media coverage relating to “conflict diamonds” will not reduce the demand for legitimately produced diamonds. Furthermore, by their nature, diamonds are expensive, luxury consumer goods and a change in consumer spending habits may result in reduced demand and lower prices for the diamonds produced by the Group. In addition, the entry into the market in recent years of chemically produced “synthetic diamonds” has provided a cheaper, more accessible alternative for consumers in the diamond sector which may also impact negatively on the demand for conventionally produced diamonds. Any changes in consumer preferences, either by an increase in popularity of synthetic diamonds or a decrease in the popularity of those diamonds produced by the Group as a result of the perception of conflict diamonds, levels of consumer spending or otherwise, may have a material adverse effect on the Group’s results of operations or financial condition. The business of mining diamonds is highly competitive. The diamond mining and exploration business is highly competitive in all its phases. The Group competes with numerous other companies and individuals, including competitors with greater financial, technical and other resources than the Group. The Group’s ability to acquire exploration and development rights on properties in the future will depend not only on its ability to develop the properties on which it currently has rights, but also on its ability to select and acquire exploration and development rights on properties in the future. There is no assurance that the Group will continue to be able to compete successfully in acquiring any such exploration rights on properties. The business of mining diamonds involves a number of risks and hazards, not all of which can be or are fully covered by insurance. The diamond mining business is subject to risks and hazards, many of which are outside the Group’s control. These risks include changes in government legislation (especially in respect of legal tenure and ownership participation), interruptions in electricity supply in South Africa, environmental hazards, industrial accidents, fires, the encountering of unusual or unexpected geological formations, cave-ins, flooding, earthquakes and periodic interruptions due to inclement or hazardous weather conditions or strikes. These occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, reduced production and delays in mining, asset write-downs, monetary losses and possible legal liability. The Group’s mining assets in South Africa and Lesotho are particularly susceptible to seasonal rains, droughts and flooding and, in the case of Lesotho, snow. Such rains, flooding or snow, if heavy and sustained, or such droughts, if prolonged, could limit the Group’s mining operations, further hinder the supply of resources to such assets or result in significant delays to the completion of capital projects in such regions, leading to a material adverse effect on the production of diamond resources during such periods. Furthermore, the Group is exposed to the political risks associated with operating in Africa, including the use of corruption and the forced repatriation of assets. The Group does not currently maintain insurance for business interruption risk. Although the Group maintains insurance in an amount that it considers to be adequate, liabilities might exceed policy limits, in which event the Group could incur significant costs that could materially and adversely affect its results of operations. Furthermore, insurance fully covering many environmental risks including potential liability for pollution or other hazards as a result of the containment of waste water (or “slimes”) used in the alluvial and kimberlite mining process, is not generally available to the Group or to other companies in the mining industry. The realisation of any significant liabilities in connection with the Group’s mining activities as described above could have a material adverse effect on its results of operations or financial condition. The Group is reliant on a number of third parties for the supply of materials to support its operations. The majority of the operations of the Group in its project areas are dependent on the availability of a number of resources, including tyres, diesel and spare parts for earth-moving machinery and ferrosilicon for processing. Some of these materials are only available on commercially reasonable terms from a limited number of suppliers or providers and/or there may be long lead-times associated with obtaining certain key inputs. In particular, there is currently a critical shortage in the global production of large, heavy-duty tyres for earth-moving and mining equipment. 13
The Group has sought to establish supplies of, and relationships with suppliers of, all the materials required to continue its operations, but there can be no guarantee that these supplies or relationships will continue. Furthermore, competitors with greater financial resources and larger order books may be favoured by suppliers where materials are in relatively short supply, especially tyres and spare parts for earth-moving equipment. Any lack of, or delay in the supply of, these materials could materially reduce production levels or delay the development of the Group’s projects and prospects and thereby negatively and materially affect its results of operations. If the Group is forced to change a supplier of such materials, there is no guarantee that this would not result in the Group experiencing additional costs, interruptions to supply continuity or some other adverse effect on its business. There is also no guarantee that the Group will be able to find adequate replacement materials or services on a timely basis or at all. Fluctuations in currency and exchange rates may, together with exchange control regulations, adversely affect the Group’s results of operations and financial condition. The Group’s revenues are earned indirectly in US Dollars, as diamonds are sold on the basis of a US Dollar market price. Furthermore, the cost of oil and diesel fuel (which is pegged to the US Dollar) has a significant impact on the expenses of the Group’s mining operations, projects and prospects. The price of oil and diesel fuel can fluctuate widely in the jurisdictions in which the Group’s mining operations are active, and the price is determined by global supply and demand and other factors over which the Group has no control. However, the Group’s costs are predominantly incurred in South African Rand, Lesotho Maloti and Sterling, as well as US Dollars. Management cannot predict the effect of foreign exchange rate fluctuations on the Group’s future operating results and financial condition and there can be no assurance that exchange rate fluctuations will not have a material adverse effect on the Group’s business, operating results or financial condition. The Group does not undertake hedging activities in relation to proceeds from diamond sales or on fuel costs. As a result, if the South African Rand and/or the Lesotho Maloti were to strengthen against the US Dollar, this could have a material adverse effect on the Group’s financial condition and results of operations. Similarly, South Africa and Lesotho have experienced periods of high inflation and substantial currency devaluation over recent decades. Although inflation has been largely stable in recent years in these jurisdictions, if it were to increase without a corresponding devaluation of the relevant local currency relative to the US Dollar, the Group’s financial condition and results of operations could, again, be materially and adversely affected. Whilst at present the Group is not adversely affected by strict controls on access to foreign currency and the repatriation of funds, any change in foreign exchange regulations in the jurisdictions in which the Group operates could have a material adverse effect on its business and operations, and there can be no assurance that exchange control restrictions will not be reintroduced in certain countries in which the Group operates. The Group is subject to significant laws and governmental regulations, and their related costs may negatively affect the Group’s business. The Group’s diamond related operations are subject to extensive laws and regulations. These include laws and regulations relating to environmental protection, management and the use of toxic substances and explosives, the management of natural resources, the rehabilitation of mined land, exploration, the development of mines, postclosure reclamation, exports, price controls, repatriation of capital and exchange controls, taxation, mining royalties, economic empowerment of historically disadvantaged persons in South Africa, labour standards and occupational health and safety, including mine safety, and historic and cultural preservation. The costs associated with compliance with these laws and regulations are substantial and possible future laws and regulations, changes to existing laws and regulations (including the imposition of higher taxes, mining royalties and royalties on rough diamonds beneficiated outside of the jurisdiction from which they are mined) or more stringent enforcement or restrictive interpretation of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of the Group’s operations and delays in the development of its properties. Moreover, these laws and regulations may allow governmental authorities and private parties to bring lawsuits based upon damage to property and injury to persons resulting from the environmental, health and safety impacts of the Group’s past and current operations. Such lawsuits could lead to the imposition of substantial fines, penalties or other civil or criminal sanctions that, in turn, could have a material adverse effect on the results of operations or financial condition of the Group. The activities of the Group are also subject to significant environmental regulations promulgated by the relevant government authorities and other agencies from time to time. Environmental legislation generally provides for the remediation of mining sites that may require significant capital expenditure. Further details of the Group’s provisions for environmental remediation are contained in Part IV: “Information on the Group” of this document. 14
Whilst the Group has made and will continue to make provision for the amounts required to remediate the sites of its operations during their lifetime, there can be no assurance that the provisions will be sufficient to cover the actual remediation costs or the costs of tailings disposal or that amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, would not increase costs above the levels currently expected which in turn could have a material adverse effect on the Group’s financial condition or results of operations. The Group is subject to legislation in South Africa focused on the economic empowerment of historically disadvantaged persons that could have a material effect on the Group’s business. Under the current legislative environment in South Africa, the Group is required to comply with certain legislative provisions regarding the economic empowerment of historically disadvantaged persons in South Africa (“BEE”), by 2014. The key element of such provisions is the sale (potentially at a discount) of up to 26% of the economic value of the Group’s South African operations to such historically disadvantaged persons by 2014. Namakwa has entered into a number of joint ventures with the Namakwa Diamond HDSA Employee Trust which are subject to a number of conditions precedent, none of which have been satisfied to date and there can be no assurance that Namakwa will be in full compliance with its BEE obligations in South Africa by 2014. Compliance with other elements of such legislative framework, including management participation, procurement, skills development, business development and corporate social responsibility, could also have a material adverse effect on the financial position of the Group. Further, laws and regulations in this area are continually changing. Failure by the Group to comply with the existing framework could ultimately result in the Group’s operating licences in South Africa being suspended or cancelled. Further, if compliance obligations alter as a result of changes in laws or regulations, or if unanticipated conditions arise, expenses and provisions relating to the Group’s operations might increase. If material, these expenses and provisions could adversely affect the Group’s results and financial condition. Further details of the Group’s current position with regard to its compliance with legislation in this regard are contained in Part IV: “Information on the Group” of this document. The Group’s operational licences and permits may be changed, revoked, withdrawn or terminated in certain circumstances, or may otherwise result in significant costs for the Group or delays in its operations. The Group requires a number of licences, leases, approvals, permits and regulatory consents in respect of its operations (collectively, “Authorisations”). At present, Namakwa believes that it has obtained (or is in the process of amending, renewing or revising) all Authorisations, which are material to the Group’s current business and operations. However, given the jurisdictions in which the Group operates and the development of the legal and regulatory regimes in such countries, there can be no assurance that the Group has every necessary or desirable Authorisation required at any one time to conduct the Group’s operations. Furthermore, there is a risk that such Authorisations could be terminated, revoked, withdrawn, suspended, unavailable for renewal following expiry or commercially unviable. Further detail in respect of such Authorisations is contained in Part VIII: “Group Mining Licences” of this document. The investigation by the Group of its title to and rights over and interests in and relating to its mining assets and rights is no guarantee of the Group’s title to such assets. Whilst the Group has investigated its title to and rights over interests in and relating to its mining assets and rights, this should not be construed as a guarantee of the Group’s title to such assets. The Group’s assets may be subject to prior unregistered agreements or transfers that have not been recorded or detected through title research and title may be affected by undetected defects. There can be no assurance that title to some of the Group’s assets will not be challenged or impugned. Additionally, the land upon which the Group holds mineral exploration rights may not have been surveyed adequately, therefore, the precise area and location of such interests may be subject to challenge. Such defects, if they exist, could adversely affect or invalidate the Group’s title to the affected properties or delay or increase the cost of development of such properties. The Group may also be susceptible to radical changes in government policy in the countries in which it operates, leading to the repatriation or nationalisation of its mining assets or other government or regulatory materially adverse controls being imposed on such assets. Any loss by the Group of its title or interest or rights in any of its projects could have a material adverse effect on its results of operations or financial condition.
15
D
Risks relating to the countries in which the Group operates
Political, regulatory and economic instability in the countries where the Group’s assets and operations are located may have a material adverse effect on the Group’s financial condition or results of operations. The Group currently operates or otherwise holds contractual entitlements in Lesotho, South Africa and the DRC. Certain of these countries have histories of prolonged periods of war and pronounced political and civil unrest, together with fraud and corruption. Whilst considerable efforts have been made to bring stability to these countries, there does remain some level of unrest. The UN’s peacekeeping force in the DRC is one of the largest such forces present in any single country in the world. As a result, the Group’s contractual offtake rights with Hall Farm Avenue Limited are exposed to various levels of political risk, regulatory and legal uncertainties, including government regulations, policies or directives relating to mining and mine safety, the trading and beneficiation of diamonds, foreign investors, restrictions on production, price controls, export controls, income and other taxes, nationalisation or expropriation of property, repatriation of income, royalties and environmental legislation. Operations may also be affected in varying degrees by political and economic instability, economic or other sanctions imposed by other countries, terrorism, corruption, fraud, under-developed infrastructure, civil wars, guerrilla activities, military repression, civil disorder, crime, stability of the workforce, extreme fluctuations in currency exchange rates and high inflation. Any changes in regulations or shifts in economic or political conditions are beyond the control of, and may materially and adversely affect, the Group’s business. Emerging markets such as those in which the Group is currently operating are subject to greater risks than more developed markets and any material adverse effect on the economies of such markets could disrupt the Group’s business. Generally, investment in companies with a significant proportion of their assets located in emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved in, and are familiar with, investing in such companies. Investors should also note that emerging markets such as those in which the Group currently operates are subject to rapid change and that the information set forth in this document may become outdated relatively quickly. In the event that there is an economic crisis in any of the jurisdictions in which the Group operates, the Group may face severe difficulties in the operation of its business and the value of its assets in such jurisdictions may decrease, resulting in a material adverse effect on the financial condition of the Group. The courts of the jurisdictions in which the Group operates or might operate in the future may offer less certainty as to judicial outcome or less effective forms of redress or a more protracted judicial process than is the case in the United Kingdom, which could result in risks for the Group. Certain of the countries in which the Group operates in Africa and may operate in the future may have less developed legal systems than more established economies, which may result in risks such as: (i) potential difficulties in obtaining effective legal redress in their courts, whether in respect of a breach of law or regulation, or in an ownership dispute; (ii) a higher degree of discretion on the part of governmental authorities; (iii) the lack of judicial or administrative guidance on interpreting applicable rules and regulations; (iv) inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions; or (v) relative inexperience of the judiciary and courts in such matters. In addition, the commitment of local business people, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements may be more uncertain, creating particular concerns with respect to licences and agreements for business. These may be susceptible to revision or cancellation and legal redress may be uncertain or delayed. Costs associated with local health conditions could have a material adverse effect on the Group’s results of operations and financial condition. HIV/AIDS, malaria and other diseases are prevalent in the areas in which the Group operates. Since the 1980s, there has been a significant rise in the prevalence of HIV in the southern African population. This is likely to have an impact on the economies of these countries in the future with a corresponding effect on the Group’s operations in the region and potentially its workforce. Current and future employees and members of the senior management team of the Group may have contracted, or could contract, potentially deadly viruses and diseases. Increased mortality rates due to these diseases and viruses could result in lost employee man-hours, loss of trained and experienced employees and senior management members, increased absenteeism, depressed morale and reduced productivity, in addition to increased recruitment and replacement costs, insurance premiums, benefit payments and other costs of providing treatment and could have a material adverse effect on the Group’s business, financial condition or results of operations. 16
E
Risks relating to Namakwa structure
As Namakwa is primarily a holding company, its ability to pay dividends depends upon the ability of its subsidiaries to pay dividends and to advance funds. The payment of dividends by Namakwa is subject to Namakwa having sufficient distributable reserves for such purposes and compliance with the relevant provisions of the Bermuda Companies Act. In turn, Namakwa is reliant upon receiving dividends from its subsidiaries in order to generate distributable reserves, some of which have accumulated losses. This may impact upon Namakwa’s ability to pay dividends. In addition, any inability to move funds out of the operating countries, for example, as a result of exchange control regulations, could have an adverse effect on Namakwa’s ability to pay dividends, even if, as a matter of accounting, the dividends might be available. Namakwa’s rights to participate in any distribution of its subsidiaries’ assets upon their liquidation, reorganisation or insolvency would generally be subject to prior claims of the subsidiaries’ creditors, including any trade creditors. Namakwa does not currently have any distributable reserves. Namakwa is not subject to the Takeover Code. The Takeover Code does not apply to Namakwa. As a result, a takeover offer for Namakwa will not be regulated by the UK takeover authorities. The Memorandum of Association and Bye-laws contain certain takeover protections, although these do not provide the full protections afforded by the Takeover Code. In particular, the Panel on Takeovers and Mergers will not have authority to monitor Shareholders’ compliance with the provisions of the Memorandum of Association and Bye-laws or to impose sanctions in respect of any breach of such provisions. The Directors have resolved in accordance with Bye-law 82.4(a)(i) to approve the possibility of Jarvirne subscribing for up to 536,675,926 New Ordinary Shares under the Open Offer in addition to its Open Offer Entitlement which would result in Jarvirne holding up to 81.3% of the enlarged Ordinary Share capital of Namakwa (where no other Shareholders subscribe for their Open Offer Entitlements) without the need for it to make an offer for the Ordinary Shares not already owned by it. The relevant provisions of the Memorandum of Association and Bye-laws are summarised in the paragraph “Summary of the Memorandum of Association and Bye-laws” in Part X: “Additional Information” of this document. F
Risks relating to Bermuda
Enforcement of judgments in Bermuda may be difficult. As Namakwa is an exempted company under the Bermuda Companies Act, the rights of Shareholders are governed by Bermuda law and Namakwa’s Memorandum of Association and Bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies or corporations incorporated in other jurisdictions. Certain of the Directors are not residents of the UK and all of Namakwa’s assets are located outside the UK. As a result, it may be difficult for investors to effect service of process on Namakwa in the UK or to enforce judgments obtained in the UK courts against Namakwa in the UK, although The Judgments (Reciprocal Enforcement) Act 1958 of Bermuda (the “1958 Act”) may, in certain cases, facilitate the enforcement of a judgment in Bermuda obtained in a foreign court which is situated in a country to which the 1958 Act applies (which will include a court situated in the UK).
17
IMPORTANT INFORMATION Forward-looking statements This document includes statements that are, or may be deemed to be, “forward-looking statements”. These forwardlooking statements can be identified by the use of forward-looking terminology, including the terms “anticipates”, “believes”, “estimates”, “envisages”, “could”, “expects”, “intends”, “may”, “plans”, “projects”, “should” or “will”, or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include, but are not limited to, statements regarding Namakwa’s intentions, beliefs or current expectations concerning, amongst other things, the Group’s results of operations, financial position, prospects, growth, strategies and expectations of the diamond industry. By their nature, forward-looking statements involve a number of known and unknown risks and uncertainties because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of the Group’s operations and financial position, and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, the forward-looking statements contained in this document. In addition, even if the results of operations and financial position, and the development of the markets and the industry in which the Group operates, are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in regulation, currency fluctuations, the Group’s ability to recover its resources or develop new resources, including its ability to convert its mineral potential into resources or reserves, changes in its business strategy, political and economic uncertainty and other factors discussed in the section entitled “Risk Factors” on pages 6 to 17 of this document and Part: IV “Information on the Group” of this document and Part V: “Operating and Financial Review of Namakwa” of this document. Forward-looking statements may, and often do, differ materially from actual results. Any forward-looking statements in this document reflect Namakwa’s current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group’s operations, results of operations, and growth strategy. Shareholders should specifically consider the factors identified in this document which could cause actual results to differ before making an investment decision. These forward-looking statements speak only as at the date of this document. Subject to the requirements of the Prospectus Rules, the Disclosure and Transparency Rules and the Listing Rules as appropriate and any other applicable laws and regulations, Namakwa undertakes no obligation publicly to release the result of any revisions to any forward-looking statements in this document that may occur due to any change in Namakwa’s expectations or to reflect events or circumstances after the date of this document. Investors should note that the contents of these paragraphs relating to forward-looking statements are not intended to qualify the statements made as to sufficiency of working capital in this document. Presentation of financial information The financial information presented in a number of tables or otherwise in this document may have been rounded to the nearest whole number or the nearest decimal place. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this document reflect calculations based upon the underlying information prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers. International Financial Reporting Standards The reviewed, but unaudited, condensed consolidated interim financial statements of Namakwa and its subsidiaries for the six months ended 29 February 2012 and 28 February 2011 and the audited consolidated financial statements of Namakwa and its subsidiaries for the financial years ended 31 August 2011, 2010, 2009 and 2008 together with the audit reports thereon, are incorporated by reference into this document, as detailed in Part XII: “Documentation Incorporated by Reference” of this document. The key data for the six months ended 29 February 2012 and 28 February 2011 and the financial years ended 31 August 2011, 2010, 2009 and 2008 set out in Part VI: “Financial Information on Namakwa” of this document have been extracted without material adjustment from, and should be read together with, Namakwa’s consolidated financial statements for the periods covered, which are incorporated by reference into this document. 18
The consolidated financial statements of the Group are prepared in accordance with IFRS and in US Dollars. The underlying financial information stated in local currency has been translated into US Dollars on the basis set out in the Group’s financial statements as set out in Section B of Part VI: “Financial Information on Namakwa” of this document and Part XII: “Documentation Incorporated by Reference” of this document. Pro forma financial information In this document, any reference to “pro forma” financial information is to information which has been extracted without material adjustment from the unaudited pro forma financial information contained in Part VII: “Unaudited Pro Forma Financial Information” of this document. The unaudited pro forma statement of net assets contained in Part VII: “Unaudited Pro Forma Financial Information” of this document is based on the condensed consolidated interim statement of financial position of Namakwa as at 29 February 2012, extracted without material adjustment from Section B of Part VI: “Financial Information on Namakwa” of this document. The unaudited pro forma statement of net assets includes certain adjustments in respect of the capitalisation of the proceeds of the Open Offer. The unaudited pro forma financial information is for illustrative purposes only. Because of its nature, the Unaudited Pro Forma Financial Information addresses a hypothetical situation and, therefore, does not represent the Group’s actual financial position. Notice to Shareholders outside of the United Kingdom This document does not constitute an offer to sell or the solicitation of an offer to buy any Ordinary Shares in any territory. The distribution of this document into jurisdictions other than the United Kingdom may be restricted by law. Persons into whose possession these documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. No incorporation of website information The contents of Namakwa’s website do not form part of this document. Enforcement of judgments in Bermuda As Namakwa is an exempted company under the Bermuda Companies Act, the rights of Shareholders are governed by Bermuda law and Namakwa’s Memorandum of Association and Bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies or corporations incorporated in other jurisdictions. Certain of our directors are not residents of the UK and all of Namakwa’s assets are located outside the UK. As a result, it may be difficult for investors to effect service of process on Namakwa in the UK or to enforce in the UK judgments obtained in UK courts against Namakwa or those persons who may be liable under UK law. The current position with regard to enforcement of judgments in Bermuda is set out below, but this may be subject to change. A final and conclusive judgment of a superior foreign court against Namakwa, under which a sum of money is payable (not being a sum of money payable in respect of multiple damages, or a fine, penalty tax or other charge of a like nature) may be enforceable in the Supreme Court of Bermuda (the “Supreme Court”) against Namakwa if the foreign court is situated in a country to which the 1958 Act applies. The procedure provided for in the 1958 Act must be followed if the 1958 Act applies. The 1958 Act applies to final and conclusive judgments obtained in the superior courts of the UK. Under the 1958 Act, a final and conclusive judgment obtained in the superior courts of a territory to which it applies would, on registration in accordance with the 1958 Act, be enforceable by the Supreme Court without the necessity of any retrial of the issues that are the subject of such judgment or any re-examination of the underlying claims. Where such foreign judgment is expressed in a currency other than Bermuda dollars, registration of the judgment will involve the conversion of the judgment debt into Bermuda dollars on the basis of the exchange rate prevailing at the date of such judgment as is equivalent to the judgment sum payable. The present policy of the BMA is to give consent for the Bermuda dollar award made by the Supreme Court of Bermuda to be paid in the original judgment currency. The courts of Bermuda would recognise as a valid judgment, a final and conclusive judgment in persona obtained in foreign courts (other than a court of jurisdiction to which the 1958 Act applies) against Namakwa under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges 19
of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that: (i) such courts had proper jurisdiction over the parties subject to such judgment; (ii) such courts did not contravene the rules of natural justice of Bermuda; (iii) such judgment was not obtained by fraud; (iv) the enforcement of the judgment would not be contrary to the public policy of Bermuda; (v) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of Bermuda; and (vi) there is due compliance with the correct procedures under the laws of Bermuda. The Bermuda Monetary Authority The BMA must approve all issues and transfers of shares of a Bermuda exempted company under the ECA and regulations thereunder. Consent under the ECA has been obtained from the BMA for the issue and transfer of Namakwa’s Ordinary Shares (including Depository Interests) up to the amount of its authorised capital from time to time to and between persons resident and non-resident of Bermuda for exchange control purposes so long as voting securities of Namakwa are listed on an appointed stock exchange. The London Stock Exchange is deemed to be an appointed stock exchange under Bermuda law. This document will be filed with the Bermuda Registrar of Companies in accordance with Bermuda law. In granting such consent and in accepting this document for filing, neither the BMA nor the Bermuda Registrar of Companies accepts any responsibility for the financial soundness of any proposal or for the correctness of any of the statements made or opinions expressed herein. Currencies Unless otherwise indicated, all references in this document and in the information incorporated by reference into this document to US$, US Dollars, USD, dollars or $ are to the lawful currency of the United States of America, all references to Rand, South African Rand or ZAR are to the lawful currency of the Republic of South Africa and all references to Lesotho Maloti or LSL are to the lawful currency of Lesotho. Unless otherwise indicated, the financial information contained in this document has been expressed in US Dollars. The functional currency of the current trading companies of the Group is the local currency. On consolidation, the statements of comprehensive income of subsidiaries for which the US Dollar is not the functional currency are translated into US Dollars, the reporting currency for Namakwa, at average rates of exchange. Items on the statement of financial position are translated into US Dollars at period end exchange rates. These translations should not be construed as representations that the relevant currency could be converted into US Dollars at the rate indicated or at any other rate. The impact of the strength or weakness of the US Dollar against the South African Rand (and therefore, by default, the Lesotho Maloti, which is pegged on a 1:1 basis with the South African Rand) is significant to the Group when translating local currency costs on consolidation of the Group accounts. The following significant average and period-end rates applied to the Group for the period of the historical financial information for the six months ended 29 February 2012 and 28 February 2011 and the financial years ended 31 August 2011, 2010, 2009 and 2008: South African Rand/US$1
Average Rate Period-end Rate
29 February 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 August 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 February 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 August 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 August 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 August 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.90 6.90 6.97 7.52 9.10 7.41
7.53 7.06 7.02 7.34 7.80 7.76
The basis of translation of foreign currency transactions and amounts in the financial information is set out and described in note 3(c) to the financial statements for the financial year ended 31 August 2011 which are incorporated by reference into this document as detailed in of Part XII: “Documentation Incorporated by Reference” of this document. At close of business on 31 May 2012 (being the latest practicable date prior to the date of this document): •
US$1.00 = ZAR8.41.
•
£1.00 = US$1.5392.
Diamond reserve and diamond resource reporting — basis of preparation Venmyn Rand (Pty) Ltd (“Venmyn”) has reviewed the resources statements compiled by Namakwa and has stated the Diamond Resources as set out in the Global Resource Statement contained in Part XI: “Global Resource Statement” of this document and in accordance with the SAMREC Code in force as at the date of this document. 20
The SAMREC Code recognises a fundamental distinction between “Diamond Resource” and “Diamond Reserves”. A “Diamond Resource” is defined by the SAMREC Code as a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form, quality and quantity that there are reasonable and realistic prospects for eventual economic extraction. The location, quantity, grade, continuity and other geological characteristics of a Diamond Resource are known or estimated from specific geological evidence and knowledge, or interpreted from a well-constrained and portrayed geological model. Diamond Resources are subdivided, in order of increasing confidence and in respect of geo-scientific evidence, into “inferred”, “indicated” and “measured” categories. Diamond Resource estimates are not precise calculations, being dependent on the interpretation of limited information on the location, shape and continuity of the occurrence and on the available sampling results. Reporting of tonnage and grade figures must reflect the order of accuracy of the estimate by rounding off to appropriately significant figures and, in the case of Inferred Diamond Resources, by qualification with terms such as “approximately”. •
An “Inferred Diamond Resource” is that part of a Diamond Resource for which tonnage, grade and average diamond value can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified by geological and/or grade continuity and a sufficiently large diamond parcel is not available to ensure a reasonable representation of the diamond assortment. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability. An Inferred Diamond Resource has a lower level of confidence than an Indicated Diamond Resource.
•
An “Indicated Diamond Resource” is that part of a Diamond Resource for which tonnage, densities, shape, physical characteristics, grade and average diamond value can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/or grade continuity but are spaced closely enough for continuity to be assumed and sufficient diamonds have been recovered to allow a reasonable estimate of average diamond value.
•
A “Measured Diamond Resource” is that part of a Diamond Resource for which tonnage, densities, shape, physical characteristics, grade and average diamond value can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are spaced closely enough to confirm geological and grade continuity and sufficient diamonds have been recovered to allow a confident estimate of average diamond value.
“Diamond Reserves” are defined by the SAMREC Code as the economically mineable material derived from a Measured and/or Indicated Diamond Resource. It includes diluting materials and allows for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out, including consideration of, and modification by, realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction is reasonably justifiable under a defined set of realistically assumed modifying factors. Diamond Reserves are those portions of Diamond Resources which, after the application of all mining factors, result in an estimated tonnage and grade which, in the opinion of the Competent Person (as defined in the SAMREC Code) making the estimates, can be the basis of a viable project after taking account of all relevant modifying factors. Diamond Reserves are reported as inclusive of marginally economic material and diluting material delivered to the treatment plant or dispatched from the mine without treatment. Diamond Reserves are subdivided in order of increasing confidence into Probable Diamond Reserves and Proved Diamond Reserves. The resource and reserve estimates provided in this document have been extracted from the Global Resource Statement contained in Part XI: “Global Resource Statement” of this document and have been determined by Venmyn to comply with the Diamond Resource and Diamond Reserve definitions in the SAMREC Code. The terms and definitions used to present the statements of Diamond Reserves and Diamond Resources in this document are those given in the SAMREC Code. Information included in this document relating to reserve and resource estimates has been extracted from or derived from the Global Resource Statement included in Part XI: “Global Resource Statement” of this document and must be read in conjunction with these full reports. It should be noted that certain estimates extracted from these reports prepared by Venmyn show Diamond Resources as gross in-situ amounts as well as net amounts attributable to Namakwa. 21
EXPECTED TIMETABLE OF PRINCIPAL EVENTS The times and dates in the table below are indicative and may be subject to change: Record Date for entitlements under the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00 p.m. on 1 June 2012 Announcement of Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 June 2012 Publication of the Prospectus and despatch of the Application Forms and Forms of Proxy and Forms of Direction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 June 2012 Ex-entitlement Date for the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 a.m. on 7 June 2012 Open Offer Entitlements and Excess CREST Open Offer Entitlements enabled in CREST and credited to stock accounts of Qualifying DI Holders as soon as possible thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 a.m. on 7 June 2012 Recommended latest time for requesting withdrawal of Open Offer Entitlements and Excess CREST Open Offer Entitlements from CREST . . . . . . . . . . . . . . . . . . . . 4.30 p.m. on 20 June 2012 Latest time for depositing Open Offer Entitlements and Excess CREST Open Offer Entitlements into CREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00 p.m. on 21 June 2012 Latest time and date for receipt of Forms of Direction from Qualifying DI Holders for the Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.00 p.m. on 22 June 2012 Latest time and date for splitting Application Forms (to satisfy bona fide market claims only) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00 p.m. on 25 June 2012 Latest time and date for receipt of Forms of Proxy from Qualifying Shareholders for the Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.00 p.m. on 25 June 2012 Latest time for receipt of completed Application Forms and payment in full under the Open Offer or settlement of relevant CREST instruction (as appropriate) . . . . . . 11.00 a.m. on 27 June 2012 Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.00 p.m. on 27 June 2012 Admission and commencement of dealings in New Shares on the London Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 a.m. on 28 June 2012 CREST stock accounts credited with Depository Interests representing New Shares as soon as possible thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 a.m. on 28 June 2012 Despatch of definitive share certificates for the New Shares in certificated form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . by 12 July 2012 Notes: (1) The ability to participate in the Open Offer is subject to certain restrictions relating to Shareholders with registered addresses outside the UK, details of which are set out in Part III: “Terms and Conditions of the Open Offer” of this document. (2) The times and dates set out in the expected timetable of principal events above and mentioned throughout this document may be adjusted by Namakwa, in which event details of the new times and dates will be notified to the UK Listing Authority, the London Stock Exchange and, where appropriate, Qualifying Shareholders and Qualifying DI Holders by means of an announcement through a Regulatory Information Service. (3) References to times in this document are to times in London unless otherwise stated. (4) Pursuant to Resolution 7, the Company is seeking Shareholder approval at the Special General Meeting for the cancellation of the Listing of the Ordinary Shares (including the New Shares) from the premium segment of the Official List and to remove such Ordinary Shares (and New Shares) from trading on the Main Market. Such cancellation and removal would not be effective if, on completion of the Open Offer, the Company is not in breach (or would not be in breach) of LR9.2.15 of the Listing Rules (i.e. at least 25% of the Ordinary Shares would remain in public hands) at Admission. If, as a result of the Open Offer, the Company is in breach (or would be in breach) of LR9.2.15 of the Listing Rules (which stipulates that at least 25% of a Company’s issued share capital must be in public hands at all times) at Admission, the cancellation of the listing of Ordinary Shares on the premium segment of the Official List and the removal of such Ordinary Shares from trading on the Main Market will take effect on 26 July 2012. In such circumstances, the Company would immediately seek the admission of the Ordinary Shares to trading on AIM, but such admission cannot be guaranteed.
22
OPEN OFFER STATISTICS Price per New Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 pence Number of Existing Shares in issue as at the date of this document . . . . . . . . . . . . . . . . . . . . . . . . 304,607,849 Maximum number of New Shares to be issued pursuant to the Open Offer . . . . . . . . . . . . . . . . . 794,629,171 Maximum number of Ordinary Shares in issue immediately following completion of the Open Offer(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,099,237,020 Maximum number of New Shares as a percentage of the enlarged issued share capital of Namakwa immediately following completion of the Open Offer(1) . . . . . . . . . . . . . . . . . . . . . . . . 72.3% Gross proceeds of the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c.US$55 million Estimated expenses of the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c.US$1.5 million Note: (1) On the assumption that no further Ordinary Shares are issued as a result of: (i) the exercise of any options under the Namakwa Employee Share Plan; or (ii) the conversion of “A” Preference Shares in the capital of NDHL, between 5 June 2012 (being the latest practicable date prior to the date of this document) and the closing of the Open Offer. There are no Ordinary Shares held in treasury as at the date of this document other than in respect of the accounting treatment of Ordinary Shares held by the Namakwa Diamonds Employee Benefit Trust, as described in more detail in the paragraph “Namakwa Diamonds Employee Benefit Trust” of Part X: “Additional Information” of this document.
23
SUMMARY OF ACTIONS TO BE TAKEN You are advised to read the whole of this document carefully. To accept the Open Offer: •
If you are a Qualifying Shareholder and you wish to accept the Open Offer, you should complete the Application Form in accordance with the instructions printed on it and the information provided in this document and sign and return it as soon as possible. Completed Application Forms should be posted, along with a cheque or banker’s draft drawn in the appropriate form, in the accompanying pre-paid envelope (for use within the UK only) or returned by post or by hand (during normal business hours only), to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU (who will act as Receiving Agent in relation to the Open Offer) so as to be received by Capita Registrars by no later than 11.00 a.m. on 27 June 2012, after which time Application Forms will not be valid.
•
If you are a Qualifying DI Holder and you wish to accept the Open Offer, you should follow the instructions set out in paragraph 5 entitled “Procedure for application and payment for Qualifying DI Holders” of Part III: “Terms and Conditions of the Open Offer” of this document. Persons who hold Depository Interests representing Existing Shares through a CREST member should be informed by the CREST member through which they hold their Depository Interests representing Existing Shares of the number of New Shares for which they are entitled to subscribe under the Open Offer and should contact them should they not receive this information.
To vote on the Resolutions: •
If you are a Shareholder, whether or not you intend to be present at the Special General Meeting, you are requested to complete the Form of Proxy in accordance with the instructions printed on it, sign and return the form by post or by hand (during normal business hours only) so as to be received by PXS, 34 Beckenham Road, Beckenham, BR3 4TU, as soon as possible and, in any event, so as to arrive no later than 4.00 p.m. on 25 June 2012. Completion and return of the Form of Proxy will not prevent you from attending the Special General Meeting and voting in person if you wish.
•
If you are a DI Holder, whether or not you intend to be present at the Special General Meeting, you are requested to complete the Form of Direction to instruct the Depository to vote the number of Ordinary Shares in Namakwa represented by your Depository Interests, as per your instruction, in relation to the Resolutions and in accordance with the instructions printed on it, sign and return the form by post or by hand (during normal business hours only) and in any case, so as to be received by Capita IRG Trustees Limited, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, as soon as possible and, in any event, so as to arrive no later than 4.00 p.m. on 22 June 2012. If you hold your Depository Interest via the Depository Interest arrangement and would like to attend the Special General Meeting, please contact the Depository on the contact details set out on page 26.
Questions and Answers / Shareholder helpline If you have any questions: •
please refer to Part II: “Some Questions and Answers About the Open Offer” of this document; and/or
•
please contact the Shareholder helpline on 0871 664 0321 (from within the UK) or +44 20 8639 3399 (from outside the UK). Calls to the Capita Registrars 0871 664 0321 number are charged at 10 pence per minute (including VAT) plus any of your service provider’s network extras. Calls to the Capita Registrars +44 20 8639 3399 number from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. For legal reasons, the Shareholder helpline will only be able to provide information contained in this document (and, in addition, information relating to Namakwa’s register of members) and will not be able to provide advice on the merits of the Open Offer or give any financial, legal, tax or investment advice.
If you are in any doubt as to the action you should take, you are recommended to seek immediately your own personal financial advice from your stock broker, bank manager, solicitor, accountant or other appropriate independent professional adviser, who specialises in advising on the acquisition of shares or other transferable securities and who is authorised under the FSMA if you are resident in the UK, or, if not, from another appropriately authorised independent financial adviser. 24
DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS Directors
Mr. Edward Haslam (Non-Executive Chairman) Mr. Richard Collocott (Chief Executive Officer) Ms. Melissa Sturgess (Senior Independent Non-Executive Director) Mr. Marthinus Mulder (Independent Non-Executive Director) Mr. Robert Reid (Independent Non-Executive Director) Mr. Allen Gessen (Non-Executive Director) Mr. Gerard Holden (Non-Executive Director)
Company Secretary
Marcia Spencer Codan Services Limited Clarendon House 2 Church Street Hamilton HM11 Bermuda
Registered Office
Clarendon House 2 Church Street Hamilton HM11 Bermuda
Sponsor and Financial Adviser
Shore Capital and Corporate Limited Bond Street House 14 Clifford Street London W1S 4JU United Kingdom
Broker
Shore Capital Stockbrokers Limited Bond Street House 14 Clifford Street London W1S 4JU United Kingdom
Legal Adviser to Namakwa as to English law
Taylor Wessing LLP 5 New Street Square London EC4A 3TW United Kingdom
Legal Adviser to Namakwa as to Bermuda law
Conyers Dill & Pearman Limited Clarendon House 2 Church Street Hamilton HM11 Bermuda
Legal Adviser to the Sponsor, Financial Adviser and Broker as to English law
Adams & Remers LLP Dukes Court 32 Duke Street St James’s London SW1Y 6DF United Kingdom
Auditors
PricewaterhouseCoopers Inc 2 Eglin Road Sunninghill 2157 Johannesburg South Africa
Reporting Accountants
PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH United Kingdom
25
Technical Consultants
Venmyn Rand (Pty) Ltd First Floor, Block G Rochester Place 173 Rivonia Road Sandton 2146 South Africa
Registrars
Capita Registrars (Jersey) Limited 12 Castle Street St Helier Jersey JE 3RT
Depository
Capita IRG Trustees Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU United Kingdom
Receiving Agent
Capita Registrars Corporate Actions The Registry 34 Beckenham Road Beckenham Kent BR3 4TU United Kingdom
26
PART I — LETTER FROM THE CHAIRMAN OF NAMAKWA DIAMONDS LIMITED
(Incorporated and registered in Bermuda in accordance with the laws of Bermuda with registered number 39031) Directors Mr. Edward Haslam (Non-Executive Chairman) Mr. Richard Collocott (Chief Executive Officer) Ms. Melissa Sturgess (Senior Independent Non-Executive Director) Mr. Marthinus Mulder (Independent Non-Executive Director) Mr. Robert Reid (Independent Non-Executive Director) Mr. Allen Gessen (Non-Executive Director) Mr. Gerard Holden (Non-Executive Director)
Registered office Clarendon House 2 Church Street Hamilton HM11 Bermuda
6 June 2012
To Shareholders Dear Shareholder 60 for 23 Open Offer to Qualifying Shareholders and Qualifying DI Holders of up to 794,629,171 New Shares at a price of 4.5 pence per New Share and Notice of Special General Meeting 1.
Introduction
Namakwa announced today its proposal to raise c.US$55 million (c.US$53.5 million net of expenses) by the issue of up to 794,629,171 New Shares through an Open Offer at 4.5 pence per New Share. The Offer Price represents a 5.88% premium to the Closing Price for an Ordinary Share as at 1 June 2012 (the latest practicable date prior to the date of this document). The New Shares are being made available to Qualifying Shareholders and Qualifying DI Holders, who have the right to subscribe for their pro rata Open Offer Entitlements, together with a right to subscribe for additional New Shares pursuant to the Excess Application Facility, each in accordance with the terms of the Open Offer. The purpose of this document is to provide you with details of the Open Offer, to explain why your Board considers it to be in the best interests of Namakwa and its Shareholders as a whole, and to recommend that you vote in favour of the Resolutions to be proposed (in accordance with the Bermuda Companies Act and the Company’s Bye-laws) at the Special General Meeting to be held on 27 June 2012, the notice for which is set out at the end of this document. You are recommended to read the whole of this document and not to rely on only part of it. In particular, you are advised to consult the section entitled “Risk Factors” on pages 6 to 17. 2.
Information on the Company
Namakwa is a diamond resource group, which seeks to extract maximum value from the mining, marketing and sale of Group production. The Group’s mining activities are focused on the Kao Mine in Lesotho, which is expected to become the largest producer of diamonds in Lesotho within the next 12 months. Operated by Storm Mountain Diamonds and its leading hard-rock mining team, with a proven track record in the construction and development of Lesotho’s leading kimberlite pipes, the Kao Mine presents a 189Mt kimberlite resource of c.12.8 million carats (c.4 million indicated and c.8.8 million inferred), with an additional 1.7 million carats at a deposit level of confidence, in which Namakwa holds a 62.5% interest. The Group also maintains alluvial mining operations in the North West Province of South Africa and resource-development properties in the Northern Cape Province of South Africa and the offshore marine environment of Namibia. 3.
Background to and reasons for the Open Offer
The Company is seeking to address anticipated future liquidity constraints on the business caused by the short-term nature of its borrowings and in particular, the need to re-finance: (a) the Sputnick Facility by 30 June 2012; and (b) the Jarvirne Facility before the financial covenants and the interest rate becomes prohibitive in FY2013, which could lead to a default under the Facilities, and enforcement of security if not settled. In addition to putting the Company in a position to repay the Facilities, the Board anticipates that the proceeds of the Open Offer will also provide adequate working capital to support the Group prior to its expected move into a net-cash generative position in Q4’FY2012, and in particular will provide a platform for the further development of the Kao Mine. 27
(a) The Sputnick Facility The Company entered into the Sputnick Facility following: •
operational challenges at the Kao Mine, which resulted in a delay in the production ramp-up and reduced operational cash flows;
•
the delayed execution of a potential sale of non-core assets; and
•
the resulting conclusion that the total amount of US$40 million available under the Jarvirne Facility would be insufficient to meet the Group’s short-term funding requirements.
The Sputnick Facility is a short-term, unsecured bridge facility, pursuant to which Sputnick agreed to lend US$10 million in up to six tranches to Namakwa. The Company is required to repay the loan on the earlier of 30 June 2012 and the date on which Namakwa receives the proceeds of an equity fund raising transaction of up to US$55 million. All of the interest that accrues on the loan prior to this repayment date is payable on that date at a rate of 15% per annum. If the loan is not repaid when due, interest is charged at a rate of 18% per annum up to and including 30 June 2012 and at a rate of 27% per annum on and after 1 July 2012. This interest will be compounded monthly and must be paid by Namakwa immediately on demand from Sputnick. Under the terms of the Sputnick Facility, no further amounts are permitted to be drawn under the Jarvirne Facility. As at the date of this document, the Sputnick Facility was fully drawn down (US$10 million). (b) The Jarvirne Facility As at the date of this document, Namakwa has drawn US$35.2 million under the Jarvirne Facility and no further drawdowns are available to the Company. Under the terms of the facility: •
interest will accrue at 24% from 8 September 2012, meaning that if amounts drawn are not repaid until 30 September 2013 (being the final payment date), accrued interest would by then be c.US$9.1 million;
•
as a result of the delayed ramp-up in production at the Kao Mine and operational cash flows, Namakwa expects to be unable to meet the terms of the financial covenants contained in the facility, from 1 September 2012; and
•
Namakwa is required to repay the facility from the proceeds of the Open Offer.
In the event that the Company was unable to meet its obligations under the Jarvirne Facility, it may be possible for Jarvirne to call an event of default. In addition, a default under the Sputnick Facility would also lead to a crossdefault under the Jarvirne Facility, making that facility repayable on demand. In either case, Jarvirne would being entitled to: (i) call upon the immediate repayment of amounts drawn down under the Jarvirne Facility; and (ii) seek to enforce its rights of security over: (a) the assignment of the inter-company loans between Namakwa and Storm Mountain Diamonds which were US$83.51 million as at 30 April 2012; and (b) Namakwa’s 62.5% shareholding in the capital of Storm Mountain Diamonds. The latter security, a share charge executed by Namakwa on 29 May 2012, provides that a continuing event of default under the Jarvirne Facility, would entitle Jarvirne to immediately enforce its rights under this share charge. If Jarvirne enforced its rights under the share charge, Namakwa would likely lose control of Storm Mountain Diamonds as a result of the shares in Storm Mountain Diamonds being sold to such third party as Jarvirne nominated in order to repay the monies owed by Namakwa to Jarvirne under the Jarvirne Facility. (c) Alternative finance Given the inherent risks associated with the diamond sector, there is risk that the Kao Mine could fail to generate revenues necessary to repay the Facilities and there is no guarantee that a refinancing could be found on commercially reasonable terms (if at all). In such circumstances, the Directors believe that the only reasonable options available to the Company to refinance its current debt in a reasonable timeframe would be to sell Group assets or enter into a structured securities transaction with a third party willing to provide the necessary finance. Any such securities transaction would be unlikely to be on a pre-emptive basis and as such, Shareholders would face significant dilution. In the event that such transactions were not available to the Company in a reasonable timeframe, then the only other option for the Company would be to consider the requirements for appointing a provisional liquidator in Bermuda.
28
4.
Current trading and prospects
As at 25 May 2012, FY2012 year-to-date production at the Group’s Kao Mine was 68,240 carats from 651,810 tonnes processed, with an average grade of 10.47cpht. Unit costs remain in line with expectations and May 2012 tender sales of diamonds from the Kao Mine achieved average prices of US$395/ct with the average year-to-date sales price at US$276/ct. At least 10 tender sales are expected to be held during 2012 as the mine moves into full production. The 500tph processing plant is currently running at c.250tph / 6,000 tonnes per day, processing predominately hardrock ores. The ramp-up of processing to nameplate capacity of 500tph has been delayed during the financial year due to the reported operational challenges encountered with the processing plant’s scrubber and the low levels of make-up process water available to the mine in drought-like conditions. The optimal use of limited process water currently available remains a key element to ongoing production. The mine’s water pipeline from the confluence of the Kao and Malibamotso Rivers is scheduled to be in service from mid-July 2012 and, until such time available make-up process water from current accessible water sources, is expected to be sufficient to allow the mine to meet revised production targets. However, in the event that the pipeline is not commissioned on schedule and/or there is no additional rainfall to replenish current sources of supply then there is a risk that operations at the Kao Mine may need to be reduced or otherwise suspended temporarily until sufficient make-up process water is available. In light of the reported operational challenges during the Kao Mine’s ramp-up phase and the impact of the measures undertaken to ensure the optimal use of current water resources ahead of the commissioning of the supplemental water pipeline, FY2012 production targets have been reduced to 150,000 carats. As at 25 May 2012, FY2012 year-to-date production at the Group’s alluvial mining operations in the North West Province of South Africa was 16,569 carats from 2,341,770 tonnes processed, with an average grade of 0.71cpht. Unit costs remain in line with expectations and average year-to-date sales prices at US$764/ct (H1’FY2012: US$632/ct). Recent significant discoveries include a high value 44.47ct diamond and an exceptionally rare 11.36ct pink diamond, placing them in the top five diamonds recovered from the mining area during the Company’s tenure, in terms of value per carat in the rough. The pink diamond has not yet been sold, but ranks alongside the 7.53ct vivid orange diamond discovered in October 2010 in terms of rareness and quality and demonstrates the potential upside for the mining area when operated on the current streamlined basis. Production targets for the mining area for FY2012 remains unchanged at 20,000 carats. With the proceeds of the Open Offer being used to repay the Company’s debt and provide necessary working capital to meet short-term capital and operational requirements, the Company remains on-line to move into a cashflow positive position in Q4’FY2012. Thereafter, the Company’s restructured balance sheet would be expected to provide a platform for revenue growth, positive EBITDA and free cash-flow, commensurate with the Kao Mine’s production profile of c.1Mcts in the period FY2012 — FY2015, supported by stable production from cashgenerative operations in the North West Province of South Africa, which have a track-record of producing special diamonds of significant value. Furthermore, a potential feasibility study on the Phase 2 development of the Kao Mine could demonstrate potential for a doubling-up of production to 1,000tph and an additional 21 year life of mine. 5.
Going concern
The Group made a consolidated loss of US$15.40 million during the first half of FY2012 and, as at 29 February 2012, current assets marginally exceeded current liabilities by US$0.71 million. The Group also incurred a cash outflow from operating and investment activities of US$23.42 million during the first half of FY2012 and had available cash resources of US$6.15 million as at 29 February 2012. The financial performance and position of the Group indicates the existence of a material uncertainty which may cast significant doubt over its ability to continue operating as a going concern, unless: (i) the Sputnick Facility remains available to the Company pursuant to its terms; and (ii) such facility is refinanced out of the proceeds of the Open Offer, or otherwise, before 30 June 2012. If such conditions are met, then the Board is satisfied that the Group is a going concern. Given the nature of Namakwa’s current financial position, the Group’s auditors, PricewaterhouseCoopers Inc, have issued a modified review conclusion on the interim results for the six months ended 29 February 2012 by including in their report an emphasis of matter over the Group’s ability to continue operating as a going concern. 29
6.
Legal and arbitration proceedings
On 30 November 2011, the High Court of Lesotho dismissed the claim of Batla Minerals SA and, its subsidiary, Toro Diamonds Lesotho (Pty) Ltd (together, “Batla Minerals”) to a 50% interest in Namakwa’s 62.5% shareholding in Storm Mountain Diamonds, with costs awarded to Namakwa. Batla Minerals subsequently informed Namakwa on 15 December 2011 of its intention to exercise its rights to appeal the decision of the High Court. On 27 April 2012, the Lesotho Court of Appeal granted leave to Batla Minerals to file its record of appeal late and by a long-stop date of 30 June 2012. Namakwa did not challenge Batla Minerals’ application, as, in accordance with the decision of the Lesotho High Court, Namakwa considers Batla Minerals’ claim to be without merit. Namakwa understands that the next session of the Lesotho Court of Appeal is scheduled for September/October 2012, at which time Namakwa expects that the substantive appeal of Batla Minerals’ is likely to be heard. Namakwa will continue to defend its rights vigorously. At this stage, the Directors are unable to quantify the value of Batla Minerals claim against the Company. However, as at 30 April 2012 (being the latest practicable date prior to the publication of this document), Namakwa’s total investment in Storm Mountain Diamonds was US$83.51 million. If the Lesotho Court of Appeal was to overturn the decision of the Lesotho High Court of 30 November 2011, Namakwa would seek recourse from Batla Minerals for a minimum of 50% of its then current investment in Storm Mountain Diamonds. 7.
Principal terms of the Open Offer
(a) General The Company is proposing to issue up to 794,629,171 New Shares pursuant to the Open Offer. Subject to the terms and conditions of Part III: “Terms and Conditions of the Open Offer” of this document (and, in the case of Qualifying Shareholders, in the Application Form), Qualifying Shareholders and Qualifying DI Holders are being given the opportunity to apply to subscribe under the Open Offer for New Shares at the Offer Price payable in full on application and free of expenses, pro rata to their existing holdings of Existing Shares or DIs representing Existing Shares, on the following basis: 60 New Shares for every 23 Existing Shares held by them or as DIs representing Existing Shares, in each case registered in the names of Qualifying Shareholders, or in respect of which Qualifying DI Holders are registered in the DI register, at the Record Date, and so on in proportion for any other number of Existing Shares or Depository Interests representing Existing Shares then registered. The Board has deemed it necessary to set the Record Date, and has done so in accordance with the Admission and Disclosure Standards and Bye-law 2.6(i). Applications by Qualifying Shareholders and Qualifying DI Holders will be satisfied in full up to the amount of their individual Open Offer Entitlements. Qualifying Shareholders and Qualifying DI Holders will also be entitled, provided they subscribe for their Open Offer Entitlement in full, to apply for additional New Shares in excess of their Open Offer Entitlements through the Excess Application Facility. If applications under the Excess Application Facility are received for more than the total number of New Shares available, following subscription for Open Offer Entitlements, such applications will be scaled back pro rata to each subscriber for such additional New Shares under the Excess Application Facility, based on their Record Date holding and any decision by the Board in respect of such scale back shall be final. The New Shares will be offered at the Offer Price to Qualifying Shareholders and Qualifying DI Holders. In setting the Offer Price for the New Shares, the Directors have considered the price at which the New Shares need to be offered to all Shareholders in order to ensure the success of the Open Offer, taking into consideration the levels of proceeds being sought as compared with the current market capitalisation of Namakwa. The Directors believe that the Offer Price (and the premium that it represents) is appropriate. The New Shares will be issued fully paid and will be identical to and rank pari passu in all respects with the Existing Shares and will rank in full for all dividends and other distributions declared, made or paid on or after Admission in respect of the share capital of the Company. The Board has deemed it desirable to exclude fractional entitlements from the terms of the Open Offer, and accordingly, pursuant to its authority under Bye-law 2.6(f), has disapplied any such rights. Accordingly, entitlements of Qualifying Shareholders and Qualifying DI Holders will be rounded down to the nearest whole number of New Shares. Fractions representing New Shares which would otherwise have arisen will not be allotted to Qualifying Shareholders or allotted to the Depository on behalf of Qualifying DI Holders, as applicable. As a 30
result, Qualifying Shareholders and Qualifying DI Holders holding fewer than 23 Existing Shares or holding fewer than 23 DIs representing Existing Shares will have no entitlement to subscribe under the Open Offer for New Shares or DIs representing New Shares. Qualifying Shareholders and Qualifying DI Holders should be aware that the Open Offer is not a rights issue. As such, Qualifying Shareholders should note that their Application Forms are not negotiable documents and cannot be traded. Qualifying DI Holders should note that, although their Open Offer Entitlements will be credited to their CREST accounts, the Open Offer Entitlements will not be tradeable or listed and applications in respect of Open Offer Entitlements may only be made by Qualifying DI Holders originally entitled or by a person entitled by virtue of a bona fide market claim. Qualifying Shareholders and Qualifying DI Holders should be aware that, in the Open Offer, unlike a rights issue, any New Shares which are not applied for in respect of the Open Offer will not be sold in the market on behalf of or placed for the benefit of Qualifying Shareholders or Qualifying DI Holders as applicable. As set out in paragraph 10 below, Jarvirne has irrevocably undertaken to subscribe for up to 794,063,295 New Shares. Further details of the Open Offer and the terms and conditions on which it is being made, including the procedure for application and payment, are contained in Part III: “Terms and Conditions of the Open Offer” of this document and, where applicable, in the accompanying Application Form. To be valid, Application Forms (duly completed by Qualifying Shareholders) and payment in full for the New Shares applied for, should be delivered to the Company’s receiving agent, Capita Registrars, at Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU by post or (during normal business hours only) by hand as soon as possible but in any event so as to arrive by no later than 11.00 a.m. on 27 June 2012. Qualifying Shareholders and Qualifying DI Holders should respectively refer to paragraph 4 entitled “Procedure for application and payment for Qualifying Shareholders” and paragraph 5 entitled “Procedure for application and payment for Qualifying DI Holders” each of Part III: “Terms and Conditions of the Open Offer” of this document for the procedure to participate in the Open Offer. Before making any decision to subscribe for New Shares, Qualifying Shareholders and Qualifying DI Holders are asked to read and carefully consider all information in this document, and the documents incorporated by reference. (b) Conditions The Open Offer is conditional, inter alia, upon: •
the passing, without material amendment, of the Open Offer Resolutions at the Special General Meeting; and
•
Admission becoming effective by not later than 8.00 a.m. on 28 June 2012 (or such later time and date as the Company may decide, being not later than 29 June 2012).
If the conditions are not satisfied, the New Shares will not be issued under the Open Offer and all monies received by the Company’s receiving agent, Capita Registrars, will be returned to the applicants (at the applicant’s risk and without interest) as soon as possible thereafter. (c) Timing In accordance with Bye-law 2.6(e), the Open Offer will remain open for acceptances for a period of not less than 21 days. The Open Offer will not be withdrawn before the end of such period and no applications under the Excess Application Facility will be dealt with until such period has lapsed. However, if the Jarvirne Undertaking is withdrawn (in accordance with statutory withdrawal rights) the Open Offer shall lapse. Such statutory withdrawal rights include the situation where a supplementary prospectus has been published, which would allow Jarvirne to withdraw from the Jarvirne Undertaking before the end of the period of two working days beginning with the first working day after the date on which the supplementary prospectus was published. A supplementary prospectus would be required to be published in circumstances where, prior to the completion of the Open Offer and/or of Admission, a significant new factor, material mistake or inaccuracy relating to the information provided in this document arises or is identified. ‘Significant’ for these purposes would mean information necessary to enable Shareholders and investors to make an informed assessment of: (i) the assets and liabilities, financial position, profits and losses, and prospects of the Company; and (ii) the rights attaching to the Ordinary Shares. Application has been made to the UKLA and to the London Stock Exchange for the New Shares to be admitted to the premium segment of the Official List and to trading on the London Stock Exchange’s market for listed securities, respectively. It is expected that Admission will occur and that dealings in the New Shares on the London Stock Exchange will commence at 8.00 a.m. on 28 June 2012. The latest time and date for acceptance and payment in full for the New Shares is 11.00 a.m. on 27 June 2012. 31
(d) Overseas Shareholders The Board has deemed it desirable to exclude the Open Offer being made to Overseas Shareholders, and accordingly, pursuant to its authority under Bye-law 2.6(f), the Open Offer is only being made to Qualifying Shareholders or Qualifying DI Holders who are not located or resident in, or who not are citizens of, or who do not have a registered address in any of the Excluded Territories (subject to certain exemptions). The attention of Qualifying Shareholders and Qualifying DI Holders who have registered addresses outside the UK, or who are citizens or residents of countries outside the UK, or who are holding Existing Shares or DIs representing Existing Shares for the benefit of such persons (including, without limitation, custodians, nominees, trustees and agents) or who have contractual or other legal obligation to forward this document, and the accompanying documents, to such persons, is drawn to the information which appears in paragraph 10 entitled “Overseas Shareholders” of Part III: “Terms and Conditions of the Open Offer” of this document. (e) Effect of the Open Offer On completion of the Open Offer, the New Shares will represent approximately 72.3% of the enlarged issued share capital of Namakwa. Assuming the Open Offer is accepted in its entirety, following the issue of the New Shares to be allotted pursuant to the Open Offer, Qualifying Shareholders and Qualifying DI Holders who do not subscribe for any of their Open Offer Entitlements will suffer a substantial dilution of approximately 61.7% to their aggregate interests in the Company. The Listing Rules require, as a continuing obligation to admission of the Ordinary Shares (including the New Shares) to the Official List, that at least 25% of the Ordinary Share (including the New Share) capital remains in public hands (the “Free Float obligation”). Depending upon the level of take-up by Qualifying Shareholders and Qualifying DI Holders of their Open Offer Entitlements to the New Shares, it is possible that there could be a breach of the Free Float obligation. If sufficient Qualifying Shareholders and Qualifying DI Holders do not take up their Open Offer Entitlements to the New Shares, it is possible that less than 25% of the enlarged Share capital following completion of the Open Offer could be held in public hands (thereby breaching LR9.2.15 of the Listing Rules). In this situation, subject to Shareholder approval having been given pursuant to Resolution 7, the Company will cancel its listing of Ordinary Shares on the premium segment of the Official List and remove such Ordinary Shares from trading on the Main Market on 26 July 2012. In such circumstances, the Company would immediately seek the admission of its Ordinary Shares (including the New Shares) to trading on AIM, where no such Free Float requirement applies. Shareholder approval of not less than 75% of holders of Ordinary Shares is required under LR5.2.5 of the Listing Rules for the cancellation of the Company’s listing. For this reason, approval of Resolution 7 will be sought by the Board at the Special General Meeting in order to authorise it to cancel the listing of Ordinary Shares (including the New Shares) on the premium segment of the Official List and to remove such Ordinary Shares (and New Shares) from trading on the Main Market. Separately, Resolution 7, if passed, would allow the Company to seek the admission of the Ordinary Share (including New Share) capital to trading on AIM. This Resolution shall be conditional upon less than 25% of the Ordinary Share (and New Share) capital being held in public hands at Admission. If the Company is not in breach (or would not be in breach) of LR9.2.15 of the Listing Rules at Admission, the Board will otherwise seek to maintain the listing on the premium segment of the Official List and the trading of Ordinary Shares on the Main Market. It is the Company’s understanding that the FSA would not seek to suspend or cancel the listing of the Company’s shares on the Official List during the period above of approximately 20 Business Days, unless there exists a disorderly market in the Ordinary Shares (and New Shares). Following Admission, should less than 25% of the Ordinary Share (and New Share) capital be held in public hands, the Company will inform the FSA as soon as practicable that it is in breach of LR9.2.15 of the Listing Rules and (since Resolution 7 would have been passed) give 20 Business Days’ notice of its intention to cancel the listing of Ordinary Shares (including the New Shares) on the premium segment of the Official List and to remove such Ordinary Shares (and New Shares) from trading on the Main Market. The Company would, in such circumstances, seek admission to AIM under AIM’s streamlined process for companies that have had their securities traded upon on an AIM Designated Market. There is no guarantee that the Directors would be successful in achieving admission to AIM or to an alternative exchange or that there would not be a period during which the Ordinary Share (and New Share) capital will not be admitted to trading on an alternative exchange. There is no guarantee that (if admitted to AIM) Shareholders will not in the future pass a resolution cancelling trading in the Company’s shares from AIM. If the Ordinary Share (and New Share) capital is unlisted (or is admitted to trading on an alternative investment exchange), the ability to buy and sell shares in the Company could be materially restricted and the Company would no longer be required to comply with any of the additional corporate governance or regulatory requirements applicable to companies admitted to the Official List and to trading on the Main Market. 32
Admission to AIM would not affect the way in which Shareholders buy or sell Ordinary Shares and Depository Interests (including through CREST). Share certificates representing those Ordinary Shares held in certificated form would continue to be valid and no new share certificates would be issued. By virtue of AIM being less regulated than the Official List, an investment in securities traded on AIM carries a higher risk than those listed on the Official List. The future success of AIM cannot be guaranteed. AIM is a market for emerging or smaller, growing companies and may not provide the liquidity normally associated with the Official List or other exchanges. Liquidity on AIM is currently provided by market makers who are member firms of the London Stock Exchange and are obliged to quote a share price for each company for which they make a market between 8.00 a.m. and 4.30 p.m. on Business Days. Further, it may be more difficult for an investor to realise its investment in an AIM-traded company than a company whose securities are listed on the Official List. Shareholders should consider the different obligations of an AIM company, as summarised in Part XIV: “Obligations of an AIM Company” of this document. Shareholders should also consult their own tax advisers in relation to the implications of the move of listing from the Official List (whether to AIM, an alternative exchange or no alternative exchange). 8.
Open offer by NDHL to holders of “A” Preference Shares
Namakwa’s intermediate holding company for its South African operations is Namakwa Diamond Holdings (Pty) Limited (“NDHL”). Namakwa holds 100% of the ordinary shares of NDHL, whilst certain third parties predominantly located in South Africa hold 100% of the “A” Preference Shares of NDHL. The “A” Preference Shares carry certain economic rights similar to the Ordinary Shares, including an entitlement to the same dividend rights as Ordinary Shareholders, so that when Namakwa declares a dividend in respect of the Ordinary Shares, then the “A” Preference Shareholder will become entitled to a dividend. In addition: (i) “A” Preference Shareholders are entitled to require NDHL to repurchase their “A” Preference Shares at any time, with the repurchase price being determined by calculating the aggregate of the par value of the “A” Preference Shares plus any unpaid dividend plus the weighted average traded price of Ordinary Shares for the 30-day period prior to repurchase; and (ii) in certain circumstances, NDHL will be required to use reasonable endeavours to procure, in co-operation with Namakwa and the relevant “A” Preference Shareholder, the subscription and purchase of such number of Ordinary Shares as is equal to the number of “A” Preference Shares being repurchased. As a result of the Open Offer, NDHL has determined that it is in the best commercial interests of NDHL to offer “A” Preference Shareholders the opportunity to participate in an open offer of NDHL on similar terms to the Open Offer in order to maintain the relative economic rights of the “A” Preference Shares, vis-à-vis the Ordinary Shares. 9.
Financial effects of the Open Offer
Unaudited pro forma financial statements showing the expected impact of the Open Offer on the assets and liabilities of Namakwa are set out in Part VII: “Unaudited Pro Forma Financial Information” of this document. This unaudited pro forma financial information has been prepared to illustrate the effect on the Group’s consolidated statement of financial position of the Open Offer, as if it had been completed on 29 February 2012. The accounting policies used in the preparation of the unaudited pro forma financial information are consistent with those used by Namakwa in its audited consolidated financial statements as at 31 August 2011. 10.
Jarvirne Undertaking and effects of the Open Offer on Jarvirne
Jarvirne has irrevocably undertaken, conditional only upon the publication of this document to: •
subscribe for 257,387,369 New Shares, being its Open Offer Entitlement;
•
subscribe for up to a further 536,675,926 New Shares under the Excess Application Facility (subject to scale back in accordance with the terms and conditions of the Open Offer); and
•
vote in favour of each of the Relevant Resolutions (although the Company understands that Jarvirne will be voting against Resolutions 4 and 6).
The Jarvirne Undertaking may only be withdrawn in accordance with statutory withdrawal rights and will otherwise cease to have effect on the Open Offer being withdrawn or lapsing or in any event after 1 August 2012. Provided that Admission occurs on or before 1 August 2012, which is the Company’s expectation, the lapse of the Jarvirne Undertaking after 1 August 2012 will not affect the Open Offer. Statutory withdrawal rights include the situation where a supplementary prospectus has been published, which would allow Jarvirne to withdraw from the Jarvirne Undertaking before the end of the period of two working days beginning with the first working day after the date on which the supplementary prospectus was published. A supplementary prospectus would be required to be published in circumstances where, prior to the completion of the Open Offer and/or of Admission, a significant new factor, material mistake or inaccuracy relating to the information provided in this document arises or is identified. ‘Significant’ for these purposes would mean information necessary to enable Shareholders and investors to make an informed assessment of: (i) the assets and liabilities, financial position, profits and losses, and prospects of the Company; and (ii) the rights attaching to the Ordinary Shares. 33
As at the date of this document, Jarvirne owns 98,665,158 Ordinary Shares representing 32.39% of the issued share capital of Namakwa. If the Open Offer is approved by Shareholders (and assuming Jarvirne subscribes for 794,063,295 New Shares, being the maximum number it is required to subscribe for pursuant to the Jarvirne Undertaking in circumstances where no other Shareholders subscribe for their Open Offer Entitlements), Jarvirne shall own 81.3% of the enlarged issued share capital of Namakwa. As Namakwa is incorporated in Bermuda, the Takeover Code does not apply to Namakwa and Bermuda law does not contain any provisions similar to those in the United Kingdom which are designed to regulate the way in which takeovers are conducted. However, to the extent permitted under the Bermuda Companies Act, Bye-law 82 adopts certain of the provisions of the Takeovers Code, including provisions dealing with compulsory takeover offers, which are to be administered by the Board. In particular, Bye-law 82.1(b) provides that (except in certain permitted circumstances) a person must not acquire whether by himself or with persons determined by the Board to be acting in concert with him) an interest in Ordinary Shares in Namakwa which increase his percentage of voting rights of the Company whilst he (together with persons determined by the Board to be acting in concert with him) is interested in Ordinary Shares which carry between 30% and 50% of the voting rights of the Company. The Board has determined that Jarvirne’s subscription for New Shares under the Excess Application Facility is a ‘Permitted Acquisition’ for the purposes of Bye-law 82.4. The effect of such determination is that Shareholders will not be required to approve such acquisition, and Jarvirne will not be requested to make an offer for the Ordinary Shares not already owned by it as may have been the case had the Takeover Code applied. If Jarvirne holds an interest in Ordinary Shares representing over 50% of the enlarged share capital of Namakwa: •
it will be in a position to exert dominant control over the outcome of matters relating to Namakwa, and by exercise of its voting rights, would be in a position to block the passing of ordinary (and special) resolutions and procure the passing of ordinary resolutions of Namakwa;
•
Bye-law 82 would cease to apply to any further acquisitions of Ordinary Shares made by Jarvirne with the effect that any such acquisitions would no longer need to qualify as ‘Permitted Acquisitions’ pursuant to Bye-law 82 would therefore not require Board approval, and no offer to purchase Ordinary Shares from Shareholders on the same terms would need to be made;
•
the Amended Relationship Agreement would become effective, resulting in the Relationship Agreement being amended to: (i) allow the Amended Relationship Agreement to terminate where the Ordinary Shares are no longer admitted to the Official List and to trading on the London Stock Exchange; (ii) allow Jarvirne to encourage the Directors to vote in favour of a Directors’ resolution, or to vote in favour of, or encourage others to vote in favour of, a Shareholders’ resolution, to cancel the Company’s status as a company whose Ordinary Shares are on the Official List; and (iii) remove restrictions upon Jarvirne exercising the voting rights attached to its Ordinary Shares before 1 November 2012 in connection with any proposal to change the structure of the Board; and
•
certain provisions of the Second Waiver and Amendment Letter would become effective, resulting in the removal of existing restrictions under the Waiver and Amendment Letter on Jarvirne acquiring Ordinary Shares from KFF in satisfaction of amounts owing to Jarvirne pursuant to the KFF Loan Agreement (such existing restrictions including the requirement for Shareholders to approve any such acquisition).
The Waiver and Amendment Letter currently restricts Jarvirne or its associates from acquiring further Ordinary Shares in the period to 1 November 2012 (subject to certain customary exceptions). This restriction has been removed by the Second Waiver and Amendment Letter. If Jarvirne holds an interest in Ordinary Shares representing 75% or more of the enlarged share capital of Namakwa, it would be in a position to pass special resolutions of Namakwa. The interests of Jarvirne may be different from the interests of Namakwa or Namakwa’s other Shareholders. Such control may have the effect of making certain transactions difficult or impossible without the support of Jarvirne, and may for example have the effect of delaying or preventing any financing or refinancing transactions proposed to be undertaken by Namakwa or an acquisition of Namakwa or other change in control of Namakwa. 11.
Use of proceeds
The net proceeds of the Open Offer will be c.US$53.5 million. The Directors intend to use these proceeds to: •
repay the principal amount and accrued interest of c.US$10.24 million in respect of the Sputnick Facility;
•
repay the principal amount of US$35.2 million in respect of the Jarvirne Facility; and
•
meet ongoing working capital requirements. 34
Transaction costs associated with the Open Offer are estimated to be c.US$1.5 million. 12.
Dividends and dividend policy
The Directors do not anticipate paying dividends in the near future and they will reconsider the Company’s dividend policy as the Company advances the development of its operations, in light of its then current results of operation, financial condition, cash requirements, future prospects, profits available for distribution and other factors deemed relevant at the time. 13.
Namakwa Employee Share Plan
In accordance with the rules of the Namakwa Employee Share Plan, the Board or remuneration committee of the Board, as applicable, may make adjustments to the number of Ordinary Shares subject to an option/award under such plan and/or the associated exercise price to take account of the issue of the New Shares pursuant to the Open Offer. Except as in the case of a capitalisation issue, any adjustments will be subject to prior confirmation from the auditors of the Company or other expert valuers that such adjustments are, in their opinion, fair and reasonable and have been subject to the prior approval of the relevant tax authorities, if required. Holders of options and awards under the Namakwa Employee Share Plan will be informed of any such adjustments and of the actions (if any) that they need to take in due course. 14.
Shareholder approvals
The Resolutions are summarised as follows: (a) Open Offer Resolutions •
the first Resolution is an ordinary resolution to increase Namakwa’s authorised share capital from US$218,750 divided into 350,000,000 Ordinary Shares to US$1,250,000 divided into 2,000,000,000 Ordinary Shares, by the creation of a further authorised but unissued 1,650,000,000 Ordinary Shares (subject to the passing of Resolution 7, if required). This resolution, if approved by Shareholders, will increase the authorised share capital of Namakwa by 471.43% and will allow the New Shares to be issued and allotted pursuant to the second, third and fourth Resolutions (if these resolutions are passed);
•
the second Resolution is an ordinary resolution to authorise the Directors to allot 794,629,171 New Shares in connection with the Open Offer (subject to the passing of Resolutions 1 and, if required, 7). This authority, if approved by the Shareholders, will expire at the conclusion of Namakwa’s Annual General Meeting in respect of the calendar year 2012 or, if earlier, on 26 September 2013 (unless otherwise revoked, renewed or amended);
•
the seventh Resolution is a special resolution to authorise the Board to cancel the Company’s listing of Ordinary Shares (and New Shares) on the premium segment of the Official List, remove such Ordinary Shares (and New Shares) from trading on the Main Market and to apply for admission of the Ordinary Share (and New Share) capital to trading on AIM. This Resolution is subject to, and conditional upon, the Company being (or being likely to be) in breach of the LR9.2.15 of the Listing Rules at Admission;
(b) Other Resolutions •
the third Resolution is an ordinary resolution to authorise the Directors to allot up to 5,300,000 New Shares in connection with the acquisition or the financing of the acquisition of up to 5,300,000 “A” Preference Shares in the capital of NDHL in accordance with their obligations to do so pursuant to the terms of the “A” Preference Shares (subject to the passing of Resolutions 1 and 2). This authority, if approved by the Shareholders, will expire on 26 June 2017;
•
the fourth Resolution is an ordinary resolution to authorise the Directors to allot up to 732,825,600 Ordinary Shares and is in addition to the proposed authority provided for in the second Resolution (subject to the Open Offer completing and the passing of Resolution 1). This authority, if approved by the Shareholders, will expire at the conclusion of Namakwa’s Annual General Meeting in respect of the calendar year 2012 or, if earlier on 26 September 2013 (unless otherwise renewed, revoked or amended);
•
the fifth Resolution is a special resolution to disapply and waive the pre-emption rights in Namakwa’s Bye-laws in respect of the allotment of Ordinary Shares authorised by Resolution 3 (subject to the passing of Resolution 3). This authority, if approved by the Shareholders, will expire on 26 June 2017. This will allow the Directors to allot the Ordinary Shares to the “A” Preference Shareholders mentioned above, without the need to offer them to all Shareholders; and 35
•
the sixth Resolution is a special resolution to disapply and waive the pre-emption rights in Namakwa’s Bye-laws in respect of the allotment of Ordinary Shares authorised by Resolution 4 (subject to the passing of Resolution 4) and is in addition to the proposed authority provided for in the fifth Resolution. This authority, if approved by the Shareholders, will expire at the conclusion of Namakwa’s Annual General Meeting in respect of the calendar year 2012 or, if earlier, on 26 September 2013 (unless otherwise renewed, revoked or amended).
Resolutions 1 and 2 are conditional upon the passing of Resolution 7, if required. However, this condition will not be effective if, on completion of the Open Offer, the Company is not (or would not be) in breach of LR9.2.15 of the Listing Rules (i.e. at least 25% of the Ordinary Shares would remain in public hands) at Admission. If you wish to subscribe for New Shares pursuant to the Open Offer, it is important that you vote in favour of Resolutions 1, 2 and 7, otherwise the Open Offer may not proceed. In addition to the above conditionality, Resolutions 2 and 4 will each have no effect if Resolution 1 is not passed. Resolution 3 will have no effect if Resolutions 1 and 2 are not passed. Resolution 5 will have no effect if Resolution 3 is not passed. Resolution 6 will have no effect if Resolution 4 is not passed. 15.
Special General Meeting
Your approval for the Resolutions will be sought at the Special General Meeting to be held at 4.00 p.m. on 27 June 2012 at the offices of Taylor Wessing LLP, 5 New Street Square, London EC4A 3TW. Notice of the Special General Meeting will be published in the Royal Gazette newspaper in Bermuda on 6 June 2012 in accordance with Namakwa’s Bye-laws, and is set out at Part XVI: “Notice of Special General Meeting” of this document. The implementation of the Open Offer is conditional upon the passing of the Open Offer Resolutions. In the event that the Open Offer Resolutions are not passed, the Open Offer will not proceed. 16.
Action to be taken
Please refer to “Summary of Actions to be Taken” on page 24 of this document for full guidance on how to vote on the Resolutions and/or to accept the Open Offer. 17.
Working capital
The Company is of the opinion that, taking into account existing cash resources and the net proceeds of the Open Offer, the Group has sufficient working capital for its present requirements, that is for at least a twelve month period from the date of this document. 18.
Importance of vote
If the Open Offer Resolutions are not passed, the Open Offer will not proceed, in which case, the Directors believe that: •
Namakwa will be unable to repay and will be in default of the Sputnick Facility. As at the date of this document, the Sputnick Facility was fully drawn down (US$10 million);
•
a default under the Sputnick Facility would also lead to a cross-default under the Jarvirne Facility, making that facility repayable on demand. If Jarvirne made such a demand and Namakwa was unable to satisfy it, Jarvirne would be entitled to enforce its security, including its security over the Company’s shares in Storm Mountain Diamonds. The latter security, a share charge executed by Namakwa on 29 May 2012, provides that a continuing event of default under the Jarvirne Facility, would entitle Jarvirne to immediately enforce its rights under this share charge. If Jarvirne enforced its rights under the share charge, Namakwa would likely lose control of Storm Mountain Diamonds as a result of the shares in Storm Mountain Diamonds being sold to such third party as Jarvirne nominated in order to repay the monies owed by Namakwa to Jarvirne under the Jarvirne Facility. As at the date of this document, US$35.2 million was drawn down under the Jarvirne Facility;
•
the re-financing of the Facilities with the proceeds of the Open Offer would not be possible. There is no guarantee that alternative financing could be found on commercially reasonable terms (if at all). In such circumstances, the Directors believe that the only reasonable options available to the Company to refinance its current debt in a reasonable timeframe would be to sell Group assets or enter into a structured securities transaction with a third party willing to provide the necessary finance. Any such securities transaction would be unlikely to be on a pre-emptive basis and as such, Shareholders would face significant dilution. In the event that such transactions were not available to the Company in a reasonable timeframe, then the only other option for the Company would be to consider the requirements for appointing a provisional liquidator in Bermuda; and 36
•
there is a risk that Namakwa would be unable to continue to finance the operations of Storm Mountain Diamonds at the Kao Mine which would have the effect that: (i) the Kao Mining Agreement (which grants Storm Mountain Diamonds the exclusive right to prospect for and mine diamonds in the Kao Production Area) could be terminated, as is permitted where, inter alia, the Company or Storm Mountain Diamonds become insolvent or where a lack of financing results in missed production targets (being an average rate of not less than 100,000 metric tonnes per month over any 12 month period unless otherwise authorised by the Minister responsible for mining in Lesotho); and (ii) Storm Mountain Diamonds could lose the Kao Mining Lease. As the majority of the Group’s revenues are likely to be derived from the Kao Mine, if the Kao Mining Agreement is terminated and/or the Kao Mining Lease is transferred, it is likely that the Group’s results of operations or financial condition would be materially and adversely affected.
The Directors are therefore of the view that the Group’s future viability is dependent upon the passing of the Open Offer Resolutions. 19.
Directors’ recommendation
The Board is of the opinion that the proposals described in this document, including the Open Offer, are in the best interests of Namakwa and its Shareholders as a whole. Accordingly, the Board recommends that you vote in favour of the Resolutions to be proposed at the Special General Meeting, as each Director voting intends to do so in respect of his own beneficial holdings which amount in aggregate to 287,786 Ordinary Shares, representing approximately 0.095% of the Existing Shares as at the date of this document. In accordance with the Bye-laws, Allen Gessen and Gerard Holden, as Directors nominated by Jarvirne, have been excluded from voting on Board resolutions (due to their conflicted interests resulting from Jarvirne being a major Shareholder and due to Jarvirne having provided debt finance to the Company in the form of the Jarvirne Facility) on the terms and conditions of the Open Offer and any other conflict of interest arising as a result of such conflicted interests between the Company and Jarvirne in connection with the Open Offer. 20.
Further information
Your attention is drawn to the further information set out in Parts II to XVI of this document. You should read the whole of this document and not rely solely on the information set out in this letter. You should consider fully and carefully the risk factors associated with the Group, the Open Offer and set out in the section headed “Risk Factors” on pages 6 to 17. Yours faithfully, Edward Haslam Non-Executive Chairman
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PART II — SOME QUESTIONS AND ANSWERS ABOUT THE OPEN OFFER The questions and answers set out in this Part II: “Some Questions and Answers about the Open Offer” are intended to be in general terms only and, as such, you should read Part III: “Terms and Conditions of the Open Offer” of this document for full details of what action you should take. If you are in any doubt as to what action you should take, you are recommended to seek immediately your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser, duly authorised under the FSMA if you are resident in the UK or, if not, from another appropriately authorised independent financial adviser. This Part II: “Some Questions and Answers about the Open Offer” deals with general questions relating to the Open Offer and more specific questions relating principally to persons resident in the UK who hold their Ordinary Shares in certificated form only. If you are an Overseas Shareholder, you should read paragraph 10 entitled “Overseas Shareholders” of Part III: “Terms and Conditions of the Open Offer” of this document and you should take professional advice as to whether you are eligible and/or you need to observe any formalities to enable you to subscribe for your Open Offer Entitlements. If you hold Depository Interests you should read paragraph 5 entitled “Procedure for application and payment for Qualifying DI Holders” of Part III: “Terms and Conditions of the Open Offer” of this document for full details of what action you should take. If you are a CREST sponsored member, you should also consult your CREST sponsor: If you do not know whether your Existing Shares are in certificated form or you hold Depository Interests, please call the Shareholder helpline between 9.00 a.m. and 5.00 p.m. on any London Business Day on 0871 664 0321 (from inside the UK) or +44 20 8639 3399 (from outside the UK). Calls to the 0871 664 0321 number are charged at 10 pence per minute (including VAT) from a BT landline. Other service providers’ costs may vary. Calls to the +44 20 8639 3399 number from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. Please note that, for legal reasons, the Shareholder helpline will be unable to give advice on the merits of the Open Offer or to provide financial, tax or investment advice. The contents of this document should not be construed as legal, business, accounting, tax, investment or other professional advice. Each Shareholder should consult his, her or its own appropriate professional advisers for advice. This document is for your information only and nothing in this document is intended to endorse or recommend a particular course of action. Timetable dates in this Part II: “Some Questions and Answers about the Open Offer” have been included on the basis of the expected timetable set out on page 22 but may be subject to change. 1.
What is an Open Offer?
An Open Offer is a way for companies to raise money. Companies usually do this by giving their existing shareholders a right to subscribe for further shares at a fixed price in proportion to their existing shareholdings (the “Open Offer”) and additional New Shares to the extent that not all Shareholders accept their full Open Offer Entitlements. The Open Offer is an invitation by Namakwa to: (i) Qualifying Shareholders; and (ii) Qualifying DI Holders to apply to subscribe for an aggregate of 60 New Shares for every 23 Existing Shares or Depository Interests representing Existing Shares held by them at a price of 4.5 pence per New Share. In this document, this is referred to as your “Open Offer Entitlement”. If you hold Ordinary Shares or Depository Interests representing Ordinary Shares on the relevant Record Date or have a bona fide market claim, other than, subject to certain exceptions where you are a Shareholder or DI Holder with a registered address or located in any of the Excluded Territories, you will be permitted to buy New Shares under the Open Offer. The Open Offer is being made on the basis of 60 New Shares for every 23 Existing Shares or Depository Interest representing Existing Share held by: (i): Qualifying Shareholders; and (ii) Qualifying DI Holders on the Record Date. If your Open Offer Entitlement is not a whole number, you will not be entitled to buy a New Share in respect of any fraction of a New Share and your entitlement will be rounded down to the nearest whole number, If you hold less than 23 Existing Shares or DIs representing Existing Shares, you will not receive an Open Offer Entitlement. The Offer Price of 4.5 pence per New Share represents a 5.88% premium to the Closing Price for an Ordinary Share as at 1 June 2012 (4.25 pence) being the last dealing day prior to the announcement of the Open Offer. Should the Open Offer become unconditional and applications for New Shares exceed 794,629,171 New Shares, applications will be scaled back on a pro rata basis. 38
Applications by Qualifying Shareholders and Qualifying DI Holders will be satisfied in full up to the amount of their individual Open Offer Entitlements. In addition Qualifying Shareholders and Qualifying DI Holders will be entitled to apply for additional New Shares pursuant to the Excess Application Facility. Qualifying Shareholders and Qualifying DI Holders should be aware that the Open Offer is not a rights issue. As such, Qualifying Shareholders should also note that unlike in a rights issue, Application Forms are not negotiable documents and cannot be traded. Qualifying DI Holders should note that, although their Open Offer Entitlements and Excess CREST Open Offer Entitlements will be credited to their CREST accounts and be enabled for settlement, the Open Offer Entitlements and Excess CREST Open Offer Entitlements will not be tradable or listed and applications in respect of Open Offer Entitlements and Excess CREST Open Offer Entitlements may only be made by the Qualifying DI Holder originally entitled or by a person entitled by virtue of a bona fide market claim. New Shares which are not taken up under the Open Offer will not be sold in the market for the benefit of those who do not apply to subscribe for their Open Offer Entitlements. Qualifying Shareholders and Qualifying DI Holders who do not apply to subscribe for New Shares will have no rights under the Open Offer. 2.
I hold my Existing Shares in certificated form. How do I know I am eligible to participate in the Open Offer?
If you receive an Application Form and, subject to certain exemptions, are not a holder with a registered address or located in any of the Excluded Territories, then you should be eligible to participate in the Open Offer as long as you have not sold all of your Existing Shares before 8.00 a.m. on 7 June 2012 (the time when the Existing Shares were marked “ex-entitlement” by the London Stock Exchange). 3.
I hold my Existing Shares in certificated form. What do I need to do in relation to the Open Offer?
If you hold your Existing Shares in certificated form and, subject to certain exemptions, do not have a registered address or located in any of the Excluded Territories, you will be sent an Application Form that shows: •
how many Existing Shares you held at the close of business on 1 June 2012 (the Record Date for the Open Offer);
•
how many New Shares are comprised in your Open Offer Entitlement; and
•
how much you need to pay if you want to subscribe for your right to buy all your entitlement to the New Shares.
Subject to certain exceptions, if you have a registered address or are located in any of the Excluded Territories, you will not receive an Application Form. If you would like to apply for any of or all of the New Shares comprised in your Open Offer Entitlement and if you would like to apply for additional New Shares pursuant to the Excess Application Facility you should complete the Application Form in accordance with the instructions printed on it and the information provided in this document. Completed Application Forms should be posted, along with a cheque or banker’s draft drawn in the appropriate form, in the accompanying pre-paid envelope (if sent within the UK) or otherwise returned by post or by hand (during normal business hours only), to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU (who will act as Receiving Agent in relation to the Open Offer) so as to be received by Capita Registrars by no later than 11.00 am on 27 June 2012, after which time Application Forms will not be valid. 4.
I hold Depository Interests representing Existing Shares. What do I need to do in relation to the Open Offer?
If you hold Depository Interests representing Existing Shares, you should follow the instructions set out in paragraph 5 entitled “Procedure for application and payment for Qualifying DI Holders” of Part III: “Terms and Conditions of the Open Offer” of this document. Persons who hold Depository Interests representing Existing Shares through a CREST member should be informed by the CREST member through which they hold their Depository Interests representing Existing Shares of the number of New Shares for which they are entitled to subscribe under the Open Offer and should contact them should they not receive this information.
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5.
I am a Qualifying Shareholder with a registered address in the UK and I hold my Existing Shares in certificated form. What are my choices and in relation to the Open Offer, what should I do with the Application Form?
(a) If you want to subscribe for all of your Open Offer Entitlement If you want to subscribe for all of the New Shares under your Open Offer Entitlement, all you need to do is send the Application Form, together with your cheque or banker’s draft for the full amount shown in Box 6 (in respect of your Open Offer Entitlement and Excess Application Facility) of the Application Form, payable to “Capita Registrars Limited re: Namakwa Diamonds Limited Open Offer A/C” and crossed “A/C Payee only”, by post or by hand (during normal business hours only) to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, (who will act as Receiving Agent in relation to the Open Offer), to arrive by no later than 11.00 a.m. on 27 June 2012, after which time, Application Forms will not be valid. Within the United Kingdom only, you can use the reply-paid envelope which will be enclosed with the Application Form. You should allow at least four Business Days for delivery. All payments must be in pounds Sterling and made by cheque or banker’s draft made payable to “Capita Registrars Limited re: Namakwa Diamonds Limited Open Offer A/C” and crossed “A/C Payee only”. Cheques or banker’s drafts must be drawn on a bank or building society or a branch of a bank or building society in the United Kingdom or the Channel Islands which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques and banker’s drafts to be cleared through the facilities provided by any of those companies or committees and must bear the appropriate sort code in the top right-hand corner. Third party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the cheque or draft to such effect. The account name should be the same as that shown on the application. Post-dated cheques will not be accepted. A definitive share certificate will then be sent to you for the New Shares for which you subscribe. Your definitive share certificate for New Shares is expected to be dispatched to you, at your own risk, by no later than 12 July 2012. (b) If you do not want to subscribe for your Open Offer Entitlement If you do not want to subscribe for your Open Offer Entitlement, you do not need to do anything. In these circumstances, you will not receive any New Shares. You will also not receive any money when the New Shares you could have taken up are sold, as would happen under a rights issue. You cannot sell your Application Form or your Open Offer Entitlement to anyone else. If you do not subscribe for your Open Offer Entitlement, then, if all the New Shares pursuant to the Open Offer are issued, your interest in the Company will be diluted by approximately 61.7%. (c) If you want to subscribe for some but not all of your Open Offer Entitlement If you want to subscribe for some but not all of the New Shares under your Open Offer Entitlement, you should write the number of New Shares for which you want to subscribe in Box 5(c) of your Application Form; for example, if you are entitled to subscribe for 6,000 New Shares but you only want to subscribe for 600 New Shares, then you should write ‘600’ in Box 5(c). To work out how much you need to pay for the New Shares, you need to multiply the number of New Shares you want (in this example, ‘600’) by £0.045, which is the price in pounds Sterling of each New Share (giving you an amount of £27,00 in this example). You should write this total sum in Box 6 of the Application Form rounding down to the nearest whole pence and this should be the amount your cheque or banker’s draft is made out for. You should then return your completed Application Form, together with a cheque or banker’s draft for that amount by post or by hand (during normal business hours only) to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, (who will act as Receiving Agent in relation to the Open Offer), so as to be received by no later than 11.00 a.m. on 27 June 2012 after which time Application Forms will not be valid. Within the United Kingdom only, you can use the reply-paid envelope which will be enclosed with the Application Form. All payments must be in pounds Sterling and made by cheque or banker’s draft made payable to “Capita Registrars Limited re: Namakwa Diamonds Limited Open Offer A/C” and crossed “A/C Payee only”. Cheques or banker’s drafts must be drawn on a bank or building society or a branch of a bank or building society in the United Kingdom or the Channel Islands which is either a settlement member of the Cheque 40
and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques and banker’s drafts to be cleared through the facilities provided by any of those companies or committees and must bear the appropriate sort code in the top right-hand corner and must be for the full amount payable on application. Third party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the back of the cheque or draft to such effect and confirming that the account holder has sole or joint title to the funds. The account name should be the same as that shown on the application. Post-dated cheques will not be accepted. Cheques and banker’s drafts will be presented for payment upon receipt. The Company reserves the right to instruct Capita Registrars to seek special clearance of cheques and banker’s drafts to allow the Company to obtain value for remittances at the earliest opportunity. No interest will be paid on payments made before they are due. It is a term of the Open Offer that cheques shall be honoured on first presentation and the Company may elect at its sole discretion to treat as invalid acceptances in respect of which cheques are not so honoured. All documents, cheques and banker’s drafts sent through the post will be sent at the risk of the sender. Payments via CHAPS, BACS or electronic transfer will not be accepted. A definitive share certificate will then be sent to you for the New Shares for which you subscribe. Your definitive share certificate for New Shares is expected to be dispatched to you, at your own risk, by no later than 12 July 2012. 6.
I acquired my Existing Shares prior to the Record Date (1 June 2012) and hold my Existing Shares in certificated form. What if I do not receive an Application Form or I have lost my Application Form?
If you do not receive an Application Form, this probably means that you are not eligible to participate in the Open Offer. Some Shareholders, however, will not receive an Application Form but may still be eligible to participate in the Open Offer, namely: •
Qualifying Shareholders who bought Existing Shares before 8.00 a.m. 7 June 2012 but were not registered as the holders of those shares at the close of business on 1 June 2012; and
•
certain Overseas Shareholders.
If you do not receive an Application Form but think that you should have received one, please contact the Shareholder helpline on 0871 664 0321 (from inside the UK) or +44 20 8639 3399 (from outside the UK) between 9.00 a.m. and 5.00 p.m. on any London Business Day. Calls to the 0871 664 0321 number are charged at 10 pence per minute (including VAT) from a BT landline. Other service providers’ costs may vary. Calls to the +44 20 8639 3399 number from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. For legal reasons, the Shareholder helpline will be unable to give advice on the merits of the Open Offer or to provide financial, tax or investment advice. 7.
If I buy Ordinary Shares after the Record Date (1 June 2012) will I be eligible to participate in the Open Offer?
If you bought Ordinary Shares after the Record Date but prior to 8.00 a.m. on 7 June 2012 (the time when the Existing Shares started trading ex-entitlements on the London Stock Exchange), and you do not have a registered address or are located in any of the Excluded Territories, you may be eligible to participate in the Open Offer. If you are in any doubt, please consult your stockbroker, bank or other appropriate financial adviser, or whoever arranged your share purchase, to ensure you claim your entitlement. If you buy Ordinary Shares at or after 8.00 a.m. on 7 June 2012, you will not be eligible to participate in the Open Offer in respect of those Ordinary Shares. 8.
I am a Qualifying Shareholder. Do I have to apply for all the New Shares I am entitled to apply for? Can I apply for more?
You can subscribe for any number of the New Shares allocated to you under your Open Offer Entitlement. Your maximum basic pro rata Open Offer Entitlement is shown in Box 3 of your Application Form. In addition to the amount of pro rata New Shares for which you are entitled to apply, you may also apply for additional New Shares pursuant to the Excess Application Facility by specifying the total number of New Shares for which you wish to 41
subscribe in Box 5(c). Any applications by a Qualifying Shareholder for a number of New Shares which is equal to or less than that person’s Open Offer Entitlement will be satisfied, subject to the Open Offer becoming unconditional. If you decide not to subscribe for all of the New Shares comprised in your Open Offer Entitlement, then your proportion of the ownership and voting interest in the Company will be diluted (and thereby reduced). Please refer to answers (a), (b) and (c) to Question 5 above for further information. Qualifying Shareholders should be aware that the Open Offer is not a rights issue. As such, Qualifying Shareholders should also note that their Application Forms are not negotiable documents and cannot be traded. Applications in respect of the Open Offer may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim. New Shares which are not taken up under the Open Offer, will not be sold in the market for the benefit of those who do not apply to subscribe for their Open Offer Entitlements and Qualifying Shareholders who do not apply to subscribe for their Open Offer Entitlements will have no rights under the Open Offer. 9.
What if I change my mind?
If you are a Qualifying Shareholder, once you have sent your Application Form and payment to the Receiving Agent, you cannot withdraw your application or change the number of New Shares you have applied for, except in the very limited circumstances which are set out in this document. If you are a Qualifying DI Holder who holds their Depository Interests through CREST, once your USE instruction has settled, you cannot withdraw your application or change the number of New Shares for which you have applied, except in the very limited circumstances which are set out in this document. Please refer to paragraph 8 entitled “Withdrawal rights” in Part III: “Terms and Conditions of the Open Offer” of this document for more detail. 10.
What if the number of New Shares to which I am entitled is not a whole number: am I entitled to fractions of New Shares?
Your entitlement to New Shares will be calculated at the relevant Record Date. If the result is not a whole number, you will not receive a fraction of a New Share and your entitlement will be rounded down to the nearest whole number. 11.
I hold my Existing Shares in certificated form. What should I do if I want to spend more or less than the amount in Box 4 of the Application Form?
In addition to the amount of pro rata New Shares for which you are entitled to apply, you may also apply for additional New Shares pursuant to the Excess Application Facility by specifying the total number of Excess Application Facility Shares for which you wish to subscribe in Box 5(b). If you want to spend less than the amount set out in Box 4 of the Application Form you should divide the amount you want to spend by £0.045 (being the price in pounds Sterling of each New Share under the Open Offer). This will give you the number of New Shares you should apply for. You can only apply for a whole number of New Shares. For example, if you want to spend about £100 on additional New Shares you should divide £100 by £0.045. You should round that down to the nearest whole number (in this example 2,222), to give you the number of shares for which you want to subscribe. Write that number in Box 5(c). To then get an accurate amount to put on your cheque or banker’s draft, you should multiply the whole number of New Shares you want to apply for (in this example, 2,222) by £0.045 (being the price of a New Share under the Open Offer) and then fill in that amount rounded down to the nearest whole pence (in this example £99.99) in Box 6 and on your cheque or banker’s draft accordingly. 12.
What if I hold options and awards under the Namakwa Employee Share Plan?
In accordance with the rules of the Namakwa Employee Share Plan, and if applicable, the number or exercise prices of options and awards under the Namakwa Employee Share Plan may be adjusted to take account of the Open Offer. If this is the case, participants will be contacted separately.
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13.
I am a Qualifying Shareholder holding my Existing Shares in certificated form. What should I do if I have sold some or all of my Existing Shares?
If you have sold some or all of your Existing Shares before 8.00 a.m. on 7 June 2012 (in the case of Qualifying Shareholders) you should contact the buyer (provided that the Buyer is not in an Excluded Territory) or the person/ company through whom you sold your Existing Shares. The buyer may be entitled to apply to subscribe for Open Offer Shares under the Open Offer. If you sold any of your Existing Shares after 8.00 a.m. on 7 June 2012 (in the case of Qualifying Shareholders) you may still subscribe for and apply for the New Shares under the Open Offer set out on your Application Form. 14.
I am a Qualifying Shareholder holding my Existing Shares in certificated form. How do I pay?
You should return your completed Application Form with a cheque or banker’s draft drawn in pounds Sterling on a bank or building society in the UK or Channel Islands which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques and banker’s drafts to be cleared through facilities provided by any of those companies. Such cheques or banker’s drafts must bear the appropriate sort code in the top right-hand corner and must be for the full amount payable on application. Cheques should be drawn on a personal account in respect of which the Qualifying Shareholder has sole or joint title to the funds and should be made payable to “Capita Registrars Limited re: Namakwa Diamonds Limited, Open Offer A/C” and crossed “A/C Payee only”. Third-party cheques (other than UK building society cheques or banker’s drafts where the UK building society or bank has confirmed that the relevant Qualifying Shareholder has title to the underlying funds by inserting the applicant name on the back of the banker’s draft or the building society cheque and adding their stamp) will not be accepted. Payments via CHAPS, BACS or electronic transfer will also not be accepted. Post-dated cheques will not be accepted. All cheques sent through the post to Capita Registrars will be sent at the risk of the drawer and any cheques not received by Capita Registrars will need to be re-issued and re-sent by the Qualifying Shareholder. 15.
Will the Existing Shares that I hold now be affected by the Open Offer?
If you decide not to apply for any of the New Shares under the Open Offer Entitlement, or subscribe for less than the sum of your Open Offer Entitlement, then your proportion of the ownership and voting interest in Namakwa will be diluted (and thereby reduced). 16.
I am a Qualifying Shareholder holding my Existing Shares in certificated form. Where do I send my Application Form?
You should send your completed Application Form and monies by post in the enclosed pre-paid envelope (for use within the UK only) or by hand (during business hours only) to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, (who will act as Receiving Agent in relation to the Open Offer) so as to arrive as soon as possible and in any event so as to be received by no later than 11.00 a.m. on 27 June 2012. If you post your Application Form by first-class post, you should allow at least four Business Days for delivery. All documents sent through the post directly to Capita Registrars will be sent at the risk of the applicant and any documents and cheques not received by Capita Registrars will need to be re-issued and re-sent by the applicant. If you do not want to subscribe for any New Shares then you need take no further action. You will not receive any New Shares. You cannot sell or transfer your Application Form to anyone else. 17.
If I apply for New Shares, when will I receive my New Share certificate or when will New Shares be credited to my CREST account (as the case may be)?
If you subscribe for your Open Offer Entitlement, share certificates for the New Shares are expected to be posted, at your own risk, on or around 12 July 2012. New Shares are expected to be credited to CREST stock accounts on or around 28 June 2012. Definitive share certificates for the New Shares will only be posted, and Depository Interests representing the New Shares will only be credited to CREST accounts if the Open Offer becomes unconditional. 43
18.
What should I do if I live outside the United Kingdom?
Your ability to apply to subscribe for New Shares may be affected by the laws of the country in which you live and you should take professional advice as to whether you require any governmental or other consents or need to observe any other formalities to enable you to subscribe for New Shares under the Open Offer. Shareholders located in or with registered addresses in any of the Excluded Territories are, subject to certain exceptions, not eligible to participate in the Open Offer. Your attention is drawn to the information in paragraph 10 entitled “Overseas Shareholders” of Part III: “Terms and Conditions of the Open Offer” of this document. 19.
What should I do if I think my holding of Existing Shares is incorrect?
If you have bought or sold Existing Shares shortly before close of business on 1 June 2012, your transaction may not be entered on the register of members in time to appear on the register at the Record Date. If you are concerned about the figure in the Application Form or are otherwise concerned that your holding of Existing Shares is incorrect, please contact the Shareholder helpline on 0871 664 0321 (from within the UK) or +44 20 8639 3399 (from outside the UK). Calls to the Capita Registrars 0871 664 0321 number are charged at 10 pence per minute (including VAT) plus any of your service provider’s network extras. Calls to the Capita Registrars +44 20 8639 3399 number from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. For legal reasons, the Shareholder helpline will only be able to provide information contained in this document (and, in addition, information relating to Namakwa’s register of members) and will not be able to provide advice on the merits of the Open Offer nor give any financial, legal, tax or investment advice. 20.
What do I do if I have any further queries about the Open Offer or what action I should take?
If you have any other questions, please telephone the Shareholder helpline on 0871 664 0321 (from within the UK) or +44 20 8639 3399 (from outside the UK) between 9.00 a.m. and 5.00 p.m. on any Business Day. Calls to the 0871 664 0321 number are charged at 10 pence per minute (including VAT) plus any of your service provider’s network extras. Calls to the +44 20 8639 3399 number from outside the UK are charged at applicable international rates. Please note that calls may be monitored or recorded. For legal reasons, the Shareholder helpline will only be able to provide you with information contained in this document (other than information relating to the Company’s register of members) and as such will be unable to give advice on the merits of the Open Offer or to provide any financial, legal, tax or investment advice. Shareholder helpline staff can explain the options available to you, which forms you need to fill in and how to fill them in correctly. Calls may be recorded and randomly monitored for security and training purposes. Your attention is drawn to Part III: “Terms and Conditions of the Open Offer” of this document and (in the case of Qualifying Shareholders) the Application Form. 21.
Will I be taxed if I accept the Open Offer?
Information on taxation with regard to the Open Offer is set out in Part IX “Taxation” of this document and such information is intended as a general guide only. If you are in any doubt as to your tax position, you should consult an appropriate professional adviser without delay.
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PART III — TERMS AND CONDITIONS OF THE OPEN OFFER 1.
Introduction
The Company is proposing to raise approximately c.US$53.5 million (after expenses) by the issue of up to 794,629,171 New Shares at an Offer Price of 4.5 pence per New Share pursuant to the Open Offer. The Offer Price of 4.5 pence per New Share represents a 5.88% premium to the Closing Price for an Ordinary Share as at 1 June 2012 (4.25 pence) being the last dealing day prior to the announcement of the Open Offer. This Part III: “Terms and Conditions of the Open Offer” and the accompanying Application Form (for Qualifying Shareholders only) contain the formal terms and conditions of the Open Offer. Paragraph 4 entitled “Procedure for application and payment for Qualifying Shareholders” below contains further details of the application and payment procedure for Qualifying Shareholders and paragraph 5 entitled “Procedure for application and payment for Qualifying Dl Holders” below contains further details of the application and payment procedure for Qualifying DI Holders. 2.
Details of the Open Offer
The Open Offer is being made to (i) Qualifying Shareholders, being holders of Existing Shares as set out on the register of members of Namakwa on the Record Date, and (ii) Qualifying DI Holders, being holders of Depository Interests representing Existing Shares as set out on the register of Depository Interest Holders maintained by the Depository on the Record Date. The Board has deemed it necessary to set the Record Date, and has done so in accordance with the Admission and Disclosure Standards and Bye-law 2.6(i). Qualifying Shareholders and Qualifying DI Holders are hereby invited to apply to subscribe for New Shares, subject to the terms and conditions below (and in the case of Qualifying Shareholders, in the Application Form), at a price of 4.5 pence each payable in full on application and free of expenses, on the following basis: 60 New Shares for every 23 Existing Shares held by them or as DIs representing Existing Shares, in each case registered in the names of Qualifying Shareholders, or in respect of which Qualifying DI Holders are registered in the DI register, at the Record Date, and so on in proportion for any other number of Existing Shares or Depository Interests representing Existing Shares then registered. Applications by Qualifying Shareholders and Qualifying DI Holders will be satisfied in full up to the amount of their individual Open Offer Entitlements. Qualifying Shareholders and Qualifying DI Holders will also be entitled, provided they subscribe for their Open Offer Entitlement in full, to apply for additional New Shares in excess of their Open Offer Entitlements through the Excess Application Facility. If applications under the Excess Application Facility are received for more than the total number of New Shares available following subscription for Open Offer Entitlements, such applications will be scaled back pro rata to each subscriber for such additional New Shares under the Excess Application Facility, based on their Record Date holding and any decision by the Board in respect of such scale back shall be final. No application in excess of 794,629,171 New Shares will be accepted. Any person so applying, and whose application is otherwise valid in all respects, will be deemed to have applied for: (i) in the case of Qualifying Shareholders, the maximum entitlement as specified on the Application Form and the maximum number of New Shares that can be applied for under the Excess Application Facility, or as otherwise notified to him or her, as applicable; or (ii) in the case of Qualifying DI Holders, for the Open Offer Entitlement and Excess CREST Open Offer Entitlement standing to the credit of their stock account in CREST, or as otherwise notified to him or her, as applicable. Any monies received in excess of the amount due will be returned to any Qualifying Shareholder by way of cheque at such person’s sole risk or for Qualifying DI Holder to their designated CREST account; and in both cases without interest as soon as practicable although amounts less than £5.00 will be retained for the benefit of Namakwa. If you are a Qualifying Shareholder, the Application Form shows the number of Existing Shares registered in your name on the Record Date (in Box 2) and also shows the maximum number of basic pro ratio New Shares for which you are entitled to apply pursuant to your Open Offer Entitlement (in Box 3). Qualifying DI Holders will have Open Offer Entitlements and Excess CREST Open Offer Entitlements credited to their stock accounts in CREST and should refer to paragraph 5 entitled “Procedure for application and payment for Qualifying Dl Holders” below and also to the CREST Manual for further information on the relevant CREST procedures. 45
The New Shares will be offered at the Offer Price to Qualifying Shareholders and Qualifying DI Holders on a pre-emptive basis (subject to the authority of the Board under Bye-law 2.6(f) to make such exclusions or other arrangements as it may determine to be necessary or desirable), under the terms of the Open Offer. They will be issued fully paid and will be identical to and rank pari passu in all respects with the Existing Shares. The Board has deemed it desirable to exclude fractional entitlements from the terms of the Open Offer, and accordingly, pursuant to its authority under Bye-law 2.6(f), has disapplied any such rights. Accordingly, entitlements of Qualifying Shareholders and Qualifying DI Holders will be rounded down to the nearest whole number of New Shares. Fractions representing New Shares which would otherwise have arisen will not be allotted to Qualifying Shareholders or allotted to the Depository on behalf of Qualifying DI Holders, as applicable. As a result, Qualifying Shareholders and Qualifying DI Holders holding fewer than 23 Existing Shares or holding fewer than 23 DIs representing Existing Shares will have no entitlement to subscribe under the Open Offer for New Shares or DIs representing New Shares. On completion of the Open Offer, the New Shares will represent approximately 72.3% of the enlarged issued share capital of Namakwa. Assuming the Open Offer is accepted in its entirety, following the issue of the New Shares to be allotted pursuant to the Open Offer, Qualifying Shareholders and Qualifying DI Holders who do not subscribe for any of their Open Offer Entitlements will suffer a dilution of approximately 61.7% to their aggregate interests in the Company. The Board has deemed it desirable to exclude the Open Offer being made to Overseas Shareholders, and accordingly, pursuant to its authority under Bye-law 2.6(f), the Open Offer is only being made to Qualifying Shareholders or Qualifying DI Holders who are not located or resident in, or who not are citizens of, or who do not have a registered address in any of the Excluded Territories (subject to certain exemptions). The attention of Overseas Shareholders is drawn to paragraph 10 entitled “Overseas Shareholders” of this Part III: “Terms and Conditions of the Open Offer”. Qualifying Shareholders and Qualifying DI Holders should be aware that the Open Offer is not a rights issue. As such, Qualifying Shareholders should note that their Application Forms are not negotiable documents and cannot be traded. Qualifying DI Holders should note that, although their Open Offer Entitlements will be credited to their CREST accounts, the Open Offer Entitlements will not be tradable or listed and applications in respect of Open Offer Entitlements may only be made by the Qualifying DI Holder originally entitled or by a person entitled by virtue of a bona fide market claim. New Shares which are not taken up under the Open Offer will not be sold in the market for the benefit of those who do not apply to subscribe for their Open Offer Entitlements and Qualifying Shareholders and Qualifying DI Holders who do not apply to subscribe for New Shares will have no rights under the Open Offer. Qualifying Shareholders and Qualifying DI Holders should be aware that, in the Open Offer, unlike a rights issue, any New Shares which are not applied for in respect of the Open Offer will not be sold in the market on behalf of or placed for the benefit of Qualifying Shareholders or Qualifying DI Holders as applicable. Any Qualifying Shareholder or Qualifying DI Holder who has sold or transferred all or part of his registered holding(s) of Existing Shares or DIs representing Existing Shares prior to 8.00 a.m. on 7 June 2012, is recommended to consult his stockbroker, bank or other agent through or to whom the sale or transfer was effected as soon as possible since the invitation to apply for New Shares under the Open Offer may be a benefit which may be claimed from him by purchasers or transferees under the rules of the London Stock Exchange. 3.
Timing and conditions of the Open Offer
In accordance with Bye-law 2.6(e), the Open Offer will remain open for acceptances for a period of not less than 21 days. The Open Offer will not be withdrawn before the end of such period and no applications under the Excess Application Facility will be dealt with until such period has lapsed. However, if the Jarvirne Undertaking is withdrawn (in accordance with statutory withdrawal rights), the Open Offer will lapse. The Open Offer is conditional, inter alia, on: (i)
the passing of the Open Offer Resolutions, without material amendment, at the Special General Meeting, notice of which is set out at the end of this document; and
(ii)
Admission becoming effective on or before 8.00 a.m. on 28 June 2012 (or such later time and date as Namakwa may decide being not later than 29 June 2012).
Accordingly, if any condition is not satisfied, the Open Offer will not proceed and any applications made by Qualifying Shareholders or Qualifying DI Holders will be rejected. In such circumstances, application monies will be returned (at the applicant’s sole risk), without payment of interest, as soon as practicable thereafter. 46
The Existing Shares are listed on the premium segment of the Official List and traded on the Main Market. An application has been made to the UKLA and to the London Stock Exchange for the New Shares to be issued pursuant to the Open Offer to be admitted to the premium segment of the Official List and to trading on the Main Market respectively. It is expected that Admission will become effective on 28 June 2012 and that dealings in the New Shares will commence at 8.00 a.m. on the same day. No temporary documents of title will be issued. Definitive share certificates in respect of New Shares are expected to be posted to each Qualifying Shareholder by 12 July 2012 at his or her own risk. In respect of Qualifying DI Holders, the DIs representing New Shares are expected to be credited to CREST stock accounts on or around 28 June 2012. 4.
Procedure for application and payment for Qualifying Shareholders
(a) Introduction Subject to what is provided in paragraph 10 entitled “Overseas Shareholders” of this Part III: “Terms and Conditions of the Open Offer” in relation to Overseas Shareholders, a Qualifying Shareholder will receive one Application Form. Each Application Form shows the number of Existing Shares registered in the relevant Qualifying Shareholder’s name on the Record Date in Box 2. It also shows the maximum number of New Shares for which such Qualifying Shareholder is entitled to apply pursuant to such person’s basic pro ratio Open Offer Entitlement set out in Box 3. In addition to the amount of pro rata New Shares for which you are entitled to apply, you may also apply for additional New Shares pursuant to the Excess Application Facility by specifying the total number of New Shares for which you wish to subscribe in Box 5(c). Entitlements to New Shares will be rounded down to the nearest whole number and any fractional Open Offer Entitlement will therefore also be rounded down. The Application Form incorporates further terms of the Open Offer. A Qualifying Shareholder may apply for fewer New Shares than his Open Offer Entitlement should he so wish. Valid applications up to the relevant Qualifying Shareholder’s pro rata entitlement will be accepted in full. Qualifying Shareholders will also be entitled, provided they subscribe for their Open Offer Entitlement in full, to apply for additional New Shares in excess of their Open Offer Entitlements through the Excess Application Facility. (b) Excess Application Facility If applications under the Excess Application Facility are received for more than the total number of New Shares available following subscription for Open Offer Entitlements, such applications will be scaled back pro rata to each subscriber for such additional New Shares under the Excess Application Facility, based on their Record Date holding. No application in excess of a person’s Open Offer Entitlement and the maximum number of New Shares that can be applied for under the Excess Application Facility will be met and any person so applying, and whose application is otherwise valid in all respects, will be deemed to have applied for the maximum entitlement as specified on the Application Form and the maximum number of New Shares that can be applied for under the Excess Application Facility, or as otherwise notified to him or her, as applicable (and any monies received in excess of the amount due will be returned to any Qualifying Shareholder without interest as soon as practicable by way of cheque at such person’s sole risk although amounts less than £5.00 will be retained for the benefit of Namakwa). Qualifying Shareholders who wish to apply for New Shares in excess of their Open Offer Entitlements must complete the Application Form in accordance with the instructions set out on the Application Form. Should the Open Offer become unconditional and applications for New Shares exceed 794,629,171 New Shares, resulting in a scale back of applications, each Qualifying Shareholder who has made a valid application for excess New Shares under the Excess Application Facility and from whom payment in full for excess New Shares has been received will receive a pounds Sterling amount equal to the number of New Shares applied and paid for but not allocated to the relevant Qualifying Shareholder multiplied by the Offer Price. Monies will be returned as soon as reasonably practicable thereafter, without payment of interest and at the applicant’s sole risk although amounts less than £5.00 will be retained for the benefit of Namakwa. (c) Bona fide market claims Applications for New Shares under the Open Offer may only be made on the Application Form. Each Application Form is personal to the Qualifying Shareholder(s) named on it and may not be assigned, transferred or split except to satisfy bona fide market claims in relation to purchases of Existing Shares through the market up to 8.00 a.m. on 7 June 2012, being the date on which the Existing Shares were marked “ex” the entitlement to the Open Offer by the London Stock Exchange. The Application Form only represents a right to apply for New Shares. It is not a document of title and cannot be traded. 47
A Qualifying Shareholder who has sold or transferred all or part of his holding of Existing Shares prior to 8.00 a.m. 7 June 2012 should consult his stockbroker, bank or other agent through whom the sale or transfer was effected and refer to the instructions regarding splitting of Application Forms set out in the Application Form, as the invitation to apply for New Shares under the Open Offer may represent a benefit which may be claimed by the purchaser or transferee pursuant to the rules of the London Stock Exchange. A Qualifying Shareholder who has sold or transferred all of his holding of Existing Shares prior to 7 June 2012 should complete Box 8 on the Application Form and immediately send it to the stockbroker, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. The Application Form should not, however, subject to certain exceptions, be forwarded to or transferred in or into any of the Excluded Territories. If a Qualifying Shareholder has sold or transferred part of his registered holding of Existing Shares shown in Box 2 prior to 7 June 2012, he should contact his stockbroker, bank or other agent through whom the sale or transfer was effected to arrange for split Applications Forms to be obtained. If the market claim is to be settled outside CREST, the beneficiary of the claim should follow the procedures in the accompanying Application Form. If the market claim is to be settled in CREST as DIs, the beneficiary of the claim should follow the procedures in paragraph 5 entitled “Procedure for application and payment for Qualifying DI Holders” of this Part III: “Terms and Conditions of the Open Offer”. (d) Application procedures Any Qualifying Shareholder who wishes to apply for New Shares (whether in respect of all or part of their Open Offer Entitlement) to which he is entitled and/or New Shares under the Excess Application Facility must complete the Application Form in accordance with its instructions printed on it. Completed Application Forms should be returned by post or (during normal business hours only) by hand to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU (who will act as Receiving Agent under the Open Offer), together with a remittance for the full amount payable on application, so as to arrive as soon as possible and in any event no later than 11.00 a.m. on 27 June 2012, at which time the Open Offer will close. Save as specifically provided below, Application Forms received after this time will not be valid. A reply-paid envelope is enclosed for use by Qualifying Shareholders within the United Kingdom only in connection with the Open Offer. Any Qualifying Shareholder who does not wish to apply for any of the New Shares to which he is entitled should not complete and return a completed Application Form to the Receiving Agent. He is, however, requested to complete and return the Form of Proxy to PXS, 34 Beckenham Road, Beckenham, BR3 4TU, in accordance with its instructions. Qualifying Shareholders should note that applications, once made under the Open Offer, will, subject to the very limited withdrawal rights set out in this document, be irrevocable and will not be acknowledged and receipts will not be issued for amounts paid on application. The Board may in its sole discretion, but shall not be obliged to, treat an Application Form as valid and binding on the person by whom or on whose behalf it is lodged, even if not completed in accordance with the instructions or not accompanied by a valid power of attorney where required, or if it otherwise does not strictly comply with the terms and conditions of the Open Offer. Accordingly, Namakwa reserves the right (but shall not be obliged) to accept either: (i)
Application Forms received after 11.00 a.m. on 27 June 2012 with the envelope bearing a legible postmark not later than 11.00 a.m. on 27 June 2012; or
(ii)
applications in respect of which remittances are received before 11.00 a.m. on 27 June 2012 from authorised persons (as defined in FSMA) specifying the New Shares applied for and undertaking to lodge an Application Form in due course but, in any event, within two Business Days.
If a Qualifying Shareholder posts his Application Form within the UK by first class post, he is recommended to allow at least four Business Days for delivery. In the event of industrial action by postal workers, a Qualifying Shareholder should consider allowing a longer period of time for his application to be delivered. Applications may only be made on the accompanying Application Form, which is personal to the Qualifying Shareholder(s) named on it and may not be transferred or split except in the circumstances described above.
48
(e) Payments Payments must be made by cheque or banker’s draft in pounds Sterling drawn on a bank or building society or a branch of a bank or building society in the United Kingdom or the Channel Islands which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques and banker’s drafts to be cleared through the facilities provided by any of those companies and must bear the appropriate sort code in the top right-hand corner. Cheques, which must be drawn on the personal account in respect of which the Qualifying Shareholder has sole or joint title to the funds, should be made payable to “Capita Registrars Limited re: Namakwa Diamonds Limited Open Offer A/C” and crossed “A/C Payee only”. Third party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the back of the building society cheque or banker’s draft to such effect. The account name should be the same as that shown on the Application Form. Post-dated cheques will not be accepted. Payments via CHAPS, BACS or electronic transfer will not be accepted. All documents and cheques sent through the post to and from the Qualifying Shareholder will be sent at their own risk and any cheques not received by Capita Registrars will need to be re-issued and re-sent by the Qualifying Shareholder. Cheques and banker’s drafts will be presented for payment upon receipt. Namakwa reserves the right to instruct Capita Registrars to seek special clearance of cheques and banker’s drafts to allow Namakwa to obtain value for remittances at the earliest opportunity. Any person returning an Application Form with a remittance in the form of a cheque warrants that the cheque will be honoured on first presentation. The Board may elect at its sole discretion to treat as valid or invalid any acceptance in respect of which remittance is notified to it as not having been so honoured. Should such cheques or banker’s drafts not be so honoured, Namakwa may undertake any action to recover the value of the application and any costs associated with such recovery (including the forfeiture and sale of any New Shares allotted pursuant to such an application). If cheques or banker’s drafts are presented for payment before the conditions of the Open Offer are fulfilled, the application monies will be held in a separate non-interest bearing bank account, until all conditions are met. If the conditions of the Open Offer are not fulfilled by 8.00 a.m. on 28 June 2012 (or such later date as Namakwa may decide being not later than 29 June 2012), the Open Offer will lapse, no New Shares will be issued and application monies will be returned, without interest, by crossed cheque in favour of the applicant through the post at his own risk as soon as practicable following the lapse of the Open Offer. Namakwa reserves the right to treat as invalid an application where there is insufficient verification of identity satisfactory to the Receiving Agent to ensure that the Money Laundering Regulations 2007 will not be breached by acceptance of the payment submitted in connection with such application. For all enquiries in connection with the procedure for application and completion of the Application Form please consult Capita Registrars whose contact details are set out on page 26 of this document. For Qualifying Shareholders who have applied using an Application Form, definitive certificates in respect of the New Shares are expected to be despatched on or about 12 July 2012. (f) Incorrect sum If an Application Form encloses a payment for an incorrect sum, Namakwa, through Capita Registrars, reserves the right: (i)
to reject the application in full and return the cheque or banker’s draft or refund the payment to the Qualifying Shareholder in question; or
(ii)
in the case that an insufficient sum is paid, to treat the application as a valid application for such lesser whole number of New Shares as would be able to be applied for with that payment at the Offer Price, refunding any unutilised sum to the Qualifying Shareholder in question, save that any sums of less than £5.00 will be retained for the benefit of Namakwa; or
(iii)
in the case that an excess sum is paid, to treat the application as a valid application for all of the New Shares referred to in the Application Form, refunding any unutilised sums to the Qualifying Shareholder in question, save that any sums of less than £5.00 will be retained for the benefit of Namakwa.
49
(g) Effect of valid application A Qualifying Shareholder by completing and delivering the Application Form will thereby: (i)
represent and warrant to the Company that he has the right, power and authority, and has taken all action necessary, to make the application under the Open Offer and to execute, deliver and exercise his rights, and perform his obligations under any contracts resulting therefrom and that he is not a person otherwise prevented by legal or regulatory restrictions from applying for New Shares or acting on behalf of any such person on a non-discretionary basis;
(ii)
request that the New Shares to which he will become entitled, be issued to him on the terms set out in this document and the Application Form, subject to the Bye-laws;
(iii)
agree that all applications under the Open Offer and contracts resulting from it shall be governed by, and construed in accordance with, the laws of England;
(iv)
represent and warrant that he is not, nor is he applying on behalf of any person who is located or a citizen or resident or which is a corporation, partnership or other entity created or organised in or under any laws of any of the Excluded Territories and he is not applying with a view to re-offering, re-selling, transferring or delivering any of the New Shares which are the subject of his application in any Excluded Territory, or for the benefit of, a person who is located, a citizen or resident or which is a corporation, partnership or other entity created or organised in or under any laws of any of the Excluded Territories, nor acting on behalf of any such person on a non-discretionary basis (except where proof satisfactory to the Company, in its sole and absolute discretion, has been provided to the Company that he is able to accept the invitation by the Company free of any requirement which the Company, in its sole and absolute discretion, regards as unduly burdensome);
(v)
confirm that in making such application he is not relying on any information or representation in relation to the Company other than that contained in this document and, accordingly, he agrees that no person responsible solely or jointly for this document or any part of it or involved in the preparation of it, shall have any liability for any information or representation not contained in this document and further agree that having had the opportunity to read this document, he will be deemed to have had notice of all information in relation to the Company contained in this document (including documents incorporated by reference);
(vi)
represent and warrant that he is the Qualifying Shareholder originally entitled to the Open Offer Entitlement or that he has received such Open Offer Entitlement by virtue of a bona fide market claim; and
(vii)
represent and warrant that if the Qualifying Shareholder has received some or all of his Open Offer Entitlement from a person other than the Company, he is entitled to apply under the Open Offer in relation to his Open Offer Entitlements by virtue of a bona fide market claim.
All enquiries in connection with the procedure for application and completion of the Application form should be addressed to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU or by telephone on 0871 664 0321 (from within the UK) or +44 20 8639 3399 if calling from outside the UK. Calls to the 0871 664 0321 number are charged at 10 pence per minute (including VAT) from a BT landline. Other service providers’ costs may vary. Lines are open 9.00 a.m. to 5.00 p.m. (London time) Monday to Friday (except UK public holidays). Calls to the +44 20 8639 3399 number from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. For legal reasons, the Shareholder helpline will be unable to give advice on the merits of the Open Offer or to provide financial, legal, tax or investment advice. Qualifying Shareholders who do not wish to apply for the New Shares under the Open Offer should not complete and return the Application Form but are urged to complete and return a Form of Proxy. 5.
Procedure for application and payment for Qualifying DI Holders
(a) Introduction Subject to what is provided in paragraph 10 entitled “Overseas Shareholders” of this Part III: “Terms and Conditions of the Open Offer” in relation to Overseas Shareholders, each Qualifying DI Holder will receive a credit to his stock account in CREST of his Open Offer Entitlements equal to the maximum number of New Shares for which he is entitled to apply under the Open Offer and also an Excess CREST Open Offer Entitlement equal to up to 794,629,171 New Shares. Entitlements to New Shares will be rounded down to the nearest whole number and any fractional Open Offer Entitlement will therefore also be rounded down. 50
The CREST stock account to be credited will be an account under the participating ID and member account ID that apply to the existing DIs held on the Record Date by the Qualifying DI Holder in respect of which the Open Offer Entitlements have been allocated. If for any reason the Open Offer Entitlements cannot be admitted to CREST, or the stock accounts of Qualifying DI Holders cannot be credited, by 5.00 p.m. on 7 June 2012 or such later time as Namakwa may decide, an Application Form will be sent out to each Qualifying DI Holder in substitution for the Open Offer Entitlements credited to his stock account in CREST. In these circumstances, the expected timetable in this document will be adjusted by the Board as it considers to be appropriate. A Qualifying DI Holder who wishes to apply for some or all of his entitlements to New Shares should refer to the CREST Manual for further information on the CREST procedures referred to below. Should a Qualifying DI Holder need advice with regard to these procedures, please consult Capita Registrars whose contact details are set out on page 26 of this document. If a Qualifying DI Holder is a CREST sponsored member he should consult his CREST sponsor if he wishes to apply for some or all of his entitlements to New Shares as only his CREST sponsor will be able to take the necessary action to make this application in CREST. (b) Excess Applications Facility Provided they choose to subscribe for their Open Offer Entitlement in full, the Excess Application Facility enables Qualifying DI Holders to apply for New Shares in excess of their Open Offer Entitlements up to a maximum number of 794,629,171 New Shares. If applications under the Excess Application Facility are received for more than the total number of New Shares available following subscription for Open Offer Entitlements, such applications will be scaled back pro rata to each subscriber for such additional New Shares under the Excess Application Facility, based on their Record Date holding. An Excess CREST Open Offer Entitlement may not be sold or otherwise transferred. Subject to what is provided in paragraph 10 entitled “Overseas Shareholders” of this Part III: “Terms and Conditions of the Open Offer” in relation to certain Overseas Shareholders, the CREST accounts of Qualifying DI Holders are being credited with an Excess CREST Open Offer Entitlement in order for any applications for excess New Shares to be settled through CREST. The credit of such Excess CREST Open Offer Entitlement does not in any way give you a right to the New Shares attributable to the Excess CREST Open Offer Entitlement as an Excess CREST Open Offer Entitlement is subject to scaling back in accordance with the terms of this document. To apply for excess New Shares pursuant to the Open Offer, Qualifying CREST Shareholders should follow the instructions above and must not return a paper form and cheque. Should a transaction be identified by the CREST Claims Processing Unit as “cum” the Open Offer Entitlement and the relevant Open Offer Entitlement(s) be transferred, the Excess CREST Open Offer Entitlements will not transfer with the Open Offer Entitlement(s) claim, but will be transferred as a separate claim. Should a Qualifying DI Holder cease to hold all of his Existing Shares as a result of one or more bona fide market claims, the Excess CREST Open Offer Entitlement credited to CREST and allocated to the relevant Qualifying DI Holder will be transferred to the purchaser. Please note that an additional USE instruction must be sent in respect of any application under the Excess CREST Open Offer Entitlement. Should the Open Offer become unconditional and applications for New Shares by Qualifying Shareholders and Qualifying DI Holders under the Open Offer exceed 794,629,171 New Shares, resulting in a scale back of applications under the Excess Application Facility, each Qualifying DI Holder who has made a valid application pursuant to his Excess CREST Open Offer Entitlement and from whom payment in full for the excess New Shares has been received, will receive a pounds Sterling amount equal to the number of New Shares validly applied and paid for but which are not allocated to the relevant Qualifying DI Holder multiplied by the Offer Price. Monies will be returned as soon as reasonably practicable following the completion of the scale back, without payment of interest and at the applicant’s sole risk although amounts less than £5.00 will be retained for the benefit of Namakwa. Fractions of New Shares will not be issued under the Excess Application Facility and fractions of New Shares will be rounded down to the nearest whole number. (c) Bona fide market claims The Open Offer Entitlements and the Excess CREST Open Offer Entitlements will constitute a separate security for the purposes of CREST. Although Open Offer Entitlements and the Excess CREST Open Offer Entitlements will be admitted to CREST and be enabled for settlement, applications in respect of Open Offer Entitlements and the Excess CREST Open Offer Entitlements may only be made by the Qualifying DI Holders originally entitled or 51
entitled by virtue of a bona fide market claim transaction. Transactions identified by the CREST Claims Processing Unit as “cum” the Open Offer Entitlement and the Excess CREST Open Offer Entitlements will generate an appropriate market claim transaction and the relevant Open Offer Entitlement(s) and the Excess CREST Open Offer Entitlements will afterwards be transferred accordingly. (d) USE instructions A Qualifying DI Holder who wishes to apply for New Shares in respect of all or some of his Open Offer Entitlements and Excess CREST Open Offer Entitlements in CREST must send (or, if he is a CREST sponsored member, procure that his CREST sponsor sends) a USE instruction to Euroclear which, on its settlement, will have the following effect: (i)
the crediting of a stock account of the Depository under the participant ID and member account ID specified below, with a number of Open Offer Entitlements and the Excess CREST Open Offer Entitlements corresponding to the number of New Shares applied for; and
(ii)
the creation of a CREST payment, in accordance with the CREST payment arrangements in favour of the payment bank of the Depository in respect of the amount specified in the USE instruction which must be the full amount payable on application for the number of New Shares referred to in (i) immediately above.
(e) Content of USE instructions In respect of Open Offer Entitlements The USE instruction must be properly authenticated in accordance with Euroclear’s specifications and must contain, in addition to the other information that is required for settlement in CREST, the following details: (i)
the number of New Shares comprised in the relevant pro rata entitlement for which application is being made (and hence that part of the pro rata entitlement to New Shares being delivered to the Depository);
(ii)
the ISIN of the Open Offer Entitlement which is BMG638411295;
(iii)
the participant ID of the accepting CREST member;
(iv)
the member account ID of the accepting CREST member from which the Open Offer Entitlements are to be debited;
(v)
the participant ID of Capita Registrars, in its capacity as CREST receiving agent: this is 7RA33;
(vi)
the member account ID of Capita Registrars, in its capacity as CREST receiving agent: this is 27663NAM;
(vii)
the amount payable by means of a CREST payment on settlement of the USE instruction; this must be the full amount payable on application for the number of New Shares referred to in (i) immediately above;
(viii)
the intended settlement date; this must be on or before 11.00 a.m. on 27 June 2012; and
(ix)
the corporate action number for the Open Offer; this will be available by reviewing the relevant corporate action details in CREST.
In respect of Excess CREST Open Offer Entitlements The USE instruction must be properly authenticated in accordance with Euroclear’s specifications and must contain, in addition to the other information that is required for settlement in CREST, the following details: (i)
the number of Excess CREST Open Offer Entitlements for which application is being made (and hence that part of the Excess CREST Open Offer Entitlements being delivered to the Depository);
(ii)
the ISIN of the Excess CREST Open Offer Entitlement which is BMG638411378;
(iii)
the participant ID of the accepting CREST member;
(iv)
the member account ID of the accepting CREST member from which the Excess CREST Open Offer Entitlements are to be debited;
(v)
the participant ID of Capita Registrars, in its capacity as CREST receiving agent: this is 7RA33; 52
(vi)
the member account ID of Capita Registrars, in its capacity as CREST receiving agent: this is 27663NAM;
(vii)
the amount payable by means of a CREST payment on settlement of the USE instruction; this must be the full amount payable on application for the number of New Shares referred to in (i) immediately above;
(viii)
the intended settlement date; this must be on or before 11.00 a.m. on 27 June 2012; and
(ix)
the corporate action number for the Open Offer; this will be available by reviewing the relevant corporate action details in CREST.
In order for an application under the Open Offer by a Qualifying DI Holder for all or part of his entitlement to New Shares to be valid, the USE instruction must comply with the requirements as to authentication and contents set out above and must settle on or before 11.00 a.m. on 27 June 2012. In order to assist prompt settlement of the USE instruction a CREST Member (or his sponsor, where applicable) may consider adding the following non-mandatory fields to his USE Instruction: (1)
contact name and telephone number (in the free format shared note field); and
(2)
a priority of at least 80.
A Qualifying DI Holder, and in the case of a CREST sponsored member, his CREST sponsor, should note that the last time at which a USE instruction may settle on 27 June 2012 is 11.00 a.m. on that date. In the event that the Open Offer does not become unconditional by 8.00 a.m. on 28 June 2012 or such later time and date as Namakwa may decide, being not later than 29 June 2012, the Open Offer will lapse, the Open Offer Entitlements admitted to CREST will be disabled and the Receiving Agent will refund the amount paid by a Qualifying DI Holder by way of a CREST payment, without interest, within 14 days afterwards. Open Offer Entitlements held in CREST are expected to be disabled in all respects after 11.00 a.m. on 27 June 2012 (the latest date for applications under the Open Offer). If the conditions to the Open Offer are satisfied, Depository Interests representing New Shares will be issued to those persons who submitted a valid application for such Depository Interests by utilising the CREST application procedures and whose applications have been accepted by Namakwa on the day on which such conditions are satisfied (expected to be 8.00 a.m. on 28 June 2012). On such date, Capita Registrars will also instruct Euroclear to credit the appropriate stock accounts of such persons with such persons’ entitlements to New Shares with effect from Admission. The stock accounts to be credited will be accounts under the same participant IDs and member account IDs in respect of which the USE instruction was given. Notwithstanding this or any other provision of this document or the Application Form, Namakwa reserves the right to send an Application Form to Qualifying DI Holders instead of crediting the relevant stock account with Open Offer Entitlements or to issue any New Shares in certificated form for any reason. In normal circumstances this right is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or any part of CREST) or the facilities and/or systems operated by Capita Registrars in connection with CREST. This right may be exercised if CREST member account details held by Capita Registrars on behalf of Shareholders are incorrect or if Capita Registrars is unable for any reason to credit the CREST member account. (f) Validity of application A USE instruction complying with the requirements as to authentication and contents set out above which settles by no later than 11.00 a.m. on 27 June 2012 will constitute a valid application under the Open Offer. (g) CREST procedures and timings A Qualifying DI Holder and (where applicable) his CREST sponsor should note that Euroclear does not make available special procedures, in CREST, for any particular corporate action. Normal system timings and limitations will therefore apply in relation to the input of a USE instruction and its settlement in connection with the Open Offer. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST sponsored member, to procure that his CREST sponsor takes) such action as is necessary to ensure that a valid application is made as stated above by 11.00 a.m. on 27 June 2012. In this connection, a CREST member and (where applicable) his CREST sponsor are referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
53
(h) Incorrect sum If a USE instruction includes a CREST payment for an incorrect sum, Namakwa, through the Depository, reserves the right: (i)
to reject the application in full and refund the payment to the CREST member in question (with any interest retained for the benefit of Namakwa);
(ii)
in the case that an insufficient sum is paid, to treat the application as a valid application for such lesser whole number of New Shares as would be able to be applied for with that payment at the Offer Price, refunding any unutilised sum to the CREST member in question without interest, save that any sums of less than £5.00 will be retained for the benefit of Namakwa; or
(iii)
in the case that an excess sum is paid, to treat the application as a valid application for all of the New Shares referred to in the USE instruction, refunding any unutilised sums to the CREST member in question without interest, save that any sums of less than £5.00 will be retained for the benefit of Namakwa.
(i) Effect of valid application A Qualifying DI Holder who makes or is treated as making a valid application for some or all of his entitlement to New Shares in accordance with the procedures will thereby: (i)
represent and warrant to the Company that he has the right, power and authority, and has taken all action necessary, to make the application under the Open Offer and to execute, deliver and exercise his rights, and perform his obligations under any contracts resulting therefrom and that he is not a person otherwise prevented by legal or regulatory restrictions from applying for New Shares or acting on behalf of any such person on a non-discretionary basis;
(ii)
pay the amount payable on application in accordance with the above procedures by means of a CREST payment in accordance with the CREST payment arrangements (it being acknowledged that the payment to Capita Registrars in accordance with the CREST payment arrangements shall, to the extent of the payment, discharge in full the obligation of the CREST member to pay to Namakwa the amount payable on application);
(iii)
request that the Depository Interests representing New Shares to which he will become entitled be issued to him on the terms in this document, subject to the Memorandum of Association and Bye-laws of Namakwa;
(iv)
agree that all applications under the Open Offer and contracts resulting from it shall be governed by, and construed in accordance with, the laws of England;
(v)
represent and warrant that he is not, nor is he applying on behalf of any person who is located or a citizen or resident or which is a corporation, partnership or other entity created or organised in or under any laws of any of the Excluded Territories and he is not applying with a view to re-offering, re-selling, transferring or delivering any of the New Shares which are the subject of his application in any Excluded Territory, or for the benefit of, a person who is located, a citizen or resident or which is a corporation, partnership or other entity created or organised in or under any laws of any of the Excluded Territories, nor acting on behalf of any such person on a non-discretionary basis (except where proof satisfactory to the Company, in its sole and absolute discretion, has been provided to the Company that he is able to accept the invitation by the Company free of any requirement which the Company, in its sole and absolute discretion, regards as unduly burdensome);
(vi)
confirm that in making such application he is not relying on any information or representation in relation to the Company other than that contained in this document and, accordingly, he agrees that no person responsible solely or jointly for this document or any part of it or involved in the preparation of it, shall have any liability for any information or representation not contained in this document and further agree that having had the opportunity to read this document, he will be deemed to have had notice of all information in relation to the Company contained in this document (including documents incorporated by reference);
(vii)
represent and warrant that he is the Qualifying DI Holder originally entitled to the Open Offer Entitlement or that he has received such Open Offer Entitlement by virtue of a bona fide market claim; and
(viii)
represent and warrant that if the Qualifying DI Holder has received some or all of his Open Offer Entitlement from a person other than the Company, he is entitled to apply under the Open Offer in relation to his Open Offer Entitlements by virtue of a bona fide market claim. 54
(j) Company’s discretion as to rejection and validity of applications The Board may in its sole discretion: (i)
treat as valid (and binding on the CREST member concerned) an application which does not comply in all respects with the requirements as to validity set out or referred to in this Part III: “Terms and Conditions of the Open Offer”;
(ii)
accept an alternative properly authenticated dematerialised instruction from a CREST member or (where applicable) a CREST sponsor as constituting a valid application in substitution for or in addition to a USE instruction and subject to such further terms and conditions as Namakwa may determine;
(iii)
treat a properly authenticated dematerialised instruction as not constituting a valid application if, at the time at which the Depository receives a properly authenticated dematerialised instruction giving details of the first instruction or afterwards, either Namakwa or Capita Registrars or the Depository have received actual notice from Euroclear of any of the matters specified in regulation 35(5)(a) of the CREST Regulations in relation to the first instruction. The matters include notice that any information contained in the first instruction was incorrect or notice of lack of authority to send the first instruction; and
(iv)
accept an alternative instruction or notification from a CREST member or CREST sponsored member (or where applicable) a CREST sponsor, or extend the time for settlement of a USE instruction or any alternative instruction or notification, in the event that, for reasons or due to circumstances outside the control of any CREST member or CREST sponsored member (or where applicable) the CREST sponsor, the CREST member or CREST sponsored member is unable validly to apply for New Shares by means of the above procedures. In normal circumstances, this discretion is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or any part of CREST) or on the part of the facilities and/or systems operated by Capita Registrars in connection with CREST.
6.
Deposit of Open Offer Entitlements into, and withdrawal from, CREST
A Qualifying Shareholder’s entitlement under the Open Offer as shown by the number of Open Offer Entitlements in the personalised Application Form may be converted into Open Offer Entitlements in respect of Depository Interests representing New Shares, that is deposited into CREST (either into the account of the Qualifying Shareholder named in the Application Form or into the name of a person entitled by virtue of a bona fide market claim). Similarly, Open Offer Entitlements and Excess CREST Open Offer Entitlments in respect of Depository Interests representing New Shares held in CREST may be withdrawn from CREST so that the entitlement under the Open Offer is reflected in an Application Form in respect of New Shares. Normal CREST procedures (including timings) apply in relation to any such deposit or withdrawal, subject (in the case of a deposit into CREST) as set out in the Application Form. A holder of an Application Form who is proposing to deposit the entitlement set out in such form is recommended to ensure that the deposit procedures are implemented in sufficient time to enable the person holding or acquiring the Open Offer Entitlements following their deposit into CREST to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 27 June 2012. In particular, having regard to normal processing times in CREST and on the part of Capita Registrars, the recommended latest time for depositing an Application Form with the CREST Courier and Sorting Service, where the person entitled wishes to convert the entitlement under the Open Offer for New Shares set out in such Application Form into Open Offer Entitlements for Depository Interests representing New Shares in CREST, is 3.00 p.m. on 21 June 2012, and the recommended latest time for receipt by Euroclear of a dematerialised instruction requesting the withdrawal of Open Offer Entitlements in respect of Depository Interests representing New Shares from CREST is 4.30 p.m. on 20 June 2012, in either case so as to enable the person acquiring or (as appropriate) holding the Open Offer Entitlements following the conversion or withdrawal (whether as shown in an Application Form or held in CREST) to take all necessary steps in connection with applying in respect of the Open Offer Entitlements prior to 11.00 a.m. on 27 June 2012. Delivery of an Application Form with the CREST deposit form duly completed either in respect of a conversion of Open Offer Entitlements for New Shares to Open Offer Entitlements for Depository Interests either into the account of the Qualifying Shareholder named in the Application Form or into the name of another person, shall constitute a representation and warranty to Namakwa, the Depository and Capita Registrars by the relevant CREST member that he is not in breach of the representations, warranties, acknowledgements and confirmations on page 2 of the Application Form or the provisions of the section headed “Instructions for depositing entitlements under the Open Offer into CREST”, on page 3 of the Application Form, and a declaration to Namakwa, the Depository and Capita 55
Registrars from the relevant CREST member that he is not a citizen or resident of an Excluded Territory and, where such deposit is made by a beneficiary of a market claim, a representation and warranty that the relevant CREST member is entitled to apply under the Open Offer by virtue of the bona fide market claim. 7.
Arrangements with Jarvirne
Under the Jarvirne Undertaking, conditional only upon the publication of this document, Jarvirne (which is a Qualifying DI Holder in respect of approximately 32.39% of the Existing Shares) has irrevocably agreed with the Company that it will: (a) subscribe for 257,387,369 New Shares, being its Open Offer Entitlements; (b) subscribe for up to 536,675,926 New Shares under the Excess Application Facility (subject to scale back in accordance with the terms and conditions of the Open Offer); and (c) vote in favour of each of the Relevant Resolutions (although the Company understands that Jarvirne will be voting against Resolutions 4 and 6). The Jarvirne Undertaking may only be withdrawn in accordance with statutory withdrawal rights, and will otherwise cease to have effect on the Open Offer being withdrawn or lapsing or in any event after 1 August 2012. Provided that Admission occurs on or before 1 August 2012, which is the Company’s expectation, the lapse of the Jarvirne Undertaking after 1 August 2012 will not affect the Open Offer. Statutory withdrawal rights include the situation where a supplementary prospectus has been published, which would allow Jarvirne to withdraw from the Jarvirne Undertaking before the end of the period of two working days beginning with the first working day after the date on which the supplementary prospectus was published. A supplementary prospectus would be required to be published in circumstances where, prior to the completion of the Open Offer and/or of Admission, a significant new factor, material mistake or inaccuracy relating to the information provided in this document arises or is identified. ‘Significant’ for these purposes would mean information necessary to enable Shareholders and investors to make an informed assessment of: (i) the assets and liabilities, financial position, profits and losses, and prospects of the Company; and (ii) the rights attaching to the Ordinary Shares. 8.
Withdrawal rights
Qualifying Shareholders and Qualifying DI Holders wishing to exercise statutory withdrawal rights pursuant to section 87Q(4) of FSMA after publication by Namakwa of a prospectus supplementing this document must do so by lodging a written notice of withdrawal, which must include the full name and address of the person wishing to exercise statutory withdrawal rights and, if such a person is a CREST member, the participant ID and the member account ID of such CREST member, with Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU so as to be received no later than two Business Days after the date on which the supplementary prospectus is published, or by email to
[email protected]. Notice of withdrawal given by any other means or which is deposited with or received by Capita Registrars after expiry of such period will not constitute a valid withdrawal, provided that Namakwa will not permit the exercise of withdrawal rights after payment by the relevant Qualifying Shareholder or Qualifying DI Holder of his subscription in full and the allotment of New Shares or DIs representing such New Shares to such Qualifying Shareholder or Qualifying DI Holder becoming unconditional, save to the extent required by statute. In such event Qualifying Shareholders and Qualifying DI Holders are recommended to seek independent legal advice. 9.
Money Laundering Regulations 2007
Pursuant to the Money Laundering Regulations 2007, Capita Registrars may be required to check the identity of persons who subscribe for New Shares or for DIs representing New Shares in excess of the pounds Sterling equivalent of €15,000. Capita Registrars may therefore undertake electronic searches for the purposes of verifying identity of the person by whom or on whose behalf the Application Form is lodged with payment. To do so Capita Registrars may verify the details against the applicant’s identity, but also may request further proof of identity. Capita Registrars reserves the right to withhold any entitlement (including any refund cheque) until verification of the applicant’s identity is completed to its satisfaction. If the Application Form is submitted by a UK regulated broker or intermediary acting as agent and which is itself subject to the Money Laundering Regulations 2007, any verification of identity requirements are the responsibility of such broker or intermediary and not of the Receiving Agent. In such case, the lodging agent’s stamp should be inserted on the Application Form. Payments by Qualifying Shareholders must be made by cheque or banker’s draft in pounds Sterling drawn on a branch of a bank or building society in the United Kingdom or the Channel Islands which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques and banker’s drafts to be cleared through the facilities provided by any of those companies and must bear the appropriate sort code in the top right-hand corner. Cheques, which must be drawn on the personal account of the individual investor where he has sole or joint title to the funds, should be made payable to “Capita Registrars Limited re: Namakwa Diamonds Limited Open Offer A/C” and crossed “A/C Payee only”. Third party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the building 56
society cheque or banker’s draft to such effect. The account name should be the same as that shown on the Application Form. Post-dated cheques will not be accepted. Payments via CHAPS, BACS or electronic transfer will not be accepted. The person (the “acceptor”) who, by lodging the Application Form with payment and in accordance with the other terms as described above, accepts the Open Offer in respect of such number of New Shares as is referred to in it (the “relevant New Shares”) will be deemed to agree to provide the Receiving Agent with such information and other evidence as the Receiving Agent may require to satisfy the verification of identity requirements. If the verification of identity requirements applies, failure to provide the necessary evidence of identity within a reasonable time may result in delays in the despatch of share certificates or in crediting CREST accounts. If following a request for verification of identity the Receiving Agent has not received evidence satisfactory to it, Namakwa may treat the relevant application as invalid, in which event the monies payable on acceptance of the Open Offer will be returned (at the acceptor’s risk) without interest to the account of the bank or building society on which the relevant cheque or banker’s draft was drawn. The verification of identity requirements will not usually apply if: (a)
the acceptor is an organisation required to comply with the Third Money Laundering Directive (the Council Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist activity — no. 2005/60fEC);
(b)
the acceptor (not being an acceptor who delivers his acceptance in person) makes payment by way of a cheque drawn on an account in the name of such acceptor; or
(c)
the aggregate subscription price for the relevant New Shares is less than the pounds Sterling equivalent of €15,000.
In other cases, the verification of identity requirements may apply. Satisfaction of these requirements may be facilitated in the following ways: (i)
if payment is made by bank or building society cheque (not being a cheque drawn on an account of the acceptor) or banker’s draft, by the building society or bank endorsing on the cheque or draft the acceptor’s full name and the number of an account held in the acceptor’s name at such bank or building society, such endorsement being validated by a stamp and an authorised signature; and
(ii)
if the Application Form is lodged with payment by an agent which is an organisation of the kind referred to in (a) above or which is subject to anti-money laundering regulations in a country which is a member of the Financial Action Task Force (the non-European Union members of which are Argentina, Australia, Brazil, Canada, Gibraltar, Hong Kong, Iceland, Japan, Luxembourg, Mexico, New Zealand, Norway, Russian Federation, Singapore, South Africa, Switzerland, Turkey and the United States), the agent should provide written confirmation that it has that status with the Application Form(s) and written assurance that it has obtained and recorded evidence of the identity of the person for whom it acts and that it will on demand make such evidence available to the Receiving Agents and/or any relevant regulatory or investigatory authority.
In order to confirm the acceptability of any written assurance referred to in sub-paragraph 9(ii) above, or in any other case, the acceptor should contact the Receiving Agent on the contact details referred to at the end of this paragraph 9 entitled “Money Laundering Regulations 2007’ in this Part III: “Terms and Conditions of the Open Offer”. If the Application Form(s) is/are in respect of New Shares with an aggregate subscription price of the Sterling equivalent of €15,000 or more and is/are lodged by hand by the acceptor in person, or if the Application Form(s) in respect of New Shares is/are lodged by hand by the acceptor and the accompanying payment is not the acceptor’s own cheque, he should ensure that he has with him evidence of identity bearing his photograph (for example, his original passport) and separate evidence of his address (such as an original utility bill). To confirm the acceptability of any written assurance referred to in sub-paragraph 9(ii) above, or in any other case, the applicant should contact the Receiving Agent. The telephone number of the Receiving Agent is 0871 664 0321 or +44 208 639 3399 if calling from overseas. Calls to the 0871 664 0321 number cost 10 pence per minute (including VAT) plus your service provider’s network extras. Calls to the helpline from outside the UK will be charged at the applicable international rate. Calls from mobile telephones may be higher. 10.
Overseas Shareholders
The distribution of this document and the making of the Open Offer to persons who have registered addresses in, or who are residents in, or who are citizens of, or which are corporations, partnerships or other entities created or organised under the laws of, or who have a registered address in, countries outside the UK or to persons who are nominees of, or custodians, trustees or guardians for, citizens or residents in countries outside the UK may be 57
restricted by the law or regulatory requirements of the relevant jurisdiction. Any failure to comply with such restrictions may constitute a violation of the securities laws of the relevant jurisdiction. Any Shareholder or DI Holder who is in any doubt as to his position should consult an appropriate professional adviser without delay. The attention of Overseas Shareholders and Overseas DI Holders is drawn to the following in connection with the Open Offer. Receipt of this document and/or the Application Form and/or credits of Open Offer Entitlements to a stock account in CREST will not constitute an invitation to subscribe for or an offer of New Shares or for DIs representing New Shares in those jurisdictions in which it would be illegal to make such an invitation or offer and, in those circumstances, this document and/or the Application Form will be sent for information only and should not be copied or redistributed. Due to restrictions under the securities laws of the Excluded Territories, subject to certain exceptions, the Board has deemed it desirable, pursuant to its authority under Bye-law 2.6(f), that no Application Forms will be sent to, and no Open Offer Entitlements or Excess Crest Open Offer Entitlements will be credited to a CREST stock account of persons with registered addresses in any of the Excluded Territories. Accordingly, Application Forms will be sent to Qualifying Shareholders and Open Offer Entitlements will be credited to the stock account in CREST of Qualifying DI Holders in jurisdictions other than the Excluded Territories. Qualifying Shareholders and Qualifying DI Holders in jurisdictions other than the Excluded Territories may, subject to the laws of their relevant jurisdiction, subscribe for New Shares under the Open Offer in accordance with the instructions set out in this document and the Application Form. Qualifying Shareholders or Qualifying DI Holders who have registered addresses in, or who are resident in, or citizens of, countries other than the United Kingdom should consult appropriate professional advisers without delay as to whether they require any governmental or other consents or need to observe any further formalities to enable them to participate in the Open Offer. The Board has deemed it desirable, pursuant to its authority under Bye-law 2.6(f), that no person receiving a copy of this document and/or the Application Form and/or credit of Open Offer Entitlements to a stock account in CREST in any territory outside the UK may treat the same as constituting an invitation or offer to him, nor should he in any event use the Application Form and/or credit of Open Offer Entitlements to a stock account in CREST, unless in the relevant territory such an invitation or offer could lawfully be made to him and such an Application Form and/or credit of Open Offer Entitlements to a stock account in CREST could lawfully be used, and any transaction resulting from such use could be effected, without contravention of any registration or other legal or regulatory requirements. In circumstances where an invitation or offer would contravene any registration or other legal or regulatory requirements, this document and/or the Application Form must be treated as sent for information only and should not be copied or redistributed. It is the responsibility of any person (including, without limitation, custodians, agents, nominees and trustees) outside the United Kingdom wishing to apply for New Shares or DIs representing New Shares under the Open Offer to satisfy himself as to the full observance of the applicable laws of any relevant territory in connection therewith, including obtaining any governmental or other consents that may be required, observing any other formalities required to be observed in such territory and paying any issue, transfer or other taxes due in such territory. None of the Company nor any of its representatives makes any representation to any offeree or purchaser of the New Shares or DIs representing New Shares regarding the legality of such an investment in the New Shares or DIs representing New Shares by such offeree or purchaser under the laws applicable to such offeree or purchaser. Accordingly, persons (including, without limitation, custodians, agents, nominees and trustees) receiving a copy of this document and/or the Application Form and/or a credit of Open Offer Entitlements to a stock account in CREST, in connection with the Open Offer or otherwise, should not distribute or send any of those documents nor transfer Open Offer Entitlements in or into any jurisdiction where to do so would or might contravene local securities laws or regulations. If a copy of this document and/or the Application Form and/or a credit of Open Offer Entitlements to a stock account in CREST is received by any person in any such territory, or by his custodian, agent, nominee or trustee in any such territory, he must not seek to apply for New Shares or for DIs representing New Shares, unless the Company in its sole and absolute discretion is satisfied that such action would not violate applicable legal or regulatory requirements. Any person (including, without limitation, custodians, agents, nominees and trustees) who does forward a copy or this document and/or the Application Form and/or transfers Open Offer Entitlements into any such territory (whether under a contractual or legal obligation or otherwise) should draw the recipient’s attention to the contents of this paragraph. The Board has deemed it desirable, pursuant to its authority under Bye-law 2.6(f), that it reserves the right to treat as invalid any application or purported application for New Shares or for DIs representing New Shares which appears to Namakwa or its agents to have been executed, effected or despatched from an Excluded Territory or in a manner 58
which may involve a breach of the laws or regulations of any jurisdiction or if Namakwa believes or its agents believe that it may violate applicable legal or regulatory requirements or if it provides an address for delivery of share certificates for New Shares, or in the case of a credit of Open Offer Entitlements to a stock account in CREST to a CREST member whose registered address would be in an Excluded Territory or any other jurisdiction outside the UK in which it would be unlawful to deliver such share certificates or shares. Notwithstanding any other provision of this document or the Application Form, the Board reserves the right to permit any Qualifying Shareholder or Qualifying DI Holder (including those who have registered addresses in or who are resident in or citizens of any Excluded Territory) to apply to subscribe for New Shares or DIs representing New Shares if the Board, in its sole and absolute discretion, is satisfied at any time prior to 11.00 a.m. on 27 June 2012 that the transaction in question is exempt from, or not subject to, the legislation or regulations giving rise to the restrictions in question. The comments in this paragraph are intended as a general guide only and any Qualifying Shareholder or Qualifying DI Holder who is in any doubt as to his position should consult his appropriately authorised professional adviser without delay. 11.
Times and dates
The times and dates in the expected timetable of principal events at the beginning of this document may be adjusted by Namakwa, in which event details of the new times and dates will be notified to the UK Listing Authority and Namakwa will make an announcement on the Regulatory Information Service and, where appropriate, to Qualifying Shareholders and Qualifying DI Holders. 12.
Governing law and jurisdiction
The terms and conditions of the Open Offer and, where applicable, the Application Form shall be governed by, and construed in accordance with, English law. The Courts of England and Wales are to have exclusive jurisdiction to settle any dispute, which may arise out of or in connection with the Open Offer, this document and the Application Form. By taking up New Shares, by way of Open Offer Entitlements in accordance with the instructions in this document and, where applicable, the Application Form, a Qualifying Shareholder and Qualifying DI Holder, as appropriate, irrevocably submits to the jurisdiction of the Courts of England and Wales and waives any objection to proceedings in any such Courts, on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum. 13.
Taxation
Qualifying Shareholders’ and Qualifying DI Holders’ attention is drawn to Part IX: “Taxation” of this document, which contains information regarding UK and Bermuda taxation in relation to the Open Offer. Qualifying Shareholders or Qualifying DI Holders who are in doubt about their tax position or are subject to tax in a jurisdiction other than the United Kingdom or Bermuda should immediately consult their independent tax adviser without delay. 14.
Admission to trading and dealing arrangements
Applications have been made to: (i) the UK Listing Authority for the New Shares to be admitted to the premium segment of the Official List; and (ii) the Main Market for such shares to be admitted to trading. It is expected that Admission will become effective and that dealings in the New Shares will commence by 8.00 a.m. on 28 June 2012. Subject to the satisfaction of the conditions of the Open Offer, the New Shares will be registered in the names of the persons to whom they are issued: (a)
in certificated form, with the relevant share certificate expected to be despatched by post, at the applicant’s risk, by 12 July 2012; and/or
(b)
in CREST, with delivery (to the designated CREST account) of the DIs representing New Shares applied for expected to take place on 28 June 2012 unless Namakwa exercises its right to issue such New Shares in certificated form.
The result of the Open Offer will be announced on a Regulatory Information Service and on the Company’s website. No temporary documents of title will be issued. All documents or remittances sent by or to an applicant, or as he may direct, will be sent through the post at his own risk. 15.
Further information
Qualifying Shareholders’ and Qualifying DI Holders’ attention is drawn to the further information set out in this document and, in the case of Qualifying Shareholders, to the terms and conditions and other information set out in the Application Form. 59
PART IV — INFORMATION ON THE GROUP 1.
Overview of Namakwa
Namakwa Diamonds is a diamond resource group, which seeks to extract maximum value from the mining, marketing and sale of Group production. The Group’s mining activities are focused on the Kao Mine in Lesotho, which is expected to become the largest producer of diamonds in Lesotho within the next 12 months. Operated by Storm Mountain Diamonds and its leading hard-rock mining team, with a proven track record in the construction and development of Lesotho’s leading kimberlite pipes, the Kao Mine presents a 189Mt kimberlite resource of c.12.8 million carats (c.4 million indicated and c.8.8 million inferred), with an additional 1.7 million carats at a deposit level of confidence, in which Namakwa holds a 62.5% interest. The Group also maintains alluvial mining operations in the North West Province of South Africa and resource-development properties in the Northern Cape Province of South Africa and the offshore marine environment of Namibia. 2.
Strategy
The Company’s core strategy is to establish a platform for future growth and development, underpinned by the sustainable commercial production from the Kao Mine in Lesotho. Alongside this core strategy, the Group has sought to significantly reduce corporate costs and realise value from non-core assets. 3.
Mining Segment
The focus of the Mining segment is on the Kao Mine in Lesotho. Additional Group production is provided from alluvial operations in the North West Province of South Africa. The Group also maintains a portfolio of exploration and development opportunities in South Africa (alluvial) and Namibia (marine) (in respect of which exploration has been halted) and retains certain contractual rights to alluvial operations in the DRC (the terms of which are summarised in Part X: “Additional Information — Material Contracts” of this document). The Global Resource Statement for Namakwa’s resource base, independently verified and prepared by Venmyn as at 31 August 2011, is contained at Part XI: “Global Resource Statement” of this document. 3.1
Kimberlite Production — Lesotho, Kao Mine
Overview In late December 2009, the Lesotho operational company and Namakwa’s subsidiary, Storm Mountain Diamonds, took control of the Kao Mine. Storm Mountain Diamonds is a joint venture operating company for the Kao Mine held between Namakwa (62.5%), the Government of Lesotho (25%) and local Basotho citizens through a public vehicle, Kimberlite Investments Lesotho Limited (12.5%). The Government of Lesotho’s equity interest is fixed and cannot be diluted by further equity issuances. The Kao kimberlite pipe is the largest diamond-bearing pipe in Lesotho and the fourth largest in South Africa and Lesotho (19.8ha). Kao represents Namakwa’s first hard-rock, large-scale mining operation. The Government of Lesotho granted Storm Mountain Diamonds access to the project area in February 2010, and an experienced Lesotho hard-rock mining team led by the Chief Executive Officer of Storm Mountain Diamonds, Keith Whitelock and General Manager, Jan Venter, began establishing an operational site. As at 29 February 2012, there were 622 people employed on the project area (including contractors and full and temporary labour), with the majority comprising Basotho citizens. The mine will be developed as an open pit over two phases. The Phase 1 operations are planned for a period of four years, ending in 2015. Thereafter, dependant on the results of a definitive feasibility study and decisions relating to the size of the processing plant in Phase 2, the mine has a potential life of up to 21 years. Phase 1 — Metallurgical Testing In the period between 1 June 2010 and 31 May 2011, Storm Mountain Diamonds conducted a sampling process on the ore body to confirm resource estimates against historical bulk sampling results, with particular reference to the grades in the different sections of the pipe and to establish the specifications required for the processing plant for Phase 1 commercial production. During this period, 178,909 tonnes of kimberlite material was processed in a temporary plant, producing 16,143 carats at an average grade of 9.02 cpht with an average stone size of 0.49 cts/stn. 60
However, the grade was not an indicative metric on which to base future assumptions, and following the completion of metallurgical test work and pre-production mining, metallurgical grades on the resource base continued to remain in line with published guidance (K6:19.38cpht and K-Other:6.6cpht). Phase 1 — Operation & Development Phase 1 involves the mining and processing of K6 hard-rock and hard and weathered K-Other kimberlites over an anticipated three to five year period. This process will establish revenues for the various K-Other facies, which comprise 95% of the pipe and provides 9Mt of basalt by way of waste stripping to complete the slimes dam wall, as well as exposing high value K6 kimberlite for mining. Revenue data obtained from this process will be incorporated into a feasibility study on the viability of increasing the rate of mining and processing, two-fold, with greater economies of scale in terms of unit costs. During Phase 1, Storm Mountain Diamonds expects to mine and process: (i) 2.5Mt of the higher grade K6 facies; and (ii) 11.9Mt of hard and soft kimberlites from the K-Other facies. However, the Phase 1 operation allows for the doubling-up of operations, in a second phase (i.e. to 1,000tph), to take advantage of the best economic rate in which to mine the whole of the kimberlite pipe to depth, should this be warranted by the results of the proposed feasibility study and the then current economic conditions. In October 2011, the Company commenced a pre-scoping analysis for a definitive feasibility study on the doubling up of production capability at the Kao Mine. The definitive feasibility study is expected to detail, inter alia, the capital expenditure requirements of the Phase 2 mine and Namakwa expects the study to be carried out in 2013. Subject to diamond prices and the economic climate, the in-built flexibility of the Phase 1 mine plan allows for Phase 2 to be developed at an earlier stage, or for Phase 1 to continue beyond 2015 operating at an anticipated 300,000 carats per year from the processing of 3.6Mt of kimberlite ore each year. Production commenced in late November 2011, a 500tph DMS plant was commissioned in late December 2011, and Phase 1 commercial production (under the terms of the Kao Mining Lease) was achieved on 1 March 2012. To-date, the mix of higher grade K6 ore to lower grade K-Other ore processed has only been 1:5 due to limitations on the secondary crushing capacity, which has limited (and at times prevented) the crushing of high grade K6 ore from the original plan of a 1:3 ratio between the ore bodies. Subsequently, during March 2012 the plant’s scrubber failed and had to be removed from site for refurbishment, following the discovery of cracks on the mantle. Following the removal of the scrubber for repair, the plant has been processing predominately hardrock kimberlite ores through the secondary crushing circuit with its one new cone crusher. Operating in this way, the plant is using approximately 40% less process water than it would do if weathered kimberlite ores were being processed. The second new cone-crusher is now scheduled for delivery and installation into the tertiary crushing circuit in mid-June 2012, aiding the further recovery of diamonds from hardrock kimberlite ores. Capacity levels in the mine’s dedicated 400,000 cubic metre freshwater dam are currently significantly lower than anticipated for the time of year, despite the dam holding a substantial amount of water during the construction phase. This is predominately a result of water being released during the delayed completion of the dam’s construction and drought like conditions in the region during the typically wet months of October to April. Flow levels in the rivers adjacent to the mine are lower than medium and long-term averages for the region. However, there is still flow in the Kao and Mabonyane rivers, and it is expected that this will be sufficient to allow the mine to operate in its current configuration until mid July 2012. Thereafter, without an alternative source of process water, it is likely that there would be insufficient flow to allow the mine to operate at a rate in excess of 100tph (if at all). Operating the 500tph processing plant at full capacity, process water requirements equate to approximately 120,000 cubic metres per month (based on a rate of 400 litres per tonne). At design capacity, the dam provides sufficient water to cover process water requirements for just over three months, whereas the dry season can be five to six months long based on recent weather patterns. As such, the dam at its current capacity, even when full, may not provide sufficient water to allow for continuous processing throughout the year. This means that an alternative source of water is required in order to prevent disruption to mining operations in the event of unusual weather patterns. To address such alternative source requirements, the Company has initiated the installation of a pipeline from the confluence of the Kao and the Malibamotso rivers (the latter being the most significant water-course in Lesotho) that feeds the Katse dam, at a capital cost of c.US$1.75 million. Construction is scheduled to be completed during mid-July 2012. In the event that the pipeline is not completed on time or the construction is otherwise not fit for purpose, then there is a risk that operations may need to be reduced significantly until such time as the winter snows melt and summer rains begin, allowing water levels to return to a satisfactory level in order to facilitate nameplate 61
production. When in operation, pumping water through the pipeline will result in additional diesel and staff costs but this will only be at limited times of the year when additional water is required to supplement water from the freshwater dam. The capital costs of this project will be funded by the Company from its existing cash resources. As a result of the potential water shortage, the Company has taken the strategic decision not to reinstall the 300tph scrubber into the plant configuration. Once repairs have been completed on the scrubber during May 2012, it will be maintained off-site until September 2012, when the plant will be taken offline for approximately five days to allow for re-installation. In the meantime, the two 100tph scrubbers contained in the metallurgical test plant will be installed into the 500tph processing plant. This will provide the operational management team with the flexibility to process 300tph of hardrock kimberlite ores or 200tph of weathered kimberlite ores (assuming that there is sufficient water from July 2012). Subject to the second cone-crusher being installed into the tertiary crushing circuit in mid-July 2012, the current supply of process make-up water being sufficient until a supplementary source of water is available from the new pipeline under construction and the mine continuing to process predominately hard-rock kimberlite ores during FY2012, the Storm Mountain Diamonds management team expect to achieve an FY2012 production target of 150,000 carats. Phase 1 — Production Data Storm Mountain Diamonds — Kao Mine
H1’FY2012
FY2011(1)
FY2010(1)
Tonnage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tonnes Treated — K6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tonnes Treated — K-Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Waste Tonnes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Carats Recovered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — K6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — K-Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average Grade (cpht) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — K6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — K-Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Carats Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average Price US$/ct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,308,336 54,817 255,071 998,448 26,558 9,730 16,828 8.57 17.75 6.60 26,906 214
136,376 — — — 12,405 — — — — — 17,178 356
43,168 — — — 4,345 — — — — — — —
Note: (1) Production data for metallurgical test work and pre-production mining prior to the Kao Mine moving into operational production in late November 2011 is not indicative of future results of operations.
Phase 1 – Pricing Data See Part V: “Operating and Financial Review” of this document. Resource Statement As at 31 August 2011, the Kao kimberlite pipe represented approximately 64.66% of Namakwa’s Indicated and Inferred Diamond Resources, according to Venmyn’s Global Resource Statement contained in Part XI: “Global Resource Statement” of this document. Licences See Part VIII: “Group Mining Licences” of this document. Regional Geology Lesotho has a cool sub-tropical continental climate. It has a summer rainy season from October to March and its winters are cold and dry. Temperatures in summer can reach 25°C and can drop to lows of -20°C during winter. Mining-related activities can be temporarily hampered by inclement weather, including heavy rain and snowstorms. Kao is a primary diamond deposit and is a near vertical volcanic pipe with the characteristic carrot shape in section. It is comprised of volatile-rich, potassic, ultra basic igneous rock. Kimberlite rock has a typical unequal, granular texture, which results from phenocrysts and xenoliths being set in a fine-grained matrix. 62
Kao consists of two kimberlite pipes: the main pipe (19.8ha) and a small (3.2ha) satellite pipe located 350m northwest of the main pipe. Both pipes are hosted in unweathered basaltic lavas and are “Group 1 kimberlites” forming part of the Lemphane-Robert belt. The surface deposits covering the pipes include basaltic gravel deposits by the north-flowing streams and a thin veneer of brown soil with an uppermost peaty layer. These surface deposits have been stripped from most of the Kao pipe exposing either weathered kimberlite (over the majority of the pipe) or hardrock kimberlite (over the quarry facies). In plan view, it has a characteristic sub-circular shape with triangular protuberances to the north-east and south-east sections of the pipe. Infrastructure Access to Kao, from South Africa, is via the Ficksburg and/or Caledonspoort border post. The route to the mine is via tarred roads to the town of Ha Lejone, just north of the Katse Dam. These tarred roads are in a good condition. Thereafter, the narrow gravel road from Ha Lejone, with multiple river crossings necessitates the use of 4 x 4 vehicles. The 25km gravel road from Ha Lejone to the mine has been repaired. The 22km long alternative access track, which branches off the Butha-Buthe to Mokhotlong road at Mothae, has been repaired. The total distance from Ficksburg to Kao is almost 100km and takes approximately 2 1/2 hours to complete. Grid electricity is currently available at Ha Lejone and Storm Mountain Diamonds expects to connect to the grid during Phase 1 commercial production to significantly reduce the costs of diesel generated power. A diesel-driven 8Mva power plant has been established to meet anticipated power requirement on site until such time as power from the national grid is made available. Water from rainfall and melting snow is readily available for use at Kao. A freshwater dam in the headwaters of the Kao River, fed by a large surface catchment area and two tributaries, can hold 400,000 cubic meters of water for processing in the mine’s plant and civil areas and is supported by a downstream weir to provide an adequate yearround supply. Currently, capacity levels are significantly lower than anticipated as a result of drought like conditions in the region during the typically wet months of October to April, combined with the later than planned completion of the construction of the freshwater dam. Due to the remote location of the project, accommodation is required on site. Accommodation, messing and recreation facilities currently cater for up to 600 persons and can be expanded as reasonably required during Phase 1 commercial production. Taxes and Royalties Storm Mountain Diamonds is required to pay an 8% diamond sales tax on the value of the diamonds mined in Phases 1 and 2 of the mining project, together with corporate tax of 25% on profits. 3.2
Alluvial production — South Africa, North West Province
Overview The North West Province assets represent a portfolio of production, near term production and development assets, which have been restructured during FY2012. Through a desire to vertically integrate its trading business with a mining business, Namakwa began acquiring rights to mineral assets in the North West Province of South Africa in 2006. Acquisitions were mostly from smallscale producers and local landowners, which were consolidated to produce a portfolio of production and development projects organised into nodal regions, which provided various cost and production synergies. There are now five geographical nodes in the portfolio (and a node of potential development properties), with a current focus on production on the South East and Northern Nodes by Namakwa and contractor production and/or development across the portfolio. The region represents low-grade alluvial deposits of generally less than 1cpht, with low capital costs for development and short lead-in times to production, but with average diamond prices estimated by Venmyn (as at 31 August 2011) to range from US$436/ct to US$675/ct. Historically, diamond recovery by the incumbent operators from these deposits has been through the use of low-tech, rotary pan-plants, first introduced to the region in the 1940s. This method of diamond recovery is low cost and consequently the resulting diamond recoveries are sub-optimal due to the lower efficiencies associated with such basic technology. Whilst this methodology is still in use by Namakwa and its contract miners at a number of 63
project areas within the province, Namakwa has also conducted large-scale mining on the South East Node, with processing being carried out through a more modern high-tech, 240 tph DMS plant. As at 29 February 2012, Namakwa employed 137 people on this project area (451 people, as at 31 August 2011) either as full-time employees or temporary labour. Production Data SA: NW Province
H1’FY 2012
FY2011
H1’FY2011
FY2010
FY2009
FY 2008
Tonnage . . . . . . . . . . . . . . . . . . . . . . . Carats Produced . . . . . . . . . . . . . . . . . Grade (cpht) . . . . . . . . . . . . . . . . . . . . Carats Sold(1) . . . . . . . . . . . . . . . . . . . . Average Price US$/ct . . . . . . . . . . . . . Average Cost US$/ct . . . . . . . . . . . . .
1,516,622 11,069 0.73 11,178 632 589
5,387,131 38,092 0.71 37,235 638 961
2,432,863 20,591 0.85 20,116 629 797
4,082,862 38,476 0.94 37,722 441 602
4,292,628 26,256 0.61 23,123 325 581
5,849,251 27,177 0.46 27,177 537 1.151
Notes: (1) During the historic periods, Namakwa’s Trading & Beneficiation segment did not acquire all production of contractors in the North West mining area..
Licences A full list of the licences held by the Group on this project area can be found in Part VIII: “Group Mining Licences” of this document. Regional Geology The region provides a generally temperate climate. Summer falls between August and March, with temperatures ranging between 22°C and 34°C. During the winter, temperatures can range between 2°C and 20°C. The North West Province has a mean average rainfall of 481mm, although recent years have seen flash flooding and increased rainfall, which has impacted on operations. However, Namakwa is increasingly taking measures to alleviate problems with rainfall by adapting plant and machinery to seek to cope with adverse conditions. The topography of the North West Province is generally flat, with elevations varying between 1,277mamsl and 1,250mamsl. The surface dips gently towards the Bloemhof Dam in the south. The diamond fields of the area are broadly underlain by Ventersdorp lavas or Dwyka and Ecca Group shales and conglomerates. The surfaces on which gravels are deposited are crudely planar, with a shallow south-westerly dipping slope. The planar surface of the lavas generally exhibits a weathering pattern similar to that of the dolomites, with gullies and potholes eroded into structural trends and intersections, but, in contrast to the dolomite, these surfaces are smoothly rounded. The topographic lows are the trap sites for the alluvial deposits. Both the palaeo and modern rivers were formed on a floor of eroded Ventersdorp lavas of the Allanridge Andesite Formation and all flow southwards due to Late Pliocene uplift of the Griqualand-Transvaal Axis into the Vaal system. It is thought that palaeo-channel formation occurred along deeply weathered (leached and lateritised) faults and dykes, the intersections of which form a pseudo-karstic landscape. The area was the subject of a doctoral thesis, which concentrated mainly on palaeo-geomorphology and structural controls on the fossilised and present drainage systems. The thesis identified four types of gravels, of which two have been identified in the project area, namely, the derived or Rooikoppie gravels and the terraced alluvial gravels within the valleys, which may be calcretised. These ‘runs’ are considered fluvial in nature and are locally referred to as Vlei gravels. These gravels contrast with the higher elevation Rooikoppie gravels, which are primarily located on the inter-fluves and valley shoulders. The farms in the North West Province nodes have Rooikoppie gravels preserved on the higher terraces and generally display a well-developed undulating footwall contact. These features provide potential for well-developed trap-sites and in some areas these sites were exploited and some high-value diamonds were recovered. Regional Resource As at 31 August 2011, the North West Province represented approximately 5.65% of Namakwa’s Indicated and Inferred Diamond Resources, according to Venmyn’s Global Resource Statement contained in Part XI: “Global Resource Statement” of this document.
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Key Production Areas Namakwa’s current focus of operations is on the South East Node and the Northern Node, with contractors working on other nodes within the portfolio. South East Node Namakwa acquired the South East Node in 2007 and has been mining the project since 2008. The South East Node represents Namakwa’s principal operation in the North West Province. It also represents a significant change from the historical methods of diamond recovery traditionally used in the area, with pan-plants, being predominantly replaced by high-tech DMS technology. Alongside this method of recovery, Namakwa has undertaken an airborne electromagnetic survey (“AEM”) of the adjacent farms during FY2011 to explore the wider resource. The AEM interpretation by Spectrem Air was completed and analysed in January 2011. Results from this survey were positive and prospecting application for 29 prospective farms were submitted to the Department of Mineral Resources. The environmental management plans for all AEM applications were completed and mandatory archaeological studies have commenced. Northern Node Namakwa acquired the Northern Node in early 2008 and has been mining the project since July 2008. Along with the mining operation, Namakwa has conducted exploration using pitting and bulk sampling in order to identify new resources and to confirm and upgrade the classification of the existing resources. Vlei gravels are currently being strip mined on the project area using conventional alluvial diamond mining methods, with continuous rehabilitation and slimes and waste returned to the void areas. The overburden and gravels are unconsolidated to semi-consolidated, therefore, no blasting is required, although scrubbers have been introduced to assist with clay configuration and diamond lock-up, especially during the wet season. Processing equipment includes pan-plants plus associated conveyors and a small DMS reconcentration plant. These plants are mobile and are regularly moved to be adjacent to the mining areas in order to keep ore transportation costs to a minimum and final recovery processing takes place in Schweizer-Reneke under secure transportation. Infrastructure Infrastructure and transport in the North West Province are well developed, with tarred and gravel roads providing easy access to the local towns of Wolmaransstad and Schweizer-Reineke to the south west of Johannesburg. This allows employees to live off-site and commute to the project area on a daily basis from the surrounding towns, reducing costs. Electricity is supplied via Eskom’s grid power and generators are available on site to supply power to the DMS, and recovery plants and offices during periods of Eskom power outages. There is sufficient water for operations on all relevant sites. Taxes and Royalties Namakwa is required to pay a royalty based upon the legislated formula for this region plus a diamond export levy of 5% on exported rough diamonds, together with corporate tax of 28% on profits. 3.3
Exploration & Development Assets
As well as the production and near-term production assets described above, Namakwa also maintains a portfolio of development and exploration assets in South Africa’s Northern Cape and Namibia’s off-shore. Namakwa continues to assess its options with regard to this portfolio and the macro-economic climate. Details of the licences in respect of this portfolio are contained in Part VIII: “Group Mining Licenses” of this document. Alluvial — South Africa, Northern Cape The Northern Cape Province mineral assets, in South Africa, represent a notably higher-grade opportunity than those within the North West Province, with similar revenue potential for the Megalodon Channel, north of the Buffels River. The thick gravel horizons, and significant potential for the main channel and its associated tributaries 65
to extend over large areas, highlights the “Buffels North Node” as an advanced exploration target that warrants further attention, in spite of the substantial strip ratio created by the thick overburden which becomes deleterious only to the south of the property. The other two project areas represent high-interest geophysical targets that require an initial phase of exploration to assess their diamondiferous potential. As at 31 August 2011, the Northern Cape Province represented approximately 3.66% of Namakwa’s Indicated and Inferred Diamond Resources according to Venmyn’s Global Resource Statement contained in Part XI: “Global Resource Statement” of this document. Marine — Namibia, Tidal Whilst the Namibian assets of Namakwa constitute a large resource of diamonds, the methods of extraction are difficult and subject to the risks of operating at sea. Namakwa is not readily experienced in carrying out an operation of this nature and is currently in the process of seeking a contractor to partner with on this project. As at 31 August 2011, Namibia represented approximately 26.04% of Namakwa’s Indicated and Inferred Diamond Resources according to Venmyn’s Global Resource Statement contained in Part XI: “Global Resource Statement” of this document. 4.
Sales & Marketing Segment
The Sales & Marketing segment provides a platform for the international marketing and sale of the Group’s mined production from Lesotho and South Africa and contractual off-take production from South Africa and the DRC. A further discussion and analysis of the Sales & Marketing segment’s operations is contained in the paragraph “Sales & Marketing segment” in Part V: “Operating and Financial Review of Namakwa” of this document. 5.
Namakwa’s Regulatory Environment
Namakwa’s Environmental Commitments The mining of alluvial and kimberlite diamonds predominately requires the use of soil, water and diamond bearing gravel, rather than unfriendly chemicals in the processing stage. Namakwa maintains all necessary environmental permits for the current mining operations on its alluvial and kimberlite resource base and seeks to alleviate the impact of its operations on the environment, with specific environmental and rehabilitation plans at each of its operational project areas. Furthermore, regular audits are conducted on Namakwa’s own and contract mined properties and Namakwa maintains a dialogue with the relevant governmental departments to ensure compliance. Namakwa’s environmental liabilities across the Group, as at 29 February 2012 were carried at US$7.5 million. Health and Safety Namakwa is required to comply with a range of health and safety legislation in the jurisdictions in which it has operations and it recognises that the health and safety of its employees is a major priority. As such, on the advanced production site of the North West Province of South Africa, Namakwa implements monthly independent safety audits with an external contractor to ensure ongoing compliance with its legislative requirements. In Lesotho, operations at the Kao Mine are conducted within all relevant guidelines and once the project area enters into commercial production, external consultants will be engaged to monitor and advise on a regular basis on ongoing compliance and best practice. Kimberley Process Namakwa recognises and adheres to the importance of the Kimberley Process, established to stop the trade in conflict diamonds — that is, diamonds which originate from areas controlled by forces or factions opposed to legitimate, internationally recognised governments, and used to fund military action in opposition to such governments. This process, initiated by the World Diamond Council and the United Nations, and implemented by a United Nations resolution in 2003, requires the certification of all diamonds mined and upon transfer of ownership of the rough diamonds. Lesotho, South Africa, Namibia and the DRC have all met the minimum country requirements for the Kimberley Process certification, as do all diamonds recovered on Namakwa’s operations. Black Economic Empowerment As a result of the changing legislative environment in South Africa, Namakwa is obliged to comply with the requirements for black economic empowerment pursuant to the South African Mining Charter by 2014 in respect of its South African operations, which includes the Mining segment’s operations in the North West Province and development portfolio in the Northern Cape, and the Sales & Marketing segment’s operations in Johannesburg. 66
Whilst the current legislative framework for such compliance is uncertain in several respects, the Mining Charter specifies a number of elements that must be complied with before a mining company can be classified as being a contributor to black economic empowerment. One of these elements is the entitlement of a company’s historically disadvantaged South African workforce to up to 26% of a mining project’s beneficial value by 2014, as determined by the Mining Charter. In order to satisfy its obligations towards its historically disadvantaged workforce in South Africa, Namakwa has established an employee trust, and will utilise such trust to comply with the requirements of the Mining Charter, within the timeframes stipulated by legislation.
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PART V — OPERATING AND FINANCIAL REVIEW OF NAMAKWA The following discussion and analysis of the operating and financial review of Namakwa is based on the statement of comprehensive income, statement of financial position and cash-flow data of Namakwa as of and for each of the three financial years ended 31 August 2011, 2010 and 2009 and for the interim financial periods ended 29 February 2012 and 28 February 2011. To provide investors with a composite analysis of the Group’s development since Namakwa’s IPO on 13 December 2007, the discussion and analysis also encompasses the additional financial year ended 31 August 2008. All such financial information should be read in conjunction with the information relating to the business of Namakwa included elsewhere in this document. The discussion includes forward-looking statements that reflect the current view of management and involve risks and uncertainties, including risks relating to future events and other risks, uncertainties and assumptions relating to the Group’s operations, results of operations, and growth strategy. Forward-looking statements speak only as at the date of this document. The actual results of Namakwa could differ materially from those contained in any forward-looking statements as a result of the factors discussed below and elsewhere in this document, particularly in the section entitled “Risk Factors”. Investors should read the whole of this document and not rely on summarised information. Subject to the requirements of the Prospectus Rules, the Disclosure and Transparency Rules and the Listing Rules as appropriate and any other applicable laws and regulations, Namakwa undertakes no obligation publicly to release the result of any revisions to any forward-looking statements in this document that may occur due to any change in Namakwa’s expectations or to reflect events or circumstances after the date of this document. The financial information referenced in this section is incorporated by reference, as described in Part XII: “Documentation Incorporated by Reference” of this document. 1.
Overview of Namakwa
Namakwa Diamonds is a diamond resource group, which seeks to extract maximum value from the mining, marketing and sale of Group production. The Group’s mining activities are focused on the Kao Mine in Lesotho, which is expected to become the largest producer of diamonds in Lesotho in the next 12 months. Operated by Storm Mountain Diamonds and its leading hard-rock mining team, with a proven track record in the construction and development of Lesotho’s leading kimberlite pipes, the Kao Mine presents a 189Mt kimberlite resource of approximately 12.8 million carats (approximately 4 million indicated and approximately 8.8 million inferred), with an additional 1.7 million carats at a deposit level of confidence, in which Namakwa holds a 62.5% interest. The Group also maintains alluvial mining operations in the North West Province of South Africa and resource-development properties in the Northern Cape Province of South Africa and the offshore marine environment of Namibia. 2.
Strategic Development of the Group Since IPO
In December 2007, Namakwa raised net proceeds of approximately US$170.7 million for the development of a vertically integrated diamond resource group, with a particular focus on mining assets in southern Africa with short lead times to production and favourable capital intensity. The central driver of this strategy was to secure a consistent supply of diamonds to support Namakwa’s diamond trading and beneficiation activities, through the development and expansion of existing mining assets, the acquisition of new mines and purchases of diamonds from private sales and tender auctions. Through the acquisition of small alluvial diamond producers in proximity to Namakwa’s existing mining operations, Namakwa also sought to generate incremental value to Shareholders. Following the IPO, Namakwa began to execute its stated strategy, with: (a)
the consolidation and development of production and near-term production mining assets in the North West Province of South Africa and the implementation of a strategy to replace traditional rotary pan-plant systems with dense media separation (“DMS”) units to provide more efficient processing techniques and tonnage throughput;
(b)
exploration and bulk-sampling programmes on concessions in Angola, the DRC and Namibia; and
(c)
an accelerated buying operation of rough and polished diamonds to complement Namakwa’s own mined production and capture opportunities for increased margin within the downstream markets.
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However, during the global economic crisis of 2008/2009 Namakwa scaled back its activities substantially in an effort to preserve cash and balance sheet strength. Operations across the mining and exploration and trading and beneficiation segments were reduced significantly and the business model presented on the IPO was effectively re-cast: (a)
South Africa: North West Province — production operations placed on care and maintenance and the majority of staff retrenched; skeleton workforce remained to progress the capital development of one DMS unit (rather than six DMS units originally planned on IPO) and to manage rehabilitation and care and maintenance;
(b)
Angola — bulk-sampling operations closed down;
(c)
DRC — early stage exploration and infrastructure development continued;
(d)
Namibia — early stage exploration halted;
(e)
Trading & Beneficiation — third party buying of rough and polished diamonds halted and aggressive programme of selling inventory initiated.
Alongside this revised strategy, as at 28 February 2009, the directors at that time also determined to take an impairment charge of US$59.8 million on the value of the Group’s assets, being a US$27.2 million provision (after tax) against the carrying value of mining properties and goodwill and a realised loss of US$32.1 million on the write down of the Group’s diamond inventory. The impact of the 2008/2009 global financial crisis on the Group necessitated a change of direction and Namakwa began assessing the opportunity to acquire distressed diamond mining assets that would provide a short lead-time to production and consistency of supply for the Group’s vertically integrated model. In November 2009, a portfolio of alluvial and kimberlite exploration and development concessions, together with earth moving equipment and consumables and separately a reconditioned DMS unit, were acquired in the DRC for US$5.4 million. Then, in December 2009, Namakwa acquired its first interest in a kimberlite project with a majority stake in the Kao Mine out of the liquidation of the assets of the incumbent operator for a final acquisition cost of US$16.61 million. This amount includes US$3.60 million attributable to the value of the Government of Lesotho’s non-dilutive, free carry of a 25% equity interest in Storm Mountain Diamonds and a US$2.89 million environmental provision raised on acquisition. Thereafter, the Group’s focus of capital was on the consolidation and development of its revised mining and exploration portfolio in Lesotho, the DRC and South Africa. In the meantime, through a revised third party buying programme of predominately rough diamonds and selected polished diamonds, funded by minimal Group capital resources and complemented by trading capital from third parties (such as Jarvirne and The P.J. Malan Investment Trust), the Trading & Beneficiation team looked to capture margin in the highly volatile trading markets of the post-recession recovery across the diamond industry. As the capital requirements of the Group’s mining activities intensified in FY2011, with the Phase 1 development the Kao Mine, the construction of river diversions in the DRC and upgrades to plant and equipment in the North West Province of South Africa, additional sources of funding were sought for the Group. In December 2010, a placing and open offer raised net proceeds of approximately US$52 million in additional equity finance. This was used to repay Group debt of US$15 million to Jarvirne and progress the development of the Kao Mine. By April 2011, the Group’s third party buying activities were substantially reduced as capital was focused on mining activities. Following a sustained period of operational underperformance in the DRC and the North West Province of South Africa during FY2011, a strategic review of Namakwa’s operating and financial platform determined a change of direction in September 2011: (a)
the Board of Directors was reconstituted, with the appointment of Edward Haslam as Non-Executive Chairman and Richard Collocott as Chief Executive Officer;
(b)
a new financing package was entered into on 7 September 2011, with Jarvirne, to recapitalise the Group’s significant debt and provide cash-flow liquidity whilst the Group was restructured;
(c)
the portfolio of mining assets in the DRC was sold on 23 September 2011 (with an economic effective date of 31 August 2011);
(d)
a process was undertaken to reorganise and reduce the alluvial mining operations in the North West Province of South Africa; 69
(e)
the Group’s third party trading operations were suspended and activities reorganised to provide a future platform for the marketing and sale of Group mined and contractual off-take production; and
(f)
the focal point of the Group’s operations became the development of the Kao Mine.
Alongside this re-alignment of the Group’s business units, Namakwa determined to significantly reduce its corporate cost structure, in line with its current operational requirements and reduce Group debt. During FY2012, the Company has focused on the execution of the abovementioned strategy. Mining operations in the North West Province of South Africa have been realigned to provide a cash generative platform (excluding restructuring costs) and the Kao Mine has moved into Phase 1 commercial production, in accordance with the terms of its mining lease. Opportunities to realise Shareholder value from current Group portfolio assets are continuously evaluated. 3.
Presentation of Group Activities
For the period covered by the historical financial information incorporated into this document, the Group’s mining, exploration and development activities and the trading and beneficiation activities were consolidated as a vertically integrated business unit and as such, the individual activities cannot be assessed entirely on a stand-alone basis. However, for the purpose of this discussion and analysis, as well as a year-on-year analysis of the Group’s performance and cash flows, Namakwa has also presented the development of the Group’s activities for the periods covered by the historical financial information since the IPO, in two segments – a Mining segment and a Trading and Beneficiation segment. As such, investors should consider this document in its entirety for a composite discussion and analysis of the Group’s operations as a whole and not rely on this section only. Pursuant to the vertically integrated model of Namakwa that was central to the Company’s strategy on IPO, the vast majority of Namakwa’s own mined production has historically been sold to the Trading & Beneficiation segment, to provide a consistent supply of quality rough diamonds. As such, the revenues of the Mining segment are predominately included in the purchases/cost of sales of the Trading & Beneficiation segment. Accordingly, an analysis of the individual segments in isolation from the analysis of other activities could give a distorted view of Namakwa’s financial and operating performance. For this reason, historically, Namakwa’s management has not analysed each main business segment in isolation. Namakwa does, however, provide financial data by segment in the notes to each of its financial statements for the periods incorporated by reference into this document in accordance with Part XII: “Documentation Incorporated by Reference” of this document. All transactions between Group companies are conducted on an arm’s length basis. 4.
Group Operations
4.1
Current trading and prospects
As at 25 May 2012, FY2012 year-to-date production at the Group’s Kao Mine was 68,240 carats from 651,810 tonnes processed, with an average grade of 10.47cpht. Unit costs remain in line with expectations and May 2012 tender sales of diamonds from the Kao Mine achieved average prices of US$395/ct with the average year-to-date sales price at US$276/ct. At least 10 tender sales are expected to be held during 2012 as the mine moves into full production. The 500tph processing plant is currently running at c.250tph / 6,000 tonnes per day, processing predominately hardrock ores. The ramp-up of processing to nameplate capacity of 500tph has been delayed during the financial year due to the reported operational challenges encountered with the processing plant’s scrubber and the low levels of make-up process water available to the mine in drought-like conditions. The optimal use of limited process water currently available remains a key element to ongoing production. The mine’s water pipeline from the confluence of the Kao and Malibamotso Rivers is scheduled to be in service from mid-July 2012 and, until such time available make-up process water from current accessible water sources, is expected to be sufficient to allow the mine to meet revised production targets. However, in the event that the pipeline is not commissioned on schedule and/or there is no additional rainfall to replenish current sources of supply then there is a risk that operations at the Kao Mine may need to be reduced or otherwise suspended temporarily until sufficient make-up process water is available. In light of the reported operational challenges during the Kao Mine’s ramp-up phase and the impact of the measures undertaken to ensure the optimal use of current water resources ahead of the commissioning of the supplemental water pipeline, FY2012 production targets have been reduced to 150,000 carats. As at 25 May 2012, FY2012 year-to-date production at the Group’s alluvial mining operations in the North West Province of South Africa was 16,569 carats from 2,341,770 tonnes processed, with an average grade of 0.71cpht. Unit costs remain in line with expectations and average year-to-date sales prices at US$764/ct (H1’FY2012: US$632/ct). 70
Recent significant discoveries include a high value 44.47ct diamond and an exceptionally rare 11.36ct pink diamond, placing them in the top five diamonds recovered from the mining area during the Company’s tenure, in terms of value per carat in the rough. The pink diamond has not yet been sold, but ranks alongside the 7.53ct vivid orange diamond discovered in October 2010 in terms of rareness and quality and demonstrates the potential upside for the mining area when operated on the current streamlined basis. Production targets for the mining area for FY2012 remains unchanged at 20,000 carats. With the proceeds of the Open Offer being used to repay the Company’s debt and provide necessary working capital to meet short-term capital and operational requirements, the Company remains on-line to move into a cash-flow positive position in Q4’FY2012. Thereafter, the Company’s restructured balance sheet would be expected to provide a platform for revenue growth, positive EBITDA and free cash-flow, commensurate with the Kao Mine’s production profile of c.1Mcts in the period FY2012 – FY2015, supported by stable production from cash-generative operations in the North West Province of South Africa, which have a track-record of producing special diamonds of significant value. Furthermore, a potential feasibility study on the Phase 2 development of the Kao Mine is anticipated to demonstrate potential for a doubling-up of production to 1,000tph and an additional 21 year life of mine. 4.2
Application of Capital Resources since IPO
Since its initial public offering in December 2007, Namakwa has raised a gross amount of US$306.87 million from equity and debt fundraisings, with associated fundraising and interest charges of US$28.82 million. The nature of the fundraising and repayment of debt facilities is detailed below: (a)
13 December 2007, initial public offering of 50,117,655 new Ordinary Shares raised a gross amount of US$183.69 million, at a price of 181 pence per share, with related fundraising costs of US$16.02 million and a listing cost of US$4.27 million;
(b)
15 March 2010, a private placing of 5,981,905 new Ordinary Shares to Satya Capital Opportunities Limited raised a gross amount of US$3.18 million, at a price of 35 pence per share;
(c)
21 May 2010, a US$15 million loan agreement was entered into with Jarvirne, with related interest and raising costs of US$1.23 million;
(d)
24 December 2010, a placing and open offer of 86,177,025 new Ordinary Shares raised a gross amount of US$55 million, at a price of 41 pence per share, with related fundraising costs of US$2.97 million;
(e)
28 December 2010, a US$15 million loan agreement entered into with Jarvirne on 21 May 2010 was repaid, pursuant to the sequence of events detailed in the paragraph “Material contracts” in Part X: “Additional Information” of this document;
(f)
10 July 2011, an agreement in relation to a US$30 million committed facility was entered into with Jarvirne as set out in further detail in the paragraph “Material contracts” in Part X: “Additional Information” of this document. The nature and availability of this facility is disputed by Jarvirne;
(g)
7 September 2011, the Jarvirne Facility was entered into, conditional on the capitalisation of a US$19.5 million debt owed to Jarvirne, which was approved by Shareholders on 23 November 2011, with aggregate costs of US$4.05 million; and
(h)
10 April 2012, the Sputnick Facility was entered into with related interest and raising costs of US$0.28 million.
An aggregated, net amount of US$257.5 million from Namakwa’s equity and debt fundraisings during the periods covered by the historical financial information incorporated in this document, have been applied as follows: (a)
South Africa — North West Province: as at 29 February 2012, since the IPO, Namakwa had spent US$37.1 million on capital and acquisition expenditure and US$93.1 million on operational expenditure on the consolidation and development of this alluvial mining operation. Taking into consideration revenue items of US$70.0 million, the North West Province mining operations incurred a net loss of US$27.8 million, before depreciation costs of US$16.2 million, impairments of US$37.6 million and net interest of US$0.6 million;
(b)
South Africa — Northern Cape Exploration & Development: as at 29 February 2012, since the IPO, Namakwa had not expended any amounts on capital and acquisition costs and has expended US$5.8 million on operational expenditure on exploration, which was expensed on this early stage exploration area. The Northern Cape exploration operations incurred a net loss of US$5.8 million and no depreciation costs, impairments or net interest; 71
(c)
Lesotho — as at 29 February 2012, since taking control of the Kao Mine and accessing site in February 2010, Namakwa had spent US$73.8 million on capital and acquisition expenditure and US$15.9 million on operational expenditure on metallurgical test-work and the construction and development of infrastructure for Phase 1 commercial production. Taking into consideration revenue items of US$6.1 million, the operations incurred a net loss of US$9.8 million, before depreciation costs of US$1.9 million (there were no impairments or interest to outside lenders). From 1 May 2011, all costs related to the project were capitalised, since the project has entered its development phase. The ramp-up to production of this flagship mine is described further below;
(d)
DRC — as at 29 February 2012, since the IPO, Namakwa had spent US$26.5 million on capital and acquisition expenditure and US$52.7 million on operational expenditure on the early stage exploration, development, trial-mining and subsequent river diversions and production on this project area. Taking into consideration revenue items of US$15.4 million, the DRC operations incurred a net loss of US$37.3 million, before depreciation costs of US$11.5 million and impairments of US$14.9 million and incurred no net interest. The operations were sold on 23 September 2011 for US$6.25 million in deferred settlement over a five-year period, as described in more detail below.
(e)
Angola — Santechifunga, Tchipoia and Caungula: as at 29 February 2012, since the IPO, Namakwa had spent US$1.8 million on capital and acquisition expenditure and US$3.3 million on operational expenditure on this early stage exploration area. The Angolan exploration operations incurred a net loss of US$3.3 million, before depreciation costs of US$0.4 million (the Group incurred neither impairments nor any net interest);
(f)
Namibia — Tidal: as at 29 February 2012, since the IPO, Namakwa had not expended any amounts on capital and acquisition costs or operational expenditure on this early stage exploration area. There were no revenue items and the Group did not incur any depreciation costs, impairments or net interest;
(g)
Trading & Beneficiation: as at 29 February 2012, since the IPO, Namakwa had spent US$5.7 million on deferred acquisition costs from March 2007 and US$2.0 million on capital expenditure and US$292.2 million on operational expenditure (which includes an impairment of US$2.1 million on the write down on the value of inventory as at 28 February 2009) in this business segment. Taking into consideration revenue items of US$276.8 million, the Trading & Beneficiation segment incurred a net loss of US$29.1 million, before depreciation costs of US$0.5 million impairments of US$2.1 million and net interest of US$1.4 million; and
(h)
Corporate Costs, Finance Charges and Overheads: as at 29 February 2012, since the IPO, Namakwa in its holding and corporate and management structure had spent US$6.23 million to settle a loan note from IPO proceeds, US$1.0 million on capital expenditure and US$45.7 million on corporate costs before depreciation costs of US$0.8 million, impairments of US$1.1 million and net interest of US$8.5 million. Further detail of the periodic breakdown of such costs is provided in the analysis throughout this operating and financial review.
4.3
Mining Segment — Introduction
Following Namakwa’s IPO in late 2007, from a resource base of 16.6m carats (Venmyn, 30 September 2007), Namakwa began to implement a strategy of: (a)
consolidation of alluvial mining operations in the North West Province of South Africa, seeking to achieve cost synergies from operations of scale; and
(b)
a programme of exploration and development in Angola, the DRC and Namibia.
A combined total of US$135 million from the net proceeds of the global offering was allocated to this strategy. The strategic vision was materially impacted by the global economic recession of late 2008 and early 2009. Namakwa’s mining operations were significantly reduced: concessions in Angola were closed down; the resource base in the DRC was rationalised with a focus on two key concessions for exploration; and operations in the North West Province of South Africa were placed on care and maintenance, before gradually being reopened on a reduced scale. However, the global economic crisis also presented Namakwa with the opportunity to acquire distressed alluvial and kimberlite diamond resources, which afforded a short lead-time to production and an improvement to Namakwa’s resource base. As such, in November 2009, a significant portfolio of alluvial and kimberlitic 72
concessions was acquired in the DRC, together with plant and machinery, for an aggregate US$5.4 million and in December 2009, Namakwa also acquired a majority interest in the Kao kimberlite project in Lesotho out of the liquidation of the assets of the incumbent leaseholder, Kao Diamond Mine (Pty) Ltd for a total consideration of US$16.61 million (including provisions of US$3.6 million for the Government of Lesotho’s 25% free carry and US$2.9 million for environmental liabilities). Later, in December 2010, a further US$37 million from the net proceeds of a US$55 million Open Offer was allocated to the development of Phase 1 of the Kao development project. The Group’s entire portfolio of alluvial and kimberlitic assets in the DRC was sold, as a going concern, in September 2011 for a total consideration of US$6.25 million, which is to be settled through a five-year off-take agreement. The activities of the Mining segment are now focused on the Kao Mine, which moved into Phase 1 commercial production, in accordance with the terms of its mining lease, on 1 March 2012. An additional US$21.6 million has been invested into the mine since 1 September 2011, bringing the total investment by the Company to US$73.9 million, as at 29 February 2012. Alluvial operations in the North West Province of South Africa have been scaled back and the Board of Directors continues to evaluate the optimal path for the maximisation of Shareholder value in this project area, together with the Group’s portfolio of development and exploration opportunities in South Africa’s Northern Cape (alluvials) and Namibia (marine). Historically, the Group’s own production was assimilated with third party rough diamonds purchased by the Trading & Beneficiation segment pursuant to the vertically integrated business model. This combined inventory was then parceled for sale or beneficiation in the international wholesale markets, with distribution through operations in Johannesburg and Tel Aviv. Today, the Trading & Beneficiation segment has been restructured to provide a platform for the marketing and sale of Group rough diamond production through a combination of direct sales and international tenders. Opportunities to outsource the cutting and polishing of specific diamonds on a profit share basis continue to be assessed on a case-by-case basis but the Group has otherwise exited its cutting and polishing business, as well as its rough and polished trading businesses during FY2012. As at 29 February 2012, the net asset value for of the Group was US$45.8 million. The Group has a resource base of approximately 14.5 million carats, of which approximately 4 million carats are indicated and approximately 10.5 million carats are inferred (with an additional deposit based resource of approximately 5.1 million carats in Namibia and approximately 2.2 million carats in Lesotho) (Venmyn, 31 August 2011). From the reorganised and re-focused portfolio of mining assets, Namakwa expects the Group to produce an estimated 170,000 carats in FY2012, representing an estimated 150,000 carats from the Kao Mine and 20,000 carats from the North West Province alluvial operations.
73
4.4
Mining Segment — Key Performance Indicators
The following key performance indicators for the mining operations demonstrate the relative development of the segment during the periods covered by the historical financial information incorporated by reference into this document. Mining Operations
Production (carats) . . . . . . . . . . . . . . — South Africa . . . . . . . . . . . . . . . . . . — DRC . . . . . . . . . . . . . . . . . . . . . . . . — Lesotho . . . . . . . . . . . . . . . . . . . . . . Tonnes processed . . . . . . . . . . . . . . . . — South Africa . . . . . . . . . . . . . . . . . . — DRC . . . . . . . . . . . . . . . . . . . . . . . . — Lesotho . . . . . . . . . . . . . . . . . . . . . .
H1’FY2012 (Actual)
37,627 11,069 N/A 26,558
FY2011 (Actual)
H1’FY2011 (Actual)
FY2010 (Actual)
FY2009 (Actual)
FY2008 (Actual)
128,369 38,092 77,872 12,405
86,885 20,591 58,258 8,036
82,925 38,476 40,104 4,345
46,742 26,256 20,486 —
27,177 27,177 — —
1,826,510 5,826,872 1,516,622 5,387,131 N/A 303,365 309,888 136,376
2,716,701 2,432,863 177,465 106,373
4,573,227 4,082,862 447,197 43,168
4,557,915 4,292,628 265,287 —
5,849,251 5,849,251 — —
Average Grade (cpht) — South Africa . . . . . . . . . . . . . . . . . . — DRC . . . . . . . . . . . . . . . . . . . . . . . . — Lesotho . . . . . . . . . . . . . . . . . . . . . .
0.73 N/A 8.57
0.71 25.7 —
0.85 32.8 —
0.94 8.9 —
0.61 — —
0.46 — —
Average Price (US$/ct) — South Africa . . . . . . . . . . . . . . . . . . — DRC . . . . . . . . . . . . . . . . . . . . . . . . — Lesotho . . . . . . . . . . . . . . . . . . . . . .
632 N/A 214
638 131 356
629 133 —
418 102 —
325 62 —
537 — —
Average Cost (US$/ct)(1) — South Africa . . . . . . . . . . . . . . . . . . — DRC . . . . . . . . . . . . . . . . . . . . . . . . — Lesotho(2) . . . . . . . . . . . . . . . . . . . .
589 N/A —
961 289 —
797 35.31 —
602 330 —
648 581 —
1,151 — —
Notes: (1) Average cost per carat includes depreciation but excludes corporate charges levied by management and holding companies. The cost also excludes impairment to goodwill, undeveloped properties and fixed assets expensed in 2009 as well as impairment in 2011 to the DRC assets pursuant to the sale of the Group’s DRC assets. (2) Average costs from metallurgical test work, pre-production mining and the ramp-up to Phase 1 commercial production during the periods since the Group took control of the Kao Mine do not provide a meaningful metric against which to measure future performance.
4.5
Lesotho
Introduction The Kao Mine in Lesotho is Namakwa’s strategic focus. On 24 December 2009, Namakwa entered into a mining agreement with the Government of Lesotho in respect of the Kao Mine, further details of which are contained in the “Material contracts” paragraph in Part X: “Additional Information” in this document. The project represents Namakwa’s first kimberlite mine and is operated by its subsidiary, Storm Mountain Diamonds, in which Namakwa holds a 62.5% equity interest, with the Government of Lesotho holding 25% and Kimberlite Investments Lesotho Limited (a public vehicle for local Basotho citizen investors) holding 12.5%. Pursuant to the Kao Mining Agreements, Namakwa’s subsidiary, Storm Mountain Diamonds is responsible for the performance of the Kao Mine, and Namakwa guarantees such performance. As such, Storm Mountain Diamonds’ senior operational management team (which has a track record in the development of kimberlite mining operations in Lesotho and elsewhere) supervises, directs and co-ordinates the activities of the various contractors who provide the Kao Mine with manned mining equipment, operate the process plant, provide house-keeping, catering and recreational services and perimeter security. Certain functions, such as blasting, the operation of the diamond recovery and sort-house sections, product security and safety, health and environmental management, are regarded as core to Storm Mountain Diamonds’ business and are not contracted out. The mine will be developed as an open pit over two phases. The Phase 1 operations are planned for a period of four years, ending in 2015. Thereafter, dependant on the results of a definitive feasibility study and decisions relating to the size of the processing plant in Phase 2, the mine has a potential life of up to 21 years. 74
Phase 1 involves the mining and processing of K6 hard-rock and hard and weathered K-Other kimberlites over an anticipated three to five year period. This process will establish revenues for the various K-Other facies, which comprise 95% of the pipe and will provide 9Mt of basalt by way of waste stripping to complete the slimes dam wall, as well as exposing high value K6 kimberlite for mining. Revenue data obtained from this process will be incorporated into a feasibility study on the viability of increasing the rate of mining and processing, two-fold, with greater economies of scale in terms of unit costs. During Phase 1, Storm Mountain Diamonds expects to mine and process: (i) 2.2Mt of the higher grade K6 facie; and (ii) 11.9Mt of hard and soft kimberlites from the K-Other facies. However, the Phase 1 operation creates the platform for a second phase (if warranted by the results of a feasibility study and the then current macro-economic climate), which could include a doubling up of plant capacity to 1,000tph to take advantage of the best economic rate at which to mine the whole of the kimberlite pipe to depth. The definitive feasibility study is expected to detail, inter alia, the capital expenditure requirements of the Phase 2 mine and Namakwa expects the study to be carried out during 2013. Subject to diamond prices and the economic climate, the in-built flexibility of the Phase 1 mine plan allows for Phase 2 to be developed at an earlier stage, or for Phase 1 to continue beyond five years operating at an anticipated 300,000 carats per year from the processing of 3.6Mt of kimberlite ore each year. As at 30 April 2012, Namakwa had carried 100% of the capital investment costs into the development of the Kao Mine, being US$70.56 million, with a total investment of US$83.51 million into SMD. Kimberlite Investments Lesotho Limited On 16 June 2011, pursuant to the terms of the transfer of the mining lease for the Kao project area to Storm Mountain Diamonds, the Company transferred a 12.5% equity interest in SMD to Kimberlite Investments Lesotho Limited (“KIL”), at par value. KIL is obliged to pay the Namakwa Group for its proportionate share of: (i) the acquisition costs relating to the transfer of the mining lease for the Kao mine to SMD; and (ii) the development and operational costs of the mine, which have been fully funded by Namakwa. In the event that KIL does not pay such costs, then the Group retains the right to dilute KIL’s equity interest in SMD. As at 29 February 2012, KIL had not settled its obligations to the Group and the Group continued to carry this receivable due at US$6.26m, representing the value of the receivable at 31 August 2011, before the continued investment into the Kao Mine by Namakwa during FY2012. The Company understands that it is the intention of KIL to raise the necessary funds to meet its liabilities to the Group from the public markets in Lesotho. The transaction resulted in an increase in non-controlling interest with a corresponding increase in the other receivables. A share based-payment expense has been capitalised to property, plant and equipment representing the difference between the fair value of the shares transferred and the fair value of the consideration receivable. Development of the project area during FY2010 The Government of Lesotho granted Storm Mountain Diamonds access to the Kao Mine area in February 2010 and the team immediately began establishing an operational site. A scoping and pre-feasibility study for Phase 1 operations, which, in terms of the Kao Mining Agreement, required the establishment of plant, equipment and infrastructure to process a minimum of 250 tonnes per hour of kimberlite at a minimum rate of 1.8Mt per annum, was completed in early May 2010. This was followed by a period of infrastructure build, as access roads were upgraded to accommodate the increase in heavy-duty traffic for the construction of Phase 1 plant and the related site construction. Alongside this process, metallurgical test work was commenced on the ore body and site accommodation and related facilities upgraded to sustain operations. As at 31 August 2010, 43,168 tonnes had been processed (producing 4,345 carats) to confirm resource estimates against historical sampling results, with particular reference to the grades and average revenues per carat in the different sections of the kimberlite pipe and to establish the specifications required for optimal diamond recovery in the processing plant to be constructed for Phase 1 commercial production. Following the completion of metallurgical test work and pre-production mining, metallurgical grades on the resource base continued to remain in line with published guidance (K6 – 19.38cpht and K-Other 6.6cpht). The actual grades obtained during the period were not at the estimated levels as the inherited pilot plant did not initially have the required crushing capability to match the historical levels of diamond liberation, but the last work provided the necessary information to design and specify the crushing and screening requirements needed to obtain optimal diamond liberation. 75
US$20.3 million was spent on acquisition costs, capital expenditure and operating costs (excluding corporate overhead charge) for the project, with Namakwa funding 100% of the costs. US$16.61 million equated to acquisition costs. The resource base was comprised of approximately 13 million carats, of which approximately 4 million carats were indicated and approximately 9 million carats were inferred (Venmyn, 31 August 2010). Development of the project area during FY2011 Phase 1 Operational Development During FY2011, the Ministry of Natural Resources granted an extension to the Kao Mine area lease to provide two additional infrastructure areas for the establishment of: (i) a slimes containment facility; and (ii) a freshwater dam. This also necessitated obtaining the requisite environmental permits for the extended area and compensating local landholders. The environmental management plan for the mining, plant and infrastructure developments within the original lease area was also approved. On completion of these requirements, operations on the Kao Mine area focused on the construction of a 4.5 million cubic metre slimes and 400,000 cubic metre freshwater containment facility, together with a weir on the Kao River below the freshwater dam, from which water is piped to the mine site. Drilling and blasting of K6 kimberlite and associated basalt waste were accelerated in order to meet the pilot plant demand for kimberlite headfeed and the blasted basalt requirements for the construction of the slimes dam wall. A site for the Phase I processing plant was also selected, leveled and compacted. The metallurgical test-work programme using the 40tph pilot plant was completed and the pilot plant was decommissioned on the 31 May 2011, enabling resources to be directed towards the construction of the Phase 1 500tph processing plant. The specifications for this plant (which is capable of processing hard and soft kimberlites together or separately) were only finalised in May 2011, when it was determined to abandon the originally proposed 100tph hard-rock kimberlite DMS-based plant and the 250tph weathered kimberlite rotary pan-based plant, in favour of a dual processing DMS unit which could provide both a higher degree of diamond recovery and the opportunity to increase production further through a modular system with standardised parts. The accommodation, messing and recreation facilities were also expanded to initially cater for up to 450 people (with scope for future expansion) and water, power and sewage reticulation systems were constructed. A dieseldriven power plant with an initial 8Mva was also established to meet anticipated power requirements on site until such time as power from the national grid was made available. The development programme was impacted by two events outside of Storm Mountain Diamonds’ control in Q4’FY2011, which delayed commencement of Phase 1 production by approximately eight weeks: (a)
an engineering sector strike in South Africa during July 2011, resulted in a month’s delay on components being fabricated for the Phase 1 process plant; and
(b)
high winds and snowfall on the site interrupted the Phase 1 process plant construction programme and closed the access road to the mine in July/August 2011.
In total, an aggregate of 20 working days was lost on the construction programme during the financial year, due to events outside of the control of Storm Mountain Diamonds. Sales Prices During FY2011 In June 2011, sales prices for Kao diamonds achieved significant increases within the smaller size categories against March 2011 pricing as Q3’FY2011 metallurgical test work focused more on the recovery of smaller diamond fractions from the re-processing of coarse fine tailings. Sale
June 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No. Carats
Average Price(1) (US$)
Average Stone Size(2) (ct)
5,494 5,395 6,298
372 402 301
0.30 0.65 0.56
Notes: (1) The average sale price was calculated from a mix of diamonds recovered from hardrock and weathered kimberlites in the pipe during the metallurgical test-work stage. In the Namakwa’s 2010 Competent Persons’ Report prepared by Venmyn, an average price per carat of US$280/ct was estimated for diamonds recovered from the K6-hardrock kimberlites and US$138/ct for K-Other weathered kimberlites. In Namakwa’s 31 August 2011, Technical Statement on the Kao Mine, prepared by Venmyn, an average price per carat of US$354/ct was estimated for diamonds recovered from the K6-hardrock kimberlites and US$167/ct for K-Other weathered kimberlites. (2) Q3’2010 metallurgical test-work focused more on the recovery of smaller diamond fractions from the re-processing of coarse and fine tailings.
76
Production Data During FY2011 For the year ended 31 August 2011, Storm Mountain Diamonds produced 12,405 carats, from 136,376 tonnes processed during metallurgical testing, at an average grade of 9.0cpht. US$32.5 million was spent on capital expenditure and US$12.6 million on operational costs (excluding corporate overhead charge). Taking into consideration revenue items of US$6.1 million, Storm Mountain Diamonds incurred an operating loss of US$6.4 million during the period after capitalising expenses of US$4.5 million, before depreciation costs of US$1.8 million and net interest of US$3.0 million. Exploration, evaluation and development includes all projects up to the stage where a project commences production at which point it will form part of the Mining segment under the Company’s financial statements. Management concluded that the Kao Mine should be reported separately in this segment, as it is closely monitored as a potential growth region and is expected to materially contribute to Group revenue in the future. For the period of 1 September 2010 to 31 May 2011 the costs related to the Kao Mine were classified as part of exploration and evaluation expenses, whilst it was classified as property, plant and equipment for the remainder of the 2011 financial year in the Company’s financial statements. The resource base comprised of approximately 13 million carats, of which approximately 4 million carats were indicated and approximately 9 million carats were inferred (Venmyn, 31 August 2011). Development of the project area during FY2012 Processing of kimberlite ore commenced in late November and the 500tph Phase 1 plant was commissioned on 31 December 2011. The mine moved into Phase 1 commercial production, pursuant to the terms of the Kao Mining Agreement, on 1 March 2012. Whilst the economic viability of the mine is built on a regular and homogenous supply of high quality small diamonds from K-Other ores, which represent approximately 95% of the known drill-depth of the pipe, 11 diamonds in excess of 10.8 carats (with a combined weight of 245 carats) were recovered during the ramp-up to Phase 1 commercial production, including an 82 carat dodecahedron, presenting a yellow/brown hue with few inclusions. This complements a number of small purple and yellow fancy diamonds recovered to-date from the mine and demonstrates a potential for some large and fancy stones. Furthermore, the size frequency distribution of diamonds larger than 5 carats continues to improve and the recent find of a 38 carat top light brown diamond suggests that the mine could have scope for larger diamonds. The ramp-up to Phase 1 commercial production demonstrated that average diamond grades, when extrapolated from production results, remained in line with those achieved during the metallurgical test work conducted in 2010 / 2011 (K6 at 18cpht and K-Other at 6.24cpht). Furthermore, average stone sizes were in line with forecasts made for the 500tph processing plant in its current metallurgical format and the prices achieved for such diamonds are in line with expectation for such sieve sizes. Separately, ongoing ore body delineation has identified additional kimberlite facies, which make-up the Kao Main Pipe Complex (KMPC) and, as a result, the geological model and contained resource have been refined to provide a 189Mt kimberlite resource of approximately 12.8 million carats (approximately 4 million indicated and approximately 8.8 million inferred), with an additional 1.7 million carats at a deposit level of confidence. To date, the mix of higher grade K6 ore to lower grade K-Other ore processed has only been 1:5 due to limitations on the secondary crushing capacity, which has limited (and at times prevented) the crushing of high grade K6 ore from the original plan of a 1:3 ratio between the ore bodies. Subsequently, during March 2012 the plant’s scrubber failed and had to be removed from site for refurbishment, following the discovery of cracks on the mantle. Following the removal of the scrubber for repair, the plant has been processing predominately hardrock kimberlite ores through the secondary crushing circuit with its one new cone crusher. Operating in this way, the plant is using approximately 40% less process water than it would do if weathered kimberlite ores were being processed. The second new cone-crusher is scheduled for delivery and installation into the tertiary crushing circuit in late May 2012, aiding the further recovery of diamonds from hardrock kimberlite ores. Capacity levels in the mine’s dedicated 400,000 cubic metre freshwater dam are currently significantly lower than anticipated for the time of year, despite the dam holding a substantial amount of water during the construction phase. This is predominately a result of water being released during the delayed completion of the dam’s construction and drought like conditions in the region during the typically wet months of October to April. Flow levels in the rivers adjacent to the mine are lower than medium and long-term averages for the region. However, there is still flow in the Kao and Mabonyane rivers, and it is expected that this will be sufficient to allow the mine to operate in its current configuration until early July 2012. Thereafter, without an alternative source of process water, it is likely that there would be insufficient flow to allow the mine to operate at a rate in excess of 100tph (if at all). 77
Operating the 500tph processing plant at full capacity, process water requirements equate to approximately 120,000 cubic metres per month (based on a rate of 400 litres per tonne). At design capacity, the dam provides sufficient water to cover process water requirements for just over three months, whereas the dry season can be five to six months long based on recent weather patterns. As such, the dam at its current capacity, even when full, may not provide sufficient water to allow for continuous processing throughout the year. This means that an alternative source of water is required in order to prevent disruption to mining operations in the event of unusual weather patterns. To address such alternative source requirements, the Company has initiated the installation of a pipeline from the confluence of the Kao and the Malibamotso rivers (the latter being the most significant water-course in Lesotho) that feeds the Katse dam, at a capital cost of c.US$1.75 million. Construction is scheduled to be completed during mid-July 2012. In the event that the pipeline is not completed on time then there is a risk that operations may need to be reduced significantly until such time as the winter snows melt and summer rains begin, allowing water levels to return to a satisfactory level in order to facilitate nameplate production. When in operation, pumping water through the pipeline will result in additional diesel and staff costs but this will only be at limited times of the year when additional water is required to supplement water from the freshwater dam. The capital costs of this project will be funded by the Company from its existing cash resources. As a result of the potential water shortage, the Company has taken the strategic decision not to reinstall the 300tph scrubber into the plant configuration. Once repairs have been completed on the scrubber during May 2012, it will be maintained off-site until September 2012, when the plant will be taken offline for approximately 5 days to allow for re-installation. In the meantime, the two 100tph scrubbers contained in the metallurgical test plant will be installed into the 500tph processing plant. This will provide the operational management team with the flexibility to process 300tph of hardrock kimberlite ores or 200tph of weathered kimberlite ores (assuming that there is sufficient water from mid-July 2012). Subject to the second cone-crusher being installed into the tertiary crushing circuit in mid-July 2012, the current supply of process make-up water being sufficient until a supplementary source of water is available from the new pipeline under construction and the mine continuing to process predominately hard-rock kimberlite ores during FY2012, the Storm Mountain Diamonds management team expect to achieve an FY2012 production target of 150,000 carats. As at 30 April 2012, Namakwa’s capital investment in the development of the Kao Mine was US$70.56 million. Remaining capital investment of US$7.70 million will be funded from the Sputnick Facility and operational cash flows until the Group moves into a net-cash generative position. For the period of 1 September 2011 to 29 February 2012 the costs related to the Kao Mine are classified as part of property, plant and equipment in the Company’s financial statements. A total of US$24.3 million has been capitalised during the first six months of the 2012 financial year. The resource base was comprised of approximately 13 million carats, of which approximately 4 million carats were indicated and approximately 9 million carats were inferred (Venmyn, 31 August 2011). Sales Prices During FY2012 Since January 2012, the Group has now sold 49,771 carats from the Kao Mine, realising c.US$13.76m in revenue. On 13 May 2012, the Company announced that it had closed its first sale of Kao diamonds in Antwerp, through Fusion Alternatives, the dedicated tender partner of I Hennig & Co. 16,393 carats were sold at an average selling price of US$395/ct. The diamonds sold were sourced predominately from hardrock kimberlite ores. Tender
No. 6 May 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No. 5 April 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . No. 4 March 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . No. 3 February 2012 . . . . . . . . . . . . . . . . . . . . . . . . . No. 2 February 2012 . . . . . . . . . . . . . . . . . . . . . . . . . No. 1 January 2012 . . . . . . . . . . . . . . . . . . . . . . . . . .
Location
Antwerp Johannesburg Johannesburg Johannesburg Johannesburg Johannesburg
78
No. Carats
Average Price (US$)
Average Stone Size (ct)
16,388 6,478 8,419 7,242 7,326 3,918
395 234 224 168 233 246
0.36 0.29 0.22 0.21 0.29 0.21
4.6
South Africa: North West Province
South Africa’s North West Province is the origin of Namakwa Diamonds’ Mining activities, with production and near-term production opportunities in a historically prospective paeleo-alluvial region. The table below demonstrates the salient key production statistics of the region during the periods under review: South Africa — North West Province Production
H1’FY2012 (Actual)
FY2011 (Actual)
H1’FY2011 (Actual)
FY2010 (Actual)
FY2009 (Actual)
FY2008 (Actual)
Tonnage . . . . . . . . . . . . . . . . . . . . . . . . 1,516,622 Carats . . . . . . . . . . . . . . . . . . . . . . . . . . 11,069 Average Grade (cpht) . . . . . . . . . . . . . 0.73 Average Price (US$/ct) . . . . . . . . . . . . 632 Average Cost (US$/ct) . . . . . . . . . . . . 589
5,387,131 38,09 0.71 638 961
2,432,863 20,591 0.85 629 797
4,082,862 38,476 0.94 418 602
4,292,628 26,256 0.61 325 648
5,849,251 27,177 0.46 537 1,151
Development of the project area during FY2008 During FY2008, Namakwa progressed its strategy of consolidating numerous low grade farming rights in order to seek synergies of return through increased tonnage, using high-tech DMS units rather than the traditional rotary pan plants predominately used in the region. Contractors were also put to work on development nodes and exploration and development, which commenced prior to the IPO, continued on nodes considered by the geological team to be more highly prospective. However, during the course of the financial year, the project area was impacted by two key factors that continued to hinder the development of the region’s business plan from that envisaged on the IPO: (a)
Electricity outages — a failure in the consistency of supply from Eskom and regular power outages during the period resulted in Namakwa having to increase its use of diesel generators on its four production nodes (increasing the relative costs of production) and reassess its plans for the implementation of six DMS units on the project area by the end of FY2009. By year-end, only one of two planned DMS units was in the process of construction on the South East Node, as Namakwa was unable to reach a satisfactory agreement with Eskom in respect of the consistency and quality of the electricity supply required to justify the capital investment on six DMS units.
(b)
High rainfall — resulted in mining conditions being too wet for ore to be delivered by earth-moving equipment to rotary pan plants on a consistent basis, with significant build-ups of clay also clogging the plants when ore was delivered, hindering the recovery of diamonds from alluvial gravels. As a result both tonnage and grade were adversely affected.
By the end of H1’2008, such adverse conditions had resulted in Namakwa reducing its original annual production target of 45,000 carats to 25,000 – 30,000 carats. Furthermore, on the basis that Eskom would be unable to guarantee a consistent supply of electricity to the project area to allow Namakwa to increase DMS capacity, the FY2009 target of 100,000 carats was reduced to 70,000 – 75,000 carats. As at 31 August 2008, the North West Province project area produced 27,177 carats from 5,849,251 tonnes, at an average grade of 0.46cpht. An average price per carat of US$537/ct was overshadowed by an average cost per carat of US$1,151/ct, as a result of the issues reported. US$2.5 million was spent on acquisitions (with an additional US$7.7 million paid on deferred settlement of consideration for acquisitions in the 2007 financial year), US$20.3 million on capital expenditure and US$28.6 million on operational costs (excluding corporate overhead charges). Taking into consideration revenue items of US$15.0 million, the North West Province project area incurred an operating loss of US$13.6 million during the period before depreciation costs of US$3.8 million and net interest expense of US$0.3 million. The Group incurred no impairments during the period. The resource base comprised approximately 4 million carats, of which approximately 2 million carats were indicated and approximately 2 million carats were inferred (Venmyn, 31 August 2008). Development of the project area during FY2009 During FY2009, the North West Province project area was adversely affected by the global economic recession and its impact on the diamond industry. In December 2008, Namakwa announced a strategic review of operations, including a statutory consultation with labour unions and mining operations were placed on care and maintenance. By late February 2009, operations on the North and Central Nodes were restarted on a significantly reduced basis 79
and the DMS development project on the South East Node continued. However, resulting diamond prices forced Namakwa to place the Central Node on care and maintenance again later in the year. Namakwa implemented costs saving measures through the retrenchment of mining and support staff, with a skeleton staff maintained to provide for environmental rehabilitation, care and maintenance and capital projects on the South East Node DMS plant. The FY2009 production target of 70,000 – 75,000 carats was abandoned in April 2009 as the economic climate did not justify a revised capital programme for three DMS units and four tailor made rotary pan plants, which had been scheduled for installation by June 2009. Instead, the one DMS unit being constructed on the South East Node became the focal point for the alluvial operations going forward. By year-end, four mines had re-opened on the project area, albeit on a significantly reduced operational basis. As at 31 August 2009, the North West Province project area produced 26,256 carats from 4,292,628 tonnes, at an average grade of 0.61cpht. An average price per carat of US$325/ct was again overshadowed by an average cost per carat of US$648/ct, as a result of the issues reported. Namakwa did not expend any amounts on acquisitions, but spent US$2.4 million on capital expenditure and US$14.2 million on operational costs (excluding corporate overhead charges). Taking into consideration revenue items of US$8.6 million, the North West Province project area incurred an operating loss of US$5.7 million during the period before depreciation costs of US$2.7 million, impairments of US$27.4 million on mining properties and goodwill and net interest expense of US$0.2 million. The resource base comprised approximately 4 million carats, of which approximately 1.5 million carats were indicated and approximately 2.5 million carats were inferred (Venmyn, 31 August 2009). Development of the project area during FY2010 During FY2010, the focus of the project area was on the capital development of the South East Node DMS unit, which increased production capacity and contributed to an increase in average grade on the wider project area from 0.61cpht to 0.94cpht. Elsewhere on the project area, mineral resources were rationalised and operations consolidated, only re-opening as the diamond pricing environment improved during the course of the year. However, a target of 50,000 carats for FY2010 was not achieved. Operations continued to be impacted by increasing year-on-year rainfall flooding the project area, an inability to access gravels in wet clay conditions and repeated disputes with the local community over illegal strikes on the Idada mine, which forms part of the South East Node project area. Furthermore, the ramp-up programme of the DMS unit on the South East Node was delayed by the installation of the thickener to the processing sequence in the plant, resulting in actual water shortages to the processing plant. As at 31 August 2010, the North West Province project area produced 38,476 carats from 4,082,862 tonnes, at an average grade of 0.94cpht. An average price per carat of US$418ct was again overshadowed by an average cost per carat of US$602/ct, as a result of production and recovery issues reported. US$1.9 million was spent on acquisition and capital expenditure and US$20.2 million on operational costs (excluding corporate overhead charges). Taking into consideration revenue items of US$15.6 million, the North West Province project area incurred an operating loss of US$4.6 million during the period before depreciation costs of US$3.3 million and net interest expense of US$0.1 million. The Group incurred no impairment costs during the period. The resource base comprised approximately 1.9 million carats, of which approximately 0.4 million carats were indicated and approximately 1.5 million carats were inferred (Venmyn, 31 August 2010). Development of the project area during FY2011 At the start of the FY2011 year: (a)
a fully operational DMS unit on the South East Node providing 450tph run of mine head-feed and upgraded machinery on the Northern Node was intended to provide all weather capability; and
(b)
three significant discoveries on the South East Node: a rare 7.53ct vivid orange diamond, a 26.74ct D(IF) Type IIa diamond (both with flawless potential), and a 39.17 carat diamond.
The production target for FY2011 was set at 55,000 – 65,000 carats. However, by July 2011, this had been reduced to 37,500 carats for the financial year. 80
Production in the first half of the year was up 15% on H1’2010 at 20,591 carats, with tonnage throughput also up 53% on the same period at 2,432,863 tonnes, principally driven by the increased capacity on the South East Node. Significant finds also continued, with a 30ct intense fancy yellow diamond and a 19ct white diamond complementing earlier finds and in total 33 special diamonds (i.e. above 10.8cts each) at an average of 14.73cts each, pointed towards a successful year on the project area with the increased DMS capacity. Initial average pricing for the period was also rising above the previous highs for the project area in FY2008 (H1’FY2011, US$629/ct – v – US$537/ct for FY2008) and production for the region remained on target at 20,591 carats, taking into consideration the wet conditions of H1’FY2011 and anticipated dry conditions of H2’2011. However, as the year progressed, the project area continued to be adversely affected by high rainfall waterlogging mine sites and power surges from a lack of maintenance on Eskom power lines. Despite the installation of capacitor banks to seek a constant power supply, the impact of rainfall and power surges was dramatic. During H2’2011, the dry season and greater access to deeper gravels did not materialise, tonnage throughput (H2’2011 2,954,268 tonnes –v– H1’FY2011: 2,432,863 tonnes) was slightly higher than in H1’FY2011 but average grades (H2’2011: 0.59cpht –v– H1’11: 0.85cpht) were substantially below H1’FY2011, resulting in diamond recovery being materially off-budget. In July 2011, Namakwa had to cut its production guidance for FY2011 to 37,500 carats. There followed a further operational and strategic review. As at 31 August 2011, the North West Province project area produced 38,092 carats from 5,387,131 tonnes, at an average grade of 0.71cpht. An average price per carat of US$638/ct was again overshadowed by an average cost per carat of US$961/ct, as a result of significant reduction in grade, an inability to achieve tonnage targets, combined with an increase in costs resulting from unscheduled stoppages, unplanned maintenance and unbudgeted repairs on EME. US$2.3 million was spent on acquisition and capital expenditure and US$31.2 million on operational costs (excluding corporate overhead charge). Taking into consideration revenue items of US$23.7 million, the North West Province project area incurred an operating loss of US$7.5 million during the period before depreciation costs of US$5.1 million, impairments of US$10.3 million and net interest expense of US$0.01 million. The operating loss also includes a provision for an increase in the rehabilitation liability of the project area of US$1.3 million. As at 31 August 2011, the resource base comprised approximately 1.1 million carats, of which approximately 0.27 million carats were indicated and approximately 0.83 million carats were inferred (Venmyn, 31 August 2011). Development of the project area during FY2012 During H1’FY2012, the Group substantially reduced Namakwa’s operations on this project area by moving from a 24/7 operating model, which requires a three-shift mining team to a two-shift mining team working 24 hours per day from 6 a.m. on Monday to 6 a.m. on Saturday, with the remainder of the weekend used for maintenance. Separately, Namakwa sought to increase the number of contractors operating on the project area. Operations on the Idada mine, which forms part of the South East Node project area, have been indefinitely suspended, following a number of continuing disputes between the local mining company, Oersonskraal Mining (of which Namakwa is a 48% shareholder), the local community and the Department of Mineral Resources. Since the suspension of activities at Idada, the region’s safety record improved dramatically, and the region has experienced seven injury free months. Whilst discussions continue with the National Union of Miners in respect of wage demands, strikes are not having a material impact on production and guidance for FY2012 remains unchanged at 20Kcts. As at 29 February 2012, nothing was spent on acquisition and capital expenditure and US$5.2 million on operational costs (excluding corporate overhead charge). Taking into consideration revenue items of US$7.08 million, the North West Province project area incurred an operating profit of US$1.87 million during H1’FY2012 before restructuring costs of US$3.27 million and depreciation costs of US$0.46 million. There were no interest charges and no impairments during the period. As at 29 February 2012, the Group provided US$3.96 million for the rehabilitation liability of the North West project area, of which US$0.9 million is funded through deposits or bank guarantees. The project area will continue to be assessed on a quarterly basis to determine the best way to maximise shareholder value. A production target of 20,000 carats has been set for this project area in FY2012 (which includes a contribution of 7,500 carats from contractors). 4.7
Democratic Republic of Congo
The entire resource base was sold on 23 September 2011, with the economic effective date of the transaction 31 August 2011. 81
On the IPO Namakwa held rights over a number of exploration and development concessions on the river systems of the Kasai, Tshikapa, Longatshimo and Lumbembe Rivers, which afforded the opportunity for early stage development and a resource base of approximately 6.4 million carats, of which approximately 1.2 million carats were an indicated diamond resource and approximately 5.2 million carats were an inferred diamond resource (Venmyn 30 September 2007). The mineral resource base was subsequently rationalised during the economic downturn of 2008/2009 and in November 2009 it was increased again with the acquisition of Kasai Resource Mining Limited and its portfolio of alluvial and kimberlitic concessions. The table below demonstrates the salient key production statistics of the region during the periods under review: DRC — Tshikapa Triangle Exploration, Development and Production
Tonnage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Carats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average Grade (cpht) . . . . . . . . . . . . . . . . . . . . Average Price (US$/ct) . . . . . . . . . . . . . . . . . . . Average Cost (US$/ct) . . . . . . . . . . . . . . . . . . .
FY2011 (Actual)
H1’FY2011 (Actual)
FY2010(2) (Actual)
FY2009(1) (Actual)
FY2008 (Actual)
N/A 303,365 N/A 77,872 N/A 25.7 N/A 131 N/A 289
177,465 58,258 32.8 133 35.31
447,197 40,104 8.9 102 330
265,287 20,486 7.7 62 581
— — — — —
H1’FY2012 (Actual)
Notes: (1) Results from bulk-sampling and trial mining only. (2) Results from trial-mining on the Kasai Central Node terraces, early-stage river diversions on the Kasai Central Node and dredge sampling on the Longatshimo River of the Kasai South Project Area.
Development of the project area during FY2008 During FY2008, Namakwa focused on the development of infrastructure in the DRC, with: operational bases established in Kinshasa and Tshikapa; bridges, roads, camps and storage facilities constructed; earth moving equipment and four sampling plants for geological exploration procured and installed on two primary sites in an area that formed the basis of the “Kasai Central Node” that was later established in 2010. As at 31 August 2008, the project area was not in production. However, US$13.9 million was spent on acquisition and capital expenditure and US$14.9 million on operational costs (excluding corporate overhead charge) in the DRC project area, resulting in an operating loss of US$14.9 million during the period. The Group incurred no depreciation costs, impairments or net interest during the period. The resource base was comprised of approximately 13.2 million carats, of which approximately 1.2 million carats were indicated and approximately 12 million carats were inferred (Venmyn, 29 August 2008). Development of the project area during FY2009 From the base camp on the Kasai Central Node, the exploration team was able to establish an early stage bulksampling and testing programme during FY2009, leading to early stage trial mining on the terraces and flats adjacent to the Kasai River using three small DMS units, with a combined capacity of 70tph. As at 31 August 2009, the DRC project area produced 20,486 carats, from 265,287 tonnes during the bulk-sampling and trial mining phase, with an average recovered grade of 7.7cpht. US$3.7 million was spent on acquisition and capital expenditure and US$10.3 million on operational costs (excluding corporate overhead charges). Taking into consideration revenue items of US$0.8 million, the DRC mining operations incurred an operating loss of US$9.5 million during the period before depreciation costs of US$3.1 million (the Group incurred neither impairments nor net interest). The resource base was comprised of approximately 6.2 million carats, of which approximately 0.1 million carats were indicated and approximately 6.1 million carats were inferred (Venmyn, 31 August 2009). Development of the project area during FY2010 Following the initial success of the FY2009 trial mining programme and the projected ramp-up of operations during FY2010 a production target of 90,000 carats was set for the financial year. Operations were then supplemented in November 2009 with the acquisition of Kasai Resource Mining Limited, increasing the DRC asset portfolio to more than 70 alluvial and kimberlitic concessions in the Tshikapa region, covering an area of more than 5,000km2. The revised asset base and the geological data acquired with the acquisition of Kasai Resource Mining Limited now 82
provided the opportunity for the mining of large scale river diversions, as well as terrace mining, river dredging and a kimberlite exploration programme. As a result, the resource base was delineated into three regional nodes: Kasai North Node; Kasai Central Node; and the Kasai South Project Area. During a period of lost production time in early 2010, whilst the operating company of the Kasai Central Node defended a civil claim and the Kasai Resource Mining assets were assimilated into Namakwa’s portfolio, the mining plan for the region was changed to move into the rivers on the Kasai Central Node with a reduced production target of 60,000 – 80,000 carats for the financial year. These operations involved the sequential paddocking of various sections of the node with large-scale dykes, the draining of water and dry mining, following a technique successfully used on the Angolan river systems. Trial mining in the diverted river system demonstrated an immediate improvement in project area grades, compared with terrace mining. The size and quality of diamonds recovered also improved and the Group’s carat call for the DRC was supplemented with dredge sampling from the Longatshimo River on the Kasai South Project Area. As at 31 August 2010, the DRC project area produced 40,104 carats, from 447,197 tonnes from trial mining on terraces, early-stage river diversions and dredge sampling, at an average grade of 8.9cpht. The average price per carat was US$102/ct and the average cost was US$330/ct. US$5.4 million was spent on acquisition and capital expenditure (including the acquisition of Kasai Resource Mining Limited and additional DMS capacity) and US$8.9 million on operational costs (excluding corporate overhead charges). Taking into consideration revenue items of US$3.3 million, the DRC mining operations incurred an operating loss of US$5.5 million during the period before depreciation costs of US$4.2 million. The Group incurred neither impairments nor net interest during the period. The resource base was comprised of approximately 6.2 million carats, of which approximately 0.1 million carats were indicated and approximately 6.1 million carats were inferred (Venmyn, 31 August 2010). Development of the project area during FY2011 Following the early success of the river diversion on the Kasai Central Node in FY2010, the potential for the upgrading of the deposit into the indicated resource category and the opportunity to take the bulk-sampling and trial mining phase on the node into full production, together with positive dredge-sampling data from operations on the Longatshimo River, Namakwa set a production target for FY2011 of 196,000 – 240,000 carats. However, by July 2011, this had been reduced to 85,000 carats for the financial year. Early stage production results for the financial year were positive. However, dramatic spikes in grade in the river systems of the Kasai Central Node and Longatshimo River, prompted Namakwa to accelerate expansion plans for the Kasai North Node and wider Kasai South Project Area to protect against monthly and quarterly variances impacting on cashflow. As at 28 February 2011, the DRC project area had produced 58,258 carats, from 177,465 tonnes (despite production bottleneck issues with river matter clogging the DMS units). Average grade was at 32.8cpht and the average price per carat for the wider project area had increased to US$133/ct, reflecting the global increase in diamond valuations. In the second half of the financial year, the project area was adversely impacted by: (a)
a breakdown in supply-chain management (resulting in a lack of diesel and critical spares to the project areas) and paddock breaches on the Kasai Central Node from high water levels necessitating remedial work and additional de-watering of the mining areas, together resulting in an aggregate of 49 days of lost operation time during the period and a cumulative 3 months of lost operational time by July 2011; and
(b)
a failure of the resource in river diversion areas RD4 and RD5 on the Kasai Central Node, resulting in the mining team supplementing tonnage throughput with terrace based gravels.
Furthermore, operations were hindered by a claim against Namakwa Diamonds Mining Company Sprl, the operating company of the Kasai Central Node, in respect of an alleged debt, which had previously been defended successfully in the Kinshasa Courts in 2010. This claim and related actions led to an increased risk associated with the Group’s tenure in the DRC. A strategic review was conducted by Namakwa to assess the impact of the failure of the Kasai Central Node resource and the in-country risk of continuing the capital expansion programme in the Kasai North Node and Kasai South Project Area. As a result, a sale of the entire DRC portfolio was considered by a majority of the Board of Directors to be in the best interests of Namakwa and Shareholders as a whole. 83
As at 31 August 2011, the DRC project area produced 77,872 carats, from 303,365 tonnes, at an average grade of 25.7cpht, with such production results being significantly impacted by the failures of RD4 and RD5 on the Kasai Central Node in H2’2011. The average price per carat was US$131/ct, with an average cost per carat of US$289/ct, as a result of the impact of high fixed costs and dyke repair costs during H2’2011. US$3.6 million was spent on acquisition and capital expenditure and US$18.5 million on operational expenditure. Taking into consideration revenue items of US$11.3 million, the DRC mining operations incurred an operating loss of US$7.2 million during the period before depreciation costs of US$4.2 million, and impairments of US$14.9 million. The Group incurred no net interest during the period. The Group’s DRC operation was classified as a disposal group held for sale on 31 August 2011 and accounted for as a discontinued operation. Development of the project area during FY2012 On 23 September 2011, Namakwa sold its mining and exploration operations in the DRC, on a going concern basis, for an initial consideration of US$6.25 million to Hall Farm Avenue Limited, the corporate vehicle of a management team lead by Namakwa’s DRC country manager, James Tregenza. The economic effective date of the transfer was 31 August 2011. The initial consideration will be settled over a 5-year period, with a minimum payment of US$1.25 million required in each year during this period. Such amounts will be applied to Namakwa’s general working capital requirements. In addition, in the event of a sale of all or part of this asset base during that time or, if longer, during the period when the facility (as described below) has not been repaid in full, all outstanding initial consideration shall become due and payable, together with a 25% share of the net profit from any such onward sale. The sale of the DRC business as a going concern, includes all assets and liabilities, including the transfer of all litigation in the DRC in respect of Namakwa Diamonds RDC SA and Namakwa Diamond Mining Company SPRL (the operating company for the Kasai Central Node). Namakwa also agreed to provide a working capital facility of US$300,000 to Hall Farm Avenue Limited as part of the sale arrangements. This facility is repayable on demand, and at the sole discretion of Namakwa. Namakwa retains an exclusive right to sell, as agent, diamonds from the DRC assets for a royalty payment of 15% of revenues (after the deduction of marketing costs and expenses). This off-take arrangement will remain in place until the later of: (a) the date of payment of the initial consideration and repayment in full of the facility; and (b) the fifth anniversary of the sale of the DRC assets. In the event that the initial consideration and facility are satisfied within such five year period, Namakwa will continue to maintain the exclusive right to sell such diamond product, on an agency basis, for a 3% commission (after deducting selling expenses) for the remainder of such five year period. As part of the sale arrangements, Namakwa has retained additional rights of security to enhance its rights to receive payment of all amounts due as consideration (and marketing commission) and also the repayment in full of the facility. The Group currently carries the value of the consideration owed to it pursuant to the sale of the DRC business as a going concern at US$1.25m to take into account the risks and uncertainties related to the operational environment in the DRC. 4.8
Angola
On the IPO Namakwa had three potential development projects in Angola: Caungula, Santechifunga and Tchipoia; each of which were at different stages of exploration. During the economic downturn of 2008, all mining and exploration operations in Angola were closed down, after bulk sampling programmes on Caungula indicated an ore body, which lacked sufficient continuity to warrant further investigation. Furthermore, Namakwa did not anticipate embarking on any further exploration and or mining activities unless it was unable to control operational and financial management of its operations, as well as the marketing of its own diamonds. Namakwa is exploring opportunities for the sale of its fleet of earth moving equipment in Angola. As at 29 February 2012, the net asset value for such equipment was US$0.5 million. Since the IPO, Namakwa has spent US$1.8 million on acquisition and capital expenditure and US$3.1 million on operational costs (excluding corporate overhead charge) in Angola, with a net loss of US$3.1 million to Namakwa before depreciation costs of US$0.4 million The Group incurred neither impairments nor net interest during the period. 84
4.9
Portfolio of Exploration and Development Assets
Namakwa also maintains a portfolio of exploration and development assets in South Africa’s Northern Cape Province and Namibia, which have both seen early stage exploration. South Africa: Northern Cape Province (alluvial concessions) Following early stage exploration on this portfolio, Namakwa determined to focus its South African mining operations on the consolidation of the North West Province. The Group does not currently assign any value to this portfolio in its net asset value calculation. Since the IPO, Namakwa has not incurred any acquisition or capital expenditure and has spent US$5.8 million on operational costs (excluding corporate overhead charge), with a net loss of US$5.8 million to Namakwa. The Group has not incurred any depreciation costs, impairments or net interest. Namibia: Tidal (marine concessions) In 2008, Namakwa concluded a programme of resource delineation and explored opportunities with ADP Projects for plant design, as well as partnering with established marine diamond mining companies to contract on the resource base. In September 2008, Namakwa concluded a memorandum of agreement for a technical partnership with Nutam (Pty) Ltd, in respect of an evaluation study of the resource base and a potential joint venture for the project area. However, as a result of the global economic crisis in late 2008, the parties later terminated the arrangement. Namakwa has since pursued a number of opportunities to engage with a specialist contractor for the resource base. As at 29 February 2012, the net asset value of this portfolio was US$0.6 million. Since IPO, Namakwa has not incurred any acquisition or capital expenditure, nor any operational expenditure. Furthermore, there have been no revenue items and the Group has not incurred any depreciation costs, impairments or net interest. 4.10
Trading & Beneficiation Segment
Namakwa’s restructured trading operations now provide a platform for the sale and marketing of Group production and contracted production. The Group no longer conducts cutting and polishing activities. The following key performance indicators for the segment demonstrate the development of the Group’s activities in this area during the periods covered by the historical financial information incorporated by reference into this document. Namakwa holds inventory at the lower of cost or net realisable value. Period Rough Purchased:
South Africa — North West Mining Operations — Carats Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Average Cost (US$/ct) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . South Africa — Trading Operations — Carats Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Average Cost (US$/ct) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DRC — Mining Operations — Carats Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Average Cost (US$/ct) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DRC — Trading Operations — Carats Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Average Cost (US$/ct) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rough Proprietary Trading — Carats Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Average Price (US$/ct) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Polished Trading Namakwa Polished Production — Carats Beneficiated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Average Cost (US$/ct) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third Party Polished Production — Carats Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Average Cost (US$/ct) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Polished Proprietary Trading — Polished Carats Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Average Price (US$/ct) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
H1’FY2012
FY2011
H1’FY2011
FY2010
7,305 561
36,904 605
20,116 627
35,313 427
18,126 213
83,072 355
35,906 365
92,306 149
— —
86,255 138
62,633 133
36,437 96
— 104,930 — 182
54,248 128
265,372 102
41,985 274
358,315 206
180,273 220
442,067 138
22 3,812
1,312 3,336
946 2,389
2,924 3,479
20 4,501
810 9,121
546 8,523
627 8,206
1,946 2,708
2,425 7,696
1,321 7,759
3,818 5,901
Trading profile during FY2008 On the 1 September 2007, the Trading & Beneficiation segment held: (i) rough inventory at a cost of US$4.1 million; and (ii) polished inventory at a cost of US$3.7 million. Immediately following the IPO, the trading team began utilising an allocation of US$20 million from the proceeds of the global offer to build up inventory and critical mass for the beneficiation of rough diamonds, during a period of strong price rises in rough and polished product. By the end of the financial year, the portfolio of inventory was predominately in goods of greater than 5ct and lower valued inventory had been sold down. During FY2008, new distribution and buying channels were opened up, with the South African trading operations buying goods from both Indonesia and the South African Diamond State Trader for the first time. A supply and profit share agreement was also entered into with Harry Winston Inc, pursuant to which Namakwa would supply Harry Winston Inc.’s retail chains with specific high valued polished diamonds and share in the potential profit made on such diamonds, however the business under this agreement was impacted by the effects of the global financial crisis and did not produce a significant revenue stream; eventually, the agreement lapsed. Separately, Namakwa entered the Angolan buying markets through a partnership with Opal Diamonds and a capital investment of US$4.5 million. This was terminated in FY2010, as described below. In June 2008, the South African trading and beneficiation operations were granted new rough trading and cutting and polishing licences by the South African regulators and a BEE transaction was entered into by the South African business, pursuant to which 26% of the equity of the business was transferred to the Namakwa Diamonds HDSA Employee Trust on a deferred sale basis. Under the terms of the sale, the Namakwa Diamonds HDSA Employee Trust was required to pay for their equity interests within three years at fair value, as determined at the date of payment. To date, such payment has not been made and Namakwa is considering its options with respect to ensuring compliance with its regulatory position. During the financial year the Trading & Beneficiation segment acquired inventory for US$82.3 million. Separately, inventory was sold for US$41.7 million (original cost US$40.7 million). Following operational costs (excluding corporate overhead) of US$1.1 million, the segment returned a net loss of US$0.1 million before depreciation costs of US$0.1 million. The Group incurred no impairments or net interest during the period. As at 31 August 2008, the Trading & Beneficiation segment held: (i) rough inventory at a cost of US$44.8 million; and (ii) polished inventory at a cost of US$3.9 million. Trading profile during FY2009 During the early stages of FY2009, the Trading & Beneficiation segment was able to weather the storm of the global financial crisis and lack of credit and liquidity in the diamond industry, by taking the opportunity to increase inventory levels from the sales of distressed sellers. However, on 28 February 2009, Namakwa took an impairment charge of US$32.1 million on those diamonds within the Group’s inventory, which management did not expect to materially appreciate over the following two-year period, as industry conditions worsened. The value of inventory was re-based at US$21.9 million and impaired inventory was sold. Furthermore, third party purchasing was limited to specific deals, which afforded clear margin opportunity and a portion of rough inventory was placed into the manufacturing process to provide for future value. New distribution channels were also opened during the financial year, with a trading office established in Tel Aviv in the Ramat-Gan Diamond Bourse and a joint venture entered into with Swiss Gold for the manufacture of diamond and gold jewellery in Dubai, although this arrangement was terminated in late 2009. During the financial year the Trading & Beneficiation segment acquired inventory for US$30.6 million. Separately, inventory was sold for US$26.9 million (original cost US$57.2 million, including impairment of US$32.1 million). Following operational expenses of US$3.1 million, the segment returned a net loss of US$33.4 million before depreciation costs of US$0.1 million and net interest income of US$0.1 million. The Group incurred no impairments during the period. As at 31 August 2009, the Trading & Beneficiation segment held: (i) rough inventory of 26,938 carats, at an average cost of US$381/ct; and (ii) polished inventory of 2,786 carats, at an average cost of US$4,200/ct. The net asset value of the Group’s inventory was US$2.1 million. Trading profile during FY2010 FY2010 marked the emergence of India and China as the dominant forces in the downstream diamond industry, with a growing appetite for rough and polished diamond production, as Europe and the USA continued their recovery from the global economic recession of 2008/2009. 86
The focus of the year was the growing disjoint between rough and polished pricing, as average rough pricing accelerated beyond that of polished prices, driven by: (i) constraints on rough supply resulting from the slow ramp-up of the major producers following the mine closures in 2008/2009; (ii) an emergence of new credit and liquidity into the downstream diamond pipeline, especially in India; (iii) rough buyers seeking to re-stock and hoard inventory, following a sustained period of selling during the global economic downturn; and (iv) limited appetite from retailers and manufacturers, who still held polished inventory from 2008/2009 stock levels. For Namakwa, this meant a move away from high-end polished goods to low value rough melee goods (i.e. diamonds of less than 1.5cts), destined for the South East Asian and Indian markets, and an increase in buying operations of small river based product in the DRC. Separately, a new joint trading relationship was entered into with Andre Messika (a retailer and wholesaler to internationally recognised jewellery houses), pursuant to which Namakwa would secure rough diamond production and benefit from the manufacturing and retail network of Messika. The initial focus of the relationship was on fancy yellow goods. The Angolan buying operation with Opal Diamonds was closed down during the financial year, with Namakwa realising a loss of US$2 million on the write down of the value of Group inventory from this operation. A trading relationship was entered into with Jarvirne, as described in more detail in Part I: “Letter from the Chairman of Namakwa Diamonds Limited” of this document, as well as in The P.J. Malan Investment Trust, which is described in more detail in the paragraph “Material contracts” in Part X: “Additional Information” of this document. During the financial year the Trading & Beneficiation segment acquired inventory for US$69.3 million. Separately, inventory was sold for US$85.3 million (original purchase price US$78.7 million). Following operational expenses of US$3.3 million, the segment returned a net profit of US$3.3 million before depreciation costs of US$0.1 million, impairments of US$2 million and net interest of US$0.8 million. The Group incurred no impairments during the period. As at 31 August 2010, the Trading & Beneficiation segment held: (i) rough inventory of 12,595 carats, at an average cost of US$184/ct; and (ii) polished inventory of 2,395 carats, at an average cost of US$3,646/ct. The net asset value of the Group’s inventory was US$11.3 million and US$5.3 million. Trading profile during FY2011 At the start of the financial year, demand from India and China remained strong and the disjoint between rough and polished production continued to dominate the downstream markets, resulting in a highly speculative rough market. However, by the close of the financial year, this demand had contracted. Rough and polished diamond trading relationships (on a profit share basis) with The P.J. Malan Investment Trust and Jarvirne, were developed. The P.J. Malan Investment Trust contributed an aggregate of US$2.58 million in capital, generating a return of US$1.49 million for The P.J. Malan Investment Trust. Likewise, Jarvirne contributed an aggregate of US$17 million in capital (with a total peak funding of US$27 million), generating a return of US$5.29 million for Jarvirne. In April 2011, the Board of Directors determined to reduce the Group’s third party buying programme, in light of the speculative nature of the rough diamond markets, and refocus the Group’s capital on mining activities. This also necessitated the closure of the trading relationships with third party diamond counterparts, including the two principal clients of this business, The P.J. Malan Investment Trust and Jarvirne. Jarvirne in particular had built-up an aggregated capital position of US$17 million, with the parties operating on a deemed return of 3% per month from the date of inception of the trading position in July 2010. As a result, for reporting purposes, this position is now characterised as a financing arrangement in Namakwa’s audited financial results for FY2011. Further details in respect of this arrangement are contained in note 12 to the 2011 Annual Financial Statements contained in Part VI: “Financial Information of Namakwa” of this document. Heno Kruger, the Head of Trading & Beneficiation, resigned on 12 April 2011. Following the resignation of Mr. Kruger, the Group began a process of selling down inventory and closing down all other third party trading positions, joint ventures and relationships, restructuring activities to focus on the sale of Group production and contracted production. During the financial year the Trading & Beneficiation segment acquired inventory for US$100.11 million. Separately, inventory was sold for US$109.50 million (original purchase price US$104.8 million). Following operational expenses of US$2.52 million, the segment returned a net profit of US$2.26 million, before depreciation costs of US$0.16 million, impairments of US$0.7 million and net interest of US$0.65 million. 87
As at 31 August 2011, the Trading & Beneficiation segment held: (i) rough inventory of 5,117 carats, at an average cost of US$226/ct; and (ii) polished inventory of 2,032 carats, at an average cost of US$2,622/ct. The net asset value of the Group’s inventory was US$6.5 million. Trading profile during FY2012 During H1’FY2012, the Trading & Beneficiation segment was restructured to provide a platform for the sale and marketing of Group production going forward, only. Trading operations in Tel Aviv, Kinshasa and Gaborone were closed down, whilst in Johannesburg the team was reduced to 3 employees (of whom 1 is permanent and 2 are employed on a contract basis) to focus on preparation (boiling, sorting and valuation) of Group production via direct sales and international tender and a further employee was retained to focus on market analysis and relationship management. Inventory of US$14.21 million was acquired. Separately inventory was sold for US$16.75 million, including historic stockpiles of rough and polished inventory. Following operational expenses of US$1.1 million, the segment returned a net loss of US$1.3 million, as at 29 February 2012, before depreciation costs of US$0.06 million, impairments of US$0.01 million and net interest of US$0.02 million. As at 29 February 2012, the Trading & Beneficiation segment held: (i) rough inventory of 16,876 carats, at an average cost of US$203/ct; and (ii) polished inventory of 15 carats, at an average cost of US$6,932/ct. The net asset value of the Group’s inventory was US$3.56 million. 5.
Key factors affecting the results of operations and significant market trends
The following factors and significant market trends have significantly affected the results of operations for the periods under review and Namakwa expects that such factors and trends will continue to have a significant impact on the results of operations in the future. 5.1
Acquisitions and disposals
Namakwa has undertaken a number of material acquisitions and disposals during the financial periods presented in this operating and financial review. The following is a summary of Namakwa’s significant acquisitions and disposals since 1 September 2009: (a)
On 23 January 2012, Namakwa entered into a sale agreement with Mr. L Janzen in respect of the sale of Elite Diamond Cutting Works (Pty) Ltd for a consideration of ZAR2.70m. Pursuant to this sale, the Group liabilities in respect of its cutting and polishing business were assumed by the purchaser.
(b)
On 23 September 2011, Namakwa entered into a sale agreement with Hall Farm Avenue Limited in respect of the sale of its entire portfolio of mining assets in the DRC for an initial consideration of US$6.25 million, as described in more detail on the analysis of the DRC project area above;
(c)
On 24 December 2009, Namakwa entered into a mining agreement with the Government of Lesotho in respect of the operation of the Kao Mine. Following the final liquidation of the previous incumbent licence holder of the mining operation, Namakwa’s total acquisition costs for this project were US$16.1 million, taking into consideration a 25% free carry equity interest of the Government of Lesotho (US$3.6 million) and a provision for environmental liabilities of US$2.9 million. An amount of US$1.5 million of the US$16.1 million acquisition costs is due to Namakwa from Kimberlite Investments Lesotho Limited, the holder of a 12.5% interest in Storm Mountain Diamonds, the operating company of the Kao Project transferred by Namakwa pursuant to the terms of the Mining Lease.
(c)
On 30 November 2009, Namakwa exercised a discretionary call option over the entire issued share capital of Kasai Resource Mining Limited for US$5.0 million in cash. The acquisition realised a portfolio of 41 alluvial and kimberlitic concessions on the Mbelenge, Longatshimo and Lubembe Rivers (previously owned by Gem Diamonds Limited) in close proximity to Namakwa’s assets on the Kasai River in the Tshikapa region of the DRC with a resource base of 7.2 million alluvial carats, including deposits.
(d)
In September 2007 and September 2009, Namakwa also made a number of small-scale acquisitions of mining areas in the North West Province of South Africa, as part of its consolidation of its mining resource base in the region. The aggregate total cost of these acquisitions was US$6.0 million.
5.2
Diamond prices
Namakwa generates its income almost exclusively from the sale of gem quality rough and polished diamonds, and as a result, its sales are directly related to the market prices for such diamonds. Diamond prices can fluctuate 88
significantly and are affected by numerous factors over which producers and traders do not have control, including macro-economic issues and political conditions, levels of supply and consumer demand, the availability and costs of alternative and synthetic products, stockpiles maintained by producers and the competitive landscape of the diamond market. 5.3
Diamond quality and size
Namakwa’s mining activities produce different types of diamonds across the Group’s portfolio, with varying qualities and sizes. The Global Resource Statement contained in Part XI: “Global Resource Statement” of this document provides further details of the nature of Namakwa’s mineral resource, average carat size and grade and the estimated value per carat of production. 5.4
Seasonality
Namakwa’s mining activities affected by seasonal rains in the North West Province of South Africa between December and April and is also prone to the effects of snowfall in Lesotho in June and July each year. Historically, operations in the DRC during the periods herein were adversely effected by rainfall between October and May. Diamond prices are also affected by the seasonality of the diamond jewellery trade, which is at its highest in the period between December and February. This provides an important driver for the timing of rough diamond sales by Namakwa, as the cutting and polishing centres tend to deplete inventories in September to November and rebuild in January to May as their receivable books are turned into cash and the market is impacted by annual summer holidays in August in the northern hemisphere and Jewish and Indian religious festivals in September to November. As a result, Namakwa will ordinarily experience higher prices on sales of inventory during the first half of any calendar year. Namakwa has not entered, and does not currently intend to enter, into hedging arrangements in relation to the prices of its diamond inventory. 5.5
Impairments and exceptional items
Namakwa undertakes impairment testing annually, or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, the recoverable amount is estimated at each year-end. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 5.6
Exchange rates
Namakwa mines and trades in diamonds, which are typically priced in US Dollars. A substantial portion of the Group’s costs are incurred in South African Rand and Lesotho Maloti, which is pegged at parity with the South African Rand. As a result, movements in the price and strength of the US Dollar will impact on the Group’s results of operations. In addition, whilst the functional currency of Namakwa is the US Dollar, the functional currencies of the Group’s operations in South Africa and Lesotho are in the local currencies of those countries and the local income statements and cash flow items are translated from their functional currencies into US Dollars at average exchange rates applicable during the period to which the statement relates and items on the statement of financial position are translated at the closing rates on the date of the statement of financial position. Accordingly, increases or decreases in the value of the US Dollar will impact on the Group’s results of operations and affect the value of its assets and liabilities on its consolidated statement of financial position even if its results of operations or the value of those assets and liabilities has not changed in their functional currencies. During the periods under review, the impact of the Congolese Franc on translation is de minimis as the common currency of the DRC for operational purposes is the US Dollar. A table setting out the relevant average and period-end exchange rates against the US Dollar for the periods indicated is included in the section of this document entitled “Important Information”.
89
5.7
Production costs, efficiency and scale of operations
As Namakwa, in common with the majority of its competitors, is largely unable to influence the market price of diamonds, its competitiveness and long-term profitability are, to a significant extent, dependent on its ability to maintain efficient operations. The largest portion of Namakwa’s costs is mining and development costs. Additional costs are incurred through exploration. Mining costs consist primarily of earthmoving, blasting (where required), crushing and sorting earth for diamondiferous ore, diesel and electricity costs, salaries and related employment costs and maintenance and depreciation on mining related assets. Development costs consist primarily of the costs related to geological due diligence exercises, transporting equipment and establishing infrastructure in difficult terrain and remote locations, drilling and processing costs and the costs of obtaining and maintaining licences and permits. Development costs are not reflective of the future costs of a production phase project. Exploration expenses include the costs of earth moving, blasting, drilling, mining and plant costs undertaken in the assessment of potentially diamondiferous projects at the Group’s potential development projects and the associated personnel costs for those employees engaged in exploration activities, payments to government authorities and, where required, third party land or concession holders for property and exploration rights and geological analyses. When a project moves from the exploration stage to the development stage (defined as the conclusion of a successful feasibility study), the costs associated with further development are considered development costs and are capitalised. Namakwa’s accounting policies require that all exploration and project development costs are expensed until such time as a feasibility study indicates the probability of the inflow of future economic benefits. After such time the development costs may be capitalised. However, it is noted that during the financial year ended 31 August 2010, Namakwa reclassified depreciation costs following the early adoption of the amendment to IAS7. This is explained in further detail below and resulted in exploration expenditure being classified as part of operating activities and the restatement of prior periods.
90
6.
Results of Operations
6.1
Comparison of the interim financial period ended 29 February 2012 and the interim financial period ended 28 February 2011
The following table sets out Namakwa’s results of operations for the interim financial periods ended 29 February 2012 and 28 February 2011. US$’000
29 February 2012 (Unaudited)
Restated 28 February 2011 (Unaudited) Restated
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross (loss)/profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exploration and evaluation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,952 (18,394) (1,442) 44 (51) (8,547)
42,109 (38,137) 3,972 (198) (4,365) 6,464
Operating loss before finance costs and taxation . . . . . . . . . . . . . . . . . . . . . . Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9,996) 79 (2,525)
(7,055) 26 (2,953)
Net financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,446)
(2,927)
Loss before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12,442)
(9,982)
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss for the period from continuing operations . . . . . . . . . . . . . . . . . . . . . . Discontinued operations: Loss after taxation for the period from discontinued operations . . . . . . . . . Total Loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income for the period Exchange differences on translating foreign operations . . . . . . . . . . . . . . . . . . . Income tax relating to components of other comprehensive income . . . . . . . . . Other comprehensive income for the period, net of tax . . . . . . . . . . . . . . . . Total comprehensive loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss attributable to: — non controlling interest shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — equity shareholders of Namakwa Diamonds Limited. . . . . . . . . . . . . . . . . . .
(17) (12,459)
5 (9,977)
(2,936) (15,395)
(1,935) (11,912)
350 — 350 (15,045)
1,107 — 1,107 (10,805)
(420) (14,975) (15,395)
(1,342) (10,570) (11,912)
(420) (14,625) (15,045)
(1,342) (9,463) (10,085)
Total comprehensive loss attributable to: — non controlling interest shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — equity shareholders of Namakwa Diamonds Limited . . . . . . . . . . . . . . . . . .
Revenue During the interim financial period ended 29 February 2012, revenues were down 60% at US$16.95 million, as compared to US$42.11 million for the interim financial period ended 28 February 2011. The primary reasons for this were driven by the discontinuation of trading in third party diamond production, disposal of the DRC operations and reduced activities in the North West province of South Africa. The total number of rough carats sold reduced from 180,273 in the interim financial period ended 28 February 2011 to 45,856 in the interim financial period ended 29 February 2012. The average price however increased from US$220/ct to US$316/ct. The average price of diamonds mined in the North West Province for the interim financial period ended 29 February 2012 matched the average price for the same period in 2011. There were no sales of Lesotho production during the interim financial period ended 28 February 2011. There were no sales of DRC production during the interim financial period ended 29 February 2012.
91
Costs During the interim financial period ended 29 February 2012, costs of sales decreased to US$18.39 million, as compared to US$38.14 million for the interim financial period ended 28 February 2011. The primary reasons for this were driven by the discontinuation of trading in third party diamond production and, discontinued DRC production and a lower level of activity in the North West province of South Africa. Corporate costs and finance charges During the interim financial period ended 29 February 2012, the Group’s corporate cost burden was US$6.5 million, compared to US$2.8 million for the interim financial period ended 28 February 2011. Corporate costs during the period were primarily made up of bad debt provisions and salaries and wages. Impairment of property, plant, equipment and goodwill There were no impairment charges in the interim financial period ended 29 February 2012 or the period ended 28 February 2011. Exploration and evaluation expenses During the interim financial period ended 29 February 2012, Namakwa had development and exploration costs of US$0.05 million, whereas US$4.37 million in such costs was expensed in the interim financial period ended 28 February 2011. Other operating expenses Share based transactions with employees expensed during the interim financial period ended 29 February 2012 amounted to US$0.49 million, compared to US$0,34 million in the interim financial period ended 28 February 2011. The Group’s operations in the DRC were disposed of during the six months ending 29 February 2012. The Group also decided to end all diamond polishing activities and sold Elite Diamond Cutting Works (Pty) Ltd on 30 November 2011.
92
6.2
Comparison of the financial year ended 31 August 2011 and the financial year ended 31 August 2010
The following table sets out Namakwa’s results of operations for the financial years ended 31 August 2011 and 31 August 2010. US$’000
31 August 2011 (Audited)
Restated 31 August 2010 (Audited)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93,327 (95,248)
81,977 (79,794)
Gross (loss)/profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of non-financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exploration and evaluation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,921) (977) (10,267) (8,034) (23,290)
2,183 (315) — (3,517) (16,662)
Operating loss before finance costs and taxation . . . . . . . . . . . . . . . . . . . . . . . . Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(44,509) 137 (7,680)
(18,311) 50 (1,269)
Net financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,543)
(1,219)
Loss before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(52,052)
(19,530)
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(24,849) 158
(11,001) 11
Loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(76,743)
(30,520)
Other comprehensive income for the period Exchange differences on translating foreign operations . . . . . . . . . . . . . . . . . . . . . Income tax relating to components of other comprehensive income . . . . . . . . . . . .
1,209 —
1,848 —
Other comprehensive income for the period, net of tax . . . . . . . . . . . . . . . . . . .
1,209
1,848
Total comprehensive loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(75,534)
(28,672)
Loss attributable to: — non controlling interest shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — equity shareholders of Namakwa Diamonds Limited. . . . . . . . . . . . . . . . . . . . .
(6,422) (70,321)
(537) (29,983)
(76,743)
(30,520)
(6,422) (69,112)
(537) (28,135)
(75,534)
(28,672)
Total comprehensive loss attributable to: — non controlling interest shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — equity shareholders of Namakwa Diamonds Limited . . . . . . . . . . . . . . . . . . . . .
Revenue During the financial year ended 31 August 2011, revenues were up 13.8% at US$93.3 million, as compared to US$82.0 million for the financial year ended 31 August 2010. The primary reasons for this were driven by increased rough diamond prices. The total number of carats sold reduced from 442.067 in 2010 to 358,215 in 2011. The average price however increased from US$138/ct to US$260/ct. The average price of diamonds mined in the North West Province increased by 57% on the 2010 average price while the average price of diamonds mined in the DRC was up 28% on the previous year average while the DRC production volume at the same time increased by 94%. Revenue for a first time included sales of Lesotho diamonds. 17,203 carats at US$355/ct. The volume of rough diamonds sourced from third parties declined by 47% however the average price increased by 129%. Costs During the financial year ended 31 August 2011, costs of sales increased to US$95.25 million, as compared to US$79.79 million for the financial year ended 31 August 2010. The primary reasons for this were driven by an increase by value in third party diamonds purchased and increased production cost in the North West Province, mainly fuel, maintenance and employment cost. The production costs incurred in the DRC are reflected under discontinued operations. Previous year numbers were also restated and the costs were reclassified from exploration 93
and development expense to this line item. The Lesotho production costs were reflected in exploration and development expenses in 2010 and 2011 with a portion capitalised in 2011. Corporate costs and finance charges The corporate cost burden was budgeted to be US$6.62 million during the period 1 January 2011 to 31 August 2011, against an actual US$12.81 million. This material cost over-run is made up of several individual factors. The amount spent on salaries and wages was US$1 million higher than budgeted and travel was US$0.3 million above budget. In addition, the following non-planned expenses were incurred: US$0.7 million was spent on purchasing shares for the Namakwa Diamonds Employee Benefit Trust (of which US$0.4 million were held in trust and not distributed); US$0.3 million was spent on brokerage fees; US$0.78 million was spent on advisory fees related to regulatory matters in respect of the North West Province mining operations; US$2.8 million was paid to Jarvirne in relation to a profit share under the Trading Agreement and treated as finance costs; and US$1.3 million was spent on sundry advisory or other consultancy fees during the period. Impairment of property, plant, equipment and goodwill During the financial year ended 31 August 2011, there were impairments amounting to US$20.65 million. Included in this is an amount of US$10.267 million relating to impairments made in the North West Province mining operation. Management deemed this necessary due to the restructuring and scaling down of operations. The balance of the impairment, US$10.39 million, relates to the impairment of assets in the DRC. The assets were written down to their “fair value less cost to sell” and the impairment is included in the amount shown as “Loss from discontinued operations”. A net realisable value adjustment to consumables amounted to US$4.3 million. For the financial year ended 31 August 2010, there was a non-recurring charge of US$2 million in respect of the winding up of an Angolan joint venture buying business within the Trading & Beneficiation segment, which broke down during the financial crisis of 2008/2009. Exploration and evaluation expenses During the financial year ended 31 August 2011, Namakwa expensed development and evaluation expenses of US$8.0 million, of US$6.6 million related to the Kao Project and US$1.5 million related to other operations, compared to US$3.5 million in the financial year ended 31 August 2010. Previous year figures were restated and exploration expenses amounting to US$11.0 million is now included in the line item “Loss from discontinued operations”. Other operating expenses Share based transactions with employees expensed during the financial year ended 31 August 2011 amounted to US$0.2 million. During the financial year ended 31 August 2010, an amount of US$1.0 million was expensed. Discontinued operations During August 2011 operations in the Democratic Republic of the Congo (DRC) ceased and management announced its intention to sell all the Group’s subsidiaries in the DRC. The DRC operations represented a separate major line of business for Namakwa Diamonds. As a result of the ceased operations and the intention to sell, these operations have been treated as discontinued operations for the year ended 31 August 2011. A single amount is shown on the face of the statement of comprehensive income comprising the post-tax result of discontinued operations and the post-tax loss recognised on the re-measurement to fair value less costs to sell and on disposal of the discontinued operation. The income and expenses of the DRC segment, net amount US$24.85 million, are reported separately from the continuing operations of Namakwa Diamonds.
94
6.3
Comparison of the financial year ended 31 August 2010 and the financial year ended 31 August 2009
The following table sets out Namakwa’s results of operations for the financial years ended 31 August 2010 and 31 August 2009: US$’000
31 August 2010 (Audited)
31 August 2009 (Audited/ Reclassified)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,977 (79,794)
27,270 (61,255)
Gross profit/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (expenses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of non-financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exploration and evaluation expenses (reclassified) . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expenses (reclassified) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,183 (315) — (14,518) (16,662)
(33,985) (472) (27,684) (14,146) (13,598)
Operating loss before finance costs and taxation . . . . . . . . . . . . . . . . . . . . . . . . . Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(29,312) 50 (1,269)
(89,885) 438 (361)
Net financing (costs)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,219)
Loss before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(30,531)
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
77 (89,808) 2,611
Loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(30,520)
(87,197)
Other comprehensive income/(loss) for the period Exchange differences on translating foreign operations . . . . . . . . . . . . . . . . . . . . . . Income tax relating to components of other comprehensive income . . . . . . . . . . . .
1,848 —
(5,155) —
Other comprehensive income/(loss) for the period, net of tax . . . . . . . . . . . . . .
1,848
(5,155)
Total comprehensive loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28,672)
(92,352)
Loss attributable to: — non controlling interest shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — equity shareholders of Namakwa Diamonds Limited . . . . . . . . . . . . . . . . . . . . .
(537) (29,983)
(4,672) (82,525)
(30,520)
(87,197)
(537) (28,135)
(4,672) (87,680)
(28,672)
(92,352)
Total comprehensive loss attributable to: — non controlling interest shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — equity shareholders of Namakwa Diamonds Limited . . . . . . . . . . . . . . . . . . . . .
The results of operations for the financial year ended 31 August 2010, include net revenues and costs of Kasai Resource Mining Limited, as of 30 November 2009, being the date of the exercise of Namakwa’s discretionary call option over the entire issued share capital of Namakwa and Storm Mountain Diamonds, as of 24 December 2009, being the date on which it entered into a mining agreement with the Government of Lesotho in respect of the Kao kimberlite pipe in Lesotho. During the financial year ended 31 August 2010, Namakwa reclassified the amount of depreciation for the line item for Other Expenses in the year ended 31 August 2009, to Exploration and Evaluation Expenses. The financial year ended 31 August 2010 was a year of growth and development for Namakwa, as a strategy of consolidation was executed to: (i) acquire better diamond mining assets at a low point in the industry’s valuation cycle; and (ii) streamline production in Namakwa’s North West Province operations; whilst leveraging off the downstream skills of the Group’s beneficiation team to grow the Group’s trading and beneficiation activities in the DRC and Israel. As demand continued to outstrip the supply of diamonds in the world’s markets during the year, Namakwa prepared a platform from which to take advantage of the downstream margins available in the diamond value chain, afforded by its integrated model, as diamond prices stabilised from previous lows. In the downstream market, the financial year ended 31 August 2010, prices began to rise in certain high-end categories and stabilise in commercial goods, since the depressed markets of 2008 and the volatile recovery of 2009/10. Demand and prices for investment class diamonds continued to remain strong during the recession. 95
At that time, Namakwa considered that this would likely continue, albeit the rate at which prices rise would be dependent on wider macro-economic factors, driven by US economic recovery and continued demand from India and China. For the Mining segment, the financial year ended 31 August 2010 was one of development and production growth. In the North West Province of South Africa, whilst targeted production was hampered by weather conditions, capital projects were completed on budget and Namakwa expected such projects to alleviate the effects of increased rainfall in the region in the 2010 financial year. In the DRC, trial mining was moved from the terraces to the rivers mid-way through the year with an immediate increase in grade and average prices above management expectations justifying the change in mining plan. A phased approach to the diversion of the Kasai River at the Kasai Central Node was progressed, to provide a project area of minable gravel that was expected to last in excess of 3 years. A parcel of 10,549 carats of rough diamonds from the Phase 1 mining area was placed on sale in Johannesburg in late October 2010 by Namakwa’s Trading & Beneficiation segment with an average price of US$175/ct achieved (Venmyn 2010 CPR estimated US$100 based predominately on diamonds recovered from trial mining on the terraces and dredge sampling). During the financial year ended 31 August 2010, metallurgical test work demonstrated average grades of 19.38 cpht for K-6 (hardrock) kimberlite production and 6.6 cpht for K-Other (weathered) kimberlite production. A parcel of 6,298 carats of rough diamonds was placed on sale in Johannesburg in late October 2010, by Namakwa’s Trading & Beneficiation segment, on behalf of Storm Mountain Diamonds, and following a viewing of over a 100 buyers, average prices achieved exceeded management’s expectations for K-6 (hardrock) at US$340/ct (Venmyn 2010 CPR estimated US$280/ct) and for K-Other (weathered) at US$200/ct (Venmyn 2010 CPR estimated US$138/ct). For the Trading & Beneficiation segment, the financial year ended 31 August 2010 was one of opportunity, as rough markets remained volatile in the most part before stabilising later in the year, demonstrated by the number of carats traded in comparison with the financial year ended 31 August 2009. The key consolidated income statement items of Namakwa include the following for the period of this comparison: Revenue During the financial year ended 31 August 2010, revenues were up 200% at US$82.0 million, as compared to US$27.3 million for the financial year ended 31 August 2009. The primary reasons for this increase were driven by: the recovery in the price of rough diamonds during the course of 2010, following the industry lows in 2009 and the de-stocking in the diamond pipeline, with the closure of a number of the world’s major diamond producing mines in response to the economic crisis; the significant increase in the production of Namakwa’s Mining segment, up 77% at 82,925 carats, as compared to 46,742 carats for the financial year ended 31 August 2009; and the significant increase in sales volumes in the Trading & Beneficiation segment, with sales of rough diamonds up 105% to 442,067 carats, as compared to 215,181 carats for the financial year ended 31 August 2009 and polished diamonds up 170% to 3,818 carats, as compared to 1,416 carats for the financial year ended 31 August 2009. Cost of sales During the financial year ended 31 August 2010, costs of sales increased to US$79.8 million as compared with US$61.3 million for the financial year ended 31 August 2009, however, this was driven by the significant increase in mining production in the Mining segment and the increase in sales volumes from the Trading & Beneficiation segment. Costs of sales during the 2010 financial year were reduced relative to the 2009 financial year by the synergies afforded by the consolidation of the North West Province mining area in South Africa and the ramp-up of the DMS plant on the South East Node. However, the strength of the South African Rand against the US Dollar continued to impact on mining costs and cost control and cash management remains a key focus for Namakwa. Corporate costs and finance charges Corporate costs for the year increased by 13% from US$7.0 million in 2009 to US$7.9 million in 2010. The main drivers for the increase were employment cost and consultation fees. Impairment of property, plant, equipment and goodwill During the financial year ended 31 August 2010, there was a non-recurring charge of US$2 million in respect of the winding up of an Angolan joint venture buying business within the Trading & Beneficiation segment, which broke 96
down during the financial crisis of 2008/2009. For the financial year ended 31 August 2009 there was an impairment relating to diamond inventory values of US$32.1 million and goodwill and diamond mining and exploration properties of US$27.7 million. Exploration and evaluation expenses During the financial year ended 31 August 2010, Namakwa expensed development and evaluation expenses of US$14.5 million, of which US$11 million related to the DRC and of the balance US$3.1 million related to developments in Lesotho, compared to US$14.1 million in the financial year ended 31 August 2009. Other operating expenses Share based transactions with employees expensed during the financial year ended 31 August 2010 amounted to US$1.0 million, of which US$0.5 million related to share options vesting and the balance being in respect of shares awarded by the Namakwa Diamonds Employee Benefit Trust. A similar amount of US$1.0 million was expensed for the financial year ended 31 August 2009. 6.4
Comparison of the financial year ended 31 August 2009 and the financial year ended 31 August 2008
The following table sets out Namakwa’s results of operations for the financial years ended 31 August 2009 and 31 August 2008: US$’000
31 August 2009 (Audited/ Reclassified)
31 August 2008 (Audited)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,270 (61,255)
41,722 (47,171)
Gross loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (expenses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of non-financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exploration and evaluation expenses (reclassified) . . . . . . . . . . . . . . . . . . . . . . . . . Listing cost expensed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expenses (reclassified) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(33,985) (472) (27,684) (14,146) — (13,598)
(5,449) (47) — (15,028) (4,404) (15,165)
Operating loss before finance costs and taxation . . . . . . . . . . . . . . . . . . . . . . . . . Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net financing income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(89,885) 438 (361) 77
(40,093) 2,759 (2,695) 64
Loss before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(89,808)
(40,029)
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,611
1,027
Loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(87,197)
(39,002)
Other comprehensive income/(costs) for the period Exchange differences on translating foreign operations . . . . . . . . . . . . . . . . . . . . . . Income tax relating to components of other comprehensive income . . . . . . . . . . . .
(5,155) —
(4,510) —
Other comprehensive income/(costs) for the period, net of tax . . . . . . . . . . . . .
(5,155)
(4,510)
Total comprehensive income/(costs) for the period . . . . . . . . . . . . . . . . . . . . . . .
(92,352)
(43,512)
Loss attributable to: — non controlling interest shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — equity shareholders of Namakwa Diamonds Limited . . . . . . . . . . . . . . . . . . . . .
(4,672) (82,525)
(4,772) (34,230)
(87,197)
(39,002)
(4,672) (87,680)
(4,772) (38,740)
(92,352)
(43,512)
Total comprehensive income/(costs) attributable to: — non controlling interest shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — equity shareholders of Namakwa Diamonds Limited . . . . . . . . . . . . . . . . . . . . .
During the financial year ended 31 August 2010, Namakwa decided to include depreciation on assets used in Exploration and Evaluation operations under Exploration Expenses rather than Other Expenses. The results for the financial year ended 31 August 2009 were adjusted accordingly. No adjustments were made for the financial year ended 31 August 2008 as this would have no material effect. 97
The financial year ended 31 August 2009 presented Namakwa with its most challenging trading environment in its 30 year history. The Board recognised the pricing downturn and market liquidity issues for the sector at an early stage. In November 2008, rapid action was taken to implement a cost cutting exercise in the wake of the dramatic downturn in diamond prices to reduce cash outflows. Mining activities were cut-back and employees were retrenched as mines were placed on care and maintenance. However, during the second half of the financial year ended 31 August 2009, Namakwa’s Mining segment was re-opened and by the end of the 2009 financial year, four mines in the North West Province of South Africa operational. The alluvial nature of Namakwa’s mining activities at that stage provided for a quick re-start to operations, without the need for significant additional capital. The DMS projects, at both the South East Node project area in the North West Province of South Africa and in the Tshikapa region of the DRC, were commissioned and mining was resumed in the second half of the year to take advantage of price improvements in rough diamonds. In the Trading & Beneficiation segment during the financial year ended 31 August 2009, the carrying value of inventory was conservatively impaired at a lowpoint in the diamond price cycle, on 28 February 2009, recognising a cost of US$32.1 million. The revaluation reflected the net realisable value of inventory in accordance with the “ordinary course of business” principle. At the year-end, the book value of the diamond inventory was US$22.4 million. During the financial year ended 31 August 2009, high inventory levels at cutting-centres, scarce liquidity in the market and poor demand were mitigated by Namakwa’s disposal of the majority of its low quality inventory into newly developed sales channels. Such actions were complemented by the selective purchase of rough diamonds, providing above average margins due to the Trading & Beneficiation segment’s market knowledge of downstream activity, as evidenced by the relatively high margins realised in the period following the year end. Alternative buying opportunities were also developed during 2009 financial year, in response to the impact of mining cutbacks reducing global supply. The opening of a buying office in the DRC in May 2009 mitigated the decline in supply from the Angolan market during the 2008 financial crisis. Inventory holding patterns were also adapted during the year to improve the stock profile of “in-demand” categories. The 2009 financial year also provided opportunities for Namakwa to develop and improve its diamond distribution networks. The opening of the Tel Aviv trading office provided access to new customers, suppliers and cutting and polishing factories in a very active diamond centre. Furthermore, multiple new marketing associations were formed and developed in Thailand, Vietnam, China and Taiwan where demand for rough and polished product remained high. The key consolidated income statement items of Namakwa include the following for the period of this comparison: Revenue During the financial year ended 31 August 2009, revenue at US$27.3 million was impacted significantly by the crash in diamond prices and fewer mining days, compared to US$41.7 million in the financial year ended 31 August 2008. Cost of sales Despite the reduction in mining days during the financial year ended 31 August 2009, resulting from the closure of Namakwa’s operational mines in reaction to the economic crisis, Namakwa’s cost of sales were US$61.3 million, compared to US$47.2 million for the financial year ended 31 August 2008. This was principally due to a write down in the net realisable value of inventory held within the Namakwa Group of US$32.1 million, following a detailed review of pricing as the market value of diamonds declined rapidly during the financial year. Corporate costs and finance charges Corporate costs for the year decreased by 47% from US$13.6 million in 2008 to US$7.3 million in 2009. The main reason for this decrease is non-recurring listing costs of US$4.40 million incurred in 2008 as well as a decrease of US$1.23 million in staff related costs. Impairment of property, plant, equipment and goodwill As a direct result of the financial crisis that engulfed the diamond industry during 2008/2009, Namakwa also took an impairment on goodwill and the Namakwa’s diamond mining and exploration projects of US$27.7 million (before tax) during the financial year ended 31 August 2009, compared with a zero impairment in the financial year 98
ended 31 August 2008. These impairments were based on Namakwa’s expectations on diamond pricing in light of recent transactions, expectations for the future improvement of such prices, the expected carats and grades recoverable from the Group’s mining operations and the expected costs to achieve such recoveries and revenues available from the sale of production. Exploration and evaluation expenses Consistent with Namakwa’s accounting policies Namakwa expensed exploration and evaluation costs incurred during the financial year ended 31 August 2009 of US$14.1 million, save for plant and equipment acquired during the period, compared to US$15 million for the financial year ended 31 August 2008. Other operating expenses During the financial year ended 31 August 2009, Namakwa expensed non-cash equity payments to employees of US$1.0 million, compared to US$3.8 million in the financial year ended 31 August 2008. 7.
Liquidity and capital resources
7.1
Capital resources
A discussion on the sources and application of the Group’s capital resources is provided at paragraph 4.1 of this Part V: “Operating and Financial Review”. 7.2
Cash-flows
Namakwa monitors cash-flow closely through its finance function. Cash-flow forecasts are prepared and reviewed on a weekly basis, normally covering a period of three months. In addition, cash-flow forecasts are prepared as part of Namakwa’s overall budgeting and forecasting processes and performance is measured against this regularly. This is intended to give the Board forward visibility on capital and operational funding requirements, given the seasonality of both the production of Namakwa’s Mining segment (particularly in the North West Province of South African and historically the DRC, which is heavily affected by rains) and the sale of Group production, which is impacted by various religious festivals each year in the key markets of the USA, Israel and India. Namakwa’s debt and cash-flow levels as at 29 February 2012 may not, therefore, be indicative of debt and cashflow levels at other points throughout the year. Namakwa typically achieves significantly lower working capital levels in December, January, August and September than in other months, partly as a result of the impact of seasonality on the Mining segment and the corresponding sale of Group production. The table below presents Namakwa’s consolidated cash flows for the interim financial periods ended 29 February 2012 and 28 February 2011 and the financial years ended 31 August 2011, 2010, 2009 and 2008. US$’000
Cash flows used in operating activities . . . . . . . . . Cash flows used in investing activities . . . . . . . . . Cash flows from/(used in) financing activities . . . Cash used in discontinued operations . . . . . . . . . . Net increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at the beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange revaluations . . . . . . . . . . . . . . . . Cash and cash equivalents at the period end . . . Cash and cash equivalents at the period end: continuing operations . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at the period end: discontinued operations . . . . . . . . . . . . . . . . . . .
29 February 28 February 31 August 31 August 31 August 31 August 2012 2011 2011 2010 2009 2008 (Actual) (Actual) (Actual) (Actual) (Actual/ (Actual) Restated)
(1,805) (21,612) 28,250 (336)
(9,584) (3,404) 35,742 (3,030)
(19,917) (1,852) (31,114) (80,835) (33,837) (14,955) (5,666) (32,567) 52,277 17,138 (1,080) 160,147 (10,533) — — —
4,497
19,724 (12,010)
2,019 (363) 6,153
13,982 13,982 (293) 47 33,413 2,019
13,879 52,020 6,411 (228) (281) (1,136) 13,982 13,879 52,020
6,153
33,413
13,982
13,879
52,020
—
—
—
—
—
2,259 (240)
331 (37,860) 46,745
During the financial year ended 31 August 2010, Namakwa adopted in advance, the amendment to IAS 7 — Statement of cash flows: classification of expenditure on un-recognised assets — although the amendment was not effective for the whole period covered. As a result of this amendment all exploration expenditure is now classified as part of operating activities and prior periods have been restated. As a result of this restatement exploration costs of US$3.8 million were transferred from investing activities to operating activities for August 2009. 99
7.3
Cash-flow used in operating activities
Interim financial period ended 29 February 2012, compared to the interim financial period ended 28 February 2011 Cash-flow used in operating activities decreased by US$7.8 million from US$9.6 million during the interim financial period ended 28 February 2011 to US$1.8 million during the interim financial period ended 29 February 2012. Included in this figure is the loss for the period, before tax, adjusted for non-cash items, finance expenses and the net movement in working capital. Cash generated from operating activities decreased by US$2.7 million mainly due to the restructuring of the Trading and Beneficiation segment and a scaling down of the operations in the North West. Financial year-ended 31 August 2011, compared to the financial year-ended 31 August 2010 Cash-flow used in operating activities increased by US$18.1 million from US$1.8 million during the year ended 31 August 2010 to US$19.9 million during the financial year ended 31 August 2011. Included in this figure is the loss for the year, before tax, adjusted for non-cash items, finance expenses and the net movement in working capital. Cash generated from operating activities decreased by US$6.5 million mainly due to adverse mining conditions in the North West Province of South Africa. This figure was also negatively influenced by increased exploration and evaluation expenses amounting to US$4.6 million, increased corporate costs of US$4.1 million and increased finance costs of US$3.7 million. Financial year-ended 31 August 2010, compared to the financial year-ended 31 August 2009 Cash-flow used in operating activities decreased by US$29.2 million for the financial year ended 31 August 2009 from US$31.1 million to US$1.9 million for the financial year ended 31 August 2010. This resulted from a decrease of US$8.9 million in the cash loss for the year, mainly relating to increased profitability due to improved diamond prices and increased trade volumes. These improved trading conditions also enabled Namakwa to optimise working capital levels, resulting in a cash inflow of US$14.4 million compared to an outflow of US$6.3 million in the financial year ended 31 August 2009. Financial year-ended 31 August 2009, compared to the financial year-ended 31 August 2008 Cash-flow used in operating activities decreased by US$49.7 million from US$80.8 million for the financial year ended 31 August 2008 to US$31.1 million for the financial year ended 31 August 2009. This resulted primarily from a decrease of US$4.6 million in the cash loss for the year, mainly relating to the implementation of strict cost management procedures. These procedures were necessary in order to enable Namakwa to endure the challenges set by the economic crisis. The positive result of these procedures can also be seen in working capital levels, with a US$50.3 million net cash outflow in 2008 compared to a net outflow of US$6.3 million in 2009. 7.4
Cash-flow used in investing activities
Interim financial period ended 29 February 2012, compared to the interim financial period ended 28 February 2011 Cash-flow used in investing activities increased by US$18.2 million from US$3.4 million for the interim financial period ended 28 February 2011, to US$21.6 million for the interim financial period ended 29 February 2012. This figure consists primarily of the cash portion of the investment by Namakwa in the Kao Mine in Lesotho, totaling US$21.79 million. Financial year-ended 31 August 2011, compared to the financial year-ended 31 August 2010 Cash-flow used in investing activities increased by US$18.8 million from US$15.0 million for the financial year ended 31 August 2010, to US$33.8 million for the financial year ended 31 August 2011. This figure consists primarily of the cash portion of the investment by Namakwa in the Kao Project in Lesotho, totaling US$32.5 million. Financial year-ended 31 August 2010, compared to the financial year-ended 31 August 2009 Cash-flow used in investing activities increased by US$9.3 million from US$5.7 million for the financial year ended 31 August 2009, to US$15 million for the financial year ended 31 August 2010, of which US$5.0 million related to the acquisition of additional assets in the DRC and US$9.6 million related to the cash portion of the investment made in Lesotho. 100
Financial year-ended 31 August 2009, compared to the financial year-ended 31 August 2008 Cash-flow used in investing activities decreased by US$26.8 million from US$32.5 million for the financial year ended 31 August 2008 to US$5.7 million for the financial year ended 31 August 2009, principally related to the purchase and construction of mining equipment. 7.5
Cash-flow from/(used in) financing activities
Interim financial period ended 29 February 2012, compared to the interim financial period ended 28 February 2011 Cash-flow from financing activities decreased by US$7.4 million from a US$35.7 million inflow for the interim financial period ended 28 February 2011 to a US$28.3 million inflow for the interim financial period ended 29 February 2012. This figure includes cash movements in transactions with Shareholders as well as external borrowings. This increase is attributable to the drawdown receipts of the Jarvirne Facility. Financial year-ended 31 August 2011, compared to the financial year-ended 31 August 2010 Cash-flow from financing activities increased by US$35.2 million from a US$17.1 million inflow for the financial year ended 31 August 2010 to a US$52.3 million inflow for the financial year ended 31 August 2011. This figure includes cash movements in transactions with Shareholders as well as external borrowings. This increase is attributable to US$52.2 million raised by a share issue (after costs and expenses) of which US$6.0 million was used to repay long term debt. Financial year-ended 31 August 2010, compared to the financial year-ended 31 August 2009 Cash-flow from financing activities increased by US$18.1 million from a US$1.0 million outflow for the financial year ended 31 August 2009 to a US$17.1 million inflow for the financial year ended 31 August 2010. This increase is attributed to the issue of additional share capital of US$3.1 million, as well the proceeds from long-term loan agreements of US$15.1 million in aggregate. Financial year-ended 31 August 2009, compared to the financial year-ended 31 August 2008 Cash-flow from financing activities decreased by US$161.1 million from a US$160.1 million inflow for the financial year ended 31 August 2008 to a US$1.0 million outflow for the financial year ended 31 August 2009. The inflow of the previous year is attributed to the net cash inflow of Namakwa’s IPO and the 2008 financial year activities were limited to the restructuring of shareholdings. 7.6
Investments and capital expenditure
Namakwa’s capital expenditure during the periods covered by the historical financial information incorporated by reference in this document, relates primarily to the development and expansion of the Mining segment across southern Africa. Capital expenditure for the interim financial period ended 29 February 2012 was US$24.3 million, compared to US$4.9 million for the interim financial period ended 28 February 2011. This comprised mostly of the development of the Kao Mine Capital expenditure for the financial year-ended 31 August 2011 was US$39.1 million. This comprised: US$32.5 million for the development of the Kao Mine; US$2.3 million invested in property, plant and equipment in the North West Province of South Africa; US$3.6 million capitalised in respect of river diversion projects in the DRC and US$0.7 million invested in IT infrastructure and software. Capital expenditure for the financial year-ended 31 August 2010 was US$24.2 million. This comprised: US$16.1 million in relation to the acquisition of Namakwa’s interest in the Kao Mine (including US$3.6 million relating to the value of a 25% free stake allocated to the Government of Lesotho, which is treated as a share based payment and a US$2.9 million environmental provision raised on the acquisition of the mining project); US$5.4 million in relation to the acquisition of additional alluvial and kimberlitic concessions, with an increased portfolio of earth moving equipment, in the DRC (US$5.0 million), and additional dense-media separation plants (US$0.4 million); and US$0.2 million on the implementation of a new information technology platform across Namakwa’s global operations, capable of supporting the increased scale of the business. Namakwa began to implement the Saga ERP x3 platform in the second half of the 2010 financial year and this should be completed by the end of the financial year to 31 August 2012, thereby increasing the speed and efficiency in which the Group is able to record and analyse operating and sales data and improve financial reporting. 101
Capital expenditure for the financial year-ended 31 August 2009 was US$6.2 million. This mainly comprised ramp-up costs in respect of the dense-media separation plant implemented on the South East Node in the North West Province of South Africa and development of plant and equipment in the DRC. Capital expenditure for the financial year-ended 31 August 2008 was US$35.3 million. This comprised expansion costs for the development of Namakwa’s Mining segment and the ramp-up of the Trading & Beneficiation segment, in line with stated objectives on Namakwa’s IPO in December 2007. 8.
Off-balance sheet arrangements
Namakwa does not currently have any off-balance sheet arrangements. 9.
Contractual obligations
The following table sets out the Namakwa’s material contractual obligations and their maturity as at 29 February 2012. US$’000
Secured loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured loan(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease commitments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
< 1 year
1 – 5 years
5 years+
Total
12 489 — 29
31,056 1,243 — —
— — — —
31,068 1,732 — 29
Notes: (1) Unsecured loan commitments are comprised of deferred payments due to creditors. (2) Operating leases are comprised of leased office space, the terms of which vary, with rent increases negotiated in line with contracted terms.
10.
Capitalisation and indebtedness statement
The following table shows the indebtedness of the Group as at 31 March 2012 and has been extracted without material adjustment from the unaudited consolidated accounting records of the Group. As at 31 March 2012 (Unaudited)
US$’000
Total current debt — Secured(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Unguaranteed and unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-current debt — Secured(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Unguaranteed and unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,251 1,188
Total gross indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,962
40 483
Note: (1) Secured loans represent: (a) amounts of US$33.2 million drawdown against the US$40 million Jarvirne Loan Facility, secured against the receivable of Storm Mountain Diamonds (which as at 31 March 2012 was valued at US$78.8 million); (b) amounts of US$0.03 million in respect of finance leases secured against certain plant, property and equipment within the Group.
The following table shows the capitalisation of the Group as at 29 February 2012, extracted without material adjustment from the unaudited consolidated financial interim statements of the Group. As at 29 February 2012
US$’000
(Unaudited)
Shareholders’ equity — Issued share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Accumulated loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
190 306,933 3,316 (257,162)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Non-controlling interest in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,277 (7,467)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,810
102
Subject to the approval by Shareholders of the Open Offer, on 28 June 2012, Namakwa expects to issue and allot to Shareholders 794,629,171 new Ordinary Shares. The following table shows the unaudited net financial indebtedness of the Group as at 31 March 2012, extracted without material adjustment from the unaudited consolidated accounting records of the Group. As at 31 March 2012
US$’000
(Unaudited)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of non-current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net current financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current bank loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,833 3,833 (523) (523) 3,310 — (34,439) (34,439) (31,129)
As at 31 March 2012, the Group had no contingent or indirect indebtedness. 11.
Critical accounting policies and estimates
The Group’s significant accounting policies are more fully described in the Annual Financial Statements of Namakwa incorporated by reference into this document, in accordance with Part XII: “Documentation Incorporated by Reference” of this document. Some of the Group’s accounting policies require the application of significant judgement and estimates by management that can affect the amounts reported in the financial information. By their nature, these judgements are subject to a degree of uncertainty and are based on the Group’s historical experience, terms of existing contracts, management’s view regarding trends in the rough and polished diamond industry, information from outside sources and other assumptions that the Group considers to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. The Group’s critical accounting policies that are subject to significant estimates and assumptions are summarised below. 11.1
Revenue
Revenue from the sale of rough and polished diamonds in the ordinary course of the Group’s activities is measured at the fair value of the consideration received or receivable. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. Revenue is recognised when the significant risks and rewards of control have been transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably and the amount of revenue can be measured reliably. The significant risks and rewards are considered to have passed upon delivery. On certain contracts, where the Group acts as agent, only commissions and fees receivable for services rendered are recognised as revenue. Any third-party costs incurred on behalf of the principal that are rechargeable under the contractual arrangement are not included in revenue. 11.2
Exploration, evaluation and development costs
Exploration and evaluation activities related to the search for mineral resources and evaluation activities undertaken with the prospect of gaining knowledge regarding the feasibility study of a mineral properties, is recognised in profit or loss as an expense as incurred. The costs of acquiring exploration properties and mineral prospecting rights are written off on acquisition. Where a property’s feasibility study indicates the probability of the inflow of future economic benefits, all direct development costs thereafter are capitalised. These costs are classified as mineral properties within tangible fixed assets and are stated at cost less accumulated amortisation and impairment losses. 11.3
Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. 103
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate components of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within “other (expenses)/income” in profit or loss. The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment except for mineral properties, which are depreciated using units of production. The useful lives of mineral properties and leases and plant and equipment with the same useful life of the related mineral property is estimated based on the Group’s assessment of the expected productive life of mineral resources of each project. Depreciation commences at the point of reaching commercial production. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Namakwa Group will obtain ownership by the end of the lease term. Land is not depreciated. The estimated useful lives are as follows: — Mineral properties and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 10 years — Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 10 years — Assets under construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not depreciated Plant and equipment consists of motor vehicles, earth moving equipment, plants, dense medium separators, office equipment and computer equipment. Certain categories of property, plant and equipment are depreciated over useful lives based on estimated units of production. Depreciation methods, useful lives and residual values are reviewed at each year-end. Assets under construction are not depreciated until they come in use. 11.4
Goodwill
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income. Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment. Goodwill is not amortised. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. 11.5
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories, per category, is based on the weighted average method, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. 11.6
Impairments on financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have 104
had a negative effect on the estimated future cash flows of that asset. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy and default or delinquency in payments are considered indicators that the trade receivable is impaired. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and its recoverable amount. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar risk characteristics. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss. When a trade receivable is uncollectible, it is written off against the allowance account. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost the reversal is recognised in profit or loss. 11.7
Impairments on non-financial assets
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, the recoverable amount is estimated at each year-end. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. An impairment loss recognised on goodwill can never be reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each year-end for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 11.8
Provision for mine rehabilitation
In accordance with applicable regulatory requirements, the Group is required to restore exploration and mining sites at the end of the project lives to a condition acceptable to the relevant authorities. The cost of any committed rehabilitation, decommissioning or restoration programme is provided for when the obligation arises and the damage has occurred. 11.9
Alluvial mining
Rehabilitation activities are generally undertaken on a continuous basis at the Group’s alluvial mining operations. Where the Group acquires a property where rehabilitation activities are necessary but have not been undertaken at the date of control passing, a provision is raised with respect to the cost of remediating the damage caused by these past activities as part of the purchase price adjustment. The provision is based on the estimated present value of the cost to restore the land and the discount on the provision is unwound through finance costs at each reporting date. 11.10 Kimberlite mining Due to the nature of kimberlite mining the majority of the rehabilitation of the mining site is done at the end of the project life. Where the Group acquires such a property, a provision is raised with respect to the cost of remediating the damage. The provision is based on the estimated present value of the cost to restore the land and the discount on the provision is unwound through finance costs at each reporting date. 105
11.11 Other provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Movements in provisions are recognised through profit or loss. 12.
Qualitative and quantitative disclosures about market risk
The following discussion of financial risk-management activities includes “forward-looking statements” that involve risks and uncertainties. Actual results could differ materially from those projected in forward-looking statements. Namakwa’s activities expose it to a variety of financial risks, including credit risk, market risk and liquidity risk and the Group’s principal financial assets are cash and cash equivalents and trade and other receivables. Namakwa does not currently engage in any form of derivative transactions in respect of its market exposure. The objective of Namakwa’s financial risk management strategy is to protect it against unfavourable changes in the financial markets. Management of such financial risks is the responsibility of Namakwa’s finance function. In the normal course of business, Namakwa also faces risks that are either non-financial or non-quantifiable. These risks principally include country, commodity and legal risks, as described in more detail in the section entitled “Risk Factors” in this document. See also Note 5 in the notes to the financial statements for each of the financial years ended 31 August 2011, 2010 and 2009, which are incorporated by reference into this document, in accordance with Part XII: “Documentation Incorporated by Reference” of this document. 12.1
Cash and cash equivalents
Cash and cash equivalents are managed to maximise returns while minimising risk. In order to maximise credit protection, cash and cash equivalents are placed with a variety of financial institutions, including Citibank, ABSA Bank, Standard Bank and Nedbank. These banks have varying credit ratings issued by credit rating agencies established in the European Union and registered under the Regulation (EU) No 1060/2009 but the majority of cash for the interim financial period ended 29 February 2012, was held in A, BBB+ or BBB rated institutions and Namakwa’s policy is to manage and control funds at the parent company level to minimise funds held within operating and exploration subsidiaries. This policy reduces credit risk by ensuring that funds are held in higher rated financial institutions and reduces exposure to exchange rate movements. 12.2
Trade and other receivables
Trade debtors and other receivables primarily relate to amounts due for diamonds sold to customers and strategic transactions entered into by the Trading & Beneficiation segment. Namakwa has policies in place to ensure that all strategic transactions are contracted with customers with an appropriate credit history. Credit evaluations are performed on all customers requiring credit over agreed limits and limits are set in accordance with internal evaluations and any limits set by the Board. The utilisation of credit limits is regularly monitored. Trade debtors comprise a number of customers, dispersed across different geographical areas. In order to reduce the risk of debtors being concentrated amongst a few customers, Namakwa regularly monitors credit limits and obtains collateral when deemed necessary, although the Group does not require collateral in respect of financial assets. As at 29 February 2012, the five largest trade debtors made up 73% of the outstanding trade receivable value and of these five, only 2 exceeded 10% of the trade receivable value. Namakwa has an established relationship with these trade debtors and past dealings do not indicate any necessary impairment. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position. 12.3
Market risk
Namakwa does not currently engage in any form of derivative transactions in respect of the market exposures described below. 12.4
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Namakwa’s cash flow interest rate risk from its long and short-term borrowings is 106
subject to the adjustment of prime interest rates. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group’s borrowings at variable interest rates are denominated in South African Rand and fixed rate in US Dollars. 12.5
Foreign exchange risk
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates. Namakwa is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities. The currencies giving rise to foreign currency risk are primarily South African Rand, Lesotho Maloti, pounds Sterling and US Dollars. In respect of other monetary assets and liabilities held in currencies other than US Dollars, the Group ensures that the net exposure is kept to an acceptable level by only holding enough foreign currencies necessary to meet expected obligations. 12.6
Diamond price risk
Namakwa’s normal policy is to sell diamonds at their prevailing market price. Accordingly, the Group is highly exposed to fluctuations in the global price for rough and polished diamonds, which is measured in US Dollars. 12.7
Liquidity risk
Liquidity risk is the risk that there will be insufficient funds available to settle obligations when they are due. Prudent liquidity management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Namakwa aims to maintain flexibility in funding by endeavouring to conclude and to keep committed credit lines available. Surplus cash held by operating entities over and above balance required for working capital management are transferred to Group treasury. These are invested and managed to ensure optimum returns for the Group. 12.8
Capital risk management
Namakwa defines total capital as “equity” in its consolidated statement of financial position plus debt. Namakwa’s objectives when managing capital are (i) to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and (ii) to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust this capital structure, Namakwa may issue new shares, adjust the amount of dividends paid to shareholders, return capital to shareholders or sell assets to reduce debt. Namakwa monitors capital on the basis of a gearing ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the statement of financial position) less cash and cash equivalents. Total equity is calculated as shown in the statement of financial position plus net debt. The Group is not subject to externally imposed capital requirements.
107
PART VI — FINANCIAL INFORMATION ON NAMAKWA Section A: Historical financial information of Namakwa The reviewed, but unaudited, condensed consolidated interim financial statements of Namakwa and its subsidiaries for the six months ended 29 February 2012 and 28 February 2011 and the audited consolidated financial statements of Namakwa and its subsidiaries for the financial years ended 31 August 2011, 2010, 2009 and 2008, together with the audit reports thereon, are incorporated by reference into this document, as detailed in Part XII: “Documentation Incorporated by Reference” of this document. PricewaterhouseCoopers Inc. of 2 Eglin Road, Sunninghill 2157, Johannesburg South Africa has issued unqualified audit opinions on the consolidated financial statements of Namakwa and its subsidiaries included in the annual audited financial statements of Namakwa for each of the financial years ended 31 August 2010, 2009 and 2008. In respect of the six months ended 29 February 2012, PricewaterhouseCoopers Inc. has placed an emphasis of matter on its review of the consolidated financial statements of Namakwa and its subsidiaries and in respect of the financial year ended 31 August 2011, PricewaterhouseCoopers Inc. has placed an emphasis on matter in its audit opinion on the consolidated financial statements of Namakwa and its subsidiaries.
108
Section B: Selected financial information of Namakwa The key data for the six months ended 29 February 2012 and 28 February 2011 and the financial years ended 31 August 2011, 2010, 2009 and 2008 set out below have been extracted without material adjustment from, and should be read together with, Namakwa’s consolidated financial statements for the periods covered, which are incorporated by reference into this document, and which have been prepared in accordance with IFRS. Consolidated statement of comprehensive income for the Group for the periods covered by the historical financial information. US$’000
29 February 2012 28 February 2011 31 August 2011 31 August 2010 31 August 2009 31 August 2008 (Unaudited)
Continuing operations: Revenue . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . Gross (loss)/profit . . . . . . . Net other expenses . . . . . . . . Impairment of non-financial assets . . . . . . . . . . . . . . . . Exploration and evaluation expenses (reclassified) . . . Listing cost expensed . . . . . Other operating expenses (reclassified) . . . . . . . . . . Operating loss before finance costs and taxation . . . . . . . . . . . . . . Finance income . . . . . . . . . . Finance expenses . . . . . . . . . Net financing costs . . . . . . . Loss before taxation . . . . . Taxation . . . . . . . . . . . . . . . . Loss for the period from continuing operations . . Discontinued operations Loss after taxation for the period from discontinued operations . . . . . . . . . . . . Total loss for the period . . Other comprehensive income/(loss) for the period Exchange differences on translating foreign operations . . . . . . . . . . . . Income tax relating to components of other comprehensive income . . Other comprehensive income/(loss) for the period, net of tax . . . . . . Total comprehensive loss for the period . . . . . . . . . Loss attributable to: — non controlling interest shareholders . . . . . . . . . . . — equity shareholders of Namakwa Diamonds Limited . . . . . . . . . . . . . . . Total comprehensive loss attributable to: — non-controlling interest shareholders . . . . . . . . . . . — equity shareholders of Namakwa Diamonds Limited . . . . . . . . . . . . . . .
16,952 (18,394) (1,442) 44 —
(Unaudited) Restated
42,109 (38,137) 3,972 (198) —
(Audited)
93,327 (95,248) (1,921) (997) (10,267)
(Audited) (Audited/ Restated(1) Reclassified)(2)
81,977 (79,794) 2,183 (315) —
27,270 (61,255) (33,985) (472) (27,684)
(Audited/ Reclassified)
41,722 (47,171) (5,449) (47) —
(51) —
(4,365) —
(8,084) —
(3,517) —
(14,146) —
(15,028) (4,404)
(8,547)
(6,464)
(23,290)
(16,662)
(13,598)
(15,165)
(9,996) 79 (2,525) (2,446) (12,442) (17)
(7,055) 26 (2,953) (2,927) (9,982) 5
(44,509) 137 (7,680) (7,543) (52,052) 158
(18,311) 50 (1,269) (1,219) (19,530) 11
(89,885) 438 (361) 77 (89,808) 2,611
(40,093) 2,759 (2,695) 64 (40,029) 1,027
(12,459)
(9,977)
(51,894)
(19,519)
(87,197)
(39,002)
(2,936) (15,395)
(1,935) (11,912)
(24,849) (76,743)
(11,001) (30,520)
— (87,197)
— (39,002)
(5,155)
(4,510)
350
1,107
1209
1,848
—
—
—
—
350
1107
1209
1,848
(5,155)
(4,510)
—
—
(15,045)
(10,805)
(75,534)
(28,672)
(92,352)
(43,512)
(420)
(1,342)
(6,422)
(537)
(4,672)
(4,772)
(14,975) (15,395)
10,570 (11,912)
(70,321) (76,743)
(29,983) (30,520)
(82,525) (87,197)
(34,230) (39,002)
(420)
(1,342)
(6,422)
(537)
(4,672)
(4,772)
(14,625) (15,045)
(9,463) (10,805)
(69,112) (75,534)
(28,135) (28,672)
(87,680) (92,352)
(38,740) (43,512)
109
Notes: (1) During the financial year ended 31 August 2010, Namakwa included depreciation on assets used in Exploration and Evaluation operations under Evaluation Expenses rather than Other Expenses. The results for the financial year ended 31 August 2009 have been reclassified accordingly. (2) During the financial year ended 31 August 2011, the DRC operations were classified as discontinued operations and as a result the 31 August 2010 figures have been restated.
Consolidated statement of financial position for the Group for the periods covered by the historical financial information 29 February 2012 (Unaudited)
28 February 2011 (Unaudited)
31 August 2011 (Audited)
31 August 2010 (Audited)
31 August 2009 (Audited)
31 August 2008 (Audited)
Assets — Property, plant and equipment . . . . . . — Non-current receivable . . . . . . . . . . . .
76,286 8,606
58,690 —
57,243 —
58,109 —
40,684 —
66,952 4,572
Total non-current assets . . . . . . . . . . . .
84,892
58,690
57,243
58,109
40,684
71,524
— Inventories . . . . . . . . . . . . . . . . . . . . . — Trade and other receivables . . . . . . . . — Cash and cash equivalents . . . . . . . . .
4,108 5,759 6,153
25,151 13,811 33,413
7,850 16,906 2,259
14,470 8,358 13,982
22,785 11,458 13,879
49,210 16,090 52,020
Total current assets . . . . . . . . . . . . . . . .
16,020
72,375
27,015
36,810
48,122
117,320
Assets of disposal group held for sale . . . Total assets . . . . . . . . . . . . . . . . . . . . . . .
— 100,912
— 131,065
5,506 89,764
— 94,919
— 88,806
— 188,844
Equity Capital and reserves attributable to the equity holders of Namakwa — Issued capital . . . . . . . . . . . . . . . . . . . — Share premium . . . . . . . . . . . . . . . . . . — Other reserves . . . . . . . . . . . . . . . . . . — Accumulated loss . . . . . . . . . . . . . . . .
190 306,933 3,316 (257,162)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Non-controlling interest . . . . . . . . . . .
53,277 (7,467)
101,701 (1,617)
48,381 (6,857)
58,161 1,041
76,794 4,347
160,547 12,020
Total equity . . . . . . . . . . . . . . . . . . . . . . Liabilities — Interest-bearing loans and borrowings . . . . . . . . . . . . . . . . . . . . . — Provisions . . . . . . . . . . . . . . . . . . . . . . — Deferred tax liabilities . . . . . . . . . . . .
45,810
100,084
41,524
59,202
81,141
172,567
32,299 7,498 —
1,809 6,375 205
1,666 7,415 —
16,876 5,944 283
1,030 2,778 488
1,598 3,003 3,547
Total non-current liabilities . . . . . . . . .
39,797
8,389
9,081
23,103
4,296
8,148
— Trade and other payables . . . . . . . . . . — Short term portion of interest-bearing loans and borrowings . . . . . . . . . . . . . — Tax liabilities . . . . . . . . . . . . . . . . . . .
14,488
21,201
16,846
11,495
2,790
7,486
530 287
1,077 314
19,990 263
888 231
575 4
586 57
Total current liabilities . . . . . . . . . . . . .
15,305
22,592
37,099
12,614
3,369
8,129
Liabilities of disposal group held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
2,060
—
—
—
Total liabilities . . . . . . . . . . . . . . . . . . . .
55,102
30,981
48,240
35,717
7,665
16,277
Total equity and liabilities . . . . . . . . . .
100,912
131,065
89,764
94,919
88,806
188,844
US$’000
136 136 82 75 288,016 288,126 235,960 230,040 (3,747) 2,412 (990) (6,182) (182,704) (242,293) (176,891) (147,139)
110
74 227,131 (1,967) (64,691)
Operating and financial data for the Group for the periods covered by the historical financial information. Mining segment South Africa — North West Province
Tonnage . . . . . . . . . . . . . . . . . . . . . . . Carats Recovered . . . . . . . . . . . . . . . . Avg. Grade (cpht) . . . . . . . . . . . . . . . Carats Sold . . . . . . . . . . . . . . . . . . . . Avg. Price (US$/ct) . . . . . . . . . . . . . . Avg. Cost (US$/ct) . . . . . . . . . . . . . . Lesotho — Kao Mine
Tonnage . . . . . . . . . . . . . . . . . . . . . . . Carats Recovered . . . . . . . . . . . . . . . . Avg. Grade (cpht) . . . . . . . . . . . . . . . Carats Sold . . . . . . . . . . . . . . . . . . . . Avg. Price (US$/ct) . . . . . . . . . . . . . . Avg. Cost (US$/ct)(2) . . . . . . . . . . . . . DRC — Kasai Province
Tonnage . . . . . . . . . . . . . . . . . . . . . . . Carats Recovered . . . . . . . . . . . . . . . . Avg. Grade (cpht) . . . . . . . . . . . . . . . Carats Sold . . . . . . . . . . . . . . . . . . . . Avg. Price (US$/ct) . . . . . . . . . . . . . . Avg. Cost (US$/ct) . . . . . . . . . . . . . .
29 February 2012 (Actual)
28 February 2011 (Actual)
31 August 2011 (Actual)
31 August 2010 (Actual)
31 August 2009 (Actual)
31 August 2008 (Actual)
1,516,622 11,069 0.73 11,178 632 589
2,432,863 20,591 0.85 20,116 629 797
5,387,131 38,092 0.71 36,894 638 961
4,082,862 38,476 0.94 37,722 418 602
4,292,628 26,256 0.61 23,123 325 648
5,849,251 27,177 0.46 27,177 537 1,151
29 February 2012 (Actual)
28 February 2011 (Actual)
31 August 2011(1) (Actual)
31 August 2010(1) (Actual)
31 August 2009 (Actual)
31 August 2008 (Actual)
1,308,336 26,558 8.57 26,906 214 —
106,373 8,036 7.55 — — —
136,376 12,405 — 17,178 356 —
43,168 4,345 — — — —
— — — — — —
— — — — — —
29 February 2012(3) (Actual)
28 February 2011 (Actual)
31 August 2011 (Actual)
31 August 2010 (Actual)
31 August 2009 (Actual)
31 August 2008 (Actual)
N/A N/A N/A N/A N/A N/A
177,465 58,258 32.8 62,633 133 175
303,365 77,872 25.7 86,224 131 284
447,197 40,104 8.9 36,437 102 330
265,287 20,486 — 15,177 62 581
— — — — — —
Notes: (1) Production data for metallurgical test work and pre-production mining prior to the Kao Mine moving into operational production in late November 2011 is not indicative of future results of operations. (2) Average cost per carat during the production ramp-up phase of H1’FY2012 does not provide a useful metric against which to measure the future costs of Phase 1 commercial production. (3) Operations in the DRC were sold to Hall Farm Avenue Limited on 23 September 2011, with the economic effective date of transfer 31 August 2011, as described in more detail in the section entitled “Material Contracts” in Part X: “Additional Information” of this document.
111
PART VII — UNAUDITED PRO FORMA FINANCIAL INFORMATION Section A: Report of PricewaterhouseCoopers LLP on the pro forma financial information The Directors Namakwa Diamonds Limited Clarendon House 2 Church Street Hamilton HM11 Bermuda Shore Capital and Corporate Limited (the “Sponsor”) Bond Street House 14 Clifford Street London W1S 4JU 6 June 2012 Dear Sirs Namakwa Diamonds Limited (the “Company”) We report on the pro forma statement of net assets (the “Pro Forma Financial Information”) set out in Part VII of the Company’s prospectus document dated 6 June 2012 (the “Prospectus”) which has been prepared on the basis described in the notes to the Pro Forma Financial Information, for illustrative purposes only, to provide information about how the proposed Open Offer might have affected the financial information presented on the basis of the accounting policies adopted by the Company in preparing its financial statements for the period ending 29 February 2012. This report is required by item 20.2 of Annex I to the PD Regulation and is given for the purpose of complying with that PD Regulation and for no other purpose. Responsibilities It is the responsibility of the directors of the Company to prepare the Pro Forma Financial Information in accordance with item 20.2 of Annex I to the PD Regulation. It is our responsibility to form an opinion, as required by item 7 of Annex II to the PD Regulation as to the proper compilation of the Pro Forma Financial Information and to report our opinion to you. In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro Forma Financial Information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue. Save for any responsibility which we may have to those persons to whom this report is expressly addressed and for any responsibility arising under item 5.5.3R(2)(f) of the Prospectus Rules to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation, consenting to its inclusion in the Prospectus. PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Services Authority for designated investment business. Basis of opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Financial Information with the Directors of the Company. 112
We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro Forma Financial Information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company. Opinion In our opinion: (a)
the Pro Forma Financial Information has been properly compiled on the basis stated; and
(b)
such basis is consistent with the accounting policies of the Company.
Declaration For the purposes of Prospectus Rule 5.5.3 R(2)(f) we are responsible for this report as part of the Prospectus and we declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of Annex I to the PD Regulation. Yours faithfully PricewaterhouseCoopers LLP Chartered Accountants
113
Section B: Pro forma statement of net assets The unaudited pro forma statement of net assets set out below has been prepared in a manner consistent with the accounting policies adopted in the Group’s financial statements for the financial year ended 31 August 2011, to illustrate the impact of the Open Offer on the consolidated net assets of the Group, as if the Open Offer had occurred on 29 February 2012. The unaudited pro forma financial information has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation, and, therefore, does not, and will not, represent the Group’s actual financial position or results. The pro forma financial information has been prepared on the basis set out in the notes below and in accordance with items 1 to 6 of Annex II to the PD Regulations.
US$’000
Group Pro forma Pro forma Pro forma Pro forma Pro forma Pro forma consolidated adjustment adjustment adjustment Pro forma adjustment adjustment Group net assets for for for interest adjustment for the for the consolidated as drawdown drawdown accrued on net assets for net repayment repayment reported at on the on the the proceeds of of the of the as at 29 29 February Sputnick Jarvirne Sputnick Sputnick Jarvirne February Open 2012(1) Facility(2) Facility(2) Facility(2) 2012(3) Offer(2) Facility(2) Facility(2)
Assets — Non-current receivables . . . . . . . . . — Property, plant and equipment . . . . . . . . . . — Inventories . . . . . . . . . — Trade and other receivables . . . . . . . . . — Cash and cash equivalents . . . . . . . . .
8,606
—
—
—
—
—
—
8,606
76,286 4,108
— —
— —
— —
— —
— —
— —
76,286 4,108
5,759
—
—
—
—
—
—
5,759
6,153
10,000
4,200
—
53,500
(10,244) (35,200)
Total assets . . . . . . . . . .
100,912
10,000
4,200
—
53,500
(10,244) (35,200) 123,168
32,299 7,498
10,000 —
4,200 —
244 —
—
14,488
—
—
—
—
—
—
14,488
530 287
— —
— —
— —
— —
— —
— —
530 287
Total liabilities . . . . . . .
55,102
10,000
4,200
244
—
Net assets . . . . . . . . . . . .
45,810
—
—
Liabilities — Interest-bearing loans and borrowings . . . . . . — Provisions . . . . . . . . . — Trade and other payables . . . . . . . . . . . — Short-term portion of interest-bearing loans and borrowings . . . . . . — Tax liabilities . . . . . . .
(244)
53,500
(10,244) (35,200) — —
(10,244) (35,200) —
—
28,409
1,299 7,498
24,102 99,066
Notes: (1) The financial information of the Group has been extracted, without material adjustment, from the interim financial results of the Group for the half-year period to 29 February 2012, which were produced in accordance with IFRS, reviewed by PricewaterhouseCoopers Inc. and are incorporated by reference in accordance with Part XII: “Documents Incorporated by Reference” of this document. (2) The pro forma adjustment represents: (a) the receipt of US$10 million drawn down under the Sputncik Facility since 29 February 2012 and the capitalisation of interest of US$244,000 under such facility; (b) the receipt of US$4.2 million drawn down under the Jarvirne Facility since 29 February 2012; (c) the receipt of net proceeds of c.US$53.5 million from the Open Offer (gross proceeds of c.US$55 million less transaction costs of c.US$1.5 million); (d) the repayment in cash of US$10.244 million in principal and interest under the Sputnick Facility from the net proceeds of the Open Offer; and (e) the repayment in cash of US$35.2 million in principal under the Jarvirne Facility. (3) The pro forma financial information is based on the consolidated net assets of the Group as at 29 February 2012 and has been prepared on the basis that the settlement of the Open Offer took place on that date. The pro forma financial information does not take into account any trading or results of the Group for the period subsequent to the interim financial period ended 29 February 2012, or of any other changes in its financial position in that period other than the drawdowns on the Facilities as described in more detail in the section entitled “Current trading and prospects” contained in the Letter from the Chairman of Namakwa Diamonds Limited and contained in Part VI: “Financial Information on Namakwa” of this document.
114
PART VIII — GROUP MINING LICENCES A.
LESOTHO — KAO, BUTHA-BUTHE
Operation
Right
Kao Mine Storm Mountain Diamonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Licence No.
Mining Licence
27795
Expiry Date
10-Aug-21(1)
Note: (1) Storm Mountain Diamonds, the operating company for the mining licence, retains the right to extend the term of the mining licence (and the related mining agreement) for three additional ten-year periods, subject to meeting certain production capacity levels during the term of the licence. Further details are provided in the description of the mining agreement in the “Material contracts” paragraph in Part VII: “Additional Information”.
B.
SOUTH AFRICA — NORTH WEST PROVINCE
Operational Sites
Right
Licence/Ref No.
Old Order Mining Licence New Order Mining
30/5/1/2/2/411MR 30/5/1/2/2/40MR
11-Feb-09(2) 29-Sep-10(3)3)
Converted Mining Right
30/5/1/2/2/414MR
04-Aug-16
New Order Mining
30/5/1/2/2/328MR
09-Jun-18
Mahempannen
New Order Prospecting Converted Mining Right
30/5/1/1/2/1572PR 30/5/1/2/2/415MR
04-Mar-12 04-Aug-18
Pienaarsfontein
New Order Prospecting Old Order Mining Licence
30/5/1/1/2/186PR 30/5/1/1/2/412MR
21-Feb-12 24-Nov-08(4)
South East Node Oersonskraal Farm 1 Oersonskraal Farm 2 Northern Node Doornhoek Central Node London
Expiry date
Notes: (2) Application for conversion of Old Order Mining Licence to New Order Mining Right granted. Transfer in terms of section 11 of the MPRDA authorised. An execution date is awaited from the DMR. This licence area is the primary focus of Namakwa’s operations on the South East Node and is the location of the region’s principal DMS unit. (3) Application for the renewal of the Mining Right submitted on 28-Jul-10 by Oersonskraal Mining (Pty) Ltd (“Oersonskraal Mining”), the holder of the right. This Mining Right constitutes the Idada Mine on the wider South East Node project area, which has been mined by Namakwa in the last two years. Namakwa Diamond Holdings (Pty) Ltd, holds an effective 48.1% equity interest in Oersonskraal Mining. This operation is not considered material to the Namakwa Mining segment in FY2012 and does not contribute to Namakwa’s targets for this region in FY2012. The DMR suspended operations on this site on 17-Aug-11, following a dispute between the local community and Oersonskraal Mining in respect of, inter alia, social and labour plans related to the site. (4) Application for conversion of Old Order Mining Licence to New Order Mining Right granted. Transfer in terms of section 11 of the MPRDA authorised. To be executed by DMR. Portfolio of Development Sites
Right
Licence/Ref No.
New Order Prospecting New Order Prospecting
30/5/1/2/2/10001MR 30/5/1/1/2/1716PR
Ganspan
Old Order Mining Licence New Order Prospecting New Order Prospecting New Order Prospecting
RDNW5/3/2/2906 30/5/1/1/2/73PR 30/5/1/1/2/1359PR 30/5/1/1/2/1549PR
04-Aug-10(7) 05-Dec-07(8) 18-Oct-11(9) DMR to advise(10)
Graspan
New Order Prospecting
30/5/1/1/2/1305PR
DMR to advise(11)
Grootlaagte
Old Order Mining Licence New Order Prospecting
RDNW5/3/2/3068 30/5/1/1/2/472PR
DMR to advise(12) DMR to advise(13)
Kameelkuil
New Order Prospecting
30/5/1/1/2/573PR
DMR to advise(14)
New Order Mining
30/5/1/2/2/213MR
02-Nov-20
Converted Mining Right
30/5/1/2/2/415MR
04-Aug-18
Central Node Diamantfontein
Koppie Alleen Leeuwbosch
115
Expiry Date
16-May-09(5) DMR to advise(6)
Portfolio of Development Sites
Right
Licence/Ref No.
New Order Prospecting New Order Prospecting
30/5/1/2/2/10015MR 30/5/1/1/2/461PR
South West Node Blesbok
New Order Mining Right
30/5/1/1/2/66MR
Bosmansfontein
New Order Mining Right
30/5/1/1/2/162MR
Mooifontein
Converted Mining Right
30/5/1/1/2/413MR
04-Aug-20
Western Node Houtvolop
New Order Prospecting
30/5/1/1/2/522PR
28-Feb-12
Development Node Brussels
New Order Prospecting
30/5/1/1/2/1607PR
17-Mar-15
Lisbon
New Order Prospecting
30/5/1/1/2/1607PR
17-Mar-15
Grootkloof
New Order Prospecting
30/5/1/1/2/1607PR
17-Mar-15
Lisbon
New Order Prospecting
30/5/1/1/2/1607PR
17-Mar-15
Kromkloof
New Order Prospecting
30/5/1/1/2/1607PR
17-Mar-15
Pypklip
New Order Prospecting
30/5/1/1/2/1989PR
Schoonzigt
Expiry Date
05-Aug-11(15) 09-Jan-10(16) 08-Jul-18 DMR to advise(17)
DMR to advise(18)
Notes: (5) Application was accepted by the DMR. (6) Right granted on 12-Jun-07. An execution date is awaited from the DMR. (7) Application for conversion of Old Order Mining Licence to a New Order Mining Licence submitted on 05-Aug-08. Application for subsequent transfer to a section 11 MPRDA right submitted on 29-Aug-08. Confirmation of DMR awaited. (8) Application submitted on 05-Aug-10. Confirmation of DMR awaited. (9) Application for renewal submitted on 17-Oct-11. Confirmation of DMR awaited. (10) Application submitted on 30-Nov-06. Execution date awaited from DMR. (11) Right granted on 15-Jan-07. An execution date is awaited from the DMR. (12) Application for the conversion of an Old Order Mining Licence to a New Order Mining Right submitted on 19-Dec-08. Confirmation of DMR awaited. (13) Application submitted on 19-Dec-08. Execution date awaited from DMR. (14) Namakwa is still waiting for DMR confirmation on the transfer of a rehabilitation guarantee, following the grant of the right on 11-Jul-07. (15) Application was accepted by the DMR. (16) Application for renewal submitted on 08-Jan-10. Confirmation of DMR awaited. (17) Application submitted on 28-Apr-2005. A preliminary date for execution was set by the DMR for 23-Sept-11 which date was postponed by the DMR until further notice. (18) Application granted on 2-Sept-08 and execution date awaited from DMR. Phase 1 & 2 Prospecting Programme(19)
Right
Licence/Ref No.
Expiry Date
Danielsrust
New Order Prospecting
30/5/1/2/2/10061PR
DMR to advise
Blydskap
New Order Prospecting
30/5/1/1/2/10029PR
DMR to advise
Doorndam
New Order Prospecting
30/5/1/1/2/10015PR
DMR to advise
Driepan
New Order Prospecting
30/5/1/2/2/10050PR
DMR to advise
Hartebeestpan
New Order Prospecting
30/5/1/2/2/10048PR
DMR to advise
Vaalbank
New Order Prospecting
30/5/1/2/2/10034PR
DMR to advise
Witpan
New Order Prospecting
30/5/1/2/2/10047PR
DMR to advise
Vlakpan
New Order Prospecting
30/5/1/2/2/10033PR
DMR to advise
Oersonskraal
New Order Prospecting
30/5/1/2/2/10049PR
DMR to advise
Note: (19) New applications submitted and accepted by DMR. A REMDEC meeting is scheduled for November 2011.
116
C.
SOUTH AFRICA — NORTHERN CAPE
Portfolio of Development Sites
Albetros / Buffels North Joumat Predikant Vlei Roode Vley Namaqualand Farms Aardvark Witkoppie Meidjes Karoo Droogte Kraal Meidjes Karoo Nanassen Farm Nieuwe Fontein Vlaackspoor Oograbies Abbespoor Gemsbok Vlei Breekhoorn Farm Graslakte Buffels South Zonnekwa Gra’water Heidons Taaisbosch Vlakte Zwartlyntjies Quaggafontein Gemsbokvley Avontuur Bynes Krans Jakkalsvalakte Graskom Avontuur
Right
Licence No.
Expiry Date
New Order Prospecting
30/5/1/1/2/503PR
22-Nov-2010(20)
New Order Prospecting
30/5/1/1/2/682PR
DMR to advise(21)
New Order Prospecting
30/5/1/1/2/683PR
DMR to advise(21)
New Order Prospecting
30/5/1/1/2/684PR
DMR to advise(21)
New Order Prospecting
30/5/1/1/2/685PR
DMR to advise(21)
New Order Prospecting
30/5/1/1/2/686PR
DMR to advise(21)
Notes: (20) Application for Mining Right submitted on 26-Nov-10 and accepted on 08-Feb-11. (21) All the rights were granted during June 2007. Standard NDH BEE agreements to be authorised by DMR before execution date is set.
D.
NAMIBIA
Portfolio of Development Sites
Atlantic Ocean Tidal Concessions Atlantic Ocean Tidal Concessions
Right
Licence No.
Exclusive Prospecting Licence Mining Licence
EPL 1944 ML30
Note: (22) An application for a renewed mining licence is in progress.
117
Expiry Date
10-May-13(22) 29-Mar-13
PART IX — TAXATION United Kingdom Taxation-General The following statements are intended to apply only as a general guide to current UK tax law and to the current published practice of HM Revenue & Customs (HMRC) as at the date of this document, both of which are subject to change at any time, possibly with retrospective effect. They relate only to certain limited aspects of the UK taxation treatment of holders of Ordinary Shares and/or Depository Interests and apply only to persons who are resident (and, in the case of individuals only, ordinarily resident and domiciled) solely in the UK for UK tax purposes (except insofar as express reference is made to the treatment of non-UK residents), who hold their Ordinary Shares or Depository Interests as an investment, and who are the absolute beneficial owners thereof. They may not apply to (i) certain categories of shareholders, such as traders, dealers in securities, insurance companies and collective investment schemes, (ii) shareholders who hold their Ordinary Shares or Depository Interests as a part of hedging or conversion transactions or (iii) shareholders who have (or are deemed to have) acquired their Ordinary Shares or Depository Interests by virtue of an office or employment. Such persons may be subject to special rules. Any person who is in any doubt as to their tax position, or who is subject to taxation in any jurisdiction other than the UK, should consult their own independent tax adviser. Shareholders who subscribe for New Shares under the Open Offer As a matter of UK law, the Open Offer may not be a reorganisation of the Company for the purposes of the taxation of chargeable gains. Although HMRC’s current published practice is to treat an open offer as a reorganisation for a holder of Existing Shares up to the level of their pro rata entitlement, the Company understands that HMRC may not follow this treatment where an open offer is not made to all shareholders of a class of shares. As the Open Offer is not being made to all the holders of Existing Shares in the Company (instead being made only to Qualifying Shareholders and Qualifying DI Holders pursuant to Bye-law 2.6(f) and the authority and discretion granted to the Board of Directors), the treatment of the Open Offer for the purposes of the taxation of chargeable gains is not free from doubt. If the Open Offer is treated as a reorganisation, to the extent a Qualifying Shareholder or Qualifying DI Holder takes up his guaranteed pro rata entitlement to New Shares (referred to in this document as the Open Offer Entitlement), he will not be treated as making a disposal of any part of his existing holding of Existing Shares by reason of subscribing for such New Shares. Consequently, no liability to taxation of chargeable gains should arise in respect of the issue of such New Shares. Furthermore, if reorganisation treatment applies, the New Shares allotted to a shareholder under the Open Offer up to and including a shareholder’s guaranteed pro rata entitlement will be treated (together with the Existing Shares) as the same asset as the existing holding of Existing Shares, subscribed for at the time he acquired that existing holding (save that, where a Qualifying Shareholder’s or Qualifying DI Holder’s holding of Existing Shares is treated for tax purposes as consisting of more than one asset, the New Shares subscribed for will be attributed pro rata to those existing assets). The amount of subscription monies paid for the New Shares will be allowable expenditure so that the base cost for the Qualifying Shareholder or Qualifying DI Holder will be the aggregate of the amount paid for the New Shares and the base cost of the Existing Shares. If the Open Offer is not treated as a reorganisation, the New Shares subscribed for will be treated as subscribed for as part of a separate acquisition. Subsequent disposal of the New Shares A disposal by a holder of all or any New Shares following their acquisition may, depending on the holder’s circumstances (including the availability of exemptions and reliefs) give rise to a chargeable gain or an allowable loss for the purposes of UK taxation of capital gains. (a) Individuals A disposal of all or part of the New Shares by a holder who is an individual within the charge to UK capital gains tax (other than a trustee or personal representative) will (subject to the availability of any exemptions, reliefs and/or allowable losses), be subject to tax at the rate of 18%, with no taper relief or indexation allowance where the total chargeable gains and, generally, total taxable income arising in a tax year, after all allowable deductions (including losses, the income tax personal allowance and the capital gains tax annual exempt amount, which is currently £10,600), are less than the upper limit of the income tax basic rate band (which is currently £34,370). To the extent that any chargeable gains (or part of any chargeable gains) arising in a tax year exceed the upper limit of the income tax basic rate band when aggregated with any such income (in the manner referred to above), or where gains are realised by certain other classes of person (including trustees and personal representatives), capital gains tax will be charged at 28%. 118
(b) Companies Holders of New Shares who are within the charge to UK corporation tax will, for the purposes of computing gains but not losses, be allowed to claim an indexation allowance in respect of the subscription monies paid for their New Shares. The indexation allowance will generally only apply from the date the holder became liable to make or made payment of the subscription monies (whether or not the reorganisation treatment described above applies). Dividends The summary below is predicated on the expectation that the Company is and will remain resident for tax purposes solely in Bermuda and will therefore be subject to the Bermuda tax regime and not (save in respect of any UK source income) the UK tax regime. Dividends paid by the Company will, on this basis, be regarded as Bermuda source dividends rather than UK source dividends. The Company will not be required to withhold UK tax at source on any dividends it pays to its shareholders. Dividends on the New Shares For the avoidance of doubt, references to “New Shares” and “Existing Shares” shall include Depository Interests issued by the Depository in respect of such New Shares or Existing Shares, respectively. References to a “gross dividend” or “gross amount of the dividend” mean the aggregate of the dividend paid plus any associated tax credit. (i) Individuals An individual holder of New Shares who is resident in the UK for tax purposes will be liable to income tax on any dividends received from the Company. However, an individual shareholder who owns less than a 10% shareholding (whether in the form of Existing Shares or Depository Interests, or both) in the Company may, to the extent that a dividend received by him is brought into charge to UK tax, be entitled to a tax credit, which may be set-off against his total income tax liability on the dividend. Such an individual shareholder’s liability to income tax is calculated on the gross dividend, which will be regarded as the top slice of the individual’s income. If available, such a tax credit will be equal to 10% of the gross dividend (i.e. the tax credit will be one-ninth of the amount of the dividend paid). A UK resident individual holder of New Shares who is not liable to income tax in respect of the gross dividend will not be entitled to reclaim any part of the tax credit referred to above. A UK resident shareholder who is liable to income tax at the basic rate will be subject to income tax on the dividend at the rate of 10% of the gross dividend (so that any available tax credit, as above, will satisfy in full such shareholder’s liability to income tax on the dividend). A UK resident individual shareholder liable to income tax at the higher rate will generally be subject to income tax on the gross amount of the dividend at 32.5% but will be able to set the tax credit (if available) off against part of this liability. The effect of that set-off of any such tax credit is that such a holder will have to account for additional tax equal to one quarter of the net cash dividend received. A UK resident individual shareholder liable to income tax at the additional rate will generally be subject to income tax on the gross amount of the dividend at 42.5% but will be able to set the tax credit (if available) off against part of this liability. In addition legislation was introduced in the Finance Bill 2009 which extended eligibility for the tax credit described above to individuals who own a 10% or greater shareholding in the distributing non UK-resident company. For shareholders with holdings of 10% or more in a non-resident company, the tax credit will normally be available if the distributing company is resident in a territory with which the UK has a double taxation treaty that contains a non-discrimination article. Bermuda does not currently have a double taxation treaty with the UK. Accordingly, individual holders of Existing Shares who are resident for tax purposes in the UK and whose holding in the Company amounts to 10% or more of the Company’s issued share capital may not be entitled to such a tax credit. (ii) Companies A corporate holder of New Shares that is resident in the UK for tax purposes will generally be exempt from corporation tax on the amount of any dividend in relation to the New Shares unless certain anti-avoidance rules apply in relation to such dividend. In particular, a corporate holder of New Shares that classes as a small company for the purposes of those anti-avoidance rules will currently be subject to corporation tax (at the rate of tax applicable to it for the accounting period in question) in respect of any dividend in relation to the New Shares, on the basis that the Company is resident for tax purposes in Bermuda (and that Bermuda currently has no double taxation treaty with the UK). Any other corporate holder of New Shares will be exempt from corporation tax on the amount of any dividend in relation to the New Shares provided the dividend falls within an exempt class, no tax 119
deduction is allowed in any jurisdiction outside the UK in respect of the dividend, and certain anti-avoidance rules do not apply in respect of the dividend. The Company expects that these conditions should be met in respect of any dividend declared on the New Shares. Stamp duty and stamp duty reserve tax (SDRT) The statements below summarise the current position and are intended to as a general guide only to stamp duty and SDRT. Special rules apply to agreements made by broker dealers and market makers in the ordinary course of their business and to certain categories of person (such as depositories and clearance services) who may be liable to stamp duty and SDRT at a higher rate. No stamp duty or SDRT will be payable on the issue or registration of New Shares (which for the avoidance of doubt include Depository Interests), or the transfer of New Shares (or surrender of Depository Interests) to the Depository, provided that no register of New Shares is kept by, or on behalf of, the Company in the UK. (a) Transfers of (and agreements to transfer) New Shares An agreement to transfer New Shares will not be subject to UK SDRT, provided that no register of New Shares is kept by, or on behalf of, the Company in the UK. A transfer on sale of New Shares will not be subject to stamp duty provided that any instrument of transfer is not executed in the UK, and such instrument of transfer does not relate to any property situated, or any matter or thing to be done, in the UK. (b) Transfers of (and agreements to transfer) Depository Interests No SDRT should be payable on an agreement to transfer Depository Interests issued in respect of New Shares within CREST, provided that the Company is not centrally managed and controlled in the UK and that no register of New Shares is kept by, or on behalf of, the Company in the UK. It is not expected that an instrument of transfer which could be subject to UK stamp duty would be created in respect of such a transfer. Certain Bermuda Tax Considerations At the date of this document, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by the Company or by the Shareholders in respect of the Ordinary Shares other than shareholders ordinarily resident in Bermuda. No stamp duty is payable in Bermuda on the issue, transfer or redemption of shares. The Company has obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until 28 March 2016, be applicable to the Company or to any of its operations or to its shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by the Company in respect of real property owned or leased by the Company in Bermuda.
120
PART X — ADDITIONAL INFORMATION 1.
Responsibility
Namakwa and the Directors, whose names are set out in paragraph 7 below, accept responsibility for the information contained in this document. To the best of the knowledge and belief of Namakwa and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. PricewaterhouseCoopers LLP accepts responsibility for its reports contained in Part VI “Financial Information on Namakwa” of this document and Part VII “Unaudited Pro Forma Information” of this document. To the best of the knowledge of PricewaterhouseCoopers LLP (which has taken all reasonable care to ensure that such is the case), the information contained in such reports is in accordance with the facts and does not omit anything likely to affect the import of such information. 2.
Incorporation and registered office
Namakwa was incorporated on 20 October 2006 under the laws of Bermuda as an exempted company, limited by shares, under the Bermuda Companies Act, with registration number 39031. Namakwa is domiciled in Bermuda. Its registered office is at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda (Tel: +1 441 295 5950) and its head office is at 209 SA Diamond Centre, 225 Main Street, Johannesburg 2001, South Africa (Tel: +27 11 334 8886). The principal law and legislation under which Namakwa operates, and under which the Ordinary Shares were created, is the Bermuda Companies Act. 3.
Share capital
The Ordinary Shares are in registered form and are not capable of being held in uncertificated form. As described in Part XIII: “Crest and Depository Interests” of this document, the Ordinary Shares themselves are not admitted to CREST but dematerialised Depository Interests issued by a subsidiary of Namakwa’s Registrars in respect of the underlying Ordinary Shares can be held and transferred through the CREST system. As at 5 June 2012 (being the latest practicable date prior to the date of this document), the authorised, issued and fully paid share capital of Namakwa was as follows: Number
Authorised Amount (US$)
Ordinary Shares of US$0.000625 . . . . . . . . . . . . . . . . 350,000,000
218,750
Class of Share
Issued and fully paid Number Amount (US$)
304,607,849
190,379.91
The authorised, issued and fully paid ordinary share capital of Namakwa immediately following completion of the Open Offer(1) is expected to be as follows: Class of Share
Number
Ordinary Shares of US$0.000625 . . . . . . . . . . . . . . . . 2,000,000,000
Authorised Amount (US$)
Issued and fully paid Number Amount (US$)
1,250,000 1,099,237,020
687,023.14
Note: (1) The number of Ordinary Shares in issue immediately following the completion of the Open Offer assumes that: (i) the Open Offer is taken up in its entirety; (ii) no options or awards are exercised under the Namakwa Employee Share Plan; and/or (iii) no Ordinary Shares are issued pursuant to the conversion of “A” Preference Shares in NDHL, between 5 June 2012 (being the last practicable date prior to the date of this document) and the closing of the Open Offer.
The number of Ordinary Shares outstanding at the beginning and end of the last financial year was as follows:
31 September 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 August 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Authorised
Issued and fully paid shares
240,000,000 262,400,000
130,161,929 217,121,814
Namakwa’s authorised share capital on incorporation was US$12,000, divided into 1,200,000 ordinary shares of US$0.01 each (“Prior Ordinary Shares”). On incorporation, the subscribers to Namakwa’s Memorandum of Association and Bye-laws were Alison R. Guilfoyle, David J Doyle and Charles G.R. Collis. Since incorporation, there have been the following changes in the authorised and issued share capital of Namakwa: (a)
at a meeting of the provisional directors, held on 24 October 2006, 1,200,000 Prior Ordinary Shares were issued and allotted to the KFF; 121
(b)
by a written resolution of the sole shareholder passed on 12 February 2007, Namakwa’s authorised share capital was increased from US$12,000 to US$50,000 by the creation of 3,800,000 Prior Ordinary Shares with a par value of US$0.01 each, of which: (i)
225,777 were issued and allotted to various subscribers who were entered on Namakwa’s register of members on 12 February 2007;
(ii)
20,812 were issued and allotted to Etherson Investments Limited which was entered on Namakwa’s register of members on 23 February 2007;
(iii)
752,198 were issued and allotted to various subscribers who were entered on Namakwa’s register of members on 4 April 2007;
(iv)
53,445 were issued and allotted to various subscribers who were entered on Namakwa’s register of members on 24 April 2007;
(v)
3,966 were issued and allotted to various subscribers who were entered on Namakwa’s register of members on 11 May 2007;
(vi)
24,684 were issued and allotted to various subscribers who were entered on Namakwa’s register of members on 2 July 2007; and
(vii)
85,922 were issued and allotted to Marais Steyn who was entered on Namakwa’s register of members on 15 August 2007;
(c)
by a resolution passed on 4 May 2007, Namakwa’s authorised share capital was increased from US$50,000 to US$74,500 by the creation of 350,000 deferred ordinary shares of par value US$0.01 each and 2,100,000 preference shares of par value US$0.01 each (“Preference Shares”) of which 1,614,061 Preference Shares were issued and allotted to various subscribers pursuant to a subscription and shareholders’ agreement between Namakwa and various subscribers dated 8 May 2007;
(d)
by a resolution passed on 24 August 2007, Namakwa’s authorised share capital was increased from US$74,500 to US$78,500 by the creation of 400,000 Preference Shares;
(e)
the following Prior Ordinary Shares in the capital of Namakwa were cancelled by Namakwa and re-issued: (i)
by a resolution passed on 11 May 2007, 53,445 and 132,588 Ordinary Shares in the name of African Alliance and JNJ Trust respectively were cancelled and share certificates were re-issued in respect of the following number of Prior Ordinary Shares: (A)
49,882 Ordinary Shares to African Alliance; and
(B)
126,175 Ordinary Shares to JNJ Trust.
Such cancellation decreased the number of Prior Ordinary Shares of Namakwa in issue by 9,976; (ii)
(iii)
(f)
by a resolution passed on 2 July 2007, 14,349 Prior Ordinary Shares in the name of Moses Trust were cancelled and share certificates were re-issued with the following number of Prior Ordinary Shares: (A)
8,609 Prior Ordinary Shares to Moses Trust; and
(B)
5,740 Prior Ordinary Shares to Cannon International Limited;
by a resolution passed on 2 July 2007, 4,613 and 2,720 Prior Ordinary Shares in the name of The Gullane Trust and Oaktrust No 11 respectively were cancelled and the following share certificates were re-issued: (A)
3,667 Prior Ordinary Shares to The Gullane Trust; and
(B)
3,666 Prior Ordinary Shares to Oaktrust No 11;
by a resolution passed on 20 September 2007, an aggregate of 26,438 Prior Ordinary Shares were allotted and issued to the following subscribers following which corporate and regulatory consents were obtained: (i)
9,914 Prior Ordinary Shares to the Andries Pieter Janzen Family Trust;
(ii)
9,914 Prior Ordinary Shares to Peter Gilbert Steyn; 122
(g)
(iii)
3,777 Prior Ordinary Shares to Louis Pieter Janzen; and
(iv)
2,833 Prior Ordinary Shares to Lex Martin Steyn;
by a resolution passed on 20 November 2007, an aggregate of 165,872 Prior Ordinary Shares were allotted and issued to the following subscribers following which corporate and regulatory consents were obtained: (i)
89,888 Prior Ordinary Shares to Altie Krige;
(ii)
1,744 Prior Ordinary Shares to Arndt Mittendoft;
(iii)
1,744 Prior Ordinary Shares to Keith McCulloch;
(iv)
1,744 Prior Ordinary Shares to Noel Botha;
(v)
1,122 Prior Ordinary Shares to Louis Pienaar;
(vi)
349 Prior Ordinary Shares to Van Zyl Slabbert;
(vii)
1,964 Prior Ordinary Shares to Johann Petrus Stegmann;
(viii)
33,335 Prior Ordinary Shares to BMD Trust;
(ix)
3,745 Prior Ordinary Shares to RJA Trading (Pty) Ltd;
(x)
3,661 Prior Ordinary Shares to James Peter Clucas;
(xi)
1,642 Prior Ordinary Shares to Robin Ashley Frew;
(xii)
1,571 Prior Ordinary Shares to Orion Trust Ltd as trustee of the Jane & Peter Clucas Trust;
(xiii)
982 Prior Ordinary Shares to Eternal Triad Ltd;
(xiv)
982 Prior Ordinary Shares to Kevin Bassett;
(xv)
1,571 Prior Ordinary Shares to Fairfax Gray; and
(xvi)
19,828 Prior Ordinary Shares to Hans Jurie Smith;
(h)
by a resolution passed on 5 December 2007, 19,828 Prior Ordinary Shares were cancelled and 19,828 Prior Ordinary Shares were issued to the Church Street Trustees Ltd as trustee of the Owl Trust;
(i)
by a resolution passed on 5 December 2007, 3,146 Prior Ordinary Shares were allotted and issued to Richard Hall;
(j)
by a resolution passed on 5 December 2007, 19,828 Prior Ordinary Shares were allotted and issued to Christo Scholtz as trustee of the Casee Trust;
(k)
effective on 11 December 2007, pursuant to section 45(1)(d) of the Bermuda Companies Act, each Prior Ordinary Share with a par value of US$0.01 in the capital of Namakwa was sub-divided into 16 Ordinary Shares each with a par value of US$0.000625 and each Prior Preference Share with a par value of US$0.01 in the capital of Namakwa was sub-divided into 16 preference shares each with a par value of US$0.000625 and each deferred ordinary share with a par value of US$0.01 in the capital of Namakwa was sub-divided into 16 deferred ordinary shares each with a par value of US$0.000625 (the “Share Split”), so that following the Share Split:
(l)
(i)
the issued Ordinary Share capital of Namakwa was US$25,721.12 comprised of 41,153,792 Ordinary Shares of US$0.000625;
(ii)
the issued preference share capital of Namakwa was US$16,140.61 comprised of 25,824,976 preference shares of US$0.000625; and
(iii)
the issued Deferred Share capital of Namakwa was US$0.00;
effective on 11 December 2007, the authorised share capital of Namakwa was increased from US$78,500 to US$157,000 by the creation of 80,000,000 Ordinary Shares with a par value of US$0.000625 each in the capital of Namakwa, 40,000,000 new preference shares with a par value of US$0.000625 each in the capital of Namakwa and 5,600,000 new deferred ordinary shares with a par value of US$0.000625 each in the capital of Namakwa, such that the total authorised share capital of Namakwa was US$157,000 divided into 160,000,000 Ordinary Shares of par value US$0.000625 each, 80,000,000 preference shares of par value US$0.000625 each and 11,200,000 deferred ordinary shares of US$0.000625 each; 123
(m)
on 19 December 2007 (the date Namakwa’s Ordinary Shares were admitted to the Official List and to trading on the Main Market for listed securities), the preference shares converted into Ordinary Shares on a 1:1 basis so that the authorised share capital was US$157,000 divided into 251,200,000 shares divided into 240,000,000 Ordinary Shares of US$0.000625 each and 11,200,000 deferred ordinary shares of US$0.000625 each, of which 116,386,309 Ordinary Shares were in issue;
(n)
pursuant to a resolution passed on 20 December 2007, Alex Davidson, Con Fauconnier, Edward Haslam and John Coulter were issued with 85,162 Ordinary Shares each amounting to a total of 340,648 Ordinary Shares;
(o)
pursuant to a resolution passed on 22 July 2008, the Board was authorised to allot up to 8,879,008 Ordinary Shares in connection with the acquisition and financing of the acquisition of all or part of the “A” Preference Shares, having a nominal amount not exceeding in aggregate US$5,549.38 in respect of which the following Ordinary Shares were allotted and issued: (i)
1,980,045 Ordinary Shares to Genaro Holdings on 15 October 2008;
(ii)
32,198 Ordinary Shares to Bevan Trust on 16 December 2008;
(iii)
99,712 Ordinary Shares to Oak Trust on 20 January 2009;
(iv)
100,352 Ordinary Shares to Gullane Trust/The Regent Trust Co Limited on 3 March 2009; and
(v)
115,853 Ordinary Shares to Etherston Investments on 4 November 2009;
(p)
pursuant to a resolution passed on 1 August 2008, 443,651 Ordinary Shares were allotted and issued to Richard Hall;
(q)
pursuant to a resolution passed on 1 August 2009, 443,651 Ordinary Shares were allotted and issued to Richard Hall;
(r)
pursuant to a resolution passed on 5 February 2010, 221,825 Ordinary Shares were allotted and issued to Richard Hall;
(s)
pursuant to a private placing on 15 March 2010, 5,981,905 Ordinary Shares were allotted and issued to Satya Capital Opportunities Limited;
(t)
on 26 May 2010, 2,567,057 Ordinary Shares were allotted and issued to Satya Capital Opportunities Limited upon the conversion of 2,567,057 “A” Preference Shares;
(u)
on 5 July 2010, 1,753,039 Ordinary Shares were allotted and issued to Satya Capital Opportunities Limited upon the conversion of 1,753,039 “A” Preference Shares;
(v)
on 5 November 2010, 437,472 Ordinary Shares were allotted and issued to Satya Capital Opportunities Limited upon the conversion of 437,472 “A” Preference Shares;
(w)
on 24 December 2010, 86,177,025 Ordinary Shares were allotted and issued to subscribers pursuant to the 2010 Placing and Open Offer;
(x)
at the annual general meeting of Namakwa held on 13 January 2011, Namakwa was authorised to purchase its own shares up to a maximum amount of 13,059,940 Ordinary Shares;
(y)
on 18 January 2011, 310,243 Ordinary Shares were allotted and issued to Kronen Investments (Pty) Limited;
(z)
on 16 February 2011, 35,145 Ordinary Shares were allotted and issued to Paraka Investments Limited upon the conversion of 35,145 “A” Preference Shares;
(aa)
on 20 September 2011: (a)
11,000,000 Ordinary Shares were allotted and issued to Jarvirne under the Settlement Agreement, in consideration for the acquisition by Namakwa of all of the shares in Polished Diamonds Africa Trading Limited; and
(b)
9,000,000 Ordinary Shares were allotted and issued to Jarvirne in lieu of interest for the first 12 months under the Jarvirne Facility,
(see the paragraph “Material contracts” in this Part of the document); (ab)
on 23 November 2011, the authorised share capital of Namakwa was increased from US$164,000 to US$218,750 by the creation of 87,600,000 Ordinary Shares with a par value of US$0.000625 each in the capital of Namakwa; 124
(ac)
on 25 November 2011, 66,791,667 Ordinary Shares were allotted and issued to Jarvirne pursuant to the Capitalisation;
(ad)
pursuant to an annual general meeting of Namakwa on 30 November 2011, the Board was generally and unconditionally authorised to: (a)
allot up to 2,209,917 Ordinary Shares in connection with the acquisition or finance of up to 2,209,917 “A” Preference Shares;
(b)
allot the above-referenced 2,209,917 Ordinary Shares in connection with the acquisition or finance of up to 2,209,917 “A” Preference Shares as if Bye-law 2.6 did not apply to the allotment;
(c)
allot Relevant Securities (as defined in the Bye-laws) up to a maximum nominal value of US$63,315.31;
(d)
allot the above-referenced Relevant Securities having a nominal value not exceeding in aggregate US$9,497.30 as if Bye-law 2.6 did not apply to the allotment; and
(e)
buy back up to 30,391,348 Ordinary Shares.
(ae)
on 1 December 2011, 694,368 Ordinary Shares were allotted and issued to Namakwa Diamonds Trustees Limited upon the conversion of 694,368 “A” Preference Shares;
(af)
Resolution 1 that is proposed at the Special General Meeting, as set out in more detail in Part XVI: “Notice of Special General Meeting” of this document, seeks to increase Namakwa’s authorised share capital to US$1,250,000 divided into 2,000,000,000 Ordinary Shares of US$0.000625 each, by the creation of a further 1,650,000,000 Ordinary Shares of US$0.000625 each, subject to the passing of Resolution 7, if required;
(ag)
Resolution 2 that is proposed at the Special General Meeting, as set out in more detail in Part XVI: “Notice of Special General Meeting” of this document, seeks to authorise Namakwa to allot a further 794,629,171 Ordinary Shares, subject to the passing of Resolutions 1 and, if required, 7;
(ah)
Resolution 3 that is proposed at the Special General Meeting, as set out in more detail in Part XVI: “Notice of Special General Meeting” of this document, seeks to authorise that Namakwa be authorised to allot up to a maximum of 5,300,000 Ordinary Shares in connection with the acquisition or financing of the acquisition of up to 5,300,000 “A” Preference Shares, subject to the passing of Resolutions 1 and 2;
(ai)
Resolution 4 that is proposed at the Special General Meeting, as set out in more detail in Part XVI: “Notice of Special General Meeting” of this document, seeks to authorise (conditional on the Open Offer completing) Namakwa to allot a further 732,825,600 Ordinary Shares over and above the authority granted in Resolutions 2 and 3, subject to the passing of Resolution 1;
(aj)
Resolution 5 that is proposed at the Special General Meeting as set out in more detail in Part XVI: “Notice of Special General Meeting” of this document, seeks to disapply pre-emption rights in connection with Resolution 3, subject to the passing of Resolution 3; and
(ak)
Resolution 6 that is proposed at the Special General Meeting as set out in more detail in Part XVI: “Notice of Special General Meeting” of this document, seeks to disapply pre-emption rights up to an aggregate nominal amount of US$34,351 in connection with Resolution 4, subject to the passing of Resolution 4.
4.
Bermuda law
Namakwa is registered in Bermuda as an exempted company. English law and Bermuda law differ in a number of areas, and certain differences between English law and Bermuda law are summarised below, although this is not intended to provide a comprehensive review of such law, nor contain all applicable qualifications. 4.1
General The principal statute in Bermuda governing the formation and operation of companies is the Bermuda Companies Act. In general, many of the provisions of the Bermuda Companies Act have been taken from the Companies Act 1948 of England and Wales (the “1948 Act”) although their application has, in certain instances, been adapted to conform to general concepts of company law in Bermuda. In some circumstances, however, certain statutory provisions differ quite substantially from their equivalent in the 1948 Act (such as with respect to the requirements as to accounts). In addition, certain aspects of Canadian company law have been included in the Bermuda Companies Act. 125
There is a large body of common law which has developed relating to companies. The Bermuda courts treat English common law relating to companies as strong persuasive authority. Further, a court is directed by the Interpretation Act 1951 of Bermuda to apply, as nearly as practicable, the rules for interpretation and construction of provisions of law which are applicable in England to the interpretation and construction of statutory provisions of Bermuda law. 4.2
Constitution The constitutive documents of Namakwa are its Memorandum of Association and Bye-laws. The Memorandum of Association sets out the object clauses of Namakwa. The object clauses essentially provide for Namakwa’s capacity as a legal person. As such, Namakwa can only carry on the activities prescribed in the object clauses of its Memorandum of Association. Section 11(5) of the Bermuda Companies Act provides that the object clauses are to be construed as separate and independent objects of Namakwa. The Memorandum of Association of Namakwa sets forth Namakwa’s powers. Powers of a company are ancillary to the objects and can only be exercised in furtherance of one or more objects. The Memorandum of Association provides that the liability of the members of Namakwa is limited to the amount (if any) for the time being unpaid on their shares. In addition, the Memorandum of Association provides for the minimum subscribed share capital of Namakwa and the authorised share capital on incorporation. Namakwa’s Bye-laws, as required by section 13 of the Bermuda Companies Act, set out, among other things, the rights and duties as between Namakwa, its members and its Directors.
4.3
Amendment to constitution In certain circumstances, consent to the amendment of Namakwa’s Memorandum of Association must be obtained from the Ministry of Finance of Bermuda. Thereafter, it is necessary for the members of Namakwa to approve the amendment by resolution in general meeting. Once approved, the amendment is registered with the Registrar of Companies in Bermuda. While an increase in the authorised share capital constitutes an amendment to the Memorandum of Association, it is not necessary that the formal amendment procedure be followed. The share capital may be increased by resolution of the shareholders in general meeting and will take effect as of that date. Following the increase, a memorandum of increase of share capital must be filed with the Registrar of Companies. The Bye-laws may be amended by the Directors, subject to approval of the members in general meeting in accordance with the provisions of the Bye-laws. No approvals from any regulatory body in Bermuda are required. Where there is more than one class of shares and the amendment would affect the rights of any or all of those classes, each of the affected classes, whether or not such classes normally carry voting rights, will, in general, be entitled to vote separately as a class on such amendment.
4.4
Share capital The Bermuda Companies Act includes certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. In the case of Namakwa, provision is made in the Bye-laws for authorising the variation of rights attached to any class of shares in Namakwa, subject to the consent in writing of three-quarters of the holders of the issued shares of the relevant class or the sanction of a resolution passed at a separate meeting of the holders of those shares. To every such separate general meeting, the provisions of the Bye-laws or other rules relating to general meetings shall apply, but so that the necessary quorum shall be two persons at least holding or representing by proxy one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll.
4.5
Pre-emption rights There is no equivalent under Bermuda law to section 561 of the Companies Act. The Bye-laws do, however, contain provisions which seek to replicate the provisions of section 561 of the Companies Act. The Bye-laws contain provisions giving pre-emption rights to holders of “Relevant Shares” (meaning the shares in Namakwa other than: (i) those shares giving rights to participate only up to a specified amount of 126
dividend and capital in a distribution; and (ii) shares acquired or to be allotted pursuant to any Employee Share Scheme (as defined in the Bye-laws)). These rights entitle such holders to be offered “Equity Securities”, meaning Relevant Shares and the right to subscribe for or convert securities into Relevant Shares, excluding: (i) shares or any rights to subscribe for or convert any security into shares as part of any issue or offering of shares or any rights to subscribe for or convert any security into shares as part of any issue or offering of shares culminating in an admission of shares to trading on the Official List of the London Stock Exchange (including any shares so allotted or rights granted, whether before or after admission, in accordance with any over-allotment or stabilisation arrangements entered into by Namakwa in connection therewith); and (ii) shares in Namakwa allotted pursuant to any right granted before admission (whether or not such right was expressed to be conditional on admission), in proportion to their existing shareholdings. These pre-emption provisions do not apply to allotments of Equity Securities which are paid otherwise than in cash (meaning where paid up otherwise than by cash received by Namakwa or by cheque received by Namakwa in good faith which the Directors have no reason to suspect will not be paid or a release of a liability of Namakwa for a liquidated sum or an undertaking to pay cash to Namakwa at a future date, where “cash” also includes foreign currency) and they do not apply to the allotment of securities which would be held under any Employee Share Scheme (as defined in the Bye-laws). Any Equity Securities which Namakwa has offered to a holder of Relevant Shares may be allotted to him, or to anyone in whose favour he has renounced his right to their allotment, without contravening these provisions. Any offer made under these provisions must state a period of not less than 21 days during which it may be accepted and this offer shall not be withdrawn before the end of such period. 4.6
Power of Namakwa to investigate interests in shares and notification of interests in shares There is no equivalent under Bermuda law to section 792 of the Companies Act. In addition, there is no equivalent under Bermuda law to section 793 of the Companies Act. The Bye-laws do, however, contain provisions which seek to replicate the provisions of section 793 of the Companies Act. Under the Bye-laws, Namakwa may give notice to any person whom Namakwa knows or has reasonable cause to believe to be or, at any time during the three years immediately preceding the date on which the notice is issued, to have been interested in Namakwa’s shares requiring them to confirm whether or not they have such an interest and where they hold or have during that time held an interest in Namakwa’s shares, to give such further information as may be requested. If any Shareholder appearing to have such an interest does not comply with the request for information, the Board may by notice to the Shareholder suspend his/ her rights as to voting, dividends and transfer in accordance with the Bye-laws.
4.7
Dividends and distribution Namakwa may not declare or pay a dividend, or make a distribution out of contributed surplus, if there are reasonable grounds for believing that: (i) Namakwa is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) the realisable value of Namakwa’s assets would thereby be less than the aggregate of its liabilities. Contributed surplus is defined by the Bermuda Companies Act to include the proceeds arising from donated shares, credit resulting from the redemption or conversion of shares at less than the amount set up as nominal capital and donations of cash and other assets to Namakwa.
4.8
Protection of minorities Class actions and derivative actions are generally not available to members of Namakwa under the laws of Bermuda; however, a Bermuda court ordinarily may permit a shareholder to commence an action in the name of Namakwa to remedy a wrong done to Namakwa where the act complained of is alleged to be beyond the corporate power of Namakwa or illegal or would result in the violation of Namakwa’s Memorandum of Association and the Bye-laws. Further, consideration would be given by the court to acts that are alleged to constitute a fraud against the minority members or where an act requires the approval of a greater percentage of members than that which actually approved it. Any member of Namakwa who complains that the affairs of Namakwa are being conducted or have been conducted in a manner oppressive or prejudicial to the interests of some part of the members, including himself, may petition the court which may, if it is of the opinion that to wind up Namakwa would unfairly prejudice that part of the members but that otherwise the facts would justify the making of a winding-up order on just and equitable grounds, make such order as it thinks fit, whether for regulating the conduct of Namakwa’s affairs in future or for the purchase of shares of any members of Namakwa by other members of Namakwa or by Namakwa and, in the case of a purchase by Namakwa, for the reduction of Namakwa’s capital, or otherwise. Bermuda law also provides that Namakwa may be wound up by the Bermuda court if 127
the court is of the opinion that it is just and equitable to do so. Both these provisions are available to minority members seeking relief from the oppressive conduct of the majority and the court has wide discretion to make such order as it may think fit. Except as mentioned above, a person may claim against Namakwa as a member pursuant to section 54A of the Bermuda Companies Act. However, such claims must be based on the general laws of contract or tort applicable in Bermuda. 4.9
Management and administration The affairs of Namakwa must be conducted in accordance with the Bermuda Companies Act and its Bye-laws. In general, the business of Namakwa will be carried on by the Directors. The Bermuda Companies Act provides that the management and administration of a Bermuda company shall be vested in the hands of not less than one director duly elected. A secretary must also be appointed, and to satisfy the residency requirements contained in the Bermuda Companies Act, the secretary or one of the directors must be ordinarily resident in Bermuda. Alternatively, a Bermuda company may satisfy the residency requirements by appointing a resident representative that is an individual or a company ordinarily resident in Bermuda. The Bye-laws contain provisions relating to the election of directors and officers, as further summarised in paragraph 6.14 of this Part X. The Bermuda Companies Act specifically requires that every officer (which includes a director and the secretary) of Namakwa, in exercising his or her powers and discharging his or her duties, must do so in the best interests of Namakwa and exercise the care, diligence and skill which a reasonably prudent person would exercise in comparable circumstances. Furthermore, it requires that every officer complies with the Bermuda Companies Act, regulations passed pursuant thereto and the Bye-laws.
4.10
Accounting and audit The Bermuda Companies Act requires that Namakwa keep proper records of account with respect to: (i) all sums of money received and expended by Namakwa and the matters in respect of which the receipt and expenditure take place; (ii) all sales and purchases of goods by Namakwa; and (iii) the assets and liabilities of Namakwa. The records of account must be kept at the registered office of Namakwa or at such other place as the Directors think fit and shall at all times be open to inspection by the Directors or the resident representative of Namakwa. If the records of account are kept at some place outside Bermuda, there shall be kept at the office of Namakwa in Bermuda such records as will enable the Directors or the resident representative of Namakwa to ascertain with reasonable accuracy the financial position of Namakwa at the end of each three-month period, except that where Namakwa is listed on an appointed stock exchange, there shall be kept such records as will enable the Directors or the resident representative of Namakwa to ascertain with reasonable accuracy the financial position of Namakwa at the end of each six-month period. The Directors are obliged to lay before Namakwa in a general meeting financial statements for the relevant period which shall include: (i) a statement of the results of operations for the period; (ii) a statement of retained earnings or deficit; (iii) a balance sheet as at the end of such period; (iv) a statement of changes in financial position for the period; (v) notes to the financial statements which include a description of accounting principles used in the preparation of the financial statements which principles may be those of a jurisdiction other than Bermuda or such other generally accepted accounting principles as may be appointed by the Minister of Finance of Bermuda under the Bermuda Companies Act, and where the generally accepted accounting principles used are other than those of Bermuda, the notes shall identify the generally accepted accounting principles so used; and (vi) such further information as required by the Bermuda Companies Act, its Memorandum of Association and the Bye-laws. Further, the auditor must audit the financial statements as will enable him to report to the members based on the results of his audit which must be made in accordance with generally accepted auditing standards and the auditor must then make a report to the members. Unless the requirement to lay financial statements and/or the auditors report thereon is waived in accordance with the provisions of the Bermuda Companies Act, the audited financial statements must be placed before the members in general meeting. Such financial statements must be made available to every member of Namakwa at least seven days before the general meeting at which they are to be approved.
128
4.11
Exchange control Namakwa has been designated as a non-resident of Bermuda by the BMA for exchange control purposes. Accordingly, the BMA does not restrict Namakwa’s ability to convert currency (other than Bermuda dollars), to transfer funds in and out of Bermuda or to pay dividends or other forms of payment to non-Bermuda residents who are shareholders or holders of its other securities, other than in Bermuda dollars. Prior to June 1 2005, the specific permission of the BMA was required for the issue and transfer of shares and other securities under the ECA. From that date, the BMA has granted a general permission for the issue and transfer of shares and other securities to companies who are not residents of Bermuda so long as the shares remain listed on an appointed stock exchange, such as the London Stock Exchange. The securities referred to in this document and the conversion of any such securities into Ordinary Shares will be covered by the general permission of the BMA effective 1 June 2005. Upon the issue of the New Shares referred to in this document, Namakwa will deliver to and file a copy of this document as a prospectus, together with any relevant supplemental prospectus, with the Registrar of Companies in Bermuda in accordance with Bermuda law. The BMA and the Registrar of Companies accept no responsibility for the financial soundness of any proposal or for the correctness of any of the statements made or opinions expressed in this document.
4.12
Acquisition of minority shares There are five mechanisms to effect an acquisition of the shares held by minority shareholders of a Bermuda company: (a)
By a general offer followed by a “squeeze out” under section 102 of the Bermuda Companies Act. Broadly, if the offer is approved by the holders of 90% in value of the shares which are the subject of the offer, the offeror can compulsorily acquire the shares of dissentient shareholders. Shares owned by the offeror or its subsidiary or their nominees at the date of the offer do not, however, count towards the 90%. If the offeror or any of its subsidiaries or any nominee of the offeror or any of its subsidiaries together already own more than 10% of the shares in the subject company at the date of the offer, the offeror must offer the same terms to all holders of the same class and the holders who accept the offer, besides holding not less than 90% in value of the shares, must also represent not less than 75% in number of the holders of those shares, although these additional restrictions will not apply if the offer is made by a subsidiary of a parent (where the subsidiary does not own more than 10% of the shares of the subject company) even where the parent owns more than 10% of the shares of the subject company, provided that the subsidiary and the parent are not nominees. The 90% must be obtained within four months after the making of the offer and, once obtained, the compulsory acquisition may be commenced within two months of the acquisition of 90%. Dissentient shareholders do not have express appraisal rights but are entitled to seek relief (within one month of the compulsory acquisition notice) from the Supreme Court of Bermuda which has power to make such orders as it thinks fit.
(b)
By the holders of 95% or more of the shares or any class of shares serving a notice on the remaining shareholders or class of shareholders under section 103 of the Bermuda Companies Act. Dissentient shareholders have a right to apply to the Supreme Court within one month of the compulsory acquisition notice to have the value of their shares appraised by the Supreme Court but these appraisal rights differ from the appraisal rights in an amalgamation in that, under section 103, if one dissentient shareholder applies to the Supreme Court and is successful in obtaining a higher valuation that valuation must be paid to all shareholders being squeezed out.
(c)
By a court approved scheme of arrangement under section 99 of the Bermuda Companies Act. Schemes may be transfer schemes or cancellation schemes but, unlike a transfer scheme, a cancellation scheme requires Namakwa to pass a solvency test or obtain the agreement of all its creditors to the scheme. In either case, dissentient shareholders do not have express statutory appraisal rights but the Supreme Court will only sanction a scheme if it is fair. Shares owned by the offeror can be voted to approve the scheme but the Supreme Court will be concerned to see that the shareholders approving the scheme are fairly representative of the general body of shareholders. Any scheme must be approved by a majority in number representing three-quarters in value of the shareholders present and voting either in person or by proxy at the requisite special general meeting. If there are dissentient shareholders who hold more than 10% of the shares, the Supreme Court 129
might be persuaded not to exercise its discretion to sanction the scheme on the ground that the scheme constitutes a takeover within section 102 of the Bermuda Companies Act and requires a 90% acceptance. (d)
By an amalgamation under sections 104 to 109 of the Bermuda Companies Act. Under Bermuda law, two or more companies may amalgamate and continue as one company. Whilst the separate corporate existence of each of the amalgamating companies ceases, all the amalgamating companies continue their existence as constituent parts of the amalgamated company (no one amalgamating company can be said to be sole survivor although the amalgamated company is the only resulting entity). In practical terms, the effect of an amalgamation is that the assets and liabilities of the amalgamating companies become the assets and liabilities of the amalgamated company. A typical triangular amalgamation involves the following principal steps: (i)
“Bidder” forms a wholly-owned acquisition vehicle in Bermuda.
(ii)
Acquisition vehicle and “Target” enter into an amalgamation agreement setting out the terms and means of effecting the amalgamation. The amalgamation is approved by the board of the acquisition vehicle and Target and submitted to the shareholders of Target for approval at a special general meeting. Bidder, as sole shareholder of the acquisition vehicle, approves the amalgamation agreement by written resolution.
The statutory threshold for approval of an amalgamation is 75% of shareholders voting at the special general meeting at which a quorum of two persons at least holding or representing by proxy more than one-third of the issued shares are present. Bidder may vote on such a resolution. Under Bermuda law this threshold can be reduced to a simple majority by an alteration to the bye-laws of the target. Bye-laws of a Bermuda company may be amended by a simple majority of shareholders present and voting at the requisite meeting or by such greater majority as is prescribed in the bye-laws. (i)
The shares in target held by the “public” shareholders are cancelled in consideration of the receipt of cash or securities from Bidder.
(ii)
After the amalgamation agreement has been approved by shareholders, the amalgamating companies apply to be registered as an amalgamated company with the Registrar of Companies in Bermuda and a certificate of amalgamation is issued. The application must be accompanied, inter alia, by an affidavit of solvency including confirmation that no creditors will be prejudiced by the amalgamation or that adequate notice has been given to all known creditors and no creditor objects.
(iii)
Target, as part of the amalgamated company, becomes a subsidiary of Bidder.
Dissentient shareholders may apply to the Supreme Court within one month of the notice convening the special general meeting to approve the amalgamation to have the Supreme Court appraise the fair value of their shares. To date no cases on appraisal rights have been brought before the Bermuda courts. (e)
4.13
Where the capital of the target is to be reduced by the cancellation of shares and part only of a class is to be cancelled, the shares to be cancelled may be selected in such manner as the Directors may determine with the consent of the majority of the holders of the shares of the class to be cancelled unless the bye-laws otherwise provide (section 46(3)(c) of the Bermuda Companies Act).
Inspection of corporate records The following records of Namakwa are available for public inspection at the Registrar of Companies offices in Bermuda: (i) the Memorandum of Association and any amendments thereto; (ii) the certificate of incorporation; (iii) a statement as to the registered address of Namakwa; (iv) the register of charges of Namakwa; and (v) any prospectus filed with the Registrar of Companies in Bermuda. In addition, the register of members and the register of directors and officers must be made available for inspection by the public, at the registered office of Namakwa. The members of Namakwa have the additional right to inspect Namakwa’s Bye-laws, minutes of general meetings and Namakwa’s audited financial statements, which must be presented to the annual general meeting, unless such requirement has been waived. Minutes of 130
general meetings of Namakwa are also open for inspection by the Directors without charge for not less than two hours during business hours each day. Bermuda law does not, however, provide a general right for members to inspect or obtain copies of any other corporate records. Namakwa is not required to file accounts with the Registrar of Companies in Bermuda except as may be required in connection with the filing of a prospectus. The Bermuda Companies Act provides that the register of directors and branch register of members of Namakwa shall during business hours (subject to certain reasonable restrictions as Namakwa may impose, so that not less than two hours in each day may be allowed for inspection) be open for inspection by members of the public without charge. Any person may require a copy of the register of members or any part thereof which must be provided within 14 days of receipt of a written request. The Bermuda Companies Act imposes penalties for failure to make the register so available. Any branch register of members established by Namakwa under the Bermuda Companies Act is subject to the same rights of inspection as the principal register of members of Namakwa in Bermuda. Namakwa may, on giving notice by advertisement in an appointed newspaper in Bermuda, close the register of members or by advertisement in a national newspaper in the jurisdiction in which the branch register of members of Namakwa is kept close the branch register of members, for any time or times not exceeding in the whole 30 days in a year. 4.14
Takeovers There are no provisions governing takeover offers analogous to the Takeover Code applicable in Bermuda. Accordingly, subject to any provisions to the contrary in the Bye-laws of Namakwa, any person or persons acting in concert will be able to acquire shares in Namakwa which, when taken together with the shares already held by them, carry 30% or more of the voting rights in Namakwa without being required to make a general offer for the entire issued share capital of Namakwa. Additionally, any party intending to acquire all or a substantial part of the issued share capital of Namakwa will not be obliged to comply with the provisions of the Takeover Code as to announcements, equality of treatment for shareholders as to the value and type of consideration offered, and will not be subjected to the scrutiny and sanctions of the Panel. The Bye-laws contain certain takeover protections, although these will not provide the full protections afforded by the Takeover Code. The provisions are summarised in sub-paragraph 6.18 of this Part X: “Additional Information”.
5.
Other Bermuda law considerations
In accordance with Bermuda law, share certificates are issued only in the names of corporations or individuals. In the case of an applicant acting in a special capacity (for example, as an executor or trustee), certificates may, at the request of the applicant, record the capacity in which the applicant is acting. Notwithstanding the recording of any such special capacity, Namakwa is not bound to investigate or incur any responsibility in respect of the proper administration of any such estate or trust. Namakwa will take no notice of any trust applicable to any of its Ordinary Shares whether or not Namakwa has notice of such trust. 6.
Summary of the Memorandum of Association and Bye-laws
The Memorandum of Association and the Bye-laws include provisions to the following effect, as set out below in paragraphs 6.1 to 6.18: 6.1
Memorandum of Association The Memorandum of Association of Namakwa provides that its objects are, amongst other things, to act as a holding company. The objects of Namakwa are set out in full in clause 6 of its Memorandum of Association which is available for inspection as described in the section entitled “Documents available for inspection” below.
6.2
Bye-laws The rights attaching to the Ordinary Shares are set out in the Bye-laws. The Bye-laws, which were adopted on 11 December 2007, contain, inter alia, provisions to the following effect as set out below.
6.3
Rights attached to share capital The holders of the Ordinary Shares (subject to the other provisions of the Bye-laws) are: (a)
entitled to one vote per share;
(b)
entitled to receive notice of, and attend and vote at, general meetings of Namakwa; 131
(c)
entitled to such dividends as the Board may from time to time declare; and
(d)
in the event of a winding-up or dissolution of Namakwa, entitled to be paid the surplus assets of Namakwa remaining after payment of its liabilities (subject to the rights of holders of any shares in Namakwa then in issue having preferred rights on the return of capital) in respect of their holdings of Ordinary Shares pari passu and pro rata to the number of Ordinary Shares held by each of them.
Namakwa’s major Shareholders do not have any different voting rights to what is described in this paragraph. Pursuant to the special general meeting of Namakwa on 24 December 2010, the deferred shares in the capital of Namakwa were converted into Ordinary Shares. 6.4
Modification of rights Subject to the Bermuda Companies Act, all or any of the special rights for the time being attached to any class of shares may, unless otherwise provided in the rights attached to the terms of issue of the shares of that class, be altered or abrogated with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting of the holders of such shares voting in person or by proxy at which special meeting the quorum shall be two persons at least holding or representing by proxy one-third of the issued shares of the class.
6.5
Alteration of capital Namakwa may, if authorised by a resolution of the Board, and, if authorised by a resolution of the Shareholders, increase, divide, consolidate, subdivide, change the currency denomination of, diminish or otherwise alter or reduce its share capital in any manner permitted by the Bermuda Companies Act. Where, on any alteration or reduction of share capital, the Shareholder would become entitled to fractions of shares or some other difficulty would arise, the Board may deal with or resolve the same in such manner as it thinks fit.
6.6
Voting rights In general, and except as provided below, Shareholders have one vote for each Ordinary Share held by them and are entitled to vote at all meetings of Shareholders.
6.7
Transfer of shares Transfers of shares may be effected by an instrument of transfer in writing in the form contemplated by Bye-law 13.1, or as near thereto as the circumstances admit, or in such other form as the Board may accept. An instrument of transfer shall be signed by or on behalf of the transferor and (where any share is not fully paid) the transferee. The Directors may, in their absolute discretion and without assigning any reason therefore, decline to register any transfer of any share which is not a fully-paid share. Shares may be transferred without a written instrument if transferred by an appointed agent or otherwise in accordance with the Bermuda Companies Act. In order to fully consider a transfer request, the Board may request such information as it deems fit. If such information is not provided, the Directors may decline to approve or register such transfer. The Bye-laws do not contain any restrictions other than those described above on the transferability of fullypaid shares provided that Namakwa has no lien over such shares, is duly stamped (if so required) and the Directors are satisfied that all applicable approvals under Bermuda law required to be obtained prior to such transfer have been obtained.
6.8
Power to issue shares Subject to the Bye-laws and to any resolution of Shareholders to the contrary, the Board shall have the power to issue any unissued shares of Namakwa on such terms and conditions as it may determine.
6.9
Authority to issue shares The Directors shall not exercise any power of Namakwa to allot “Relevant Securities” (meaning any shares of Namakwa other than (i) shares allotted in pursuance of any Employee Share Scheme (as defined in the Bye-laws) and (ii) any right to subscribe for, or to convert any security into, shares in Namakwa) unless 132
authorised to do so by a shareholders’ resolution in a general meeting. Relevant Securities shall not include shares allotted or the right to subscribe for or convert any security into shares granted as part of any issue or offering of shares in Namakwa culminating in “Admission” (meaning the admission of the whole class of shares of Namakwa to the Official List becoming effective in accordance with the Listing Rules and to trading on the London Stock Exchange becoming effective in accordance with the Admission and Disclosure Standards of the London Stock Exchange) (including any shares so allotted or rights granted, whether before or after Admission, in accordance with any over-allotment or stabilisation arrangements entered into by Namakwa in connection therewith). Any authority, whether it is unconditional or subject to conditions, or whether given generally or for a particular exercise, shall state the maximum amount of Relevant Securities that may be allotted under it and the date on which it will expire, to be no more than five years from the date on which the resolution is passed, unless previously revoked or varied by resolution of the shareholders in general meeting. Whether the definition of Relevant Securities applies to any rights to subscribe for or to convert any security into shares, the authority relates to the maximum number of shares which may be allotted pursuant to such rights. The Directors may allot Relevant Securities after the expiry of the authority, in pursuance of an offer or agreement made by Namakwa before the expiry of such authority. No breach of these provisions shall affect the validity of any allotment of any Relevant Securities. 6.10
Pre-emption rights The Bye-laws contain provisions giving pre-emption rights to holders of “Relevant Shares” (meaning the shares in Namakwa other than (i) those shares giving rights to participate only up to a specified amount of dividend and capital in a distribution; and (ii) shares acquired or to be allotted pursuant to any Employee Share Scheme (as defined in the Bye-laws). These rights entitle such holders to be offered “Equity Securities” meaning Relevant Shares and the right to subscribe for or convert securities into Relevant Shares, excluding (i) shares or any rights to subscribe for or convert any security into shares as part of any issue or offering of shares or any rights to subscribe for or convert any security into shares as part of any issue or offering of shares culminating in an Admission (including any shares so allotted or rights granted, whether before or after Admission, in accordance with any over-allotment or stabilisation arrangements entered into by Namakwa in connection therewith) and (ii) shares in Namakwa allotted pursuant to any right granted before Admission (whether or not such right was expressed to be conditional on Admission), in proportion to their existing shareholdings. These pre-emption provisions do not apply to allotments of Equity Securities which are paid otherwise than in cash (meaning where paid up otherwise than by cash received by Namakwa or cheque received by Namakwa in good faith which the Directors have no reason to suspect will not be paid or a release of a liability of Namakwa for a liquidated sum or an undertaking to pay cash to Namakwa at a future date, where “cash” also includes foreign currency) and they do not apply to the allotment of securities which would be held under any Employee Share Scheme (as defined in the Bye-laws). Any Equity Securities which Namakwa has offered to a holder of Relevant Shares may be allotted to him, or to anyone in whose favour he has renounced his right to their allotment, without contravening these provisions. Any offer made under these provisions must state a period of not less than 21 days during which it may be accepted and this offer shall not be withdrawn before the end of such period.
6.11
Disapplication of pre-emption rights The pre-emption rights contained in the Bye-laws summarised above may be disapplied in whole or modified as the Directors determine, provided the Directors are given power by resolution of a special majority of not less than three-fourths of the Shareholders as (being entitled to do so) vote in person or by proxy at a general meeting of Namakwa, which shall not be proposed unless recommended by the Directors and a notice is circulated to the Shareholders with a Directors’ statement setting out reasons for making such recommendation, the amount to be paid to Namakwa in respect of such allotment and the Directors’ justification of such amount.
6.12
Dividends and other distributions Namakwa may by resolution of the Directors (subject to its constitutional documents and the Bermuda Act), declare a dividend or other distribution to be paid to Shareholders from funds legally available for payment of dividends or distributions, in accordance with their respective rights and interests. The Board may fix any date as the record date for determining the Shareholders entitled to receive any dividend. Such dividend or other distribution may be paid in cash or wholly or partly by the distribution of specific assets and may fix the value for dividend or distribution purposes of any such specific assets. The Directors may resolve to capitalise any sum outstanding to the credit of Namakwa’s share premium or other reserve accounts or to the 133
credit of the profit and loss account or otherwise available for distribution by applying such sum in paying up additional Ordinary Shares in Namakwa, credited as fully paid, instead of cash in respect of all or part of a dividend. Any dividend and/or other monies payable in respect of an Ordinary Share which has remained unclaimed for seven years from the date when it became due for payment shall, if the Board so resolves, be forfeited and cease to remain owing by Namakwa. The payment of any unclaimed dividend or other monies payable in respect of an Ordinary Share may (but need not) be paid by Namakwa into an account separate from Namakwa’s own account. Such payment shall not constitute Namakwa as a trustee in respect thereof. 6.13
Shareholders’ meetings Annual general meetings The annual general meeting of Namakwa shall be held in each year at such time and place as the Chairman or the Board shall appoint. Special general meetings The Chairman or the Board may convene a special general meeting of Namakwa whenever in their judgement such a meeting is necessary. Requisitioned general meetings The Board shall, on the requisition of Shareholders holding at the date of the deposit of the requisition not less than one-tenth of such of the paid-up share capital of Namakwa as at the date of the deposit carries the right to vote at general meetings of Namakwa, forthwith proceed to convene a special general meeting of Namakwa and the provisions of the Bermuda Companies Act shall apply. Notice At least 21 days’ notice of an annual general meeting shall be given to each Shareholder entitled to attend and vote thereat, stating the date, place and time at which the meeting is to be held, that the election of Directors will take place thereat and, as far as practicable, the other business to be conducted at the meeting. At least 14 days’ notice of a special meeting shall be given to each Shareholder entitled to attend and vote thereat, stating the date, place and general nature of the business to be considered at the meeting. The Board may fix any date as the record date for determining the Shareholders entitled to receive notice of and to vote at any general meeting of Namakwa. A general meeting of Namakwa shall, notwithstanding that it is called on shorter notice than that specified in the Bye-laws, be deemed to have been properly called if it is so agreed by (i) all the Shareholders entitled to attend and vote thereat in the case of an annual general meeting; and (ii) by a majority in number of the Shareholders having the right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the shares giving a right to attend and vote thereat in the case of a special general meeting. The accidental omission to give notice of a general meeting to, or the non-receipt of a notice of a general meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting. Giving notice A notice may be given by the Company to any Shareholder either by delivering it to such Shareholder in person or by sending it to such Shareholder’s address in the Register of Shareholders or to such other address given for the purpose. For the purposes of this Bye-law, a notice may be sent by letter mail, courier service, electronic means (including facsimile and electronic mail), advertisement in an appointed newspaper (as defined in the Bermuda Companies Act), or to the extent permitted by applicable laws, by placing it on the website of the London Stock Exchange and giving notice to the Shareholders that the notice or document is available there or where a Shareholder so consents, by receiving such information or documents by accessing a website, in accordance with the Bye-laws. 134
Any notice required to be given to a Shareholder shall, with respect to any shares held jointly by two or more persons, be given to whichever of such persons is named first in the Register of Shareholders and notice so given shall be sufficient notice to all the holders of such shares. Save as referred to below, any notice shall be deemed to have been served at the time when the same would be delivered in the ordinary course of transmission and, in proving such service, it shall be sufficient to prove that the notice was properly addressed and prepaid, if posted, at the time when it was posted, delivered to the courier or transmitted by electronic means. A mailed notice shall be deemed to have been served seven days after the date on which it is deposited, with postage prepaid, in the mail of any member state of the European Union, the US or Bermuda. Where a Shareholder indicates his consent (in a form and manner satisfactory to the Board) to receive information or documents by accessing them on a website, such information or documents may be delivered by notifying the Shareholder of their availability, including the website address, the place on the website where the information or document may be found and instructions as to how to access such information or documents on the website. In the case of information or documents delivered in accordance with the foregoing sentence, service shall be deemed to have occurred when the Shareholder is notified in accordance with the provisions of the Bye-laws and the information or documents is published on the website. Namakwa shall be under no obligation to send a notice or other document to the address shown for any particular Shareholder in the Register of Shareholders if the Board considers that the legal or practical problems under the laws of, or the requirements of any regulatory body or stock exchange in the territory in which that address is situated are such that it is necessary or expedient not to send the notice or document concerned to such Shareholder at such address and may require a Shareholder with such an address to provide Namakwa with an alternative acceptable address for delivery of notices by Namakwa. Postponement or cancellation of a general meeting The Chairman may, and the secretary of Namakwa on instruction from the Chairman shall, postpone or cancel any general meeting called in accordance with the provisions of the Bye-laws (other than a meeting requisitioned under the Bye-laws) provided that notice of postponement or cancellation is given to each Shareholder before the time for such meeting. Fresh notice of the date, time and place for the postponed or cancelled meeting shall be given to the Shareholders in accordance with the provisions of the Bye-laws. Attendance and security at general meetings Shareholders may participate in any general meeting by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting. The Board may, and at any general meeting, the Chairman of such meeting may make any arrangement and impose any requirement or restriction it or he considers appropriate to ensure the security of a general meeting including, without limitation, requirements for evidence of identity to be produced by those attending the meeting, the searching of their personal property and the restriction of items that may be taken into the meeting place. The Board and, at any general meeting, the Chairman of such meeting are entitled to refuse entry to a person who refuses to comply with any such arrangements, requirements or restrictions. Quorum at general meetings At any general meeting of Namakwa two or more persons (being Shareholders or proxy holders) present in person at the start of and throughout the meeting shall form a quorum for the transaction of business. If within half an hour from the time appointed for the meeting a quorum is not present, then, in the case of a meeting convened on a requisition, the meeting shall be deemed cancelled and, in any other case, the meeting shall stand adjourned to the same day one week later, at the same time and place or to such other day, time or place as the Secretary may determine. Unless the meeting is adjourned to a specific date, time and place, it is not necessary to give notice of the adjourned meeting other than by announcement at the meeting being adjourned. If the Secretary shall determine that the meeting be adjourned to an unspecified date, time or place, fresh notice of the resumption of the meeting shall be given to each Shareholder entitled to attend and vote thereat in accordance with the provisions of the Bye-laws.
135
Chairman to preside Unless otherwise agreed by a majority of those attending and entitled to vote thereat, the Chairman, if there is one, and if not the deputy Chairman, shall act as chairman at all meetings of the Shareholders at which such person is present. In their absence, a chairman shall be appointed or elected by those present at the meeting and entitled to vote. Representation of corporate member A corporation which is a Shareholder may, by written instrument, authorise such person or persons as it thinks fit to act as its representative at any meeting of the Shareholders and any person so authorised shall be entitled to exercise the same powers on behalf of the corporation which such person represents as that corporation could exercise if it were an individual Shareholder and that Shareholder shall be deemed to be present in person at any such meeting attended by its authorised representative or representatives. Notwithstanding the foregoing, the Chairman of the meeting may accept such assurances as he thinks fit as to the right of any person to attend and vote at general meetings on behalf of a corporation which is a Shareholder. Adjournment of a general meeting The chairman of any general meeting at which a quorum is present may with the consent of Shareholders holding a majority of the voting rights of those Shareholders present in person or by proxy (and shall if so directed by Shareholders holding a majority of the voting rights of those Shareholders present in person or by proxy), adjourn the meeting. In addition, the chairman may adjourn the meeting to another time and place without such consent or direction if it appears to him that: (a)
it is likely to be impracticable to hold or continue that meeting because of the number of Shareholders wishing to attend who are not present; or
(b)
the unruly conduct of persons attending the meeting prevents, or is likely to prevent, the orderly continuation of the business of the meeting; or
(c)
an adjournment is otherwise necessary so that the business of the meeting may be properly conducted.
Unless the meeting is adjourned to a specific date, place and time announced at the meeting being adjourned, fresh notice of the date, place and time for the resumption of the adjourned meeting shall be given to each Shareholder entitled to attend and vote thereat in accordance with the provisions of the Bye-laws. Written resolutions Subject to the following, anything (except for the removal of an auditor before the expiration of his terms of his office or Director before the expiration of his terms of office) which may be done by resolution of Namakwa in general meeting or by resolution of a meeting of any class of the Shareholders may, without a meeting and without any previous notice being required, be done by resolution in writing signed by, or in the case of a Shareholder that is a corporation whether or not a company within the meaning of the Bermuda Companies Act, on behalf of, the Shareholders who, at the date that the proposed resolution in writing is circulated, would be entitled to attend a meeting and vote on the resolution. A resolution in writing may be signed by, or in the case of a Shareholder that is a corporation whether or not a company within the meaning of the Bermuda Companies Act, on behalf of, all the Shareholders, or all the Shareholders of the relevant class thereof, in as many counterparts as may be necessary. A resolution in writing is passed when it is signed by, or in the case of a Shareholder that is a corporation on behalf of, the Shareholders who at the date that the proposed resolution in writing is circulated represent such majority of votes as would be required if the resolution was voted on at a meeting of Shareholders at which all Shareholders entitled to attend and vote thereat were present and voting. 6.14
Directors Election of Directors The Board shall consist of such number of Directors being not less than two Directors and not more than such maximum number of Directors, not exceeding 15 Directors, as the Board may from time to time determine. 136
Namakwa may by resolution of its Shareholders appoint any person to be a Director either to fill a casual vacancy or as an additional Director. Without prejudice thereto, the Directors shall have power at any time to do so, but so that the total number of Directors shall not at any time exceed the maximum number fixed by the Bye-laws. Any person so appointed by the Directors shall hold office only until the next annual general meeting and shall then be eligible for re-election provided that any Director appointed pursuant to this Bye-law at any time after the date of the notice convening the relevant annual general meeting shall hold office until the next succeeding annual general meeting and shall be eligible for re-election at such annual general meeting. If not re-appointed at such annual general meeting he shall vacate office at the conclusion thereof. Only persons who are proposed or nominated in accordance with Bye-law 39 shall be eligible for election as Directors. Any Shareholder or the Board may propose any person for election as a Director. Where any person, other than a Director retiring at the meeting or a person proposed for re-election or election as a Director by the Board, is to be proposed for election as a Director, notice must be given to Namakwa of the intention to propose him and of his willingness to serve as a Director. Where a Director is to be elected at any general meeting, that notice must be given not less than 14 days nor more than 42 days (inclusive of the date on which the notice is given) before the day appointed for the meeting. In accordance with Bye-law 39.4, a resolution for the election of a Director shall relate to one named person and a single resolution for the election of two or more persons shall be void unless a resolution that it shall be so proposed has been first agreed to by the meeting without any vote being cast against it. Where a Director is to be elected at a special general meeting, that notice must be given not later than 10 days following the earlier of the date on which notice of the special general meeting was posted to Shareholders or the date on which public disclosure of the date of the special general meeting was made. Where there are more nominees for election or re-election than the number of Directors to be elected, the person(s) receiving the most votes (up to the number of Directors to be elected) shall be elected as the Director(s). At any general meeting the Shareholders may authorise the Board to fill any vacancy in their number left unfilled at a general meeting. A Director may also be appointed or elected pursuant to the special rights that may be designated by the Board in respect of a class or series of shares pursuant to Bye-law 4.2(c). No share qualification A Director is not required to hold any shares in the capital of Namakwa and is entitled to attend and speak at general meetings or at any separate meeting of the holders of any class of shares or debentures in the capital of Namakwa, notwithstanding that the Director does not hold shares. Term of office of Directors At each annual general meeting any Director bound to retire under Bye-law 39.2 and one-third of the other Directors for the time being (or, if their number is not three or a multiple of three, the number nearest to, but (except where less than three Directors are subject to retirement by rotation) not greater than, one-third) shall retire from office by rotation. The Directors bound to retire by rotation (excluding, for this purpose, Directors bound to retire under Bye-law 39.2) shall include (so far as necessary to obtain the number required) any Director who wishes to retire and not to offer himself for re-election. Any further Directors to retire shall be those of the other Directors subject to retirement by rotation who have been longest in office since their last re-election or appointment and so that as between persons who became or were last re-elected Directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot. A retiring Director (subject to the provisions of the Bermuda Companies Act and these Bye-laws) shall be eligible for re-election. Namakwa at the meeting at which a Director retires under any provision of these Bye-laws may (subject to Bye-law 39.4) by a resolution of its Members fill up the office being vacated by electing thereto the retiring Director or some other person eligible for appointment. In default the retiring Director shall be deemed to have been re-elected except in any of the following cases: (i)
where at such meeting it is expressly resolved not to fill up each office or a resolution for the re-election of such Director is put to the meeting and lost; or
(ii)
where such Director has given notice in writing to Namakwa that he is unwilling to be re-elected.
The retirement shall not have effect until the conclusion of the meeting except where a resolution is passed to elect some other person in the place of the retiring Director or a resolution for his re-election is put to the 137
meeting and lost in which case the retirement will take place forthwith, and accordingly a retiring Director who is re-elected or deemed to have been re-elected will continue in office without break. Alternate Directors The Shareholders of Namakwa in general meeting may elect a person or persons to act as a Director in the alternative to any one or more Directors (an “Alternate Director”) or may authorise the Board to appoint such Alternate Directors. An Alternate Director is entitled to receive notice of all meetings of the Board and all committees of the Board of which the Director appointing him is a member. Removal of Directors Subject to the Bye-laws, the Shareholders may remove a Director at any special general meeting provided that the notice of any such meeting be served on such Director not less than 14 days before the meeting and at such meeting the Director shall be entitled to be heard on the motion for such Director’s removal. If a Director is removed from the Board under the provisions of Bye-law 43 the Shareholders may fill the vacancy at the meeting at which such Director is removed. In the absence of such election or appointment, the Board may fill the vacancy. Vacancy in the office of Director The office of Director shall be vacated if the Director: (i) is removed from office pursuant to the Bye-laws or is prohibited from being a Director by law or dies; (ii) is or becomes bankrupt, or makes any arrangement or composition with his creditors generally; (iii) is physically or mentally incapable of acting as a Director and remains so for more than three months or a court makes an order preventing him exercising any powers or rights which he otherwise would have had and in either case, the Board resolves to vacate his office; (iv) or his Alternate Director appointed by him is absent for more than 12 months, (without special leave of absence from the Board) from board meetings in that period and the Board resolves that his office be vacated; (v) resigns his office by notice in writing to Namakwa; or (vi) upon his term of office expiring pursuant to the special rights of any class or series of shares. The Shareholders in general meeting or the Board shall have the power to appoint any person as a Director to fill a vacancy on the Board occurring as a result of the death, disability, disqualification or resignation of any Director or as a result of an increase in the size of the Board and to appoint an Alternate Director to any Director so appointed. Directors’ fees The Directors shall be paid out of the funds of Namakwa by way of remuneration for their services as Directors such fees as the Board may from time to time determine, provided that the aggregate of all such fees so paid to the Directors, excluding amounts payable under any other provision of these Bye-laws, shall not exceed US$2 million per annum or such greater amount as Namakwa may from time to time determine in general meeting and shall be divisible among the Directors as they may by resolution agree or, failing agreement, equally except that any Director who shall hold office for part only of the period in respect of which such remuneration is payable shall be entitled only to rank in such division for a proportion of the remuneration related to the period during which he has held office. The provisions of this Bye-law shall not apply to the remuneration of any Director who holds executive office (whether part time or full time) which shall be established pursuant to the provisions of Bye-law 45 of these Bye-laws. Remuneration of Executive Director Any Director who holds any executive office (including for this purpose the office of Chairman or deputy Chairman), or who serves on any committee, or who, at the request of the Directors, goes or resides abroad, makes any special journey or otherwise performs services which in the opinion of the Directors, determined in a resolution of the Directors, are outside the scope of the ordinary duties of a Director, may be paid such remuneration by way of salary, commission or otherwise as the Directors may determine in addition to or in lieu of any fee payable to him for his services as Director pursuant to the Bye-laws. Expenses Namakwa shall repay to any Director all such reasonable expenses as he may properly incur in the performance of his duties. 138
Directors’ pensions and other benefits The Directors may exercise all the powers of Namakwa to establish and maintain a pension or superannuation funds for the benefit of, and give or procure the giving of donations, gratuities, pensions, allowances or emoluments to, any persons who are or were at any time in the employment or service of Namakwa or any other company in which Namakwa has any interest whether direct or indirect and to the families and dependants of any such persons, and also establish and subsidise or subscribe to any institutions, associations, clubs or funds calculated to be for the benefit of or to advance the interests and well-being of Namakwa or of any such other company, or of any such persons as aforesaid, and, subject to the Bermuda Companies Act, make payments for or towards the insurance of any such persons as aforesaid, and do any of the matters aforesaid either alone or in conjunction with any such other company. Defect in appointment of Director All acts done in good faith by the Board or by a committee of the Board or by any person acting as a Director shall be as valid as if every such person had been duly appointed and was qualified to be a Director. Directors to manage business The business of Namakwa shall be managed and conducted by the Board, who may exercise all such powers as are not required to be exercised by Namakwa in general meeting subject always to the Bye-laws and the provisions of any statute. The Board may delegate to any company, firm, person, or body of persons any power of the Board (including the power to sub-delegate). Certain powers of the Board of Directors The Board may appoint one or more Directors to the office of managing director or chief executive officer of Namakwa, who shall, subject to the control of the Board, supervise and administer all of the general business and affairs of Namakwa. The Board may also delegate any of its powers to a committee which may consist partly or entirely of non-Directors or to any person on such terms and in such manner as the Board may see fit. The Board may exercise all the powers of Namakwa to borrow money and to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and may issue debentures, debenture stock, and other securities whether outright or as security for any debt, liability or obligation of Namakwa or of any third party. Officers Officers (who may or may not be Directors) are appointed by the Board as the Board may determine. The officers shall have such powers and perform such duties in the management, business and affairs of Namakwa as may be conferred on them by the Board from time to time. The officers shall receive such remuneration as the Board may determine. Conflicts of interest If a situation arises in which a Director has or could have a direct or indirect interest that conflicts or may conflict with Namakwa’s interests other than in relation to a transaction or arrangement with Namakwa, then the Directors may resolve to authorise the relevant situation as they determine and on such terms as they think fit. A Director who is directly or indirectly interested in an existing transaction or arrangement or a proposed transaction or arrangement with Namakwa shall declare the nature of such interest to the other Directors in accordance with the Bye-laws and the Bermuda Companies Act. A Director shall not be entitled to vote (or be counted in the quorum) in respect of any resolution or arrangement with Namakwa in which he has an interest which may reasonably be regarded as likely to give rise to a conflict of interest or in respect of his own appointment or termination of his own appointment but shall be entitled to vote concerning certain matters set out in the Bye-laws. Indemnification and exculpation of Directors and officers Subject to the proviso that the indemnity (as summarised below) shall not extend to any matter which would render it void or unenforceable pursuant to the Bermuda Companies Act, the Directors, secretary and other officers shall be indemnified and secured harmless out of the assets of Namakwa from and against all 139
actions, costs, charges, liabilities, losses, damages and expenses which they or any of them, their heirs, executors or administrators, shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of Namakwa’s business, or their duty, or supposed duty, or in their respective offices or trusts. The indemnity (as described in the paragraph above) shall not extend to any matter in respect of any fraud or dishonesty which may attach to any of the said persons. Each Shareholder agrees to waive any claim or right of action such Shareholder might have, whether individually or by or in the right of Namakwa, against any Director or officer on account of any action taken by such Director or officer, or the failure of such Director or officer to take any action in the performance of his duties with or for Namakwa or any subsidiary thereof, provided that such waiver shall not extend to any matter in respect of any fraud or dishonesty which may attach to such Director or officer. The indemnity provided to the persons specified in Bye-law 54.1 shall apply if those persons are acting in the reasonable belief that they have been appointed or elected to any office or trust of Namakwa, or any subsidiary thereof, notwithstanding any defect in such appointment or election. To the extent that any person is entitled to claim an indemnity pursuant to Bye-law 54 in respect of amounts paid or discharged by him, the indemnity shall take effect as an obligation of Namakwa to reimburse the person making such payment or effecting such discharge. No monies shall be paid unless payment is authorised in the specific case by the Board, by a majority vote at a meeting duly constituted by a quorum of Directors not party to the proceedings or matter with regard to which the indemnification is, or would be, claimed, or if such meeting cannot be constituted because of a lack of disinterested quorum, by independent legal counsel in a written opinion, or by a resolution of the Shareholders. Namakwa may purchase and maintain insurance for the benefit of any Director or officer of Namakwa against any liability incurred by him under the Bermuda Companies Act in his capacity as a Director or officer of Namakwa or indemnifying such Director or officer in respect of any loss arising or liability attaching to him by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which the Director or officer may be guilty in relation to Namakwa or any subsidiary thereof. Bye-law 54 shall provide the broadest indemnity allowable under applicable law. 6.15
Board meetings The Board may regulate its meetings as it sees fit. Subject to the provisions of the Bye-laws, a resolution put to the vote at a meeting of the Board shall be carried by the affirmative votes of a majority of the votes cast and in the case of an equality of votes the Chairman of the meeting shall have a second or casting vote. Notice of Board meetings A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Board. Notice of a meeting of the Board shall be deemed to be duly given to a Director if it is communicated to such Director personally or by word of mouth or in writing by post, electronic means or other mode of representing words in a visible form agreed by the Board at such Director’s last known address or any other address given by such Director to Namakwa for this and detailing the business to be conducted at the meeting. Electronic participation in meetings Directors may participate in any meeting of the Board by means of such electronic means as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such meeting shall constitute presence in person at such meeting. Such a meeting shall be deemed to take place where the largest group of those Directors participating in the meeting is physically assembled, or, if there is no such group, where the chairman of the meeting then is. Quorum at Board meetings The quorum necessary for the transaction of business at a meeting of the Board may be fixed by the Board and, unless fixed at any other number shall be two Directors.
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Board to continue in the event of vacancy The Board may act notwithstanding any vacancy in its number but, if and so long as its number is reduced below the number fixed by the Bye-laws as the quorum necessary for the transaction of business at meetings of the Board, the continuing Directors or Director may act for the purpose of (i) summoning a general meeting of Namakwa; or (ii) preserving the assets of Namakwa. Chairman to preside Unless otherwise agreed by a majority of the Directors attending, the Chairman, if there is one, and if not, the Deputy Chairman, if there be one, shall act as chairman at all meetings of the Board at which such person is present. In their absence a chairman shall be appointed or elected by the Directors present at the meeting. Written resolutions Bye-law 61 provides for unanimous written resolutions of Directors to be as valid as though passed at a meeting of the Board. Validity of prior acts of the Board No regulation or alteration to the Bye-laws made by Namakwa in general meeting shall invalidate any prior act of the Board made in good faith which would have been valid if that regulation or alteration had not been made. 6.16
Power of Namakwa to investigate interests in shares Under the Bye-laws Namakwa may give notice to any person whom Namakwa knows or has reasonable cause to believe to be or, at any time during the three years immediately preceding the date on which the notice is issued, to have been interested in Namakwa’s shares requiring them to confirm whether or not they have such an interest and where they hold or have during that time held an interest in Namakwa’s shares, to give such further information as may be requested. If any Shareholder appearing to have such an interest does not comply with the request for information the Board may by notice to the Shareholder suspend their rights as to voting, dividends and transfer as set out in the Bye-laws.
6.17
Return of capital The Board may resolve to capitalise all or any part of any amount standing to the credit of any reserve or fund which is available for distribution or to the credit of any share premium account by applying such amount in paying up unissued shares to be allotted as fully paid bonus shares pro rata (except in connection with the conversion of shares from one class to shares of another class) to the Shareholders who would be entitled thereto if distributed by way of dividend and in the same proportions. Capital may also be returned by way of a reduction of capital pursuant to section 46 of the Bermuda Companies Act, or by way of a distribution of contributed surplus pursuant to section 54 of the Bermuda Companies Act. Further Namakwa has power pursuant to the Bermuda Companies Act to issue redeemable preference shares, and also to repurchase its Ordinary Shares pursuant to the Bermuda Companies Act.
6.18
Takeover provisions To the extent permitted under the Bermuda Companies Act, Bye-law 82 adopts certain of the provisions of the Takeover Code, including provisions dealing with compulsory takeover offers (to the extent permitted by Bermuda law), which are to be administered by the Board. Bye-law 82 is to have effect only during such times as the Takeover Code does not apply to Namakwa. Pursuant to Bye-law 82, a person must not: (i) acting by himself or with persons determined by the Board to be acting in concert, seek to acquire an interest in shares in Namakwa which carry 30% or more of the voting rights attributable to the Ordinary Shares; or (ii) acting by himself or with persons determined by the Board to be acting in concert, are interested in Ordinary Shares which in the aggregate carry 30% but not more than 50% of the voting rights, and seek to acquire, by himself or with persons determined by the Board to be acting in concert, an interest in additional shares which, taken together with the interest in shares held by the persons determined by the Board to be acting in concert with him, increase his voting rights, except as a result of a “permitted acquisition” (meaning an acquisition either consented to by the Board (taking into 141
account, inter alia, the extension of the proposed acquisition terms to the “A” Preference Shareholder) (as defined therein) or made in compliance with Rule 9 of the Takeover Code, or arising from the repayment of a stock borrowing arrangement on arm’s length commercial terms); or (iii) effect or purport to effect an acquisition which would breach or not comply with Rules 4, 5, 6 or 8 of the Takeover Code (as amended from time to time), if Namakwa were subject to the Takeover Code. Where the Board has reason to believe that any of such circumstances has taken place, it may take all or any of certain measures: (i) require the person(s) appearing to be interested in the shares of Namakwa to provide such information as the Board considers appropriate; (ii) have regard to such public filings as may be necessary to determine any of the matters under Bye-law 82; (iii) make any determination under Bye-law 82 as it thinks fit, either after calling for submissions by the relevant person(s) or without calling for any; (iv) determine that the voting rights attached to such shares in breach of the Bye-laws, the “Excess Shares”, are from a particular time incapable of being exercised for a definite or indefinite period; (v) determine that some or all of the Excess Shares are to be sold; (vi) determine that some or all of the Excess Shares will not carry any right to any dividends or other distributions from a particular time for a definite or indefinite period; and (vii) taking such actions as it thinks fit for the purposes of Bye-law 82, including prescribing rules not inconsistent with Bye-law 82, setting deadlines for the provision of information, drawing adverse inferences where information requested is not provided, making determination or interim determinations, executing documents on behalf of a shareholder, converting any Excess Shares held in uncertificated form into certificated form and vice versa, paying costs and expenses out of proceeds of sale, and changing any decision or determination or rule previously made. The Board has the full authority to determine the application of Bye-law 82, including the deemed application of the whole or any part of the Takeover Code, and such authority shall include all the discretion that the Panel on Takeovers and Mergers in the UK would exercise if the whole or part of the Takeover Code applied. Any resolution or determination made by the Board, any Director or the chairman of any meeting acting in good faith is final and conclusive and is not open to challenge as to its validity or as to any other ground. The Board is not required to give any reason for any decision or determination it makes. 7.
Directors The Directors of Namakwa and their principal functions are as follows: Name
Position
Age
Gordon Edward Haslam . . . . . . . . . . . . . . . . . . . . Melissa Sturgess . . . . . . . . . . . . . . . . . . . . . . . . . . Marthinus Mulder . . . . . . . . . . . . . . . . . . . . . . . . . Robert Reid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allen Gessen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gerard Holden . . . . . . . . . . . . . . . . . . . . . . . . . . . . Richard Collocott . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Executive Chairman Senior Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer
68 45 65 39 37 48 38
Brief biographical details of the Directors are as follows: Edward Haslam — Non-Executive Chairman (68) — Mr. Haslam worked for the primary platinum group metals producer, Lonmin Plc, between 1981 and 2004, rising to Managing Director of the South African mines. He was appointed to the Board of Directors in 1999 and became Chief Executive Officer in 2000, a position he held until his retirement. Prior to that, he held various positions with Falconbridge Nickel and the British Steel Corporation, where he studied metallurgy. Mr. Haslam is Non-Executive Chairman of Talvivaara Mining Co., which develops and exploits polymetallic deposits in Finland, the Senior Independent Non-Executive Director of Centamin Egypt Limited, which produces gold and is dual listed on the London and Toronto Stock Exchanges, and a Non-Executive Director of Aquarius Platinum Limited, a southern African platinum group metal producer, where he serves as Chairman of the remuneration and succession planning committee and is also a member of its audit, risk and nominations committee. He is also a Fellow of the Institute of Directors. Melissa Sturgess — Senior Independent Non-Executive Director (45) — Melissa Sturgess was appointed to the Board of Directors as Senior Independent Non-Executive on 26 March 2012. Melissa is Chairman of Luiri Gold Limited. She was appointed as Executive Chairman of Nyota Minerals in February 2009 and oversaw the renegotiation of that company’s interests in the Muremera Nickel Project in Burundi and the takeover of Minerva Resources Limited to access its highly prospective gold exploration projects in 142
Ethiopia. She stepped down from the Board of Nyota Minerals in March 2012 but remains a consultant. Melissa was the founding director of Sylvania Resources Limited. She commenced her career with British Airways and Australian law firm Mallesons Stephen Jaques before taking a consulting role with Aquarius Platinum Limited and subsequently moved full time into the corporation development of resources companies. She holds a BSc and an MBA from the University of Western Australia. Marthinus Mulder — Independent Non-Executive Director (65) — Mr. Mulder was appointed to the Board of Directors as an Independent, Non-Executive Director in April 2011. He has performed the role of special technical advisor to the Board since February 2011. Marthinus is a management and technical consultant in the areas of change management, productivity improvement programmes and high level process design, specifically in the areas of iron ore and coal and has over 40 years experience in the industry. Some of his previous roles include Chief Executive Officer and Managing Director of Saldanha Steel, General Manager of Iscor Limited’s Corporate Technology division, General Manager of Iscor Mining’s Consulting Services, and Mine Manager of Iscor Sishen and Iscor Thabazimbi respectively. Marthinus qualified as a Metallugy Engineer from the University of Pretoria in 1969. He received his MDP (Cum Laude) from the University of South Africa in 1981 and attended the Standford Executive Programme in 1996 at the Stanford University, as well as the Caltech Management of Technology and Innovation Programme in California in 2000. Marthinus is a fellow of the South African Institute of Mining and Metallurgy and a member of the Engineering Counsel of South Africa. Allen Gessen — Non-Executive Director (37) — Mr. Gessen is a partner at a private equity fund focusing on emerging markets; a position he has held since 2006. He has occasionally taken over direct management responsibilities for portfolio companies. Previously, Allen was an associate at McKinsey & Company where he consulted some of the major mining and metallurgical companies in the CIS on a broad range of topics. He started his career at consulting boutique Carlisle Fagan Gaskins & Wise, consulting for some of the major transportation companies in North America. Allen holds a degree in business administration from Babson College in Boston and a JD from the University of Connecticut School of Law. He was admitted to the New York Bar in 2003 following which he practised law at Thacher Profitt & Wood in New York. Robert Reid — Non-Executive Director (39) — Mr Reid was appointed to the Board of Directors as Non-executive Director in April 2012. Robert has over 12 years corporate M&A and private equity experience, starting his career in London with Freshfields Bruckhaus Derringer and then working at SkaddenArps, in London and Moscow. Robert is currently Managing Director and Head of Proprietary Investments in Africa at Renaissance Partners, the investment arm of Renaissance Group. Robert holds a number of board positions including Director of the Bubye River Conservancy, Zimbabwe which is the largest private game reserve in Africa and Director of CPD Properties Limited, a 116 hectare real estate development in Lusaka, Zambia. Gerard Holden — Non-Executive Director (48) — Mr. Holden spent more than 20 years of his career with the Barclays Bank Group. For the last 8 years before leaving in 2006 he was Global Head of Mining & Metals. Since leaving Barclays Capital, Gerard has served as Chairman of AIM quoted GCM Resources. Mr Holden is an independent non-executive director of AIM quoted West African Minerals Corporation and has also served as an independent director and chairman of the Audit Committee of Norilsk Nickel, the world’s largest producer of nickel and palladium. Gerard is currently the chairman of privately held Verivox Holdings which owns Germany’s largest internet based consumer switching portal for electricity and gas prices. Gerard is a provider of services to Rockbury Services Inc. A chemical engineer by training, Gerard spends the remainder of his time assisting natural resource companies with strategic advice. Richard Collocott — Chief Executive Officer (38) — Mr. Collocott worked with the Norilsk Nickel Group from 2003 to 2010. Mr. Collocott’s most recent position was Managing Director of Norilsk Nickel’s International Production Assets, with management responsibility for Norilsk Nickel’s businesses in Africa and Australia. Prior to this he held the position of Chief Executive Officer for Metal Trade Overseas AG, the Swiss based metal trader in the Norilsk Nickel Group, and held executive management positions within the Sales and Marketing division of Norilsk Nickel’s head office in Moscow. He is a Chartered Accountant (South Africa) and has broad experience in and allied to the commodity sector. Mr. Collocott joined Namakwa Diamonds in June 2011, was appointed to the Board of Directors as Chief Financial Officer in July 2011 and was appointed to the position of Chief Executive Officer on 31 August 2011. The business address of each of the Directors is 209 SA Diamond Centre, 225 Main Street, Johannesburg 2001, South Africa.
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Other than their current directorships in Namakwa and any current or former directorships in the subsidiaries of Namakwa, during the five years immediately prior to the date of this document, the Directors have held or currently hold the following directorships and/or partnerships: Position still held (Y/N)
Director’s Name
Current or former directorships/partnerships
Gordon Edward Haslam . . . . . . . . . . . . . . .
Aquarius Platinum Ltd Centamin Egypt Limited Talvivaara Mining Company Ltd
Y Y Y
Marthinus Mulder . . . . . . . . . . . . . . . . . . .
Goslar Consulting Services cc
Y
Melissa Sturgess . . . . . . . . . . . . . . . . . . . . .
Luiri Gold Limited Nyota Minerals Sylvania Resources Limited
Y N N
Robert Reid . . . . . . . . . . . . . . . . . . . . . . . .
Renaissance Partners Bubye River Conservancy CPD Properties Limited
Y Y Y
Allen Gessen . . . . . . . . . . . . . . . . . . . . . . .
Ukrainian Retail
N
Gerard Holden . . . . . . . . . . . . . . . . . . . . . .
Bold Moves 243 Pty Limited Brinkley Mining Plc GCM Resources Plc Lonrho Africa Norilsk Nickel OJSC Verivox Holdings Limited West African Minerals Corporation
N N Y N N Y Y
Richard Collocott . . . . . . . . . . . . . . . . . . . .
Metal Trade Overseas AG, Switzerland Norilsk Nickel Marketing Shanghai Limited Norilsk Nickel Africa (Pty) Limited Tati Nickel Mining Company, Botswana Botswana Metal Refinery, Botswana Norilsk Nickel Burundi SPRL Norilsk Nickel Australia Cawse Limited, Australia MPI Nickel, Australia Lake Johnstone, Australia
N N N N N N N N N N
During the five years immediately prior to the date of this document, none of the Directors has: (a)
save for the directorships which the Directors have held or currently hold as disclosed in paragraph 7 above, been a director or partner of any companies or partnerships; or
(b)
had any convictions in relation to fraudulent offences (whether spent or unspent); or
(c)
been adjudged bankrupt or entered into an individual voluntary arrangement; or
(d)
been a director of any company at the time of, or within 12 months preceding, any receivership, compulsory liquidation, creditor voluntary liquidation, administration, company voluntary arrangement or any composition or arrangement with that company’s creditors generally or with any class of its creditors; or
(e)
been a partner in a partnership at the time of, or within 12 months preceding, any compulsory liquidation, administration or partnership voluntary arrangement of such partnership; or
(f)
had his assets form the subject of any receivership or has been a partner of a partnership at the time of, or within 12 months preceding, any assets thereof being the subject of a receivership; or
(g)
been subject to any official public incrimination and/or sanctions by any statutory or regulatory authority (including any designated professional body); or
(h)
ever been disqualified by a court from acting as a director or other officer of a company or from acting in the management or conduct of the affairs of any company. 144
8.
Directors’ interests in Namakwa
Save as set out below, no Director has any interests (beneficial or non-beneficial) in the share capital of Namakwa or any of its subsidiaries. The interests of the Directors and their immediate families in the share capital of Namakwa (all of which are beneficial unless otherwise stated), or (so far as is known or could with reasonable diligence be ascertained by the relevant Director) interests of a person connected (within the meaning of the Disclosure and Transparency Rules) with a Director and the existence of which is known to or could, with reasonable due diligence, be ascertained by the relevant Director, together with such interests as are expected to be, immediately following completion of the Open Offer, are as follows:
No. of Ordinary Shares
As at 5 June 2012 Percentage of issued Share capital (%)
Edward Haslam . . . . . . . . . . . . . . . . . . . . . . . . 112,786 Melissa Sturgess . . . . . . . . . . . . . . . . . . . . . . . — Marthinus Mulder . . . . . . . . . . . . . . . . . . . . . . — Robert Reid . . . . . . . . . . . . . . . . . . . . . . . . . . . — Allen Gessen . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 Gerard Holden . . . . . . . . . . . . . . . . . . . . . . . . . — Richard Collocott(2) . . . . . . . . . . . . . . . . . . . . . 150,000
0.037 — — — 0.008 — 0.049
Director’s Name
Immediately following Completion of the Open Offer(1),(2) No. of Percentage of Ordinary issued ordinary Shares share capital (%)
112,786 — — — 25,000 — 150,000
0.010 — — — 0.002 — 0.014
Notes: (1) The number of Ordinary Shares in issue immediately following the Open Offer assumes that: (i) the Open Offer is taken up in its entirety; (ii) no options are exercised under the Namakwa Employee Share Plan; and (iii) no Ordinary Shares are issued pursuant to the conversion of “A” Preference Shares in NDHL. (2) Mr Collocott holds the beneficial title to these Ordinary Shares through Namakwa’s EBT.
As at 5 June 2012 (being the latest practicable date prior to date of this document) the following options over Ordinary Shares have been granted to the Directors under the Namakwa Employee Share Plan described in paragraph 13 entitled “Namakwa Employee share plan” below, such options being exercisable at the price and between the dates shown below: Number of Ordinary Shares subject to option
Director’s Name
Richard Collocott . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,227,677
Exercise price of Ordinary Share Grant date (£) (US$)
31/08/2011
0.25
—
On 31 August 2011, Namakwa granted options under the Namakwa Global Share Plan (the “Plan”) to Richard Collocott described in the table above. The exercise price for these options is 25 pence per share. The options become exercisable in three tranches, on the first, second and third anniversaries of their date of grant and are exercisable in equal proportions after each such anniversary for a period of two years from the date of such vesting or an earlier change of control event. Save as set out above in this paragraph 8, no Director has any interest in the share or loan capital of Namakwa and there is no person to whom any capital of any member of Namakwa is under option or agreed unconditionally to be put under option.
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9.
Interests of major Shareholders
As at 5 June 2012 (being the latest practicable date prior to the date of this document) Namakwa has been notified in accordance with DTR 5 of the Disclosure and Transparency Rules or was otherwise aware of the following Shareholders who were directly or indirectly interested in 5% or more of the issued Ordinary Shares:
Name
Jarvirne . . . . . . . . . . . . . . . . . . . . . . . . The Kruger Family Foundation . . . . . JO Hambro Capital Management Limited . . . . . . . . . . . . . . . . . . . . . . Satya Capital Opportunities Limited . . . . . . . . . . . . . . . . . . . . . . Societe Generale Bank & Trust Luxembourg . . . . . . . . . . . . . . . . . .
Immediately following Completion of the Open Offer(1) Percentage of No. of issued ordinary Ordinary Shares share capital (%)
No. of Ordinary Shares
Percentage of issued ordinary share capital (%)
98,665,158 30,371,148
32.39 9.97
356,052,527 109,600,248
32.39 9.97
17,480,000
5.74
63,080,000
5.74
17,183,156
5.64
62,008,796
5.64
15,503,000
5.09
55,945,580
5.09
Notes: (1) Assuming that all Shareholders subscribe in full for their pro rata entitlements under the Open Offer, and ignoring any rounding for fractions.
Save as disclosed in this paragraph 9 and paragraph 8 entitled “Directors’ interests in Namakwa” above, Namakwa is not aware of any interest of any person who as at 5 June 2012 (being the latest date practicable prior to the date of this document), directly or indirectly, has a holding which exceeds the threshold of 5% or more of the total voting rights attaching to the issued share capital and is notifiable under English law. As at the date of this document, Jarvirne owns 98,665,158 Ordinary Shares representing 32.39% of the issued share capital of Namakwa. Immediately following the Open Offer and assuming Jarvirne subscribes for 794,063,295 New Shares, being the maximum number for which it is required to subscribe pursuant to the Jarvirne Undertaking in circumstances where no other Shareholders subscribe for their Open Offer Entitlements, Jarvirne will have an interest in Ordinary Shares representing 81.3% of the enlarged share capital of Namakwa. Save as regards Jarvirne, Namakwa and the Directors are not aware of any person who as at 5 June 2012 (being the latest date practicable prior to the date of this document), directly or indirectly, jointly or severally, exercises or could exercise control over Namakwa, nor are they aware of any arrangements, the operation of which may at a subsequent date result in a change of control by Namakwa. There are no differences between the voting rights of the Shareholders described above and those of any other Shareholders. However, it should be noted that, pursuant to the Relationship Agreement and the Amended Relationship Agreement, Jarvirne is contractually obliged to exercise all its powers and to use its reasonable endeavours to procure that each of its associates will exercise all their respective powers, in each case, including exercising the voting rights of their Ordinary Shares, to comply with the undertakings given by Jarvirne to the Company in those agreements. Accordingly, whilst its voting rights are no different from those of other Shareholders, and whilst the amount of votes it may cast, and its ability to cast votes, is unaffected by such agreements, Jarvirne must be mindful of such contractual undertakings when exercising its Ordinary Share voting rights. Such undertakings may dictate whether or not Jarvirne is (contractually) able to vote in favour or against a particular resolution, and Jarvirne may not therefore vote such shares in its entire discretion.
146
10.
Remuneration and benefits of Directors During the course of the financial year ended 31 August 2011, the Directors during this period were entitled to the remuneration and benefits in kind set out below, pursuant to their contractual arrangements with the Group: 31 August 2011
Directors
Executive Directors Richard Collocott(1) . . . Nico Kruger(2) . . . . . . . . Jacques Conradie(3) . . . . Heno Kruger(4) . . . . . . . .
Salaries / Fees (US$)
Cash Share Based Bonus Payments (US$) (US$)
107,665 — 401,955 64,600 330,177 64,600 366,066 64,600
Non-Executive Directors Hans Smith(5) . . . . . . . . . 150,000 — Tom Kruger(6) . . . . . . . . 436,612 70,170 Edward Haslam(7) . . . . . 105,000 — — Marthinus Mulder(8) . . . 35,833 Dirk van Staden(9) . . . . . 60,000 — Con Fauconnier(10) . . . . . 37,500 — Alex Davidson(11) . . . . . 64,664 —
93,726 23,361 23,361 23,361
Other Benefits (US$)
31 August 2010 Share Salaries Cash Based Other / Fees Bonus Payments Benefits (US$) (US$) (US$) (US$)
— — — 315,802 — 315,802 — 315,802
— — — —
192,985 — 70,000 — see note 6 343,031 — — 90,000 — — — — — 35,000 — — 60,000 — — 55,000
— — — — — —
— 34,438 34,438 34,438
— — — —
— — — see note 6 — — — — — — — — — —
Notes: (1) Mr. Collocott was appointed as an executive director and Chief Financial Officer of Namakwa on 6 July 2011. An award of 150,000 shares held by the Namakwa Diamonds Employee Benefit Trust was reserved for the benefit of Mr. Richard Collocott, subject to any necessary shareholder approvals. On 27 October 2011, the rights and benefits of such shares were awarded to Mr. Collocott, although Namakwa expensed this charge in the FY2011 financial period, at a carrying value of 38.8p per share. (2) Mr. N Kruger resigned as an executive director and the Chief Executive Officer of Namakwa on 31 August 2011. (3) Mr. Conradie resigned as an executive director and Chief Financial Officer of Namakwa on 6 July 2011. Mr. Conradie remains with Namakwa as Group Financial Controller. (4) Mr. H Kruger resigned as an executive director and the Head of the Trading & Beneficiation on 12 April 2011. (5) Mr. Hans Smith resigned as Chairman of Namakwa on 28 August 2011. On 10 December 2010, Mr. Smith was awarded 317,248 “A” preference shares in the capital of Namakwa Diamond Holdings (Pty) Ltd (“NDHL”), following the approval of “A” preference shareholders and NDHL, in compensation for certain incorrect payments in 2007, prior to the initial public offering of Namakwa. (6) Mr T. Kruger resigned as a non-executive director and deputy chairman on 26 March 2012. Mr. T Kruger’s fees were paid pursuant to an agreement with Namakwa Diamonds Management Services (Pty) Ltd for diamantaire services provided to the Group. Mr. Kruger also had the benefit of a Company car. (7) Mr. Haslam was appointed as Chairman of Namakwa on 6 September 2011. Fees of US$180,000 a year are payable to Mr. Haslam in two installments every six months in advance, with effect from 1 July 2011. (8) Mr. Mulder was appointed as an independent non-executive director of Namakwa on 12 April 2011. Fees of US$80,000 a year are payable to Mr. Mulder in two installments every six months in advance, with effect from 1 July 2011. (9) Mr. van Staden resigned as an independent non-executive director of Namakwa and Chairman of the Audit, Risk & Compliance Committee on 31 August 2011. (10) Dr. Fauconnier resigned as an independent non-executive director of Namakwa on 12 April 2011. (11) Mr Davidson became Senior Independent Non-Executive Director of Namakwa on 6 September 2011 following Mr Haslam’s appointment as chairman of the Company. Fees of US$100,000 a year were payable to Mr. Davidson in two installments every six months in advance, with effect from 1 July 2011. Mr. Davidson subsequently resigned as senior independent non-executive director on 26 March 2012.
On 8 September 2011, Mr Allen Gessen and Mr. Gerard Holden were each appointed as non-executive directors of Namakwa pursuant to the terms of their letters of appointment detailed below. They are each entitled to receive fees for their services of US$80,000 per annum (paid in equal installments, every six months in advance). On 26 March 2012, Ms Melissa Sturgess was appointed as senior independent non-executive director of Namakwa pursuant to the terms of her letter of appointment detailed below. She is entitled to receive fees for her services of US$100,000 per annum (paid in equal installments, every six months in advance). 147
On 2 April 2012, Mr Robert Reid was appointed as an independent non-executive director of Namakwa pursuant to the terms of his letter of appointment detailed below. The fees for his services of US$80,000 per annum (paid in equal installments, every six months in advance) are contributed to Mr Reid’s employer, Renaissance Capital Group. The Company is not aware of any conflict of interest between Mr Reid’s employer and any third party interest in the Namakwa Group and Mr Reid has confirmed to the Company that he is not aware of any such conflict of interest. Richard Collocott, the sole executive director and Chief Executive Officer of Namakwa, has a service agreement with Namakwa which commenced on 1 September 2011. Under the service agreement, Mr. Collocott has a salary of ZAR3,000,000 per annum, payable in monthly instalments. He was also granted options over 9,227,677 Ordinary Shares of Namakwa’s share capital on 31 August 2011, exercisable at £0.25 per share. These options are exercisable in three equal tranches from 31 August 2013, 31 August 2014 and 31 August 2015 and are not subject to specific performance criteria. In the event of a change of control of Namakwa, if Mr. Collocott’s employment is terminated either directly or indirectly in connection with the change of control within 12 months of the change of control: (i) he is entitled to a payment of an amount equivalent to the gross value of 12 months’ basic salary payable within one month of termination of employment; (ii) his granted share options shall vest and become exercisable immediately; and (iii) any outstanding bonuses due and payable shall be paid within one month of termination of employment. The following non-executive Directors of Namakwa have letters of appointment setting out the terms of their service as follows: (a)
Edward Haslam Edward Haslam serves as a non-executive director of Namakwa pursuant to a letter of appointment from Namakwa effective from 1 October 2007. The agreement is capable of being terminated by either party on one calendar month’s written notice at any time.
(b)
Melissa Sturgess Melissa Sturgess serves as the senior independent non-executive director of Namakwa pursuant to a letter of appointment from Namakwa effective from 26 March 2012. The agreement is capable of being terminated by either party on one calendar month’s written notice at any time.
(c)
Robert Reid Robert Reid serves as an independent non-executive director of Namakwa pursuant to a letter of appointment from Namakwa effective from 2 April 2012. The agreement is capable of being terminated by either party on one calendar month’s written notice at any time.
(d)
Marthinus Mulder Marthinus Mulder serves as an independent non-executive director of Namakwa pursuant to a letter of appointment from Namakwa effective from 11 April 2011. The agreement is capable of being terminated by either party on one calendar month’s written notice at any time.
(e)
Allen Gessen Allen Gessen serves as a non-executive director of Namakwa pursuant to a letter of appointment from Namakwa effective from 8 September 2011. The agreement is capable of being terminated by either party on one calendar month’s written notice at any time.
(f)
Gerard Holden Gerard Holden serves as a non-executive director of Namakwa pursuant to a letter of appointment from Namakwa effective from 8 September 2011. The agreement is capable of being terminated by either party on one calendar month’s written notice at any time.
For the financial period ended 31 August 2011, the aggregate total remuneration (including salaries, fees, bonus payments and benefits in kind) granted to the directors of Namakwa during such financial year was US$2,931,570. It is estimated that for the financial year ending 31 August 2012, under arrangements in force at the date of this document, the remuneration of the Directors will be US$1,355,563. 148
There is no arrangement under which any Director has waived or agreed to waive future emoluments nor have there been any such waivers during the financial year immediately preceding the date of this document. As at the date of this document), the Company owed Group employees an amount of c.US$375,000 in unpaid bonus entitlements, which were due and payable in 2011. Save as set out in this paragraph 10, there are no outstanding loans or guarantees granted or provided by any member of Namakwa to, or for the benefit of, any of the Directors. Save for Richard Collocott (in respect of whom, the provisions outlined above relating to a change of control may apply) and other than described above, no benefit, payment or compensation of any kind is payable to any Director upon termination of his employment. 11.
Board practices
11.1
Corporate Governance Code The Directors note that Bermuda, the country of Namakwa’s incorporation, has no specific corporate governance regime. Namakwa voluntarily complies with the specific rules of corporate governance set out in the UK Corporate Governance Code. The Board confirms that Namakwa has complied with the provisions set out in the UK Corporate Governance Code for the financial year ended 31 August 2011 in respect of Board composition and all other elements of the UK Corporate Governance Code for a company beneath the FTSE 350. Save for its obligations with regards to the composition of the Audit, Risk & Compliance Committee and the Remuneration & Nomination Committee, Namakwa has complied with the provisions of the UK Corporate Governance Code for the period from 1 September 2011 up to and including 5 June 2012 (being the latest practicable date prior to the publication of this document), insofar as they apply to a company beneath the FTSE 350. Namakwa did not comply with the provisions of the UK Corporate Governance Code (insofar as they apply to a company beneath the FTSE 350) in relation to the Audit, Risk & Compliance Committee and the Remuneration & Nomination Committee from 6 September 2011 to 24 October 2011 as, during this period, these committees did not meet the requirement to have two independent non-executive directors. From 24 October 2011 until 5 June 2012 (being the last practicable date prior to date of this document), Namakwa has complied with the provisions of the UK Corporate Governance Code.
11.2
Audit, Risk & Compliance Committee The members of the Committee are: Gerard Holden (Committee Chairman an non-executive director, although not independent); Melissa Sturgess (Senior Independent Non-Executive Director), Robert Reid (Independent Non-Executive Director) and Marthinus Mulder (Independent Non-Executive Director). The Chief Executive Officer and the Chief Financial Officer may be invited to attend all or part of meetings of the committee but neither have any voting rights. The committee will normally meet four times a year. The committee has responsibility for, amongst other things, the planning and review of Namakwa’s annual report and accounts and half-yearly reports and for the involvement of Namakwa’s auditors in that process. It focuses in particular on compliance with legal requirements, accounting standards and regulatory requirements and on ensuring that an effective system of internal financial control is maintained. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board. The terms of reference of the Committee cover such issues as membership and the frequency of meetings, as mentioned above, together with the role of the secretary and the Committee and the requirements of notice, quorum for and the right to attend meetings. The duties of the Audit, Risk and Compliance Committee covered in the terms of reference are: financial reporting, internal controls and risk management systems, whistle blowing, internal audit, external audit and reporting and accountability. The terms of reference also set out the authority of the Committee to carry out its duties. The following changes have been made to the members of the Committee during the 2012 financial year: 8 September 2011 . . . . . . . . . . . . . . . 24 October 2011 . . . . . . . . . . . . . . . . 26 March 2012 . . . . . . . . . . . . . . . . . 26 March 2012 . . . . . . . . . . . . . . . . . 2 April 2012 . . . . . . . . . . . . . . . . . . . 17 April 2012 . . . . . . . . . . . . . . . . . .
Gerard Holden was appointed to the Committee and the Board Marthinus Mulder was appointed to the Committee Alex Davidson resigned from the Committee and the Board Melissa Sturgess was appointed to the Committee and the Board Robert Reid was appointed to the Committee and the Board Edward Haslam resigned from the Committee 149
Membership of the Committee during the 2012 financial year has been compliant with the provisions of the UK Corporate Governance Code, except for the period from 1 September 2011 to 24 October 2011. During such period, following the resignation of Dirk van Staden from the Committee and the Board on 31 August 2011 and the appointment of Edward Haslam as Chairman of the Company on 6 September 2011, the Committee lacked the required quorum of two independent non-executive directors. However, with the appointment of Marthinus Mulder to the Committee on 24 October 2011, the Committee again complied with the requirements of the UK Corporate Governance Code for companies beneath the FTSE 350, with two independent non-executive directors as members. Whilst the Chairman of the Board, Edward Haslam, remained on the Committee, it is noted that he was an independent non-executive Director prior to his appointment as Chairman. Mr. Haslam stepped down from the Committee on 17 April 2012 following the appointments of independent non-executive directors, Melissa Sturgess and Robert Reid to the Committee. 11.3
Remuneration & Nomination Committee The members of the Committee are: Melissa Sturgess (Committee Chairman and Senior Independent Non-Executive Director), Edward Haslam (Chairman of the Board, but considered independent on appointment), Marthinus Mulder (Independent Non-Executive Director) and Gerard Holden (Non-Executive Director). The Chief Executive Officer and the Chief Financial Officer may be invited to attend all or part of the meetings of the Committee but neither have any voting rights. The Committee normally meets three times a year and takes responsibility for the determination of specific remuneration packages for the Executive Directors and the Chairman, including pension rights and any compensation payments, and recommending and monitoring the level and structure of remuneration for senior management, the implementation of employee benefit trust and share option awards, and to make recommendations to the Board, inter alia, on Board composition and balance, new candidates and succession planning. Should the Remuneration & Nomination Committee require it to be necessary, consideration will be given to the use of external consultants to assess levels of remuneration of the Executive Directors. The terms of reference of the Committee cover such issues as membership and frequency of meetings, as mentioned above, together with the role of secretary and the requirements of notice and quorum for and the right to attend meetings. The duties of the Committee covered in the terms of reference, with regards to remuneration, relate to the following: the policy for the remuneration of Namakwa’s Chairman, Chief Executive Officer and the Executive Directors, reviewing remuneration trends across Namakwa; reviewing the ongoing appropriateness and relevance of the remuneration policy; obtaining reliable, up-to-date information about remuneration in other companies; remuneration consultants; share incentive plans; pension arrangements; authorising claims for expenses from the Chief Executive Officer and Chairman; and employee benefit schemes. The duties of the Committee covered in the terms of reference, with regards to nomination, relate to the following: reviewing the structure, size and composition of the Board; succession planning for directors and other senior executives; reviewing the leadership needs of Namakwa; keeping up to date and fully informed about strategic issues and commercial changes affecting Namakwa and the diamond industry; and identifying and nominating candidates for the Board. The terms of reference also set out the reporting and disclosure responsibilities and the authority of the Committee to carry out its duties. The following changes have been made to the members of the Committee during the 2012 financial year: 8 September 2011 . . . . . . . . . . . . . . . 24 October 2011 . . . . . . . . . . . . . . . . 26 March 2012 . . . . . . . . . . . . . . . . . 26 March 2012 . . . . . . . . . . . . . . . . .
Gerard Holden was appointed to the Committee and the Board Marthinus Mulder was appointed to the Committee Alex Davidson resigned from the Committee and the Board Melissa Sturgess was appointed to the Committee and the Board
Membership of the Committee during the 2012 financial year has been compliant with the provisions of the UK Corporate Governance Code, except for the period from 1 September 2011 to 24 October 2011. During such period, following the resignation of Dirk van Staden from the Committee and the Board on 31 August 2011 and the appointment of Edward Haslam as Chairman of the Company on 6 September 2011, the 150
Committee lacked the required quorum of two independent non-executive directors. However, with the appointment of Marthinus Mulder to the Committee on 24 October 2011, the Committee again complied with the requirements of the UK Corporate Governance Code for companies beneath the FTSE 350, with two independent non-executive directors as members. Whilst the Chairman of the Board, Edward Haslam, remained on the Committee, it is noted that he was an independent non-executive Director prior to his appointment as Chairman. 11.4
Safety & Health Executive Committee The Safety & Health Executive Committee is chaired by Marthinus Mulder and its other members are Edward Haslam and Melissa Sturgess. The Chief Executive Officer may be invited to attend all or part of meetings of the Committee but does not have any voting rights. This Committee seeks to meet four times a year and leads the process for maintaining health and safety procedures within Namakwa’s business. The quorum necessary for the transaction of business shall be two members. The terms of reference state that the overall objective of the Committee is to direct the process for maintaining environmental and occupational health and safety procedures within Namakwa’s business. The duties of the Committee covered in the terms of reference include the following: reviewing and overseeing appropriate policies for Namakwa relative to the protection of the environment and health and safety of employees, contractors, customers and the public; reviewing the quality of Namakwa’s process for identifying, assessing, monitoring and managing the principal risks in Namakwa’s business associated with protection of the environment and occupational health and safety; and reviewing and discussing any relevant public policy, legislative, regulatory, political and social issues and trends that may affect the business operations, financial performance, or public image of Namakwa or the industry.
11.5
Conflicts of interest Directors must keep the Board informed at all times of any interest that could potentially conflict with those of Namakwa. If the Board determines that a significant conflict of interest is present, the Directors concerned will not receive the relevant Board papers and will not participate in the meeting when the item is discussed. Allen Gessen and Gerard Holden are each non-executive Directors nominated by Jarvirne and, as such, may have interests that conflict with those of Namakwa from time to time. In addition, Gerard Holden is a provider of services to Rockbury Services Inc, which was party to an advisory and services agreement with Namakwa on 17 March 2010, as described in more detail in the paragraph “Material contracts” of this Part X: “Additional Information”. However, that agreement was terminated by Namakwa with effect from 17 September 2011, and Rockbury Services Inc. waived its rights to any future fees pursuant to this contract with effect from 26 October 2011. No services had been provided during the 2011 and 2012 calendar years. Otherwise, there are no conflicts of interest between each of the Directors’ duties to the Group and their respective private interests and any other duties.
12.
Anti-money laundering and anti-bribery Namakwa has put in place the Namakwa Diamonds KYC/AML Policy (the “KYC/AML Policy”) which sets out due diligence to be performed on prospective investment and trading partners (“JVP”). The purpose of the KYC/AML Policy is to seek to protect Namakwa against risks of related to money laundering or other criminal purposes and to seek to prevent any Group company from being involved in or associated with money laundering. Currently, the Chief Executive Officer acts as the risk officer and is responsible for identifying who is a JVP and for confirming that the JVP has passed the KYC/AML due diligence. The KYC/AML due diligence must be completed before any agreement is entered into with the JVP and before any funds are received from the JVP. The due diligence steps consist of a preliminary risk assessment of each potential JVP. The identity of the JVP is then established. Enhanced due diligence must be carried in cases where, for example, the JVP is not met in person by anyone from Namakwa or where the JVP is of ‘higher risk’. A JVP will be considered to be of ‘higher risk’ if: (i) they are themselves high risk, which include politically exposed persons, JVPs with adverse sanctions or press reports or for which there are reasonable grounds to suspect that the JVP is 151
involved in money laundering; (ii) their business involves high risk activities such as diamond and precious metals mining or trading; or (iii) they are located in high risk jurisdictions as identified by the Financial Action Task Force. Simplified due diligence can be applied for certain JVPs such as a listed company on a regulated EEA stock market. A risk assessment form must then be completed in respect of the JVP and all information relating to the JVP should be stored in a JVP-specific KYC file. A JVP will not be established without the procedures set out in the KYC/AML Policy being satisfactorily completed. Namakwa has also put in place an anti bribery policy to seek to ensure its compliance with the Bribery Act 2011 of England and Wales. 13.
Namakwa employee share plan
13.1
Introduction Namakwa established the Plan pursuant to a resolution of the Board on 23 November 2007. Under the Plan, options can be granted over Ordinary Shares to employees and executive directors of Namakwa and any consultants or contractors providing services to a member of the Namakwa Group. An option is a right to acquire Ordinary Shares which is exercisable during the prescribed exercise period, subject to the satisfaction of any pre-determined performance conditions and payment of the applicable exercise price.
13.2
Grant of options On 31 August 2011, Namakwa granted those options under the Plan to Richard Collocott described in paragraph 8 above. The exercise price for these options is 25 pence per share. Unless otherwise provided on grant, under the Plan options become exercisable in three tranches, on the first, second and third anniversaries of their date of grant. They will continue to be exercisable until the fifth anniversary of grant unless any of the early exercise and lapse provisions (i.e. good leaver/change of control) are triggered. So, by way of example, options which become exercisable on the third anniversary of grant will be exercisable for two years. In the case of options issued to Richard Collocott described in paragraph 8 above, the options vest in the three tranches on the first, second and third anniversaries of their date of grant, exercisable in equal proportions after each such anniversary for a period of two years from the date of such vesting or an earlier change of control event. The Board has delegated, as appropriate, responsibility for the operation of the Plan to the Remuneration Committee.
13.3
Plan provisions Eligibility Participation in the Plan is limited to employees and executive directors of Namakwa and any consultants or contractors providing services to a member of the Namakwa Group. Grant of options Options can be granted by the Board (which, for the purposes of the Plan, is defined as the board of directors for the time being of Namakwa, or a duly authorised committee of it) during any period when such grant is not prohibited under the Listing Rules or any applicable legislation in any relevant jurisdiction. The expectation is that options will normally be granted on an annual basis within 42 days of Namakwa announcing its results for any period. No option may be granted under the Plan if, as a result, the number of Ordinary Shares issued or issuable under the Plan and all other employee share plans or arrangements established and operated by Namakwa, for the benefit of employees or executive directors, consultants and/or contractors of Namakwa, on that date and in the preceding 10 years would exceed 10% of the aggregate total of the issued ordinary share capital of Namakwa and the issued fully paid ordinary share capital of NDHL immediately before that date. No options will be granted more than ten years after the adoption of the Plan by the Board. Exercise of options Options will normally become exercisable, subject to the satisfaction of any applicable performance conditions, in equal annual instalments over a period of three years beginning immediately after the date of grant and will lapse, if unexercised, on the fifth anniversary of the date of grant. 152
However, an option cannot be exercised in circumstances where: (i)
the optionholder’s employment or contract for services with a member of the Namakwa Group is suspended on grounds of suspected material breach of such employment or contract for services or gross misconduct; or
(ii)
the optionholder is under notice of termination of employment or contract for services due to material breach of such employment or contract for services or gross misconduct; or
(iii)
the optionholder is subject to any formal disciplinary procedure.
Exercise price The exercise price per Ordinary Share of options granted post admission to the Official List cannot be less than the higher of the market value of an Ordinary Share on the dealing day immediately preceding the date of grant (market value being determined with reference to either the middle market quotation of an Ordinary Share on a day as derived from the Daily Official List of the London Stock Exchange or, if the Board decides, the average of the middle market quotations on the three or five immediately preceding dealing days) and, in circumstances where the option is to subscribe, the nominal value of an Ordinary Share. Performance conditions The Board will have discretion to determine whether options will be granted subject to performance conditions. Details of any performance conditions will be set out in Namakwa’s annual report and accounts. Options granted to date under the Plan have not been subject to any specific performance conditions. However, Namakwa’s Remuneration Committee is aware that it is best practice according to UK corporate governance guidelines to grant options subject to performance conditions. Any applicable performance conditions may be waived or varied if they are no longer deemed to represent a fair measure of performance, provided that the varied performance conditions are no less difficult to satisfy, in the opinion of Namakwa’s Remuneration Committee, than the original performance conditions. Share appreciation rights The Board can decide whether to satisfy options through the delivery to optionholders of cash or Ordinary Shares equal to an amount which represents the difference between the aggregate market value of the Ordinary Shares over which an option is exercised at the exercise date and the exercise price payable in respect of those options. Termination of employment If an optionholder’s employment or contract for services, as appropriate, is terminated for one of the following reasons, he can exercise his option to the extent it has vested and subject to the satisfaction of any performance conditions (unless otherwise waived by the Board): (i)
within six months of such termination, in the case of termination by reason of ill-health, injury or disability or redundancy; or
(ii)
within 12 months of such termination, in the case of termination by reason of death.
Following the expiry of the periods noted above, options will lapse. For the avoidance of doubt, any options that are not currently exercisable on the termination of an optionholder’s employment or contract for services, as appropriate, will lapse immediately following such termination. Any options which have vested and are held by an optionholder whose employment or contract for services, as appropriate, is terminated for any other reason, will automatically lapse unless the Board exercises its discretion to allow such options to be exercised within a specified period. Any options held by an optionholder, which have not yet vested, will lapse in the event that the optionholder’s employment is terminated. Corporate events Options can be exercised, regardless of whether they have already vested, but subject to the satisfaction or waiver of any performance conditions in the event of a change of control, a reconstruction or an 153
amalgamation, or a consolidation or merger of Namakwa (provided any of these events does not result in an internal reorganisation or restructuring of Namakwa). Options exercised in the event of a change of control must be exercised within six months of optionholders receiving notification of the change of control or, if earlier, the change of control, following which they will lapse. Options exercised following a reconstruction or an amalgamation must be exercised within the six-month period beginning with the court sanction of the reconstruction or amalgamation, following which they will lapse. Options exercised following a scheme of arrangement must be exercised within six months of the optionholder receiving notification of the court sanctioning the compromise or arrangement. Options exercised following a consolidation or merger must be exercised within six months of the optionholders receiving notification of the consolidation or merger or amalgamation, or if earlier, the consolidation or merger or amalgamation becoming effective. Options may also be exercised, regardless of whether they have already become exercisable, but subject to the satisfaction or waiver of performance conditions, at any time during the period that a person remains entitled to give notice to acquire Ordinary Shares in Namakwa under sections 974 to 991 of the Companies Act, or at the discretion of the Board, the Bermuda legislative equivalent, or within a period of three months following an announcement that Namakwa is seeking approval for a demerger. Options may be exercised, regardless of whether they have become exercisable or whether any performance conditions have been satisfied, at any time during the period from the date of notice of a general meeting of Namakwa at which a resolution will be proposed to voluntarily liquidate Namakwa (provided this is not for the purpose of a reconstruction or amalgamation) to the passing or defeat of such resolution or the adjournment of that general meeting. Exchange of options In the event of a change of control, a reconstruction or an amalgamation, or a consolidation or merger of Namakwa, or in the event that a person becomes entitled to give notice to acquire Ordinary Shares in Namakwa under sections 974 to 991 of the Companies Act or, at the discretion of the Board, the Bermuda legislative equivalent, options can be exchanged with the agreement of the acquiring company, for options over shares in the acquiring company, at any time within the exercise periods described above. Variation of capital In the event of any variation in the capital of Namakwa, the Board may, in accordance with the rules under the Plan, make adjustments to the number of Ordinary Shares subject to an option under such and/or associated exercise price. Except as in the case of a capitalisation issue, such adjustments will be subject to prior confirmation from the auditors of Namakwa or other expert valuers that such adjustments are, in their opinion, fair and reasonable and have been subject to the prior approval of the relevant tax authorities, if required. Holders of options under the Plan will be informed of any such adjustments as soon as reasonably practicable. Benefits non-pensionable Benefits under the Plan do not form part of an optionholder’s remuneration for pension purposes. If an optionholder’s employment or contract for services with a member of Namakwa is terminated, he will not be entitled to any compensation for loss of a right or benefit or a prospective right or benefit under the Plan. Amendments No amendment can be made to the Plan which: (i)
adversely affects any subsisting rights of optionholders, without their consent; or
(ii)
alters, to the advantage of present or future optionholders, any plan provisions, without the prior approval of Namakwa in general meeting,
unless the alteration is for minor amendments to benefit the administration of the Plan, to take account of any applicable legislation or statutory regulations or any change therein or to obtain or maintain favourable tax, exchange control or regulatory treatment for any present or future optionholders or for Namakwa or any member of Namakwa. As soon as any amendments are made to the Plan, Namakwa shall give notice in writing to holders of options under the Plan as soon as is reasonably practicable. 154
14.
Namakwa Diamonds Employee Benefit Trust On 27 August 2009, Namakwa executed a trust deed constituting the Namakwa Diamonds Employee Benefit Trust (the “EBT”), with Namakwa Diamonds Trustees Limited, a wholly owned subsidiary of Namakwa. The establishment of the EBT enables Namakwa Diamonds Trustees Limited to acquire shares in Namakwa, and to make interests in those shares available for the benefit of current and future employees of Namakwa and its subsidiaries, as part of the Group’s employee incentive strategy. The following transactions were entered into by Namakwa Diamonds Trustees Limited on behalf of the EBT prior to 5 June 2012 (being the latest practicable date prior to the publication of this document): Date
9 October 2009 . . . . . . . . . . . . . . . 1 December 2009 . . . . . . . . . . . . . 1 March 2010 . . . . . . . . . . . . . . . . 24 August 2010 . . . . . . . . . . . . . . . 7 January 2011(1) . . . . . . . . . . . . . . 25 February 2011 . . . . . . . . . . . . .
11 March 2011 . . . . . . . . . . . . . . . 3 May 2011 . . . . . . . . . . . . . . . . . . 6 June 2011 . . . . . . . . . . . . . . . . . . 12 August 2011 . . . . . . . . . . . . . . . 27 October 2011 . . . . . . . . . . . . . . 24 November 2011 . . . . . . . . . . . . 1 December 2011 . . . . . . . . . . . . . 6 December 2011 . . . . . . . . . . . . . 26 January 2012 . . . . . . . . . . . . . .
26 January 2012 . . . . . . . . . . . . . .
Transaction
Acquisition of 870,000 Ordinary Shares Award of 865,714 Ordinary Shares to eligible employees Sale of 346,116 Ordinary Shares on behalf of eligible employees Sale of 53,981 Ordinary Shares on behalf of eligible employees Subscription for 281,941 Ordinary Shares Settlement of beneficial entitlements of certain eligible employees to 127,697 Ordinary Shares and retention in stock Award of 10,000 Ordinary Shares to an eligible employee Acquisition of 160,000 Ordinary Shares Acquisition of 694,368 “A” Preference Shares Sale of 172,614 Ordinary Shares on behalf of certain eligible employees Award of 150,000 Ordinary Shares to an eligible employee Sale of 98,211 Ordinary Shares on behalf of certain eligible employees Conversion of 694,368 “A” Preference Shares into 694,368 Ordinary Shares Award of 221,825 Ordinary Shares to an eligible employee Settlement of beneficial entitlements of certain eligible employees to 57,362 Ordinary Shares and retention in stock Award of 450,000 Ordinary Shares to eligible employees
Average Price (£)
Base Price of Award (£)
35.0p
—
—
34.25p
33.5p
—
42.0p 41.0p
— 41.0p
58.0p
—
— 53.0p
58.0p —
46.0p
—
28.0p —
38.8p
6.3p
—
—
—
—
6.78p
7.25p
—
—
7.25p
Note: (1) These represent entitlements subscribed for pursuant to the 2010 Placing & Open Offer in December 2010, which were distributed pro-rata to eligible employees in relation to their then current entitlements.
The EBT is consolidated from a Group perspective and all Ordinary Shares held by the EBT are accounted for as treasury shares in the audited financial statements of Namakwa. 15.
Pension schemes The Group does not set aside or accrue amounts for pension, retirement or similar benefits. Employees of Namakwa are responsible for their own pension arrangements.
155
16.
Significant subsidiary and associated undertakings Namakwa is the principal holding company of the Group. The significant subsidiaries and associated undertakings of Namakwa are detailed below:
Name
Namakwa Diamonds Limited . . Namakwa Diamonds Trustees Ltd . . . . . . . . . . . . . . . . . . . . . . . Namakwa Diamonds Botswana (Pty) Ltd . . . . . . . . . . . . . . . . . . . Polished Diamonds Africa Trading Limited . . . . . . . . . . . . . Namakwa Diamonds Israel Ltd . . . . . . . . . . . . . . . . . . . . . Namakwa Diamonds (Services) Israel Limited . . . . . . . . . . . . . . . Storm Mountain Diamonds (Pty) Ltd . . . . . . . . . . . . . . . . . . . Storm Mountain Diamonds Holdings . . . . . . . . . . . . . . . . . . . Namakwa Properties Namibia (Pty) Ltd . . . . . . . . . . . . . . . . . . . Tidal Diamonds (Pty) Ltd . . . . . Namakwa Diamonds Namibia SA . . . . . . . . . . . . . . . . . . . . . . . Albetros Inland Diamond Exploration (Pty) Ltd . . . . . . . . . Amber Cascades Trading 3 (Pty) Ltd . . . . . . . . . . . . . . . . . . . . . . . Batavia Trading 46 (Pty) Ltd . . . Big Sky Trading 461 (Pty) Ltd . . . . . . . . . . . . . . . . . . . . . . . Central Node (Pty) Ltd . . . . . . . Central High Trading 58 (Pty) Ltd . . . . . . . . . . . . . . . . . . . . . . . Counter Point Trading 403 (Pty) Ltd . . . . . . . . . . . . . . . . . . . . . . . Dumela Diamonds (Pty) Ltd . . . Hlosi Mining (Pty) Ltd . . . . . . . Idada Trading 167 (Pty) Ltd . . . Meondo Trading 72 (Pty) Ltd . . Mirimar Trading 57 (Pty) Ltd . . Monroe Mining (Pty) Ltd . . . . . Morning Dew Trading 97 (Pty) Ltd . . . . . . . . . . . . . . . . . . . . . . . Namakwa Diamond Holdings (Pty) Ltd . . . . . . . . . . . . . . . . . . . Namakwa Diamonds Management Services (Pty) Ltd . . . . . . . . . . . . . . . . . . . . . . . Namakwa Diamonds Mining North West (Pty) Ltd . . . . . . . . . Namakwa Diamonds Mining South Africa (Pty) Ltd . . . . . . . . Namakwa Diamonds Trading (Pty) Ltd . . . . . . . . . . . . . . . . . . . Northern Node (Pty) Ltd . . . . . .
Company Number
Percentage of voting rights and issued shares owned (%)
Place of Incorporation(1)
Principal Activity
39031
100
Bermuda
Holding Company
43356
100
Bermuda
Trust company
2009/2627
100
Trading
1669919
100
Botswana British Virgin Islands
Trading company
514149103
100
Israel
Trading
514609817
100
Israel
Service company
2009/1149
62.5
Lesotho
Mining
094280
100
Mauritius
Holding company
2008/0139 1831
100 100
Namibia Namibia
Holding company Mining
328472
100
Panama
Holding company
1994/004421/07
95
South Africa
Mining
2007/020818/07 2007/035574/07
100 100
South Africa South Africa
Mining Mining
2007/012880/07 2007/012460/07
100 100
South Africa South Africa
Mining Mining
2007/032667/07
100
South Africa
Mining
2007/033709/07 2007/019739/07 2005/022379/07 2006/004460/07 2007/035573/07 2007/032674/07 1996/017883/07
100 100 74 100 100 100 100
South Africa South Africa South Africa South Africa South Africa South Africa South Africa
Mining Mining Mining Mining Mining Mining Mining
2007/020543/07
100
South Africa
Mining
2005/016957/07
100
South Africa
Holding company
2004/017434/07
100
South Africa
Service Company
2003/005801/07
100
South Africa
Mining
2004/017354/07
100
South Africa
Mining
2006/030499/07 2008/021116/07
100 100
South Africa South Africa
Trading Mining
156
Name
Company Number
Oersonskraal Mining Company (Pty) Ltd(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003/017217/07 Praxos (Pty) Ltd . . . . . . . . . . . . . . . . . . . . . 2008/022249/07 Pypklip Diamante (Pty) Ltd . . . . . . . . . . . 1988/006162/07 River Queen Trading (Pty) Ltd . . . . . . . . . 2007/035577/07 Scarlett Queen Properties (Pty) Ltd . . . . . . 2003/023577/07 South Node (Pty) Ltd . . . . . . . . . . . . . . . . . 1988/016888/07 South West Node (Pty) Ltd . . . . . . . . . . . . 1993/004630/07
Percentage of voting rights and issued shares owned (%)
Place of Incorporation(1)
Principal Activity
100 100 100 100
South Africa South Africa South Africa South Africa
100 100 100
South Africa South Africa South Africa
Mining Mining Dormant Mining Holding company Mining Mining
Notes: (1) NDHL has entered into contractual arrangements with the Namakwa Diamonds HDSA Employee Trust to transfer 26% of its equity interest in each of its South African operating companies, other than Hlosi mining (Pty) Ltd, Idada Trading 167 (Pty) Ltd and Oersonskraal Mining Company (Pty) Ltd, subject to the satisfaction of certain conditions precedent. (2) 65% of the equity share capital is owned by Hlosi Mining (Pty) Ltd, pursuant to which Namakwa holds an effective 48.1% interest.
Namakwa’s intermediate holding company for its South African operations is NDHL. Namakwa holds 100% of the ordinary shares of NDHL, whilst certain third parties predominantly located in South Africa hold 100% of the “A” Preference Shares of NDHL. Exchange control regulations imposed on individuals of the Common Monetary Area of southern Africa historically prohibited the ownership of securities by such individuals in foreign companies, save for certain exceptions. As such, “A” Preference Shares were introduced by NDHL to allow NDHL to issue equity as a means of acquisition finance when purchasing assets from individuals within the Common Monetary Area and also when providing equity incentives to employees of Namakwa within the Common Monetary Area. “A” Preference Shares are held by individuals outside of Namakwa and carry certain economic rights similar to Ordinary Shares as described in more detail below. Summary of rights attaching to “A” Preference Shares The rights attaching to the “A” Preference Shares may be summarised as follows: General Each “A” Preference Share is issued on the basis that the only rights attaching to the shares shall be in respect of dividends and a winding up of NDHL and the right to receive notice of and attend general meetings of NDHL, as described below. In the event of a rights issue in respect of Ordinary Shares, NDHL shall determine whether it is in the best commercial interests of NDHL to offer “A” Preference Shareholder the opportunity to participate in a rights issue of NDHL on similar terms in order to maintain the relative economic rights of the “A” Preference Shares, vis-à-vis the Ordinary Shares. In the event of a consolidation or split or sub-division of Ordinary Shares, the “A” Preference Shares shall automatically and immediately be consolidated or split or sub-divided, as the case may be, in the same ratio in order to maintain the economic parity of each “A” Preference Share, vis-à-vis each Ordinary Share. Rights on a winding-up The “A” Preference Shares have the same rights as NDHL ordinary shares on a winding up of NDHL, so that in such an event “A” Preference Shareholder would receive a payment of capital pro rata to their respective shareholdings from the capital available for distribution.
157
Dividends The “A” Preference Shares are entitled to the same dividend rights as Ordinary Shareholders, so that when Namakwa declares a dividend in respect of the Ordinary Shares, then the “A” Preference Shareholder will become entitled to a dividend (the ““A” Preference Dividend”) to be declared out of the net profits of NDHL available for distribution calculated in accordance with the following formula: D
=
A×F
Where: D =
the amount of dividend payable to “A” Preference Shareholder;
A =
the dividend declared and payable by Namakwa in respect of each Ordinary Share; and
F
the spot foreign exchange rate quoted by Nedbank Limited on the date on which the relevant dividend on the Ordinary Shares of Namakwa is payable to Shareholders in order to determine the South African Rand value to be used in the calculation of the amount of the “A” Preference Dividends.
=
In the event that NDHL does not have net profits available for distribution to “A” Preference Shareholders to satisfy the payment of any dividend due, then the relevant amount shall remain outstanding as a debt due and payable to the “A” Preference Shareholder. Transfer The “A” Preference Shareholder may only (i) transfer or sell their “A” Preference Shares to NDHL or Namakwa in certain circumstances, to their immediate family or to a Family Trust or, if a corporate entity, within their group, to any other person approved in writing by the NDHL board of directors, or to a third party purchaser making a recommended offer for the entire issued share capital of Namakwa; or (ii) request that such “A” Preference Shares are repurchased by NDHL, and NDHL shall be obliged to repurchase such “A” Preference Shares subject to being possessed of sufficient funds for such purpose and to obtaining approval in compliance with section 85 of the South African Companies Act. Voting The “A” Preference Shares entitle their holders to attend but not to vote in general meetings of NDHL, unless the rights pertaining to the “A” Preference Shares are varied, amended or otherwise abrogated or any dividend is in arrears. Repurchase Each “A” Preference Shareholder shall be entitled to require Namakwa to repurchase some or all of the “A” Preference Shares at any time. The repurchase price is determined by calculating the aggregate of the par value of the “A” Preference Shares plus any unpaid dividend plus the weighted average traded price of Ordinary Shares for the 30-day period prior to repurchase. Takeover of Namakwa In the event that an offer is made to acquire 30% or more of the voting rights of Namakwa, pursuant to a deed poll declared by Namakwa on 12 December 2007, Namakwa shall use its reasonable endeavours (provided that such endeavours are in the best commercial interests of Namakwa) to procure that such offer is extended on a pari passu basis to the “A” Preference Shareholders, as though they were Company Shareholders. Exchange In the event of a change of law that would permit an “A” Preference Shareholders to own Ordinary Shares, such “A” Preference Shareholder shall exchange its “A” Preference Shares for Ordinary Shares. In the event that an “A” Preference Shareholder is permitted to own Ordinary Shares NDHL shall repurchase the “A” Preference Shares and use its reasonable endeavours to procure, in co-operation with Namakwa and the “A” Preference Shareholders the subscription and purchase by the “A” Preference Shareholders of an equal number of Ordinary Shares. 158
Status of “A” Preference Shares As at 31 May 2012 (the latest date practicable prior to date of this document), 1,490,413 “A” Preference Shares are issued and outstanding. In order to maintain the economic balance of the “A” Preference Shares an open offer will be made by NDHL to its “A” Preference Shareholders alongside the Open Offer. “A” Preference Shares carry certain economic rights similar to the Ordinary Shares and “A” Preference Shareholders are entitled to require NDHL to repurchase their “A” Preference Shares and, in certain circumstances, NDHL will be required to use reasonable endeavours to procure, in co-operation with Namakwa and the relevant “A” Preference Shareholder, the subscription and purchase of such number of Ordinary Shares as is equal to the number of “A” Preference Shares being repurchased. 17.
Property, plant and equipment
The Group’s material existing tangible fixed assets (including leased properties), other than its mining and prospecting rights which are summarised in Part VIII: “Group Mining Licences” of this document are set out below: Country
Address
Tenure Owner/Tenant
Use
Approximate Size
Expiry of term
Current rent
31 July 2015
ZAR24,193 per month
209 SA Diamond Centre, 225 Main Street, Johannesburg 2001
Leasehold
Namakwa Diamonds Management Services (Pty) Limited
Offices
254m2
Unit 1 Highveld Technology Park, Centurion
Leasehold
Namakwa Diamonds Management Services (Pty) Limited
Offices
130m(2)
31 March 2013
ZAR10,495 per month
3 Botha Street, Schweizer Reneke
Leasehold
Namakwa Diamonds Management Services (Pty) Limited
Offices
361m2
31 October 2013
ZAR 15,173 per month
Botswana
Suite 101, The Atrium, Block 8 Industrial, Gaborone
Leasehold
Namakwa Diamonds Botswana (Pty) Ltd
Offices
100m2
30 March 2015
BWP 15,400 per month
Lesotho
15 United Nations Road, Maseru 100
Leasehold
Storm Mountain Diamonds (Pty) Ltd
Offices
200m2
31 January 2013
Maloti 10,500 per month
South Africa
As at the date of this document, the Group does not have any other planned material tangible fixed assets. 18.
Employees
The table below sets out the number of employees in Namakwa at the end of the six months ended 29 February 2012 and 28 February 2011 and each of the financial years ended 31 August 2011, 2010, 2009, 2008: Number of employees
Period ended
29 February 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 August 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 February 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 August 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 August 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 August 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
325 593 710 687 277 775
The table above does not include temporary and seasonal labour employed by the Group in its Mining segment operations from time to time.
159
19. Material contracts The following is a summary of each contract (not being a contract entered into in the ordinary course of business): (i) to which Namakwa or any member of the Group is or has been a party within the two years immediately preceding the date of this document which is, or may be, material; or (ii) that has been entered into by Namakwa or any member of the Group which contains any provision under which any member of the Group has any obligation or entitlement which is material to the Group as at the date of this document: A. 19.1
Financing Arrangements with Jarvirne Jarvirne Irrevocable Undertaking dated 1 June 2012 for US$55 Million Commitment Jarvirne has entered into a deed in favour of the Company and Shore Capital dated 5 June 2012 (the “Jarvirne Undertaking”), pursuant to which Jarvirne has irrevocably undertaken, conditional only upon the publication of this document, to: • subscribe for 257,387,369 New Shares, being its Open Offer Entitlement; • subscribe for up to a further 536,675,926 New Shares under the Excess Application Facility (subject to scale back in accordance with the terms and conditions of the Open Offer; and • vote in favour of each of the Relevant Resolutions (although the Company understands that Jarvirne will be voting against Resolutions 4 and 6). The Jarvirne Undertaking may only be withdrawn in accordance with statutory withdrawal rights and will otherwise cease to have effect on the Open Offer being withdrawn or lapsing or in any event after 1 August 2012. Provided that Admission occurs on or before 1 August 2012, which is the Company’s expectation, the lapse of the Jarvirne Undertaking after 1 August 2012 will not affect the Open Offer. Statutory withdrawal rights include the situation where a supplementary prospectus has been published, which would allow Jarvirne to withdraw from the Jarvirne Undertaking before the end of the period of two working days beginning with the first working day after the date on which the supplementary prospectus was published. A supplementary prospectus would be required to be published in circumstances where, prior to the completion of the Open Offer and/or of Admission, a significant new factor, material mistake or inaccuracy relating to the information provided in this document arises or is identified. ‘Significant’ for these purposes would mean information necessary to enable Shareholders and investors to make an informed assessment of: (i) the assets and liabilities, financial position, profits and losses, and prospects of the Company; and (ii) the rights attaching to the Ordinary Shares.
19.2
US$40 million Jarvirne Facility On 7 September 2011, Jarvirne and Namakwa entered into a two year, secured term facility, pursuant to which Jarvirne agreed to lend US$40 million in five or more tranches to Namakwa (the “Jarvirne Facility”). The term of the loan is two years and is secured by: (i) an inter-company loan assignment (further details of which are set out below under the heading “Inter-Company Loan Assignment pursuant to the US$40 million facility”); and (ii) a share charge over the 62.5% equity interest of Namakwa in the issued share capital of Storm Mountain Diamonds. The purpose of the loan is for: (i) Namakwa’s general corporate purposes (30%); and (ii) to on-lend to Storm Mountain Diamonds to finance the Kao Mine (70%). In lieu of interest accruing on the loan in the first year, 9,000,000 Ordinary Shares were issued to Jarvirne on 20 September 2011, after the first drawdown of US$5 million under the Jarvirne Facility. The value of these Ordinary Shares equates with cash interest which would otherwise have been payable by Namakwa in the first year of the loan (as if it had been fully reorganised). Jarvirne will retain these 9,000,000 Ordinary Shares even if the Jarvirne Facility is not fully reorganised, if an event of default occurs or if the Jarvirne Facility is terminated. No further amounts of interest are payable on drawn down amounts of principal under the Jarvirne Facility prior to 1 September 2012. Interest on the outstanding drawn amount of the loan in the second year is to accrue at the rate of 24% per annum. Interest on the loan in the second year shall be determined and is payable monthly in arrears, with the first payment due on 7 October 2012. As at the date of this document, total drawdowns under the Jarvirne Facility were US$35.2 million and pursuant to the terms of the Sputnick Facility, the Company has agreed not to make any further drawdowns under the Jarvirne Facility. If Namakwa does not obtain sufficient funds to repay amounts of principal and interest under the Jarvirne Facility in accordance with its terms, either as a result of a lack of suitable refinancing, failure of the Kao Mine to produce sufficient revenues or otherwise, an event of default will be triggered under the Jarvirne Facility (for further information, see the section entitled “Risk factors” on pages 6 to 17). 160
Namakwa is required to repay the facility from the proceeds of the Open Offer. Namakwa is obliged to repay the loan in full together with all interest accrued thereon, on or before 30 September 2013 (or otherwise refinance the Jarvirne Facility). Namakwa has the ability to prepay the loan early and there is no penalty payable if Namakwa exercises this right. Under the Jarvirne Facility, after 30 June 2012, within 2 business days of delivery by Namakwa to Jarvirne of each set of monthly management reports (as required by the Jarvirne Facility), Namakwa is obliged to apply all excess cashflow in excess of operating costs in prepayment of the loan. The amount of excess cashflow for such purpose shall be calculated by reference to Namakwa’s cashflow as set out in such management reports. For the purposes of this provision under the Jarvirne Facility, excess cashflow (being the closing cash balance at the end of each month) is calculated as being Namakwa’s operating cashflow less Namakwa’s debt service costs. Any excess cashflow for that month in excess of Namakwa’s operating costs (calculated as being, for any month, the amount equal to the aggregate of the Namakwa’s group’s operating costs for the previous two months, (calculated by reference to Namakwa’s group’s management reports for those two previous months)) shall then be applied by Namakwa in prepayment of the loan. Subject to the consent of Namakwa, Jarvirne may assign any of its rights under the Jarvirne Facility and security documents to any other person. The Jarvirne Facility contains the following covenants on Namakwa and (to the extent applicable) its Group companies: (i) not to create, or permit to subsist any security save for those which are expressly permitted; (ii) not to make any disposals save for those which are expressly permitted; (iii) not to make any acquisitions, save for those contemplated by the reorganisation; (iv) not to borrow any further moneys, save for those which are expressly permitted; (v) to notify Jarvirne of any potential event of default or event of default; (vi) to comply with its tax obligations; (viii) to procure at least the pari passu ranking of any unsecured obligations under the finance documents with all other unsecured obligations; (viii) to procure all necessary consent for the legality and validity of the finance documents; (ix) to comply with all laws where failure to do so may have a material adverse effect; (x) not to enter into a merger or restructuring save as contemplated by the reorganisation; (xi) not to make any substantial change to the nature of its business, save as contemplated by the reorganisation place; (xii) to supply Jarvirne with financial statements and management reports; (xiii) to certify the financial and management statements delivered to Jarvirne; (xiv) to deliver financial statements in accordance with IFRS; (xv) to notify Jarvirne of any change in accounting practices; (xvi) to deliver to Jarvirne details of any litigation and any further information that Jarvirne may reasonably request relating to the financial condition, business and operations of Namakwa; (xvii) to comply with any “know your customer” requirements; (xviii) to use all reasonable efforts to reduce overheads and make disposals of cash in accordance with the agreed cash flow projections; (xix) to do all such acts or execute all such documents as Jarvirne may reasonably specify to perfect any security documents, facilitate Jarvirne’s rights under the finance documents and to confer additional security as Jarvirne may reasonably require; (xx) to sell all of its polished diamond inventory; and (xxi) not to make any loan or other credit available to any person other than credit granted in the ordinary course of business up to a maximum aggregate amount at any one time of US$2 million. The Jarvirne Facility, as amended by the Waiver and Amendment Letter contains the following financial covenants (capitalised terms below are defined in the Jarvirne Facility): (a)
Interest Cover For each consecutive period of three months as and from (and including) September 2012, Namakwa’s Interest Cover shall not be less than 1.2:1; provided that for each period ending before and in November 2012, Namakwa’s Interest Cover shall not be less than -1.25:1. Interest Cover is expressed to be the ratio of Operating Cashflow to Finance charges for each consecutive period of three months.
(b)
Current Ratio For each month as and from (and including) September 2012, Namakwa’s Current Ratio shall exceed 1.2:1; provided that for each month ending before and in November 2012, Namakwa’s Current Ratio shall exceed 0.55:1. The Current Ratio is expressed to be the ratio of Current Assets to Current Liabilities.
(c)
Debt Equity Ratio For each month as and from (and including) September 2011, Namakwa’s Debt Equity Ratio shall not exceed 1:1; provided that: (i)
for each month ending before and in August 2012, the Debt Equity Ratio shall not exceed 2.0:1; 161
(ii)
for the month ending in September 2012, the Debt Equity Ratio shall not exceed 2.2:1;
(iii)
for the month ending in October 2012, the Debt Equity Ratio shall not exceed 2.5:1; and
(iv)
for the month ending in November 2012, the Debt Equity Ratio shall not exceed 2.75:1.
The Debt Equity Ratio is expressed to be the ratio of Total Liabilities to Net Assets on the last day of each month. Any continuing breach of the financial covenants would also entitle Jarvirne to treat the breach as a draw stop under the Jarvirne Facility thereby preventing Namakwa from drawing further undrawn advances under the Jarvirne Facility. Furthermore, failure by Namakwa to comply with any of the above financial covenants would give Jarvirne the ability to call an event of default under the Jarvirne Facility giving Jarvirne the option to demand immediate repayment of the Jarvirne Facility and/or enforce its security. The Jarvirne Facility also contains a number of events of default, the majority of which are customary for a facility agreement of its type. If an event of default were to occur and remain un-remedied, then Jarvirne would not be obliged to make any further advances under the Jarvirne Facility and could demand that Namakwa makes immediate repayment of all amounts drawn down under the Jarvirne Facility. In addition to the events of default flagged in the paragraph above, the Jarvirne Facility contains the following customary events of default: (i) non-payment by Namakwa of any sum payable under any finance documents; (ii) Namakwa failing to comply with the financial covenants; (iii) non-compliance by Namakwa with the provisions of any finance document under the Jarvirne Facility; (iv) misrepresentation in relation to any finance document; (v) any member of the Group suspending or ceasing to carry on its business other than pursuant to the reorganisation; (vi) an event of default occurring in respect of any other borrower moneys; (vii) save as contemplated pursuant to the reorganisation, any member of the Group being affected by insolvency proceedings; (viii) a creditor’s process being commenced against any member of the Group’s assets having an aggregate value of US$50,000 or more; (ix) any security on or over the assets of any member of the Group becoming enforceable; (x) all or any part of a finance document being affected by illegality or ceasing to be effective or have full force and effect; (xi) Namakwa repudiating or evidencing an intention to repudiate any finance document; and (xii) any event occurring (or circumstance existing) which has or is likely to have a material adverse effect on Namakwa. As indicated above, the Jarvirne Facility contains grace periods for various events of default. The events of default for: (i) non-compliance by Namakwa with the terms of the Jarvirne Facility (save for non-payment); and (ii) misrepresentation by Namakwa are subject to grace periods. Therefore, an event of default for: (i) non-compliance or (ii) misrepresentation may only be called by Jarvirne (in the case of an event which is capable of remedy) if the event is not remedied within 10 business days of the earlier of Jarvirne notifying Namakwa of the event and the remedy required and Namakwa becoming aware of the event. 19.3
Inter-company loan assignment pursuant to the US$40 million facility Pursuant to a deed of assignment dated 7 September 2011, Namakwa assigned to Jarvirne all its present and future rights and interest in an inter-company loan agreement dated 6 September 2011 between Namakwa as lender and Storm Mountain Diamonds as borrower, including all money due or owing to Namakwa under or in connection with the inter-company loan agreement and all rights and remedies for enforcing that agreement. Namakwa gave a number of covenants, warranties and undertakings in relation which are customary for a deed of this nature.
19.4
SMD Share Charge pursuant to the US$40 million facility Namakwa and Jarvirne obtained consent on 18 May, 2012 from the Minister of Natural Resources in Lesotho, authorising Namakwa to create security over its equity interest from time to time in the issued share capital of Storm Mountain Diamonds (in addition to the existing inter-company loan assignment) by way of a share charge in favour of Jarvirne, with such share charge agreement subsequently entered into on 29 May 2012. As at the date of this document, Namakwa holds a 62.5% interest in the issued share capital of Storm Mountain Diamonds. The share charge was executed by Namakwa on 29 May 2012 and, if an Event of Default (as defined in the Jarvirne Facility) were subsequently to occur and remain continuing under the Jarvirne Facility, Jarvirne would be entitled to immediately enforce its rights under this share charge. If Jarvirne enforced its rights under the share charge, Namakwa would likely lose control of Storm Mountain Diamonds as a result of the shares being sold to such third party as Jarvirne nominates in order to repay the monies owed by Namakwa to Jarvirne under the Jarvirne Facility. 162
19.5
Waiver and Amendment Letter to the Jarvirne Facility On 2 November 2011, Namakwa and Jarvirne entered into the Waiver and Amendment Letter. Pursuant to the Waiver and Amendment Letter, Jarvirne permanently waived certain breaches of financial covenants by Namakwa under the Jarvirne Facility. The effect of the waiver is that the relevant breaches shall not constitute events of default under the Jarvirne Facility, meaning that Jarvirne will be unable to demand repayment of amounts drawn down under the Jarvirne Facility as a result of the breaches. Jarvirne also agreed to make certain amendments to the financial covenants in the Jarvirne Facility (as set out above). The Waiver and Amendment Letter also: (i) amends the Settlement Agreement (by increasing the number of Ordinary Shares issued pursuant to the Capitalisation to 66,791,667, and reducing the deemed price of the New Shares to 15 pence per share, going on exchange rate of £1:US$1.60); and (ii) regulates the acquisition of further Ordinary Shares by Jarvirne if Jarvirne acquires any Ordinary Shares from the KFF in satisfaction of amounts owing to Jarvirne pursuant to the KFF Loan Agreement. In summary, if Jarvirne acquires any Ordinary Shares from the KFF in satisfaction of amounts owing to Jarvirne pursuant to the KFF Loan Agreement, then Namakwa shall procure that the Board consents to such acquisition as a “Permitted Acquisition” under the Bye-laws and use all reasonable endeavours to dispatch a circular to Shareholders (other than Jarvirne) which contains notice of a proposed resolution to approve the acquisition and related special general meeting of Namakwa. If any such resolution is not passed by the Shareholders, then Jarvirne shall have up to 30 days thereafter to dispose of the relevant Ordinary Shares (following which, should any such shares be so disposed, the acquisition will then become a “Prohibited Acquisition” under the Bye-laws). In that event, the Directors shall have a wide discretion to determine what (if anything) should happen in relation to such Ordinary Shares pursuant to the Bye-laws. These specific provisions relating to the KFF were waived pursuant to the Second Waiver and Amendment Letter. In addition, Jarvirne undertakes that neither it nor its Associates (as defined in the Waiver and Amendment Letter) will acquire any further interest in any Ordinary Shares in the period ending 1 November 2012, except in the following circumstances: (a)
at any time after a third party (not being either Jarvirne or any of its Associates) makes a general offer for Ordinary Shares not then held by such third party or its Associates;
(b)
Jarvirne or any of its Associates agrees to underwrite an issue of Ordinary Shares by Namakwa;
(c)
Jarvirne or any of its Associates acquires Ordinary Shares pursuant to a private placement by Namakwa;
(d)
Jarvirne or any of its Associates participates in a pre-emption offer of Ordinary Shares by Namakwa in accordance with Namakwa’s Bye-laws;
(e)
Jarvirne or any of its Associates takes up its rights pursuant to a rights issue by Namakwa;
(f)
as permitted by Namakwa’s Bye-laws; or
(g)
by agreement between Jarvirne and Namakwa.
These provisions (a) to (g) were removed by the Second Waiver and Amendment Letter. 19.6
US$19.5 million Settlement Agreement On 7 September 2011, Namakwa entered into the Settlement Agreement with Jarvirne in relation to all trading debts payable under the Trading Agreement. The Settlement Agreement was amended by Namakwa and Jarvirne on 2 November 2011 (pursuant to the Waiver and Amendment Letter). Under the Settlement Agreement (as amended), it was agreed that the Settlement Amount would be capitalised by Namakwa in consideration for the issue and allotment of 77,971,667 Ordinary Shares to Jarvirne (being 11,000,000 Ordinary Shares at a deemed price of 19.5 pence per share (on the basis of an exchange rate of £1:US$1.62) and 66,791,667 Ordinary Shares at a deemed price of 15 pence per share (on the basis of an exchange rate of £1:US$1.62)). The Settlement Amount represents a capital amount of US$17 million (being aggregated cash advances from Jarvirne to Namakwa for the trading of rough and polished diamonds) and an amount equal to US$2.5 million in lieu of deemed unrealised profits, which were determined to have accrued in favour of Jarvirne under the Trading Agreement. Under the Settlement Agreement, it was agreed that the Settlement Amount would be capitalised by Namakwa in exchange for the issue by Namakwa of Ordinary Shares to Jarvirne in two stages. 163
The first stage occurred on 20 September 2011, resulting in the issue and allotment of 11,000,000 Ordinary Shares in the capital of Namakwa to Jarvirne (and the admission of those shares to trading on the London Stock Exchange on 21 September 2011), in consideration for the acquisition by Namakwa of the entire issued share capital of a wholly owned subsidiary of Jarvirne, Polished Diamonds Africa Trading Limited (“PDATL”), to which Jarvirne had assigned US$3.47 million of the Settlement Amount. PDATL owns no other assets, and has no liabilities. This transaction reduced the Settlement Amount to the Outstanding Settlement Amount of US$16.03 million. The second stage involved the issue and allotment of 66,791,667 Ordinary Shares to Jarvirne (and the admission of those shares to trading on the London Stock Exchange) effectively in settlement of the Outstanding Settlement Amount, being US$16.03 million. The Settlement Agreement also provided for the right of Jarvirne to appoint two individuals to the Board, being Mr Allen Gessen as a non executive director of the Board and Mr Gerard Holden as a non-executive director of the Board (and until Namakwa’s next annual general meeting, the chairman of its audit, risk and compliance committee). The Settlement Agreement also provided that each of Jarvirne and Namakwa relieves the other’s directors, officers and employees from all personal liability arising out of or in connection with the Trading Agreement. Pursuant to the Settlement Agreement, Namakwa warrants to Jarvirne that: (i) it has the power to enter into and perform its obligations under the Settlement Agreement; and (ii) the execution and delivery and performance of its obligations under the Settlement Agreement does not require the consent of any third party and will not result in a breach of any agreement, arrangement, order, judgment or decree of any court or governmental agency to which it is a party or by which its assets are bound. 19.7
US$30 million Committed Working Capital Facility from Jarvirne (no longer available and never drawn down) Pursuant to an agreement dated 10 July 2011 Jarvirne agreed to provide Namakwa with a committed working capital facility of US$30 million for general corporate purposes. The term of the proposed facility was 12 months, with an extension of an additional six months at the request of Namakwa. The facility was able to be drawn-down in minimum tranches of US$1 million. Namakwa agreed to provide Jarvirne with a minimum of 5 business days notice before the drawdown of any tranche was required. Interest was to become payable on the tranche from the date of receipt of funds by Namakwa. Interest was calculated at 3.5% per month on amounts drawn-down under the facility for the first two months and 3% thereafter, unless agreed otherwise in writing. Interest was calculated on a 360 day year. Interest was payable monthly from the date of first drawdown until repayment was made in full. The agreement states that the facility was to be made available under a loan agreement in form and substance satisfactory to Namakwa and Jarvirne. Until the documentation was entered into, Namakwa was able to call down the tranches under the facility pursuant to the terms and conditions of the agreement. The agreement was subject to Namakwa providing Jarvirne with copies of: (a)
its constitutional documents;
(b)
a resolution of the board of directors approving the terms of the facility;
(c)
specimen signatures;
(d)
borrowing/guaranteeing certificate;
(e)
certification of copy documents; and
(f)
a copy of any other document, authorisation, opinion or assurance specified by Jarvirne,
in form and substance satisfactory to Jarvirne. Under the agreement, Namakwa agreed to give representations and undertakings to Jarvirne that are customary for a loan agreement of this type. 164
Namakwa also agreed to pay Jarvirne a commitment fee of 1% of the facility amount. Namakwa also agreed to: (a) grant a share pledge over its shares in Namakwa Diamond Holdings (Pty) Limited; and (b) procure that all Group subsidiaries pledged or otherwise provided cross guarantees for assets up to an amount equal to the amount drawn down under the facility from time to time. The agreement was governed and construed in accordance with the laws of England. The documents relating to the facility were not finalised. The Company believes that this was due to factors including worsening trading conditions and an inability to reach agreement on the settlement of a trading position between the parties. The parties remained in negotiation with regards to the facility but no amounts were ever drawn down and no formal loan agreement was executed. Jarvirne are of the opinion that a legally binding agreement in respect of this facility was never entered into. 19.8
2010 Loan Agreement for US$15 million Facility with Jarvirne (no longer in force and effect) Facility Pursuant to a loan agreement dated 21 May 2010 (the “2010 Loan Agreement”), Jarvirne agreed to lend US$15 million in three tranches of US$5 million to Namakwa. The purpose of the loan was for the growth and development of Namakwa’s business and assets within each of its mining and beneficiation segments and for general corporate purposes. An interest rate of 8.5% per annum was charged for the initial term of 12 months and at 17% per annum for the six months period thereafter if the term of the loan was extended at the option of Namakwa. The loan was fully drawn down. The 2010 Loan Agreement was repaid in full pursuant to the Novation and Payment Arrangements described below, and accordingly, Namakwa has no further liability under the 2010 Loan Agreement. South African share pledge pursuant to the 2010 Loan Agreement Pursuant to a share pledge dated 21 May 2010 entered into pursuant to the 2010 Loan Agreement, Namakwa pledged the entire issued ordinary share capital of NDHL and any income, offer, right or benefit in respect of any such investment as well as all dividends, interest and other money payable to Namakwa in respect of such share capital to Jarvirne as continuing security for the liabilities under the 2010 Loan Agreement. Namakwa covenanted that it would not, without first obtaining the consent of Jarvirne, sell, transfer or dispose or purport to dispose of any interest in or grant any right over the pledged assets or create, agree to create or allow to remain outstanding any security over any pledged assets, other than those permitted under the 2010 Loan Agreement. Disposals to satisfy obligations in respect of BEE in South Africa, the provision of security in favour of Jarvirne or any lender providing working capital debt finance facility to Namakwa, and a lien arising in the ordinary course of business by operation of law were permitted. Inter-company loan receivables assignment pursuant to the 2010 Loan Agreement Pursuant to a deed of assignment dated 21 May 2010 entered into pursuant to the 2010 Loan Agreement, Namakwa assigned to Jarvirne all its present and future rights and interests in an inter-company loan agreement dated 27 April 2010 with Storm Mountain Diamonds, including all money due or owing to Namakwa under or in connection with the inter-company loan agreement and all rights and remedies for enforcing that agreement. Namakwa gave similar covenants to Jarvirne in relation to the charged assets which were customary for a deed of this nature. Novation and Payment Arrangements On 28 December 2010, Namakwa entered into an acknowledgment of debts and novation agreement with Jarvirne and the KFF (the “Novation and Payments Arrangements”), pursuant to which: (a)
US$2,089,451.04 of the debt owed by Namakwa to Jarvirne under the 2010 Loan Agreement was cancelled in exchange for the issue and allotment to Jarvirne of 3,266,809 Ordinary Shares (representing entitlements for subscription of Jarvirne) on or around 31 December 2010 pursuant to the 2010 Placing and Open Offer;
(b)
at the direction and instruction of Jarvirne, Namakwa paid an aggregate amount of US$5,655,233.57 to accounts nominated by Jarvirne (of which amount US$2,744,684.60 was paid to accounts of the KFF pursuant to the arrangements between the KFF and Jarvirne in respect of the KFF Loan Agreement); and 165
(c)
Jarvirne agreed to release and discharge Namakwa in full from the obligation to repay a further US$7,255,315.39 of the amount outstanding under the 2010 Loan Agreement (representing an amount equal to the obligation of the KFF to subscribe for 11,343,520 Ordinary Shares under the 2010 Placing and Open Offer) and the KFF assumed all liability to repay to Jarvirne such amount under the terms of the KFF Loan Agreement.
Following completion of the above mentioned transactions, Jarvirne released and discharged Namakwa from all obligations whatsoever under the terms of the 2010 Loan Agreement, which immediately terminated. B.
Financing Arrangements with Sputnick
19.9
US$10 million Sputnick Facility On 10 April 2012, Sputnick and Namakwa entered into a short-term, unsecured bridge facility, pursuant to which Sputnick has agreed to lend US$10 million in up to six tranches to Namakwa (the “Sputnick Facility”). The loan is for application towards Namakwa’s general corporate purposes, save that it may not be applied in repayment or prepayment of another loan. Namakwa is required to repay the loan on the earlier of 30 June 2012 and the date on which Namakwa receives the proceeds of an equity fund raising transaction of up to US$55 million. All of the interest that accrues on the loan prior to this repayment date is payable on that date at a rate of 15% per annum. If the loan is not repaid when due, interest is charged at a rate of 18% per annum up to and including 30 June 2012 and at a rate of 27% per annum on and after 1 July 2012. This interest will be compounded monthly and must be paid by Namakwa immediately on demand from Sputnick. As at the date of this document, the Sputnick Facility was fully drawn down (US$10 million). The continued availability of the Sputnick Facility is subject to the Company providing Sputnick, on each allotted drawdown date with: (a)
reasonable financial information in respect of all costs and expenses to be paid with the funds obtained from the advance; and
(b)
written confirmation that, amongst other things, the group composed of Namakwa and its subsidiaries has sufficient resources to fund its working capital requirements for the 6 months following the date of the advance and to repay any amounts outstanding under the Sputnick Facility and the Jarvirne Facility (assuming that an equity transaction is successful in raising at least US$50 million (net of expenses and commissions)).
Namakwa undertakes to supply to Sputnick (within a specified timeframe): (i) its audited consolidated financial statements for each financial year; (ii) its consolidated financial statements for each financial half year; (iii) its consolidated management reports for each calendar month; (iv) all documents dispatched by Namakwa to its shareholders; (v) the details of certain proceedings against Namakwa, its subsidiaries or any of their directors; (vi) information reasonably requested by Sputnick regarding the financial condition, business and operations of Namakwa or its subsidiaries; (vii) all drafts of the prospectus, the circular, any presentations to investors and any announcements to be published by Namakwa in connection with an equity transaction; (viii) drafts and final versions of all reports, opinions and comfort letters prepared by its advisers in connection with an equity transaction; and (ix) information of all material developments relating to an equity transaction. Sputnick may assign or transfer all its rights or obligations under the Sputnick Facility without the prior approval of Namakwa provided that the proposed assignee or transferee has provided Namakwa with documents for it to complete its “know your client” checks. Namakwa may not assign or transfer any of its rights, benefits or obligations under the Sputnick Facility. Namakwa undertakes: (i) to announce an equity transaction, publish a prospectus and a circular and convene a general meeting of shareholders of Namakwa to seek approval from shareholders for the Open Offer; (ii) to apply the net cash proceeds of any issuance of shares or other equity instruments (or of the admission of any of its shares to any stock or alternative investment exchange) in prepayment or repayment of the loan; (iii) not to make any disposals save for those which are expressly permitted; (iv) not to create or permit to subsist any security save for those which are expressly permitted; (v) not to acquire or incorporate a company, or acquire any shares, securities, business or undertaking; (vi) not to borrow any further moneys 166
save for those which are expressly permitted; (vii) to notify Sputnick of any potential event of default or event of default; (viii) to comply with its tax obligations; (viii) to procure at least the pari passu ranking of any unsecured obligations under the finance documents with all other unsecured obligations; (ix) to do all such acts or execute all such documents as Sputnick may reasonably specify to facilitate Sputnick’s rights under the finance documents and to confer additional security as Sputnick may reasonably require; (x) to procure all necessary consent for the legality and validity of the finance documents; (xi) to comply with all laws where failure to do so may have a material adverse effect; (xii) not to enter into a merger or restructuring; (xiii) not to make any substantial change to the nature of its business; (xiv) not to make any loan or other credit available to any person other than another member of its group; and (xv) to comply with any “know your customer” requirements. The Sputnick Facility contains a number of events of default. If an event of default occurs, Sputnick are not obliged to make any further advances under the Sputnick Facility and is entitled to demand that Namakwa makes immediate repayment of all amounts drawn down under the Sputnick Facility. Events of default under the Sputnick Facility include: (i) non-payment of any amount payable pursuant to the Sputnick Facility, unless its failure to pay is caused solely by an administrative or technical error and payment is made within two business days of its due date); (ii) Namakwa does not comply with any other provision of the Sputnick Facility (unless the failure to comply is capable of being remedied and is remedied within five business days of Namakwa becoming aware of the failure to comply; (iii) any representation or statement made by Namakwa in the Sputnick Facility is or proves to have been incorrect or misleading in any material respect when made (unless the circumstances giving rise to the misrepresentation or incorrect statement are capable of being remedied and are remedied within 5 business days of the earlier of Namakwa first becoming aware of the misrepresentation or incorrect statement); (iv) any financial indebtedness of Namakwa or any of its subsidiaries is not paid when due nor within any originally applicable grace period or is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default; (v) Namakwa, Storm Mountain Diamonds or (where it would have a material adverse effect) any of Namakwa’s subsidiaries meets any of the tests for insolvency set out in the Sputnick Facility; (vi) it is or becomes unlawful for Namakwa to perform any of its obligations under the Sputnick Facility; (vii) the admission of Namakwa’s shares to the Official List being suspended by the Financial Services Authority or Namakwa making an application to the Financial Services Authority for the admission of the shares to the Official List to be suspended; (viii) Namakwa or any of its subsidiaries suspends or ceases to carry on (or threatens to suspend or cease to carry on) all or part of its business; (ix) Namakwa’s directors do not recommend in the circular to shareholders for an equity transaction that the shareholders vote in favour of the shareholder resolutions to approve an equity transaction; (x) Namakwa withdraws an equity transaction or any underwriting or placing agreement entered into by Namakwa in connection with an equity transaction is terminated; (xi) an offer being made for all of the outstanding share capital of Namakwa in accordance with article 82 of Namakwa’s Bye-laws; (xii) any of Namakwa or its subsidiaries’ operational licences, leases, approvals, regulatory consents and permits in respect of its mining exploration, development and tradings and beneficiation operations, is changed, revoked, withdrawn or terminated and such change, revocation, withdrawal or termination has a material adverse effect; (xiii) Namakwa repudiates the Sputnick Facility or evidences an intention to repudiate it; and (xiv) a material adverse effect exists or has occurred. C.
Other Financing Arrangements
19.10 2010 Placing and Open Offer agreement On 7 December 2010, Namakwa and Liberum Capital entered into a placing agreement in relation to the 2010 Placing and Open Offer pursuant to which Liberum Capital, as agent for and on behalf of Namakwa, agreed to use reasonable endeavours to procure TT International Investment Management Limited to subscribe for 7,817,385 Ordinary Shares and certain placees to subscribe for up to 78,359,640 Ordinary Shares at the offer price to the extent that they were not taken up. The 2010 Placing and Open Offer was not underwritten. The placing agreement was conditional, among other things, on admission of the Ordinary Shares issued pursuant to the 2010 Placing and Open Offer having become effective at or before 8.00 am on 31 December 2010. Namakwa was obliged to use all reasonable endeavours to procure admission by 8.00 am on 31 December 2010. Namakwa agreed to pay Liberum Capital a commission of 2.5% of the gross proceeds of the 2010 Placing and Open Offer and any placing commissions agreed by Namakwa (if applicable) payable to certain placees. Namakwa could also, at its sole discretion, pay Liberum Capital a commission of up to 0.75% of the gross proceeds of the 2010 Placing Open Offer. Namakwa would also pay all reasonably incurred expenses in connection with the 2010 Placing and Open Offer (together with VAT where applicable). 167
The placing agreement contained warranties and indemnities given by Namakwa, in favour of Liberum Capital, which are customary for this type of agreement. In accordance with the terms of the placing agreement, Liberum Capital entered into binding placing letters with certain placees and TT International Investment Management Limited and received irrevocable commitments to subscribe for their entitlements from certain Shareholders. D.
Relationship Arrangements
19.11 Relationship Agreement with Jarvirne Namakwa and Jarvirne entered into the Relationship Agreement on 2 November 2011. The Relationship Agreement regulates the relationship between Namakwa and Jarvirne so long as Jarvirne (and its Associates, as defined in the Relationship Agreement) have an interest in 30% or more of the voting rights of the Company (being a “Controlling Shareholder”). Jarvirne has undertaken that it will exercise all its powers and will use its reasonable endeavours to procure that each of its Associates (as defined in the Relationship Agreement) will exercise all their respective powers to procure (so far as each is reasonably able) that: (a)
no act or omission occurs whereby Namakwa is rendered incapable of carrying on its business (other than pursuant to the Jarvirne Facility or any other agreement between Jarvirne or its Associates (on the one hand) and any member of the Group (on the other) or any right, duty, liability or obligation owed by any member of the Group to Jarvirne or any of its Associates) and making decisions independently of Jarvirne and its Associates, provided that nothing in this provision shall oblige Jarvirne or any of its Associates to provide funds, financial or other support to Namakwa (but without prejudice to the terms of the Jarvirne Facility);
(b)
any transactions between Jarvirne and/or any of its Associates on the one hand and any member of the Group on the other hand are at arm’s length and on a normal commercial basis;
(c)
no material agreement, commitment or arrangement (each being a “Transaction”) between any member of the Group and Jarvirne (or any of its Associates) or in which Jarvirne (or any of its Associates) is directly or indirectly interested, shall be entered into, amended or terminated by Namakwa without the prior approval of a majority of the non-executive Directors who are not associated with Jarvirne (the “Independent Directors”) able to vote at a Board meeting in relation to the relevant matter and, for the avoidance of doubt, no Shareholder Director shall vote on any resolution at meetings of the Board relating to the entry, variation, amendment, novation, termination, abrogation or enforcement of any Transaction between any member of the Group and Jarvirne or any of its Associates;
(d)
whilst it is appropriate that the views of Jarvirne as a major shareholder of Namakwa may be taken into account in making decisions in relation to the management and running of Namakwa so that consultations between any director and Jarvirne shall be authorised by Namakwa in this context, Namakwa shall operate and make decisions for the benefit of the Shareholders as a whole;
(e)
the business and affairs of Namakwa shall be managed by the Board in accordance with the Bye-laws for the benefit of the Shareholders as a whole;
(f)
Jarvirne and Namakwa shall comply with all relevant requirements of the Rules, including, without limitation, the provisions relating to Transactions with related parties and, in particular, Jarvirne shall not exercise nor procure the exercise of any voting rights held by it or any of its Associates thereof at any general meeting of Namakwa in respect of any resolution which relates to a Transaction with Jarvirne or any Associate thereof except in accordance with the Disclosure and Transparency Rules, the Listing Rules, the Prospectus Rules and the Admission and Disclosure Standards (together, the “Rules”);
(g)
except as may otherwise be approved by a majority of the Independent Directors able to vote at a Board meeting in relation to the relevant matter, no action is taken (or omitted to be taken) to prejudice Namakwa’s status as a company whose Ordinary Shares are on the Official List (or its suitability for having such Ordinary Shares listed under the Listing Rules) or Namakwa’s ongoing compliance with the Rules, provided this does not prevent Jarvirne or any of its associates from: (i) accepting an offer for Namakwa in accordance with Bye-law 82 from a person (who is not 168
Jarvirne of an associate thereof); or, (ii) or from making, facilitating or encouraging a general offer for Namakwa or otherwise acquiring Ordinary Shares or any interest in Ordinary Shares in circumstances which comply with the provisions of the said Bye-law 82; (h)
except as approved by a majority of the Independent Directors able to vote at a Board meeting in relation to the relevant matter, it will exercise the rights attaching to its Ordinary Shares and those held by any of its Associates to ensure that Namakwa is managed in accordance with the Act, and FSMA and any requests or directions of any relevant authority and that the principles of good governance set out in the Combined Code are complied with by Namakwa;
(i)
in respect of each of the audit, risk and compliance committee and the remuneration and nominations committee, in cooperation with Namakwa, it shall seek to ensure that there is maintained at least two Independent Directors on each such committee; and
(j)
there is no amendment to the Bye-laws which would be inconsistent with this deed or affect the listing of Namakwa (which shall be deemed to include, for the avoidance of doubt, any amendment to Bye-law 82)
Jarvirne also acknowledges that: 1.
all the Directors owe fiduciary duties to Namakwa and act and vote on all matters pertaining to the Board in what they perceive to be in the best interests of Namakwa;
2.
except where approved by the Independent Directors, neither it nor its Associates shall, for a period of 12 months from the date of the Relationship Agreement, exercise their votes (in respect of the Ordinary Shares they hold) in connection with any proposal to change the structure of the Board;
3.
it is entitled to nominate (and retain at all times whilst it remains a Controlling Shareholder) two directors for appointment to the Board provided both are non-executive; and
4.
neither it nor its Associates currently own or have any controlling interest in any undertaking, the principal business of which is diamond mining, dealing or beneficiation.
19.12 Amended Relationship Agreement with Jarvirne Namakwa and Jarvirne entered into the Amended Relationship Agreement on 5 June 2012. The Amended Relationship Agreement regulates the relationship between Namakwa and Jarvirne so long as Jarvirne (and its Associates, as defined in the Amended Relationship Agreement) have an interest in more than 50% of the voting rights of the Company (being a “Controlling Shareholder”). Jarvirne has undertaken that it will exercise all its powers and will use its reasonable endeavours to procure that each of its Associates (as defined in the Amended Relationship Agreement) will exercise all their respective powers to procure (so far as each is reasonably able) that: (a)
no act or omission occurs whereby Namakwa is rendered incapable of carrying on its business (other than pursuant to the Jarvirne Facility or any other agreement between Jarvirne or its Associates (on the one hand) and any member of the Group (on the other) or any right, duty, liability or obligation owed by any member of the Group to Jarvirne or any of its Associates) and making decisions independently of Jarvirne and its Associates, provided that nothing in this provision shall oblige Jarvirne or any of its Associates to provide funds, financial or other support to Namakwa (but without prejudice to the terms of the Jarvirne Facility);
(b)
any transactions between Jarvirne and/or any of its Associates on the one hand and any member of the Group on the other hand are at arm’s length and on a normal commercial basis;
(c)
no material agreement, commitment or arrangement (each being a “Transaction”) between any member of the Group and Jarvirne (or any of its Associates) or in which Jarvirne (or any of its Associates) is directly or indirectly interested, shall be entered into, amended or terminated by Namakwa without the prior approval of a majority of the non-executive Directors who are not associated with Jarvirne (the “Independent Directors”) able to vote at a Board meeting in relation to the relevant matter and, for the avoidance of doubt, no Shareholder Director shall vote on any resolution at meetings of the Board relating to the entry, variation, amendment, novation, termination, abrogation or enforcement of any Transaction between any member of the Group and Jarvirne or any of its Associates; 169
(d)
whilst it is appropriate that the views of Jarvirne as a major shareholder of Namakwa may be taken into account in making decisions in relation to the management and running of Namakwa so that consultations between any director and Jarvirne shall be authorised by Namakwa in this context, Namakwa shall operate and make decisions for the benefit of the Shareholders as a whole;
(e)
the business and affairs of Namakwa shall be managed by the Board in accordance with the Bye-laws for the benefit of the Shareholders as a whole;
(f)
Jarvirne and Namakwa shall comply with all relevant requirements of the Rules, including, without limitation, the provisions relating to Transactions with related parties and, in particular, Jarvirne shall not exercise nor procure the exercise of any voting rights held by it or any of its Associates thereof at any general meeting of Namakwa in respect of any resolution which relates to a Transaction with Jarvirne or any Associate thereof except in accordance with the Disclosure and Transparency Rules, the Listing Rules, the Prospectus Rules and the Admission and Disclosure Standards (together, the “Rules”);
(g)
except as may otherwise be approved by a majority of the Independent Directors able to vote at a Board meeting in relation to the relevant matter, no action is taken (or omitted to be taken) to prejudice Namakwa’s status as a company whose Ordinary Shares are on the Official List (or its suitability for having such Ordinary Shares listed under the Listing Rules) or Namakwa’s ongoing compliance with the Rules, provided this does not prevent Jarvirne or any of its associates from: (i) accepting an offer for Namakwa in accordance with Bye-law 82 from a person (who is not Jarvirne of an associate thereof); (ii) making, facilitating or encouraging a general offer for Namakwa or otherwise acquiring Ordinary Shares or any interest in Ordinary Shares in circumstances which comply with the provisions of the said Bye-law 82; or (iii) encouraging the Directors to vote in favour of a Directors’ resolution, or voting in favour of, or encouraging others to vote in favour of, a Shareholders’ resolution to cancel the Company’s status as a company whose Ordinary Shares are on the Official List;
(h)
except as approved by a majority of the Independent Directors able to vote at a Board meeting in relation to the relevant matter, it will exercise the rights attaching to its Ordinary Shares and those held by any of its Associates to ensure that Namakwa is managed in accordance with the Act, and FSMA and any requests or directions of any relevant authority and that the principles of good governance set out in the Combined Code are complied with by Namakwa;
(i)
in respect of each of the audit, risk and compliance committee and the remuneration and nominations committee, in cooperation with Namakwa, it shall seek to ensure that there is maintained at least two Independent Directors on each such committee; and
(j)
there is no amendment to the Bye-laws which would be inconsistent with this deed or affect the listing of Namakwa (which shall be deemed to include, for the avoidance of doubt, any amendment to Bye-law 82).
Jarvirne also acknowledges that: 1.
all the Directors owe fiduciary duties to Namakwa and act and vote on all matters pertaining to the Board in what they perceive to be in the best interests of Namakwa;
2.
it is entitled to nominate (and retain at all times whilst it remains a Controlling Shareholder) two directors for appointment to the Board provided both are non-executive; and
3.
neither it nor its Associates currently own or have any controlling interest in any undertaking, the principal business of which is diamond mining, dealing or beneficiation.
The Amended Relationship Agreement also allows for termination where the Ordinary Shares are no longer admitted to the Official List and to trading on the London Stock Exchange. The Amended Relationship is similar in nature to the Relationship Agreement, and the key differences between the two agreements are: (i) the Amended Relationship Agreement is only effective when Jarvirne has an interest in more than 50% (as opposed to 30% or more) of the voting rights in the Company; (ii) unlike the Relationship Agreement, there is a provision for the Amended Relationship Agreement to terminate where the Ordinary Shares are no longer admitted to the Official List and to trading on the London Stock Exchange; (iii) unlike the Relationship Agreement, this agreement permits Jarvirne to encourage the Directors to vote in favour of a Directors’ resolution, or to vote in favour of, or encourage others to vote in favour of, a Shareholders’ resolution to cancel the Company’s status as a company whose Ordinary Shares are on the Official List; and (iv) unlike the Relationship Agreement, this agreement removes restrictions from Jarvirne exercising the voting rights attached to its Ordinary Shares before 1 November 2012 in connection with any proposal to change the structure of the Board. 170
19.13 Second Waiver and Amendment Letter On 5 June 2012 Jarvirne issued a letter to Namakwa (the terms of which were agreed by Namakwa) (the “Second Waiver and Amendment Letter”) waiving certain provisions of the Waiver and Amendment Agreement such that: (i) existing restrictions on Jarvirne acquiring Ordinary Shares from KFF in satisfaction of amounts owing to Jarvirne pursuant to the KFF Loan Agreement shall be removed where Jarvirne holds more than 50% of the voting share capital of Namakwa (such existing restrictions including the requirement for Shareholders to approve any such acquisition); and (ii) the restriction on Jarvirne or its Associates acquiring further Ordinary Shares in the period to 1 November 2012 has been removed. D.
Group Advisory Agreements
19.14 Shore Capital sponsor’s agreement On 6 June 2012, Namakwa entered into an agreement with Shore Capital, whereby Shore Capital agreed to act as Namakwa’s sponsor for the purposes of the Listing Rules in relation to the Open Offer. Shore Capital’s continuing obligations under the agreement are conditional on Namakwa, among other things, obtaining formal approval of this document by the FSA, ensuring that this document is filed and published in accordance with the Prospectus Rules, and Admission becoming effective at or before 8.00 a.m. on 28 June 2012. Namakwa is obliged to use all reasonable endeavours to procure Admission by 8.00 a.m. on 28 June 2012. In consideration of Shore Capital’s services under this agreement, Namakwa has agreed to pay to Shore Capital the following amounts in cash on and subject to Admission: (i) a fee of £300,000; (ii) subject to the Board’s discretion, a bonus fee of £25,000; and (iii) a fee of £10,000 for the period to 10 July 2012 and a fee of £20,000 for each month after 10 July 2012 to the extent that Admission has not occurred by such date. In addition, should Admission not occur, the Company shall pay Shore Capital an abort fee of £100,000 (which sum has already been paid, and will be deducted from the £300,000 fee mentioned above upon Admission). The sponsor’s agreement contains warranties and indemnities given by Namakwa in favour of Shore Capital, which are customary for this type of agreement. 19.15 Liberum sponsor’s agreement On 2 November 2011, Namakwa entered into an agreement with Liberum Capital, whereby Liberum Capital agreed to act as Namakwa’s sponsor for the purposes of the Listing Rules in relation to the Capitalisation. Liberum Capital’s continuing obligations under the agreement were conditional on Namakwa, among other things, obtaining formal approval of the prospectus pursuant to the Capitalisation by the FSA, ensuring that such prospectus was filed and published in accordance with the Prospectus Rules, the passing of certain resolutions at a special general meeting of the Company and admission of the shares issued pursuant to the Capitalisation becoming effective at or before 7.00 a.m. on 28 November 2011. Namakwa was obliged to use all reasonable endeavours to procure Admission by 7.00 a.m. on 28 November 2011. In consideration of Liberum Capital’s services under this agreement, Namakwa agreed to pay to Liberum Capital: (i) on the passing of the above-referenced resolutions at the special general meeting, a corporate finance and broking fee of US$900,000, payable in cash immediately upon the approval of such resolutions; (ii) subject to and conditional upon admission of the shares issued pursuant to the Capitalisation, a sponsor’s fee of US$400,000 and a success fee of US$300,000, both payable in cash immediately upon such admission; and (iii) a corporate finance fee of US$200,000, payable in cash on the date of publication of the prospectus issued pursuant to the Capitalisation containing a related party transaction fair and reasonable opinion from Liberum Capital. The sponsor’s agreement contains warranties and indemnities given by Namakwa in favour of Liberum Capital, which are customary for this type of agreement. 19.16 Rockbury Services Inc. engagement and termination On 17 March 2010, Namakwa entered into an agreement with Rockbury Services Inc. (“Rockbury”), as amended by an agreement dated 7 May 2010, pursuant to which Rockbury was appointed as the exclusive debt financial advisor in respect of Phase 1 of the Kao Mine and lead debt financial advisor in respect of Phase 2 of the Kao Mine. 171
In respect of Phase 1, Namakwa agreed to pay Rockbury a monthly retainer and a success fee, related to a committed finance package for Phase 1. This finance package envisaged: up to a US$15 million bridge finance; up to a ZAR100m as a capital facility; and up to US$25 million in the form of a project finance facility. In respect of Phase 2 of the Kao Mine, Namakwa agreed to pay Rockbury a similar monthly retainer. In addition, Rockbury would be entitled to a success fee for a Phase 2 committed finance package. The agreement was terminated with effect from 17 September 2011 and Rockbury waived all rights to any future fees under the agreement with effect from 26 October 2011. 19.17 Dantov Strategic Consulting Limited 2010 engagement and termination On 23 August 2010, Namakwa entered into an agreement with Dantov Strategic Consulting Limited (“Dantov”) whereby Dantov agreed to manage the relationship between Namakwa and Mr. Eduard Prutnik for the purpose of Mr. Prutnik, or any corporate vehicle controlled by Mr. Prutnik, making an investment by way of a private placement of equity or debt securities in Namakwa or any member of the Group. On the completion of any such investment, Namakwa agreed to pay Dantov Strategic Consulting Limited a commission determined in the agreement by the amount of the investment. Commission was not due where an investment was made pursuant: (i) to a publicly announced secondary offering by Namakwa; or (ii) by Mr. Prutnik or a corporate vehicle controlled by Mr. Prutnik acquiring Namakwa securities from a third party or on a securities exchange. Namakwa and Dantov were entitled to terminate the agreement upon 30-day prior written notice to the other party. Upon termination, Namakwa’s obligation to pay the commission would continue to remain in force for any investment made before the termination. The agreement was terminated by Namakwa with effect from 17 September 2011 (by way of notice to Dantov on 18 August 2011). On 10 October 2011, Namakwa and Dantov entered into a settlement agreement in respect of the termination of all rights and claims of either party under the original agreement, pursuant to which Namakwa agreed to pay Dantov a settlement amount of US$450,000 over a 4 month period. Such amount has been fully paid by Namakwa. 19.18 RYY Futures Limited 2010 engagement and termination On 3 August 2010, Namakwa entered into an agreement with RYY Futures Limited (“RYY”) whereby RYY agreed to manage the relationship between Namakwa and Mr. Eduard Prutnik for the purpose of Mr. Prutnik, or any corporate vehicle controlled by Mr. Prutnik, making an investment by way of a private placement of equity or debt securities in Namakwa or any member of the Group. On the completion of any such investment, Namakwa agreed to pay RYY a commission determined in the agreement by the amount of the investment. Namakwa and RYY were entitled to terminate the agreement upon 30-day prior written notice to the other party. Upon termination, Namakwa’s obligation to pay the commission would continue to remain in force for any investment made before the termination. The agreement was terminated by Namakwa with effect from 17 September 2011 (by way of notice to RYY on 18 August 2011). On 10 October 2011, Namakwa and RYY entered into a settlement agreement in respect of the termination of all rights and claims of either party under the original agreement, pursuant to which Namakwa has agreed to pay RYY a settlement amount of US$450,000 over a 4 month period. Such amount has been fully paid by Namakwa. E.
Lesotho Mining and Contracting Agreements
19.19 Kao Mining Lease Pursuant to a transfer agreement dated 10 December 2009, the Minister of Natural Resources of the Government of the Kingdom of Lesotho (the “Lesotho Government”) approved the transfer to Storm Mountain Diamonds of the mining lease held by KDM (the “Kao Mining Lease”), which was registered in the Maseru Deeds Registry under no. 27795 and valid for a period of 15 years from 10 August 2006 to 10 August 2021 (the “Transfer Agreement”). On 24 December 2009, the Lesotho Government issued mining lease no. 001 under section 33 of the Mines and Minerals Act of Lesotho to Storm Mountain Diamonds to mine for diamonds in an area known as Kao in the Butha Buthe District with a surface area of approximately 6.53 square kilometres (the “Kao Production Area”). The mining lease was issued pursuant to the Transfer Agreement for a period of ten years from 24 December 2009 to 24 December 2019 and was registered in the Maseru Deeds Registry on 30 December 2009. The transfer of the mining lease, as contemplated under the Transfer Agreement was rectified on 8 February 2010, to reflect the transfer of the current lease rather than the issue of a new lease and registered in the Maseru Deeds Registry on 9 February 172
2010, together with an amended mining agreement. In a letter dated 31 October 2011, the Minister of Natural Resources of Lesotho, on behalf of the government of Lesotho, confirmed together with the Commissioner of Mines that Storm Mountain Diamonds had complied with all the conditions of the transfer of the Kao Mining Lease as contained in a letter dated 10 December 2009. 19.20 Kao Mining Agreement Pursuant to a mining agreement dated 24 December 2009 (as amended on 8 February 2010 and on 31 October 2011) (the “Kao Mining Agreement”), the Lesotho Government granted Storm Mountain Diamonds the exclusive right to prospect for and mine diamonds in the Kao Production Area and the use and enjoyment of areas necessary for access to and use of infrastructure to conduct its operations. Storm Mountain Diamonds has the option to extend the term of the mining agreement and the Kao Mining Lease for three consecutive ten year periods subject to meeting certain production capacity. Storm Mountain Diamonds agreed to pay an annual rent to the Lesotho Government in Maloti, an amount equivalent to US$87,000. The amount of the rental payable each year after the first payment shall be the amount of the previous financial year adjusted in accordance with any change in consumer price index published by the Lesotho Government. Storm Mountain Diamonds also agreed to pay to the Lesotho Government not more than M300,000 to cover its costs in connection with the mining agreement. (a)
Financing Storm Mountain Diamonds agreed that the funds required to conduct its operations would be provided either by its shareholders (other than the Lesotho Government) through share subscription or by loans. The loan to equity ratio shall not exceed 60:40 subject to certain exceptions. The interest rate of such loans must not exceed the lower of 1% over the prime rate charged by Nedbank Lesotho (Pty) or 16% and no guarantee fee or other charge shall be paid to Namakwa and its partners or the shareholders of Storm Mountain Diamonds and their affiliates. Any shares issued at a premium require the approval of the Minister of the Lesotho Government and Storm Mountain Diamonds is restricted from issuing preference shares. On the transfer or issue of any share capital, Storm Mountain Diamonds must issue such number of shares fully paid at no cost or expense to the Lesotho Government so that the Lesotho Government holds 25% of the share capital. The Lesotho Government is not required to accept any financial liability such as providing funds or guarantees as a shareholder and is not required to subscribe for any shares in Storm Mountain Diamonds. The Lesotho Government and Lesotho citizen shareholders require the prior approval of the directors to transfer any of their shares. Namakwa must hold a minimum of 62.5% equity interest until phase one of production has been completed, after which, it may transfer its interest to a third party with the approval of the Minister.
(b)
Authority of the Minister and the Lesotho Government The approval of the Minister is required in relation to certain matters if the Lesotho Government beneficially holds not less than 10% of the share capital of Storm Mountain Diamonds. These reserved matters include sale and acquisition of substantial assets, merger or consolidation with another company, granting of security and entry into transactions of more than M1,000,000 with its shareholders or their affiliates. Storm Mountain Diamonds must also provide various production and financial reports to the Minister. The Lesotho Government is entitled to nominate or remove directors in proportion to its shareholding but not less than two directors. The position of chairman has to be agreed by the Minister and Namakwa. At least one director nominated by the Lesotho Government must be present at directors meetings to constitute a quorum. These provisions are not entrenched in the articles of association of Storm Mountain Diamonds.
(c)
Operations The mining agreement sets out Storm Mountain Diamonds’ obligations for plant, equipment and infrastructure for its operations. It also sets out provisions relating to production capacity, production timing, health and safety, security of diamonds and conduct of its operations, including giving a preference to goods and services made or located in Lesotho to the extent that they are not less favourable in price and quality than those from foreign sources.
(d)
Production Targets The mining agreement sets out a number of production targets for Storm Mountain Diamonds to meet: (i) Storm Mountain Diamonds is to operate its plant and equipment at: (aa) 66.6% capacity 173
over three consecutive months; or (bb) treat in its plant an aggregate of 170,000 metric tonnes (whichever occurs earlier) by 1 April 2012, this deadline having been extended from 9 November 2011 by a letter from the Minister of Natural Resources of Lesotho dated 31 October 2011; (ii) once this level has been reached Storm Mountain Diamonds will mine and process kimberlite in the area at a rate of not less that 250 metric tonnes per hour (phase one) and do so throughout the term of the agreement without interruption at an average rate of not less than 100,000 metric tonnes per month over any period of 12 months; and (iii) to mine and process kimberlite in the area at a rate of not less than 350 metric tonnes per hour (phase two). (e)
Diamond Sales Diamonds produced under the mining agreement must only be sold in recognised international diamond markets by tender or auction at the highest obtainable market prices and in accordance with procedures and sales agreements approved by the Minister. The Minister may however, at his sole discretion, give permission not to sell the diamonds by competitive tender and such arrangement would be subject to the appointment of a government diamond valuator. Storm Mountain Diamonds also agreed to pay a diamond sales tax of 8% of the true market value of the diamonds.
(f)
Employees Under the mining agreement, Namakwa agreed to provide technical, accounting, marketing, senior administrative and management personnel to Storm Mountain Diamonds. This is, however, subject to the obligation to give employment priority to nationals of Lesotho. All Paterson system grade A and B (unskilled and semi-skilled workers) must be Lesotho nationals and foreign nationals may be employed at grade E and F (senior and top management) levels. The requirement for the number of Lesotho nationals employed increases during the term of the mining agreement. Storm Mountain Diamonds is also required to conduct training programmes and to commit a proportion of its profits to fund corporate social responsibility programmes in Lesotho. Storm Mountain Diamonds and its contractors are responsible to pay compensation to persons for any death and injury arising out of its operations.
(g)
Surrender and termination Storm Mountain Diamonds may surrender the mining agreement and the Kao Mining Lease by giving at least 12 months’ notice to the Lesotho Government. It may also suspend operations from time to time if it determines, in consultation with the Minister, that such operations are impractical, uneconomical or unprofitable. The Minister may terminate the mining agreement and the Kao Mining Lease if: (i) Storm Mountain Diamonds or Namakwa is in material breach or fail to comply with the provisions of the mining agreement or any diamond sales agreements or any applicable law or regulation and fails to remedy such breach; (ii) Storm Mountain Diamonds or Namakwa is involved in any insolvency proceedings; or (iii) there is any infringement of anti-corruption provisions under the mining agreement. Upon the expiration, surrender or termination of the mining agreement, all infrastructure becomes the property of the Lesotho Government without charge. The Lesotho Government or its nominees also have the right to buy plant and equipment and materials and supplies at fair market value on an as is and where is basis. Any assets not so acquired and not removed within six months may then become the property of the Lesotho Government without charge or removed at the expense of Storm Mountain Diamonds. Storm Mountain Diamonds must also make safe the Kao Production Area and the infrastructure areas and ensure that it is in clean and orderly condition.
(h)
Indemnity and guarantee Storm Mountain Diamonds has agreed to indemnify the Lesotho Government and its officers and agents against claims and liabilities for death and injuries to persons or any loss or damage to third parties arising out of its operations or its failure to comply with law or regulation. Namakwa has agreed to procure the fulfilment by Storm Mountain Diamonds of its obligations under the mining agreement and agreed to act as surety and co-principal debtor with Storm Mountain Diamonds for the fulfilment of such obligations. Namakwa also guaranteed to provide funds to ensure that the shareholders of Storm Mountain Diamonds will fulfill their financing obligations up to the commencement of phase one production and agreed to act as surety and co-principal debtor with Storm Mountain Diamonds for the fulfilment of such obligations. 174
Namakwa guaranteed to fulfill: (i) payment of former KDM employees to an amount of LSL5,621,628.51; and (ii) payment of the approved, accepted and verified claims of the local Lesotho creditors, limited to an amount of LSL45,000,000. 19.21 Plant Construction and Operation On 27 January 2011, Storm Mountain Diamonds entered into an agreement with LSP Construction (Pty) Limited (“LSP”) in respect of the modification and relocation of the on-site plant and associated infrastructure. A total of Maloti M12,099,872 has been paid to LSP by Storm Mountain Diamonds under this agreement. No further payments are anticipated under this agreement. On 1 May 2011, Storm Mountain Diamonds entered into an agreement with Minopex Lesotho (Pty) Ltd (“Minopex”) in respect of the construction and fit-out of the 500tph processing plant. As at 5 June 2012 (being the latest practicable date prior to the publication of this document), Storm Mountain Diamonds had paid Minopex Maloti M138,795,459 million under the agreement. Storm Mountain Diamonds and Minopex are also currently working under a course of dealings in respect of the operation and maintenance of the 500tph processing plant. As at 5 June 2012 (being the latest practicable date prior to the publication of this document), Storm Mountain Diamonds had paid Minopex Maloti M43,155,151 million under this arrangement. Payment terms are on 30 days. An additional Maloti M22,000,000 million is expected to be paid under this contract during FY2012. 19.22 Loading & Hauling On 1 October 2011, Lephema Executive Mining (Pty) Ltd (“Lephema”) entered into a three-year agreement to provide mining services exclusively to Storm Mountain Diamonds. The mining services comprise, loading and hauling and equipment and personnel services, pursuant to an agreed schedule of charges. As at 5 June 2012 (being the latest practicable date prior to the publication of this document), Storm Mountain Diamonds had paid Lephema Maloti M62,510,788 million under this arrangement. Payment terms are on 30 days. An additional Maloti M56,000,000 million is expected to be paid under this contract during FY2012. The agreement may be terminated prior to the end of the three-year term, in the event that: (i)
the Kao Mining Lease lapses or the Kao Mining Agreement is terminated; or
(ii)
on 120 days’ prior notice, Storm Mountain Diamonds considers that the Kao Mine is no longer economically viable (in which event SMD shall pay to Lephema all outstanding costs, the cost of removing Lephema’s equipment from the Kao Mine and any other direct costs and expenses calculated in good faith); or
(iii)
Lephema breaches the agreement and fails to remedy such breach within 14 days of being provided with written notice of such breach; or
(iv)
Storm Mountain Diamonds fails to make a scheduled payment to Lephema within 90 days of a payment date; or
(v)
Storm Mountain Diamonds deliberately interferes/obstructs the issuance of a receipt for payment in favour of Lephema; or
(vi)
either party suffers an insolvency event.
19.23 Kao Mine Development Storm Mountain Diamonds has engaged with multiple contractors during the course of the construction of the Kao Mine over the last two-year period. These include specialist contractors to build the freshwater dam and slimes containment facility, as well as ordinary course arrangements in respect of security, site maintenance, catering and housekeeping and drilling and blasting. Further details of the capital and operational costs associated with such construction are described in Part V: “Operating and Financial Review” of this document. F.
Sale of DRC Group
19.24 Sale and purchase agreement dated 23 September 2011 between Namakwa and Hall Farm Avenue Limited On 23 September 2011, Namakwa entered into an agreement (the “Sale Agreement”) in respect of the sale of its group of companies with operations in the DRC (the “DRC Group”) to Hall Farm Avenue Limited, a company run by James Tregenza (who was part of Namakwa’s management team in the DRC). 175
As part of the transaction, Namakwa made a loan facility of US$300,000 available to Hall Farm Avenue Limited (the “Hall Farm Loan”), which is repayable to Namakwa on demand. Under the Sale Agreement, Namakwa is entitled to US$6,250,000 as a base consideration (the “Base Consideration”) which is payable over a five-year period with minimum annual payments of US$1,250,000 during such period (and if such minimum annual payments are not met through the methods set out in the paragraph below, Namakwa shall be entitled to satisfy such shortfall by, in the first instance, receiving rough diamond product from the DRC Group of a value equivalent to such shortfall or, failing this, being paid such shortfall in cash). In addition, Namakwa is entitled to be paid 25% of the net profits (the “Profit Percentage”) of any sale by Hall Farm Avenue Limited of any or all of the DRC Group or their business or businesses that were acquired from Namakwa (each being a “DRC Business”) at any time when any of the Base Consideration, or any amount of the Hall Farm Loan, is outstanding. The Profit Percentage is calculated net of the values of any relevant DRC Business at the date of Sale Agreement together with costs incurred in developing the relevant DRC Business after that date. Payment of the Base Consideration and repayment of the Hall Farm Loan may, at Namakwa’s discretion, be accelerated in the event of a sale by Hall Farm Avenue Limited of any DRC Business. The Base Consideration will be satisfied both under the Sale Agreement (from the proceeds of sales of plant, machinery and equipment by Hall Farm Avenue Limited in the DRC) and under a separate agreement between Namakwa and Hall Farm Avenue Limited (please refer to the summary of the Off-Take Agreement below), whereby Namakwa shall sell, as agent, all rough diamonds that Hall Farm Avenue Limited obtains from the DRC for such period of time as is disclosed in the summary of the Off-Take Agreement below. The Sale Agreement provides for the transfer of litigation (and all related risk) in the DRC in respect of the DRC Group to Hall Farm Avenue Limited. However, Namakwa has agreed, if so requested by Hall Farm Avenue Limited, to assist in the conduct of such litigation (and will be indemnified in respect of any losses arising as a result of such assistance if so provided). Security for the various forms of consideration has been secured by: (a)
Namakwa being granted the benefit of a receivable in the DRC Group, which may be called upon in the event that any consideration payable to it in accordance with the Sale Agreement or any related agreements (including the Hall Farm Loan) is not paid; and
(b)
Namakwa being granted a preference share in Kasai Resource Mining Limited (a company within the DRC Group), in respect of which a dividend becomes immediately due and payable on such preference share as soon as any consideration payable to Namakwa is not paid in accordance with the sale agreement or any related agreements (including the Hall Farm Loan).
The transaction did not constitute a related party transaction for the purposes of Chapter 11 of the Listing Rules. Off-Take Agreement dated 23 September 2011 between Namakwa Diamonds Limited and Hall Farm Avenue Limited On 23 September 2011, Namakwa entered into an off-take agreement with Hall Farm Avenue Limited whereby Namakwa is entitled to receive certain entitlements in respects of all rough diamonds sourced by any member of Hall Farm Avenue Limited in the DRC (the “Off-Take Agreement”). Under the agreement, Namakwa is entitled to: (a)
recruit consultants (at its own cost) to monitor and assist with the management of the rough diamonds sourced by Hall Farm Avenue Limited in the DRC;
(b)
exclusively sell the rough diamonds as agent; and
(c)
a 15% agency fee on sale of all rough and polished diamonds and, if the Base Consideration and Hall Farm Loan (as defined in the preceding section) are paid in full within five years, this 15% fee shall be replaced with a 3% commission fee.
The Off-Take Agreement shall terminate on the later of: (1) the date on which the Base Consideration and repayment of the Hall Farm Loan are satisfied in full; and (2) the date five years from the date of the Off-Take Agreement.
176
G.
Trading Joint Ventures
19.25 Trading Agreement with Jarvirne On 20 July 2010, Jarvirne and Namakwa entered into a letter of agreement (referred to in this document as the Trading Agreement) to enter into a formal joint venture in respect of the trading of rough and polished diamonds, setting out the principal terms of the formal agreement to be entered into, and providing in the meantime that the joint venture would be operated by the parties on the basis of those principal terms. No such agreement has been entered into as at the date of this document. Pursuant to the Trading Agreement, Jarvirne agreed to advance an initial amount of US$15 million (the “Advanced Funds”) to Namakwa to enable Namakwa to trade rough and polished diamonds originating from the DRC, and agreed that the Group may use US$5,000,000 of such funds for its working capital purposes. Following 20 July 2010, an aggregate amount of US$27,000,000 in capital was advanced to Namakwa by Jarvirne between 22 July 2010 and 25 March 2011 for use by Namakwa in accordance with the above terms. In turn, Namakwa returned US$10,000,000 in capital in the period between 30 September 2010 and 7 December 2010 and a total amount of US$3,101,024 in profit share between 27 September 2010 and 8 August 2011. Under the terms of the Trading Agreement: (a)
the Advanced Funds are repayable on demand with six weeks’ notice in writing of the termination of the Trading Agreement by either party. In the event Namakwa is unable to repay the Advanced Funds in cash in full, it is entitled to repay part in cash and part in diamonds acquired in connection with the Trading Agreement that have been independently valued;
(b)
Namakwa is obliged to account to Jarvirne on a monthly basis in respect of the application of the Advanced Funds and the development of the business of the Trading Agreement;
(c)
Jarvirne retains all title and risk to the diamond inventory acquired by Namakwa pursuant to the Trading Agreement;
(d)
Namakwa is obliged to transfer to Jarvirne each month 50% of all profits arising from the Trading Agreement; and
(e)
should the parties fail to enter into a formal joint venture agreement in respect of the Trading Agreement on the terms set out in the letter of agreement dated 30 July 2010 by 29 August 2010, Jarvirne is entitled to demand repayment of the Advanced Funds.
During the course of the relationship an oral agreement was reached by the principals of Namakwa and Jarvirne that Jarvirne would receive a deemed effective return on capital of 3% per month on outstanding amounts of capital held by Namakwa under the trading position. The Board had determined to close down this trading position in April 2011 because of: (i) the volatility in the diamond trading markets; (ii) Namakwa’s strategic decision to focus its capital on the development of the Kao Mine; and (iii) the inability of Namakwa and Jarvirne to reach agreement on a tax efficient structure through which the trading position would be operated. As a result of the closure of the position, it was agreed that a deemed effective 3% return on capital per month would be paid by Namakwa with effect from the inception of this position. However, the final terms for an orderly sell down of inventory and return of capital remained the subject of negotiation. On 1 September 2011, Jarvirne served Namakwa with a demand notice to repay the sum of US$19.706 million. In an accompanying letter from Jarvirne to Namakwa, also dated 1 September 2011, Jarvirne simultaneously proposed a simultaneous refinancing package (indicating that it would be prepared to accept Ordinary Shares in Namakwa in satisfaction of its demand, and also that it would be prepared to extend a US$40,000,000 loan facility to Namakwa to facilitate the continued development of the Kao valley mining project). Subsequently, after a period of negotiation, the parties entered into the Settlement Agreement and the Jarvirne Facility. Pursuant to the Settlement Agreement (as detailed below), the Trading Agreement terminated on the Capitalisation on 23 November 2011. 19.26 Andre Messika trading relationship Pursuant to a co-operation agreement dated 27 January 2010, Namakwa Diamonds Trading (Pty) Limited and B.L.I.D. International agreed to co-operate to establish a worldwide trading business (the “BLID JV”). The business of the BLID JV relates to the acquisition, manufacture and sale of rough and polished diamonds, on a non-exclusive basis originating from southern Africa (the “SA Venture”) and the promotion of each of their brands in accordance with their respective brand guidelines. 177
The BLID JV was operated on a 50:50 debt-free basis with each party contributing capital in the form of rough and polished diamonds which had to be unsecured, and cash in an amount that was agreed each year. The BLID JV was self-financed from the cash flow of the SA Venture and the agreed cash contributions from both parties. The parties were not obliged to provide further finance to the BLID JV, but any further contributions were provided by both parties to maintain the 50:50 capital ratio. Each party granted to the other party a non-exclusive royalty-free sub-licence to use their respective intellectual property rights worldwide in relation to authorised activities to further the BLID JV and the co-operation agreement sets out provisions on the use of these rights. Each party also gave to the other party an indemnity against any tax liability on each of their business which is unrelated to the BLID JV and an indemnity for any value added tax paid for goods and services supplied under the co-operation agreement if the value added tax was attributable to that party. Any losses suffered as a result of unpaid value added tax were charged at a rate of 4% above LIBOR. Each party also agreed to be liable for any debtor of the BLID JV which was introduced by that party as well as be responsible for manufacturing risk in a particular stone in proportion to its economic exposure to such stone. Interest was charged at 4% above LIBOR for any late payments due to the other party or into the capital of the BLID JV. Either party was entitled to terminate the BLID JV by giving three months’ written notice, expiring on or after 27 January 2011. The co-operation agreement set out provisions relating to the business plan, management, valuation of diamond inventory, dispute resolution and other matters similar to those commonly found in agreements of this nature. This agreement was terminated on 8 September 2011 pursuant to a payment of US$1,275,000 to Namakwa. 20.
Other agreements Namakwa enters into confidentiality agreements in the usual course of business from time to time.
21.
Legal and arbitration proceedings Save as disclosed in the paragraphs below, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which Namakwa is aware), during a period covering at least the previous 12 months which may have, or have had in the recent past significant effects on Namakwa and/or the Group’s financial position or profitability. GDR claim In January 2010, Global Diamond Resources plc (“GDR”) applied to the English courts for an interim injunction to restrain Namakwa from (a) contacting the Government of Lesotho in connection with the mining lease for the Kao kimberlite pipe and (b) taking certain steps which GDR contended were a breach of a confidentiality and non-circumvention agreement, which had been entered into between Namakwa and GDR in February 2008. GDR’s application for an interim injunction was subsequently withdrawn and costs were awarded in favour of Namakwa. In the context of its application for an interim injunction, GDR also issued a claim form against Namakwa seeking damages and an injunction. GDR had six months to serve the claim form on Namakwa, which expired in July 2010. No claim form has been served on Namakwa. Also in January 2010, GDR applied to the Lesotho courts for an injunction, inter alia, to restrain the Government of Lesotho from transferring the mining lease for the Kao kimberlite pipe, or (in the alternative) to restrain Namakwa and Storm Mountain Diamonds from dealing with the lease or the infrastructure, machinery and equipment at the Kao Mine. GDR’s application was subsequently withdrawn and no claims were issued. In March 2010, GDR was put into administration. The administration of GDR was converted to a creditors’ voluntary liquidation on 24 March 2011. Namakwa has not received any further information in connection with any potential claim by GDR (or its administrators), and therefore, any such claim is unquantifiable. Namakwa will vigorously defend any such proceedings that may be brought against it. Toro/Batla claim On 30 November 2011, the High Court of Lesotho dismissed the claim of Batla Minerals SA and, its subsidiary, Toro Diamonds Lesotho (Pty) Ltd (together, “Batla Minerals”) to a 50% interest in Namakwa’s 178
62.5% shareholding in Storm Mountain Diamonds, with costs awarded to Namakwa. Batla Minerals subsequently informed Namakwa on 15 December 2011 of its intention to exercise its rights to appeal the decision of the High Court. On 27 April 2012, the Lesotho Court of Appeal granted leave to Batla Minerals to file its record of appeal late and by a long-stop date of 30 June 2012. Namakwa did not challenge Batla Minerals’ application, as in accordance with the decision of the Lesotho High Court, Namakwa considers Batla Minerals’ claim to be without merit. The amount claimed by Batla Minerals is unquantifiable. Namakwa understands that the next session of the Lesotho Court of Appeal is scheduled for September/ October 2012, at which time Namakwa expects that the substantive appeal of Batla Minerals’ is likely to be heard. Namakwa will continue to defend its rights vigorously. At this stage, the Directors are unable to quantify the value of Batla Minerals’ claim against the Company. However, as at 5 June 2012 (being the latest practicable date prior to the publication of this document), Namakwa’s total investment in Storm Mountain Diamonds was US$83.51 million. If the Lesotho Court of Appeal was to overturn the decision of the Lesotho High Court of 30 November 2011, Namakwa would seek recourse from Batla Minerals for a minimum of 50% of its then current investment in Storm Mountain Diamonds. Furthermore, in accordance with the terms of the Kao Mining Agreement, the consent of the Lesotho Minister of Natural Resources would be required to effect the transfer of any shares in Storm Mountain Diamonds to Toro Diamonds Lesotho (Pty) Ltd. 22.
Related party transactions Other than as disclosed in (i) the financial statements of the Group as of and for the six months ended 29 February 2012 (note 22); the financial statements of the Group as of and for the six months ended 28 February 2011 (note 17); (iii) the 2011 Annual Report and Accounts (note 30); (iv) the 2010 Annual Report and Accounts (note 30); (v) the 2009 Annual Report and Accounts (note 32); and (vi) the 2008 Annual Report and Accounts (note 32), there have been no related party transactions between Namakwa or members of the Group that were entered into during the period between 29 February 2012 and 5 June 2012 (the latest practicable date prior to the date of this document).
23.
Dividends There were no dividends per Ordinary Share paid in respect of each of the last three financial years and no special dividend has been declared or paid.
24.
Consents
24.1
PricewaterhouseCoopers LLP has given and has not withdrawn its written consent to the inclusion in Part V of its report on the Unaudited Pro Forma Financial Information in the form and context in which it appears and has authorised the contents of that part of this document which comprises its report for the purposes of PR 5.5.3R(2)(f) of the Prospectus Rules.
24.2
Shore Capital (in its capacity as sole broker and Sponsor) has given and not withdrawn its written consent to the issue of this document with the inclusion herein of the references to its name in the form and context in which they appear.
24.3
Venmyn has given and not withdrawn its written consent to the inclusion in this document of its name, reports and references to its name and those reports in the form and context in which they appear and has authorised the contents of those parts of this document which comprise its reports for the purposes of PR 5.5.3R(2)(f) of the Prospectus Rules and item 23.1 of Annex 1 of the Prospectus Regulation. Venmyn is responsible for the information that is contained in Part XI: “Global Resource Statement” of this document and any other information contained in this document which references Venmyn as the source of this information and has declared that, having taken all reasonable care to ensure that such is the case, the information which it is responsible for is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import.
25.
Third party information Certain information contained in this document has been obtained from external publications and is sourced from third parties. Namakwa confirms that this information has been accurately reproduced in this document and, as far as Namakwa is aware and is able to ascertain from information published by third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading. 179
26.
No significant change Except as described below, there has been no significant change in the financial or trading position of the Group since 29 February 2012, the date to which the financial statements as of and for the six month period ended 29 February 2012 of the Group were prepared.
26.1
Since 29 February 2012, the Company has drawn down a further US$4.2 million under the US$40 million Jarvirne Facility bringing the total amount drawn down under the Jarvirne Facility to US$35.2 million. No further amounts may be drawn down under the Jarvirne Facility.
26.2
On 10 April 2012, the Company entered into the Sputnick Facility. As at the date of this document, the Sputnick Facility was fully drawn down (US$10 million).
26.3
On 25 April 2012, Jarvirne provided the Company with a letter of intent to irrevocably commit up to US$55 million to subscribe for New Shares, at a price to be agreed, by way of a pre-emptive open offer of up to US$55m (gross), provided that such offering was completed by 30 June 2012 (the “Jarvirne Commitment”). The Jarvirne Commitment is conditional on, inter alia, there being no material adverse change in the operating and financial condition of the Group prior to the closing of the Open Offer and upon Admission occurring by 30 June 2012.
26.4
On 5 June 2012, Jarvirne provided the Company with an irrevocable undertaking (the “Jarvirne Undertaking”), conditional only upon the publication of this document, to: (i) subscribe for 257,387,369 New Shares, being its Open Offer Entitlement; (ii) subscribe for up to a further 536,675,926 New Shares under the Excess Application Facility (subject to scale back in accordance with the terms and conditions of the Open Offer); and (iii) vote in favour of each of the Relevant Resolutions (although the Company understands that Jarvirne will be voting against Resolutions 4 and 6).
27.
General The net proceeds of the Open Offer will be c.US$53.5 million. The total costs and expenses payable by Namakwa in connection with the Open Offer are estimated to amount to c.US$1.5 million. The Ordinary Shares are listed on the Official List, their ISIN is BMG638411113 and their code is NAD. No application is currently intended to be made for the Ordinary Shares to be admitted to listing or dealt with on any exchange other than the London Stock Exchange. There are no arrangements in existence under which future dividends are to be waived or agreed to be waived. On Admission, New Shares may be delivered, held and settled in CREST by means of dematerialised Depository Interests representing such New Shares. Further details are set out in Part XIII: “Crest and Depository Interest” of this document.
28.
Documents available for inspection Copies of the following documents are available for inspection during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) from the date of publication of this document up to and including the date of Admission at the offices of Taylor Wessing LLP, 5 New Street Square, London EC4A 3TW and will be available for inspection at the Special General Meeting for at least 15 minutes prior to and during the meeting: (a)
the Bye-laws of Namakwa and its Memorandum of Association;
(b)
the reviewed, but unaudited, condensed consolidated interim financial statements of Namakwa and its subsidiaries for the six months ended 29 February 2012 and 28 February 2011 and the audited consolidated accounts of the Group for the four financial years ended 31 August 2011, 2010, 2009 and 2008 respectively;
(c)
the report from PricewaterhouseCoopers LLP which is set out in Part VII: “Unaudited Pro Forma Financial Information” of this document;
(d)
the consent letters referred to in paragraph 24 entitled “Consents” in Part X: “Additional Information” of this document; and
(e)
this document.
Dated 6 June 2012 180
PART XI — GLOBAL RESOURCE STATEMENT Resources in this Part XI are reported in accordance with the SAMREC Code, as stated. The definitions set out in “Important Information” in this document have been applied in estimating the resources position of the Group disclosed within this document. The following tables have been extracted without material adjustment from the Global Resource Statement prepared for Namakwa, as at 31 August 2011, by Venmyn and are SAMREC compliant, in each case, as determined by, firstly, Richard Hall, Chief Technical Officer and Competent Person for the Company ( B.Sc. (1983), B.Sc (Hons) Geol.; M.Sc (Cum Laude) Geol., AusIMM, MGA, and secondly, by Venmyn and its Competent Persons, Mrs. Catherine Telfer, Venmyn, B.Sc. Hons (Geol), DMS (Dip Bus Man), FGSSA, MAusIMM, Pr. Sci. Nat and M.Inst.D and Mr. Neil Mekenna, M.Sc. (Geol), Pr. Sci. Nat, MSAIMM, MGSSA. MIASSA., M.Inst.D.
Country South Africa
Mineral Resource category
Node
North West Province Indicated . . . . . . . . . . Central Inferred . . . . . . . . . . . Indicated . . . . . . . . . . Northern Inferred . . . . . . . . . . . Indicated . . . . . . . . . . Southeastern Inferred . . . . . . . . . . . Inferred . . . . . . . . . . . Southwestern Inferred . . . . . . . . . . . Western Total / Ave North West Province Indicated . . . . . . . . . Total / Ave North West Province Inferred . . . . . . . . . . Total / Ave North West Province . . . . . Northern Cape Province Inferred . . . . . . . . . . . Buffels North Total / Ave Northern Cape Province Inferred . . . . . . . . . . Total / Ave Northern Cape Province . . . . . Total / Ave South Africa . . . . . . . . . . . .
Lesotho
Kao Mine Indicated . . . . . . . . . . Inferred . . . . . . . . . . . Total / Ave Butha Buthe Province Indicated . . . . . . . . . Total / Ave Butha Buthe Province Inferred . . . . . . . . . .
Deposit type
Mining volume (m3) (incl dilution)
Alluvial Alluvial Alluvial Alluvial Alluvial Alluvial Alluvial Alluvial
8,974,000 58,625,000 2,459,000 2,419,000 10,493,000 3,528,000 37,045,000 5,500,000
Average recovery Mining Grade Tonnes (inc (cpht) (incl SG dilution) dilution) 2.10 18,846,000 2.10 123,113,000 2.10 5,164,000 2.10 5,080,000 2.10 22,036,000 2.10 7,410,000 2.10 77,794,000 2.10 11,550,000
Ave diamond Total value carats (USD/ct)
0.45 0.40 0.52 0.30 0.73 0.62 0.31 0.28
85,500 497,800 27,000 15,000 161,000 46,200 242,600 32,300
675 663 576 576 511 511 436 467
46,046,000
0.59
273,500
569
107,117,000 2.10 224,947,000
0.37
833,900
579
129,043,000 2.10 270,993,000
0.41
1,107,400
576
21,926,000 2.10
Alluvial
12,957,000 2.30
29,805,000
2.39
713,600
393
12,957,000 2.30
29,805,000
2.39
713,600
393
12,957,000 2.30
29,805,000
2.39
713,600
393
142,000,000 2.12 300,798,000
0.61
1,821,000
505
21,020,000 2.53 53,205,000 52,046,000 2.55 132,719,000
7.03 6.72
3,752,300 8,914,400
188 172
21,020,000 2.53
53,205,000
7.03
3,752,300
188
Kao Kimberlite
52,046,000 2.55 132,719,000
6.72
8,914,400
172
Total / Ave Lesotho . . . . . . . . . . .
73,066,000 2.54 185,924,000
6.81 12,666,700
177
Grand Total / AveAfrica Indicated (Excluding Namibia) . . . . . . . . . .
42,946,000 2.31
3.75
4,025,800
214
99,251,000
Grand Total / Ave Africa Inferred (Excluding Namibia) . . . . . . . . . .
172,120,000 2,25 387,471,000
2.44 10,461,900
219
Grand Total / Ave Africa (Excluding Namibia) . . . . . . . . . .
215,066,000 2.26 486,722.000
2.70 14,487,700
218
181
Country Namibia
Country Lesotho
Mineral Resource Category Node
Deposit Type
Mining Average Potential Tonnes recovery Grade Mining (incl (cpht) (incl Area (m2) SG dilution) dilution)
Inferred . . . . . . . . . . Tidal Offshore/Marine 108,400,000 N/A Total / Ave Namibia Inferred . . . . . . . . . . 108,400,000 N/A Total / Ave Namibia . . . . . . . . . . 108,400,000 N/A
N/A
N/A 5,101,900
115
N/A
N/A 5,101,900
115
N/A
N/A 5,101,900
115
Ave Recovered Total Diamond Volume Grade Carats Value Category Node Deposit Type (mt) (cpht) (cts) (usd/ct) From To From To Deposit . . . . . . . . . . . . . . . Kao
Kimberlite
Total / Ave Lesotho . . . . . Total / Ave Deposit/ . . . . Exploration Target Africa
182
Ave diamond Total value carats (USD/ct)
From
To From To
18.05
33.53
4.62
8.59 1,192,300 2,214,300
117 217
18.05 18.05
33.53 33.53
4.62 4.62
8.59 1,192,300 2,214,300 8.59 1,192,300 2,214,300
117 217 117 217
PART XII — DOCUMENTATION INCORPORATED BY REFERENCE The documents listed below are incorporated by reference into this document and are available for inspection in accordance with the paragraph “Documents available for inspection” Part X: “Additional Information” of this document contain information which is relevant to the Open Offer. These documents are also available on Namakwa’s website at www.namakwadiamonds.com. The table below sets out the various sections of such documents which are incorporated by reference into this document so as to provide the information required under the Prospectus Rules and to ensure that Shareholders and others are aware of all information which, according to the particular nature of Namakwa and of the Ordinary Shares, is necessary to enable Shareholders and others to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of Namakwa. Page numbers in such document
Document
Section
Unaudited Financial Statements of the Group as of and for the six month period ended 29 February 2012 . . . . . .
All
1
2011 Annual Report and Accounts . . .
Business Overview
3
Overview 2011 Key Operational Events and Key Financial Indicators Segmental Business Performance Key Business Risks Chairman’s Statement Global Operations Resource Statements Performance Operating and Financial Review Governance Board of Directors Corporate Governance Report Directors’ Report Remuneration Report Audit, Risk & Compliance Report Financial Statements Statement of Responsibility Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Shareholder Matters Shareholder Information
3
Unaudited Financial Statements of the Group as of and for the six month period ended 28 February 2011 . . . . . . 2010 Annual Report and Accounts . . .
All
4 6 8 10 12 25 30 30 48 48 50 58 64 70 74 74 75 76 77 78 79 80 122 122
1
Namakwa Diamonds Overview 2010 Highlights and Key Performance Indicators Segmental Business Performance Key Objectives and Business Risks Chairman’s Review Chief Executive Officer’s Review Global Operations Resource Statements Vertical Integration Trading & Beneficiation Division Chief Financial Officer’s Operating and Financial Review 183
1 4 5 6-7 8-9 10-17 18-29 30-33 34 35-37 40-45
Document
2009 Annual Report and Accounts . . .
2008 Annual Report and Accounts . . .
Page numbers in such document
Section
Governance Overview Board of Directors Directors’ Report Corporate Governance Directors’ Remuneration Report Statement of Responsibility by the Board of Directors Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements
47 48-49 50-53 54-57 58-63 66 67 68 69 70 71 72-107
Group at a glance Business overview Chairman’s review Chief Executive Officer’s review Chief Financial Officer’s review Directors’ report Independent auditor’s report Consolidated income statement for the financial year ended 31 August 2009 Consolidated balance sheet for the financial year ended 31 August 2009 Consolidated statement of changes in equity for the financial year ended 31 August 2009 Consolidated statement of cash flows for the financial year ended 31 August 2009 Notes to the consolidated financial statements
2 7-15 17-18 21-23 25-30 35-39 45
Geographical operations Chairman’s review Chief Executive Officer’s report Chief Financial Officer’s report Directors’ report Independent auditor’s report Consolidated income statement for the financial year ended 31 August 2008 Consolidated balance sheet for the financial year ended 31 August 2008 Consolidated statement of changes in equity for the financial year ended 31 August 2008 Consolidated statement of cash flows for the financial year ended 31 August 2008 Notes to the consolidated financial statements
4-5 10-11 12-15 16-17 18-20 25
46 47 48 49 50-87
26 27 28 29 30-67
Other than as incorporated by reference (as per the table above), any information that is incorporated by reference into such documents, which in turn is then incorporated into these documents, is not incorporated by reference into this document.
184
PART XIII — CREST AND DEPOSITORY INTERESTS Namakwa has entered into depository arrangements to enable investors to deliver, hold, settle and pay for interests in the Ordinary Shares through the CREST system. CREST is a paperless settlement system allowing securities to be transferred from one person’s CREST account to another without the need to use share certificates or written instruments of transfer. Securities issued by certain non-UK companies, such as Namakwa, cannot be held electronically (i.e. in uncertificated form) or transferred in the CREST system. This means that the Ordinary Shares are not themselves admitted to CREST. However, depository interests allow securities to be dematerialised and settled electronically. Pursuant to a method utilised by Euroclear under which transactions in international securities may be settled through the CREST system and arrangements put in place by Namakwa, Capita IRG Trustees Limited (“Capita IRG Trustees” or the “Depository”), a subsidiary of Namakwa’s Registrars, Capita Registrars (Jersey) Limited may hold the Ordinary Shares on trust for shareholders and may issue dematerialised depository interests representing entitlements to Ordinary Shares, known as Depository Interests to individual shareholders’ CREST accounts representing the underlying Ordinary Shares. The Depository Interests are independent securities constituted under English law which may be held and transferred through the CREST system. The Depository Interests are created pursuant to and issued on the terms of a deed poll executed by Capita IRG Trustees in favour of the holders of the Depository Interests from time to time (the “Deed Poll”). Prospective holders of Depository Interests should note that they will have no rights in respect of the underlying Ordinary Shares or the Depository Interests representing them against Euroclear or its subsidiaries. Ordinary Shares are transferred to an account of Capita IRG Trustees or its nominated custodian (the “Custodian”) and Capita IRG Trustees issues Depository Interests to participating members and provide the necessary custodial services. In relation to those Ordinary Shares held by Shareholders in uncertificated form, although Namakwa’s register shows the Custodian as the legal holder of the Ordinary Shares, the beneficial interest in the Ordinary Shares remains with the Depository Interest Holder, who through the Depository has the benefit of many of the rights attaching to the Ordinary Shares as if the Depository Interest Holder were named on the certificated Ordinary Share register itself. Each Depository Interest is treated as one Ordinary Share for the purposes of determining, for example, eligibility for any dividends. Capita IRG Trustees will pass on to holders of Depository Interests any stock or cash benefits received by it as holder of Ordinary Shares on trust for such Depository Interest Holder. Depository Interest Holders are also to receive notices of meetings of Shareholders and other notices issued by Namakwa to its Shareholders. The Depository Interests have the same security code (ISIN) as the underlying Ordinary Shares being BMG636211093 and do not require a separate listing on the Official List. The Depository Interests can then be traded and settlement will be within the CREST system in the same way as any other CREST security. Deed Poll In summary, the Deed Poll contains, inter alia, provisions to the following effect which are binding on Depository Interest Holders. 1.
The Depository holds (itself or through its nominated Custodian), as bare trustee, the underlying securities issued by Namakwa and all and any rights and other securities, property and cash attributable to the underlying securities pertaining to the Depository Interests for the benefit of the holders of the relevant Depository Interests.
2.
Holders of Depository Interests warrant, inter alia, that the Ordinary Shares transferred or issued to the Depository or Custodian on behalf of the Depository are free and clear of all liens, charges, encumbrances or third party interests and that such transfers or issues are not in contravention of Namakwa’s constitutional documents or any contractual obligation, law or regulation.
3.
The Depository and any Custodian must pass on to Depository Interest Holders and, so far as they are reasonably able, exercise on behalf of Depository Interest Holders all rights and entitlements received or to which they are entitled in respect of the underlying Ordinary Shares which are capable of being passed on or exercised. Rights and entitlements to cash distributions, to information, to make choices and elections and to call for, attend and vote at meetings shall, subject to the Deed Poll, be passed on in the form in which they are received together with amendments and additional documentation necessary to effect such passing-on, or, as the case may be, exercised in accordance with the Deed Poll. 185
4.
The Depository is entitled to cancel Depository Interests and withdraw the underlying securities in certain circumstances including where a Depository Interest Holder has failed to perform any obligation under the Deed Poll or any other agreement or instrument with respect to the Depository Interests.
5.
The Deed Poll contains provisions excluding and limiting the Depository’s liability. For example, the Depository shall not be liable to any Depository Interest Holder or any other person for liabilities in connection with the performance or non-performance of obligations under the Deed Poll or otherwise except as may result from its negligence or wilful default or fraud or that of any person for whom it is vicariously liable, provided that the Depository shall not be liable for the negligence, wilful default or fraud of any Custodian or agent which is not a member of its group unless it has failed to exercise reasonable care in the appointment and continued use and supervision of such Custodian or agent. Furthermore, except in the case of personal injury or death, the Depository’s liability to a holder of Depository Interests will be limited to the lesser of: (a)
the value of the Ordinary Shares and other deposited property properly attributable to the Depository Interests to which the liability relates; and
(b)
that proportion of £10m which corresponds to the portion which the amount the Depository would otherwise be liable to pay to the Depository Interest Holder bears to the aggregate of the amounts the Depository would otherwise be liable to pay to all such holders in respect of the same act, omission or event or, if there are no such amounts, £10m.
6.
The Depository is entitled to charge Depository Interest Holders fees and expenses for the provision of its services under the Deed Poll.
7.
Each holder of Depository Interests is liable to indemnify the Depository and any Custodian (and their agents, officers and employees) against all liabilities arising from or incurred in connection with, or arising from any act related to, the Deed Poll so far as they relate to the property held for the account of Depository Interests held by that holder, other than those resulting from the wilful default, negligence or fraud of the Depository, or the Custodian or any agent if such Custodian or agent is a member of the Depository’s group or if, not being a member of the same group, the Depository shall have failed to exercise reasonable care in the appointment and continued use and supervision of such Custodian or agent.
8.
The Depository may terminate the Deed Poll by giving not less than 30 days’ notice. During such notice period holders may cancel their Depository Interests and withdraw their deposited property and, if any Depository Interests remain outstanding after termination, the Depository must, as soon as reasonably practicable, among other things, deliver the deposited property in respect of the Depository Interests to the relevant Depository Interest Holders or, at its discretion, sell all or part of such deposited property. It shall, as soon as reasonably practicable, deliver the net proceeds of any such sale, after deducting any sums due to the Depository, together with any other cash held by it under the Deed Poll pro rata to holders of Depository Interests in respect of their Depository Interests.
9.
The Depository or the Custodian may require from any holder information as to the capacity in which Depository Interests are owned or held and the identity of any other person with any interest of any kind in such Depository Interests or the underlying Ordinary Shares and holders are bound to provide such information requested. Furthermore, to the extent that Namakwa’s constitutional documents require disclosure to Namakwa of, or limitations in relation to, beneficial or other ownership of, or interests of any kind whatsoever, in Namakwa’s securities, the holders of Depository Interests are to comply with such provisions and with Namakwa’s instructions with respect thereto.
10.
It should also be noted that holders of Depository Interests may not have the opportunity to exercise all of the rights and entitlements available to Shareholders including, for example, the ability to vote on a show of hands. In relation to voting, it is important for holders of Depository Interests to give prompt instructions to the Depository or its nominated Custodian, in accordance with any voting arrangements made available to them, to vote the underlying shares on their behalf or, to the extent possible, to take advantage of any arrangements enabling holders of Depository Interests to vote such shares as a proxy of the Depository or its nominated Custodian.
11.
A copy of the Deed Poll can be obtained on request in writing to the Depository.
Depository Agreement The terms of the depository agreement dated 10 December 2007 between Namakwa and the Depository under which Namakwa appoints the Depository to constitute and issue from time to time upon the terms of the Deed Poll 186
(as outlined above), a series of Depository Interests representing securities issued by Namakwa and to provide certain other services in connection with such Depository Interests (the “Depository Agreement”), are summarised below: 1.
The Depository agrees that it will comply, and will procure that certain other persons comply, with the terms of the Deed Poll and that it and they will perform their obligations in good faith and with all reasonable skill, diligence and care. The Depository assumes certain specific obligations, including the obligation to arrange for the Depository Interests to be admitted to CREST as participating securities and to provide copies of and access to the register of Depository Interests. The Depository warrants that it is and, to the extent necessary, any custodian, agent or other parties appointed by it pursuant to the Deed Poll shall be an authorised person under the FSMA and is duly authorised to carry out custodial and other activities under the Deed Poll. It also undertakes to maintain that status and authorisation. It will either itself or through its appointed Custodian hold the deposited property on trust (which includes the securities represented by the Depository Interests) for the benefit of the holders of the Depository Interests as tenants in common, subject to the terms of the Deed Poll. Namakwa agrees to provide such assistance, information and documentation to the Depository as is reasonably required by the Depository for the purposes of performing its duties, responsibilities and obligations under the Deed Poll and the Depository Agreement. In particular, Namakwa is to supply the Depository with all documents it sends to its shareholders so that the Depository can distribute the same to all holders of Depository Interests. The agreement sets out the procedures to be followed where Namakwa is to pay or make a dividend or other distribution.
2.
The Depository is to indemnify Namakwa on an after tax basis against claims made against Namakwa by any holder of Depository Interests or any person having any direct or indirect interest in any such Depository Interests or the underlying securities which arises out of any breach of the terms of the Deed Poll or any trust declared or arising thereunder. Namakwa is to indemnify the Depository on an after tax basis against claims made against the Depository by any holder of Depository Interests or any person having any direct or indirect interest in any such Depository Interests or the underlying securities which arises out of the Depository’s performance of its obligations under the Depository Agreement or the Deed Poll.
3.
The Depository Agreement is to remain in force for as long as the Deed Poll remains in force. Both Namakwa and the Depository may terminate the Depository Agreement on not less than 30 days’ written notice in the event of (i) an irremedial material breach by the other party; (ii) a material remediable breach that is not remedied by the relevant party within 30 days of being required to do so by written notice; or (iii) the occurrence of an event of default, and otherwise on not less than 45 days’ written notice to that effect.
4.
Namakwa is to pay certain fees and charges, including a set up fee, an annual fee, a fee based on the number of Depository Interests per year and certain CREST related fees. The Depository is also entitled to recover reasonable out-of-pocket fees and expenses.
Offshore Registrar Agreement The terms of the offshore registrar agreement dated 12 December 2007 between Namakwa and the Registrars under which Namakwa appoints the Registrars to act as the registrars of the Jersey offshore register in respect of the issued share capital of Namakwa (the “Offshore Registrar Agreement”) are summarised below: 1.
The Registrars agree to follow all reasonable instructions properly given by Namakwa with regard to its duties as Registrars and will provide a registration and transfer office in Jersey where it will keep the offshore registers and perform the services of a registrar with due diligence, reasonable skill and expertise. The Registrars assume certain specific obligations, including, for example, to receive and register transfers and all other documents needed to maintain the offshore registers, to prepare and issue new share certificates, and to prepare and dispatch dividend and interest warrants.
2.
Namakwa agrees to give such assistance to the Registrars as may be reasonably necessary to enable the Registrars to carry out its obligations under the agreement.
3.
Namakwa is to indemnify the Registrars and its agents, officers and employees from and against all liabilities that may be suffered arising out of or in connection with the performance of its duties as Registrars except such as may be due to fraud, negligence or wilful default of the Registrars or its agents, officers or employees. The aggregate liability of the Registrars or its agents, officers or employees in connection with the Offshore Registrar Agreement is the lesser of £1m or an amount equal to 10 times the total annual fee payable to the Registrars under the Offshore Registrar Agreement and excludes liability for indirect or consequential loss or damage, loss of profit, revenue, actual or anticipated saving or goodwill.
4.
Namakwa may terminate the agreement upon the expiry of not less than three months’ notice to the Registrars, such notice to expire no earlier than the second anniversary of the date of the Offshore Registrar 187
Agreement. The Registrars may terminate the Offshore Registrar Agreement upon the expiry of not less than three months’ notice to Namakwa. Both Namakwa and the Registrars may, however, terminate the agreement immediately upon giving notice to the other party if (i) there is an insolvency-related event of default; (ii) either party commits a material breach of this agreement; (iii) either party commits a material breach that is not remedied by the relevant party within 30 days of being required to do so by written notice; or (iv) in the case of the Registrars, being in the opinion of the Directors guilty of fraud, wilful misconduct or gross negligence in the performance of its duties. Namakwa may also terminate the agreement immediately upon giving notice in the event of the Registrars ceasing to be permitted to act as Registrars of Namakwa under any applicable law. 5.
Namakwa is to pay certain fees, including a set-up charge, an annual maintenance fee, a UK Transfer Agency fee, a fee per transfer and certain CREST-related fees. The Registrars are also entitled to recover reasonable out-of-pocket expenses.
188
PART XIV — OBLIGATIONS OF AN AIM COMPANY Should the Ordinary Shares (and New Shares) be admitted to trading on AIM, the Company would be subject to the regulatory and disciplinary controls of the AIM Rules. Shareholders should note that AIM is self-regulated and the protections afforded to investors in AIM companies are less rigorous than those afforded to investors in companies listed on the premium segment of the Official List. While for the most part the obligations of a company whose shares are traded on AIM are similar to those of companies whose shares are listed on the premium segment of the Official List, there are certain exceptions, including those referred to below: •
Under the AIM Rules, prior shareholder approval is required only for: (i) reverse takeovers (being an acquisition or acquisitions in a twelve month period which would: (a) exceed 100% in various class tests; or (b) result in a fundamental change in the company’s business, board or voting control; or (ii) disposals which, when aggregated with any other disposals over the previous twelve months, result in a fundamental change of business (being disposals that exceed 75% in various class tests). Under the Listing Rules, a more extensive range of transactions are conditional on shareholder approval and require a detailed circular.
•
There is no requirement under the AIM Rules for a prospectus or an admission document to be published for further issues of securities to institutional investors, except when seeking admission for a new class of securities or as otherwise required by law.
•
Unlike the Listing Rules, the AIM Rules do not specify any required structures or discount limits in relation to further issues of securities.
•
The Corporate Governance Code does not apply directly to companies who are admitted to trading on AIM. The Directors recognise, however, the importance of high standards of corporate governance and intend that the Company should observe the requirements of the Corporate Governance Code to the extent the Directors consider appropriate having regard to the size, nature and resources of the Company. The Company will maintain its Audit Committee, Nominations Committee and Remuneration Committee, which will be subject to the currently existing terms of reference.
•
The guidelines issued by the Association of British Insurers and other members of the Institutional Shareholders Committee, which give guidance on issues such as executive compensation and share based remuneration, corporate governance, share capital management and the issue and allotment of shares on a pre-emptive or non pre-emptive basis, do not apply directly to companies whose shares are admitted to trading on AIM. The Directors recognise, however, the importance of high standards of corporate governance and intend that the Company should observe the requirements of such guidelines to the extent the Directors consider appropriate having regard to the size, nature and resources of the Company.
•
Under the Listing Rules, a company is required to appoint a “sponsor” for the purposes of certain corporate transactions, such as when undertaking a large transaction or capital raising. The responsibilities of the sponsor include providing assurance to the FSA when required that the responsibilities of the listed company have been met. Corporate transactions on the Official List often require the approval of shareholders and the engagement of a sponsor to oversee the process and liaise with the FSA. In particular, on a proposed acquisition, where the size of the target represents 25% or greater of the listed company as determined by the class tests set out in Annex 1 of Chapter 10 of the Listing Rules, a circular to shareholders is required explaining the transaction and seeking the consent of Shareholders. The AIM Rules require that AIM companies retain a nominated adviser and broker at all times.
•
There is no specified requirement for a minimum number of shares in an AIM quoted company to be held in public hands, whereas a company listed on the Official List has to maintain a minimum of 25% of its issued ordinary share capital in public hands.
•
Certain securities laws would no longer apply to the Company following admission to AIM, for example, the Listing Rules, the Prospectus Rules and the Disclosure and Transparency Rules. This is because AIM is not a regulated market for the purposes of the European Union’s directives relating to securities.
•
Companies whose shares trade on AIM are deemed to be unlisted for the purposes of certain areas of UK taxation. Shareholders and prospective investors should consult their own professional advisers as to whether an investment in an AIM security is suitable for them and/or whether any tax benefit associated with their shares would be impacted by an admission to trading on AIM. In particular, they should note that it is not possible to hold shares traded solely on AIM in ISAs. The Directors understand that, following admission to AIM, Shareholders would, under current HMRC guidance, have 30 days to decide whether to transfer their shareholding in the Company into their own name (to be held outside the relevant ISA) or to sell the holding and retain the proceeds within the relevant ISA. 189
PART XV — DEFINITIONS AND GLOSSARY OF SELECTED TERMS The following definitions apply throughout this document unless the context requires otherwise: 1948 Act . . . . . . . . . . . . . . . . . . . . . . . . . the Companies Act 1948 of England and Wales 1958 Act . . . . . . . . . . . . . . . . . . . . . . . . . the Judgments (Reciprocal Enforcement) Act 1958 of Bermuda 2010 Loan Agreement . . . . . . . . . . . . . . the loan agreement dated 21 May 2010 between Namakwa and Jarvirne, under which Jarvirne agreed to lend US$15,000,000 in three tranches of US$5,000,000 to Namakwa 2010 Placing and Open Offer . . . . . . . . the placing and offer of Ordinary Shares by Namakwa in connection with a prospectus dated 9 December 2010 “A” Preference Dividend . . . . . . . . . . . . has the meaning given in the paragraph “Significant subsidiary and associated undertakings” in Part X: “Additional Information” of this document “A” Preference Shares . . . . . . . . . . . . . . has the meaning given in the paragraph “Significant subsidiary and associated undertakings” in Part X: “Additional Information” of this document “A” Preference Shareholder . . . . . . . . . holder of “A” Preference Shares Admission . . . . . . . . . . . . . . . . . . . . . . . . the admission of the New Shares to the Official List and to trading on the Main Market becoming effective and references to Admission becoming effective means it becoming effective in accordance with LR 3.2.7G of the Listing Rules and paragraph 3.1 of the Admission and Disclosure Standards published by the London Stock Exchange Admission and Disclosure Standards . . . . . . . . . . . . . . . . . . . . . .
the requirements contained in the publication “Admission and Disclosure Standards” of the London Stock Exchange dated July 2005 (as amended from time to time) containing, among other things, the admission requirements to be observed by companies seeking to trade on the Main Market
AIM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a market operated by the London Stock Exchange AIM Rules . . . . . . . . . . . . . . . . . . . . . . . the rules for companies whose securities are admitted to trading on AIM, as published by the London Stock Exchange from time to time alluvial . . . . . . . . . . . . . . . . . . . . . . . . . . diamond deposits that are located in sediments transported by ancient river systems Amended Relationship Agreement . . . . has the meaning given to it in the paragraph “Material contracts” in Part X: “Additional Information” of this document AML . . . . . . . . . . . . . . . . . . . . . . . . . . . . anti-money laundering Angola . . . . . . . . . . . . . . . . . . . . . . . . . . . the Republic of Angola Alternate Director . . . . . . . . . . . . . . . . . a person appointed by the Shareholders in a general meeting to act as a Director in the alternative to any one or more Directors Application Form . . . . . . . . . . . . . . . . . . the application form for use by Qualifying Shareholders in connection with the Open Offer which accompanies this document Australia . . . . . . . . . . . . . . . . . . . . . . . . . the Commonwealth of Australia, its territories and possessions and all other areas subject to its jurisdiction and any political sub-division thereof Authorisations . . . . . . . . . . . . . . . . . . . . has the meaning given to it in the section entitled “Risk Factors” Base Consideration . . . . . . . . . . . . . . . . has the meaning given to it in the paragraph “Material contracts” in Part X: “Additional Information” of this document 190
BEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . black economic empowerment Bermuda . . . . . . . . . . . . . . . . . . . . . . . . . the islands of Bermuda Bermuda Companies Act . . . . . . . . . . . . the Companies Act 1981 of Bermuda, as amended from time to time BMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . the Bermuda Monetary Authority Business Day . . . . . . . . . . . . . . . . . . . . . . any day other than a Saturday or Sunday or public holiday on which banks are generally open for business in the City of London Bye-laws . . . . . . . . . . . . . . . . . . . . . . . . . the bye-laws of Namakwa, a summary of which is set out in the paragraph “Summary of the Memorandum of Association and Byelaws” in Part X: “Additional Information” of this document Canada . . . . . . . . . . . . . . . . . . . . . . . . . . Canada, its territories and possessions and all areas subject to its jurisdiction and any political sub-division thereof Capita IRG Trustees . . . . . . . . . . . . . . . Capita IRG Trustees Limited Capita Registrars . . . . . . . . . . . . . . . . . . a trading name of Capita Registrars Limited Capitalisation . . . . . . . . . . . . . . . . . . . . . the capitalisation of the trading debt by Namakwa in favour of Jarvirne, pursuant to which Jarvirne was issued and allotted 66,791,667 Ordinary Shares on 25 November 2011 carat or ct . . . . . . . . . . . . . . . . . . . . . . . . unit weight for diamonds, 0.2g = 1 carat CCSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . the CREST Courier and Sorting Service, as described in the CREST Manual certificated or in certificated form . . . . a share or other security which is not in uncertificated form Closing Price . . . . . . . . . . . . . . . . . . . . . . the closing middle market quotation of an Existing Share as derived from the Official List Combined Code . . . . . . . . . . . . . . . . . . . the Combined Code on Corporate Governance dated June 2008 published by the UK Financial Reporting Council Common Monetary Area . . . . . . . . . . . . Lesotho, Namibia, South Africa and Swaziland Companies Act . . . . . . . . . . . . . . . . . . . . the Companies Act 2006 of England and Wales, as amended from time to time Company or Namakwa . . . . . . . . . . . . . Namakwa Diamonds Limited, a company incorporated and registered in Bermuda under registration number 39031 and whose registered office is at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda Competent Person . . . . . . . . . . . . . . . . . has the meaning given in the SAMREC Code Corporate Governance Code . . . . . . . . . the UK Corporate Governance Code on Corporate Governance dated June 2010 published by the UK Financial Reporting Council cpht . . . . . . . . . . . . . . . . . . . . . . . . . . . . . carats per hundred tonnes CREST . . . . . . . . . . . . . . . . . . . . . . . . . . the relevant system as defined in the CREST Regulations for the paperless settlement of trades and the holding of uncertificated securities in accordance with the CREST Regulations operated by Euroclear CREST Manual . . . . . . . . . . . . . . . . . . . the rules governing the operation of Euroclear consisting inter alia of the “CREST Reference Manual”, “CREST Central Counterparty Service Manual”, “CREST International Manual”, “CREST Rules”, “CREST CCSS Operations Manual” and “CREST Glossary of Terms” CREST member . . . . . . . . . . . . . . . . . . . a person who has been admitted by Euroclear as a system-member (as defined in the CREST Regulations) CREST participant . . . . . . . . . . . . . . . . . .a.person . . . . . .who . . . .is, . .in . . relation . . . . . . .to. .CREST, . . . . . . .a. system-participant . . . . . . . . . . . . . . . (as . . . defined ...... in the CREST Regulations) 191
CREST Regulations . . . . . . . . . . . . . . . . the Uncertificated Securities Regulations 2001, as amended from time to time CREST sponsor . . . . . . . . . . . . . . . . . . . a CREST participant admitted to CREST as a CREST sponsor CREST sponsored member . . . . . . . . . . a CREST member admitted to CREST as a sponsored member Custodian . . . . . . . . . . . . . . . . . . . . . . . . the custodian nominated by the Depository Daily Official List . . . . . . . . . . . . . . . . . . the daily record setting out the prices of all trades in shares and other securities conducted on the London Stock Exchange Deed Poll . . . . . . . . . . . . . . . . . . . . . . . . . the deed poll dated 10 December 2007 entered into by the Depository, the full terms of which are set out in Part XIII: “Crest and Depository Interests” of this document Depository . . . . . . . . . . . . . . . . . . . . . . . . Capita IRG Trustees Limited Depository Agreement . . . . . . . . . . . . . . has the meaning given in Part XIII: “CREST and Depository Interests” of this document Depository Interests or DIs . . . . . . . . . . the dematerialised depository interests in respect of and representing on a one-for-one basis Ordinary Shares issued or New Shares to be issued by the Depository Depository Interest Holders or DI Holders . . . . . . . . . . . . . . . . . . . . . . . .
holders of Depository Interests
Diamond Resource . . . . . . . . . . . . . . . . . has the meaning given in the section entitled “Important Information” Diamond Reserves . . . . . . . . . . . . . . . . . has the meaning given in the section entitled “Important Information” Directors or Board . . . . . . . . . . . . . . . . . the directors of Namakwa listed on page 25 Disclosure and Transparency Rules . . . the disclosure and transparency rules and regulations by the UK Listing Authority DMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . dense media separation DRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . the Democratic Republic of Congo DRC Business . . . . . . . . . . . . . . . . . . . . . has the meaning given to it in the paragraph “Material contracts” in Part X: “Additional Information” of this document DRC Group . . . . . . . . . . . . . . . . . . . . . . has the meaning given to it in the paragraph “Material contracts” in Part X: “Additional Information” of this document EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . earnings before interest, tax, depreciation and amortisation EC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . European Commission ECA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bermuda Exchange Control Act 1972 and regulations Euroclear . . . . . . . . . . . . . . . . . . . . . . . . Euroclear UK & Ireland Limited European Economic Area or EEA . . . . the European Union, Iceland, Norway and Liechtenstein Excess Application Facility . . . . . . . . . . the arrangement pursuant to which Qualifying Shareholders and Qualifying DI Holders may apply for New Shares in excess of their Open Offer Entitlement provided they have agreed to subscribe for their Open Offer Entitlement in full Excess Application Facility Shares . . . . New Shares subscribed for pursuant to the Excess Application Facility Excess CREST Open Offer Entitlement . . . . . . . . . . . . . . . . . . . . .
in respect of each Qualifying DI Holder, the entitlement (in addition to his Open Offer Entitlement) to apply for New Shares, credited to his stock account in CREST, pursuant to the Excess Application Facility, which is conditional on him taking up his Open Offer Entitlement in full and which may be subject to scaling back in accordance with the provisions of this document 192
Excess Shares . . . . . . . . . . . . . . . . . . . . . has the meaning given to it in paragraph 6.18 in Part X: “Additional Information” of this document Exempted Company . . . . . . . . . . . . . . . . has the meaning given to it in the Bermuda Companies Act Excluded Territories and each an Excluded Territory . . . . . . . . . . . . . .
the United States, Australia, Canada, Japan, South Africa and any other jurisdiction where the extension or availability of the Open Offer and any transactions contemplated hereby would breach any applicable law or regulation
Existing Shares . . . . . . . . . . . . . . . . . . . . the Ordinary Shares in issue at the date of this document Facilities . . . . . . . . . . . . . . . . . . . . . . . . . the Jarvirne Facility and the Sputnick Facility Family Trust . . . . . . . . . . . . . . . . . . . . . . a trust (whether arising under a settlement or testamentary disposition or an intestacy) under which no immediate beneficial interest in the shares in question is for the time being vested in any person other than a member or a connected person of a member or of the former member who transferred the shares to the settlement or (as the case may be) under whose testamentary disposition or intestacy the shares were vested Financial Services Authority or FSA . . the Financial Services Authority of the United Kingdom in its capacity as the competent authority for the purposes of Part VI of FSMA and in the exercise of its functions in respect of the admission to the Official List otherwise than in accordance with Part VI of FSMA Form of Direction . . . . . . . . . . . . . . . . . . the form of direction accompanying this document for use by DI Holders in relation to voting on the Resolutions at the Special General Meeting Form of Proxy . . . . . . . . . . . . . . . . . . . . the form of proxy accompanying this document for use by Shareholders in relation to voting on the Resolutions at the Special General Meeting Free Float . . . . . . . . . . . . . . . . . . . . . . . . the continuing obligation pursuant to Listing Rule 9.2.15 for a company listed on the premium segment of the Official List to have at least 25% of its shares in public hands FSMA . . . . . . . . . . . . . . . . . . . . . . . . . . . the UK Financial Services and Markets Act 2000, as amended Global Resource Statement . . . . . . . . . . the global resource statement of the Group, as at 31 August 2010, prepared by the independent competent person Venmyn Rand (Pty) Ltd and contained in Part XI: “Global Resource Statement” of this document Group or Namakwa Group . . . . . . . . . . Namakwa and its subsidiaries and subsidiary undertakings, and, where the context requires it, its associated undertakings IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Financial Reporting Standards Indicated Diamond Resource . . . . . . . . has the meaning given in the section entitled “Important Information” Inferred Diamond Resource . . . . . . . . . has the meaning given in the section entitled “Important Information” Indicated and Inferred Diamond Resource . . . . . . . . . . . . . . . . . . . . . . .
means Indicated Diamond Resource and Inferred Diamond Resource
IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the initial public offering of Namakwa on 13 December 2007 ISIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Securities Identification Number Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . the state of Japan Jarvirne . . . . . . . . . . . . . . . . . . . . . . . . . . Jarvirne Limited Jarvirne Facility . . . . . . . . . . . . . . . . . . . has the meaning given to it in the paragraph “Material contracts” in Part X: “Additional Information” of this document 193
Jarvirne Undertaking . . . . . . . . . . . . . . has the meaning given to it in the paragraph “Material contracts” in Part X: “Additional Information” of this document JVP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . has the meaning given in the paragraph “Anti Money Laundering and Anti Bribery” in Part X: “Additional Information” of this document Kao Mining Agreement . . . . . . . . . . . . . has the meaning given to it in the paragraph “Material contracts” in Part X: “Additional Information” of this document Kao Mining Agreements . . . . . . . . . . . . means, together, the Kao Mining Agreement and the Kao Mining Lease Kao Mining Lease . . . . . . . . . . . . . . . . . has the meaning given in the paragraph “Material contracts” in Part X: “Additional Information” of this document Kao Production Area . . . . . . . . . . . . . . . an area known as Kao in the Butha Buthe District with a surface area of approximately 6.53 square kilometres Kao Mine . . . . . . . . . . . . . . . . . . . . . . . . Namakwa’s Kao mine in Lesotho KRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kasai Resource Mining Limited KDM . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kao Diamond Mine (Pty) Ltd KFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kruger Family Foundation KFF Loan Agreement . . . . . . . . . . . . . . has the meaning given to it in the section entitled “Risk Factors” of this document Kimberley Process . . . . . . . . . . . . . . . . . a joint government, international diamond industry and civil society initiative introduced to address the flow of conflict diamonds kimberlite . . . . . . . . . . . . . . . . . . . . . . . . a potassic volcanic rock formation containing peridotite, in which diamonds are formed KYC . . . . . . . . . . . . . . . . . . . . . . . . . . . . know your client KYC/AML Policy . . . . . . . . . . . . . . . . . . has the meaning given in the paragraph “Anti Money Laundering and Anti Bribery” in Part X: “Additional Information” of this document Lesotho . . . . . . . . . . . . . . . . . . . . . . . . . . the Kingdom of Lesotho the Lesotho Government . . . . . . . . . . . . the Government of the Kingdom of Lesotho Lesotho Maloti or LSL . . . . . . . . . . . . . the lawful currency of Lesotho Listing Rules . . . . . . . . . . . . . . . . . . . . . . the listing rules of the FSA relating to the admission of securities to the Official List made in accordance with s73A(2) of FSMA London Stock Exchange . . . . . . . . . . . . London Stock Exchange plc Main Market . . . . . . . . . . . . . . . . . . . . . the largest of the two LSE’s markets and comprises those securities admitted to the Official List by the FSA Mamsl . . . . . . . . . . . . . . . . . . . . . . . . . . . Metres above main sea level Management . . . . . . . . . . . . . . . . . . . . . . the senior management team of Namakwa Measured Diamond Resource . . . . . . . . has the meaning given in the section entitled “Important Information” Memorandum of Association . . . . . . . . the memorandum of association of Namakwa, a summary of which is set out in the paragraph “Summary of the Memorandum of Association and Bye-Laws” in Part X: “Additional Information” of this document Mining segment . . . . . . . . . . . . . . . . . . . the mining segment of Namakwa as described in Part IV: “Information on the Group” of this document Money Laundering Regulations 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .
the Money Laundering Regulations 2007, as amended
MW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . megawatt Namibia . . . . . . . . . . . . . . . . . . . . . . . . . the Republic of Namibia 194
NDHL . . . . . . . . . . . . . . . . . . . . . . . . . . . Namakwa Diamond Holdings (Pty) Limited Namakwa or the Company . . . . . . . . . . Namakwa Diamonds Limited or, where the context requires in Part IV: “Information on the Group” of this document, Part V: “Operating and Financial Review of Namakwa” of this document and Part VI: “Financial Information on Namakwa” of this document, the Group Namakwa Diamonds Employee Benefit Trust or EBT . . . . . . . . . . . . .
the Namakwa Employee Benefit Trust established by Namakwa Diamond Trustees Limited
Namakwa Employee Share Plan . . . . . . the Namakwa Global Share Option Plan established by Namakwa New Shares . . . . . . . . . . . . . . . . . . . . . . . up to 794,629,171 Ordinary Shares to be issued by Namakwa in connection with the Open Offer (including DIs representing Ordinary Shares where the context requires) Offer Price . . . . . . . . . . . . . . . . . . . . . . . 4.5 pence per New Share Official List . . . . . . . . . . . . . . . . . . . . . . . the Official List maintained by the UK Listing Authority the Offshore Registrar Agreement . . . . has the meaning given in Part XIII: “CREST and Depository Interests” of this document Off-Take Agreement . . . . . . . . . . . . . . . has the meaning given to it in the paragraph “Material contracts” in Part X: “Additional Information” of this document Open Offer . . . . . . . . . . . . . . . . . . . . . . . the conditional offer by the Company to Qualifying Shareholders and Qualifying DI Holders to apply to subscribe for New Shares at the Offer Price on the terms and subject to the conditions set out in this document Open Offer Entitlements . . . . . . . . . . . . the number of New Shares for which a Qualifying Shareholder is entitled to apply to subscribe, and/or the number of DIs representing New Shares for which a Qualifying DI Holder is entitled to apply to subscribe, in each case being 60 New Shares for every 23 Existing Shares, or DIs representing Existing Shares, registered in its name at the Record Date Open Offer Resolutions . . . . . . . . . . . . . Resolutions 1 and 2 (which are conditional upon the passing of Resolution 7 save where the Company is not (or would not be) in breach of Free Float requirements at Admission) Ordinary Shares . . . . . . . . . . . . . . . . . . . the ordinary shares of US$0.000625 each in the capital of Namakwa the Panel . . . . . . . . . . . . . . . . . . . . . . . . . the Panel on Takeovers and Mergers in the UK the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . the Namakwa Employee Share Plan Pounds, Sterling, £ or pounds Sterling or GBP . . . . . . . . . . . . . . . . .
the lawful currency of the United Kingdom
Preference Shares . . . . . . . . . . . . . . . . . . has the meaning given in the paragraph “Share capital” of Part X: “Additional Information” of this document Prior Ordinary Shares . . . . . . . . . . . . . . has the meaning given in the paragraph “Share Capital” of Part X: “Additional Information” of this document Profit Percentage . . . . . . . . . . . . . . . . . . has the meaning given to it in the paragraph “Material contracts” in Part X: “Additional Information” of this document Prospectus . . . . . . . . . . . . . . . . . . . . . . . . this document Prospectus Directive or PD Regulation . . . . . . . . . . . . . . . . . . . . . .
Directive 2003/71/EC of the European Parliament and of the Council of the European Union on prospectus to be published when securities are to be offered to the public or admitted to trading and amending Directive 2001/34/EC 195
Prospectus Rules . . . . . . . . . . . . . . . . . . the rules and regulations made for the purposes of Part VI of FSMA in relation to offers of securities to the public and admission of securities to trading on a regulated market made by the UK Listing Authority Qualifying DI Holders . . . . . . . . . . . . . . holders of Depository Interests representing Existing Shares as set out on the register of Depository Interest Holders of the Depository on the Record Date Qualifying Shareholders . . . . . . . . . . . . holders of Existing Shares as set out on the register of members of the Company on the Record Date Rand, South African Rand or ZAR . . . the lawful currency of the Republic of South Africa Receiving Agent . . . . . . . . . . . . . . . . . . . Capita Registrars Record Date . . . . . . . . . . . . . . . . . . . . . . 1 June 2012 registered address . . . . . . . . . . . . . . . . . the address of a holder of Ordinary Shares as set out in the register of members of Namakwa, or the address of a holder of Depository Interests as set out in the register of such holders maintained in the UK on behalf of the Depository, as appropriate Registrars . . . . . . . . . . . . . . . . . . . . . . . . Capita Registrars (Jersey) Limited Regulatory Information Service . . . . . . one of the regulatory information services authorised by the UK Listing Authority to receive, process and disseminate regulatory information in respect of listed companies related party transaction . . . . . . . . . . . . as defined in Chapter 11 of the Listing Rules Relationship Agreement . . . . . . . . . . . . Means the relationship agreement entered into between Jarvirne and Namakwa on 2 November 2011, governing the relationship between the parties, as amended by the Amended Relationship Agreement Relevant Resolutions . . . . . . . . . . . . . . . Resolutions 1, 2, 3, 5 and 7 Resolutions . . . . . . . . . . . . . . . . . . . . . . . the resolutions to be proposed at the Special General Meeting, notice of which is set out in the notice of the Special General Meeting in Part XVI: “Notice of Special General Meeting” of this document Sale Agreement . . . . . . . . . . . . . . . . . . . has the meaning given to it in the paragraph “Material contracts” in Part X: “Additional Information” of this document SAMREC Code . . . . . . . . . . . . . . . . . . . South African Code for Reporting of Mineral Resources and Mineral Reserves SCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shore Capital Stockbrokers Limited SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the United States Securities and Exchange Commission Second Waiver and Amendment Letter . . . . . . . . . . . . . . . . . . . . . . . . .
has the meaning given to it in the paragraph “Material Contracts” in Part X: “Additional Information” of this document
Securities Act . . . . . . . . . . . . . . . . . . . . . the United States Securities Act of 1933, as amended Settlement Agreement . . . . . . . . . . . . . . an agreement entered into between Namakwa and Jarvirne on 7 September 2011 in respect of the settlement of all trading debts payable under the Trading Agreement Settlement Amount . . . . . . . . . . . . . . . . the agreed settlement sum of US$19,500,000 Shareholders or Namakwa Shareholders . . . . . . . . . . . . . . . . . . . .
holders of Ordinary Shares and/or, as the context may require, holders of Depository Interests representing Ordinary Shares
Share Split . . . . . . . . . . . . . . . . . . . . . . . has the meaning given in the paragraph “Share capital” of Part X: “Additional Information” of this document 196
Shore Capital . . . . . . . . . . . . . . . . . . . . . Shore Capital and Corporate Limited South Africa . . . . . . . . . . . . . . . . . . . . . . the Republic of South Africa South African Companies Act . . . . . . . . the Companies Act, No. 61 of 1973, as amended Special General Meeting . . . . . . . . . . . . the special general meeting of Namakwa to be held at 5 New Street Square, London EC4A 3TW on 27 June 2012 at 4.00 p.m. (London time), notice of which is set out in Part XVI: “Notice of Special General Meeting” of this document Sputnick Facility . . . . . . . . . . . . . . . . . . has the meaning given to it in the paragraph “Material contracts” in Part X: “Additional Information” of this document Storm Mountain Diamonds or SMD . . Storm Mountain Diamonds (Pty) Limited Supreme Court . . . . . . . . . . . . . . . . . . . . the Supreme Court of Bermuda Swaziland . . . . . . . . . . . . . . . . . . . . . . . . the Kingdom of Swaziland Takeover Code . . . . . . . . . . . . . . . . . . . . the UK City Code on Takeovers and Mergers tph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . tonnes per hour Trading Agreement . . . . . . . . . . . . . . . . an agreement entered into on 20 July 2010 between Namakwa and Jarvirne under which Namakwa agreed to trade rough and polished diamonds on behalf of Jarvirne, as agent Trading & Beneficiation segment . . . . . means the trading and beneficiation segment of Namakwa as described in Part IV: “Information on the Group” of this document Transfer Agreement . . . . . . . . . . . . . . . . has the meaning given in the paragraph “Material contracts” in Part X: “Additional Information” of this document UK or United Kingdom . . . . . . . . . . . . . the United Kingdom of Great Britain and Northern Ireland UKLA or UK Listing Authority . . . . . . the FSA, acting in its capacity as the competent authority for the purposes of Part VI of FSMA UN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United Nations uncertificated or in uncertificated form . . . . . . . . . . . . . . . . . . . . . . . . . . .
a share or other security recorded on the relevant register of the share or security concerned as being in uncertificated form in CREST and title to which may be transferred by means of CREST
United Kingdom or UK . . . . . . . . . . . . . the United Kingdom of Great Britain and Northern Ireland United States or US . . . . . . . . . . . . . . . . the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia US$, US Dollars, USD, dollars or $ . . . . the lawful currency of the United States of America Venmyn . . . . . . . . . . . . . . . . . . . . . . . . . . Venmyn Rand (Pty) Ltd Waiver and Amendment Letter . . . . . . has the meaning given to it in the paragraph “Material Contracts” in Part X: “Additional Information” of this document
197
PART XVI — NOTICE OF SPECIAL GENERAL MEETING Namakwa Diamonds Limited (incorporated in Bermuda in accordance with the laws of Bermuda with registered number 39031) NOTICE IS HEREBY GIVEN that a SPECIAL GENERAL MEETING of Namakwa Diamonds Limited (the “Company”) will be held at 5 New Street Square, London, United Kingdom, EC4A 3TW on 27 June 2012 at 4.00 p.m. (London time) to consider and, if thought fit, pass the following resolutions of which those numbered 1, 2, 3 and 4 will be proposed as ordinary resolutions and those numbered 5, 6 and 7 will be proposed as special resolutions: Ordinary Resolutions 1.
THAT conditional upon the passing of resolution 7 (such condition only to apply if the Company is (or would be) in breach of LR9.2.15 of the Listing Rules at Admission (as defined in the Prospectus referred to in resolution 2 below)), the authorised share capital of the Company be and is hereby increased from US$218,750 divided into 350,000,000 ordinary shares of US$0.000625 each to US$1,250,000 divided into 2,000,000,000 ordinary shares of US$0.000625 each in the Company by the creation of a further 1,650,000,000 ordinary shares of US$0.000625 each.
2.
THAT conditional upon the passing of resolution 7 (such condition only to apply if the Company is (or would be) in breach of LR9.2.15 of the Listing Rules at Admission (as such terms are defined in the prospectus (the “Prospectus”) issued by the Company on 6 June 2012)) and resolution 1, without prejudice and in addition to the authority conferred on the directors at the special general meeting of the Company held on 23 November 2011, the directors of the Company (“Directors”) be generally and unconditionally authorised, in accordance with Bye-Law 2.5 of the Company’s Bye-laws (the “Bye-laws”), to exercise all powers of the Company to allot 794,629,171 ordinary shares of US$0.000625 each (the “New Shares”) in connection with the Open Offer (as defined in the Prospectus), such authority to apply until the end of the annual general meeting of the Company in respect of the calendar year 2012 or, if earlier, on 26 September 2013 (unless otherwise revoked, renewed or amended).
3.
THAT conditional upon the passing of resolutions 1 and 2, the Directors be generally and unconditionally authorised, in accordance with Bye-law 2.5 of the Bye-laws, to exercise all powers of the Company to allot up to 5,300,000 ordinary shares of US$0.000625 each in the capital of the Company (“Ordinary Shares”) in connection with the acquisition or the financing of the acquisition of up to 5,300,000 “A” Preference Shares in the capital of Namakwa Diamond Holdings (Pty) Limited, pursuant to the terms of such “A” Preference Shares, such authority to expire on 26 June 2017.
4.
THAT conditional on the Open Offer completing and conditional upon the passing of resolution 1: (a)
the Directors be generally and unconditionally authorised, in accordance with Bye-law 2.5, to exercise all powers of the Company to allot: (i)
relevant securities (as defined in the Bye-laws for the purposes of Bye-law 2.5) up to a maximum nominal amount of US$229,008; and
(ii)
equity securities (as defined in Bye-law 2.6(g)) in connection with an offer by way of a rights issue up to an aggregate nominal amount of US$458,016 (such amount to be reduced by the nominal amount of relevant securities allotted under paragraph (a)(i) of this Resolution 4) to: (A)
the holders of Ordinary Shares in proportion (as nearly as may be practicable) to the respective numbers of Ordinary Shares held by them; and
(B)
holders of other equity securities, as required by the rights of those securities or, subject to such rights, as the Directors of the Company otherwise consider necessary,
and so that the Directors of the Company may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; (b)
this authority shall expire at the conclusion of the annual general meeting of the Company in respect of the calendar year 2012 or, if earlier, on 26 September 2013 (unless otherwise revoked, renewed or amended);
(c)
the Company may, before this authority expires, make an offer or agreement which would or might require relevant securities to be allotted after it expires;
(d)
this authority is in addition to: (i)
the authority given by the shareholders at the annual general meeting of the Company held on 30 November 2011 to allot up to 2,209,917 Ordinary Shares in connection with the 198
acquisition or the financing of the acquisition of up to 2,209,917 “A” Preference Shares in the capital of Namakwa Diamond Holdings (Pty) Limited pursuant to the terms of such “A” Preference Shares;
(e)
(ii)
the authority given by shareholders pursuant to Resolution 2 to allot up to 794,629,171 Ordinary Shares in connection with the Open Offer;
(iii)
the authority given by shareholders pursuant to Resolution 3 to allot up to 5,300,000 Ordinary Shares in connection with the acquisition or the financing of the acquisition of up to 5,300,000 “A” Preference Shares in the capital of Namakwa Diamond Holdings (Pty) Limited pursuant to the terms of such “A” Preference Shares.
except as referred to in (d) above, all previous unutilised authorities under Bye-law 2.5 shall cease to have effect (save to the extent that the same are exercisable by reason of any offer or agreement made prior to the date of this resolution which would or might require relevant securities to be allotted on or after that date). Special Resolutions
5.
THAT conditional upon the passing of resolution 3, the Directors be given power to allot equity securities (as defined in Bye-law 2.6(g) of the Bye-laws) for cash pursuant to the authority conferred on them by Resolution 3 above as if Bye-law 2.6 of the Bye-laws did not apply to such allotment, such authority to expire on 26 June 2017.
6.
THAT conditional upon the passing of resolution 4: (a)
in accordance with Bye-law 2.7, the Directors be generally and unconditionally given power to allot for cash equity securities (as defined in Bye-law 2.6(g)) pursuant to the general authority conferred on them by Resolution 4 as if Bye-law 2.6 did not apply to the allotment, but this power shall be limited: (i)
to the allotment of equity securities in connection with an offer of equity securities (but in the case of an allotment pursuant to the authority granted under paragraph (a)(ii) of Resolution 4, such power shall be limited to the allotment of equity securities in connection with an offer by way of a rights issue only) to: (A)
the holders of Ordinary Shares in proportion (as nearly as may be practicable) to the respective numbers of Ordinary Shares held by them; and
(B)
holders of other equity securities, as required by the rights of those securities, or subject to such rights, as the Directors of the Company otherwise consider necessary,
and so that the Directors may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in or under the laws of, any territory or any other matter; and (ii)
7.
to the allotment (other than under paragraph 4(a)(i) above) of equity securities having a nominal amount not exceeding in aggregate US$34,351;
(b)
this power shall expire at the conclusion of the annual general meeting of the Company in respect of the calendar year 2012 or, if earlier, on 26 September 2013 (unless otherwise revoked, renewed or amended);
(c)
all previous unutilised authorities under Bye-law 2.7, other than those granted pursuant to Resolution 5, shall cease to have effect; and
(d)
the Company may, before this power expires, make an offer or agreement which would or might require equity securities to be allotted after it expires.
THAT, if the Company is in breach of LR9.2.15 of the Listing Rules at Admission (as defined in the Prospectus), the directors of the Company be and are hereby authorised to cancel the listing of the Ordinary Shares (including the New Shares) on the premium segment of the Official List of the Financial Services Authority and to remove such Ordinary Shares (and New Shares) from trading on the London Stock Exchange plc’s main market for listed securities and to apply for admission of the Ordinary Shares (including the New Shares) to trading on AIM, a market operated by the London Stock Exchange plc. 199
Dated: 6 June 2012 Registered Office: Clarendon House 2 Church Street Hamilton HM11 Bermuda
By order of the Board, Richard Collocott Chief Executive Officer
Explanatory notes: Holders of Ordinary Shares 1.
A shareholder is entitled to attend and vote at the Special General Meeting and is entitled to appoint a proxy who need not be a member of the Company to exercise all or any of its rights to attend and to speak and vote on its behalf at the Special General Meeting (and on a poll to vote) instead of the shareholder. Forms of Proxy need to be completed, signed and lodged with PXS, 34 Beckenham Road, BR3 4TU, United Kingdom, no later than 48 hours before the time of the Special General Meeting (together with the original or notarially certified copy of any power of attorney or other power under which it is executed). Completion of a Form of Proxy will not preclude a member attending and voting in person at the meeting. A Form of Proxy is being sent to all qualifying certificated shareholders of the Company. To have the right to attend and vote at the Special General Meeting (and also for the purpose of calculating how many votes a person entitled to attend and vote may cast), a person must be entered on the register of members by no later than 4.00 p.m. on 25 June 2012, being 48 hours before the time fixed for the meeting. Changes to the register after this time shall be disregarded in determining the rights of any person to attend or vote at the Special General Meeting.
Holders of Depository Interests 2.
If you hold Depository Interests representing Ordinary Shares, by completing the Form of Direction you will be instructing Capita IRG Trustees Limited, the Depository, to vote on your behalf at the Special General Meeting, either in person or by proxy. If the Form of Direction is completed without any indications as to how the Depository shall vote, you will be deemed as instructing the Depository to abstain from voting. If you wish to instruct the Depository (other than electronically using CREST), you must lodge the completed Form of Direction with PXS, 34 Beckenham Road, BR3 4TU, United Kingdom, during normal business hours) no later than 4.00 p.m. on 22 June 2012 (together with the original or a notarially certified copy of any power of attorney or other power under which it is executed). A Form of Direction is being sent to all qualifying Depository Interest Holders. Alternatively Depository Interest Holders may instruct the Depository how to vote utilising the CREST electronic voting service. To instruct the Depository how to vote or amend an instruction to vote via the CREST system, the CREST message must be received by the Company’s Receiving Agent, Capita Registrars (CREST ID RA10) by no later than 4.00 p.m. on 22 June 2012. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the Company’s agent is able to retrieve the message. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed voting service provider(s), should contact their CREST sponsor or voting service provider(s) for assistance. For further information on CREST procedures, limitations and system timings please refer to the CREST Manual. The Depository may treat as invalid a proxy appointment sent by CREST in the circumstances set out in regulation 35(5) of the Uncertificated Securities Regulations 2001. After the Depository has received instructions on how to vote on the Resolutions from Depository Interest Holders in accordance with this note 2, it shall complete a Form of Proxy reflecting such instructions and return it to PXS in accordance with note 1. If you hold your Depository Interests representing Ordinary Shares via the Depository Interest arrangement and would like to attend the Special General Meeting, please contact the Depository at the Shareholder helpline which is set out in the Prospectus.
Share capital and voting rights 3.
As at 5 June 2012 (being the latest practicable date prior to the date of this Notice of Special General Meeting) the Company’s issued share capital consisted of 304,607,849 Ordinary Shares, carrying one vote each. Therefore the total voting rights in the Company as at 5 June 2012 was 304,607,849. The Company holds no Ordinary Shares in treasury. 200
Printed by RR Donnelley 355032
