African Eagle, the investing company that has been seeking opportunities within the natural resources, infrastructure and services sectors, is pleased to announce that yesterday it, through its newly incorporated South African wholly-owned subsidiary (“Buyer”), entered into a conditional  agreement (“Agreement”) to acquire the entire issued and to be issued share capital of Lime-Chem Resources (Proprietary) Limited (“LCR”), a company that operates an iron ore mine located in the Northern Cape province of South Africa (“Acquisition”).  It is the intention of the Company to seek a Black Economic Empowerment partner in South Africa (“BEE Shareholder”), prior to and as a condition of completion of the Acquisition, for the purposes of compliance with section 11 of the South African Mineral and Petroleum Resources Development Act, 28 of 2002, and transfer 26% of the issued share capital of the Buyer to such partner.  Following such transfer and assuming the Acquisition completes, the Company will hold 74% and the BEE Shareholder 26% of the entire issued share capital of LCR on completion of the Acquisition (“Completion”).

LCR owns the mining rights over the Rooinekke property, located in the Northern Cape province of South Africa, approximately 180 kilometres south of the Sishen Iron Ore Mine. It consists of an old open pit mine with numerous crushed ore dumps surrounding the pit.  LCR has entered into sales agreements with Interalloys Trading Limited and Interalloys Trading und Business Consulting Handelsgesellschaft GmbH (together “Interalloys”) (companies ultimately wholly owned by Nick Clarke, CEO of African Eagle) under which Interalloys Trading Limited has provided pre-export financing to LCR.  To date one shipment of ore has been completed. In the short term, African Eagle intends to process the ore dumps while it assesses the feasibility of re-commencing mining at Rooinekke.
The aggregate consideration for the Acquisition will be US$6 million less the value of net debts and trade and other payables owed by LCR (except indebtedness to Interalloys  which will remain outstanding, other than for realised trading losses to Interalloys).  Following Completion, the consideration is to be adjusted by a completion accounts mechanism and is to be satisfied partly by the issue of ordinary shares in the capital of the Company at 0.275 pence per share (being the closing price for an ordinary share of the Company on AIM on the date on which trading in ordinary shares of the Company was suspended on AIM and on the Alternative Exchange of the JSE Limited (“AltX”), being 11 August 2014) and the balance by way of a cash payment.  The cash element of the consideration will be raised as part of the proposed Placing, details of which are set out below.  The Buyer (at its discretion) shall be entitled to satisfy up to 50% of the consideration by a cash payment, and not more than 75% of the consideration by the issue of ordinary shares in the Company.

The Acquisition will constitute a reverse takeover under the AIM Rules for Companies and will be subject to shareholder and regulatory approvals.

The Company will therefore be seeking shareholder approval for, inter alia, the Acquisition at a general meeting of shareholders.  Notice of the general meeting will be posted to shareholders as soon as reasonably practical, together with an admission document of the Company (“Admission Document”) relating to the re-admission of the Company’s share capital, as enlarged, inter alia, by the proposed Placing and proposed share consideration in respect of the Acquisition, to trading on AIM and the AltX.  Given that the Company’s shares are already suspended pursuant to AIM Rule 15, the ordinary shares in African Eagle will not re-commence trading on AIM or the AltX until approval has been granted by shareholders to, inter alia, the Acquisition at the general meeting and the Acquisition has otherwise become unconditional.

The Acquisition is subject to the following conditions which must be fulfilled on or before (i) in respect of the condition in point a. below 28 November 2014, or such later date as the parties may agree in writing; and (ii) in respect of the condition in point b. to f. below (except point e.) on or before 31 March 2015, or such later date as extended as per the Agreement or as the parties may agree in writing; and (iii) in respect of the condition in point e. below on or before 31 July 2015, or such later date as the parties may agree in writing:

the disclosure letter qualifying the warranties being given by the sellers of LCR pursuant to the Acquisition being delivered by the sellers to the Buyer, and the content thereof being agreed to among the parties;
admission of the enlarged ordinary share capital of the Company to trading on AIM and the AltX becoming effective in accordance with the AIM Rules for Companies and the Listings Requirements of JSE Limited, respectively;
completion of a placing of ordinary shares in the capital of the Company to, among other things, raise funds to enable the Buyer to pay the cash element of the consideration;
shareholder and regulatory approvals;

the approval of the Department of Mineral Resources pursuant to section 11 of the South African Mineral and Petroleum Resources Development Act, 28 of 2002 required for completion of the Acquisition; and
to the extent necessary, the Financial Surveillance Department of the South African Reserve Bank (or an authorised dealer thereof) approving the transaction on the terms of the Agreement.

The Company retains the right to rescind the Acquisition under certain defined circumstances and will give warranties customary for such a transaction where all or part of the consideration is payable in shares of the buyer.
The sellers also have a right to rescind the Acquisition in circumstances where the sellers become aware of a material breach of any of the Buyer’s warranties and the monetary impact suffered by the sellers as a result of such breach is more than US$500,000.  The sellers have provided warranties customary for a seller and agreed to certain restrictions relating to the manner in which the business of LCR will be conducted prior to Completion.

As part of the transaction a representative of LCR’s largest shareholder will be invited to join the Board of African Eagle as a non-executive director, subject to satisfactory due diligence being completed on such representative and compliance with the AIM Rules.

In conjunction with the Acquisition, the Company proposes to raise up to approximately £6 million, such quantum being subject to further financial due diligence in terms of the working capital requirement for the enlarged group,  by way of a placing of ordinary shares in the capital of the Company at 0.275 pence per share (“Placing”).  The Directors currently intend to use the proceeds of the Placing primarily to:

– finance the cash element of the consideration for the Acquisition;
– repay LCR’s creditors;
– develop further infrastructure at the mine site; and
– to provide general working capital for the enlarged group

Completion will be subject to regulatory and shareholder approval (including dealing with any related party implications of the trading relationship between LCR and Interalloys as referred to above).

Nick Clarke, CEO, commented: “We believe that the proposed transaction has the potential to be transformative for the Company, even at the prevailing low iron ore prices, and we very much look forward to progressing it to completion and will make further announcements in due course”.