KME Transaction and Acquisition of Gold Assets

Premier African Minerals Limited / Ticker: PREM / Index: AIM / Sector: Mining

For immediate release

 

14 February 2019

 

Premier African Minerals Limited

 

Proposed restructuring of November KME Transaction, Acquisition of Gold Assets in Zimbabwe and update on the Zulu Lithium Project

 

The Board of Premier African Minerals Limited ("Premier" or the "Company") is pleased to announce that it has agreed amended terms with KME Holdings Limited ("KME") for the proposed acquisition of KME's assets and in addition, has agreed terms for the acquisition of 50% of the equity in Zimbabwe-based near-term gold producer, Honey Badger Resources Limited ("HBR").

Highlights:

 

·     Premier has agreed amended terms with KME to acquire 50% of KME Plant (Proprietary) Limited ("KME Plant Hire") for a consideration of US$1.4 million to be settled in new Premier Ordinary Shares ("Shares") ("New KME Transaction"). The proposed acquisition and spin-out of the combination of KME's assets and Premier's Zimbabwe minerals projects as announced in November last year ("November KME Transaction") will therefore no longer proceed;

 

·     KME Plant Hire's assets include six exploration drill rigs, surface and underground dump trucks, light vehicles and support equipment with a book value of approximately US$4 million, and is the same asset portfolio as detailed in the November KME Transaction;

 

·     Premier has also entered into a binding conditional heads of terms to acquire 50% of the equity of HBR, the owner of a Zimbabwe-based near-term gold producer with substantial exploration and development upside potential, for a consideration of US$3.7 million to be settled in Shares ("HBR Acquisition");

 

·     HBR has two projects available for immediate development and within close proximity of each other. The first project is a JORC-compliant gold Resource of 535k Oz with copper credits at a grade of 2.10g/t Au and 0.33% Cu (see Table 1 below) with a wide ore body, consistent in strike and depth, which is suitable for open pit and underground mining methods.  The second project is an option over a nearby mining lease which, has historically supplied high grade ore from existing underground shafts to the previous owners nearby gold facility. The previous owners declared an internal, Non-compliant Resource Target greater than 500,000 ounces at a grade of 4.1 g/t. The Board believes that there is the potential to target a total resource covering these two projects in excess of 2 million ounces Au through additional exploration work and drilling utilising the KME Plant Hire asset base;

 

·     Targeted gold production within 9 months of closing the transaction;

 

·     Premier now plans to commence additional drilling at the Zulu Lithium Project ("Zulu"), working towards completion of the Feasibility Study; and

 

·     On closing of the HBR Acquisition and New KME Transaction, Premier will appoint new members to the Premier executive and operational management team.

 

 George Roach CEO of Premier commented: "Premier must protect against the possibility of a future adverse event disabling our Company as has been the case with RHA Tungsten, and in fact against any further delays, for whatever reason. At the same time, management has decided to expand operations by taking advantage of some significant opportunities in Zimbabwe, bring Zulu back to development and generally reduce the impact and dependence on RHA Tungsten. Whilst the issue of the Shares to acquire 50% of each of KME Plant Hire and HBR ("Acquisitions") will require Premier shareholder approval and will add significantly to total shares in issue, the overall value created is expected to outweigh the dilutive effect. Existing Premier shareholders are likely to retain a substantially greater interest in our projects going forward than may have been the case with the previously announced November KME Transaction. It should be noted that whilst the price at which new shares will be issued is market dependent, downside movement is capped at our recent low, whilst the upside is uncapped. The potential of the acquisitions, retention of full ownership of Zulu, approaching settlement of RHA and advances in Circum Minerals should be carefully considered.

 

HBR already has a JORC-compliant Resource greater than 500,000 ounces and a further internal Non-compliant Resource Target in a semi developed and previously mined deposit at the Option. We believe there is potential to develop a significant gold mine in this region of Zimbabwe that already hosts major gold production. Our initial exploration target is 2 million ounces.

 

The proposed terms of the New KME Transaction has reduced the overall acquisition cost to Premier while retaining the key benefit of being able to carry out the further drilling required for the definitive feasibility study for Zulu at significantly reduced cost and while still allowing Premier to hold 100% of Zulu. We plan to commence drilling at Zulu as soon as possible, and we further look forward to expanding the scale of Zulu pending final approval of the recent Zimbabwean Gazette of Zulu's application for an Exclusive Prospecting Order for approximately 20,200 hectares in the surrounding area.

 

I am delighted at the opportunity of working together closely with the KME executive management team who will be joining us following completion and I look forward to working with them in restoring investor confidence and shareholder value."

 

Background to and reasons for the New KME Transaction and acquisition of HBR

To date, Premier has struggled to realise the intrinsic value of its projects. The Board believe that the focus to reach break-even at RHA Tungsten, adversely affected by the dramatic drop in Wolframite prices as RHA Tungsten first entered production some years ago and latterly by the ongoing uncertainties regarding the ownership structure of RHA Tungsten, have contributed significantly to delays in progressing Premier's other projects, and in particular Zulu Lithium.  

 

In November last year, the Company therefore announced a proposed restructuring of the Company's Zimbabwe minerals projects, together with the proposed purchase of assets owned by KME, comprising surface and underground mining equipment including exploration drilling rigs and associated equipment in Zimbabwe.  Immediately on completion of the restructuring and acquisition, the Company intended to demerge its Zimbabwe minerals projects and seek a separate listing for these including the KME assets on a London-based market. A pre-condition of the November KME Transaction was the written confirmation from the Ministry of Industry, Commerce and Enterprise Development of the proposed equity restructuring at RHA Tungsten whereby Premier shall hold no less than 90% of RHA Tungsten. Despite our best efforts, we have been unable to resolve the position at RHA Tungsten to date.

 

However, the Board of Premier continued to believe that the combination of KME's operational assets, and enhanced executive and operational management team who are primarily based in Zimbabwe with a proven track record in operating mines and developing exploration projects, together with Premier's mineral projects portfolio, would enable Premier to address previous management short comings, diversify operational risk and complement Premier's existing projects while supporting potential value generation for Premier shareholders. In addition, KME's drilling equipment and exploration team would reduce the drilling cost of the Zulu Lithium Project as well as expedite the drilling programme for the planned definitive feasibility study and provide a reduced cost base for both drilling and exploration work on potential new projects in Zimbabwe.

 

We have therefore agreed revised terms today for the KME transaction which the Board believes will deliver the benefits first identified above and accordingly, the previously announced conditional binding heads of terms to combine Premier's Zimbabwe minerals asset portfolio with KME's mining and exploration drilling assets (full details of which were set out in the announcement dated 7 November 2018) will no longer proceed.

 

In addition, the Board of Premier has been looking for additional Zimbabwe-based minerals projects which have the potential for significant resource development and the possibility of near-term production, to complement Premier's other projects. The Board has therefore also today agreed binding conditional heads of terms to acquire 50% of the equity of the owner of a Zimbabwe-based gold exploration and development company, HBR, for a consideration of US$3.7 million to be settled in Shares. HBR owns an advanced gold exploration and development project with a JORC-compliant gold Resource (with copper credits) of 535k ounces at a grade of 2.10g/t and 0.33% Cu (see Table 1 below). In addition, HBR has an option over the a nearby mining lease where the previous owners have declared an Non-compliant Resource Target greater than 500,000 ounces at a grade of 4.1 g/t and the Board believes that there is the potential to target a total Resource for the expanded HBR project in excess of 2 million ounces through additional exploration work and specifically exploration drilling utilising the KME asset base and with targeted gold production within 9 months of closing the transaction.

 

The Board believes that the combination of the interests in KME Plant Hire and HBR and Premier's existing minerals projects provides the group with an attractive portfolio of complementary Zimbabwe-focused minerals projects and reduces the Group's exposure to further delays in resolving RHA Tungsten.

 

Further details of the proposed acquisition terms for both KME Plant Hire and HBR together with further background information on each of KME Plant Hire and HBR are set out below.

 

Acquisition of KME Plant Hire

Today, Premier and KME have entered into a conditional head of terms upon which KME has agreed to sell 50% of the issued share capital of KME Plant Hire (Proprietary) Limited ("KME Plant Hire") for a total consideration of US$1.4 million ("KME Purchase Price").

 

KME Plant Hire owns surface and underground mining equipment, together with exploration drilling rigs and equipment and support infrastructure ("KME Plant Hire Assets"). The KME Plant Hire Assets include six exploration drill rigs, surface and underground dump trucks, light vehicles and support equipment. KME Plant Hire assets comprise of the identical asset portfolio that Premier had previously announced in the conditional acquisition in November 2018. The KME Plant Hire assets have a book value of approximately US$4 million.

 

The parties have agreed to a fair market valuation of US$2.8 million for the KME Plant Hire Asset Portfolio ("KME Project Value"). The consideration for the KME Purchase Price is to be satisfied by the issue to KME of new Premier Shares at the higher issue price of 0.085p ("Minimum Issue Price") or the 5-day volume weighted average price ("VWAP") for Premier Shares in the period immediately preceding the closing of the transaction ("KME Consideration Shares"). KME and Premier have agreed further that they shall jointly fund the day-to-day operations of KME Plant Hire in equal proportions. The KME Consideration Shares will be subject to an orderly market agreement such that they may subsequently only be sold through the Company's broker to ensure an orderly market is maintained.

 

Completion of the acquisition of KME Plant Hire is conditional on the following conditions precedent:

1.    All relevant shareholder approvals being obtained (the issue of the KME Consideration Shares will require Premier shareholder approval);

2.    The Parties agreeing, signing and exchanging the Share Purchase Agreement that incorporates all the terms of the acquisition and agreeing a draft Shareholders Agreement;

3.    All non-current liabilities incurred by KME Plant Hire shall be novated to KME or such parties as KME elects;

4.    New directors appointed to the Board of Premier from KME's operational management team following the successful completion of Premier's due diligence assessment and Premier's formal board approval in accordance with the AIM Rules; and

5.    There being no material adverse change in the business, operations, assets, position (financial, trading or otherwise), profits or prospects of KME Plant Hire between the date of this announcement and the completion of the acquisition of KME Plant Hire.

As previously announced on 5 December 2018, Premier has satisfactorily completed its due diligence exercise on the KME Plant Hire asset portfolio.

The KME Plant Hire acquisition is subject to standard anti-dilution protection. In the event of anti-dilution protection being exercised, the parties agree that any dilution by either party shall be capped at a maximum of 25% of the issued share capital in KME Plant Hire.

It has further been agreed that on closing of the New KME Transaction, KME will have the right to appoint up to three new directors to the Board of Premier from KME's operational management team, and that these Board members will be become part of Premier's new executive management team.  KME's operational management team has significant operating experience and has been involved in developing and operating a large number of mining and exploration projects in Zimbabwe with mining, engineering and geological expertise, as well as financial, administrative and successful business development experience in Zimbabwe.

As at 31 December 2018, KME Plant Hire's total assets amounted to US$4.185 million and for the year ended 31 December 2018, turnover and loss before tax amounted to US$7,000 and US$169,000 respectively (Source: KME Plant Hire unaudited accounts). KME Plant Hire will be acquired free from all non-current liabilities incurred by KME Plant Hire and that these shall be novated prior to completion to KME or such parties as KME elects.

Acquisition terms of HBR

Background on Honey Badger Resources Limited

HBR is the holder of an existing mineral claim area of 290 hectares (the "RAN Project"). The RAN Project is located 90km north of Harare and immediately adjacent to the town of Bindura and is within the Harare-Shamva Greenstone belt, a prolific historic gold producing district. There is a reported JORC-compliant Mineral Resource estimate as set out in Table 1 below, with significant exploration potential.

Table 1: Summary Resource at HBR

	Quantity	Grade		Contained metal
Resource classification	Tonnes ('000)	Au (g/t)	Cu (%)	Au Oz ('000)
Indicated	5,507	2.05	0.34	364
Inferred	2,403	2.21	0.31	171
Total	7,910	2.10	0.33	535

 

Notes:

i.      Mineral Resources have been rounded. Mineral Resources are not Mineral Reserves and have not demonstrated economic viability. Mineral Resources are reported inclusive of Mineral Reserves. All figures are rounded to reflect the relative accuracy of the estimates. Mineral Resources are reported within classification domains inclusive of in-situ dilution at a cut-off grade of 0.75 g/t gold assuming an underground extraction scenario, a gold price of US$1250/oz and metallurgical gold and copper recovery of 90% and 80% respectively.

ii.     HBR is the operator and owns 100% of the licence such that gross and net attributable mineral resources are the same. The mineral resource estimate was prepared by HBR in accordance with the JORC Standard with an effective date of June 2018 and audited and approved by Mary Gayle Hanssen of Digital Mining Services who is a Qualified Person under the JORC Code, 2012 Edition.

There are two known wide ore bodies supporting large scale production, one of which is ready for open pit development and production in the near term. HBR owns an existing gold processing plant which Premier plans to utilise to start processing oxides whilst a bankable feasibility study for plant expansion to process sulphides is completed. 

 

In addition to the RAN Project, HBR has an option over an existing mining lease area of 798 hectares comprising of gold mining claims, which has a non-standard compliant mineral resource (the "Option"). The Option is also located within the Harare-Shamva Greenstone belt and is approximately 45km west of the RAN Project with existing road access to the RAN Project. Studies are under way to investigate the possibility of hauling Option ore to the processing plant at the RAN Project to blend with the RAN oxides. The Option has several known reefs covering the lease area with significant exploration upside potential as most of the reef zones are yet to be evaluated. The Option has existing surface and underground infrastructure and development with multiple shafts over a 5-kilometre strike. The Option is currently under care and maintenance and shall require rehabilitation.

 

The Board believes that there is the potential to target a total resource for both the RAN Project and the Option in excess of 2 million ounces through additional exploration work and specifically exploration drilling utilising the KME asset base and with targeted gold production within 9 months of closing the transaction.

 

Agreed heads of terms

Premier and Consolidated Precious Minerals Limited ("CPM") have today entered into a conditional heads of terms pursuant to which Premier has agreed to acquire 50% of the issued share capital of HBR for a consideration of US$3.7 million ("HBR Purchase Price"). HBR wholly-owns RAN Mines Mauritius Limited ("MauRan"), a company registered in Mauritius which in turn wholly-owns RAN Mines Private Limited ("ZimRan"), a company registered in Zimbabwe.

 

Premier will pay US$2.2 million to CPM to be satisfied by the issue of new Premier Shares ("HBR Consideration Shares") to be issued at the higher issue price of either the Minimum Issue Price (i.e. 0.85p) or the 5-day VWAP for Premier Shares in the period immediately preceding the closing of the transaction. Premier will pay a further US$1.5 million to be satisfied in cash on the condition, inter alia, that CPM matches Premier dollar-for-dollar in providing a working capital facility to HBR as described below. The HBR Consideration Shares will be subject to an orderly market agreement such that they may subsequently only be sold through the Company's broker to ensure an orderly market is maintained.

Premier and CPM have agreed to provide US$3 million of direct working capital to HBR, in accordance with an agreed project development budget to build and commission mining operations ("Funding"). The Funding shall be provided to HBR by way of matched shareholder loans in phases in accordance with the project development budget. Premier's maximum obligation under the Funding is US$1.5 million.

 

Any additional funding in excess of the Project Development Budget will be agreed to between the Parties and further funding apportioned pro rata to each party's respective interest in HBR.

The acquisition is subject to standard anti-dilution protection. The parties agree that any dilution by either party shall be capped at a maximum of 25% of the issued share capital in HBR.

A technical committee will be established to oversee the management of HBR, consisting of five persons. CPM and Premier will be entitled to each appoint two members of the technical committee and the parties will jointly appoint a project manager.

 

Following completion, Premier and CPM shall appoint two directors each to the board of HBR. The parties shall additionally agree to the appointment of an independent Chairman.

 

Conditions Precedent

Completion of the acquisition of 50% of HBR is conditional on the following:

 

1.    All relevant shareholder approvals being obtained for the issue of the HBR Consideration Shares will require Premier shareholder approval;

2.    Exercise of the Option;

3.    All non-current liabilities incurred by HBR, MauRan and ZimRan shall be novated to CPM or such parties as CPM elects;

4.    Completion of the Due Diligence Exercise to the satisfaction of Premier;

5.    The Parties agreeing, signing and exchanging the SPA that incorporates all the terms of the Proposed Transaction and agreeing a draft Shareholders Agreement to govern their investment in HBR; and

6.    There being no material adverse change in the business, operations, assets, position (financial, trading or otherwise), profits or prospects of HBR between the date of this announcement and the completion of the acquisition of 50% of HBR.

 

HBR has granted Premier an initial period of exclusivity from the date of signature of the heads of terms for a period of 25 days during which period Premier shall complete sufficient due diligence.

 

As at 31 December 2018, HBR's total assets amounted to US$773k (excluding the cost of the Option which amounts to US$1.15 million) and for the year ended 31 December 2018, turnover and loss before tax amounted to US$nil and US$265,000 respectively (Source: HBR pro forma consolidated unaudited accounts). HBR will be acquired free from all non-current liabilities incurred by HBR, MauRan and ZimRan and that these shall be novated to CPM or such parties as CPM elects shall be novated prior to completion.

Share Authorities

The consideration for the New KME Transaction and the HBR Acquisition will be satisfied as described above by the issue of new Premier Shares ("Consideration Shares"). The Consideration Shares will be subject to an orderly market agreement such that they may subsequently only be sold through the Company's broker to ensure an orderly market is maintained. The issue of the Consideration Shares will be conditional, inter alia, on the Company obtaining additional authority over and above the existing authorities for funding the Consideration Shares and the Company's working capital requirements. The Company will seek shareholders consent to allot the Consideration Shares at the Company's next Annual General Meeting. The Company expects to seek such approval from the shareholders not later than 31 March 2019.

Webinar

A webinar is planned for Saturday, 16 February 2019 at 10:00 am (UTC+1).  To secure your invitation to register, please email [email protected].

 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014. The person who arranged the release of this announcement on behalf of the Company was George Roach.

 

Enquiries:

Fuad Sillem	Premier African Minerals Limited	Tel: +44 (0)7734 922074
Michael Cornish / Roland Cornish	Beaumont Cornish Limited (Nominated Adviser)	Tel: +44 (0) 20 7628 3396
Jerry Keen/Edward Mansfield	Shore Capital Stockbrokers Limited	Tel: +44 (0) 20 7408 4090

 

Notes to Editors:

Premier African Minerals Limited (AIM: PREM) is a multi-commodity mining and natural resource development company focused on Southern Africa with its RHA Tungsten and Zulu Lithium projects in Zimbabwe.

 

The Company has a diverse portfolio of projects, which include tungsten, rare earth elements, lithium and tantalum in Zimbabwe, encompassing brownfield projects with near-term production potential to grass-roots exploration. In addition, the Company holds 5,010,333 shares in Circum Minerals Limited ("Circum"), the owners of the Danakil Potash Project in Ethiopia, which has the potential to be a world class asset. Premier also has an interest in Arc Minerals that has a number of mineral assets in Europe and Africa.

 

Glossary

 

"Au"	Gold.
"Cu"	Copper.
"Exploration"	Activity ultimately aimed at discovery of ore reserves for exploitation. Consists of sample collection and analysis, including reconnaissance, geophysical and geochemical surveys, trenching, drilling, etc.
"g/t"	Gram per tonne.
"Inferred Resource"	The part of a resource for which tonnage, grade and content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and/or grade continuity. 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.
"JORC"	The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, as published by the Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia.
"Mineral Resource"	A concentration or occurrence of material of intrinsic economic interest in or on the Earth's crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories.
"Non-compliant Resource Target"	An internal management estimate only of a resource which has not been prepared or verified to an acceptable Standard and may not therefore be relied on other that as a management target.
"Oz"	Troy ounce (31.1035 g).
"Prospect"	A mining property, the value of which has not been determined by exploration.
"Standard"	An internationally recognised standard that is acceptable under JORC.
"Tonne"	Metric ton.

 

Forward Looking Statements:

Certain statements in this announcement are, or may be deemed to be forward looking statements. Forward looking statements are identified by their use of terms and phrases such as ''believe'' ''could'' "should" ''envisage'' ''estimate'' ''intend'' ''may'' ''plan'' ''will'' or the negative of those variations or comparable expressions including references to assumptions. These forward-looking statements are not based on historical facts but rather on the Directors' current expectations and assumptions regarding the Company's future growth results of operations performance future capital and other expenditures (including the amount. nature and sources of funding thereof) competitive advantages business prospects and opportunities. Such forward looking statements reflect the Directors' current beliefs and assumptions and are based on information currently available to the Directors.  A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements including risks associated with vulnerability to general economic and business conditions competition environmental and other regulatory changes actions by governmental authorities the availability of capital markets reliance on key personnel uninsured and underinsured losses and other factors many of which are beyond the control of the Company. Although any forward-looking statements contained in this announcement are based upon what the Directors believe to be reasonable assumptions. The Company cannot assure investors that actual results will be consistent with such forward looking statements.

Qualified Person

 

Gerard Evans, Resource Geologist for Premier African Minerals, has reviewed and confirmed the technical set out herein in respect of HBR and the Option is in line with the information provided by HBR. Gerard Evans has 27 years' experience in mining industry specialising in resource geology and holds a B.Sc Hons degree in geology from the University of the Witwatersrand. He is registered member of SACNASP (400015/08), GSSA and GASA.