GOLDEN VALLEY MINES LIMITED 2002-10-31 ASX-SIGNAL-G
HOMEX - Perth
+++++++++++++++++++++++++ Golden Valley Mines Limited ("Golden Valley") has today announced strategic plans to acquire a suite of South African resource based interests with total earnings in excess R100 million (A$18 million) with an initial target of delivering pre tax earnings of R20 million ($A3.6 million) for calendar 2003.
Additional to Golden Valley's previously announced (15 August 2002) acquisition of 34.6% of South African Mineral Resources Corporation Ltd ("SAMROC"), Golden Valley has today announced its intention to acquire NiMag, a group of companies which have won a South African Presidential Award for Export Achievement.
Golden Valley, SAMROC and NiMag have reached an agreement in principle, in terms of which, subject to certain conditions precedent, Golden Valley and SAMROC will jointly acquire 100% of the equity NiMag Limited ("NiMag") for a consideration of R60 million (AU$10.9 million), to be settled in Golden Valley and SAMROC shares, cash and deferred payments.
SAMROC, which will purchase 50% of the shares in NiMag, with Golden Valley purchasing the other 50%, is a Company registered in South Africa and listed on the Johannesburg Stock Exchange. Golden Valley owns 34.6% of SAMROC's issued shares.
NiMag, which developed from a former subsidiary of Impala Platinum Limited, controls a major portion of the world's supply of nickel magnesium alloys with the bulk of its customers coming from the steel and foundry industry.
NiMag is engaged principally in the manufacture and distribution of nickel and magnesium alloys and of metal fibres. Its last audited accounts for the year ended 30 April 2002 disclosed revenue of R103 million (AU$18.7 million) and net profit before tax of R12.7 million (AU$2.3 million). The major part of its revenue is export based.
The acquisition is subject to a number of conditions precedent, inter alia:
- The satisfactory completion by the purchasers of a due diligence investigation into NiMag;
- The completion and signing of a formal written agreement of sale;
- Regulatory approvals, including those of the Australian Stock Exchange ("ASX"), the JSE Securities Exchange South Africa ("JSE"), the Exchange Control Authorities of South Africa, the Competition Commission and the Securities Regulation Panel and - Board, and if required, shareholder approvals of the companies concerned.
Golden Valley Executive Director, Mr Simon Farrell, said South African businesses provide secure earnings at far lower price multiples than those available in most other developed markets. He said the company was benefiting from the experience and advice being provided by Golden Valley Chairman, Mr Richard Linnell.
Along with his Golden Valley duties, Mr Linnell is currently a non-executive director of the Business Map Foundation and BHP Billiton SA Ltd, a trustee of the New Africa Mining Fund and has recently completed a period as a member of the Electricity Council of South Africa (Eskom).
"We have identified and targeted businesses which either mine or process minerals and have a significant part of their revenue based in US dollars, which protects capital values against a declining Rand," Mr Farrell said. The key managers have indicated a willingness to enter into three-year management contracts which will be structured to ensure sustained motivation.
"Our initial SAMROC investment has provided us the platform to make further South African investments and secure a solid earnings base. There are significant management and production synergies between each of the acquisition targets which will further add to bolster efficiencies and profits."
Mr Farrell said the principal criteria used in the evaluation process have been:
1. The business currently generates positive cash flows 2. The business is well established and uses conventional technology 3. Revenues are predominantly US$ based 4. Management is sound 5. Ongoing capital commitments are low 6. The business has significant share of a concentrated market 7. The acquisition price represents modest earnings multiples
Golden Valley has entered into preliminary discussions with the vendors of a similar, but larger, company to NiMag. It is hoped that these discussions will result in an outcome before the end of the first half of 2003.
Mr Farrell said the South African focus presented sustainable and long term earnings growth for Golden Valley. In addition, Golden Valley's east Kimberley PGM targets continue to produce exciting exploration results which have attracted the attention of several major industry players.
"Golden Valley is creating shareholder value by building a solid income stream from operating businesses whilst maintaining a substantial interest in the blue sky potential of the East Kimberley."
BACKGROUND INFORMATION ON SAMROC AND NIMAG
SOUTH AFRICAN MINERAL RESOURCES CORPORATION LIMITED (SAMROC)
SAMROC has the current capacity to produce 850 tons of manganese sulphate a month. This product is used in the production of fungicides for the agricultural and horticultural markets and its largest customer, Dow Chemical in South Africa, currently offtakes about 40% of the capacity.
With the commissioning of a prilling plant it is intended to develop export markets for 40% of production. At current capacity this business will generate an EBITDA of approximately R8 million (A$1.4 million) for year 2003.
An opportunity exists to build a new plant to supply, on a global basis, a greater proportion of the worldwide manganese sulphate market. It is believed that this requirement could total approximately 30,000 tonnes per annum and would require construction of a greenfield facility, probably located at Port Elizabeth in the new Coega industrial complex.
Port Elizabeth is the export port for all SA's manganese ore and it is the source of a low-cost long life feedstock. Management at SAMROC believe that the SA Development Agencies would contribute significantly to the cost of new facility.
Sustainable net cash flow of between R25 and R50 million (A$4.4 and A$8.8 million) is believed to be achievable out of this plant when it is built.
NIMAG
The business is well established (started in the 70's), and a strong cash generator (R12.7 million pretax ye 30 April 2002 - forecast R15 million for 2003). It has a decade of profit growth behind it which is expected to grow at the rate of 20% per year.
The various product lines use conventional technology and off the shelf plant equipment. Revenues are largely $US based. Highly competent management is in place and has the capacity to provide the core of the future management of the developing South African interests. NiMag has won a Presidential Award for Export Achievement.
The existing plant is sound and the facility generally reflects house keeping of a high level. No significant new product lines are contemplated at present.
B Sergeant COMPANY SECRETARY
For more information, please contact:
Mr Simon Farrell Mr Paul Downie EXECUTIVE DIRECTOR Porter Novelli Golden Valley Mines Limited (08) 9386 1233 (08) 9322 6776 0414 947 129
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