mjn - announcement

Merger of Majestic & Star Mining Update/Fund Raising
20/12/02 9:49:00 AM



MAJESTIC RESOURCES NL 2002-12-20 ASX-SIGNAL-G


HOMEX - Perth



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OVERVIEW



Perth diamond miner Majestic Resources NL has finalised the
previously announced Star Mining transaction which will provide the
company with a basis of sustained production, profitability and the
opportunity for an exciting growth path.



The deal, which will see Majestic and Star Mining Ltd mergingtheir
respective companies, was announced today by Majestic CEO, Charles
Mostert.



It sees Majestic acquiring 100 percent of either the assets or the
issued share capital of Star Mining Ltd, which in turn owns the
Messina and Star underground diamond mines in South Africa. Majestic
is currently negotiating the sale of its wholly owned Riet River
alluvial diamond mine in South Africa.



The purchase price for both mines is A$33.7 million of which
approximately A$20.6 million will be settled by way of an issue of
Majestic shares at an issue price of 20 cents per share
post-reconstruction (ie at 2.2 cents per share pre-reconstruction).
Of the balance A$6.9 million will be paid to the vendors in cash and
A$1.4 million will be applied to settle external and inter-company
debts. This will leave Star free of any debts. In addition incentive
payments amounting to approximately A$2.4 million are payable in both
FY 2006 and FY 2007 if agreed Net Profit after Tax (NPAT) objectives
are achieved.



It is anticipated that the merger will be completed by the end of
March 2003.



HIGHLIGHTS



* As a result of increased capital expenditure in underground
development, shaft infrastructure and upgraded management systems,
the two mines are budgeted to increase production from approximately
42,000 carats in the first financial year ending June 2004 to 72,000
carats in 2007. About 93 percent of the diamond production is gem
quality with Messina achieving an average price of U$195 per carat
and Star receiving U$160 per carat historically.



* Both mines have mineral resources for at least a 10 year mine life.
Technical experts Snowden Mining Industry Consultants published a
total resource including proven and probable reserves and inferred
resources at Messina of 840,000 tonnes at a diluted grade of 28 cpht
(carats per 100 tonnes) and at Star 1.44 million tonnes at a diluted
grade of 44 cpht. These diluted gradesare not the in-situ fissure
grades but include an allowance for waste mining.



* The companies will merge their respective management teams and
Majestic will acquire the operating management of Star, which has a
demonstrated track record of profitable operations and turnaround
experience.



* The vendors are totally committed to grow the asset base and future
profitability of Majestic. As a result they have agreed to:



- 50 percent of their consideration shares being subject to voluntary
escrow until 14 days after the release of the 30 June 2004 financial
year results to the ASX.



- A further 50 percent their consideration shares being subject to
voluntary escrow until 14 days after the release of the 30 June 2005
financial year results to the ASX.



- It is anticipated that Johan Dippenaar (Star Managing Director) and
Jim Davidson (Star Technical Director) will join the board of
Majestic. These two proposed new executive directors will not receive
any cash from the proceeds of the funding raising, but will receive
their total consideration in Majestic shares.



- Johan Dippenaar and Jim Davidson are also responsible for the
management of Helam Mining Pty Ltd which owns the Helam diamond mine.
They agree that it will be a natural progression for Majestic to
acquire the Helam diamond mine following the successful merger of
Majestic and Star and will work towards the future integration of
Majestic and Helam.



Majestic will also have a first right of refusal for a period of 2
years should the owners of Helam sell, offer to sell or commence
negotiations with a view to selling Helam during this 2 year period.



- Majestic shall cease to pay a monthly option fee of U$10,000 to the
vendors from 31 December 2002.



MERGER CONDITIONS



The merger of Majestic and Star is subject to and conditional upon
the following conditions:



* There being no change in the status of the assets of Star Mining
Ltd or in the representations made by the vendors.



* Approval from the shareholders of Majestic to proceed with the
Merger.



* The consolidation of Majestic's issued share capital on a 9 for 1
basis.



* Resetting the terms of the February 2004 Convertible Note prior to
the dispatch of a Notice of Meeting for the purpose of Majestic
shareholders approving the terms of the merger.



* The cancellation of any marketing agreements between Reliance BVBA
and Majestic prior to the dispatch of a Notice of Meeting for the
purpose of Majestic shareholders approving the terms of the merger.



* The approval of the South African Reserve Bank and any other
regulatory or governmental consent or approval necessary to enable
completion of the Merger.



* Majestic successfully raising a minimum of A$14.3 million on terms
to be agreed upon.



FUND RAISING



* Majestic intends raising a minimum of A$14.3 million by way of the
issue of an equity or quasi-equity raising, bankdebt or a
combination of the aforementioned. The final funding structure will
be determined by Majestic and the lead broker to the transaction,
Paterson Ord Minnett, in the context of the prevailing market
conditions.



Currently it is anticipated that the funds raised will be used as
follows:



* Capital expenditure A$5.1 million
* Retire external loans A$1.4 million
* Cash to vendors A$6.9 million
* Transaction costs A$0.9 million



PROPOSED TIMETABLE



Indicatively the current implementation plan envisages that the
shareholder approvals and the capital raising process will be
completed by the end of March 2003. More details on the timetable
will be provided in January 2003.






In conclusion Mostert said: "When we began the transformation
process at Majestic 18 months ago, it was with a clear mission
statement of becoming a profitable, refocussed diamond company. This
transaction contemplates capitalising Majestic post the capital
raising at circa A$41m. The full financial modelling and details of
the company's strategy, including a name change, will be outlined in
the Notice of Meeting to be forwarded to shareholders in due course.
The Majestic board is excited by the opportunities that this
transaction presents and believe that the acquisition delivers value
to the existing Majestic shareholders and will support the raising of
the required funding."






For further information contact:



Charles Mostert
CHIEF EXECUTIVE OFFICER
Majestic Resources NL



Telephone: +61 8 9368 6096
Facsimile: +61 8 9368 6103
Email: [email protected]



Website: www.majesticresources.com.au