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mjn - announcement

  1. 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



    +++++++++++++++++++++++++
    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


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