Subsequent to the issue of the company’s news in Stockwatch dated Thursday, Dec. 5, 2002, the company advises that it has now placed two of its subsidiaries in provisional liquidation, namely Namco Holdings SA (Pty.) Limited and Namco Maritime (Pty.) Limited. Applications for the provisional liquidation of certain of the company’s asset owning and operating subsidiaries have been lodged. The company is considering its position and the need to liquidate these companies, as well as certain other companies in the group.
The provisional liquidation of the company’s Southern African subsidiaries has become necessary as result of the failure of talks between the company’s principal shareholder, LL Mining BV (LLMC), the company and the company’s senior lenders. As a consequence, LLMC has advised that it is unwilling to continue its financial support of the company. Talks are, however, continuing between representatives of the company, its senior lenders and LLMC.
LLMC and the company’s senior lenders entered into discussions in July, 2002, with the view to LLMC investing a further $20-million (U.S.) to $25-million (U.S.) in the company, in order to provide finances to the company. The investment was, however, made subject to certain terms and conditions. This investment would have enabled the company to increase its diamond production, would have shown significant improvement in the company’s exploration capabilities, the company’s probable mining reserves and would have overcome cash flow shortfalls. During the discussions with the company’s senior lenders, LLMC, supported the company financially, inter alia, by making cash advances against the sale of diamonds by certain of the company’s subsidiary companies through its affiliated company, LLD Diamonds Limited, from time to time as the company’s cash flow required.
In early November, 2002, the company advised LLMC and the company’s senior lenders that it anticipated a significant cash flow shortfall in December, 2002, and January, 2003. LLMC advanced part of the required funds to the company on Nov. 15, 2002. A meeting was scheduled between the company, LLMC and the company’s senior lenders on Dec. 5, 2002. The intention was to conclude an agreement between LLMC and the company’s senior lenders on the terms of the proposed investment between LLMC and the company. An agreement would have resolved the company’s present cash flow constraints and would have financed the company’s further development.
The company believed that the issues which remained in dispute between LLMC and the company’s senior lenders would be resolved at the meeting scheduled for Dec. 5, 2002, as all parties had previously expressed their willingness to reach an agreement. In order to ensure that a resolution of the disputes could be achieved, Endeavour Financial International Limited, represented by Neil Woodyer, was approached to represent the company in negotiating with the company’s senior lenders and LLMC with a mandate to facilitate the reaching of an agreement with all parties. Mr. Woodyer is a member of the board of directors of the company and is an experienced banker. He is not connected to LLMC or any of its affiliated companies and has in the past chaired meetings of the independent members of the company’s board of directors, for example, members of the board not connected to LLMC or any of its affiliates.
On Dec. 4, 2002, the company convened a board meeting at which the board was advised of the situation in the company and expressed its concern that unless an agreement was reached on Dec. 5 with the company’s senior lenders, LLMC may not agree to advance funds urgently required by the company to inject into the company to meet its immediate needs. At the same meeting, management again advised the board that the company was undertaking a general re-evaluation of its reserve estimates. It would demote areas from probable reserve status where doubt exists over sample results, pending resampling. The effect of this would be to reduce the company’s probable reserve inventory.
During October and November the company, as a result of “down time” of the mining vessels, failed to achieve required production levels. Certain South African subsidiary companies are subject to taxation queries arising from taxation assessments during 1997. The consequence of the abovementioned matters is that the company will potentially require an additional amount in excess of $5-million (U.S.), for example, increasing the company’s investment requirement to $30-million (U.S.).
On Dec. 5, 2002, and at the meeting with the company’s senior lenders, the representatives of LLMC informed the meeting that given the company’s review of its reserves, together with its present financial position, LLMC had reconsidered the commercial merits of its continued investment in the company that had been under discussion since July, 2002. LLMC made certain fresh proposals in terms of which LLMC advised that it was prepared to inject a further $30-million (U.S.) into the company for the usage by the company on certain terms and conditions, one of such conditions being to reduce the company’s large exposure to its senior lenders.
Discussions ensued but the company’s senior lenders and LLMC were unable to reach a satisfactory agreement. The company’s cash flow constraints were such that consequently the board of directors of the company determined that the further operations of some of the company’s trading subsidiaries in South Africa and Namibia should cease trading forthwith.
Urgent discussions are continuing between the company’s senior lenders and LLMC, and the company hopes that this will lead to an agreement suitable to all parties being reached. Any agreement may well result in the company being restructured and any provisional winding up orders in any of the company’s subsidiaries being discharged.
