Master Drilling Group Limited (JSE:MDI) News - Acquisition by Master Drilling Mining Services (Proprietary) Limited in respect of a stakeholding in The A&R Group

 Master Drilling Group Limited
 (Incorporated in the Republic of South Africa)
 (Registration number 2011/008265/06)
 JSE share code: MDI
 ISIN: ZAE000171948
 (“Master Drilling” or the “Company” or “the Group”)



 ACQUISITION BY MASTER DRILLING MINING SERVICES (PROPRIETARY) LIMITED IN RESPECT OF A
 STAKEHOLDING JUST ABOVE 25% IN THE A&R GROUP OF COMPANIES (“A&R GROUP”)


 1.             INTRODUCTION

 Shareholders are advised that Master Drilling Mining Services (Proprietary) Limited (“MDMS”), a subsidiary of
 Master Drilling, has entered into various agreements with the A&R Group in respect of the acquisition of an
 interest just above 25% in the A&R Group (comprising A&R Engineering and Mining Supplies (Proprietary)
 Limited, Lamp Room Solutions and Consulting (Proprietary) Limited, Moxie Digital (Proprietary) Limited and
 Embedded IQ (Proprietary) Limited) (“the Acquisition”, and these companies collectively “the A&R Group”),
 with options to MDMS to subsequently acquire control of the A&R Group at the discretion of MDMS. MDMS has
 an option to acquire the remaining 75% interest, subject to certain conditions, within 90 days after the expiry of
 two years. MDMS will, however, enjoy minority protection rights that are normal in transactions of this nature.



 2.             NATURE OF BUSINESS OF THE A&R GROUP

 The Acquisition provides for the purchase by MDMS of just above 25% of the equity in and shareholders loans to
 the A&R Group, as well as intellectual property, from existing shareholders of the A&R Group in respect of:

        (i)        A&R Engineering and Mining Supplies (Proprietary) Limited;
        (ii)       Lamp Room Solutions and Consulting (Proprietary) Limited;
        (iii)      Moxie Digital (Proprietary) Limited; and
        (iv)       Embedded IQ (Proprietary) Limited.


Founded in 1978 as A&R Engineering and Mining Supplies (Proprietary) Limited , the A&R Group initially supplied
underground traction batteries for locomotives, battery chargers and locomotive controllers for horizontal
transport in the gold mining sector. Since then, the A&R Group has evolved over the years to become a leading
operator in the underground rail bound and trackless equipment hardware environment in terms of management
systems and intelligent devices installed across various mining operations.


Lamp Room Solutions and Consulting (Proprietary) Limited (“LSC”) commenced operations in 2000, initially
providing full outsourcing of the lamp room operation in the mining Industry. The core of LSC’s offering is the
Comprehensive Mine Management System (CMMS). CMMS system (software) undergoes continual enhancement
and development and together with the hardware supplied has enabled LSC to become a leader in this field within
the mining Industry, currently managing in excess of 100 000 miner lamps on a daily basis over a wide geographical
area.
The ongoing need and drive for intelligent management information is constantly driven by the end user in the
mining industry, and this service is provided by Moxie Digital (Proprietary) Limited (“Moxie”), whose area of
expertise is centered around providing reporting and data visualization as well as 24/7 software support for the
CMMS.


Since acquiring an interest in Embedded IQ (Proprietary) Limited (“EIQ”), a Johannesburg based R&D business, over
a decade ago, the A&R Group has developed proximity avoidance hardware for underground rail bound and
trackless vehicles to facilitate safe and efficient mining. Equipment and systems supplied by the A&R Group track
the movement of more than 50 000 people and machines underground in South Africa daily and, through
specialized hardware, allow missing personnel to be located.


The A&R Group’s competitive position is maintained by prioritising safety through innovation tailored for South
African mines.

 3.        RATIONALE FOR THE ACQUISITION

 The investment in A&R Group is aligned with the strategic intent of Master Drilling to diversify its range of
 services to include services that are not necessarily drilling related but focused on technology that can improve
 the safety and operational performance of miners globally. This transaction will better diversify overall market
 exposure and add additional revenue streams to the Master Drilling Group.


 As Master Drilling’s strategy is geared towards exploiting the opportunities that innovation and technology bring
 within the mining industry, further diversification into hardware selling and support, software services and data
 analytics has become one of the ways in which the Company differentiates itself from its competitors.


 Following the acquisition by Master Drilling of a 40% stake in AVA Solutions announced in March 2021, this
 acquisition will further strengthen Master Drilling’s businesses in each of the above areas and will augment the
 skills and expertise of the Master Drilling Group.


 4.       EFFECTIVE DATE OF THE ACQUISITION

The effective date of the acquisitions is 31 July 2021.


 5.       PURCHASE CONSIDERATION

The provisional purchase consideration to be paid by MDMS is R78,6 million. The final purchase consideration, to
be determined in accordance with an agreed formula on the finalisation of the 2022 Annual Financial Statements
of the A&R Group, may be higher if the said businesses materially improve their current performance, but capped
to a maximum of R 210,4 million.


 The purchase consideration will be financed from internal resources.


 6.       CONDITIONS PRECEDENT

The conditions precedent in respect of the transaction have been fulfilled.


7.          ASSET VALUES AND PROFITABILITY OF THE ACQUISITION

A&R Group comprises capital-light businesses with short return on investment cycles, and minimal working
capital needed for the deployment of projects. The businesses are also highly cash generative and have
experienced stable earnings in the past four years, making A&R Group a sound investment for Master Drilling.


The book value of A&R Group’s net assets as at February 2020, being the date of its last audited annual financial
statements, was R236 million.


The audited profit after tax attributable to the A&R Group for the period ended February 2020, was R28 million.
This amount is net of interest on shareholder loan accounts and payments to shareholders in respect of
intellectual property, in all of which MDMS is acquiring the 25% plus interest referenced in Paragraph 2 above.


8.          CATEGORISATION OF THE ACQUISITION

The acquisition is classified as a category 2 transaction in term of Section 9.15 of the JSE Listing Requirements and
accordingly will not require shareholder approval.




Fochville
30 July 2021


Investment Bank and Sponsor
Investec Bank Limited

Date: 30-07-2021 09:00:00
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