The transaction, which will be capped at a ceiling of R380-million and a floor of R92-million, will be paid off in three instalments, the last of which will be due in 2007.
Listed on the JSE, Scharrig is a provider of outsourced opencast-mining and mine-rehabilitation services, and will stand to benefit from the drilling expertise of Geosearch.
Apart from vertical integration into exploration drilling, the exposure to further African opportunities, through Geosearch, is expected to increase the company’s exposure to dollar-based income streams.
The company will also benefit from the appointment of experienced miner and business mogul Sir Sam Jonah as chairperson of the company. “Africa holds the key to the boom in commodities,” says Jonah.
“It is not an accident that Africa is getting the attention that it is.” Pointing to prospective countries like Angola, Sudan and the Democratic Republic of Congo, Jonah notes that “Africa is where the elephants are”.
He adds that demand from countries like China and India will continue to provide impetus to growth in Africa’s mining industry.
“I’m delighted to have been asked to chair the board at this exciting juncture and wholeheartedly support Scharrig’s vision to become a significant Pan-African mining-services group,” says Jonah. In 1990, the Ghanaian-born mining veteran says, Africa attracted less than 5% of world exploration funding; since then, funding has increased to represent 17% of the world total.
From 2002 to 2004, however, Africa moved from seventh to third place in terms of exploration funding and is now equal to Australia and ahead of Canada and the US.
Geosearch, which trades as Geo-search International and Transbor, operates as a drilling contractor in the exploration and mining industry, with 77 drillrigs in South Africa, Botswana, the DRC, Moz-ambique and Tanzania. Scharrig will acquire the assets and trade liabilities of Geosearch International and Transbor through ‘special- purpose vehicles’ which are 80%-owned by Scharrig Mining and 20%-owned by Geosearch management.
While the initial payment of the transaction has been underwritten by the Coronation group (a shareholder in Scharrig) to the tune of $11,5-million, the other instalments will be financed through earnings.
Geosearch CEO Dave Stevens notes that one of the biggest challenges in the drilling sector is the lack of skilled personnel.
The current strong demand for drilling services has meant that the company’s order book is full, he adds.
Scharrig Mining MD Cas Schar-righuisen says that the transaction will increase earnings from day one.
“We expect to unlock synergies between Scharrig and Geosearch by growing our combined earnings through cross-selling services.”