BACKGROUND
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What was the aim of EAT?

EAT was established as a way for eligible employees to participate, over time, in the financial performance of Ponahalo Holdings. EAT was established using a trust instrument. The trust instrument sets out how EAT works and how participants will benefit from the trust.

   

2006: A REMINDER

 

Why and how was EAT created?

In April 2006 a broad-based BEE transaction was concluded between De Beers and Ponahalo in terms of which De Beers Consolidated Mines Proprietary Limited (DBCM) was empowered (Project Prism). This resulted in, amongst other things, identified employees and past employees of De Beers in South Africa at the time becoming participants in the De Beers Equal Allocation Trust (EAT). EAT holds a 35% interest in Ponahalo Holdings Proprietary Limited (Ponahalo), which in turn holds a 26% interest in the ordinary shares of DBCM. Ponahalo Investments funded the acquisition of its interest in DBCM through the issue of preference shares to Standard Bank of South Africa Limited.

   

Who is a participant in EAT?

You are a participant of EAT if you were an active employee or pensioner of the De Beers Group of Companies South African Operations (DBCM, De Beers Group Services Proprietary Limited, De Beers Marine Proprietary Limited, The Diamond Development Company Proprietary Limited, De Beers Pension Fund and De Beers Benefit Society) on 18 April 2006.

   

How were units allocated?

All participants were issued with a unit certificate indicating the number of units allocated to them. The units in EAT were free issue, meaning that participants did not have to pay for the units. However, participants will only benefit from their units in so far as the units have a positive value and EAT is in a position to repurchase the units.

   

How would participants benefit from EAT?

From 1 May 2014 EAT participants will be entitled to offer their units to EAT annually, to be bought at fair value. This fair value is determined through an audited valuation process, in accordance with the provisions of the EAT trust deed. However, EAT is only obliged to repurchase a participant’s units (in part or in full) to the extent that it is able to sell sufficient Ponahalo Holdings shares to fund the purchase of the offered units.

   

Who manages EAT?

EAT is managed by a board of trustees consisting of:
› A DBCM representative;
› A Ponahalo representative;
› An independent representative;
› A non-bargaining council employeerepresentative; and
› A National Union of Mineworkers’ representative.

   

Who administers EAT?

The trustees appointed Alexander Forbes, an independent administrator, to administer EAT and make sure that governance and controls are in place.

   

How is the value of my units determined?

For each financial year end Deloitte, a leading and reputable audit firm, does an independent valuation of DBCM and Ponahalo by assessing the value of Ponahalo’ s 26% indirect interest in DBCM and the value of the outstanding debt. Through this valuation Deloitte determines the combined value of all the units. After completing the valuation, the auditors issue a certificate to the trustees, indicating the fair value of the EAT units and the (linked) Ponahalo Holdings shares.

   

How does the value of DBCM affect the value of my units?

The value of EAT units is directly influenced by the value of Ponahalo’s 26% interest in DBCM. The value of DBCM, in turn, depends on a number of factors, such as:
› Whether the global and South African economic situation is strong or weak during that time;
› The prices DBCM receive for their diamonds;
› The ability to manage and reduce costs in DBCM;
› The exchange rate over the period;
› The discovery and viability of new sources of supply of diamonds;
› The projected future value of mining resources in South Africa; and
› The successful implementation of the Venetia Underground project and other viable projects.

   

2006 - 2012: THE MIDDLE YEARS

   

What happened to the value of my units of the years?

In 2006, the start value of the units was R0, as the underlying value of Ponahalo’s interest in DBCM was still less than the debt incurred by Ponahalo to buy a stake in DBCM. Although the units started increasing in value in 2007, no-one could foresee the 2008/9 world-wide financial crisis. During this time many businesses experienced severe losses, had to restructure to remain financially viable and, in some cases, even had to close down. The global financial crisis also had a major impact on DBCM. It led to drastic reductions in diamond sales, and eventually forced DBCM to restructure to cut costs and to improve the efficiency of all its operations and support services. Mines were sold to ensure DBCM remains financially viable. The value of DBCM, and therefore the value of Ponahalo, reduced. As a result, the value of EAT units dropped to R0 in 2008 and remained at that level for the next 2 years.

   

How could the value of my units drop to R0?

The R0 value was as a result of the value of the Ponahalo interest in DBCM being lower than the outstanding Ponahalo debt incurred by Ponahalo in financing the acquisition of its 26% shareholding in DBCM. Theunits only have a value to the extent that Ponahalo’s interest in DBCM exceeds its debt.

   

2013: THE OFFER TO REPURCHASE

   

Why will EAT only repurchase one third of my units now?

Ordinarily, when participants offer to sell units back to EAT, EAT must use its reasonable endeavours to sell sufficient Ponahalo shares to fund the purchase of the offered units. The way in which the Ponahalo shares must be sold is prescribed in the EAT trust deed. If EAT is not able to sell sufficient Ponahalo shares in accordance with the provisions of the EAT trust deed, the participants will be obliged to retain the units and/or offer this to EAT in the following year. Due to unfavourable market conditions it is highly likely that EAT will not be able to sell sufficient Ponahalo shares to fund the repurchase of all the units that may be offered to it by participants on 1 May 2014.

A small cash reserve was provided at the inception of EAT to make payments to the estates of deceased participants and to repurchase units from participants in accordance with the provisions of the trust deeds. At the present valuation of the units the cash reserve is only sufficient to fund the repurchase of one third of the units held by a participant.

   

Why is the repurchase offer earlier than May 2014?

As with any investment, there is much uncertainty about what will happen to the value of the units into the future. Similarly, fluctuations in the value of DBCM have an effect on the value of Ponahalo, and therefore the ability of the trustees to act in the best interest of all participants. The offer of an accelerated payment is voluntary and aims to provide participants with an option to derive some immediate benefit from EAT and in the process have some certainty. If the value of the units increases only marginally at the next valuation, EAT will not have sufficient funds to purchase one third of every participant's units, resulting in a lower cash payment to those participants who elect to accept the offer. Similarly, if the values of the units decrease, participants may receive a lower net payment.

   

What amount will I receive for my units?

EAT will repurchase one third of the units held by you at R3 068 per unit less any cost and tax deductions that may be applicable. The R3 068 offer per unit is the current fair value of the units as determined through the audited valuation process, in accordance with the EAT trust deed. The offer to repurchase units will not apply to fractions. If one third of the units held by a participant amounts to a fraction unit, the fraction will be rounded to the nearest whole unit.

   

Why did DBCM not pay more dividends to EAT?

Paying a dividend is the usual way for a company to distribute a share of its profits among the shareholders. Dividends are paid in accordance with the rights and ownership levels of the different shareholders and are based on the company’s financial performance. The economic downturn as well as various operational challenges influenced the levels of dividends paid to Ponahalo. DBCM had to ensure that Ponahalo was able to service its debt obligations, whilst at the same time ensuring that DBCM remains on a sound financial footing to invest in its own and therefore Ponahalo’s future.

   

What will the future value of the units be?

EAT cannot give you any certainty on what the value of the units will be at the next valuation. The purchase of DBSSSA and the construction of Venetia Underground are likely to increase the long-term future valuation of the units, but such increase may be offset against other unpredictable economic and/or environmental factors, such as the strengthening of the rand, a collapse in diamond prices and/or severe flooding or other events that can affect production on mines or the sale of diamonds.

Though there is an expectation that the value of the units may increase over the long term, nobody can really know for certain how this will turn out. The market is volatile and always changing. Offering you an opportunity to sell one third of your units is aimed at giving you the choice to receive some immediate benefit from the Ponahalo transaction, in terms of current value.

   

How will tax affect the money I receive for my units?

The payments to EAT participants will be of a capital gains nature and will therefore not be taken into account for your normal income tax or PAYE liabilities.

If you are a South African tax resident you will be taxed on the capital gains in your own hands, subject to the annual capital gains tax (CGT) exclusion. The annual exclusion, currently set at R30 000, should in most cases reduce the CGT to nil, unless you have other capital gains. In other words, most participants will receive a payment of R3 068 per unit.

If you are a non-South-African tax resident, your EAT payment will be subject to capital gains tax at a rate of 26.64% in the hands of EAT and you will accordingly receive an amount of R2 250.68 per unit after tax.

   

If I choose to sell one third of my units, how will I receive the money?

EAT will deposit your cash payment, minus the relevant tax (if applicable), directly into your bank account via electronic transfer.

If you are currently an active SA Group Company employee or pensioner of the De Beers Pension Fund, EAT will have your bank details on record and will make use of these details to make payment to you.

If you are NOT an active SA Group Company employee or pensioner of the De Beers Pension Fund, you need to provide your correct banking details in the Acceptance Notice. (See Downloads below)

IMPORTANT: We can only register your banking details if your form is accompanied by -
› a certified copy of your ID card/book, as well as;
› a certified copy of a bank statement (not older than 2 months) stamped by the relevant Bank, or a letter from the Bank confirming the banking details, or a cancelled cheque

Once we receive your correctly completed and signed Acceptance Notice, we will pay the money into your account according to the following schedule:

 

   

What happens if I submit my Acceptance Notice after 31 December 2013, or not at all?

If you submit your Acceptance Notice after 31 December 2013, or choose not to submit a form, EAT will assume the default position, namely that you have chosen to keep your units.

   

What will happen to the units I choose to eep, or those not affected by this offer?

You will continue to own the units you choose to keep, or those that are not affected by this offer. From 1 May 2014 you will be entitled to offer these to EAT to repurchase on an annual basis during the period prescribed in the EAT trust deed. EAT can unfortunately not make any commitments as to when it may be able to repurchase the rest of your units, but EAT endeavours to use its reasonable endeavours to sell sufficient Ponahalo shares to fund the repurchase of your units as and when you offer these to EAT.

   

What will happen to the units I choose to eep, or those not affected by this offer?

You will continue to own the units you choose to keep, or those that are not affected by this offer. From 1 May 2014 you will be entitled to offer these to EAT to repurchase on an annual basis during the period prescribed in the EAT trust deed. EAT can unfortunately not make any commitments as to when it may be able to repurchase the rest of your units, but EAT endeavours to use its reasonable endeavours to sell sufficient Ponahalo shares to fund the repurchase of your units as and when you offer these to EAT.

   

How do I decide whether to sell or keep my units?

Only you will be able to decide what the best decision for your circumstances would be. The main difference between selling and keeping your units is a degree of certainty.

  • If you decide to sell one third of your units now, you have the certainty of receiving a set amount for these units. Participants in financial need or those who may dislike uncertainty when it comes to financial matters may prefer to sell their units. (Keep in mind that, in terms of your remaining units, you will still face the same uncertainty into the future as the participants who decide to keep all their units. Please see below.)

  • If you decide to keep all your units, please note that the value of your units and the date of their repurchase by EAT is uncertain. In a worst-case scenario, something may happen in the markets, or operationally (such as the recent floods at Venetia which affected production), that could reduce the value of DBCM so much that the value of your units may again drop to R0. Alternatively, a favourable exchange rate, new developments and/or a renewed market interest may see the value of your units increasing dramatically, beyond what anyone expected. Or perhaps the value increases to a point where you would like to sell the units, but EAT may not at that point be able to sell sufficient Ponahalo shares to fund the purchase of your units. No one knows. This option may appeal to members who are not in immediate need of money, and who are willing to take an increased risk in return for the potential of increased gains in unit value in the longer term.

   

How do I indicate my choice?

You need to complete, sign and return the Acceptance Notice to indicate your choice.

  • The cut-off date for you to return your Acceptance Notice is 31 December 2013.

  • If we do not receive your completed Acceptance Notice by 17H00 on 31 December 2013, it will be assumed that you have chosen not to sell one third of your units.

  • You can return your Acceptance Notice in one of the following ways: -

    • Fax to (053) 839 4193

    • Email to debeers.eat@debeersgroup.com

    • Use a drop-box at one of the following sites: Venetia, Voorspoed, Kimberley Mines, Kimberley Head Office, Johannesburg Corporate Headquarters, Harry Oppenheimer House in Kimberley

    • Post free of charge, using the reply-paid envelope that was posted to you.

   
   

MORE QUESTIONS?

You can call the helpdesk on 0861 367 774 or you can send an email to debeers.eat@debeersgroup.com

Please do NOT call De Beers, the De Beers Pension Fund or Ponahalo, as they will not be able to assist you with queries related to the Equal Allocation Trust.

   

MORE INFORMATION TO DOWNLOAD?

   

EAT Acceptance Notice

   
   
   

Disclaimer: This website information represents an overview of the De Beers Equal Allocation Trust. The terms and conditions of the De Beers Equal Allocation Trust are contained in the relevant Trust Deeds. Should any misunderstanding arise, the Trust Deeds will apply in all cases.