African Potash Ltd.: Agreement to Acquire Strategic Stake in South African Fertiliser Distributer

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

30 March 2017

AFRICAN POTASH LIMITED ('African Potash' or the 'Company')

African Potash Limited / Epic: AFPO / Sector: Mining

Agreement to Acquire Strategic Stake in South African Fertiliser Distributer African Potash Limited is pleased to announce that it has today entered into an agreement to acquire a strategic 21% equity stake in Advanced Agricultural Holdings (Pty) Limited ('AAH', 'Advanced Agri') a South African distributer of quality fertiliser and speciality products focussed on enabling the grower to fine tune growing methods and achieve the optimum results (the 'Acquisition').

Overview

• African Potash's 21% stake in AAH will, on completion of the Acquisition, provide the Company with access to the market for speciality fertilisers across the continent.
• The consideration payable for the Acquisition will be paid in three tranches as follows:
  • the initial consideration of US$125,000 shall be satisfied by the allotment of 221,601,740 new ordinary shares of nil par value in the capital of the Company (the 'Initial Consideration Shares'); and
  • the second and third portions of the consideration will be calculated by reference to AAH's 2018 and 2019 EBITDA, respectively and be satisfied either in cash or African Potash shares, at the election of the Company.
• Completion of the Acquisition is subject (amongst other matters) to the passing at a general meeting (the 'General Meeting') of the shareholders of the Company of all resolutions required to authorise the directors of the Company to issue the new shares in the capital of the Company as consideration for the Acquisition and the taking of all other actions required to effect the Acquisition (the 'Resolutions'). The Company will therefore be issuing a notice to shareholders to convene the General Meeting as soon as practicable.

African Potash Executive Chairman, Chris Cleverly, said 'With the challenges facing the COMESA region both, political and climactic, we are particularly delighted with this transaction with Advanced Agri which gives African Potash access to the mature market and revenues of South Africa. This underpins our way forward as a trading business and gives us access to the market experience and expertise necessary to exploit our relationships at the farm and co-operative level throughout the COMESA region. In line with this investment in AAH, we will continue to look for revenue generating opportunities.'

'We have seen an increasing trend in the market over the past year whereby commercial farmers are opting to purchase a higher quality speciality fertiliser over and above the more common generic NPK and Urea products. AAH is one of Africa's leading 'speciality fertiliser' distributors, based out of South Africa and this investment positions us well for attracting business and improving margins from the distribution of AAH's speciality products across Africa.'

Background Information on Advanced Agricultural Holdings (Pty) Limited AAH's five owners between them bring over 100 years of experience in the South Africa fertiliser industry; and the business is led by Chairman Frank Winder, a passionate and seasoned agronomist with a genuine desire to preserve the nutrients of Africa's soil. AAH is the product of the merger of two separate, well established businesses and has proved to be successful in producing a business with year-on-year growth of over 40% since their merger on 1 March 2015.

The main speciality products which AAH market are their propriety coated Urea. Their ECOBLACK N in particular is showing a considerable increase in demand from the farming community; this product complements AAH's granulated calcium products such as CALSU, DOLCA and its SULA products.

In the year ending 28 February 2017, unaudited turnover for the AAH group increased 42% to $4.3m with an EBITDA of $136k. At 28 February 2017, AAH had Net Assets of $275k and net cash balances of $300k. On the basis of projections for the years ending 28 February 2018 and 2019, deferred consideration payable by the Company is expected to be in the order of $875k, bringing the total expected consideration to $1m.

Details of the Acquisition The principal terms of the Acquisition are set out in further detail below:

1. The consideration for the purchase of shares representing 21% of the issued share capital of AAH (the 'Sale Shares') by the Company shall be comprised as follows (apportioned equally between the sellers, the 'AA Sellers')):

(i) the sum of US$125,000 (the 'Initial Consideration') which shall be satisfied by the allotment to the AA Sellers of, in aggregate, 221,601,740 new shares in the capital of the Company (the 'Initial Consideration Shares')

(ii) a sum equal to 3.25 times the '2018 EDBITA' (meaning the consolidated earnings before interest, taxes, depreciation and amortization of the Group for its financial year ended 28 February 2018, calculated by reference to the Group's audited financial statements for its financial year ended 28 February 2018, the 'AAH 2018 FS') (the '2018 Deferred Consideration') to be satisfied, no later than 5 Business Days after the calculation of the 2018 EBITDA, at the election of the Company either by:

- a payment in cash; or

- the allotment of new shares in the capital of the Company (the '2018 Deferred Shares') calculated using a share price equivalent to 85% of the 10-day VWAP (prior to the date of the sign-off of AAH 2018 FS) of the Company and the prevailing US$:GB£ exchange rate.

(iii) a sum equal to 2 times the difference between the 2018 EBITDA and the '2019 EBITDA' (the consolidated earnings before interest, taxes, depreciation and amortization of the Group for its financial year ended 28 February 2019, calculated by reference to the Group's audited financial statements for its financial year ended 28 February 2019, the 'AAH 2019 FS') (the '2019 Deferred Consideration') to be satisfied, no later than 5 Business Days after the calculation of the 2019 EBITDA, at the election of the Company either by:

- a payment in cash; or

- the allotment of new shares in the capital of the Company (the '2019 Deferred Shares') calculated using a share price equivalent to 90% of the 10-day VWAP (prior to the date of the sign-off of the AAH 2019 FS) of the Company and the prevailing US$:GB£ exchange rate; and

(iv) the granting to the AA Sellers of 4,000,000 warrants (the 'Warrants') under a warrant instrument (the 'Warrant Instrument') to be constituted by the Company (at an exercise price of £0.0006 per warrant, with an exercise period of three years following a vesting period of three years from completion of the SPA);

2. in the event of a material adverse change in the Company's position occurring on or before the 3rd anniversary of Completion or if the Company does not make full payment for the Sale Shares, the AA Sellers have an option to buy back the Sale Shares for a nominal consideration.

3. Completion of the SPA ('Completion') and payment of the Initial Consideration is subject to the satisfaction of the following conditions precedent:

(b) the AA Sellers having obtained any and all necessary waiver(s) of, any restrictions on transfer (including pre-emption rights) which may exist in relation to the Sale Shares;

(c) all necessary and applicable third party approvals having been obtained;

(d) submission of any notifications required to be made and/or obtaining of any approvals required in order to consummate the Transaction; and

(e) the passing at a general meeting of the shareholders of the Purchaser of all resolutions required to authorise the directors of the Purchaser to issue the Initial Consideration Shares, 2018 Deferred Shares and 2019 Deferred Shares (together the 'Consideration Shares') and the taking of all other actions required to effect the Transaction.

Payment of the 2018 Deferred Consideration and 2019 Deferred Consideration is subject to the satisfaction of certain further conditions set out in the SPA. Consideration Shares The Initial Consideration Shares which will, on issue, amount to 11.8% of the enlarged issued share capital of the Company immediately after their issue, will be issued following the passing of the Resolutions at the General Meeting; further information on the timing of the General Meeting will follow in due course. The Initial Consideration Shares (and all the Consideration Shares, as applicable) will rank pari passu with the existing ordinary shares.

The Directors of the Company accept responsibility for the content of this announcement. For further information, please contact:

African Potash Limited Chris Cleverly +44 (0) 20 7408 9200 NEX Exchange Corporate Adviser Peterhouse Corporate Finance Limited Guy Miller and Mark Anwyl +44 (0) 20 7469 0930