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Acquisition of a 55% Participating Interest, Tunisia and Cautionary Announcement


(Formerly SA Mineral Resources Corporation Limited)

(Incorporated in the Republic of South Africa)

(Registration number 1993/000460/06)

Share code: SCL and ISIN: ZAE000127460


Acquisition of a 55% Participating Interest, Tunisia and Cautionary Announcement

SacOil shareholders are advised that a farm-out agreement was reached on 10 May 2010 (“the Agreement”) in terms of which SacOil will, subject to the conditions precedent set out below, acquire a 55% participating interest in the Chaal Permit Area (“the Acquisition”). The Chaal Permit Area is potentially one of Tunisia’s most significant future gas resources.

The Chaal Permit Area

By order of the board


19 May 2010

Chaal is a potential world class gas condensate discovery located onshore central Tunisia some 25 kms to the west of Tunisia`s second largest city, Sfax. Candax Energy Inc. (“Candax”) together with its partners and the Tunisian Government are actively pursuing the deep gas resources at Chaal and in the Triassic reservoirs lying beneath the producing fields in the south of the country.

The Chaal field covers approximately 1 200 square kilometres. Gas condensate was discovered there in the early 1960s. In 2006 a further well was drilled (“the Chaal 1 Well”) and encountered significant gas shows. The Chaal permit is within close proximity of established excess capacity gas pipeline infrastructure and gas markets (both local and international) where excess demand exists.

Prior to the implementation of the transactions contemplated in the Agreement, the participants in the Chaal Permit Area (“the Participants”) and their respective interests (“Participating Interests”) are: Falcan Chaal Petroleum Limited (“Falcan”), a company registered in Barbados and wholly owned by Candax, a company listed on the Toronto Stock Exchange (60%);

Societe de Maintenance d`Installations Petrolieres (“SMIP”), a Tunisian company (20%); and MCX North Africa Co., Limited (“Mitsubishi”), a company wholly owned by Mitsubishi Corporation, a public company registered in Japan (20%). Following the implementation of the transactions contemplated in the Agreement (with Falcan and SMIP having assigned part of their respective interests to SacOil), the Participants and their Participating Interests would be:

SacOil – 55.00%

Falcan – 18.75

Mitsubishi – 20.00%

Candax Energy Inc.

In April 2010, Candax completed its investment agreement with Geofinance NV, an international upstream oil and gas company (“Geofinance”). Under the terms of the investment agreement, Geofinance with its Acquisition of common stock and assuming the exercise of all its warrants (inter alia) would control Candax and therefore Falcan.


The directors of SacOil believe that the Chaal Permit Area has the potential to be a world-class resource of gas/condensate. Tunisia has historically been a stable country. Tunisia also imports gas from Algeria in order to adequately provide for its growing requirements.

The infrastructure within Tunisia is good and there is a major gas trunk line (with excess capacity) that passes some 15 kilometres to the east of the present exploration well.

SacOil was able to enter as a Participant on favourable terms in the light of the project`s need for funding. The Agreement is a farm-in position, in terms of which SacOil agrees to refund Falcan and SMIP, a portion of their past costs and to provide an advance to cover the estimated costs of the planned forward work programme. The “Work Programme” in this instance is re-entry or the drilling of a sidetrack to the Chaal 1 Well, followed by a stimulation and testing programme. In exchange for this, Falcan and SMIP will assign part of their interests to give SacOil to give it a majority stake in the project. Once the project is cash positive, SacOil will receive a preferential recovery of its inputs.

Terms of the Agreement, Assigning Participants

Subject to fulfilment of the conditions precedent set out below (“Conditions Precedent”), Falcan and SMIP respectively will assign to SacOil an undivided 41.25% and 13.75% Participating Interest in the exploration permit and other governing agreements relative to the Chaal Permit Area.

Fulfilment date

The fulfilment date will be the date on which the Conditions Precedent are fulfilled or waived, where waiver is allowed by the Agreement. The final date for fulfilment of the suspensive conditions is 15 July 2010 or such later date as may be agreed in writing by the Parties.


SacOil shall pay Falcan and SMIP within seven days of the fulfilment date an amount of USD250 000 (approximately R1.875 million at an exchange rate of R7.50/USD) to Falcan and SMIP in proportion to the percentage assigned by each of them.

SacOil shall pay a further amount to Falcan and SMIP of USD4.75 million (approximately R33.25 million at an exchange rate of R7.50/USD) in the same proportions by no later than 30 days following the approval by the relevant Tunisian authorities of a development plan for the Chaal Permit Area.

Payment of costs of the Work Programme

In addition to the above consideration, SacOil shall bear a share proportional to its 55% Participating Interest of the costs of the Work Programme, plus the first USD2.0 million (approximately R15.0 million at an exchange rate of R7.50/USD) of the proportionate costs of Falcan and SMIP. Thereafter all parties shall contribute pro rata.

Recovery of expenditures

Once the project enables the recovery of expenditures on exploration, SacOil will be entitled to preferential repayment of certain of the amounts paid out by it.


Falcan will be the operator of the Work Programme. SacOil shall have the right to request Falcan to resign as operator on completion of the Work Programme and shall during the conduct of the Work Programme be entitled to second employees to the programme and assume reasonable management, technical and financial control thereof.

Conditions precedent

The Agreement is subject to the fulfilment or waiver by not later than 15 July 2010 of the following principal conditions precedent: the consent of the relevant Tunisian authorities to the assignment of the Participating Interest to SacOil;

the parties to the production sharing agreement and the joint operating agreement in respect of the Chaal Permit Area agreeing to SacOil becoming a party thereto;

SacOil furnishing Falcan with a letter of credit or acceptable undertaking/guarantee for USD6.4 million (approximately R48.0 million at an exchange rate of R7.50/USD) to be utilised in the Work Programme; Falcan obtaining an extension of one year from 25 May 2010 for the relevant exploration permit;

approval to the extent necessary of the relevant South African authorities, including the South African Reserve Bank and the JSE Limited (“JSE”); SacOil completing a legal due diligence investigation to its satisfaction; approval of the Agreement by a resolution of the shareholders of SacOil in a general meeting; and consent of Candax’s banker to the extent required.


Falcan and SMIP have given warranties normal for a transaction of this nature. Funding SacOil has obtained institutional support to enable it to fund its obligations under the Agreement.

Categorisation of the Acquisition

The Acquisition is categorised as a category 1 transaction in terms of the JSE Listings Requirements and will require approval by SacOil shareholders in general meeting.

Financial effects of the Acquisition

SacOil is in the process of preparing a table showing the pro forma financial effects of the Acquisition on SacOil`s net assets and net tangible assets as well as on earnings. Such table will be published as soon as it becomes available.

Posting of circular

A circular containing the full details of the Acquisition and a notice of general meeting to obtain shareholder approval of the Acquisition will be posted to shareholders in due course.

Cautionary announcement

SacOil shareholders are advised to exercise caution when dealing in their SacOil securities until a further announcement is made detailing the financial effects of the Acquisition.

11May 2010




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