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Hey nrc, I have kept accumulating to get my average to $0.5. I am sure there will be hurdles ahead, but I believe the company will start doing better in 2019. Would you care to share your thoughts on the radioactivity issue?
By the way, in case you don’t know, Billjet is no longer a Mod at that other Board you use to frequent thanks to the efforts of many of us who refused to put up with his nonsense. It was poetic justice, but his clone/avatar still roams Stockhouse...
Now what don’t believe everything you read from ‘analysts’ and ‘authorities’ . I spend time reading technological essays rather than investment essays. They may try to reduce the amount of cobalt that goes into batteries....but that will not affect the global demand significantly. If you read between the lines in the writings about reduction in cobalt in batteries is to try and relieve the upward pressure of ‘obtaining a constant supply’ for manufacturers more so than price. If you pay $50 a pound or $150 a pound for cobalt the significance of cost in a new Tesla.....not that much. Here is an article expounding on Musk’s issue with cobalt.
As electric vehicles become less niche, the batteries powering them need to keep up. Last week, Elon Musk tweeted that batteries for the Tesla Model 3 use less than 3 percent of an expensive chemical called cobalt, and the next generation battery “will use none” of the material that some have called the “blood diamond of batteries.” How soon can that claim come true?
Cobalt is a key component of batteries. It’s also the most expensive material in the battery and mined under conditions that often violate human rights. As a result, scientists and startups are rushing to create a cobalt-free battery.
Musk’s “next-gen” claim is a vague phrase that doesn’t set out a definite timeline, so it’s impossible to know when he’ll deliver — but don’t expect it to be in the next couple of years
.Point is....the cost difference in an electric car.....with or without cobalt is negligible considering the cost of the car. The real issue is ‘accessibility’ of cobalt. As a footnote notice the slow upward grind in KATFF Katanga. In spite of the legal issues with a Glencore....the mining issues in the Democratic of Congo....and technology demands for remaking lithium batteries without cobalt.....the price of cobalt is starting to move north. NowWhat.....btw I can’t respond to your private messages because I am not a subscribing member. You can send anything you want me to read to whatever board I might be commenting on. ciao
Hi nrc, Thanks for the tip on Katanga when we recently communicated in the Orocobre site. I bought in the $0.7s, just secured some gains and will let the rest keep riding. Thanks again
I just instructed the brokerage of my late father's account to immediately use stops for TSLA. 20% of position $5.00 below last price. RSI(14) 70
I am a Realtor and do not have the luxury to monitor my positions throughout the day.
As soon as I read through the volumes of information on the settlement I’ll have a better idea about the positive significance of this “equity swap”..... John....If you’re trading you’re supposed to be at your computer screen....not using stops :)
As soon as I read through the volumes of information on the settlement I’ll have a better idea about the positive significance of this “equity swap”..... John....If you’re trading you’re supposed to be at your computer screen....not using stops :)
Well....to know what's happening there you would have to know Kabila or Gertler. But then again....they might be stripped of power. The only thing you can count on is 'the price of cobalt', 'demand', and the guy with the most equipment to get it out of the ground. If you look at Glencore they have $4-$5 billion invested in DRC and they employ over 12,000 Congolese. Do you think they will just be pushed aside? All I can say is the legal head fake recently gave a lot of people another chance to get in Katanga again at .50-.60
No one can guarantee human nature or a cure for ebola....but all things considered the government just wants more money....which I would vote for if I knew the money was getting to the people and not going into a numbered account.
On 10 March 2018 President Kabila signed a law that is to substantially amend the 2002 Mining Code of the Democratic Republic of Congo (DRC) by increasing royalties, taxes and mining companies’ obligations. The new law is also purporting to terminate a stability right given to mining companies by the 2002 Mining Code. This right ensures that, if changes are made to the code, mining companies would benefit from a 10 year grace period before having to comply with the changes.
The stability and favorable tax regime of the 2002 Mining Code had been devised by the government with the assistance of the World Bank and in consultation with mining companies. These provisions aimed at encouraging miners and financiers to invest in DRC at a time when the country, which had gone through a series of major crises, was in dire need of foreign investments.
Mining investments did increase considerably under the 2002 code and most of the large investments made by companies currently operating in DRC were made in reliance on this stability right.
It is therefore not surprising that miners have not reacted enthusiastically to the new law.
The timing of the signing by President Kabila was itself a message. It came only a few days after the chief executives of some of the world’s largest mining companies had tried to convince him, during a six hours meeting, not to implement the new law.
In fact a few weeks before, DRC had already displayed a perfect sense of timing as its National Assembly had voted the new mining law only a few days before the Indaba mining conference in Cape Town.
By doing so it had ensured that its reform would take center stage at the event as a fait accompli. Consequently the conference saw an exchange of robust declarations with some mining companies threatening arbitration or predicting that no serious investors would ever want to come to DRC and representatives of the government or of Gécamines (the DRC national mining company) accusing the industry of bad faith and having looted the country’s resources for years.
The President’s announcement could therefore also be seen as just another episode in an ongoing communication war between the government and mining companies.
This of course is nothing new and the past 15 years have seen this type of maneuvering on a regular basis. Other African countries, such as Guinea or Tanzania, have also recently been aggressively reforming their code, often in the context of highly publicized tax audits and extensive reviews of existing mining contracts.
Whether these reforms are part of a new general wave of resource nationalism driven by global economic factors or whether each country is following their own specific political or economic reasons, is a matter for debate.
However, whatever the reasons, mining reforms measures often seem remarkably similar wherever they are initiated: increased royalties, higher taxes and larger free carry state shareholdings, reduced tax benefits, stronger local processing obligations and reduced ability for governments and miners to agree specific tax packages.
DRC is no exception as its new mining law includes the following:
Mining licences reduced from 30 to 25 years, exploration licences renewable only once.
State free carry non-dilutable equity stake increased from 5% to 10% and increased by 5% on each renewal of an exploitation licence.
10% share of the share capital to be held by Congolese private citizens when creating a mining company.
Covenant to comply with the social responsibility undertakings given to local communities.
Increased obligations regarding local processing and local contents.
Obligation to repatriate funds increased from 40% to 60% and to 100% once the investment has been depreciated, with no possibility of using repatriated funds to pay external debt.
At least 40% of the development costs to be contributed by way of equity rather than debt.
Registration fees of mortgages on mining licences increased from a modest flat fee to a % of the secured amount
Mining Code tax benefits extended to mining companies’ subcontractors only if they are controlled by Congolese shareholders.
Royalties increased from 2% to 3.5% for non-ferrous and base metals and from 2.5 to 3.5% for precious metals and calculated on the gross market value of the products.
Creation of a special 10% royalty on minerals deemed by the Government to be “strategic substances.”
Creation of a special 50% tax on excess profits, defined as profits made when a commodity exceeds by 25% the price used in the bankable feasibility study.
Validity of assignment of mining titles subject to a 1% registration fee based on the transaction price, which may itself be subsequently reviewed by the authorities.
Capital gain tax on sale of direct and possibly indirect interests in a DRC mining company.
Direct and indirect change of control of an mining title holder subject to the prior approval of the State.
Purported termination of the existing 10 year stability right and introduction of a new 5 year stability right.
Some countries may go further than others on a particular topic, such as Tanzania’s attempt at prohibiting international arbitration, but the trends remain relatively similar.
However, although public confrontations between miners and governments are not unusual, one can wonder why the DRC’s reform has generated such level of bitterness.
A few factors may perhaps explain this:
The relationship between foreign miners and the CEO of Gécamines, whose company is a shareholder in many mining companies in DRC and who is said to have been instrumental in the new law, is known to be particularly tense;
Mining companies tend to resent the fact they are getting publicly blamed for not giving enough back to the country when a number of NGOs report that little of the large amounts of taxes and duties paid by the industry to state agencies find their way to the general population or into public infrastructure and services;
Whilst in 2012 extensive conversations had taken place between mining companies and Congolese officials on some proposed amendments to the 2002 mining code, the new law is said to bear little connection with what had been discussed and to have been drafted with no consideration for the concerns previously expressed by mining companies and their financiers.
However one aspect more than any other that may have led to this confrontation is the method used in the new law. Contrary to the approach taken in other African countries which have recently implemented very substantial reforms of their mining codes, the DRC law does not provide any clear transitional period for the application of the new regime.
Nor does it seem to offer any flexibility as to the way some of the new obligations may apply or accrued rights may be retained even only in part. It simply ignores the existing rights of the mining companies that invested in reliance on the 2002 Mining Code and imposes on them a new set of fiscal, financial and operational obligations.
This is made worse by the fact that some of these obligations are totally at the discretion of the government (such as the right for the state to designate some minerals as “strategic” subject to an additional 10% tax.)
Other mining reforms, whilst also imposing increased obligations, have given both governments and companies the right and time to negotiate how some of these new obligations would apply.
This is probably one of the main problems with the new law as it seems to have forced both the government and companies into a corner with little room for maneuver except to speak tough and harden their position.
It has in fact perfectly set the scene for a scenario that could eventually lead to some mines shutting down, tax revenues streams drying up and multiple international arbitration proceedings being initiated against DRC.
Whether this was deliberate or not is not clear. However the issue may have been identified as after the meeting between President Kabila and the mining companies, a statement was released by the mining minister that the concerns of the miners will be taken into account through a constructive dialogue with the government.
As part of this process some of the major companies operating in DRC and their advisers are soon to meet with the government’s officials and mining experts. Although Congolese officials are reported to have said that no compromise reached during these talks would contradict the code’s provisions, it will be in the best interest of all parties to reach some kind of agreement.
The use of a transition legal mechanism should allow for the implementation of a compromise that would preserve the substance of the 2018 code.
However the story may not end there as the CEO of Gécamines has also announced that he intends to revisit the current arrangements between the national mining company and foreign miners. The impact this may have on the forthcoming dialogue or the future relationship between the government and mining companies remains to be seen.
Glencore's Prize Cobalt Miner Is Bogged Down Deeper in Congo
By Thomas Wilson April 23, 2018 Bloomberg
Canadian probe, Gertler, local debt are all ongoing problems Katanga will soon be biggest producer of battery metal cobalt
Katanga Mining Ltd. will soon be the world’s top cobalt miner, churning out thousands of tons of metal and billions of dollars in revenue for Glencore Plc. It’s also turning into a major thorn in the commodity giant’s side.
Katanga is controlled by Glencore but trades in Toronto, making it one of few options for equity investors seeking exposure to the coveted battery ingredient. Its shares surged more than 1,200 percent in 2017 as the company moved to restart production in the Democratic Republic of Congo and boost cobalt output -- just as ballooning projections for electric-vehicle sales turned the metal into one of the world’s hottest commodities.
Yet instead of enjoying the boom, Katanga is mired in difficulties ranging from the prospect of higher taxes to a mounting legal battle with its Congolese partner, Gecamines. The state-owned miner has started court proceedings to dissolve the local operating unit, Kamoto Copper Co. in which it holds a 25 percent stake, after Katanga failed to reduce billions of dollars of inter-company debt that has limited Gecamines’ share of profits.
Katanga tumbled as much as 30 percent in Toronto Monday morning, the biggest intraday decline since July, after the company disclosed the Gecamines move on Sunday.
Katanga also faces continued scrutiny over its relationship with sanctioned Israeli billionaire Dan Gertler and an ongoing probe by Canadian regulatory authorities, both of which remain unresolved, Katanga said in its annual report this month.
“Katanga should be one of the best assets in the world," said Ben Davis, an analyst at Liberum Capital Ltd. in London. "Instead, it has been a perennial disappointment for Glencore and the situation looks like it is set to continue.”
Glencore and Katanga declined to comment. Gecamines didn’t immediately respond Monday.
Katanga boasts one of Congo’s biggest reserves of copper and cobalt but it has underperformed for decades. In 2015, Glencore suspended operations to address the problems and upgrade the facilities. Production restarted in December and the mine is scheduled to hit 300,000 metric tons of copper next year, when it will account for about a fifth of Glencore’s global production.
That, plus a projected 34,000 tons a year of cobalt, make Katanga central to Glencore’s strategy. The legal and regulatory challenges are putting that strategy at risk and leave Glencore’s assets in a vulnerable position, said Elisabeth Caesens, a director at Brussels-based Resource Matters, who has followed Katanga since 2008.
"The various legacy issues could jeopardize Katanga’s rosy future," Caesens said. "In a country that has witnessed asset seizures in the recent past, even the most radical scenarios can never be ruled out completely."
To be sure, Simon Tuma-Waku, a former chairman of Katanga’s Congolese operating unit and vice-president of Congo’s chamber of mines, said the issues facing Katanga need to be resolved but are unlikely to slow the mine’s ramp up. Katanga is finally poised to be a "major player" in Congo’s copper sector, he said.
Here’s a breakdown of Katanga’s challenges:
Debt Structure
The court action by Gecamines means Katanga needs to urgently reduce a multi-billion-dollar capital shortfall at the Kamoto subsidiary.
Glencore and Katanga have made their investments in Congo as shareholder loans or prepayments for metal. While the structure is common among international investors in the country, missed output targets and a 10 percent interest rate mean that Kamoto’s total debt reached $9.2 billion through December, corporate filings show. That’s more than four times Katanga’s market value and has led to a $4.2 billion shortfall in working capital, which Katanga needed to resolve before January, according to local law.
A first hearing is scheduled for May 8 and Katanga could get another six months to resolve the issue, the company said. Its options include forgiving a portion of the debt, which could impact Katanga’s future cash flow from the project, it said.
Gertler Sanctions
Katanga is also yet to say whether it will cease all future payments to Gertler, four months after the billionaire was sanctioned by the U.S. over alleged corruption, and despite calls from anti-corruption groups to end the relationship.
Glencore bought Gertler’s Katanga stake last year but is still obliged to pay him production royalties, which he acquired from Gecamines. Katanga is using previous advance payments to Gertler and Gecamines to offset the royalty fees, which means it doesn’t owe the billionaire anything for now, according to the annual report.
The question of future payments is a delicate one, said Caesens. Gertler maintains close personal relationships with Congo’s political elite.
"If the payments stop, Gertler misses out on about $8 million a month," she said. "He’s unlikely to let that go without a fight."
Accounting Probe
Despite restating its financial results in November, reshuffling the board and reducing the role of Glencore’s billionaire copper boss, Katanga has yet to resolve regulatory difficulties in Canada, where the Ontario Securities Commission has been investigating the company over its accounting practices since the first half of 2017.
Katanga is continuing to cooperate with the probe, which may result in the prosecution of the company or its personnel, it said in the annual report.
Implications of the investor update on Katanga by Glencore for the Cobalt market
Posted 04 January 2018 CRU Group
Glencore published an investor update in mid-December, which included a large amount of information pertaining to the restart of the company’s Katanga operation in the DRC. This included an updated timeline, current upgrade procedures and new guidance production figures for copper and cobalt on the site – which suggests that cobalt production is likely to be much higher than initially expected.
Before this update, the last news published on the Katanga upgrade was a technical document released on the March 31st 2017, which gave a total production capacity target of 30ktpa of saleable cobalt (contained in cobalt hydroxide). This target annual production capacity was forecasted to be reached by 2019, with the site having a total capacity of 15ktpa in 2018. However, Glencore’s recent investor update has revealed an upgrade in the company’s expectations for cobalt production at the site, with their production guidance figures for cobalt output at Katanga now at 11ktpa in 2018 and 34ktpa in 2019.
This is a strong indication that Glencore’s ongoing upgrade work on Katanga’s cobalt recovery circuit – including the development of sulphur burning capacity, additional acid storage capacity and the refurbishment of power infrastructure – has progressed smoothly in 2017.
What implications does this have for the market?
Once fully operational, Katanga will be the largest cobalt-producing mining project in the world. As a result of this, small changes to CRU’s assumptions for Katanga production have a very large effect on our forecasted global supply-demand balance.
In previous market updates, CRU has forecasted a slower ramp-up and maximum production for Glencore’s Katanga project, with our base-case scenario being a ramp-up to 21.5ktpa by 2022. This was conservative in order to allow for possible disruptions to supply from acid and electricity shortages in the region, as well as technical issues which could have slowed the ramp-up of production. The weakness of regional infrastructure, especially given the size and scale of the project, was another reason for CRU’s more muted forecast for Katanga production.
For the cobalt market as a whole, CRU’s 2017 forecast has been for a sustained deficit in the cobalt market over the next 5 years due to very strong demand growth from the battery industry, combined with moderate mine supply growth. However, if Glencore’s production guidance is taken at face value, the cobalt market could switch from a sustained deficit to sizeable over-supply from next year onwards. This is highly contrary to the narrative currently seen in the cobalt market, suggesting that increased demand for cobalt may result in potential shortages in the mid-term.
What are the risks to the Glencore guidance?
While the recent Glencore announcement does suggest that good progress has been made on the Katanga project this year, there are still several potential risks which could prevent the project from reaching its guidance production figures in 2019.
The most likely near-term risk to production is the availability of sulphur dioxide. Historically, the Katanga project has relied on sulphuric acid for its leaching operations, which CRU understands it currently sources via truck from its Mopani operation in Zambia. However, Katanga’s new Whole Ore Leaching (WOL) process requires sulphur dioxide as the principle reagent in producing cobalt. This has required Glencore to commission a sulphur burner on the site, with which they can produce the sulphur dioxide required for the process.
There are two main risks associated with this. Firstly, if construction of the burner is delayed, then this could result in severe delays to cobalt production at Luilu, as cobalt cannot be produced without it for the WOL process.
This is not the case for copper production, which will still rely on sulphuric acid which can either be transported from Mopani or bought on the spot market if required. Secondly, once the burner is up and running it will require a steady feed of elemental sulphur to be operational. This is likely to be supplied in bagged form by rail to Luilu railway station from South Africa via Zambia; however, the reliability and quality of railway services in this part of the world is very low, and given the large amounts of sulphur required to run the burner, there are significant risks of disruption initially while this new supply route is formed.
Another potential risk is the availability of power to run the operation. Power disruptions have caused large disruptions to mining and refining operations in the region in the past: for example, in their Q3 report this year, Glencore cited power disruptions at their Mopani operation as one of the principle reasons for reduced throughput at their Mutanda mine in 2017. Given the large scale of Glencore’s new Katanga WOL plant, there is a significant risk of power disruption delaying or lowering cobalt production at the project.
This risk has been somewhat alleviated by recent refurbishment work at the DRC’s Inga Dams, a large hydroelectricity facility which supplies most of the power in the region. However, electricity disruptions still pose a risk in the coming years as increased mining and smelting operations in the region draw more power from the national grid in future.
CRU’s view
Glencore has invested a large amount into mitigating the various risks involved in this project. However, as discussed above, CRU believes that significant unavoidable infrastructural and supply risks still exist at the site. Consequently, we are currently assuming that the ramp-up will be slower-than-forecasted, with the Katanga project ultimately reaching nameplate capacity by 2020 as opposed to the 2019 target currently given. CRU forecasts that maximum production at the site will likely reach 27ktpa, 7ktpa below guidance figures, to account for unforeseen disruptions and supply risks.
With this update to our supply assumptions, CRU expects that the market will re-enter a surplus in 2018, with oversupply reaching a peak in 2019. From 2019 onwards, accelerating demand from the nascent EV industry will draw down the oversupply before returning the market to a net-deficit in the early 2020s.
Can we expect price softening in the mid-term?
Glencore’s recent announcement is likely to alleviate fears of cobalt supply shortages in the mid-term. However, the return to a net-oversupply market is unlikely to result in cobalt prices returning to pre-2017 levels.
While shortages are no longer a significant risk in the mid-term, there are still concerns in the market about cobalt supply in the long-term as the EV market matures. For this reason, we can expect that many big future consumers of cobalt like automotive companies, tech companies and battery manufacturers will choose to invest and stockpile cobalt in the coming years to mitigate supply risk in the long-term. This will likely involve signing off-take agreements with large producers – including Glencore – for consistent annual supply volumes. For this reason, there is likely to be plenty of end-user interest in large volumes of cobalt in the coming years, which will keep prices at elevated levels.
Alternatively, Glencore may choose to not put all of the cobalt volume produced to market. The Katanga project is first and foremost a copper project, and the project is already very profitable based on copper production alone. This gives Glencore a lot of freedom in terms of how it manages the cobalt produced, and given the projections of supply tightness in the future, they may decide to put aside a fraction of cobalt produced for storage and inventory-building in anticipation of further demand in the long-term. This will undoubtedly incur some working capital costs, but given the strength of Glencore’s balance sheet (as illustrated in their investor report), this is a cost that they would have the capacity to bear if required.
Because of this, we do not expect our price forecast to change dramatically as a result of the Glencore announcement. If the cobalt price continues to be volatile in the mid-term then this will further spur on efforts by end-users to lower cobalt usage in batteries, leading to much lower demand in the long-term. Because of this, CRU expects that major producers with large production capacities will choose to adequately supply the market in the short-term and keep prices reasonable in order to discourage cobalt thrifting. Therefore, while volatility remains likely, CRU does not expect that the cobalt market in 2018 will maintain the same level of price growth that has been seen in 2017.
I first wrote about Katanga Mining back on January 1, 2017, when the stock was largely unknown to many investors and trading at just CAD 0.13 (USD 0.09) per share. For a background on the stock you can read my January 1, 2017, article "Katanga Mining Is A Potential Turnaround Story."
The key takeaways are the following:
Katanga Mining's Kamoto mine has large high grade copper and cobalt reserves in the Democratic Republic of Congo (NYSE:DRC). Katanga has a 75% interest in the Kamoto copper-cobalt mine, the other 25% is owned by La Generale des Carrieres et des Mines (GCM) and La Société Immobilière du Congo (SIMCO) owns the other 25% (DRC Government company').
The mine has 90.9Mt proved and probable reserves, with very good average grades of 4.14% copper and 0.45% cobalt. Or 207.3Mt measured and indicated resource at an estimated grade of 3.53% copper and 0.52% cobalt.
The KOV open pit and Kamoto underground mine stopped production in 2015 due to the low copper prices, and is undergoing a modernization of the processing plant to significantly lower the cost of production.
The mine was expected to re-open in 2018, ramping to 300,000tpa copper and 22,000tpa cobalt production.
Glencore are backing Katanga with a huge loan, and previously had a 75% stake in the Katanga mining share float.
There have been "good" lithium companies and phony "P&D" lithium exploration plays.
My father received a sales brochure on one and he was hot to trot to buy. The price skyrocketed on the pump and fell back to earth when the "pumpers" bailed.
I used to track and own gold and silver "exploration" companies many moons ago. A decent arbitrage play from time to time.
I now HATE exploration ANYTHING. Miners and producers only please.
Katanga Mining Stock is Riding High on the Cobalt Price, More Upside Seen
JULY 12, 2017 Small Cap Power
Katanga Mining Limited (TSX: KAT) shares should continue to climb on a robust cobalt price, a stronger copper price, and a possible early start of production
Holding the world’s largest cobalt reserves of 1.3 billion pounds (lbs), Katanga Mining Limited (TSX: KAT) continues to ride the strong upsurge in cobalt prices over the past one-and-half years. While the cobalt price has zoomed nearly three times over the mentioned period reaching almost US$30/lb, the share price of Katanga Mining has skyrocketed five to six times to reach $0.70 a share from about $0.14 on January 4, 2017.
We believe there is more upside potential in Katanga Mining stock as the outlook for the cobalt price is robust on increasing usage in batteries, positive momentum in copper prices, and the possible early start of cobalt production in 4Q17.
Investment Thesis
Operates one of world’s largest copper and cobalt projects
Katanga Mining Limited, through its 75%-owned subsidiary Kamoto Copper Company SA (“KCC”), operates a large-scale copper-cobalt project at the Kamoto/Mashamba East mining complex in the Democratic Republic of Congo. The Company suspended processing of copper and cobalt at the mine on September 11, 2015, and continued through 1Q17. Production at the mine is not expected to resume until the WOL Project is commissioned, expected in Q4 2017. As of December 31, 2016, the project holds the world’s largest reserves of cobalt at 1.3 billion lbs (124.7 MT @0.52 % Co) and high-grade copper reserves of 8.7 million lbs (124.7 @ 3.51% Cu).
Recently, Katanga Mining announced the ramping up of saleable production of cobalt to 30 ktpa (earlier 22 ktpa) by upgrading infrastructure.
KAT’s reserves of 1.3 billion lbs are almost twice that of the second largest cobalt miner Lundin Mining, which has 670 million lbs. Market cap to total resources lbs of Katanga Mining stock is at 0.35X, lower than the producers Lundin Mining and First Quantum. We believe once Katanga Mining starts production in 4Q17 or early 2018, there is a potential for the multiple to go up to 1.0x, translating into significant potential upside in the share price of KAT from the current price of $0.70.
Strong demand for electric vehicles will continue to drive cobalt prices
As discussed above, Katanga Mining shares rallied strongly on rising cobalt prices and looks fairly valued at current levels. However as cobalt prices continue their upward momentum, the share price of Katanga Mining should also continue its upward momentum, as a small change in cobalt price will result in significant revenues and cash flows and the resulting valuation for KAT.
Global cobalt and lithium prices are being driven primarily by strong demand for electric vehicles. Cobalt is a key component of lithium-ion batteries used in electric cars, smart devices and other consumer electronics. According to the business intelligence company, CRU Group, global consumption for refined cobalt is estimated to reach 100kt in 2017 and is forecast to grow at an average rate of ~5% percent for the next 10 years. According to CRU, electric cars and plug-in hybrid vehicle sales could reach 4.4 million in 2021 and ~6 million by 2025.
Outlook
Although Katanga Mining’s share price has risen sharply over the past six months, we believe there is further upside left as cobalt and copper prices are expected to continue their upward momentum. The commencement of production in 4Q17 will be the key short-term trigger for the stock.
I do detect a hint of overenthusiastic cheerleading on your part taking the time to post all that dated bullshit.
You do remember back on that dart board a few years ago when I brought ORE through the door, and all that grumbling about my naivety about silver and gold and having the audacity to bring some “LITHIUM” through the door....what the hell! As we both know now...had you listened instead of riding that high horse down Biscayne Blvd., you would have profited handsomely buying at $1.20 and selling at $7 after a year or two.
AND let’s not forget Galaxy Resources which almost got me laughed out of that room full of trading losers ! At what .12 a share I believe....and then it went to .60-.70 within a year or so. All told....the idiots in that room could have made some good coin on those 2 calls......but they were to busy talking and posting absurd crap when they should have been ‘listening’. Oh well....maybe this time....huh John?
I would like some clarity here and how this litigation may have an adverse affect on a new shareholder.
John....since you have gone to all the trouble to post a years worth of articles....let me give you the answer!
Glencore/Katanga have invested around $5,000,000,000 in their copper and cobalt infrastructure, and they employ over 12,500 Congolese citizens. Some of the highest quality copper in the world, and the largest cobalt deposit on the planet. Copper has gone from $2 to $3 a pound in the past year and the chart is pointing decidedly up. Cobalt being a by-product of copper and nickel mining for the most part, and cobalt has gone from around $25 a kilo, to more than $90 a kilo in the past year (that’s $90,000 for a metric ton)...with a bullish chart. You tell me John.....you think any ‘litigation’ is going to slow down this bullet train?! NOT ON YOUR LIFE....
So between Ebola, child labor, political murders, army genocide.....it's not a bad place to mine. I mean you got all the resources and you just have to pay off Kabila and you're in business
there are no adverse affects if you just buy the stock, don't listen to all the BS....and stupid politics. Everyone is jockeying for position and killing each other and calling it a political movement is de riguer.
The commodities behemoth faced a crisis last year as prices of metals, grains, and petroleum products—as well as the company’s stock price—plummeted. A rare inside look at how the secretive Swiss giant survived and how it plans to thrive again in a post-boom world.
Shimmering below our eight-seater plane in the dazzling African light is a mammoth hole gouged out of the terrain of the Democratic Republic of the Congo. From the air, the green and black hues offer just a hint of the huge mineral wealth lying under one of the poorest, most remote countries on earth. Yet it is only after we have landed on a tiny airstrip and bumped along in an off-road vehicle for half an hour past mud-brick houses that the full extent of those riches becomes clear. From the rim of the pit, the rock 450 feet down at the bottom looks as if it has been drawn with neon Crayolas, its green popping against the deep-black earth.
“Some of the richest ore bodies anywhere are in Congo, and one of them is here,” says Pedro Quinteros, an engineer from Peru who has excavated minerals for decades on three continents and now serves as CEO of Mutanda Mining, the nine-year-old cobalt and copper facility we’re visiting. Here parts of the ore, he says, can be up to 30% copper. “In my country it is 1% copper. In Chile it is less than 0.5% copper,” he says with a note of awe, peering down to the bottom of the wide pit, where 110-ton trucks scoop up the rock and soil and then rumble back to the top carrying their priceless haul. “I have never seen anything like it in my career.”
As unique as this bounty is, so, too, is the company that owns it: Glencore. To most regular folk, the company’s name is largely unknown, and that’s not by accident. The commodities behemoth’s headquarters are far from the frenzy of Wall Street and the City of London, in the sleepy, low-tax town of Baar, Switzerland, near Zurich. In the quiet atmosphere inside Glencore’s four-floor glass-and-steel complex there, traders and managers move markets while looking out on rolling hills with cows grazing on them, the very picture of a Swiss chocolate box; indeed, visitors are offered fine Swiss chocolates preserved in climate-controlled wooden boxes.
From this idyll, Glencore has for decades carefully guarded its privacy while building one of the greatest—and, some would say, quite notorious—natural-resources operations that the world has ever seen. Its head-turning $170.5 billion in sales in 2015 is enough for Glencore to rank No. 14 on this year’s Global 500, far above household names such as AT&T, Chevron CVX -0.09% , and GE GE -0.03% . And the breadth of its reach is perhaps unsurpassed by any other company.
In fact, the commodities that Glencore mines and moves now touch virtually every facet of our hyperwired lives. Charge your cell phone, turn on your computer, flick the light switch, drive your car, ride a train, take a flight, eat a bowl of cereal or a plate of sushi, or drink some sugared coffee—Glencore could have had a hand in all of that. The company uses warehouses and port facilities in Colombia, Australia, Peru, the Netherlands, and elsewhere, and in July, its fleet of 700 vessels (mostly chartered) outnumbered the U.S. Navy’s. And it is the only sizable company of its kind that mines, ships, and trades dozens of commodities in dozens of countries; its competitors, such as Cargill, Rio Tinto, and BHP Billiton, do only some of those things.
Glencore’s model is classic arbitrage: Its hard-charging, ambitious traders in Baar, who can earn millions annually, boast that if something can be moved, they can sell it—and they do, on a big scale, making a small margin on every kilo, ton, and boatload by efficiently delivering commodities to customers. “It is hugely important for the world economy,” says Paul Gait, a senior analyst for Bernstein Investment Research and Management in London. “The world will always need raw materials. That is one thing that is certain.”
The chief architect of this empire is Ivan Glasenberg, 59, Glencore’s billionaire CEO—a laser-focused South African, company lifer, marathon cyclist, and onetime competitive racewalker. Since taking charge at Glencore in 2002, Glasenberg has quietly expanded his company’s footprint so that it now stretches from the Arctic Circle to the Australian desert and every region in between.
“Some of the richest ore bodies anywhere are in Congo, and one of them is here,” says Pedro Quinteros, an engineer from Peru who has excavated minerals for decades on three continents and now serves as CEO of Mutanda Mining, here parts of the ore, he says, can be up to 30% copper. “In my country, it is 1% copper. In Chile it is less than 0.5% copper. I have never seen anything like it in my career.”
Glasenberg’s company was one of the biggest beneficiaries of the long China-driven commodities boom that began around the turn of the millennium, as the cost of everything from oil to iron ore to zinc spiked and investment capital followed. Glencore was stung with equal force by the dramatic collapse in the prices of raw materials that began in 2014.
By the fall of 2015 some investors had begun to look at Glencore’s heavy debt load and wonder if the company could remain solvent. The stock tanked, dropping as low as 87% below its 2011 IPO price at one point. Glasenberg, a highly disciplined type who is up at 5 a.m. most days to cycle 30 miles before work, suddenly found himself scrambling to convince the investment community that his once-unassailable kingdom wasn’t headed for bankruptcy. He swiftly enacted a plan to sell off assets and reduce Glencore’s debt. The stock has rebounded somewhat but remains way off its highs.
In a rare move, Glasenberg cast aside his inherent aversion to publicity and agreed to give Fortune an inside look at his company and, even more unusually, to offer his own expansive views about its well-being. In his first interview outside of earnings season since 2013, he describes the selloff of Glencore stock not as a near-death experience but as an extreme response to a normal swing in the resources markets.
“Glencore was down significantly because that is what commodities do,” Glasenberg tells me evenly, sitting in a serene conference room in Baar. “I have seen this many times in my career.”
But the world has not often experienced such a large-scale and sustained bull market for raw materials as the one that has recently fizzled. The question is, How will Glencore operate in a post-boom world?
Glencore’s gargantuan size makes it an inevitable target of suspicion. And for years the company’s critics—mostly activists and NGOs—have claimed that Glencore has profited by nurturing political connections in troubled, often corrupt countries. Glasenberg has vehemently rejected the claims, and he says that Glencore makes a crucial contribution in the countries where it operates.
But Glencore will probably never escape such questions completely. The truth is, the company was born out of controversy.
Glencore emerged from the commodity-trading business of Marc Rich, a ruthlessly savvy trader who effectively invented the concept of spot pricing—giving a current market price for raw materials rather than their futures price—in oil in the 1970s. In 1983, U.S. officials indicted Rich on charges of tax evasion, racketeering, and trading with the enemy, including trading in Iranian oil during the U.S. hostage crisis and selling oil to apartheid South Africa. Rich fled to Switzerland, where in 1994, Glasenberg and other senior managers bought him out for a reported $600 million and renamed the company Glencore. President Bill Clinton pardoned Rich on his last day in office in 2001, in an act that provoked a firestorm in Washington.
All that, however, is history—one that is barely mentioned in Glencore’s corporate literature. Insiders see Rich’s legacy in the company’s hard-driving trading culture and its relatively flat structure (the CEO is “Ivan” to staff), with fresh young traders rewarded for making big decisions. The company hires its traders straight out of university, then keeps most of them for life. The inbred culture stresses sleeves-rolled-up grit over formality, discretion over self-promotion.
An equally important legacy is Glasenberg himself, whom Rich hired in 1984 from the University of Southern California’s MBA program, then groomed as a trader of coal in Asia, where he ran Glencore’s Hong Kong and Beijing offices, rising to become Glencore’s head of coal in 1990.
After decades of shying away from public scrutiny, Glencore finally lifted its veil of secrecy by going public in May 2011, with a $10 billion listing, which valued Glencore at $60 billion. It remains the biggest ever IPO on the London Stock Exchange. The company is also listed on the Hong Kong Stock Exchange. The company’s 1,634-page prospectus set investors afire. Glencore revealed at the time that it was mining or trading a whopping 60% of the zinc metal in the “addressable market”—that portion (less than half) of the global market open to third-party buyers and sellers—as well as 50% of the copper and 45% of the lead. That was not all, however. Glencore also produces and trades large quantities of grains and soy; it has oil and natural-gas concessions in Equatorial Guinea, Cameroon, and Chad; and it owns a stake in Russian energy giant Russneft.
Glencore finally had the cash to snap up the major assets it had been eyeing for years. The IPO also turned several execs, including Glasenberg, into billionaires, since its senior managers control about one-third of Glencore. Today Glasenberg owns more than 8% of Glencore, and in 2014 he earned $198 million just in dividend payments alone. When the company went public, he paid $420 million in taxes to the tiny Swiss community of Rüschlikon where he lives, prompting local officials to hand every other resident a windfall tax break.
In 2013, Glasenberg led Glencore through a transformational acquisition. The company bought the remaining 60% stake it didn’t own in Xstrata, a Swiss mining conglomerate that it had created. That left Glasenberg sitting atop a giant that controlled every phase of commodities—from mining to finished product—allowing Glencore to offset downturns in one part of the business against another. The combined company generated $221 billion in sales in 2014, propelling it to No. 10 on the Global 500 last year. Glasenberg’s strategy seemed unstoppable.
But the giddiness was bound to collide with some hard realities. Glencore’s growth had been fueled by the rise of China, which consumes an astonishing 50% of the world’s aluminum, copper, nickel, and zinc. Racing to meet China’s almost insatiable hunger, the mining industry plowed more than $1 trillion into digging new mines and upping production in the 2000s, greatly increasing the amount of commodities for sale on world markets. Last August the boom came to a shuddering halt. China devalued the yuan, admitting that its economy’s growth had slowed more than expected and sending commodity prices plummeting.
Despite jitters on Wall Street, the Glencore traders in Baar were only slightly concerned. Many had lived through the 2008 global financial meltdown, when customers canceled their orders, leaving Glencore vessels idling at sea. Back then the world had appeared dangerously off-kilter. This time, China was still buying huge amounts of commodities, even if less than before.
Yet unlike in 2008, Glencore was now a publicly traded company. Glasenberg’s unflustered response was no match for the intense anxiety of investors, who wanted swift action—something he was quickly forced to address. “If you are not public, you can say, ‘I don’t care what you think. We can manage,’?” he says. “However, if you are a public company, it can hit your share price.”
That much became clear on Sept. 28, when Investec, a wealth and asset management company in London, emailed its clients a research note under the ominous title “Bermuda Triangle.” It warned that major mining companies like Glencore, Anglo American, BHP Billiton, and Rio Tinto had “gorged themselves on cheap debt” during China’s boom and now perhaps owed more than their assets were worth. Unless commodity prices rose quickly and unless mining companies balanced their budgets, Investec said, “nearly all the equity value of both Glencore and Anglo American could evaporate.”
The note hit like an earthquake. That day Glencore’s stock crashed 29%. It plunged further the next day, eventually falling to a small fraction of its IPO price. The panic escalated. One New York analyst declared on CNBC that “Glencore is like Lehman Brothers”—a doomed company whose downfall would have a global impact.
Glencore’s debt—measured as “net debt,” which excludes about $15 billion worth of marketable inventories—was at $29.6 billion. While Glencore felt that debt load was manageable, investors did not. So Glasenberg whipped into action with a strategy to slice Glencore’s net debt to about $18 billion by the end of 2016. He and his senior managers put $2.5 billion of their own money back into the company; Glasenberg alone put in about $210 million. They also agreed to forgo this year’s dividend payout, which would have totaled about $2.5 billion.
Glasenberg flew to the U.S. for a weeklong road show later in August, reassuring investors that Glencore was not in trouble and that China’s growth would pick up. What’s more, he pointed out, Glencore was still spinning off $3 billion in free cash a year. Nevertheless, Glasenberg has followed through on the plan to unload assets: In June, for example, Glencore sold 50% of its agriculture business for $3.1 billion to two Canadian pension funds, and it has put its Australian rail infrastructure and its gold mine in Kazakhstan up for sale.
Today the Glencore CEO believes that the industry is suffering from a glut of commodities on world markets. If mining companies could only get a handle on production, Glasenberg says, prices would inevitably rise. “Mining companies have to wake up and stop increasing supply and look at demand,” he says. “And that is it.”
When you travel around the Copperbelt in Africa, it quickly becomes clear just how big a player Glencore is. At the tiny Kolwezi airport in the DRC’s southernmost province of Katanga, Glencore paid to rebuild the small runway and put up new buildings in 2011. On the road leading to the Mutanda copper mine, our vehicle rumbles over a new bridge crossing the Lualaba River, funded recently by Glencore at a cost of $10 million.
Sprawled across the wide middle of Africa, the vast Congo has long defined the term “resource curse,” used to describe countries whose immense mineral resources—it has tin, cobalt, copper, diamonds, gold, and other reserves—have led to rampant corruption and conflict, not development. Congo ranks 176 out of 188 countries on the UN’s development ranking, with a life expectancy of just 57 and an average income of about $446 a year. Hundreds of thousands of people have died in decades of war. And for years Katanga’s residents have raged against the government 800 miles away in the capital of Kinshasa for failing to invest enough in the province where the country’s copper is mined.
Passing through the gates of Glencore’s Mutanda copper mine, however, is like crossing into another country. Inside, the well-ordered, high-tech facility gleams, its 24-hour operation calibrated for maximum efficiency. The state-of-the-art equipment is a function of its newness. Rare for Glencore, the company built Mutanda from scratch. Nine years on, it now produces more than 220,000 metric tons of copper and 25,000 tons of cobalt a year. Signs remind the 5,000 workers that protective gear is mandatory and that drunkenness is a firing offense. Glencore has built a school nearby for workers’ children, and in case of emergencies all local residents can receive free treatment at Glencore’s hospital. Skilled staff live in cottages inside the compound for eight-week stretches and dine in a spacious clubhouse.
What has sparked controversy is Glencore’s series of deals in Congo. The mining giant invested $200 million in 2007 for a stake in Mutanda, then acquired a majority stake in 2012 for an additional $420 million. It now owns 69% of the mine. Twenty six miles away in the town of Kolwezi, Glencore in 2008 found itself with a stake in Katanga Mining, a public company listed on the Toronto Stock Exchange, when a company it had a piece of merged with it.
In May 2012, just as Glencore was preparing to hold its first annual general meeting, in a casino near Baar, the London-based anticorruption NGO Global Witness emailed a damning memo to shareholders, alleging that Glencore’s acquisitions in Congo had “taken place amid opaque dealings.”
One question the report raised was why Glencore had turned down a chance to buy its remaining stake in Mutanda, in March 2011, from the government mining company Gecamines. Instead, Global Witness asserts, Glencore asked the government to sell it to a shell company owned by Dan Gertler. Gertler, an Israeli businessman with strong ties to Congo’s President, Joseph Kabila, still owns 31% of Mutanda through Fleurette Group, his Amsterdam-based company. Gertler, says Global Witness, snapped up the high-grade copper reserves for a mere $120 million—well below the estimated $849 million that the 20% stake appeared to be worth at the time Glencore went public, according to Global Witness, based on calculations by Glencore’s outside analysts for the IPO.
Global Witness’s suspicion—never proved—is that some of that money may well have ended up with Gertler’s friend, President Kabila, and that just as Gertler needed Glencore’s deep pockets to mine the minerals, Glencore likewise needed Gertler as a conduit to the government. “Gertler was given an easy, maybe a free, ride on what was the crown jewels of the DRC,” says Daniel Balint-Kurti, commodities researcher for Global Witness.
Glasenberg and others in Glencore have strongly denied the group’s findings, and Glasenberg twice invited Global Witness to Baar to tell the group so himself. The company claims its loans to Gertler were not unusual in the high-priced world of commodities and that they did not underpay for the mineral resources. Gertler has fervently denied buying companies in Congo below fair value.
“Why did we buy them so cheap?” Glasenberg says to me about the suspicions of a corrupt deal. “At today’s copper price, they ain’t cheap.” Besides, he says that, like all deals, it will take years before Mutanda’s real value is clear. “You don’t know if you paid the right price or not,” he says. “You know in 10 years. Ten years later we will open a bottle of champagne” if it succeeds.
Still, says Balint-Kurti of Global Witness, “we stand by what we said.”
Left unsaid in these criticisms is that it costs billions to dig out of the earth the minerals that keep our modern lives ticking and then to truck them hundreds of miles across multiple borders to a sea terminal. That is an undertaking only a few companies make. Take Mutanda, which lies in a sprawling, poor, dysfunctional country whose government has no means of exploiting its mineral wealth itself. Several international mining companies have shied away from operating in Congo. In May the U.S. company Freeport McMoRan sold its huge Tenke Fungurume copper mine to China Moly, and left.
By contrast, Glencore, with deep Africa experience and a stomach for risk, estimates it has invested about $5.5 billion in the country, including on infrastructure like water and electricity that it needs for its mines and that also have huge benefits for regular Congolese. “Reserves in the ground are worth nothing unless you can get it out,” Glasenberg says. “They need us coming in to develop it, and in the end what we pay for the reserve is irrelevant.”
The same is true across the border from Mutanda in Zambia. Unlike Congo, Zambia has had a well-ordered government for much of its history since gaining independence from Britain in 1964, with no civil wars. But in mining, Congo and Zambia share a sad history. Both governments took majority stakes in their copper mines, previously run by multinationals, after independence. And during the years of government control the shafts and rigs steadily fell into disrepair.
By 2000, Zambia was producing fewer than 300,000 tons of copper a year—half the amount it was producing 50 years before. Desperate for cash, Zambia put its mines up for sale. Glencore pounced, buying two big mines for an undisclosed amount in 2000—just as China’s boom was taking off. It renamed them Mopani Copper Mines, after Africa’s iconic shade tree.
Glencore found rusted shafts and tapped-out upper-level ore beds from decades of digging. The company weighed its choices: Plow billions into sinking new, much deeper shafts, or shut down and leave Zambia. Glencore opted to sink three shafts, two of them more than a mile deep, at a cost of about $1.1 billion.
The company has invested heavily in other ways too, including opening a $21 million miner-training center in 2014 for its workforce of about 14,000 people. It has also established antimalaria treatment programs, two hospitals, and four schools. “Glencore decided we are in Zambia for the long haul,” says Mopani CEO Johan Jansen, a South African like Glasenberg.
For Glencore’s long haul as a public company, Glasenberg must continue to do what investors have demanded over this bruising year: Control spending and cut debt. Meanwhile, it waits for markets to rationalize.
Last September, Glencore suspended its Katanga Mining operations in Congo. Some 1,400 workers left, and about 4,000 stayed for when the mine reopens late next year. Tragically, seven people died in March in a landslide while maintaining the shuttered mine. Glencore insists the mining suspension is not part of its debt-reduction plan, but rather a means of making necessary upgrades to the aging facility. With copper prices at lows, though, it’s a good time to overhaul mines.
The need for patience is also true in Zambia, where Glencore’s managers are likewise waiting for the next big moment. “Commodities go in cycles,” Mopani CEO Jansen says. “They will go up again.” As soon as they do, he says, Mopani will be poised to dig more copper out of the ground, having spent big while others cut back.
Glasenberg is confident that day is coming. And when the world demands resources, Glencore will be ready to produce.
Glencore Congo Deals Are Part of Latest Offshore Data Leak
By Thomas Wilson
October 27, 2017, 8:13 AM CDT
Bermuda law firm Appleby had a data security breach last year
Documents relate to Glencore’s takeover of Katanga, people say Glencore Plc could face renewed scrutiny of its business in the Democratic Republic of Congo after confidential information was released in the data breach of a major offshore law firm, according to people familiar with the matter.
The documents relate to Glencore’s acquisition of Katanga Mining Ltd., which runs copper and cobalt mines in Congo, and dealings with Israeli billionaire Dan Gertler, said the people, asking not to be identified because the records haven’t been made public.
Appleby, a Bermuda-based provider of offshore legal services, said on Tuesday that it suffered a “data security incident” last year and reporters from the International Consortium of Investigative Journalists and other media groups had recently been asking questions about leaked information.
"Appleby has thoroughly and vigorously investigated the allegations and we are satisfied that there is no evidence of any wrongdoing," the firm said in a statement posted on its website.
Appleby was told by the ICIJ that the journalists are investigating documents that detail Appleby’s business with a wide range of clients, the law firm said in the statement. Appleby has both corporate and high net-worth individuals as clients, according to its web site.
The journalist group is known for publishing the Panama Papers, a trove of files from law firm Mossack Fonseca made public in 2016 that exposed offshore companies and hidden financial dealings.
Congo Copper
While Bloomberg News hasn’t seen the confidential Appleby documents, public records show Appleby lawyers advised Katanga on various transactions. Those include the merger with Gertler’s Nikanor Plc in 2007, and rights offers and loan agreements with Glencore between 2007 and 2009.
Spokesmen for Glencore, Gertler and the ICIJ declined to comment. Appleby did not respond to a voice message seeking comment.
Glencore, the world’s biggest commodities trader, is a major investor in Congo and has created thousands of jobs, helping the nation become Africa’s top copper producer. However, its business with Gertler, a friend of Congo President Joseph Kabila, has been contentious.
Last year, hedge fund manager Och-Ziff Capital Management agreed to pay U.S. authorities $412 million to settle charges that it participated in a bribery scheme involving Congolese officials. As part of the settlement, Och-Ziff acknowledged that it made a loan in 2010 to its partner in Congo to buy Katanga shares. That partner was Gertler, according to a person familiar with the matter. Glencore wasn’t accused of any wrongdoing.
Glencore’s work with Gertler on the takeover of Katanga has been questioned by Global Witness, a London-based advocacy group. In 2014, it released a report saying Glencore may have channeled funds to Gertler at the expense of other Katanga shareholders. Glencore denied those allegations.
In February, Glencore cut ties with Gertler in a $960 million deal to acquire his stakes in Katanga and Mutanda Mining. Gertler’s company has said it still receives royalties from both projects.
Glencore has today purchased from subsidiaries of Fleurette Properties Limited (“Fleurette”) the Fleurette group’s remaining 31% stake in Mutanda Mining Sarl (the “Mutanda Shares”) and an approximate 10.25% stake in Katanga Mining Limited (the “Katanga Shares”).
The consideration for the Mutanda Shares and the Katanga Shares has been determined based on an analysis by BMO Capital Markets Limited who was engaged by Glencore to provide an independent view as to the value of the Mutanda Shares and Katanga Shares for the purposes of the transaction.
The consideration for the Mutanda Shares is US$922 million and the Katanga Shares is US$38 million.
Glencore will set-off against the cash consideration payable to Fleurette, loans owing to the Glencore group by Fleurette and its affiliates, and secured over the Mutanda Shares, amounting to US$556 million of which US$120 million comprises accrued interest. In addition, Glencore has acquired shareholder loans owed to the Fleurette group by Mutanda Mining Sarl in the amount of US$130 million.
Accordingly, the aggregate cash consideration payable by the Glencore group in respect of the transactions is US$534 million.
In addition, Glencore has acquired a further 15,325,000 shares in Katanga Mining Limited (“Katanga”), corresponding to an approximate 0.8% stake, which were held as the security for a loan provided to Ruwenzori Limited, a member of the Fleurette group, in connection with Ruwenzori’s acquisition of 25,000,000 shares in Nikanor PLC which were issued as part of a private placement. Nikanor PLC subsequently merged with Katanga and the shares were exchanged for shares in Katanga.
Glencore now owns 100% of the shares in Mutanda and approximately 86.33% of the shares in Katanga.
The transactions (taken together) constitute a smaller related party transaction as defined in Listing Rule 11.1.10 and Glencore has accordingly obtained written confirmation from a sponsor that the terms of the transactions with Fleurette and its affiliates are fair and reasonable as far as the shareholders of Glencore are concerned.
It is anticipated that the Company’s existing cash balances, cash flow from operations, existing credit facilities and advances from Glencore will be sufficient to fund the operations, capital expenditure, the WOL Project and the Power Project (refer to note 20), for the next twelve months. Glencore has indicated it will provide or procure the additional funding required while the Company continues the planned investment in ongoing processing plant upgrades, the waste stripping at the KOV and Mashamba East Open Pits and any other operating activities.
Katanga Mining Limited (“Katanga” or the “Company”) is a limited company whose common shares are listed on the Toronto Stock Exchange under the symbol “KAT”. The Company’s registered office address is Suite 300, 204 Black Street, Whitehorse, Yukon, Canada Y1A 2M9.
Katanga's ultimate parent company is Glencore plc (“Glencore”) which owns 86.3% of Katanga's shares through its wholly-owned subsidiary Glencore International AG.
Weighted average number of common shares outstanding: Basic 1,907,380,413 Diluted 1,908,163,407
Katanga, through its 75% owned subsidiary Kamoto Copper Company SA (“KCC”), is engaged in copper and cobalt mining and related activities in the Democratic Republic of Congo (“DRC”). KCC is engaged in the exploration, mining, refurbishment, rehabilitation, development and operation of the Kamoto / Mashamba East mining complex (including “KTO Underground Mine” or “KTO”, “KTE Underground Mine” and “Etang South Underground Mine”), the Kamoto Oliveira Virgule copper and cobalt mine (“KOV Open Pit” or “KOV”), the T17 Mine consisting of “T17 Open Pit” and “T17 Underground Mine”, various oxide open pit resources, the Kamoto Concentrator (“KTC”) and the Luilu Metallurgical Plant (“Luilu”) (collectively, the “Project”), in the DRC. On September 11, 2015, the Company announced the decision to suspend the processing of copper and cobalt during the construction phase of the Whole Ore Leach Project (“WOL Project”). The suspension continued through most of 2017 with copper production resuming on December 11, 2017. Cobalt production resumed on March 7, 2018. The WOL Project includes the construction of optimized copper and cobalt circuits to sustainably produce 300,000 tpa of copper cathode and 40,000 tpa of cobalt contained in hydroxide over life-of-mine (as described in the Company’s technical report filed on System for Electronic Document Analysis (“SEDAR”) on March 31, 2018). This is achieved by adding additional leach capacity at Luilu in order to leach run-of-mine oxide ore directly rather than concentrating the oxide ore at KTC. This is expected to result in improved oxide recoveries, thereby reducing the unit cost of production.
I would like some clarity here and how this litigation may have an adverse affect on a new shareholder.
DRC Litigation Updates
As previously disclosed, on April 20, 2018, the Company's joint venture partner, the Democratic Republic of Congo ("DRC") state-owned company La Générale des Carrières et des Mines ("Gécamines"), in the Company's 75% DRC operating subsidiary Kamoto Copper Company ("KCC"), commenced legal proceedings to dissolve KCC following KCC's failure to address its previously disclosed capital deficiency or, alternatively, if the Court were to provide KCC with a period of time within which to regularize the situation, to request the appointment of an expert to assess and report to the Court on KCC's financial position and its recapitalization plan (the "Capital Deficiency Proceedings").
A hearing before the Kolwezi Commercial Court (the "Kolwezi Court") on the Capital Deficiency Proceedings was initially scheduled to be held in the DRC on May 8, 2018. Prior to the May 8, 2018 hearing, as a precautionary measure, the Company obtained a decision from the Supreme Court of the DRC on May 4, 2018 allowing KCC to challenge the competency of the Kolwezi Court to rule on the Capital Deficiency Proceedings. As a result of the decision of the Supreme Court, the Kolwezi Court concluded on May 8, 2018 that the previously scheduled Capital Deficiency Proceedings should be suspended until after the Supreme Court renders its decision. The date of the first hearing of the Supreme Court was originally scheduled for June 15, 2018 but has been moved to May 18, 2018.TODAY!!
Both prior to and subsequent to the April 20 notice, the Company had sought to negotiate a regularization of the capital deficiency with Gécamines, and the Company would prefer to resolve the capital deficiency through negotiations with Gécamines to achieve a resolution.
Pursuant to an order dated April 30, 2018 from the Kolwezi Court, KCC's Chairman is currently prevented from holding a shareholder or board meeting of KCC in relation to the capital deficiency of KCC. The Company is continuing to assess options for regularizing the deficiency, including the conversion of a portion of existing intercompany debt owed by KCC to the Company (which is eliminated on consolidation) into equity or forgiving a portion of such debt, as well as methods through which the regularization could be achieved, either on KCC’s own initiative or through negotiations with Gécamines. Any such outcome would impact the distribution of future cash flows earned by KCC, which might in turn have a materially adverse impact on the Company but would not be expected to have a material impact on the assets, liabilities and net assets of the Company and would be expected only to result in a shift within equity attributable to shareholders of the Company and non-controlling interests.
Separately, on April 27, 2018, Ventora Development Sasu ("Ventora") a company affiliated with Mr. Dan Gertler, served a freezing order in the DRC against KCC in the amount of US$2.28 billion. As previously disclosed, in December 2017 the United States government designated Mr. Gertler and several of his affiliated companies as Specially Designated Nationals ("SDNs") by way of Executive Order 13818. Ventora alleges that KCC has breached its obligation to make royalty payments to Ventora, by indicating that it will not pay such royalties as a result of Mr. Gertler's designation as a SDN. Ventora asserts that if its claim for breach is upheld it will be entitled to damages of approximately US$2.28 billion, which it alleges is the value of the future royalties due to it under a tripartite royalty agreement between KCC, Gécamines and, Africa Horizons Investment Limited (“AHIL”), another entity affiliated with Mr. Gertler and which Ventora claims has assigned the royalty rights to it. On April 30, 2018, Ventora served an injunction to pay against KCC for a total amount of US$2.86 billion, which includes additional legal fees.
KCC disputes the assignment by AHIL of its rights under the Tripartite Agreement to Ventora and that Ventora has any claim against KCC under such agreement. The Tripartite Agreement is subject to English Law and the exclusive jurisdiction of the English Courts. The Company denies that KCC is in breach of any of its obligations under the Tripartite Agreement and also entirely rejects Ventora’s calculation of the value of the future royalties allegedly owed to Ventora. KCC is vigorously contesting the freezing order and the injunction to pay. On May 1, 2018, KCC obtained temporary injunctive relief from a London Court that prohibits Ventora from taking further action in respect of its claims in the DRC.
The Company continues to assess the impact of the freezing order on KCC’s operations in the DRC. Although the freezing order has not to date had a material impact on KCC's operations, there is a risk that the freezing order and injunction to pay may materially and adversely impact KCC's operations in the future.
Katanga Mining Announces 2018 First Quarter Production and Financial Results May 15, 2018
ZUG, SWITZERLAND, May 14, 2018 – Katanga Mining Limited (TSX: KAT) ("Katanga" or the "Company") today announces its 2018 first quarter production and financial results. Katanga's interim Financial Statements and Management's Discussion and Analysis are available on SEDAR, www.sedar.com.
Production highlights during the three months ended March 31, 2018
Three months ended Mar 31, Dec 31, Mar 31, 2018 2017 2017
Mining
Waste mined tonnes 9,905,100 11,193,159 7,547,604 Ore mined tonnes 836,539 433,169 - Average copper grade % 3.23 2.18 - Contained copper in ore mined tonnes 27,019 9,459 - KTC KITD material processed Dmt 745,983 481,617 348,045 KITD grade % 1.43 1.68 1.26 Open pit ore milled tonnes 878,672 163,211 - Cu grade in ore % 3.92 4.05 - Luilu WOL feed - KITD concentrate Dmt 86,445 13,755 - WOL feed - open pit ore Dmt 819,200 126,471 - Finished copper tonnes 27,677 2,196 - Finished cobalt tonnes 525 - - Unless otherwise specified, all $ amounts referred to in this press release are U.S. dollars.
Commissioning and resumption of production after 2015 suspension
On September 11, 2015, the Company announced the decision to suspend the processing of copper and cobalt during the construction phases of the Whole Ore Leach Project ("WOL Project"). The suspension continued throughout most of 2017 with copper production resuming upon completion of Phase 1 of the WOL Project on December 11, 2017;
Phase 2 construction activities of the WOL Project are progressing according to the 2018 project execution plan. Hot commissioning of the second train of the WOL Project is expected to commence in Q4 2018; The cobalt production section of the plant was commissioned during March 2018 leading to the production of 525 tonnes of cobalt metal contained in hydroxide; and The low-grade solvent extraction train was commissioned and ramped up during Q1 2018, contributing to Q1 2018 production of 27,677 tonnes of copper cathode.
Mining
Waste mined decreased to 9,905,100 tonnes in Q1 2018 from 11,193,159 tonnes in Q4 2017 relating to reduced waste mining activities in 2018 in order to provide sufficient ore availability for the WOL Project;
Ore mined in open pit operations ("KOV Open Pit" and "Mashamba East Open Pit") increased to 836,539 tonnes in Q1 2018 from 433,169 tonnes in Q4 2017. Ore mined in combined open pit operations in Q1 2018 had an average copper grade of 3.23%, representing contained copper of 27,019 tonnes. Ore mined in the KOV Open Pit in Q4 2017 had an average copper grade of 2.18%, representing contained copper of 9,459 tonnes.
No ore was mined at the Mashamba East Open Pit in 2017.
In Q1 2018, the Company re-commissioned for use in the KOV Open Pit: Two CAT 793D trucks for increased hauling capacity; and One CAT D9R dozer related to the ongoing mining ramp-up.
In Q1 2018, the Company commissioned: Two CAT 745 ADT lube trucks for increased ancillary work; and One CAT CS74B compactor for road and access maintenance.
Processing
Open pit ore milled and Kamoto Interim Tailings Dam ("KITD") material processed at the Kamoto Concentrator ("KTC") during Q1 2018 increased over Q4 2017 as the Luilu Metallurgical Plant ("Luilu") ramp-up and commissioning progressed;
Finished copper increased to 27,677 tonnes in Q1 2018 from 2,196 tonnes in Q4 2017. Cobalt contained in hydroxide increased to 525 tonnes in Q1 2018 from nil tonnes in Q4 2017. Both increases related to the WOL commissioning and ramp-up plan;
In Q1 2018, the Company re-commissioned the following assets at KTC:
CM5 for milling capacity, which is currently milling at design capacity; Three flotation trains for additional flotation capacity; and One CAT D8R dozer for stockpile management. In Q1 2018, the Company commissioned the following assets at KTC: Three CAT 745 ADT's for B3 crusher feed and ore management; One CAT 992K for IPC crusher feed; and One CAT 320D excavator for B3 crusher feed and ore management. In Q1 2018, the Company commissioned the following at Luilu in order to improve throughputs and recoveries: A low grade solvent extraction circuit; and A cobalt production plant, consisting of impurity removal and cobalt precipitation sections.
During Q1 2018, the Company completed the following on the WOL Project, Acid Plant and Cobalt Projects (as defined below):
A pre-leach train, expected to result in the more efficient use of sulphuric acid; The cobalt circuit was commissioned, with the first cobalt hydroxide produced in March 2018;
The construction of Phase 2 of the WOL Project started in January 2018. Progress was made on the high-grade clarifier, receiving thickener and the post leach clarifier, which form the basis for copper production. It is expected that Phase 2 construction will be completed by Q4 2018; Progress according to the project schedule is being made on the cobalt debottlenecking project and cobalt dryers aimed at increasing potential maximum cobalt production capacity to 40,000 tonnes per annum by Q1 2019 (the “Cobalt Projects”); and Design work progressed during Q1 2018 on the Acid Plant. The Acid Plant is a sulphuric acid and sulphur dioxide production plant to be constructed at KCC, which is anticipated to improve the reliability (compared to imports) of the supply of these reagents to the WOL Project processing circuit. The Acid Plant is designed to produce 1,900 tonnes per day of sulphuric acid, 200 tonnes per day of sulphur dioxide and net 17MW of co-generated power. Acid production is expected to commence in Q3 2019.
Financial highlights during the three months ended March 31, 2018
Three months ended All figures USD Mar 31, Dec 31, Mar 31, 2018 2017 2017 Financial Total sales* $'000 146,743 7,696 (2) - Including net provisional pricing adjustments* $'000 (2,197) 265 (2) Total cost of sales*** $'000 (178,348) (4,289) - Gross (loss) profit*** $'000 (31,605) 3,407 (2) Net loss attributable to shareholders $'000 (77,924) (230,657) (100,923) C1 cash costs** $/lb 2.54 - - Cash flows generated from (used in) operating activities $'000 35,431 (71,844) (17,330) EBITDA** $'000 16,359 (187,587) (52,466) * Negative price and sales amounts are a result of adverse repricing and marked-to-market ("M2M") adjustments. ** Refer to item 22 in the MD&A; Non-IFRS financial measures. *** Since the resumption of production, expenses previously disclosed in operating expenses have been reclassified to cost of sales.
Review of 2018 First Quarter Results
Profitability during Q1 2018, when compared to Q4 2017, was affected by the following:
Total sales increased to $146.7 million in Q1 2018 from $7.7 million Q4 2017 relating to a 22,189 tonne increase in copper cathode sold;
Cost of sales increased to $178.3 million in Q1 2018 from $4.3 million in Q4 2017 relating to increased sales volumes;
EBITDA increased to a gain of $16.4 million in Q1 2018 from a loss of $187.6 million in Q4 2017 related to increased revenue generated in the period and lower cost of sales as described above;
Depreciation increased to $54.6 million in Q1 2018 from $31.2 million in Q4 2017 relating to the volume related depreciation impact on assets being amortized on a units of production basis; and Net loss attributable to shareholders decreased to $77.9 million in Q1 2018 from $230.7 million in Q4 2017.
Cash flow from operating activities increased to $35.4 million in Q1 2018 from cash outflow from operations of $71.8 million in Q4 2017. The increase in cash generation was driven by the increase in revenue due to production ramp-up.
DRC Litigation Updates
As previously disclosed, on April 20, 2018, the Company's joint venture partner, the Democratic Republic of Congo ("DRC") state-owned company La Générale des Carrières et des Mines ("Gécamines"), in the Company's 75% DRC operating subsidiary Kamoto Copper Company ("KCC"), commenced legal proceedings to dissolve KCC following KCC's failure to address its previously disclosed capital deficiency or, alternatively, if the Court were to provide KCC with a period of time within which to regularize the situation, to request the appointment of an expert to assess and report to the Court on KCC's financial position and its recapitalization plan (the "Capital Deficiency Proceedings").
A hearing before the Kolwezi Commercial Court (the "Kolwezi Court") on the Capital Deficiency Proceedings was initially scheduled to be held in the DRC on May 8, 2018. Prior to the May 8, 2018 hearing, as a precautionary measure, the Company obtained a decision from the Supreme Court of the DRC on May 4, 2018 allowing KCC to challenge the competency of the Kolwezi Court to rule on the Capital Deficiency Proceedings. As a result of the decision of the Supreme Court, the Kolwezi Court concluded on May 8, 2018 that the previously scheduled Capital Deficiency Proceedings should be suspended until after the Supreme Court renders its decision. The date of the first hearing of the Supreme Court was originally scheduled for June 15, 2018 but has been moved to May 18, 2018.TODAY!!
Both prior to and subsequent to the April 20 notice, the Company had sought to negotiate a regularization of the capital deficiency with Gécamines, and the Company would prefer to resolve the capital deficiency through negotiations with Gécamines to achieve a resolution.
Pursuant to an order dated April 30, 2018 from the Kolwezi Court, KCC's Chairman is currently prevented from holding a shareholder or board meeting of KCC in relation to the capital deficiency of KCC. The Company is continuing to assess options for regularizing the deficiency, including the conversion of a portion of existing intercompany debt owed by KCC to the Company (which is eliminated on consolidation) into equity or forgiving a portion of such debt, as well as methods through which the regularization could be achieved, either on KCC’s own initiative or through negotiations with Gécamines. Any such outcome would impact the distribution of future cash flows earned by KCC, which might in turn have a materially adverse impact on the Company but would not be expected to have a material impact on the assets, liabilities and net assets of the Company and would be expected only to result in a shift within equity attributable to shareholders of the Company and non-controlling interests.
Separately, on April 27, 2018, Ventora Development Sasu ("Ventora") a company affiliated with Mr. Dan Gertler, served a freezing order in the DRC against KCC in the amount of US$2.28 billion. As previously disclosed, in December 2017 the United States government designated Mr. Gertler and several of his affiliated companies as Specially Designated Nationals ("SDNs") by way of Executive Order 13818. Ventora alleges that KCC has breached its obligation to make royalty payments to Ventora, by indicating that it will not pay such royalties as a result of Mr. Gertler's designation as a SDN. Ventora asserts that if its claim for breach is upheld it will be entitled to damages of approximately US$2.28 billion, which it alleges is the value of the future royalties due to it under a tripartite royalty agreement between KCC, Gécamines and, Africa Horizons Investment Limited (“AHIL”), another entity affiliated with Mr. Gertler and which Ventora claims has assigned the royalty rights to it. On April 30, 2018, Ventora served an injunction to pay against KCC for a total amount of US$2.86 billion, which includes additional legal fees.
KCC disputes the assignment by AHIL of its rights under the Tripartite Agreement to Ventora and that Ventora has any claim against KCC under such agreement. The Tripartite Agreement is subject to English Law and the exclusive jurisdiction of the English Courts. The Company denies that KCC is in breach of any of its obligations under the Tripartite Agreement and also entirely rejects Ventora’s calculation of the value of the future royalties allegedly owed to Ventora. KCC is vigorously contesting the freezing order and the injunction to pay. On May 1, 2018, KCC obtained temporary injunctive relief from a London Court that prohibits Ventora from taking further action in respect of its claims in the DRC.
The Company continues to assess the impact of the freezing order on KCC’s operations in the DRC. Although the freezing order has not to date had a material impact on KCC's operations, there is a risk that the freezing order and injunction to pay may materially and adversely impact KCC's operations in the future.
Katanga Mining Announces 2018 First Quarter Production and Financial Results May 15, 2018
ZUG, SWITZERLAND, May 14, 2018 – Katanga Mining Limited (TSX: KAT) ("Katanga" or the "Company") today announces its 2018 first quarter production and financial results. Katanga's interim Financial Statements and Management's Discussion and Analysis are available on SEDAR, www.sedar.com.
Production highlights during the three months ended March 31, 2018
Three months ended Mar 31, Dec 31, Mar 31, 2018 2017 2017
Mining
Waste mined tonnes 9,905,100 11,193,159 7,547,604 Ore mined tonnes 836,539 433,169 - Average copper grade % 3.23 2.18 - Contained copper in ore mined tonnes 27,019 9,459 - KTC KITD material processed Dmt 745,983 481,617 348,045 KITD grade % 1.43 1.68 1.26 Open pit ore milled tonnes 878,672 163,211 - Cu grade in ore % 3.92 4.05 - Luilu WOL feed - KITD concentrate Dmt 86,445 13,755 - WOL feed - open pit ore Dmt 819,200 126,471 - Finished copper tonnes 27,677 2,196 - Finished cobalt tonnes 525 - - Unless otherwise specified, all $ amounts referred to in this press release are U.S. dollars.
Commissioning and resumption of production after 2015 suspension
On September 11, 2015, the Company announced the decision to suspend the processing of copper and cobalt during the construction phases of the Whole Ore Leach Project ("WOL Project"). The suspension continued throughout most of 2017 with copper production resuming upon completion of Phase 1 of the WOL Project on December 11, 2017;
Phase 2 construction activities of the WOL Project are progressing according to the 2018 project execution plan. Hot commissioning of the second train of the WOL Project is expected to commence in Q4 2018; The cobalt production section of the plant was commissioned during March 2018 leading to the production of 525 tonnes of cobalt metal contained in hydroxide; and The low-grade solvent extraction train was commissioned and ramped up during Q1 2018, contributing to Q1 2018 production of 27,677 tonnes of copper cathode.
Mining
Waste mined decreased to 9,905,100 tonnes in Q1 2018 from 11,193,159 tonnes in Q4 2017 relating to reduced waste mining activities in 2018 in order to provide sufficient ore availability for the WOL Project;
Ore mined in open pit operations ("KOV Open Pit" and "Mashamba East Open Pit") increased to 836,539 tonnes in Q1 2018 from 433,169 tonnes in Q4 2017. Ore mined in combined open pit operations in Q1 2018 had an average copper grade of 3.23%, representing contained copper of 27,019 tonnes. Ore mined in the KOV Open Pit in Q4 2017 had an average copper grade of 2.18%, representing contained copper of 9,459 tonnes.
No ore was mined at the Mashamba East Open Pit in 2017.
In Q1 2018, the Company re-commissioned for use in the KOV Open Pit: Two CAT 793D trucks for increased hauling capacity; and One CAT D9R dozer related to the ongoing mining ramp-up.
In Q1 2018, the Company commissioned: Two CAT 745 ADT lube trucks for increased ancillary work; and One CAT CS74B compactor for road and access maintenance.
Processing
Open pit ore milled and Kamoto Interim Tailings Dam ("KITD") material processed at the Kamoto Concentrator ("KTC") during Q1 2018 increased over Q4 2017 as the Luilu Metallurgical Plant ("Luilu") ramp-up and commissioning progressed;
Finished copper increased to 27,677 tonnes in Q1 2018 from 2,196 tonnes in Q4 2017. Cobalt contained in hydroxide increased to 525 tonnes in Q1 2018 from nil tonnes in Q4 2017. Both increases related to the WOL commissioning and ramp-up plan;
In Q1 2018, the Company re-commissioned the following assets at KTC:
CM5 for milling capacity, which is currently milling at design capacity; Three flotation trains for additional flotation capacity; and One CAT D8R dozer for stockpile management. In Q1 2018, the Company commissioned the following assets at KTC: Three CAT 745 ADT's for B3 crusher feed and ore management; One CAT 992K for IPC crusher feed; and One CAT 320D excavator for B3 crusher feed and ore management. In Q1 2018, the Company commissioned the following at Luilu in order to improve throughputs and recoveries: A low grade solvent extraction circuit; and A cobalt production plant, consisting of impurity removal and cobalt precipitation sections.
During Q1 2018, the Company completed the following on the WOL Project, Acid Plant and Cobalt Projects (as defined below):
A pre-leach train, expected to result in the more efficient use of sulphuric acid; The cobalt circuit was commissioned, with the first cobalt hydroxide produced in March 2018;
The construction of Phase 2 of the WOL Project started in January 2018. Progress was made on the high-grade clarifier, receiving thickener and the post leach clarifier, which form the basis for copper production. It is expected that Phase 2 construction will be completed by Q4 2018; Progress according to the project schedule is being made on the cobalt debottlenecking project and cobalt dryers aimed at increasing potential maximum cobalt production capacity to 40,000 tonnes per annum by Q1 2019 (the “Cobalt Projects”); and Design work progressed during Q1 2018 on the Acid Plant. The Acid Plant is a sulphuric acid and sulphur dioxide production plant to be constructed at KCC, which is anticipated to improve the reliability (compared to imports) of the supply of these reagents to the WOL Project processing circuit. The Acid Plant is designed to produce 1,900 tonnes per day of sulphuric acid, 200 tonnes per day of sulphur dioxide and net 17MW of co-generated power. Acid production is expected to commence in Q3 2019.
Financial highlights during the three months ended March 31, 2018
Three months ended All figures USD Mar 31, Dec 31, Mar 31, 2018 2017 2017 Financial Total sales* $'000 146,743 7,696 (2) - Including net provisional pricing adjustments* $'000 (2,197) 265 (2) Total cost of sales*** $'000 (178,348) (4,289) - Gross (loss) profit*** $'000 (31,605) 3,407 (2) Net loss attributable to shareholders $'000 (77,924) (230,657) (100,923) C1 cash costs** $/lb 2.54 - - Cash flows generated from (used in) operating activities $'000 35,431 (71,844) (17,330) EBITDA** $'000 16,359 (187,587) (52,466) * Negative price and sales amounts are a result of adverse repricing and marked-to-market ("M2M") adjustments. ** Refer to item 22 in the MD&A; Non-IFRS financial measures. *** Since the resumption of production, expenses previously disclosed in operating expenses have been reclassified to cost of sales.
Review of 2018 First Quarter Results
Profitability during Q1 2018, when compared to Q4 2017, was affected by the following:
Total sales increased to $146.7 million in Q1 2018 from $7.7 million Q4 2017 relating to a 22,189 tonne increase in copper cathode sold;
Cost of sales increased to $178.3 million in Q1 2018 from $4.3 million in Q4 2017 relating to increased sales volumes;
EBITDA increased to a gain of $16.4 million in Q1 2018 from a loss of $187.6 million in Q4 2017 related to increased revenue generated in the period and lower cost of sales as described above;
Depreciation increased to $54.6 million in Q1 2018 from $31.2 million in Q4 2017 relating to the volume related depreciation impact on assets being amortized on a units of production basis; and Net loss attributable to shareholders decreased to $77.9 million in Q1 2018 from $230.7 million in Q4 2017.
Cash flow from operating activities increased to $35.4 million in Q1 2018 from cash outflow from operations of $71.8 million in Q4 2017. The increase in cash generation was driven by the increase in revenue due to production ramp-up.
DRC Litigation Updates
As previously disclosed, on April 20, 2018, the Company's joint venture partner, the Democratic Republic of Congo ("DRC") state-owned company La Générale des Carrières et des Mines ("Gécamines"), in the Company's 75% DRC operating subsidiary Kamoto Copper Company ("KCC"), commenced legal proceedings to dissolve KCC following KCC's failure to address its previously disclosed capital deficiency or, alternatively, if the Court were to provide KCC with a period of time within which to regularize the situation, to request the appointment of an expert to assess and report to the Court on KCC's financial position and its recapitalization plan (the "Capital Deficiency Proceedings").
A hearing before the Kolwezi Commercial Court (the "Kolwezi Court") on the Capital Deficiency Proceedings was initially scheduled to be held in the DRC on May 8, 2018. Prior to the May 8, 2018 hearing, as a precautionary measure, the Company obtained a decision from the Supreme Court of the DRC on May 4, 2018 allowing KCC to challenge the competency of the Kolwezi Court to rule on the Capital Deficiency Proceedings. As a result of the decision of the Supreme Court, the Kolwezi Court concluded on May 8, 2018 that the previously scheduled Capital Deficiency Proceedings should be suspended until after the Supreme Court renders its decision. The date of the first hearing of the Supreme Court was originally scheduled for June 15, 2018 but has been moved to May 18, 2018.TODAY!!
Both prior to and subsequent to the April 20 notice, the Company had sought to negotiate a regularization of the capital deficiency with Gécamines, and the Company would prefer to resolve the capital deficiency through negotiations with Gécamines to achieve a resolution.
Pursuant to an order dated April 30, 2018 from the Kolwezi Court, KCC's Chairman is currently prevented from holding a shareholder or board meeting of KCC in relation to the capital deficiency of KCC. The Company is continuing to assess options for regularizing the deficiency, including the conversion of a portion of existing intercompany debt owed by KCC to the Company (which is eliminated on consolidation) into equity or forgiving a portion of such debt, as well as methods through which the regularization could be achieved, either on KCC’s own initiative or through negotiations with Gécamines. Any such outcome would impact the distribution of future cash flows earned by KCC, which might in turn have a materially adverse impact on the Company but would not be expected to have a material impact on the assets, liabilities and net assets of the Company and would be expected only to result in a shift within equity attributable to shareholders of the Company and non-controlling interests.
Separately, on April 27, 2018, Ventora Development Sasu ("Ventora") a company affiliated with Mr. Dan Gertler, served a freezing order in the DRC against KCC in the amount of US$2.28 billion. As previously disclosed, in December 2017 the United States government designated Mr. Gertler and several of his affiliated companies as Specially Designated Nationals ("SDNs") by way of Executive Order 13818. Ventora alleges that KCC has breached its obligation to make royalty payments to Ventora, by indicating that it will not pay such royalties as a result of Mr. Gertler's designation as a SDN. Ventora asserts that if its claim for breach is upheld it will be entitled to damages of approximately US$2.28 billion, which it alleges is the value of the future royalties due to it under a tripartite royalty agreement between KCC, Gécamines and, Africa Horizons Investment Limited (“AHIL”), another entity affiliated with Mr. Gertler and which Ventora claims has assigned the royalty rights to it. On April 30, 2018, Ventora served an injunction to pay against KCC for a total amount of US$2.86 billion, which includes additional legal fees.
KCC disputes the assignment by AHIL of its rights under the Tripartite Agreement to Ventora and that Ventora has any claim against KCC under such agreement. The Tripartite Agreement is subject to English Law and the exclusive jurisdiction of the English Courts. The Company denies that KCC is in breach of any of its obligations under the Tripartite Agreement and also entirely rejects Ventora’s calculation of the value of the future royalties allegedly owed to Ventora. KCC is vigorously contesting the freezing order and the injunction to pay. On May 1, 2018, KCC obtained temporary injunctive relief from a London Court that prohibits Ventora from taking further action in respect of its claims in the DRC.
The Company continues to assess the impact of the freezing order on KCC’s operations in the DRC. Although the freezing order has not to date had a material impact on KCC's operations, there is a risk that the freezing order and injunction to pay may materially and adversely impact KCC's operations in the future.
Well...now that Glencore wiped out the small shareholders of Katanga with their BS story from Congolese politics...they will continue ramping up their operation and expanding the copper and cobalt refinement facilities. If you didn't have a chance to buy a while back when it was selling at .50 this was your opportunity to get in. This will be headed to $5 before the end of 2019...maybe sooner.
They became operational on December 11th. News Release pasted below
Katanga Mining Announces Commissioning of the Core of the First Train of Whole Ore Leach Plant and Provides an Operational Update December 11, 2017 ZUG, SWITZERLAND, December 11th, 2017 – Katanga Mining Limited (TSX: KAT) (“Katanga” or the “Company”) today announces that it has successfully completed the hot commissioning of the core of the first train of its new whole ore leach (“WOL”) processing facility at its subsidiary Kamoto Copper Company’s (“KCC”) copper and cobalt mine in Lualaba Province, DRC. The Luilu site where the WOL and electro-winning plants of KCC are located, successfully produced its first copper cathode on December 11th, 2017. Copper and cobalt production at KCC has been suspended since September 2015 pending the construction of the WOL project. A progressive ramp-up and commissioning of the remainder of the first train is expected to follow over the ensuing three months, with the objective of achieving full capacity on the first train by the end of Q1 2018. Johnny Blizzard, Chief Executive Officer of Katanga, commented: “We are very pleased to have met our anticipated budget and timetable for commissioning the first train of our new plant and are optimistic that the tangible improvements from using a whole ore leach processing circuit will be seen in the near future. We look forward to ramping up to full production capacity of the first train. The construction of the second train of the WOL plant is also on schedule and budget and hot commissioning is still expected to commence in H2 2018.” Separately, the Company announces today that its board of directors (“Board”) has approved capital expenditure budgets for the engineering and construction of an upgraded cobalt processing plant (the “Cobalt Debottlenecking Project”) and a sulphuric acid production plant at KCC, as described below. The Board approved US$15.8 million in capital expenditures to engineer and construct a facility designed to reduce throughput bottlenecks in its existing cobalt processing circuit at KCC to align with the life of mine cobalt production plan of 30,000 tonnes per annum average annual cobalt production. The Board also approved US$49 million for cobalt product dryers as part of the cobalt production circuit. The hot commissioning of the projects are expected to commence in Q4 2018. Subject to the successful completion of the second train of the WOL plant and of the Cobalt Debottlenecking Project, both of which hot commissioning is expected to commence in H2 2018, the Company anticipates the following production forecast for the next three financial years, at the end of which period, it expects to have a first quartile cost position within the global copper industry cost curve: Commodity Units Production Guidance FY 2018 FY 2019 FY 2020 Copper kt 150 300 300 Cobalt kt 11 34 32 The Board also approved US$237 million in capital expenditure spread over 2018 and 2019 to construct a Sulphuric Acid and Sulphur Dioxide production plant at KCC. This will improve the reliability of the supply of these reagents to the WOL processing circuit. The acid plant is designed to produce 1,900 tpd of Sulphuric Acid, 200 tpd of Suphur Dioxide and 17MW co-generated power. This will reduce KCC’s reliance on imported volumes of reagents brought to the mine through various international borders. The Internal Rate Of Return (IRR) for the Sulphuric Acid and Sulphur Dioxide production plant project is expected to be approximately 60%. The hot commissioning of this plant is expected to commence in H2 2019.
Katanga Mining Limited operates a large-scale copper-cobalt project with substantial high-grade mineral reserves and integrated metallurgical operations in the Democratic Republic of Congo (DRC).
Our single-site operation, which comprises brownfield assets and new facilities under construction, will have one of the lowest unit production costs in the world, net of by-product credits.
The January 2008 merger with Nikanor PLC, whose adjacent concessions had previously been part of the same mine complex, has consolidated our leadership position in the region and is expected to generate significant operating and financial synergies.
Katanga holds a 75% stake in two joint ventures with Gécamines, a state-owned mining company in the DRC.
We are committed to the socio-economic development of the DRC and the communities surrounding our operations, and place sustainable development as integral to the way we do business.
Katanga is listed on the Toronto Stock Exchange under the symbol KAT.
The company operates a large-scale copper-cobalt mine complex in the Democratic Republic of Congo (DRC) through two joint ventures, Kamoto Copper Company (KCC) and DRC Copper and Cobalt Project (DCP). According to the company, it has the potential to become Africa’s largest copper producer and the world’s largest cobalt producer. World’s largest of anything is always a tantalizing opportunity. Estimates put the Democratic Republic of Congo at having 10% of the world’s copper and 50% of its cobalt.
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