News releases 2018
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.
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