Katanga ramps up DRC copper, cobalt production as legal woes mount

VANCOUVER (miningweekly.com) – Commodity giant Glencore’s majority owned and publicly traded Democratic Republic of Congo- (DRC-) focused copper/cobalt unit Katanga Mining is ramping up output after resuming production from the Phase 1 whole ore leaching project on December 11, the company reported on Tuesday.

Katanga will soon become the world’s largest producer of the energy metal cobalt, which has enjoyed a 90% price run in the past 12 months, as demand from lithium-ion battery producing megafactories keeps accelerating to meet the growing demand from the burgeoning electric vehicle market.

For the three months ended March 31, Katanga produced 27 677 t of copper, up from 2 196 t.

The company reported that openpit ore milled and Kamoto Interim Tailings Dam (KITD) material processed at the Kamoto Concentrator (KTC) during the quarter increased over the prior period, as the Luilu metallurgical plant ramp-up and commissioning progressed.

Ore mined in openpit operations increased to 836 539 t in the period, up from 433 169 t in the previous quarter, with the grades rising to 3.23% copper, up from 2.18% in the prior period.

Katanga reported a narrower net loss attributable to shareholders of $77.9-million in the first quarter, down from a net loss of $230.7-million in the fourth quarter of 2017.

Cash flow from operating activities increased to $35.4-million, from cash outflow from operations of $71.8-million in the fourth quarter. The increase in cash generation was driven by the increase in revenue on the back of the production ramp-up.

LEGAL TROUBLES
The Commercial Court in Kolwezi, in south-eastern Congo, had earlier this month ordered the suspension of legal action brought by State mining firm La Generale des Carrieres et des Mines (Gecamines) seeking the dissolution of Kamoto Copper Company (KCC) over what it said was Glencore’s failure to address a capital shortfall at the company for more than ten years.

The suspension will remain in force until a June 15 ruling by the Supreme Court on the local court’s competence to hear the case. The date of the first hearing of the Supreme Court has been moved to May 18.

KCC is a joint venture between Katanga, which owns 75% of the company, and Gecamines. Glencore, based in Baar, Switzerland, owns more than 86% of Katanga.

KCC’s total debt stood at $9.2-billion at the end of December, leading to a $4.2-billion shortfall in working capital that Katanga was required by Congolese law to resolve before January.

KCC only resumed production in December after a two-year hiatus, during which it invested in new processing facilities. Gecamines has a free carried interest in the operation.

Glencore expects KCC to produce as much as 300 000 t of copper and 34 000 t of cobalt in 2019, which would make it the DRC’s biggest copper mine and the world’s largest producer of cobalt. Glencore accounts for more than a quarter of the world's cobalt output, most of it from the DRC, which itself is the source of 60% of global supplies. Any disruption could push up cobalt prices from already historic highs of $90 000/t.

Meanwhile, in a separate court action, Israeli billionaire Dan Gertler and affiliated companies are demanding $2.28-billion in royalty payments from Katanga. Katanga has refused to pay royalties owing after the US government in December designated Gertler and several of his affiliated companies as ‘specially designated nationals’ under Executive Order 13818.

On April 27, Glencore said its DRC mining subsidiaries had been served freezing orders for alleged unpaid royalties of nearly $3-billion by Ventora Development, a company affiliated with Gertler. Ventora is seeking $695-million in unpaid and future royalties from Glencore's unit Mutanda Mining and $2.28-billion from KCC.

Glencore, which disputes the amounts, said Mutanda Mining and KCC would contest the freezing order and any subsequent proceedings. Glencore on May 1 won a temporary injunction against Gertler over the alleged unpaid royalties.

Further hearings are expected in London on May 11 and in Congo on May 8. On May 1, 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 advised that it 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, the company warned on Tuesday.

Further, Katanga’s relationship with Gecamines has been further strained over the new mining code that raises taxes and royalty payments. Parent firm Glencore and other foreign miners have vehemently opposed the proposed changes and have presented proposals to temper the new demands, which the government had, to date, rejected.

Meanwhile, 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. This had prompted the company to restate its financial results in November, and a reshuffle of the board.

Katanga said in its annual report that it is continuing to cooperate with the probe, which may result in the prosecution of the company or its personnel.

Katanga’s TSX-listed equity has gained more than 1 220% in 2017, only to lose about 50% since the start of 2018, and dropping nearly 60% alone on April 20, when it first revealed the KCC dissolution proceedings. On Tuesday, however, the stock regained about 5.1% in value, to change hands at C$1.03 apiece.