Cobalt Miner Katanga Mining Plunges on Legal Battle in DRC

- April 23rd, 2018

State-owned mining company Gecamines has taken steps to dissolve Kamoto Copper Company, which is 75-percent owned by Katanga.

Shares of Glencore’s (LSE:GLEN) Katanga Mining (TSX:KAT) fell almost 50 percent on Monday (April 23) after threats of legal proceedings in the Democratic Republic of Congo (DRC) hurt the cobalt miner.

Gecamines has taken steps to dissolve Kamoto Copper Company, which is 75-percent owned by Katanga.

An ongoing capital shortfall worth billions is the main reason behind the move, said Gecamines, which owns the remaining 25 percent of Kamoto. The state-owned miner has started legal proceedings against Katanga, with a court hearing scheduled for May 8.

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“Gécamines appears to be seeking a meaningful capital injection into KCC (Kamoto Copper Company) which would lower the entity’s debt burden and unlock value for the state-owned miner,” Macquarie analyst said in a note to clients.

Toronto-listed 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 cashflow from the project.

Glencore has said Katanga has the potential to become Africa’s largest copper producer and the world’s largest cobalt producer. The DRC is the top cobalt-producing country, accounting for more than 50 percent of world output.

“Katanga should be one of the best assets in the world,” said Ben Davis, an analyst at Liberum Capital in London. “Instead, it has been a perennial disappointment for Glencore and the situation looks like it is set to continue.”

Katanga is expected to produce as much as 39,000 tonnes of cobalt this year, up from 27,400 tonnes last year, as production ramps up after two years of idle operations. Demand for cobalt, a key element in the lithium-ion batteries used to power electric cars, is expected to surge in the coming years.

Earlier this year, Katanga, which is owned 86 percent by Glencore, was also hurt when the DRC signed into law a new mining code that will increase taxes and royalties for metals including cobalt.

Gecamines also said at the time that it was looking to gain more control of the cobalt market and was set to renegotiate contracts with its mining partners this year, as the existing deals do not give the state “a sufficient share” of the nation’s mineral wealth.

On Monday, Katanga mining closed down 48.6 percent in Toronto at C$0.92.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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