Katanga Mining Announces 2018 First Quarter Production and Financial Results

 

ZUG, Switzerland, May 14, 2018 /CNW/ - 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

 

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

 

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.

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 (the "Tripartite 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.

Qualified Person

Tahir Usmani, PEng, APEGA, Chief Mine Planning Engineer of KCC, has reviewed and approved the scientific and technical disclosure in this news release. Mr. Usmani is a "qualified person" for the purposes of NI 43-101 - Standards of Disclosure for Mineral Projects.

About Katanga Mining Limited

Katanga Mining Limited operates a major mine complex in the Democratic Republic of Congo producing refined copper and cobalt. The Company has the potential to become Africa's largest copper producer and the world's largest cobalt producer. Katanga is listed on the Toronto Stock Exchange under the symbol KAT.

Forward Looking Statements

This press release may contain forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. This press release may contain forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward looking statements in this press release include: the proposed timeline for construction and commissioning of the WOL Project Phase 2, Acid Plant and cobalt debottlenecking facility; the outcome of the DRC Supreme Court proceeding on the legitimate suspicion matter; the outcome of any Kolwezi Court proceedings on the dissolution proceedings; the Company's intention to find a mutually agreeable resolution of the disputes with Gécamines which it hopes will revitalize the partnership between KCC and Gécamines and provide significant benefits to Gécamines and all stakeholders in the DRC; and the impact of the freezing order obtained by Ventora on KCC.

All forward-looking statements reflect the Company's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted in these forward-looking statements. All of the Company's forward-looking statements are qualified by the assumptions that are stated or inherent in such forward-looking statements, including the assumptions listed below. Although the Company believes that these assumptions are reasonable, this list is not exhaustive of factors that may affect any of the forward-looking statements. The key assumptions that have been made in connection with the forward-looking statements include the    following: there being no significant disruptions affecting the operations of the Company whether due to legal disputes, judicial action, labour disruptions, supply disruptions, power disruptions, rollout of new equipment, damage to equipment or otherwise; permitting, development, operations, expansion and acquisitions at KCC being consistent with the Company's current expectations; the impact of the freezing order on the Company's operations, legal issues surrounding the purported assignment of certain rights under an agreement between KCC, Gécamines and Africa Horizons Investment Limited to Ventora, and the outcome in DRC courts of these and related matters, continued recognition of the Company's mining concessions and other assets, rights, titles and interests in the DRC; political and legal developments in the DRC being consistent with its current expectations; the continued provision or procurement of additional funding from Glencore for operations, the completion of the T17 Underground Mine, Phase 2 of the WOL Project and the Power Project (as defined in the Company's Annual Information Form for the year ended December 31, 2017 dated March 31, 2018); new equipment performs to expectations; the exchange rate between the US dollar, South African rand, British pounds, Canadian dollar, Swiss franc, Congolese franc and Euro being approximately consistent with current levels; certain price assumptions for copper and cobalt; prices for diesel, natural gas, fuel oil, electricity and other key supplies being approximately consistent with current levels; production, operating expenses and cost of sales forecasts for the Company meeting expectations; the accuracy of the current ore reserve and mineral resource estimates of the Company (including but not limited to ore tonnage and ore grade estimates); and labour and material costs increasing on a basis consistent with the Company's current expectations.

Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others: the outcome of the legal proceedings between Gécamines and the Company and between Ventora and the Company being uncertain and subject to the discretion of the applicable Court, which is beyond the control of the Company; and the breakdown of negotiations or the failure to reach a mutually beneficial resolution to the matters in dispute. Although Katanga has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except in accordance with applicable securities laws.

SOURCE Katanga Mining Limited

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