Katanga Mining Announces Settlement of DRC Legal Dispute with G?(C)camines and Agreement for the Resolution of KCC Capital Deficiency

 

ZUG, Switzerland, June 12, 2018 /CNW/ - Katanga Mining Limited (TSX: KAT) ("Katanga" or the "Company") announces today that, together with its 75% operating subsidiary in the Democratic Republic of the Congo ("DRC"), Kamoto Copper Company ("KCC"), it has entered into an agreement (the "Settlement Agreement") with (amongst others) the Company's joint venture partner, DRC state-owned company La Générale des Carrières et des Mines ("Gécamines") to terminate the legal proceedings brought by Gécamines in the DRC courts and resolve KCC's previously disclosed capital deficiency.

Pursuant to the Settlement Agreement, amongst other things, Gécamines, Katanga and KCC have agreed on a recapitalization plan that will allow the reconstruction of the net equity of KCC and satisfy the requirements provided for by DRC corporate law, subject to the satisfaction of certain conditions precedent. The recapitalization plan will be formally effected on the date that KCC completes the necessary corporate proceedings to approve the Settlement Agreement. These proceedings are expected to be completed on a date within the next two weeks (the "Closing Date"). On the Closing Date, Gécamines will withdraw the legal proceedings it commenced on April 20, 2018 in the Kolwezi Commercial Court (the "Kolwezi Court") to dissolve KCC, and certain other outstanding commercial matters between the parties will be resolved.

"We are pleased to have reached an agreement to resolve the KCC capitalization issues and preserve and revitalize the partnership between KCC and Gécamines," commented Hugh Stoyell, Non-Executive Chairman of the Board of Directors of the Company. "Throughout the discussions and negotiations that resulted in this settlement, we have been well supported by our majority shareholder Glencore plc, and we look forward to the next phase of development at KCC, which we believe will provide significant benefits to Katanga and its stakeholders, as well as Gécamines and all stakeholders in the DRC."

Details of the Settlement

Settlement Agreement Overview

The following are the key terms of the Settlement Agreement, which are described in further detail below:

• a one-time Settlement Payment (as defined below) by the Company to Gécamines, payable on June 14, 2018, in the amount of US$150 million, in settlement of certain historical commercial disputes under the existing amended, consolidated and restated joint venture agreement dated July 25, 2009 (as amended) (the "JVA");
• the resolution of the KCC capital deficiency via the restructuring of all long-term debt and commercial offtake prepayment obligations owed by KCC and the reduction of KCC's total debt (retroactive to January 1, 2018) to a maximum of US$3,450 million through:
• the conversion of sufficient existing intercompany loans into new KCC equity by way of a share capital increase; and 
• a new loan between Katanga Mining Finance Limited ("KMFL"), one of the Company's wholly owned subsidiaries, and KCC, with an interest rate equal to the lesser of (i) USD 6-month LIBOR + 3%, and (ii) 6% (the "Residual Debt");
  
  
• certain amendments to the dividend payment and free cash flow provisions of the JVA including an amortization schedule for the repayment of the Residual Debt;
• the waiver by KCC of certain contractual rights relating to the replacement reserves under the Concession Release Agreement (as defined below), which relieves Gécamines of the obligation to transfer such replacement reserves or provide equivalent financial compensation to KCC in the amount of US$285 million;
• the (i) waiver by KCC of certain contractual rights to claim the reimbursement of paid contractors' invoices amounting to approximately US$57 million in connection with the replacement reserves exploration program, and (ii) agreement by KCC to make an additional payment to Gécamines of approximately US$41 million in relation to outstanding expenses incurred by Gécamines as part of the replacement reserves exploration program;
• the commitment by KCC to conduct additional studies on the areas of the historical replacement reserves exploration program conducted by Gécamines to identify potential new reserves or ore bodies which have not yet been identified in the Company's previously disclosed ore reserves and mineral resources estimates set out in the Company's NI 43-101 technical report dated March 31, 2018 (effective date December 31, 2017). The Company has agreed to pay additional entry premium (pas de porte) to Gécamines (as described below and in Annex A), should these additional studies demonstrate the existence of additional JORC (as defined below) compliant reserves or lead to the extraction of new ore bodies on KCC's mining titles;
• the establishment of new protocols for the involvement of Gécamines in certain commercial affairs of KCC, as follows:
• all future intercompany loans to KCC, if any, to be provided by KMFL on equivalent terms as the Residual Debt;
• a mandatory requirement to run a tender process on any commercial agreement to be entered into by KCC in excess of US$5 million;
• the prior approval of Gécamines of any capital expenditure that would allow the expansion of capacity of KCC's production facilities to over 300,000 tons of copper per annum, if such expenditure exceeds US$500 million; and
• the provision by KCC to Gécamines of the proposed annual terms of the copper and cobalt offtake arrangements between KCC and affiliates of Glencore and other further documentation in KCC's possession which Gécamines may reasonably request; and
  
  
• the withdrawal by Gécamines on the Closing Date of the Capital Deficiency Proceedings and the renouncement by Gécamines of certain orders of the Kolwezi Court related thereto. Each of the parties will also fully and finally release any potential claim relating to the JVA and the operation and management of KCC arising prior to the Closing Date.

Funding of Settlement Payment

In connection with the transactions contemplated by the Settlement Agreement, the Company has agreed that a one-time settlement payment will be made by KMFL to Gécamines in the amount of US$150 million (the "Settlement Payment") to resolve historical commercial disputes with respect to the KCC joint venture operation with Gécamines. The Settlement Payment will be funded by new loans to KMFL under the New Credit Facility (as defined below) with Glencore Finance (as defined below). The Settlement Payment is payable on June 14, 2018.

KCC Debt Restructuring

As of January 1, 2018, pursuant to a series of intercompany loans, KCC is indebted to certain wholly-owned subsidiaries of the Company, namely Katanga Mining Finance Limited ("KMFL"), Katanga Mining Holdings Limited ("KMHL"), KML (BVI) Holdco Limited ("KMLBVI") and Global Enterprises Corporate Limited ("GEC"), in a principal amount, together with capitalized interest, of approximately US$4,601 million (the "KCC Financial Debt"). Of the KCC Financial Debt, approximately US$3,644 million is held by KMFL, while the remaining US$957 million is held by KMHL, KMLBVI and GEC.

Separately, KCC is indebted to Glencore International AG ("GIAG"), an affiliate of the Company's ultimate controlling shareholder Glencore plc, in respect of certain copper and cobalt offtake prepayments made by GIAG to KCC in the aggregate amount of approximately US$4,450 million as of January 1, 2018 (the "KCC Commercial Debt"). It should be noted, as disclosed in KML's public financial reporting, that KML Group assumed approximately US$1,773 million of such commercial debt from GIAG in November 2014, which together with capitalized interest, amounted to US$2,212 million as at December 31, 2017, such that KML Group's consolidated reporting of GIAG customer prepayments was US$2,239 million as at December 31, 2017.

In connection with the Settlement Agreement, each of KMHL, KMLBVI and GEC will assign the portion of the KCC Financial Debt held by them to KMFL and GIAG will assign the entirety of the KCC Commercial Debt to KMFL, with the result that KMFL will hold all KCC Financial Debt and all KCC Commercial Debt, in the aggregate principal amount (plus capitalized interest) of approximately US$9 billion (the "KCC Total Debt").

To pay for the assignment of the relevant KCC Commercial Debt by GIAG to KMFL, KMFL will become indebted to another affiliate of Glencore, Glencore Finance (Bermuda) Limited ("Glencore Finance") under a new credit facility, which will bear interest at the equivalent rate to the interest borne by the Residual Debt, being the lesser of (i) 6-month LIBOR + 3%, and (ii) 6% (the "New Credit Facility"). Following the completion of the transactions contemplated by the Settlement Agreement., KMFL will be indebted to Glencore (retroactive to January 1, 2018) in the amount of approximately US$2,239 million under the New Credit Facility and US$3,688 million under the historical Glencore Group loans to KMFL, respectively. Glencore has agreed to reduce the debt service obligations of the Company under the historical Glencore Group loans between Glencore Finance and KMFL by reducing the interest rate from 10% to 7% on and after the Closing Date.

KCC Recapitalization

As previously disclosed by the Company, KMFL, KMHL, KMLBVI, GEC and an additional wholly-owned subsidiary of the Company, KFL Limited, are party to the JVA. Pursuant to the JVA, Gécamines and SIMCO constitute the 'Category A' shareholders of KCC while the Company's subsidiaries that are party to the JVA constitute the 'Category B' shareholders of KCC.

The Settlement Agreement provides that, following the assignment to KMFL of (i) that portion of the KCC Financial Debt not already held by it, and (ii) the KCC Commercial Debt, KMFL will, as sole debtholder of KCC, reconstruct KCC's net equity by converting approximately US$[5,602] million of the KCC Total Debt that it will then hold into new equity of KCC (the "KCC Debt Conversion"). Together with certain accompanying reductions of stated capital of KCC, the KCC Debt Conversion is expected to eliminate the retained losses balance of KCC as at December 31, 2017 and result in a positive net equity situation for KCC, above the minimum local corporate law requirements. The remaining balance of the KCC Total Debt, in the principal amount of US[$3,450] million, retroactive to January 1, 2018, will be retained by KMFL as the Residual Debt, which will bear interest at the lesser of (i) 6-month LIBOR + 3%, and (ii) 6%, and be repaid over eight years.

The JVA requires that the 'Category A' shareholders of KCC be entitled to participate pro rata in any capital increase of KCC without any financial obligation. As a result, the new equity of KCC generated by the KCC Debt Conversion will be allocated 75% to KMFL and 25% to Gécamines and SIMCO. The shareholdings of other 'Category B' shareholders of KCC within the Katanga group will be diluted to nil and they will cease to be shareholders of KCC. In accordance with the Settlement Agreement, KMFL will, as a result of the implementation of the recapitalization plan, become the sole remaining 'Category B' shareholder and sole lender to KCC. The proportionate equity positions of Katanga, Gécamines and SIMCO in KCC will therefore remain unchanged by the Settlement Agreement.

The issuance of new share capital of KCC caused by the KCC Debt Conversion will trigger a DRC tax obligation in the amount of US$56 million (the "Stamp Duty"). The Stamp Duty will be funded by way of new loans to KMFL under the New Credit Facility with Glencore Finance, which will, in turn, be loaned by KMFL to KCC.

Dividends and Free Cash Flow Distributed by KCC

Pursuant to the Settlement Agreement, the Residual Debt of KCC held by KMFL is required to be amortized over a period of eight years in accordance with an agreed amortization schedule. The amortization schedule provides that, during 2018 and 2019, to the extent KCC has available free cash flow, only interest payments on the Residual Debt are required to be made. Thereafter, the amortization schedule provides for the repayment of principal and interest of the Residual Debt until its expected completion in 2025.

In any fiscal year of KCC, to the extent there is cash available after the required Residual Debt principal and interest payments have been made and KCC has profit available for distribution, such profits will be paid out as dividends to KCC's shareholders in proportion to their respective shareholdings. If, however, after the Residual Debt principal and interest payments have been made, there is no profit available for distribution but KCC is in possession of cash or a there is portion of cash in excess of profit available for distribution, KCC's shareholders may cause KCC to distribute such cash in proportion to their respective shareholdings by way of shareholder loans on reasonable commercial terms. Such shareholder loans would be required to be repaid via set-off against future dividends to be paid by KCC.

Waiver by KCC of Replacement Reserves Rights

As previously disclosed, in February 2008, KCC renounced certain mineral reserves within its mineral concession in favour of Gécamines pursuant to a concession release agreement amongst the parties to the JVA (the "Concession Release Agreement"). In connection therewith, Gécamines agreed that it would procure or provide to KCC, no later than December 31, 2015, a replacement for the renounced reserves, either in certified copper and cobalt reserves to be classified following the completion of a drilling program financed by Gécamines, or by way of a payment of the agreed equivalent financial value of US$285 million. In circumstances where Gécamines failed to provide the replacement reserves and make payment of the financial compensation, KCC had the right to offset dividends and royalties due to Gécamines against the amount of the financial compensation. As previously disclosed, an amendment to the JVA was concluded in January 2015 to preserve the above contractual set-off rights with Gécamines following the conclusion of the tripartite royalty agreement between Gécamines, Africa Horizon Investments Limited ("AHIL") and KCC. The drilling program to locate the replacement reserves was commenced in 2009, and notwithstanding Gécamines' agreement to finance this project, the Company agreed to fund the exploration and drilling costs on the condition that all such expenditures would be reimbursed by Gécamines at the conclusion of the program. Over the course of the drilling program between 2009 and 2014, the Company funded approximately US$57 million in exploration expenditures on Gécamines' behalf. The deadline to procure or provide the replacement reserves to KCC was extended until March 2019 when KCC suspended the processing of copper and cobalt in September 2015.

In connection with the Settlement Agreement, KCC has agreed that it will waive its contractual right to receive the replacement reserves or equivalent cash payment of US$285 million and waive its contractual right to be reimbursed for the approximately US$57 million in exploration and drilling expenditures incurred on behalf of Gécamines in connection with the replacement reserves program. As a consequence, KCC will therefore also be foregoing the right to offset dividends due to Gécamines and royalties due to AHIL against the replacement reserves or equivalent cash payment of US$285 million owing by Gécamines.

Additionally, the Company has agreed to fund the payment of approximately US$41 million in outstanding unpaid invoices for contractors in charge of the replacement reserves exploration program, resulting in an aggregate financial impact on the Company of US$383 million. The US$41 million payment will be funded by new loans to KMFL under the New Credit Facility with Glencore Finance.

The Company has not recognized in its consolidated financial statements the right to receive the replacement reserves or equivalent cash payment of US$285 million and, as a result, the waiver of such right will not have any impact on the Company's consolidated financial statements.

Gécamines Rights to New Reserves and Entry Premiums

As part of the Settlement, the Company and Gécamines have agreed that additional entry premiums (pas de porte) shall be paid by the Company to Gécamines for certain reserves to be identified in the future subject to certain conditions and the outcome of the additional studies that will be conducted as described below and in Annex A to this press release.

Gécamines has agreed to provide to KCC all studies, drilling data, cores, surveys, assays and other information held by Gécamines and its contractors in respect of the areas that were explored as part of the exploration program conducted by Gécamines between 2009 and 2014 within the concession areas covered by KCC's mining permits. KCC has agreed to commission additional studies on the concession areas covered by such mining permits and provide the results to Gécamines within 5 years of the date of the Settlement Agreement in order to determine whether there are any new Australasian Joint Ore Reserves Committee ("JORC") compliant reserves (the "KCC New Studies"). The payment and price of the entry premium per ton of copper and copper equivalent reserves (classifying cobalt to copper using industry standards and long term consensus pricing prevailing at the time of payment) will depend on the result of the KCC New Studies. If KCC fails to conduct additional studies within 5 years, Gécamines may conduct the studies at its own cost and provide the results to KCC (the "GCM New Studies"), which in turn may result in an obligation on the Company to pay additional entry premiums to Gécamines.

Annex A to this press release provides a summary of the additional entry premiums to be paid by the Company depending on the outcome of the KCC New Studies or GCM New Studies, as applicable.

New Commercial Protocols

As part of the Settlement Agreement, the Company and Gécamines have agreed to make certain consequential amendments to the JVA to facilitate the implementation of the Settlement Agreement, including the addition of certain new commercial protocols.

Such protocols include requirements that: (i) all future intercompany loans to KCC, if any,  be provided by KMFL on equivalent terms as the Residual Debt; (ii) a tender process be run by KCC on any commercial agreement to be entered into by KCC with a value in excess of US$5 million; (iii) the prior approval of Gécamines be obtained for any capital expenditure of KCC that would allow the expansion of capacity of KCC's production facilities to over 300,000 tons per annum of copper, if such expenditure exceeds US$500 million; and (iv) the provision by KCC to Gécamines of the proposed annual terms of the copper and cobalt offtake arrangements between KCC and affiliates of Glencore and other further documentation in KCC's possession which Gécamines may reasonably request.

Withdrawal of Capital Deficiency Proceedings and Release of all Prior Claims Under JVA

Gécamines (together with SIMCO) has agreed that on or before the Closing Date it will irrevocably and unconditionally withdraw the Capital Deficiency Proceedings commenced on April 20, 2018 in the Kolwezi Court.

Gécamines has also agreed on or before the Closing Date to (i) renounce all effects of the Capital Deficiency Proceedings; (ii) irrevocably waive the right to commence or pursue (or procure the initiation by a third party) of any proceeding, action, claim, right or action in respect of or arising out of the capitalization of KCC, (iii) renounce all orders of the Kolwezi Court in connection with the Capital Deficiency Proceedings, including taking all necessary steps to procure that the April 30, 2018 order of the Kolwezi Court preventing KCC from holding a shareholders' or board meeting is withdrawn, in order to facilitate the implementation of the Settlement Agreement by KCC, and (iv) refrain from any action or steps that could trigger a dissolution decision in respect of KCC by the Kolwezi Court.

Additionally, the parties to the Settlement Agreement have agreed to a mutual release and waiver of all claims arising or resulting out of or in connection with the JVA and the management or operations of KCC that occurred on or prior the date of execution of the Settlement Agreement.

Summary of the Impact on Katanga's Financial Position

The transactions described above will not impact Katanga's previously reported consolidated net assets or consolidated liabilities, however, as a consequence of the conversion of approximately US$5,602 million of the KCC Total Debt into equity, the Company's consolidated equity attributable to shareholders of the Company as at December 31, 2017, on a pro forma basis, would reduce by approximately US$1,400 million, resulting in a pro forma capital deficiency attributable to shareholders as at December 31, 2017 of approximately US$1,132 million. Correspondingly, there would be an increase in non-controlling interests of approximately US$1,400 million, resulting in a pro forma non-controlling interests balance as at December 31, 2017 of US$454 million.

Background to Dispute

As previously disclosed by the Company, pursuant to the provisions of OHADA's Uniform Act Relating to Commercial Companies and Economic Grouping applicable to KCC, KCC was obliged to address a capital deficiency that first arose in 2014 when, as a result of historical losses incurred during the rehabilitation of KCC's assets, including the servicing of the inter-company loans to fund such rehabilitation, KCC shareholders' equity fell below half of its share capital. In accordance with such laws, the capital deficiency should have been rectified by December 31, 2017, and, as a result of this not having been done, an interested party, such as Gécamines, was entitled to commence legal action for the dissolution of KCC before DRC judicial authorities.

In November, 2017, management of KCC proposed an initial recapitalization plan (the "First Recapitalization Plan") that would have addressed the capital deficiency of KCC by way of a debt conversion to equity in accordance with the terms of the existing amended, consolidated and restated joint venture agreement dated July 25, 2009 (as amended) (the "JVA") between certain of the Company's subsidiaries, KCC, Gécamines and DRC state-owned Société Immobilière du Congo ("SIMCO"). The parties to the JVA ultimately did not come to agreement on the First Recapitalization Plan.

On April 20, 2018, the Company was notified that Gécamines had commenced legal proceedings in the Kolwezi Court to dissolve KCC, following KCC's failure to address the capital deficiency before December 31, 2017 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 the recapitalization plan (the "Capital Deficiency Proceedings"). A hearing was scheduled to be held in the Kolwezi Court on May 8, 2018.

On April 25, 2018, management of KCC proposed an alternative recapitalization plan (the "Second Recapitalization Plan") that would have addressed the capital deficiency of KCC by way of a debt waiver with a claw back clause reviving the debt on KCC's return to profitability. Before the Second Recapitalization Plan could be considered, on April 30, 2018, at the request of Gécamines and SIMCO, the Kolwezi Court issued an order on April 30, 2018 preventing both KCC and the Chairman of KCC, from holding any meetings of its board or shareholders to approve the First Recapitalization Plan or the Second Recapitalization Plan.

As a precautionary measure, KCC 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. The Kolwezi Court was notified of the decision of the Supreme Court on May 7, 2018. As a result of this decision, the Capital Deficiency Proceedings were suspended at the May 8, 2018 hearing, without the Kolwezi Court hearing any arguments on the merits thereof, until the Supreme Court rendered its decision. KCC was served on June 8, 2018 with the final decision of the Supreme Court rejecting its application to relocate the Capital Deficiency Proceedings in another court within DRC. The Capital Deficiency Proceedings have not yet resumed in Kolwezi.

Notwithstanding the commencement of the Capital Deficiency Proceedings and April 30, 2018 order preventing KCC from holding any meetings to approve the First Recapitalization Plan or Second Recapitalization Plan, the Company continued to engage in discussions with Gécamines to negotiate an agreed regularization of the KCC capital deficiency. Several options for restructuring KCC's debt and reconstructing its net equity were considered and discussed with Gécamines during the ensuing period leading up to the signing of the Settlement Agreement.

MI 61-101 Disclosure

Certain of the transactions contemplated by the Settlement Agreement constitute "related party transactions" for the purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101") of the Canadian securities regulators. Specifically, Glencore (and its affiliates) are "related parties" of the Company (and its affiliates) as defined in MI 61-101. As a result, the transactions ancillary to those contemplated by the Settlement Agreement to which Glencore (or an affiliate thereof) and the Company (or an affiliate thereof) are party, namely (i) the assignment by GIAG of the KCC prepayments to KMFL, and (ii) the New Credit Facility and related new loans thereunder to fund the Settlement Payment, US$41 million contractor payments and Stamp Duty owed to the DRC tax authorities, constitute "related party transactions" under MI 61-101 (the "Related Party Transactions").

For a detailed description of the terms of the Related Party Transactions, see "Details of the Settlement" under the subheadings "KCC Debt Restructuring", "KCC Recapitalization" and "Waiver by KCC of Replacement Reserves Rights".

The primary purpose of the Related Party Transactions is to provide for the necessary debt restructuring within the Katanga group to facilitate the recapitalization of KCC and other ancillary transactions contemplated by the Settlement Agreement with Gécamines. The Settlement Agreement is the result of negotiations between the Company (and its affiliates) and Gécamines, which are not related parties of one another, but the transactions contemplated thereby necessitate the Related Party Transactions, between the Company (and its affiliates) and Glencore (and its affiliates). KMFL and the other 'Category B' shareholders of KCC would not be able to reconstruct KCC's net equity or satisfy their payment obligations under the Settlement Agreement without the concurrent debt reorganization transactions with (and additional borrowings from) the Company's lenders within the Glencore group.

The Related Party Transactions are expected to have a positive effect on the business and affairs of the Company. In addition to being integral components of a series of transactions that facilitate the withdrawal of the Capital Deficiency Proceedings, averting the risk of a possible dissolution of KCC and strengthening the Company's relationship with its joint venture partner Gécamines, the higher interest rate portion of the restructured debt of KMFL to Glencore Finance will be at lower interest rates (from 10% to 7%) than prior to the Settlement Agreement, thereby reducing the long term debt service obligations of the Company. The Related Party Transactions will not have any impact on the number of outstanding shares of the Company controlled by Glencore.

The board of directors of the Company (the "Board") monitored management's efforts to negotiate the Settlement Agreement, and held meetings to discuss possible resolutions to the Capital Deficiency Proceedings, including settlement with Gécamines, on May 1, May 6, June 4 and June 12, 2018. The Board initially considered an advanced draft of Settlement Agreement on June 4, 2018. Certain of the members of the Board, being Messrs. Steven Kalmin, Tony Moser and Mike Ciricillo, are officers or employees of Glencore. In connection therewith, these Glencore-nominated directors disclosed their material interest in the Related Party Transactions during Board discussions concerning the Settlement Agreement and the transactions contemplated thereby. During those discussions, at the Board meetings on June 4, 2018 and June 12, 2018 and at a separate meeting of independent directors held on June 11, 2018, the independent directors of the Company, being Messrs. Hugh Stoyell, Terry Robinson and Bob Wardell (the "Independent Directors"), met in camera, without the Glencore-nominated directors present, at which time the Independent Directors approved the Related Party Transactions. The Board as a whole subsequently unanimously approved the Settlement Agreement and the transactions contemplated thereby on June 12, 2018.

MI 61-101 imposes certain requirements on "related party transactions" for the protection of minority shareholders. Absent an exemption under MI 61-101, the Company would be required to obtain a formal valuation of the subject matter of the Related Party Transactions and obtain the approval of the minority shareholders of the Company for the Related Party Transactions. In reviewing the Related Party Transactions in isolation from the central, arm's length transactions contemplated by the Settlement Agreement, the Board considered a number of possible exemptions to these requirements, and has determined to rely on the exemptions to the formal valuation requirement and minority shareholder approval requirement set out in sections 5.5(g) and 5.7(e) of MI 61-101, the "financial hardship" exemption.

In determining that the "financial hardship" exemption is available to the Company in connection with the related party transactions, the Board considered the following factors:

• in the absence of the Settlement Agreement and the agreement with Gécamines on a means of completing the recapitalization of KCC, which necessitate the Related Party Transactions between Glencore and Katanga, there is a strong probability that the Capital Deficiency Proceedings would proceed, and there is a risk that the Capital Deficiency Proceedings would result in the dissolution of KCC in DRC. The ongoing threat of dissolution of the Company's only operating subsidiary has created an untenable situation that places the Company in serious financial difficulty;
• the transactions contemplated by the Settlement Agreement are designed to facilitate the recapitalization of KCC, which will improve the financial position of KCC and bring it into compliance with applicable corporate law. The improvement of the financial condition of KCC, the Company's sole operating subsidiary, together with the termination of the Capital Deficiency Proceedings, will improve the financial position of the Company;
• the Company is not currently subject to any bankruptcy or insolvency proceedings or any court order in respect thereof; and
• none of the Independent Directors has an interest in the Related Party Transactions.

After giving due consideration to the foregoing factors, the Board concluded that the Company is in serious financial difficulty. The Related Party Transactions, inasmuch as they are integral to the Settlement Agreement and completion of the transactions contemplated thereby, are designed to improve the financial position of the Company, and the terms of the Related Party Transactions were considered to be reasonable by the Board in the Company's circumstances, including by a majority of its Independent Directors. The Company expects to file a material change report less than 21 days before the closing of the transactions contemplated by the Settlement Agreement. In the Company's view, the shorter period is necessary in order to resolve the issues addressed by the Settlement Agreement and improve the Company's financial position in an expeditious manner.

ANNEX A: ENTRY PREMIUM CALCULATION TABLES

 

 

 

 

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 implementation by the parties of the terms and transactions contemplated by the Settlement Agreement; the medium- and long-term impact of the Settlement Agreement on the Company's and KCC's financial position; and the nature of the ongoing relationship between the Company and Gécamines.

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: the successful implementation of the Settlement Agreement; the termination and absolute withdrawal of the Capital Deficiency Proceedings; 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; 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; and the continued provision or procurement of additional funding from Glencore for operations.

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 failure by the parties to successfully implement the Settlement Agreement. 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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