Katanga bids for Nikanor to create $3bn firm

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Jonathan Leslie, Nikanor, executive chairman

� Nikanor, Katanga deal in the offing
� Anglo kicked tyres at $424m Katanga project
� Camec withdraws $1.4bn Katanga bid
� Katanga boss rejects $1.4bn Camec bid
� Nikanor grilled over "unusual" financing
� Nikanor steams ahead on KOV copper project

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Katanga bids for Nikanor to create $3bn firm
Allan Seccombe
Posted: Tue, 06 Nov 2007

[miningmx.com] -- KATANGA MINING, which is developing the Kamoto copper and cobalt project in the Democratic Republic of Congo, has made a bid for Nikanor, which owns the neighbouring KOV project, to create a $3.3bn company and the world's largest cobalt producer.

The combined assets will have an annual output of 400,000 tonnes of refined copper and 40,000 tonnes of cobalt a year by 2011. Glencore will have exclusive offtake rights to the merged entity's production.

"It is believed that the combined operations will be the largest single-site project in the world producing both copper and cobalt," the companies said in a document outlining the recommended merger.

At the projected copper output, the merged entity to be called Katanga Mining, will be the world's fourth-largest producer of the metal, said Katanga CEO Arthur Ditto, who will head the merged group.

It has long been anticipated that there would be some tie up of the two assets, which were operated as part of the same mining complex in the past.

The DRC government has given its support to the transaction, said Ditto, a piece of good news given the recent furore caused by a leaked report from the commission reviewing 61 DRC mining licence agreements saying the 38 contracts had to be renegotiated and 23 terminated.

Katanga will issue 128m shares to Nikanor shareholders and pay them $452m in cash. The combined entity will have cash of $745m as at end-September 2007, taking into account the cash return.

Shareholders of both companies will meet in December to vote on the transaction and the deal should be completed in the first quarter of 2008, Ditto said. Irrevocable support has been received from 78% of Nikanor shareholders and 48% of Katanga shareholders.

South Africa's Con Fauconnier, the former CEO of Exxaro Resources and before that Kumba Resources, will be the independent chairman of the merged company.

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Katanga shareholders on Friday approved an increase in shares to 300 million common shares.

"The level of additional financing required will be determined as part of a combined business plan, but it is expected that production from Katanga and a phased approach to capital expenditure will result in a lower and delayed requirement for additional financing than for Nikanor standalone."

"There are some very real synergies we can gain," said Nikanor CEO Jonathan Leslie. "There is a tremendous opportunity to de-risk the project, with much greater flexibility in terms of operations, with sulphide and oxide production that was not open to Nikanor before."

Leslie will not be on the merged company's board.

Ditto said: "The mining going on there, the capital programme there and day-to-day operations are such that we will definitely achieve significant capital savings and operating costs reductions if by nothing more than simply eliminating a great deal of duplication."

The Kamoto project price tag was $424m and Katanga recently raised the final $150m it needed in a transaction with trading company Glencore towards the last phase of its plans to raise output to 150,000 tonnes/year of copper from 2010.

KOV was on track for first production at the end of 2009 and ramping up to full annual output of 250,000 tonnes of copper cathode and 27,500 tonnes of cobalt a year later.

"The merging of these two sites will reduce the execution risk and we have more latitude with the rate at which we build the operation and how we go about doing that," Ditto said, adding there would be a feasibility study into the merged assets.

Ditto and Leslie had been informally talking about such a merger for more than a year and moved into more formal talks about two months ago.

The combined company will retain the Katanga name and seek a primary listing on the main board of the London Stock Exchange.

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