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» Fauconnier turns down Katanga offer
» Katanga bids for Nikanor to create $3bn firm
» Anglo kicked tyres at $424m Katanga project
» Nikanor, Katanga deal in the offing

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Glencore set for Katanga Mining takeover
Brendan Ryan
Posted: Mon, 29 Dec 2008

[miningmx.com] -- GLENCORE looks set to take control of Katanga Mining (Katanga) which is one of the largest copper/cobalt operators in the Democratic Republic of Congo (DRC).

The Swiss-headquartered commodities giant could own up to 83.7% of Katanga in terms of an emergency funding package for the embattled company announced on Christmas Eve.

According to a Katanga statement, the company is “in serious financial difficulty”. It urged shareholders to vote for an increase in Katanga’s authorised share capital at a meeting to be held on January 12.

The approval is required for implementation of the proposed funding scheme.

The statement added Katanga will not, “in the absence of other equivalent immediate financing alternatives, be able to continue to operate as a going concern”.

Under normal circumstances, shareholders should approve both the loan and the proposal to issue shares. Katanga, however, is pushing ahead without this based on the “financial hardship exemption in the rules of the Toronto Stock Exchange (TSX)”.

The downside of this is that the TSX intends undertaking a “delisting review” on Katanga, but the Katanga statement said the company will meet TSX listing requirements once the financing is complete.

Glencore holds an 8.5% stake in Katanga which it earned in a similar fashion by providing financial assistance to predecessor Nikanor in mid-2007, when Nikanor got into funding problems because of capital expenditure overruns.

Katanga took over Nikanor in a US$3.3bn deal in early 2008 which was supposed to create the DRC’s largest copper/cobalt operation producing 400,000 tonnes/year of refined copper and 40,000t/year of cobalt by 2011.

Katanga has just announced a revised production plan targeting initial production of 150,000t of copper by 2012.

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That is to be achieved by maintaining current capacity at 70,000t/year until 2010, and then rehabilitating the remainder of the KTC concentrator and Luilu metallurgical facility to reach 150,000t/year by 2012.

After that Katanga “expects to continue the ramp-up to in excess of 300,000t/year utilising new SX/EW (solvent extraction/electro-winning) modules”.

The Glencore funding is in the form of a $265.3m, two-year mandatory convertible loan facility which consists of new finance of $100m and the restatement of an existing $150m from Glencore which, with interest, amounts to $165.3m.

But this funding is only enough to see Katanga through its “immediate financing requirements for its revised production plan through the first quarter of 2009”.

Katanga then needs to raise another $250m in equity and/or debt during the first half of next year.

Katanga and Glencore intend approaching other potential investors to participate in up to 75% of the R265.3m facility; the deadline for this is February 9.

If backers are found for the full 75% on offer, Glencore’s equity stake in Katanga will amount to 22.1%. If no other investor is prepared to contribute, Glencore will end up with 83.7% of Katanga.