Swiss commodities trader Glencore International AG is considering upping its stake in TSX-listed Katanga Mining Ltd. (KAT.T), as the Democratic Republic of Congo (DRC) copper and cobalt producer seeks to move into profit..
Baar-based Glencore, the world's largest commodity trader, says it may buy more Katanga Mining shares in open market trading or through private transactions. Through its Bermuda-registered unit, Glencore Finance Ltd., it currently holds 12.4% of Katanga Mining.
Glencore had previously disclosed it had no plans to acquire any additional stake in Katanga Mining but it has reviewed its investment alternatives and has determined that it may increase its equity ownership in Katanga, the company announced in a statement posted on its website over the weekend.
Katanga operates a mining complex in the DRC's Katanga province, whose key assets include the Kamoto Underground Mine and KOV open pit mine, providing sulphide and oxide ores respectively; and the Kamoto Concentrator, Luilu Metallurgical Plant and a planned SX/EW refinery for the onsite production of refined copper and cobalt. It also owns a number of other mines and plants.
Glencore however did not say by how much it would seek to increase its stake. But it has always been stepping in whenever things go wrong in the Canadian company. On Thursday last week, Katanga reported a net loss for the first quarter to 31 March of US$17.4-million or US$0.10 per share, compared to a net loss for the first quarter of 2007 of US$5.4-million or US$0.07 per share.
The net loss, which is more than triple year-on-year losses, pushed down the value of its shares by C$0.90 to C$10.43 in Toronto. But following the announcement by Glencore, its shares opened Monday up C$2.24, or 20%, to C$13.46, the biggest gain since November 6, 2007, when it announced its agreement to buy fellow Katanga miner, AIM-listed Nikanor PLC.
Last October, Glencore also came to the rescue of Katanga after an attempted takeover of the company by Central African Mining & Exploration Company fell through, pumping in US$150-million through a one-year loan facility.
The loan was believed to be the biggest ever provided by Glencore to a junior mining company and reportedly set a precedent for the group's operations as a lender to such companies. It however secured the Swiss-based company a healthy supply of copper and cobalt through an attractive 10-year offtake arrangement.
Katanga is, meanwhile, working towards becoming profitable by the end of the year. It has completed the take-over of Nikanor following the tendering of over 90% of the outstanding Nikanor shares to the offer, which was declared unconditional on January 11. The acquisition resulted in the creation of what will be one of the world's largest cobalt and copper producers.
The company produced its first copper cathode in December last year and posted a first quarter production of slightly less than 4,000 tons. It began producing cobalt on May 3, with full-year production forecast at 1,600 tons.
Katanga, headquartered in Toronto, plans to boost annual copper production at its mine to 30,000 tons of copper by 2011 from the 3,946 tons this year to benefit from prices that have more than doubled in London in the past three years.
Concentrate production of 43,500 tons for the year is expected to add 3,000 tons of payable copper and 1,300 tonnes of payable cobalt, Chairperson, president and CEO Arthur Ditto said in a statement accompanying the company's financial statement.
Copper cathode production increased each month during the first quarter and we were pleased to see cobalt metal production at the start of May. On-site performance is improving, with mine output steadily increasing and Luilu production growing. As a consequence, we expect to be profitable this year, he said.
Phase II of the Kamoto rehabilitation is expected to be complete by the end of 2008 at a capital cost of US$136-million. At the Luilu Metallurgical Plant, a new roaster is being constructed, while leaching capacity and copper and cobalt electrowinning capacity will be doubled. Capacity is expected to increase to about 100,000 tons per year of copper cathode.
We are working hard to complete the feasibility study for the expansion project by the end of the third quarter, alongside preparation for mining of the KOV pit and commencing civil work for the new SX/EW plant, said Ditto.