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
|
|
|
STUDIES CONDUCTED
BY KCC(1)
|
JORC-compliant
reserves
Price / ton(2)
|
Non JORC ore
Price / ton(2) extracted by KCC
|
Extension of an ore
body defined in the JVA
|
US$
85(3)
|
US$
115(5)
|
Distinct ore body and
not defined in the JVA
|
US$110(4)
|
US$
130(6)
|
(1)
|
KCC New Studies must
be conducted within 5 years of the Settlement
|
|
|
(2)
|
Ton of copper and
copper equivalent (classifying cobalt to copper using industry
standards and long term consensus pricing prevailing at the time of
payment)
|
|
|
(3)
|
If the KCC New
Studies in the areas demonstrate that there are JORC-compliant
reserves that are not geologically and lithologically distinctly
separate from the KCC ore bodies identified in the JVA (the
"Existing Reserves' Extension") and which do not correspond to and
are in excess to the resources or reserves that have been
previously disclosed by the Company in its Ore Reserves and Mineral
Resources statement as at 31 December 31, 2017 or in its Technical
Report as at December 31, 2017, the Company shall pay Gécamines an
entry premium of USD 85 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)
contained in the Existing Reserves' Extension. In such case, the
entry premium shall only be payable in excess of the tonnage
corresponding to the Total Replacement Reserves as defined in the
JVA (i.e. 3,992,185 tonnes of copper and 205,629 tonnes of cobalt
JORC-compliant reserves).
|
|
|
(4)
|
If the KCC New
Studies demonstrate that there are new JORC-compliant reserves
geologically and lithologically distinctly separate from the
existing KCC ore bodies identified in the JVA (the "New Identified
Reserves"), KCC shall, in its sole discretion, elect,
to:
|
|
|
|
•
|
transfer for no
consideration to Gécamines the right to mine the New Identified
Reserves for its benefit, at its own cost using its own resources.
The transfer or lease of the relevant exploitation rights shall be
done at Gécamines' costs and KCC shall be reimbursed of the
reasonable costs of the Studies and any related tax liability shall
be fully assumed by Gécamines; or
|
|
|
|
•
|
mine the New
Identified Reserves itself, in which case the Company shall pay
Gécamines an entry premium of USD 110 per ton of copper contained
in such New Identified Reserves.
|
|
|
(5)
|
If the KCC New
Studies identify additional ore which is an extension of a defined
ore body under the JVA, but such ore is a non JORC-compliant
reserve, and KCC decides to extract such ore, the Company shall pay
an entry premium of US$ 115 per ton of copper or copper equivalent
contained in ore effectively extracted by KCC within 30 days of the
end of the year during which such ore was extracted.
|
|
|
(6)
|
If the KCC New
Studies identify additional ore which is distinct of a defined ore
body under the JVA, but such ore is a non JORC-compliant reserve,
and KCC decides to extract such ore, the Company shall pay an entry
premium of US$ 130 per ton of copper or copper equivalent contained
in ore effectively extracted by KCC within 30 days of the end of
the year during which such ore was extracted.
|
|
|
|
STUDIES CONDUCTED
BY GÉCAMINES(1)
|
JORC-compliant
reserves
Price / ton(2)
|
Non JORC ore
Price / ton(2) extracted by KCC
|
Extension of an ore
body defined in the JVA
|
US$
130(3)
|
US$
140(5)
|
Distinct ore body and
not defined in the JVA (1)
|
US$160(4)
|
US$
170(6)
|
(1)
|
The Gécamines New
Studies will only be conducted if KCC fails to conduct KCC New
Studies within 5 years of settlement of the settlement
agreement
|
|
|
(2)
|
Ton of copper and
copper equivalent reserves (classify cobalt to copper using
industry standards and long term consensus pricing prevailing at
the time of payment)
|
|
|
(3)
|
If the Gécamines New
Studies in the areas demonstrate that there are JORC-compliant
reserves that are not geologically and lithologically distinctly
separate from the KCC ore bodies identified in the JVA (the
"Existing Reserves' Extension") and which do not correspond to and
are in excess to the resources or reserves that have been
previously disclosed by the Company in its Ore Reserves and Mineral
Resources statement as at 31 December 31, 2017 or in its Technical
Report as at December 31, 2017, the Company shall pay Gécamines an
entry premium of USD 130 per ton of copper and copper equivalent
reserves (classify cobalt to copper using industry standards and
long term consensus pricing prevailing at the time of payment)
contained in the Existing Reserves' Extension. In such case, the
entry premium shall only be payable in excess of the tonnage
corresponding to the Total Replacement Reserves as defined in the
JVA (i.e. 3,992,185 tonnes of copper and 205,629 tonnes of cobalt
JORC-compliant reserves).
|
|
|
(4)
|
If the Gécamines New
Studies demonstrate that there are new JORC-compliant reserves
geologically and lithologically distinctly separate from the
existing KCC ore bodies identified in the JVA (the "New Identified
Reserves"), KCC shall, in its sole discretion, elect,
to:
|
|
|
|
•
|
transfer for no
consideration to Gécamines the right to mine the New Identified
Reserves for its benefit, at its own cost using its own resources.
The transfer or lease of the relevant exploitation rights shall be
done at Gécamines' costs and any related tax liability shall be
fully assumed by Gécamines; or
|
|
|
|
|
•
|
mine the New
Identified Reserves itself, in which case the Company shall pay
Gécamines an entry premium of USD 160 per ton of copper contained
in such New Identified Reserves.
|
|
|
|
(5)
|
If the Gécamines New
Studies identify additional ore which is an extension of a defined
ore body under the JVA, but such ore is a non JORC- compliant
reserve, and KCC decides to extract such ore, the Company shall pay
an entry premium of US$ 140 per ton of copper or copper equivalent
contained in ore effectively extracted by KCC within 30 days of the
end of the year during which such ore was extracted.
|
|
|
(6)
|
If the Gécamines New
Studies identify additional ore which is distinct of a defined ore
body under the JVA, but such ore is a non JORC-compliant reserve,
and KCC decides to extract such ore, the Company shall pay an entry
premium of US$ 170 per ton of copper or copper equivalent contained
in ore effectively extracted by KCC within 30 days of the end of
the year during which such ore was extracted.
|
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