ZUG, Switzerland, Nov. 7, 2019 /CNW/ - Katanga Mining Limited (TSX:
KAT) ("Katanga" or the "Company") today announces its 2019 third
quarter financial results. Katanga's unaudited interim financial
statements and management's discussion and analysis for the three
and nine months ended September 30,
2019 ("MD&A") are available on SEDAR
(www.sedar.com).
Operating Results
|
|
Three months
ended
|
Nine months
ended
|
|
|
Sep
30,
|
Jun 30,
|
Sep 30,
|
Sep
30,
|
Sep 30,
|
|
|
2019
|
2019
|
2018
|
2019
|
2018
|
Sales*
|
$'000
|
347,794
|
301,091
|
428,116
|
1,003,741
|
920,386
|
Mining, processing
and other costs (net of changes in metal stocks)*
|
$'000
|
(272,689)
|
(270,370)
|
(220,282)
|
(877,796)
|
(452,605)
|
Royalties and
transportation costs*
|
$'000
|
(70,904)
|
(68,170)
|
(73,704)
|
(195,324)
|
(147,356)
|
Depreciation and
amortization
|
$'000
|
(109,744)
|
(57,327)
|
(74,955)
|
(223,466)
|
(190,917)
|
Gross (loss)
profit
|
$'000
|
(105,543)
|
(94,776)
|
59,175
|
(292,845)
|
129,508
|
|
|
|
|
|
|
|
Other income
(expenses)*
|
$'000
|
(5,844)
|
1,883
|
(738)
|
(6,742)
|
(10,195)
|
Write-offs / loss on
disposal of property, plant and equipment*
|
$'000
|
(555)
|
(27,684)
|
(32,678)
|
(31,196)
|
(42,149)
|
Net finance
costs
|
$'000
|
(106,420)
|
(116,999)
|
(102,244)
|
(339,610)
|
(349,689)
|
Restructuring
expenses
|
$'000
|
-
|
-
|
|
-
|
(248,128)
|
Income tax
expense
|
$'000
|
(8,395)
|
(2,551)
|
(9,383)
|
(14,935)
|
(9,383)
|
Net loss and
comprehensive loss
|
$'000
|
(226,757)
|
(240,127)
|
(85,868)
|
(685,328)
|
(530,036)
|
Non-controlling
interests
|
$'000
|
(41,189)
|
(46,573)
|
(7,361)
|
(126,547)
|
(49,057)
|
Attributable to
shareholders of the company
|
$'000
|
(185,568)
|
(193,554)
|
(78,507)
|
(558,781)
|
(480,979)
|
|
|
|
|
|
|
|
Adjusted
EBITDA*
|
$'000
|
(2,198)
|
(63,249)
|
100,714
|
(107,317)
|
268,081
|
|
|
|
|
|
|
|
Basic and diluted
loss per common share
|
$/share
|
(0.10)
|
(0.10)
|
(0.04)
|
(0.29)
|
(0.25)
|
C1 costs**
|
$/lb
|
2.50
|
2.66
|
0.95
|
2.71
|
1.43
|
|
|
*
|
The aggregation of
sales, mining, processing and other costs, royalties and
transportation costs, other income (expenses) and write-offs / loss
on disposal of property, plant and equipment are included within
adjusted EBITDA (Refer to item 22 'Non-IFRS measures' of the
Company's MD&A).
|
**
|
C1 costs after
by-product credit. Refer to item 22 'Non-IFRS measures' of the
Company's MD&A.
|
|
|
Three months
ended
|
Nine months
ended
|
|
|
Sep
30,
2019
|
Jun 30,
2019
|
Sep 30,
2018
|
Sep
30,
2019
|
Sep 30,
2018
|
Copper
revenue
|
$'000
|
320,264
|
280,226
|
246,289
|
955,578
|
597,152
|
Cobalt
revenue
|
$'000
|
27,530
|
20,865
|
181,827
|
48,163
|
322,971
|
Concentrate
revenue
|
$'000
|
-
|
-
|
-
|
-
|
263
|
Total
revenue
|
$'000
|
347,794
|
301,091
|
428,116
|
1,003,741
|
920,386
|
Including net
provisional pricing adjustment
|
|
7,389
|
(23,149)
|
5,585
|
6,611
|
5,694
|
|
|
|
|
|
|
|
Copper cathode
sold
|
tonnes
|
60,530
|
53,700
|
43,596
|
170,631
|
97,057
|
Cobalt contained in
hydroxide sold
|
tonnes
|
2,020
|
1,245
|
3,737
|
3,265
|
5,913
|
|
|
|
|
|
|
|
LME average copper
price
|
$/lb
|
2.63
|
2.77
|
2.77
|
2.74
|
3.01
|
Realized copper
price*
|
$/lb
|
2.02
|
1.91
|
2.30
|
2.12
|
2.30
|
MB average cobalt
price
|
$/lb
|
14.82
|
15.22
|
34.65
|
15.94
|
38.49
|
|
|
*
|
Realized
copper prices are based on gross copper revenue (above) after
deducting realization charges, royalties and other selling
expenses.
|
The movement in revenue is due to the following price and volume
factors:
- Copper revenue increased to $320.3
million in Q3 2019 from $280.2
million in Q2 2019. Copper revenue increased to $955.6 million in Q3 2019 YTD from $597.2 million in Q3 2018 YTD. The increase in
copper revenue in Q3 2019 versus Q2 2019 was due to slightly higher
copper sales (and production) and an increase in the realized
copper price. The increase in copper revenue during Q3 2019 YTD
versus Q3 2018 YTD is due to the increase in copper sales (and
production), driven by the WOL Project ramp-up, partially offset by
a lower realized copper price.
- Cobalt revenue increased to $27.5
million in Q3 2019 from $20.9
million in Q2 2019. Cobalt revenue decreased to $48.2 million in Q3 2019 YTD from $323.0 million in Q3 2018 YTD. The increase in
cobalt revenue in Q3 2019 versus Q2 2019 was due to increased sales
volumes with a focus during Q3 2019 on exporting dried material
which has a higher cobalt contained value compared to Q2 2019 where
a mixture of high moisture and dried material was sold. The
decrease in cobalt revenue in Q3 2019 YTD versus Q3 2018 YTD is due
to the effect of the temporary suspension of export and sale of
cobalt from November 6, 2018 to
April 15, 2019 as well as sales
deferrals due to the mechanical breakdown of the dryers noted
earlier.
- Included in sales is a net provisional pricing adjustment
resulting from movements in the commodity price between the date of
sale and the final pricing, based on average prices for a specified
contractual period thereafter. At each reporting date,
provisionally priced sales that have not been finalized retain an
exposure to future changes in prices and are marked-to-market,
based on London Metal Exchange ("LME") and Metal Bulletin ("MB")
forward prices. These adjustments are recorded in sales in the
Statement of Loss and Comprehensive Loss and within receivables on
the Statement of Financial Position. These embedded derivatives
comprising provisional pricing, included in receivables, are
classified within level 2 of the fair value hierarchy.
The movement in cost of sales, depreciation, royalties and
transportation costs comprises:
|
|
Three
months ended
|
Nine months
ended
|
|
|
Sep
30,
2019
|
Jun 30,
2019
|
Sep 30,
2018
|
Sep
30,
2019
|
Sep 30,
2018
|
Open pit mining
costs
|
$'000
|
38,006
|
29,704
|
29,550
|
97,438
|
79,702
|
Underground mining
costs
|
$'000
|
13,437
|
14,508
|
14,361
|
43,124
|
37,104
|
KTC processing
costs
|
$'000
|
22,331
|
22,678
|
21,902
|
72,448
|
52,727
|
Luilu refinery
costs
|
$'000
|
141,777
|
132,817
|
83,330
|
424,819
|
186,799
|
Change in metal
stock
|
$'000
|
(36,179)
|
(9,654)
|
13,371
|
(49,148)
|
(75,161)
|
Mine infrastructure
and support costs
|
$'000
|
93,317
|
79,366
|
57,357
|
285,578
|
168,950
|
Expense on issue of
capital spares to production
|
$'000
|
-
|
950
|
411
|
3,537
|
2,484
|
Depreciation and
amortization
|
$'000
|
109,744
|
57,327
|
74,955
|
223,466
|
190,917
|
Royalties and
transportation costs
|
$'000
|
70,904
|
68,170
|
73,704
|
195,324
|
147,356
|
Total cost of
sales
|
$'000
|
453,337
|
395,866
|
368,941
|
1,296,586
|
790,878
|
Review of Expenses for the Three and Nine Months Ended
September 30, 2019:
- Gross loss increased to $105.5
million in Q3 2019 from $94.8
million in Q2 2019. Gross loss increased to $292.8 million in Q3 2019 YTD from
$129.5 million gross profit in Q3
2018 YTD. The increase in gross loss in Q3 2019 compared to Q2 2019
is due to increased costs of production. The cost of production
increased due to higher reagent costs and increased depreciation.
The increase in gross loss in Q3 2019 YTD compared to Q3 2018 YTD
gross profit is driven by reduced cobalt revenue (volume and
price), higher reagent costs at Luilu and an increase in total
volumes processed, in line with the optimized mine plan. These were
partially offset by an increase in copper revenue due to increased
copper sales (and production). In addition, the inventory
obsolescence provision was increased from $14.8 million in 2018 to $62.0 million in Q3 2019 YTD.
- Open pit mining costs increased to $38
million in Q3 2019 compared to $29.7
million in Q2 2019. Open pit mining costs increased to
$97.4 million in Q3 2019 YTD from
$79.7 million in Q3 2018 YTD. The
increase in open pit mining costs is due to an increase in total
material mined.
- KTC processing costs decreased to $22.3
million in Q3 2019 from $22.7
million in Q2 2019. KTC processing costs increased to
$72.4 million in Q3 2019 YTD from
$52.7 million in Q3 2018 YTD. KTC
processing and operational costs have moved in line with the amount
of material milled during the respective periods.
- Luilu refinery costs increased to $141.8
million in Q3 2019 from $132.8
million in Q2 2019. Luilu refinery costs increased to
$424.8 million in Q3 2019 YTD from
$186.8 million in Q3 2018 YTD. Luilu
refinery costs increased due to increased reagent costs and an
increase in total oxide feed from KTC, in line with the optimized
mine plan.
- Royalties and transportation costs have increased to
$70.9 million in Q3 2019 from
$68.2 million in Q2 2019. Royalties
and transportation costs have increased to $195.3 million in Q3 2019 YTD from $147.4 million in Q3 2018 YTD. Royalties and
transportation costs have increased due to higher copper revenues
and sales tonnes. The Q3 2019 YTD negative variance includes the
impact from implementation of a new mining code in the DRC
effective mid-2018 (the "2018 Mining Code"), which changed the
basis of royalties from a net revenue to gross revenue basis,
increased base royalty rates and then cobalt being declared a
strategic mineral metal and taxed at a higher 10% from Q4 2018
(previously 3.5%).
Cash Flows
|
|
Three months
ended
|
Nine months
ended
|
|
|
Sep
30,
2019
|
Jun 30,
2019
|
Sep 30,
2018
|
Sep
30,
2019
|
Sep 30,
2018
|
Cash flow generated
(used) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
before changes in working capital
|
$'000
|
10,055
|
(26,501)
|
135,684
|
10,528
|
140,224*
|
Changes in working
capital
|
$'000
|
(13,296)
|
(73,164)
|
(40,607)
|
(113,793)
|
(148,520)
|
Taxes paid
|
$'000
|
(17,106)
|
-
|
-
|
(17,106)
|
-
|
Operating
activities
|
$'000
|
(20,347)
|
(99,665)
|
95,077
|
(120,371)
|
(8,296)
|
Investing
activities
|
$'000
|
(125,591)
|
(85,304)
|
(111,162)
|
(381,824)
|
(282,228)
|
Financing
activities
|
$'000
|
135,000
|
115,000
|
-
|
510,000
|
273,682
|
(Decrease)
increase in cash
|
$'000
|
(10,938)
|
(69,969)
|
(16,085)
|
7,805
|
(16,842)
|
|
|
|
|
|
.
|
|
Cash, beginning of
period
|
$'000
|
24,321
|
94,238
|
37,462
|
5,499
|
38,144
|
Effect of exchange
rate changes on cash held in foreign currencies
|
$'000
|
(470)
|
52
|
43
|
(391)
|
118
|
Cash, end of
period
|
$'000
|
12,913
|
24,321
|
21,420
|
12,913
|
21,420
|
|
|
*
|
Includes $191 million
as cash component of the one-time restructuring expense under the
Gécamines Settlement Agreement (Refer to item 9 of the Company's
MD&A).
|
Review of the Cash Flows for the Three and Nine months ended
September 30, 2019
- Cash flows from operating activities before changes in working
capital increased to $10.1 million
inflow in Q3 2019 from $26.5 million
outflow in Q2 2019. Cash flows from operating activities before
changes in working capital decreased to $10.5 million generated in Q3 2019 YTD from
$140.2 million generated in Q3 2018
YTD. The increase in cash inflows in Q3 2019 compared to Q2 2019
cash outflow was driven principally by an increase in copper
revenue due to slightly higher copper sales (and production) and an
increase in cobalt revenue. The decrease in cash flows in Q3 2019
YTD compared to Q3 2018 YTD was driven mainly by an increase in
processing and mine infrastructure and support costs and lower
cobalt revenue.
- Changes in working capital cash outflows decreased to a
$13.3 million outflow in Q3 2019 from
an outflow of $73.2 million Q2
2019. Changes in working capital outflows decreased to $113.8 million in Q3 2019 from $148.5 million Q3 2018 YTD. The decrease in
working capital cash outflows in Q3 2019 compared to Q2 2019
outflows resulted primarily from an increase in accounts payable
and accrued liabilities, offset by an increase in inventories and
trade receivables. The decrease in outflows in Q3 2019 YTD compared
to Q3 2018 YTD was driven by an increase in accounts payable and
accrued liabilities partially offset by an increase in trade
receivables, an increase in inventory and an increase in prepaid
expense and other current and non-current assets.
- During Q3 2019 income taxes relating to the 2018 income tax
liability and tax on super profits were paid. No cash flows
relating to tax payments occurred during Q3 2018 YTD.
- Cash outflows from investing activities increased to
$125.6 million in Q3 2019 from
$85.3 million in Q2 2019. Cash
outflows from investing activities increased to $381.8 million in Q3 2019 YTD from $282.2 million in Q3 2018 YTD. The increase in
the cash outflows reflects the underlying costs of expansionary
capital expenditures in the respective periods.
- Cash inflows from financing activities increased to
$135 million in Q3 2019 from
$115 million in Q2 2019. Cash inflows
from financing activities increased to $510
million in Q3 2019 YTD from $273.7
million in Q3 2018 YTD. The increase in cash inflows from
financing activities reflected the rate of drawdowns under the Bank
Loan and other Facilities (please see item 2 of the Company's
MD&A for further details).
Outlook
On April 29, 2019, the Company
announced that KCC had commenced a comprehensive business review
targeting mining efficiencies and processing improvements as well
as enhancements to product quality realizations and overhead cost
reductions (the "Review").
Initial indications suggest there may be scope for margin
improvements in the order of $200-250
million per annum. Further work, seeking to develop detailed
implementation plans to deliver these improvements, is being
undertaken, which if successful, are expected to be realizable by
2022.
To effect these improvements, KCC has created a transformation
office to facilitate a 36 month turnaround plan, designed to unlock
the potential of the people and assets across the site. To ensure
timely project delivery, KCC has defined business priorities such
as, but not limited to, improved efficiencies, maintenance, labor
productivity and production quality, while decreasing the costs
associated with procurement, sourcing and information
technology.
These improvements are expected to materially increase the cash
flow generation of KCC from 2022, when it is projected to achieve
targeted life of mine average production of approximately 300kt of
copper and 30kt of cobalt, resulting in a steady state copper unit
cash cost of $1.65/lb, before cobalt
by-product credits, and $0.75/lb
after cobalt by-products revenue, net of allocable cobalt direct
production and realization/selling costs of approximately
$0.60/lb.[1]
Production guidance for copper and cobalt has been moderately
revised, compared to the August 2019
release, as follows:
Commodity
|
|
Units
|
Production
Guidance
|
|
|
|
FY 2019
|
FY 2020
|
FY 2021
|
Copper(1)
|
|
Kt
|
233
|
270
|
295
|
Cobalt(2)
|
|
Kt
|
16
|
29
|
32
|
Notes:
|
(1)
|
Annual copper
production guidance subject to +/- 15 kt
variation
|
(2)
|
Annual cobalt
production guidance subject to +/- 2 kt variation
|
Notwithstanding these targets, production in any given year will
fluctuate as a function of numerous factors, including availability
and utilization of the plant, geological and mining conditions,
logistics, availability of reagents, availability of electricity,
macro-economic factors such as commodity prices, input costs and
geopolitical developments (including the 2018 Mining Code).
Subsequent Events
The Company announces that it has
entered into an agreement with GIAG to complete a rights offering
(the "Rights Offering") to partially repay the Glencore Loan
Facilities. Under the terms of the Rights Offering, each holder of
a common share would receive one right (a "Right") to subscribe for
that number of common shares equal to approximately $5.8 billion, divided by the subscription price.
The subscription price per common share is agreed to be at a 25%
discount to the 5-day volume-weighted average price of common
shares on the date the final prospectus is filed. Shareholders who
exercise in-full their Rights to purchase common shares will also
be entitled to subscribe for additional common shares if there are
unexercised Rights available at the expiry time. GIAG has agreed to
purchase, at the subscription price, all common shares that are not
otherwise subscribed for under the Rights Offering. The residual
amount of the Glencore Loan Facilities after the partial repayment
is expected to be approximately $1.5
billion as at December 31,
2019. Upon closing of the Rights Offering, the Glencore Loan
Facilities will be merged into a single $1.75 billion facility consisting of the
remaining approximately $1.5 billion
of Glencore Debt not repaid under the Rights Offering and undrawn
committed liquidity of approximately $250
million, which Glencore has agreed to provide under a
subsequent facility agreement. The subsequent facility will mature
on January 1, 2023, and bear interest
at a rate of 7% per annum. The interest will be capitalized to the
extent the Company has insufficient cash to pay it when due.
The Company also announces that Peter
Freyberg has resigned from his position as a director of the
Company. The Board has subsequently appointed Hilmar Rode as a director, effective
November 7, 2019.
The KCC board of directors also appointed on October 29, 2019, Mark
Davis as Managing Director of KCC, replacing Samuel Rasmussen, as well as Clint Donkin as Operations Director of KCC,
replacing Michael Fleming.
The Company further announces that Jeff
Gerard intends to resign as Chief Executive Officer and
director of the Company, effective following the filing of the
final prospectus related to the Rights Offering. Mark Davis, already appointed as Managing
Director of KCC, will be appointed CEO of the Company pursuant to
the Management Agreement and as a director of the Company,
effective following the filing of the final prospectus related to
the Rights Offering. The executive services of Mr. Davis will be
provided to the Company by GIAG pursuant to the Management
Agreement.
Qualified Person
Tahir Usmani, PEng, APEGA, Chief
Mine Planning Engineer of KCC, has reviewed and approved the
scientific and technical disclosure in this news release. Mr.
Usmani is a "qualified person" for the purposes of NI 43‐101 ‐
Standards of Disclosure for Mineral Projects.
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.
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 ramp-up of production following commissioning of the
WOL Project (as defined in the Company's annual information form
for the year ended December 31, 2018
dated April 1, 2019 (the "AIF")); the
realization of the expected improvements from the WOL Project;
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; the Company
being able to confirm any of the margin improvements identified by
the Review and then successfully implementing any such margin
improvements; continued recognition of the Company's mining
concessions and other assets, rights, titles and interests in the
DRC; the completion of the ion exchange plant in the time
contemplated, at the expected cost of construction; the completion
of the Acid Plant in the time contemplated, at the expected cost of
construction; political and legal developments in the DRC being
consistent with its current expectations; the continued provision
or procurement of additional funding from Glencore for operations,
the completion of the T17 Underground Mine and additional phases of
the WOL Project and the Power Project (as defined in the Company's
AIF); new equipment performs to expectations; the exchange rate
between the US dollar, South African rand, British pounds, Canadian
dollar, Swiss franc, Congolese franc and Euro being approximately
consistent with current levels; certain price assumptions for
copper and cobalt; prices for diesel, natural gas, fuel oil,
electricity and other key supplies being approximately consistent
with current levels; production, operating expenses and cost of
sales forecasts for the Company meeting expectations; the accuracy
of the current ore reserve and mineral resource estimates of the
Company (including but not limited to ore tonnage and ore grade
estimates); and labour and material costs increasing on a basis
consistent with the Company's current expectations.
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. 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.
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1
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Realization costs are
based on an assumed copper price of $6,500/t and realized cobalt
price of $15/lb.
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SOURCE Katanga Mining Limited