Gecamines acts to dissolve cobalt miner
The Democratic Republic of Congo’s (DRC’s) state-owned mining company began legal proceedings to dissolve a unit forecast to become the world’s largest cobalt mine, because of a capital shortfall, a Glencore subsidiary said.
Toronto-listed Katanga Mining said on Sunday that it had several options to remedy the deficit at Kamoto Copper Co (KCC), which operates a copper and cobalt mine in southeastern DRC. Possible courses of action include the conversion into equity of a portion of existing debt owed by KCC to Katanga or forgiving some debt, it said.
“Any such outcome would impact the distribution of future cash flows earned by KCC,” Katanga said. KCC is a joint venture between Katanga, which owns 75% of the company, and Gecamines, the DRC’s state miner. Glencore owns more than 86% of Katanga.
High levels of debt at mining companies are becoming an increasingly heated issue in the DRC. Gecamines has said it plans to renegotiate partnerships with international companies to give it a greater stake in mining revenue and profit.
KCC resumed production in December after a two-year hiatus during which it invested in new processing facilities. Glencore said that the company would produce as much as 300,000 tonnes copper and 34,000 tonnes cobalt in 2019, which would make it the DRC’s biggest copper mine and the world’s largest producer of cobalt. The price of cobalt, a key ingredient in rechargeable batteries needed to power electric vehicles, has more than quadrupled in the past two years.
Katanga flagged a $3.9bn capital deficiency and gross debt of $8.9bn in 2017. The company warned in March that the unit could face legal action because of the shortfall. A hearing is scheduled in a DRC court for May 8 and “may grant KCC a maximum period of six months to regularise the situation”, Katanga said Sunday.
KCC “has made numerous attempts to engage in constructive negotiations with Gecamines regarding the recapitalisation plan”, but the stateowned mining company has “unilaterally commenced the proceeding”, Katanga said.
Gecamines president Albert Yuma and director-general Jacques Kamenga did not immediately answer calls and e-mails from Bloomberg seeking further details about the case. A Gecamines spokesman declined to comment.
If Katanga takes the necessary steps to “regularise” KCC’s capital deficiency and the action is confirmed by KCC’s statutory auditor before a court judgment is made, the court cannot issue a dissolution order, Katanga said.
KCC “is generating positive operating cash flow” and “remains liquid”, the company said.