Glencore backs $5.8bn cash call at DRC subsidiary

Complex deal to substantially cut debt load of Katanga Mining

Glencore has agreed to back a refinancing of Katanga Mining, the Canadian-listed company that controls one of its most important assets.

Katanga announced plans on Thursday to repay $5.8bn of debt owned to Glencore through an equity issue, which the Swiss-based miner and commodity trader has agreed to underwrite.

However, Glencore will not commit any new money to the deal but fund its share - and rights not subscribed for by minority shareholders — by swapping debt for equity. After the offering is complete Katanga will be left with around $1.5bn of debt.

Glencore owns 86 per cent of Katanga Mining, which in turn controls the Kamoto Copper Company (KCC), one of Africa’s biggest copper producers and a key global supplier of cobalt.

“The maximum amount of cash that might be raised, should all minority shareholders take up their rights and no shareholders exercise overallotment options…is $795m,” said Edward Sterck, analyst at BMO Capital Markets. “Should none of the rights be exercised then Glencore should end up with slightly more than 99 per cent of Katanga’s shares on issue.”

Katanga has been a constant source of headaches for Glencore, which is run by billionaire trader Ivan Glasenberg. It has suffered from maintenance and operational problems and made a loss of $685m in the nine months to September 2019.

In June, dozens of illegal miners were killed at KCC when terraces overlooking the main pit collapsed.

It was also fined last year by Canadian regulators for issuing false and misleading statements, after which Glencore decided to take a more active role in managing the company.

Executives parachuted into the company launched a comprehensive business review and set out to tackle Katanga’s debt and unsustainable capital structure. Katanga was technically insolvent at the end of September and facing a January 2021 deadline to repay or refinance the Glencore loans.

Under the turnround plan announced in the summer, Katanga is targeting 300,000 tonnes of copper and 30,000 tonnes of cobalt production from 2022. In the year to date, Katanga has produced almost 250,000 tonnes of copper.

“Glencore fully consolidates Katanga and hence the intercompany debt gets de-consolidated in that process,” said analysts at Citi. “Therefore, such recapitalisation by virtue of debt-to-equity swap is unlikely to have any major impact on Glencore’s balance sheet.”

Shares in Glencore were up 3.3p at 260p.

Citi said the cash call announced on Thursday could be traced back to the recapitalisation of KCC in 2018 by Katanga. Under that deal $5.6bn of equity was swapped for debt, helping to end a stand-off between the company and Gecamines, the DRC’S state mining company.