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Katanga Mining Announces 2019 Second Quarter Financial Results

ZUG, Switzerland , Aug. 6, 2019 /CNW/ - Katanga Mining Limited (KAT.TO) ("Katanga" or the "Company") today announces its 2019 second quarter financial results. Katanga's unaudited interim financial statements and management's discussion and analysis for the three and six months ended June 30, 2019 ("MD&A") are available on SEDAR (www.sedar.com).

Katanga Mining Limited (CNW Group/Katanga Mining Limited)

Outlook

On April 29, 2019 , the Company announced that its 75%-owned subsidiary, Kamoto Copper Company ("KCC"), had commenced a comprehensive business review targeting mining efficiencies and processing improvements as well as enhancements to product quality realizations and overhead reductions (the "Review").

Initial indications suggest there may be scope for margin improvements in the order of $200 -250 million per annum. Further work needs to be undertaken to develop detailed implementation plans to deliver these improvements, which are expected to be realizable by 2022.

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 approximately $1.65 /lb, before cobalt by-product credits, and approximately $0.75 /lb after cobalt by-products revenue, net of allocable cobalt direct production and realization/selling costs of approximately 60c/lb.1

As a result, production guidance of copper and cobalt has been revised to:

Commodity


Units

Production Guidance




FY 2019

FY 2020

FY 2021

Copper(1)


kt

235

260

290

Cobalt(2)(3)


kt

14.4

29.6

35.7

Notes:


(1)

Annual copper production guidance subject to +/- 15 kt variation

(2)

Annual cobalt production guidance subject to +/- 2 kt variation, includes
reprocessed cobalt post completion of the IX Plant.

(3)

2019 cobalt production guidance includes 11.8kt of saleable cobalt

 

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 a new mining code in the Democratic Republic of Congo ("DRC") effective January 27, 2018 (the "New DRC Mining Code")).

1

Realization costs are based on an assumed copper price of $6,500/t and realized cobalt price of $15/lb.

 

Operating Results



Three months ended

Six months ended



Jun 30,

Mar 31,

Jun 30,

Jun 30,

Jun 30,



2019

2019

2018

2019

2018

Sales*

$'000

301,091

354,856

345,527

655,947

492,270

Mining, processing and other costs (net of changes in
metal stocks)*

$'000

(270,370)

(334,737)

(130,372)

(605,107)

(232,323)

Royalties and transportation costs*

$'000

(68,170)

(56,250)

(51,865)

(124,420)

(73,652)

Depreciation and amortization

$'000

(57,327)

(56,395)

(61,352)

(113,722)

(115,962)

Gross (loss) profit

$'000

(94,776)

(92,526)

101,938

(187,302)

70,333








Other income (expenses)*

$'000

1,883

(2,780)

(8,772)

(897)

(9,457)

Write-offs / loss on disposal of property, plant and equipment*

$'000

(27,684)

(2,957)

(3,510)

(30,641)

(9,471)

Net finance costs

$'000

(116,999)

(116,191)

(150,482)

(233,190)

(247,445)

Restructuring expenses

$'000

-

-

(248,128)

-

(248,128)

Income tax expense

$'000

(2,551)

(3,990)

-

(6,541)

-

Net loss and comprehensive loss

$'000

(240,127)

(218,444)

(308,954)

(458,571)

(444,168)

Non-controlling interests

$'000

(46,573)

(38,785)

15,594

(85,358)

(41,696)

Attributable to shareholders of the company

$'000

(193,554)

(179,659)

(324,548)

(373,213)

(402,472)








Adjusted EBITDA*

$'000

(63,249)

(41,868)

151,008

(105,117)

167,367








Basic and diluted loss per common share

$/share

(0.10)

(0.09)

(0.17)

(0.20)

(0.21)

C1 costs**

$/lb

2.66

2.95

1.08

2.81

1.72

*

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).

**

Refer to item 22 'Non-IFRS measures' of the Company's MD&A.



Three months ended

Six months ended



Jun 30,

2019

Mar 31,

2019

Jun 30,

2018

Jun 30,

2019

Jun 30,

2018

Copper revenue

$'000

280,226

355,088

204,383

635,314

350,863

Cobalt revenue

$'000

20,865

(232)

141,144

20,633

141,144

Concentrate revenue

$'000

-

-

-

-

263

Total revenue

$'000

301,091

354,856

345,527

655,947

492,270

Including net provisional
pricing adjustment


(23,149)

22,371

(1,188)

(778)

109








Copper cathode sold

tonnes

53,700

56,401

30,825

110,101

53,461

Cobalt contained in hydroxide sold

tonnes

1,245

-

2,176

1,245

2,176








LME average copper price

$/lb

2.77

2.82

3.12

2.80

3.14

Realized copper price*

$/lb

1.91

2.35

2.49

2.13

2.50

MB average cobalt price

$/lb

15.22

17.77

42.45

16.50

40.41

*

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 decreased to $280.2 million in Q2 2019 from $355.0 million in Q1 2019. Copper revenue increased to $635.3 million in Q2 2019 YTD from $350.9 million in Q2 2018 YTD. The decrease in copper revenue in Q2 2019 versus Q1 2019 was due to slightly lower copper sales (and production) and a decrease in the realized copper price. The increase in copper revenue during Q2 2019 YTD versus Q2 2018 YTD is due to the increase in copper sales (and production), driven by the completion of phase one of the WOL Project, which was partially offset by a lower realized copper price.

  • Cobalt revenue increased to $20.9 million in Q2 2019 from ($0.2) million in Q1 2019. Cobalt revenue decreased to $20.6 million in Q2 2019 YTD from $141.1 million in Q2 2018 YTD. The increase in cobalt revenue in Q2 2019 versus Q1 2019 is due to the resumption of export and sale of cobalt that complies with both international and local DRC transport regulations with respect to the levels of uranium. The decrease in cobalt revenue in Q2 2019 YTD versus Q2 2018 YTD is due to the effect of the temporary suspension of export and sale of cobalt sales from November 6, 2018 to April 15, 2019 .

  • 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

Six months ended



Jun 30,

2019

Mar 31,

2019

Jun 30,

2018

Jun 30,

2019

Jun 30,

2018

Open pit mining costs

$'000

29,704

29,728

35,171

59,432

50,152

Underground mining costs

$'000

14,508

15,179

12,995

29,687

22,743

KTC processing costs

$'000

22,678

27,439

16,497

50,117

30,825

Luilu refinery costs

$'000

132,817

150,224

64,337

283,041

103,469

Change in metal stock

$'000

(9,654)

(3,316)

(58,359)

(12,970)

(88,532)

Mine infrastructure and support costs

$'000

79,366

112,896

59,889

192,262

111,593

Expense on issue of capital spares to production

$'000

950

2,587

(158)

3,537

2,073

Depreciation and amortization

$'000

57,327

56,395

61,352

113,722

115,962

Royalties and transportation costs

$'000

68,170

56,250

51,865

124,420

73,652

Total cost of sales

$'000

395,866

447,382

243,589

843,248

421,937

 

Review of Expenses for Three Month Period and Six Months Ended June 30, 2019 :

  • Gross loss increased to $94.8 million in Q2 2019 from $92.5 million in Q1 2019. Gross loss increased to $187.3 million in Q2 2019 YTD from $70.3 million gross profit in Q2 2018 YTD. The increase in gross loss in Q2 2019 compared to Q1 2019 is due to lower revenue due primarily to lower realized copper prices, offset by lower processing costs due to lower material milled in KTC and lower production levels in Luilu and a decrease in provisions relating to slow moving and obsolete stock. The increase in gross loss in Q2 2019 YTD compared to Q2 2018 YTD is driven by reduced cobalt revenue (volume and price), a provision for obsolete consumable inventories, 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).

  • Open pit mining costs remained consistent at $29.7 million in Q2 2019 and in Q1 2019. Open pit mining costs increased to $59.4 million in Q2 2019 YTD from $50.1 million in Q2 2018 YTD. The increase in open pit mining costs is due to an increase in total material mined.

  • KTC processing costs decreased to $22.7 million in Q2 2019 from $27.4 million in Q1 2019. KTC processing costs increased to $50.1 million in Q2 2019 YTD from $30.8 million in Q2 2018 YTD. KTC processing and operational costs have increased due to an increase in total material milled and processed.

  • Luilu refinery costs decreased to $132.8 million in Q2 2019 from $150.2 million in Q1 2019. Luilu refinery costs increased to $283.0 million in Q2 2019 YTD from $103.5 million in Q2 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 $68.2 million in Q2 2019 from $56.3 million in Q1 2019. Royalties and transportation costs have increased to $124.4 million in Q2 2019 YTD from $73.7 million in Q2 2018 YTD. Royalties and transportation costs have increased due to higher copper revenues and sales tonnes. YTD variances are due to the implementation of the New DRC Mining Code, which changed the basis of royalties from a net revenue to gross revenue basis, increased base royalty rates and cobalt being declared a strategic metal and taxed at 10%.


Cash Flows



Three months ended

Six months ended



Jun 30,

2019

Mar 31,

2019

Jun 30,

2018

Jun 30,

2019

Jun 30,

2018

Cash flow generated
(used) in:














Operating activities
before changes in
working capital

$'000

(26,501)

26,975

(31,308)*

475

4,540*

Changes in working capital

$'000

(73,164)

(27,334)

(107,496)

(100,499)

(107,913)

Operating activities

$'000

(99,665)

(359)

(138,804)

(100,024)

(103,373)

Investing activities

$'000

(85,304)

(170,929)

(88,431)

(256,233)

(171,066)

Financing activities

$'000

115,000

260,000

243,982

375,000

273,682

(Decrease) increase in
cash

$'000

(69,969)

88,712

16,747

18,743

(757)








Cash, beginning of period

$'000

94,238

5,499

20,667

5,499

38,144

Effect of exchange rate changes on cash held in foreign currencies

$'000

52

27

48

79

75

Cash, end of period

$'000

24,321

94,238

37,462

24,321

37,462

*

Includes $191 million as cash component of the one-time restructuring expense under the
Settlement Agreement (Refer to item 9 of the Company's MD&A).

Review of the three and six months Cash Flows ended June 30, 2019

  • Cash flows from operating activities before changes in working capital decreased to $26.5 million used in Q2 2019 from $27.0 million generated in Q1 2019. Cash flows generated in operating activities before changes in working capital decreased to $0.5 million generated in Q2 2019 YTD from $4.5 million in Q2 2018 YTD. The decrease in cash flows in Q2 2019 compared to Q1 2019 was driven principally by a decrease in revenue due to lower realized prices of copper. The decrease in cash flows in Q2 2019 YTD compared to Q2 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 increased to a $73.2 million outflow in Q2 2019 from an outflow of $27.3 million Q1 2019. Changes in working capital outflows decreased to $100.5 million in Q2 2019 YTD from an outflow of $107.9 million Q2 2018 YTD. The increase in working capital cash outflows in Q2 2019 compared to Q1 2019 resulted primarily from a lower decrease in prepaid expense and other current and non-current assets, as well as an increase in inventories and a decrease in accounts payable and accrued liabilities, partially off-set by a lower increase in receivables. The decrease in outflows in Q2 2019 YTD compared to Q2 2018 YTD was driven by a decrease in prepaid expense and other current and non-current assets and a lower increase in inventories, partially off-set by a decrease in accounts payable and accrued liabilities;

  • Cash outflows from investing activities decreased to $85.3 million in Q2 2019 from $170.9 million in Q1 2019. Cash outflows from investing activities increased to $256.2 million in Q2 2019 YTD from $171.1 million in Q2 2018 YTD. The decrease/increase in the cash outflows largely reflects the underlying costs of expansionary capital expenditures in the respective periods; and

  • Cash inflows from financing activities decreased to $115 million in Q2 2019 from $260.0 million in Q1 2019. Cash inflows from financing activities increased to $375 million in Q2 2019 YTD from $273.7 million in Q2 2018 YTD. The decrease/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).

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.


SOURCE Katanga Mining Limited


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