Camec caves on Katanga bid

KATANGA MININGThe Kamoto ball and ginding mills and concentrator in Katanga province, Democratic Republic of the Congo.

KATANGA MINING

The Kamoto ball and ginding mills and concentrator in Katanga province, Democratic Republic of the Congo.

Central African Exploration and Mining Co. (Camec) (CEAMF-O, CFM-L) did the expected last week when it withdrew its all-share offer for Toronto Stock Exchange-listed Katanga Mining (KAT-T, KATFF-O).

Camec was forced into the decision after its shares nose-dived following news that the government of the Democratic Republic of the Congo had revoked two of Camec’s copper-cobalt mining licences in area C19, host to the company’s Luita solvent extraction-electrowinning facility.

“We have decided to withdraw our offer for Katanga following consultation with (Congolese businessman) George Forrest and our other partners. We are confident that we will be able to reconfirm our rightful ownership of our mining permits in the DRC,” said Andrew Groves, chief executive of Camec, in a statement.

One permit is owned outright by Boss Mining, a wholly owned subsidiary of Camec; the other by Mukondo Mining, held by Boss Mining and New Zealand-based Savannah Mining.

The cancellation of the licences means the rights to mine the C19 area reverts to state-owned Gecamines, at least until a court can hear Camec’s appeal.

Camec says there is “no legal valid basis for any revocation, and that the announcement of this potential action was clearly timed to impact Camec’s offer for Katanga.”

The company also blamed “commercial forces” in the DRC who opposed Camec’s acquisition of Katanga.

Camec plans to launch international arbitration proceedings against the government of the DRC to recover any losses the company could suffer as a result of the licences being revoked.

Katanga knew the Camec bid was on borrowed time.

“Given the significant uncertainty surrounding Camec and its operations, we are not surprised by this development,” notes Arthur Ditto, chairman, president and CEO of Katanga. “Katanga is free to continue to develop its Kamoto project and to investigate strategic options to maximize value for Katanga shareholders.”

Katanga operates the Kamoto copper-cobalt mine complex in the DRC. First copper is due to be shipped in December and the site is expected to reach full production in 2011, when 150,000 tonnes of refined copper and 8,000 tonnes of refined cobalt will be produced annually.

Of note, Katanga was advised by Forrest that, as a result of the withdrawal of CAMEC’s offer, he has been released from his lock-up agreement with Camec.

Katanga may still need to solicit another bid or find a partner, as development costs at Kamoto mount. Rumours swirl around possible partners Anglo American (AAUK-Q, AAL-L) or London-based Nikanor (NKR-L), both of which signed confidentiality agreements in order to see Katanga’s electronic data room following Camec’s bid.

Katanga was hoping for a cash infusion from a bank to fund ongoing development of Kamoto, a sum that one analyst pegged as high as $250 million. But several banks walked away once Camec floated the idea of a takeover offer earlier this summer.

“They’re quite vulnerable,” said one Toronto-based analyst. “(Katanga) needs funding pretty quickly.”

Camec says it is aware that the DRC government is reviewing more mining leases, including those held by Camec and Katanga.

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