Distressed Katanga To Boost Authorized Shares To 5B

All the speculation over the state of Katanga Mining’s (KAT-T, KATFF-O) finances is at an end, with a stark announcement from the company that it needs more funding on an “urgent basis” to sustain itself.

Katanga doesn’t have the cash to continue operations beyond the short term and is asking shareholders for permission to drastically bolster the amount of shares it would have available to raise funds.

The London-based company wants to jack up the amount of its authorized shares to a staggering 5 billion from its current position of just 300 million.

Katanga currently has 206 million common shares issued and outstanding. Bolstering the size of its authorized shares would allow the company to raise funds by issuing large amounts of convertible debt.

Shareholders will vote on the proposal on Jan. 12 in Toronto.

Rumblings about Katanga’s financials began in late September, after the company admitted it lacked the cash to follow through on a planned refurbishment and expansion at its key Kamoto copper and cobalt mine. The construction would have brought a ramp up in production that would have brought the project up to self-sustaining levels.

While the company immediately sought to find new efficiencies through cost-cutting measures on the capital expenditures side and within its workforce, such cuts weren’t enough to compensate for the drastic fall in commodity prices and subsequent thinning of cash flows.

The effect of lower prices was in sharp evidence just a few weeks ago, when Katanga announced it was temporarily halting cobalt production at a key cobalt mine and processing plant due to lower prices.

To get through the present financial dilemma, the company says it is considering both equity and/or a convertible debt financing.

If it does go the convertible debt route, participating shareholders would be able to increase their equity stake without prior shareholder approval.

Katanga also announced that a new chief financial officer will guide financial arrangements going forward. The company said Nicholas Brodie will immediately take over the post from Stephen Jones, who resigned on Dec 9.

Brodie has served as Katanga’s finance director since 2006.

In Toronto on Dec. 15 — the day news of the cash shortfall was released — Katanga shares were off 15% or 6¢ to 32.5¢ on roughly 1.5 million shares traded. Its shares had closed at a high of $26.20 on July 13, 2007.