$250M Loan Puts Katanga In Glencore’s Thrall

Faced with the mounting financial distress of Katanga Mining (KAT-T, KATFF-O), the company’s shareholders have agreed to let the world’s largest commodity trader step in.

By supplying roughly US$265 million worth of loans, Baar, Switzerland-based Glencore International can take as much as an 88% stake in Katanga — a company that until recently had built up a huge market capitalization on the back of its copper and cobalt projects in the Democratic Republic of the Congo (DRC).

The door for Glencore was officially opened after a shareholders’ meeting in Toronto on Jan. 12, when shareholders approved a huge increase in the amount of Katanga’s authorized shares.

Katanga can now issue 953 million shares — a fivefold increase– as backing for convertible loans to be supplied by Glencore.

The deal will see the private company underwrite a new US$100-million loan and amend an existing US$150-million loan. When accrued interest is added, the total sum of the loan will come to roughly US$265 million.

The convertible nature of the loan allows Glencore to convert the debt into equity at 34¢ per share.

In Toronto on Jan. 12, Katanga shares were off 11%, or 4.5¢, to 38¢ on roughly 193,000 shares traded. In July 2007, its shares closed at $26.20; that makes for a 98.5% drop over the past year and a half.

The deal will see Glencore in control of some enviable copper projects in one of the most resource- rich and tumultuous countries in the world.

In all, Katanga has 66 million tonnes in the proven and probable reserve category, with an average grade of 3.5% copper and 0.48% cobalt for 2.3 million tonnes of copper and 310,000 tonnes of cobalt.

The company has another 172 million tonnes in the measured and indicated resource category with an average grade of 4.8% copper and 0.43% cobalt.

All of those resources come from projects in the DRC.

Katanga has plans to expand underground operations at its Kamoto mine and build an open-pit mine at its KOV project.

KOV is one of the world’s largest and highest-grade copper projects.

It produced metal from 1960 to 2000, turning out 38 million tonnes of ore with an average grade of 5.8% copper and 0.5% cobalt.

Katanga has been dewatering the flooded mine since 2006.

Last year Katanga put US$187 million into KOV and US$152 million into Kamoto, but falling copper and cobalt prices combined with the credit squeeze left the company vulnerable.

Glencore is already active nearby via its Mopani copper mine, which sits just across the Congolese border in Zambia.