Katanga pulls the brakes on cobalt production

Katanga Mining (KAT-T) blames falling cobalt prices for its decision to stop producing the metal at one of its projects in the Democratic Republic of Congo (DRC).

The company calls the move a temporary one and says it won’t hurt its bottom line.

To feed market demand for cobalt concentrate while mining at the cobalt-rich Tilwezembe open pit mine stops and ore processing at the Kolwezi concentrator winds down, Katanga will draw from a large cobalt concentrate inventory for supply.

Those sales will protect revenues from cobalt sales for the fourth quarter it says.

Tilwezembe sits 30-km southeast of Kolwezi and is a feed to the concentrator which can turn out 655,000 tonnes of concentrate per year.

The concentrator was restarted in September 2006 by Katanga but the company plans to decommission it once its planned SX/EW refinery comes online

In total, Katanga has 310,000 tonnes of cobalt sitting in the proven and probable reserve category.

BHP Billiton’s (BHP-N, BLT-L) most recent open cobalt sales reports show that it sold 5 million tonnes of cobalt in October of this year for US$36 per lb. In March of this year it was selling the metal for over US$50 per lb.

Most cobalt is produced as a copper and nickel by-product. Most of its demand comes from its use in rechargeable batteries, super alloys, dyes and pigments, catalyst and high performance magnets.

And while operations at its key Kamoto copper and cobalt underground mine continue, that is not the case at its Luilu plant.

A transformer fire earlier in the month shut the plant down and stocks of copper concentrate are continuing to pile up.

In Toronto on Nov. 21 Katanga’s shares were off 2¢ to 36¢ on roughly 790,000 shares traded. Its shares had closed as high as C$18.21 in January of this year.

Shares have fallen over what have been  tumultuous times for the company and a volatile time for both the market and the DRC. While violence in the eastern part of the country is over a thousand km from Katanga’s operations, if the country were to teeter back into war it would no doubt have negative consequences.

As for company specific upheaval former chief executive Arthur Ditto resigned from his post in June and the company is in the midst of looking at how to reduce capital expenditures.

Against that Katanga was able to come to terms with Gecamines in the mining contract renegotiation process – something neither Freeport McMoRan Copper and Gold (FCX-N) nor First Quantum Minerals (FM-T) has been able to do.