Katanga in distress

Speculation over the poor state of Katanga Mining’s (KAT-T) finances is over.

The company announced in stark terms that it needs more funding on an “urgent basis” to sustain itself.

The London–based company said it lacks the funds 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.

Katanga wants to up its amount of authorized shares to 5 billion with a notional value of 10¢ per share, from its current position of 300 million with a notional value of 5¢ per share.

The company currently has 206 million common shares issued and outstanding. By bolstering the size of its authorized shares it could conceivable raise funds by issuing large amounts of convertible debt.

Shareholders will vote on the proposal on January 12 of next year in Toronto.

Clear distress signals were sent by the company with regard to its finances back in September when it admitted it lacked the cash required to ramp up its key Kamoto copper and cobalt mine to self-sustaining levels.

While it has implemented cost cutting measures aimed at capital expenditures and its workforce such cuts haven’t been 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 that it was temporarily halting cobalt production at a key cobalt mine and processing plant due to lower prices.

To get through the present financial straits, 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 will have a new chief financial officer Oversee the new financial arrangements. The company announced that Nicholas Brodie will immediately take over the post from Stephen Jones who resigned on December 9^th.

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

In Toronto on Dec. 15 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 of last year.