Glencore moving in on Katanga

Facing financial distress Katanga Mining’s (KAT-T) shareholders have agreed to allow the world’s largest commodity trader to 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 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 shareholder’s meeting in Toronto on Monday, where shareholders gave the okay to a huge increase in the amount of Katanga’s authorized shares.

Katanga can now issue 953 million shares – an increase five times greater than the amount before – as backing for convertible loans to be supplied by Glencore.

The deal will see Glencore 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 of 2007 its shares closed at $26.20 – a 98.5% drop.

The deal will see Glencore in control of some enviable copper projects in one of the worlds richest – if not most tumultuous – countries.

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 that are situated in the DRC.

Katanga has plans to expand underground operations at its Kamoto mine and construct 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 de-watering 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 Zambia.