Katanga Mining signs agreement with Gecamines

Katanga Mining in the Democratic Republic of Congo (DRC) has signed a memorandum of understanding (MoU) with the state-owned mining company Gecamines. Under the terms of this agreement, changes will be made to the Kamoto Copper Company (KCC) joint venture.

It is expected that this agreement will settle the government-initiated review of Katanga’s mining licenses. It has been over a year since the DRC’s government began a review of around 60 mining contracts, including those with Katanga, Camec and First Quantum Minerals.

In the case of certain contracts, the government claimed there had been some irregularities in the original issuing of mining licenses, and it wanted to review all the contracts to ensure greater transparency and that they were beneficial to the economy of the DRC.

Under the terms of this new agreement, Katanga will maintain a 75% stake in the joint venture, with the remaining 25% held by Gecamines. However, royalty payments to Gecamines would rise to 2.5% from 1.5%.

It will also see the merger of Katanga’s DRC Copper and Cobalt Project with the KCC joint venture, and the transfer of the Dikuluwe and Mashamba West Deposits to Gecamines, as outlined in a previous agreement made in February this year. Further key provisions include that 75% of the share capital of the merged JV will be allocated to Katanga’s wholly-owned subsidiaries KFL and GEC.

Upon implementation of the merged JV, 5% of all additional joint venture funding until the project reaches 150,000 tonnes of copper output per year will be non-interest bearing and the remaining 95% will bear interest at a rate not greater than Libor plus 3%.

In addition, the first cash payment to Gecamines for transfer of mining rights is US$5mn and will be made on implementation of the merged JV.

The Board of KCC will be increased to eight members, of whom three will be appointed by Gecamines, and KCC will assume day-to-day management of the merged JV's operations within 12 months from the date of the MoU. This will result in the elimination of the current operating agreement with Kamoto Operating Limited.

Arthur Ditto, president and CEO of Katanga comments: "I am very pleased that this MoU addresses outstanding matters affecting joint venture business, including government requirements from the mining review, and that we can deal with everything in one merged joint venture agreement.

“We look forward to a closer working relationship with Gecamines and getting the full financial and operating synergy that merging the two joint ventures will bring for the benefit of everyone."

Paul Fortin, director general of Gecamines, also notes: "This joint venture is very important to Gecamines and to the economy of the DRC, and we believe the MoU provides a positive framework for its future success."

Katanga Mining Limited operates a major mine complex in the Democratic Republic of Congo producing refined copper and cobalt. The company has a targeted annual output of over 300,000 tonnes of refined copper and over 30,000 tonnes of refined cobalt by 2011, giving it the potential to become the largest copper producer in Africa, and the world’s largest cobalt producer.