Glencore's Congo unit Katanga Mining to go private, warns of possible COVID-19 impact

By Helen Reid and Zandi Shabalala

JOHANNESBURG/LONDON (Reuters) - Glencore <GLEN.L> is taking its Toronto-listed Congo business Katanga Mining <KAT.TO> private, the subsidiary said on Wednesday, citing limited trading liquidity and the costs of a stock exchange listing as reasons for the move.

Katanga Mining, which produces copper and cobalt from mines in the southern copper belt of Democratic Republic of Congo, was first listed in August 1997 and Glencore owns 99.46% of its shares.

Its de-listing comes as depressed copper and cobalt prices due to the COVID-19 pandemic put added pressure on miners also struggling with disruption to logistics chains linking remote mines to end-users of the metals in Asia.

Katanga shareholders other than Glencore, including Blackrock and nine other minority holders, will receive 0.16 Canadian dollars in cash per share - a 100% premium to the closing price on Tuesday, and a special committee of Katanga's board recommended they approve the deal, the statement said.

Shares in Katanga surged 113.3% to hit the offer price by 1518 GMT after the agreement between Glencore and Katanga was announced. The stock listed at 0.265 Canadian dollars in August 1997 and peaked at 28 Canadian dollars in July 2007.

Among the reasons for going private, Katanga cited the "attractive" premium being given to shareholders, commodity price risks, operational risks, financial risks, and the lack of sources of financing without support from Glencore.

Katanga separately said its copper cathode production increased to 67,298 tonnes in the first quarter of 2020, from 65,402 tonnes in the last quarter of 2019.

Production of cobalt decreased to 5,296 tonnes in Q1 of 2020, from 6,173 tonnes in Q4 of 2019.

COVID-19 IMPACT

In response to the COVID-19 pandemic, Katanga said it was reducing spending on some operations and projects not vital to the day-to-day running of the business.

It also lowered its cobalt production target for the year to 26,000 tonnes from 29,000 tonnes previously.

Katanga said there were no "material" disruptions to operations in the first quarter, but prepared the market for the possibility that restrictive measures implemented by Congo and other governments would impact operations going forward.

"The Company will likely be materially and adversely impacted if its operations are disrupted for any extended period of time, or if it is unable to either import required supplies or export finished product," the miner said.

"Further, the lack of extensive health infrastructure in the DRC may materially and adversely impact the Company."

Congo's mining minister last week warned mine shutdowns would trigger a "catastrophic" economic and social crisis in the country.

Katanga last month said the commissioning of a new acid plant at its 75%-owned subsidiary Kamoto Copper Company (KCC) had been delayed as travel restrictions due to the pandemic made it impossible to bring commissioning experts to the site.

Katanga said it expects operating cash flow minus capital expenditure to be "modestly positive for the year" if there are no further negative developments or impacts from COVID-19.

KCC had undrawn liquidity of $208 million available under its bank facility and cash on hand of $174 million at the end of the first quarter, Katanga added.

(Reporting by Helen Reid and Zandi Shabalala, Editing by Jane Merriman and Elaine Hardcastle)