Katanga Mining Announces 2019 First Quarter Financial Results
ZUG, Switzerland, May 15, 2019 /CNW/ - Katanga Mining Limited (TSX: KAT) ("Katanga" or the "Company") today announces its 2019 first quarter financial results. Katanga's unaudited interim financial statements and management's discussion and analysis for the three months ended March 31, 2019 ("MD&A") are available on SEDAR, www.sedar.com.
Financial performance highlights for the three months ended March 31, 2019
Operating Results
| Three months ended | ||||
| Mar 31, 2019 | Dec 31, 2018 | Mar 31, 2018 | ||
| Sales | $'000 | 354,856 | 344,708 | 146,743 |
| Mining, processing and other costs (net of changes in metal | $'000 | (334,737) |
(320,726) | (101,951) |
| Royalties and transportation costs | $'000 | (56,250) | (54,326) | (21,787) |
| Depreciation and amortization | $'000 | (56,395) | (85,721) | (54,610) |
| Gross loss | $'000 | (92,526) | (116,065) | (31,605) |
| Other expenses | $'000 | (2,780) | (14,456) | (685) |
| Write-offs/loss on disposal of property, plant and equipment | $'000 | (2,957) |
(8,088) | (5,961) |
| Net finance costs | $'000 | (116,191) | (111,762) | (96,963) |
| OSC settlement* | $'000 | - | (22,248) | |
| Income tax expense | $'000 | (3,990) | (3,557) | - |
| Net loss and comprehensive loss | $'000 | (218,444) | (276,176) | (135,214) |
| Non-controlling interests | $'000 | (38,785) | (48,718) | (57,290) |
| Attributable to shareholders of the company | $'000 | (179,659) | (227,458) | (77,924) |
| Adjusted EBITDA** | $'000 | (41,868) | (52,888) | 16,359 |
| Basic and diluted loss per common share | $/share | (0.09) | (0.12) | (0.04) |
| C1 costs*** | $/lb | 2.95 | 2.53 | 2.54 |
| * | Refer to item 2 under 'Restatement of Historical Financial Statements filed in 2017 and OSC Settlement' in the Company's MD&A. |
| ** | The aggregation of sales, cost of sales (less depreciation), general and administrative expenses, loss on disposal and write-offs of property, plant and equipment and foreign exchange gains and losses are included within adjusted EBITDA (Refer to item 22 'Non-IFRS measures' of the Company's MD&A). |
| *** | Refer to item 22 'Non-IFRS measures' of the Company's MD&A. |
| Three months ended | ||||
| Mar 31, 2019 | Dec 31, 2018 | Mar 31, 2018 | ||
| Copper revenue | $'000 | 355,088 | 270,765 | 146,480 |
| Cobalt revenue | $'000 | (232) | 73,943 | - |
| Concentrate revenue | $'000 | - | - | 263 |
| Total revenue | $'000 | 354,856 | 344,708 | 146,743 |
| Including net provisional pricing adjustment | 22,371 | (10,012) | (2,197) | |
| Copper cathode sold | tonnes | 56,401 | 48,686 | 22,640 |
| Cobalt contained in hydroxide sold | tonnes | - | 1,430 | - |
| Copper contained in concentrate sold | tonnes | - | - | 74 |
| LME average copper price | $/lb | 2.82 | 2.80 | 3.16 |
| Realized copper price* | $/lb | 2.35 | 2.10 | 2.48 |
| MB average cobalt price | $/lb | 17.77 | 31.68 | 38.37 |
| * Realized copper prices are based on gross copper revenue (above) after deducting realization charges, royalties and other selling expenses. |
The movement in revenue is due to the following price and volume factors:
- Copper revenue increased to $355.0 million in Q1 2019 from $146.5 million in Q1 2018. The increase in copper revenue is due to the increase in copper production and sales driven by the completion of phase one of the WOL Project.
- Included in sales is a net provisional pricing adjustment resulting from movements in the commodity price between the date of sale and the final pricing based on average prices for a specified period thereafter. At each reporting date, provisionally priced sales that have not been finalized retain an exposure to future changes in prices and are marked-to-market based on London Metal Exchange ("LME") and Metal Bulletin ("MB") forward prices. These adjustments were recorded in sales in the statement of loss and comprehensive loss and within receivables on the statement of financial position.
The movement in cost of sales, depreciation, royalties and transportation costs is due to:
| Three months ended | ||||
| Mar 31, 2019 | Dec 31, 2018 | Mar 31, 2018 | ||
| Open pit mining costs | $'000 | 29,728 | 37,283 | 14,981 |
| Underground mining costs | $'000 | 15,179 | 14,003 | 9,748 |
| KTC processing costs | $'000 | 27,439 | 28,533 | 14,328 |
| Luilu refinery costs | $'000 | 150,224 | 113,937 | 39,132 |
| Change in metal stock | $'000 | (3,316) | 11,806 | (30,173) |
| Mine infrastructure and support costs | $'000 | 112,896 | 114,544 | 51,704 |
| Expense on issue of capital spares to production | $'000 | 2,587 | 620 | 2,231 |
| Depreciation | $'000 | 56,395 | 85,721 | 54,610 |
| Royalties and transportation costs | $'000 | 56,250 | 54,326 | 21,787 |
| Total cost of sales | $'000 | 447,382 | 460,773 | 178,348 |
Review of 2019 First Quarter Expenses
- Gross loss increased to $92.5 million in Q1 2019 from $31.6 million in Q1 2018. The increase in gross loss is driven by an increase in net realizable value adjustment on ore in stockpile inventory, provision on obsolete consumable inventories, higher reagent costs at Luilu and an increase in total oxide feed received from KTC in line with the optimized mine plan, offset by an increase in copper revenue due to an increase in copper production;
- Open pit mining costs increased to $29.7 million in Q1 2019 from $15.0 million in Q1 2018. The increase in open pit mining costs is due to an increase in total material mined;
- KTC processing costs increased to $27.4 million in Q1 2019 from $14.3 million in Q1 2018. KTC processing and operational costs increased due to an increase in total material milled and processed;
- Luilu refinery costs increased to $150.2 million in Q1 2019 from $39.1 million in Q1 2018, due to increased reagent costs and an increase in total oxide feed from KTC, in line with the optimized mine plan;
- Mine infrastructure and support costs increased to $113.0 million in Q1 2019 from $51.7 million in Q1 2018. The majority of this increase is the inventory obsolescence provision of $46.9 million; and
- Royalties and transportation costs have increased to $56.3 million in Q1 2019 from $21.8 million in Q1 2018, due to higher copper revenues and sales tonnes.
Cash Flows
| Three months ended | ||||
| Mar 31, 2019 | Dec 31, 2018 | Mar 31, 2018 | ||
| Cash flow generated (used) in: | ||||
| Operating activities before changes in working capital | $'000 | 26,975 | (11,966) | 35,848 |
| Changes in working capital | $'000 | (27,334) | 139,952 | (417) |
| Operating activities | $'000 | (359) | 127,986 | 35,431 |
| Investing activities | $'000 | (170,929) | (166,037) | (82,635) |
| Financing activities | $'000 | 260,000 | 22,500 | 29,700 |
| Increase (decrease) in cash | $'000 | 88,712 | (15,551) | (17,504) |
| Cash, beginning of period | $'000 | 5,499 | 21,420 | 38,144 |
| Effect of exchange rate changes on cash held in foreign currencies | $'000 | 27 | (370) | 27 |
| Cash, end of period | $'000 | 94,238 | 5,499 | 20,667 |
Review of 2019 First Quarter Cash Flows
- Cash flows generated in operating activities before changes in working capital decreased to $27.0 million in Q1 2019 from $35.9 million cash flow in Q1 2018. The decrease in cash flows generated in operating activities before changes in working capital is driven by a decrease in net income (excluding non-cash item addbacks) due to increased operating costs and delayed revenue due to the temporary suspension of cobalt sales;
- Changes in working capital outflows increased to $27.3 million in Q1 2019 from an outflow of $0.4 million Q1 2018. The increase in working capital outflows is primarily driven by the decrease in accounts payable, offset by an increase in accounts receivable due to higher sales volumes;
- Cash outflows from investing activities increased to $170.9 million in Q1 2019 from $82.6 million in Q1 2018. The increase in cash outflows relates to planned spending on expansionary and sustaining capital expenditures; and
- Cash inflows from financing activities increased to $260.0 million in Q1 2019 from $29.7 million in Q1 2018. The increase in cash inflows from financing activities relates to drawdowns under the Bank Loan Facility (please see Item 9 under 'Liquidity and Capital Resources' in the Company's MD&A for further details).
Subsequent Events
Besides the previously announced subsequent events (see previous press releases of the Company available on www.sedar.com), the following events occurred since the quarter ended March 31, 2019.
Update on Loan Facilities
On December 31, 2018, interest of $452.8 million was owed to Glencore under the Loan Facilities (please see Item 9 under 'Liquidity and Capital Resources' in the Company's MD&A for further details) provided to the Company. The Company and Glencore recognized that in light of the Company's financial position, an alternative funding solution would be needed from Glencore. In recognition of that, Glencore earlier this year provided support for additional working capital funding. Subsequent to March 31, 2019, the Loan Facility was amended to formalize the capitalization of the interest so that it will now be payable on maturity in 2021.
In addition, Katanga received a proposal from Glencore which is designed to address the Company's overall indebtedness to Glencore under the Loan Facilities. In response to the Proposal, a special committee of independent directors has been formed and such committee has retained advisors to facilitate ongoing discussions with Glencore.
Glencore and the Company have taken steps to further formalize Glencore's ongoing support and to facilitate consideration of the Proposal or alternatives for dealing with repayment obligations under the Loan Facilities. In furtherance of this, Glencore has agreed to provide the required financial support to the Company to enable the Company to pay its debts as when they become due and payable in the 12 month period from the date of approval of the unaudited interim condensed consolidated financial statements for the three months ended 31 March 2019.
About Katanga Mining Limited
Katanga Mining Ltd. operates a major mine complex in the Democratic Republic of Congo producing refined copper and cobalt. The Company has the potential to become Africa's largest copper producer and the world's largest cobalt producer. Katanga is listed on the Toronto Stock Exchange under the symbol KAT.
Forward Looking Statements
This press release may contain forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved.
All forward-looking statements reflect the Company's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted in these forward-looking statements. All of the Company's forward-looking statements are qualified by the assumptions that are stated or inherent in such forward-looking statements, including the assumptions listed below. Although the Company believes that these assumptions are reasonable, this list is not exhaustive of factors that may affect any of the forward-looking statements. The key assumptions that have been made in connection with the forward-looking statements include the following: there being no significant disruptions affecting the operations of the Company whether due to legal disputes, judicial action, labour disruptions, supply disruptions, power disruptions, rollout of new equipment, damage to equipment or otherwise; permitting, development, operations, expansion and acquisitions at KCC being consistent with the Company's current expectations; continued recognition of the Company's mining concessions and other assets, rights, titles and interests in the DRC; political and legal developments in the DRC being consistent with its current expectations; the continued provision or procurement of additional funding from Glencore for operations, the completion of the T17 Underground Mine and the Power Project (as defined in the Company's annual information form for the year ended December 31, 2018 dated April 1, 2019); new equipment performs to expectations; the exchange rate between the US dollar, South African rand, British pounds, Canadian dollar, Swiss franc, Congolese franc and Euro being approximately consistent with current levels; certain price assumptions for copper and cobalt; prices for diesel, natural gas, fuel oil, electricity and other key supplies being approximately consistent with current levels; production, operating expenses and cost of sales forecasts for the Company meeting expectations; the accuracy of the current ore reserve and mineral resource estimates of the Company (including but not limited to ore tonnage and ore grade estimates); and labour and material costs increasing on a basis consistent with the Company's current expectations.
Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements. Although Katanga has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward- looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except in accordance with applicable securities laws.
SOURCE Katanga Mining Ltd.
Contact
Longview Communications Inc., Joel Shaffer (Toronto), (416) 649-8006, jshaffer@longviewcomms.ca; Alan Bayless (Vancouver), (604) 694-6035, abayless@longviewcomms.ca