Katanga Mining
Katanga Mining. View of the Musonoie-T17 open pit mine

DRC state-owned mining company Gécamines says it is compelled to take legal action against TSX-listed Katanga Mining for failing to restore shareholder’s equity within the legal time period.

This follows the summoning to court of Katanga Mining by Gécamines on 20 April 2018 in a bid to dissolve Kamoto Copper Company – in which Glencore subsidiary Katanga Mining owns a 75% share.

On 22 April, Katanga Mining made public the legal proceedings that was brought about by Gécamines, noting that despite making numerous attempts to engage in constructive negotiations with Gécamines regarding the recapitalisation plan; Gécamines has, instead of meaningfully engaging with Katanga Mining, unilaterally commenced the proceeding.

This relates to capital deficiency within Katanga Copper Company that first arose in 2014 when, as a result of historical losses incurred during the rehabilitation of Katanga Copper Company’s assets through, amongst others, the servicing of the inter-company loans to fund such rehabilitation.

In response, Gécamines on 24 April said the situation justifying a judicial dissolution has now persisted for more than 10 years, without any regularisation despite several warnings.

The state-owned miner said that during this period, through a series of intragroup financial and commercial agreements, the majority shareholders group implemented a policy that resulted in draining, to its own benefit, the treasury and the wealth of the joint company.

Gécamines noted that based only on the last four years, the financial debt has thus increased from US$ 3 233 736 880 to $ 4 572 497 908 and the commercial debt from $ 1 967 255 847 to $ 4 473 525 056, so that the company found itself indebted to the Glencore Group for the amount of $9 billion at the end of 2017.

Moreover, the state-owned miner believes that the policy on service and sub-contracting agreements, organized in favour of the companies affiliated with the Glencore Group, constituted another type of practice at the expense of Gécamines and SIMCO, which contributed to affecting the performance of this joint company, which never distributed any dividends.

“Although for 10 years, in accordance with the law, the company could have been dissolved and the mining rights recovered by Gécamines without any financial compensation, a form of management was perpetuated which severely harmed the interests of Gécamines and more generally of the DRC, and which it is now critical to end,” the state-owned miner said.

A court hearing, in which the court may grant Kamoto Copper Company a maximum period of six months to regularise the situation, is scheduled to be held in the DRC on 8 May 2018.