Katanga Mining Ltd Ord KATFF

Q4 and 2018 Production Report

[Sogosohubidu201]

KAT produced 49,770 tonnes of copper and 4,646 tonnes of cobalt in Q4 2018.  KAT produced 152,358 tonnes of copper and 11,112 tonnes of cobalt in 2018.  From these results, we can see that Phase 1 of WOL project reached name plate capacity and Phase 2 was ramping up nicely.  Since Phase 2 is the dublicate of Phase 1, Phase 2 should reach name plate capacity by the end of Q1 2019, which is two months' away. 

If KAT could sell what it had produced, KAT should have started generating earning in Q4 2018 and earning would have been increased Q by Q this year. KAT could be easily $2 - $3 by the end of this year and $5 by the end of next year. Now the sale of cobalt was postponed to next year and the cobalt revenue will be deferred to next year.  This should boost the earning of KAT next year.  The $5 target may still be achieveable next year, but may not have to wait for the end of next year to see $5.  In my view, KAT can easily be $5 stock at full production capacity if they can resolve the uranium issue and start to export all the cobalt they have produced and are going to produce. So that will be the key milestone for the company to achieve in the future.

Without exporting cobalt, copper product alone should make KAT reach breakeven point and achieve positive cashflow from Q2 this year and for the rest of this year after Q2 since copper price is projected to increase and to have an average price of $6,700 USD per tonne in 2019.  So not much risk to waite out until the issue of cobalt export is resolved by Q4 this year.

Now let's talk about the delay of installation of Ion Exchange system.  DRC minister of mines had certain concerns with the technical solutions, i.e. the use of Ion Exchnage plant to remove uranium, as proposed by KCC.  So the installation of Ion Exchnage System is suspended until KCC gives satisfactory answers to minister of mines why this is the best approach.  Minister of mines may think that Ion Exchnage system may not be necessary or there are other better solutions available. KCC intends to engage with the minister of mines to understand and address their concerns.  This is common practice in the industry.  This is just technical issue needed to be resolved.  It would be resolved in my view.

At same time, KAT has been working with Gecamines on various alternative interim solutions, both operational and regulatory to recommence cobalt export per the news release. So we cannot rule out the possibility of KAT re-exporting cobalt before Q4 this year.

One good side effect for the delay of cobalt export to next year is that cobalt price may jump in 2019 due to market tightness becasue of 26,000 tonnes of cobalt unavailable.  This may push cobalt stocks including KAT higher by increase in cobalt price.