Post by
topdop on Jun 21, 2018 10:39am
I hope this helps folks grasp KAT's FINANCIAL ENGINEERING
??DILUTION??
For the many, many folks who KEEP ASKING the same question (s). Kindly forgive any typos as I'm writing this on my phone...
HERE ARE THE SALIENT POINTS. READ THEM AS A COMBINED ENTITY and all will make sense, I promise!
1. There is NO DILUTION (because of the settlement with Gecamines), now, or coming, in the Toronto listed shares of Katanga Mining Limited ("KAT" or "Katanga" or the "Company");
2. Yes, Katanga is issuing shares, but they are shares in it's OpCo entity called Kamoto Copper Company ("KCC"), the 75% owned operating subsidiary running all the KAT assets in the Democratic Republic of the Congo;
3. KCC is run by KAT under a Joint Venture Agreement ("JVA") held between various parties. Important note is that the JVA also requires that the 'Category A' shareholders of KCC be entitled to participate pro-rata in any capital increase of KCC WITHOUT ANY FINANCIAL OBLIGATION (ie: for free...);
4. You, me and everyone else that owns KAT shares, do NOT own KCC shares;
5. The owners of KCC shares are KAT (75%) and DRC state-owned company La Generale des Carrieres et des Mines ("Gecamines") (25%);
6. Gecamines shares are "free-carry" and mandated by DRC mining law;
7. The new loan to pay off KCC debit being taken on by KAT is financed by Katanga Mining Finance Limited ("KMFL"), another wholly owned KAT subsidiary;
8. The important net result of the settlement is that now just one entity, KMFL, not 4 (KMHL, KMLBVI, GEC and GIAG) will hold all KCC FINANCIAL DEBT and all KCC COMMERCIAL DEBT, in the aggregate principal amount (plus capitalized interest) of approximately US$9 billion (the "KCC Total Debt").
9. The new loans to KMFL are being provided to KAT under the New Credit Facility with Glencore Finance (Bermuda) Limited ("Glencore Finance");
10. After settlement, KMFL will be indebted to Glencore (retroactive to January 1, 2018) in the amount of approximately US$2,239 million under the New Credit Facility and US$3,688 million under the historical Glencore Group loans to KMFL, respectively;
11. Glencore has agreed to reduce KAT's debt service obligations under the historical Glencore Group loans between Glencore Finance and KMFL by reducing the interest rate from 10% to 7% on and after the settlement closes;
12. Pursuant to the JVA, Gecamines and SIMCO constitute the 'Category A' shareholders of KCC while the KAT's subsidiaries that are party to the JVA constitute the 'Category B' shareholders of KCC;
13. Under settlement, and as stated above, KMFL assumes all the KCC Financial Debt and Commercial Debt, and as such SOLE KCC DEBTHOLDER, it will reconstruct KCC's net equity by converting approximately US$[5,602] million of the KCC Total Debt that it will then hold INTO NEW EQUITY of KCC (the "KCC Debt Conversion").*
* This, folks, is your "equity issue" and as YOU CAN CLEARLY SEE, it is equity in KCC, not equity in KAT and is to be held by the KAT subsidiary, MFL.
14. As a result of the JVA, (which stipulates that the 'Category A' shareholders of KCC be entitled to free-carry and pro-rata in any capital increase of KCC), this new equity of KCC generated by the KCC Debt Conversion is to be allocated 75% to KMFL and 25% to Gcamines and SIMCO**
**So KMFL's effectiveley gives away 25% of the new shares it just got in KCC.
15. Together with certain other accompanying reductions, the KCC Debt Conversion is expected to eliminate the retained losses balance of KCC as at December 31, 2017 and result in a positive net equity situation for KCC, above the minimum local corporate law requirements.***
*** This, folks, is the important element much desired by Gecamines and Kinshasa.
16. Now there is a part of KCC debt that was NOT converted to KCC equity: this is the remaining balance of the KCC Total Debt, in the principal amount of US[$3,450] million, retroactive to January 1, 2018 and under settlement, it will be retained by KMFL as the Residual Debt bearing interest at the lesser of (i) 6-month LIBOR + 3%, and (ii) 6%, and repaid over eight years;
17. That means we now have just one entity, KMFL, holding all of KCC's former debt totalling in the aggregate approximately US$9 billion (the "KCC Total Debt");
18. Outside and in exclusion of KMFL, all other 'Category B' shareholders of KCC within the Katanga group WILL BE DILUTED TO NIL and will cease to be shareholders of KCC. This other Category B shareholder group of KCC had been reported to be around 1% in KCC shares;
19. So, after settlement, KMFL becomes the sole remaining 'Category B' shareholder and sole lender to KCC;
20. Finally, and because of DRC mining law, the proportionate equity positions of Katanga, Gcamines and SIMCO in KCC remain unchanged by settlement...;
21. The Company has reported thst the AGGREGATE FINANCIAL IMPACT on the Company by settlement is expected to be US$383 million (which, amoungst other costs, seems to include the a one-time Settlement Payment to Gecamines of US$150 million, the US$41 million payment for "outstanding unpaid invoices for contractors in charge of the replacement reserves", the US$57 million payment for "exploration and drilling expenditures incurred on behalf of Gecamines in connection with the replacement reserves program" and also, the wonderful DRC tax obligation "stamp duty" of US$56 million triggered, reportedly, because of "KCC Debt Conversion";
22. Upon settlement, Gecamines (together with SIMCO) has agreed that on or before the Closing Date, it will irrevocably and unconditionally withdraw the Capital Deficiency Proceedings commenced on April 20, 2018 in the Kolwezi Court;
23. The transactions described above WILL NOT impact Katanga's previously reported consolidated net assets or consolidated liabilities. BUT, as a consequence of converting approximately US$5,602 million of KCC debt into equity, KAT's consolidated equity in KCC ATTRIBUTABLE TO KAT SHAREHOLDERS reduces by approximately US$1,400 million; and
24. Correspondingly, with settlement, there will also be an increase in non-controlling interests of KCC of approximately US$1,400 million.
...Thank you. I rest my case...
These are my views only. Thanks for reading.