ZUG, Switzerland, June 15, 2018 /CNW/ - Katanga Mining Limited (TSX: KAT) ("Katanga" or the "Company") today provides an update on its announcement of April 27, 2018 in respect of freezing orders filed against Katanga's 75% subsidiary, Kamoto Copper Company ("KCC"), by Ventora Development Sasu ("Ventora"), a company affiliated with Mr. Dan Gertler.
Katanga, in conjunction with Glencore, has carefully considered its various legal and commercial options in connection with its dispute with Ventora and its obligations towards Africa Horizons Investments Limited ("AHIL"), a company also affiliated with Mr. Dan Gertler, as well as to its shareholders, customers and other shared stakeholders including the communities in which they operate in the Democratic Republic of the Congo ("DRC").
Based on its review, Katanga has determined that in the circumstances the only viable option, for its sole operation, KCC, to avoid the material risk of seizure of its assets under DRC court orders is for KCC to pay the relevant royalties as and when they become due to Ventora in non-US dollars, without involving US persons, in order to discharge its obligations under the terms of the pre-existing contracts with AHIL previously disclosed by Katanga. KCC has therefore entered into a settlement deed with AHIL and Ventora pursuant to which the parties have agreed to withdraw all pending and threatened litigation between them. KCC has also acknowledged the assignment by AHIL to Ventora of the royalties initially owed by KCC to AHIL.
Katanga believes that payment in non-US dollars of royalties to Ventora without the involvement of US persons would appropriately address all applicable sanctions obligations
Katanga is a substantial investor and partner in the DRC and is committed to sustainable mining, creating employment and supporting local businesses, thereby providing substantial revenues to local and national government and making voluntary contributions to improve living standards in the communities in which it operates.
Katanga is a significant producer of copper and cobalt, a metal that is of critical importance for batteries for electric vehicles and portable electronics as well as essential technology, defense and industrial applications. Katanga's operations are a significant source of industrial cobalt and guarantees the provenance of its production material and the exclusion of child labour or conflict minerals from the supply chain.
Background
On April 27, 2018, Ventora served in the DRC a freezing order against KCC for approximately US$2.28 billion. Ventora alleged that KCC had breached an agreement between KCC, La Gnrale des Carrires et des Mines ("Gcamines") and AHIL pursuant to which it alleged KCC was required to make royalty payments to Ventora. Ventora asserted that if its claim was upheld it would be entitled to damages of approximately US$2.28 billion, which it alleged was the value of the future royalties due to it under the agreement.
On April 28, 2018, Ventora obtained from the Kolwezi Commercial Court an injunction to pay against KCC in the amount of US$2.86 billion (an increase of US$572 million for alleged legal fees), which, if the injunction had become final, would have potentially enabled Ventora to permanently seize assets at the KCC mine up to the amounts of the injunction. These assets seizures would have severely disrupted the mine and enabled Ventora to seize all productive assets at the mines, including mining titles.
Further information on agreements with Ventora and AHIL
In December 2017, the United States government designated Mr. Dan Gertler and affiliated companies, including AHIL, as specially designated nationals ("SDNs"), thereby imposing blocking sanctions on them and companies owned 50% or more by them.
As previously disclosed, KCC has an obligation under the joint-venture agreement between Katanga and Gcamines to pay royalties quarterly at a rate of 2.5% of "net sales" from the KCC mine, subject to certain deductions. When the Gertler-affiliated entities acquired these rights from Gcamines in January 2015, KCC became a party to an agreement with Gcamines and AHIL, which was concluded prior to the designation of Mr. Gertler and AHIL as SDNs.
Katanga estimates that the royalties for 2018 will be approximately €10 million per quarter and then for 2019 approximately €16.5 million per quarter. KCC made a pre-payment of royalties to AHIL in 2015, and the current royalties payable are offset against the remaining balance outstanding under such pre-payment. It is expected that the next royalty payment from KCC to Ventora will be in 2019.
As explained above, AHIL has assigned its right to receive royalties to Ventora such that Ventora will be the recipient of royalties at KCC with immediate effect.