Katanga, Nikanor tie-up to create African mining giant

ANDY HOFFMAN found at Globe and Mail November 6, 2007  theglobeandmail.com

In a bid to create the world's largest cobalt producer and the leading copper miner in Africa, Katanga Mining Ltd. is merging with rival Nikanor PLC to form an African mining powerhouse with a market value of roughly $3.3-billion (U.S.).

The deal, which is being recommended by the boards of both companies, would combine Katanga's Kamoto copper complex in the Democratic Republic of Congo, with Nikanor's KOV project. The assets sit side by side in the war-torn African nation.

“We are setting the course to establish Kolwezi as one of the largest and best mining complexes in the world,” Art Ditto, Katanga's Canadian-born president and CEO said on a conference call.

Jonathan Leslie, Nikanor's executive chairman said the merger would create “an African champion with a stable of assets that will rival the very best in the world.”

To be called Katanaga Mining, the new company is targeting annual production of 400,000 tonnes of refined copper and 40,000 tonnes of Cobalt by 2011. Mr. Ditto has been tapped to lead the merged firm.

The merger would see Katanga purchase all the outstanding shares of Nikanor. Katanga, which trades on both the TSX and in London is offering .613 of its shares and $2.16 in cash per share for each Nikanor share. The cash portion of the deal will be funded through a so-called “cash return” to shareholders that would see $452-million in cash on the company's balance sheet used to pay for the merger.

The assets of Katanga and Nikanor were once operated as a single mining complex by the DRC's state mining company. But the mines and smelters fell into disrepair in the 1990s and a bloody civil war that claimed more than 4-million lives saw the mines completely shut down.

Amid the relative stability that came with the end of the war in 2003 and the democratic election of Joseph Kabila as the DRC's president last year, the world's mining industry has flocked to the DRC, which contains more than 10 per cent of the planet's copper reserves and a third of its cobalt.

Despite the massive mineral riches, however, many DRC mining projects have been racked by uncertainty. A government panel is currently reviewing the validity of 61 mining licenses signed over the past decade. Over the weekend, an early draft of the report was leaked to a newspaper in Kinshasa, the capital, suggesting that 23 of the contracts should be cancelled and 38 should be revised.

Katanga shares plunged 13 per cent on the TSX Monday as investors fretted about the validity of its mining contract.

This morning however, the stock gained as much as 33 per cent on news of the deal.

Mr. Ditto said the combined companies could realize cost savings on the order of $700-million.

Shareholders representing 78.4 per cent of Nikanor's shares have agreed to tender their shares to the deal. Shareholders representing 48.1 per cent of Katanga's outstanding shares have agreed to support the merger.

If completed, 60 per cent of the new company's shares will be held by Nikanor shareholders and 40 per cent by Katanga shareholders.

The company will be listed on the Toronto Stock Exchange and plans to apply for a main listing on the London Stock Exchange.