Katanga secures US$265-million convertible loan facility

By The Canadian Press

LONDON - Katanga Mining Ltd. (TSX: KAT.TO) said Wednesday it has secured a US$265.3 million two-year mandatorily convertible loan facility, a deal that will help ensure its survival as a company.

British-based Katanga, which trades on the Toronto Stock Exchange and operates a major mine in the Democratic Republic of Congo, said the facility is split into two parts; a new US$100-million finance facility underwritten by Glencore Finance (Bermuda) Ltd, and a restatement of the existing US$150-million loan facility from Glencore.

It said the existing loan, with accrued interest, amounts to approximately US$165.3 million.

Katanga said the new financing will be primarily used for the ongoing rehabilitation, redevelopment and operation of its mines and related assets held by its Democratic Republic of Congo joint-venture subsidiaries.

Katanga said the investments have led it to revise its production plan, with an initial 150,000 ton per year production target by 2012. The company said the new financing will help it meet immediate financing requirements for its revised production plan through the first quarter 2009.

It will then need to seek additional equity and/or debt finance of about US$250 million during the first six months of 2009, "further strengthening the company's balance sheet."

Glencore currently holds 8.5 per cent of Katanga's common shares. After drawdown of the facility, Glencore would own about 22.1 per cent of the company.

What's more, Katanga said if Glencore is the sole lender under the facility on the second closing date, and there is no change in its interest, Glencore would own common share interests of about 83.7 per cent "in which case control of the company would be materially affected." That is because of interests Glencore holds through other investments.

Katanga said it is relying on the "financial hardship exemption" in the rules of the Toronto Stock Exchange to approve the proposed transaction.

The company's special "financial hardship committee" comprised of independent directors, "has determined that the company is in serious financial difficulty" and the deal was done to improve its financial position.

Katanga said without the financing it will not be able "to continue to operate as a going concern."

Katanga shares closed up half a cent at 35.5 cents on the Toronto stock market.