Given the increased macro-economic uncertainty caused by the COVID-19 pandemic, Katanga Mining has implemented a number of measures to minimise cash outflows, while protecting value for when conditions improve at its 75%-owned subsidiary Kamoto Copper Company, which operates in the Democratic Republic of Congo.
These measures include:
- Preserving cash flow through cost saving initiatives and operational efficiency improvements;
- Suspending certain discretionary activities and associated spend;
- Suspending certain capital expenditure not related to sustaining day-to-day operations or critical projects;
- Optimising working capital levels; and
- Moratorium on hiring new staff.
In addition to the above cash preservation measures, Kamoto Copper Company will continue to progress its operational excellence program (OE Program), following from the now completed comprehensive business review.
The OE Program targets mining efficiencies and processing improvements as well as enhancements to product quality realisations and overhead cost reductions.
As previously reported, the fully detailed OE Program defines the scope for margin improvements in the order of US$200-250 million per annum.
A dedicated operations team is working towards delivery of detailed implementation plans for each of the initiatives being undertaken. The initiatives are designed to improve revenues and reduce costs through: mine planning optimisation; mining efficiency; improved copper and cobalt recoveries; improved EW current efficiency; improved product quality; reduced reagent spend; reduced reagent consumption; and improved asset reliability.
The full benefits of these initiatives, if successful, are expected to be progressively realizable by 2022.
These improvements are expected to materially increase the cash flow generation of Kamoto Copper Company beginning in 2022, when it is projected that targeted life of mine average production will be approximately 300 000 t of copper and 30 000 t of cobalt. This will result in a steady state copper unit cash cost of $1.65/lb, before cobalt by-product credits, and $0.75/lb after cobalt by-product revenue, net of allocable cobalt direct production and realisation/selling costs of approximately $0.60/lb.
Realization costs are based on an assumed realized cobalt price of $15/lb, which is significantly higher than the current realized cobalt price for Q1 2020.
It should be noted that production in any given year will fluctuate as a function of numerous factors, including the availability and utilisation of plant and equipment, geological and mining conditions, logistics, availability of reagents, availability of electricity, macro-economic factors such as commodity prices, input costs and geopolitical developments (including the Democratic Republic of the Congo mining code).
Based on the above, the company expects operating cash flow less capital expenditure to be modestly positive for the year, barring any further negative developments or impacts from COVID-19 or otherwise and expects to produce 270 000 tpa of copper and 26 000 tpa of cobalt for FY2020.
COVID-19 response plan
The company has introduced a number of precautionary measures in response to the COVID-19 pandemic. This includes the implementation of health monitoring and travel history controls for international arrivals, temperature monitoring at its mine site entry points, enhanced hygiene and cleaning measures, social distancing and measures to identify higher risk groups.
The company also demobilised non-essential work activities towards the end of Q1 2020, which will impact the timing of the commissioning of various major capital expenditures. While there were no material disruptions to the company’s productive operations during Q1 2020, there can be no certainty that the COVID-19 pandemic and the restrictive measures implemented by the government of the DRC and other governments to slow the spread of the virus will not impact the company’s operations in the coming weeks and months.
Sufficient liquidity
As at the end of Q1 2020, Kamoto Copper Company had undrawn liquidity of $208 million available under its bank facility and cash on hand of $174 million. KCC also has sufficient cash and available liquidity to make the potential payments of up to $250 million for the previously announced land acquisition agreement entered into with Gécamines in December 2019, subject to the resolution of the force majeure.
