April 23, 2018 / 9:00 PM / in 4 months

UPDATE 1-Shares in cobalt miner Katanga halve on legal threat in Congo

(Recasts with analyst comment, closing stock price, context)

By Nicole Mordant

April 23 (Reuters) - Shares in Glencore-owned Katanga Mining Ltd lost half of their value on Monday and cobalt markets were on alert after the company said the Democratic Republic of Congo’s (DRC) state-owned mining company had taken steps to dissolve its local copper and cobalt unit.

Katanga, which is 86 percent owned by global miner Glencore Plc, is ramping up production in the DRC that could see it become the world’s biggest producer of cobalt, a critical ingredient in batteries for iPhones and electric cars.

Katanga said late on Sunday that Gécamines had begun legal proceedings against Kamoto Copper Company, which is 25 percent owned by the state-owned miner and 75 percent by Katanga, due to an ongoing capital shortfall at Kamoto. A court hearing is scheduled for May 8 in the central African country.

Prices for cobalt have soared fourfold in the past two years as the market for electric vehicles is expected to expand rapidly over the next two decades.

The DRC, a perpetually politically unstable country, produces nearly two-thirds of the world’s cobalt as a by-product of its copper mines.

“Since KCC (Kamoto Copper Company) is expected to produce one sixth of the world’s cobalt supply next year, its dissolution would send shockwaves through the global cobalt market,” said Elisabeth Caesens, director of Resource Matters, a Brussels-based group that advocates better resource management.

The DRC has recently adopted a tougher approach to in-country miners as it seeks a bigger share of profits as commodity prices rise. DRC President Joseph Kabila in March signed into law a new mining code that raises royalties and taxes on miners.

“Gécamines appears to be seeking a meaningful capital injection into KCC (Kamoto Copper Company) which would lower the entity’s debt burden and unlock value for the state-owned miner,” Macquarie analysts said in a note to clients.

Katanga’s shares closed 49 percent lower at 91 Canadian cents on the Toronto Stock Exchange even as Katanga said it was assessing options to fix the capital shortfall and ensure Kamoto keeps operating, including converting debt to equity or forgiving a portion of Kamoto’s debt. A recapitalization of Kamoto by Katanga is likely, Deutsche Bank said in a client note. (Reporting by Nicole Mordant in Vancouver; Additional reporting by Aaron Ross in Dakar Editing by Grant McCool and Tom Brown)

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