Katanga Mining Announces Rights Offering Backstopped by Glencore to Fund Debt Repayment

Company to raise an estimated CDN$7.6 billion under discounted rights offering
Glencore to provide full standby commitment
US$5.8 billion in debt owed to Glencore to be repaid with approximately US$1.5 billion residual debt to Glencore to remain outstanding until 2023
New NI 43-101 technical report filed

ZUG, Switzerland, Nov. 7, 2019 /CNW/ - Katanga Mining Limited (TSX: KAT) ("Katanga" or the "Company") announces today that it has filed a preliminary short form prospectus with securities regulatory authorities in each of the provinces and territories of Canada in respect of an offering of rights ("Rights") to purchase common shares of the Company ("Common Shares") to raise approximately CDN$7.6 billion (the "Rights Offering"). Glencore has agreed to accept the Rights Offering proceeds of approximately CDN$7.6 billion or the equivalent in Common Shares issued from treasury under the Rights Offering to repay US$5.8 billion of debt to Glencore (based on a five day average CDN$/US$ exchange rate when the Subscription Price (as defined below) is determined). Accordingly, the Rights Offering proceeds will fluctuate depending on the five day average CDN$/US$ exchange rate in effect when the Subscription Price is determined). An affiliate of Glencore plc ("Glencore"), which owns approximately 86.3% of the Company's outstanding Common Shares, will provide a standby commitment such that all Common Shares available for purchase under the Rights Offering will be fully subscribed. The Company will use the entirety of the proceeds of the offering to repay US$5.8 billion of debt owed to an affiliate of Glencore under the Glencore Loan Facilities (as described below), with approximately US$1.5 billion of debt owed to Glencore ("Glencore Debt") being retained by the Company. Accordingly, Glencore is not committing any new monies to Katanga as a result of the Rights Offering. The Offering will lead to a reduction of the debt due to Glencore of US$5.8 billion and a corresponding increase in Common Shares in Katanga held by Glencore (or, to the extent that other shareholders take up their Rights, cash to Glencore).

Summary of Rights Offering

Pursuant to the Rights Offering, all eligible shareholders of Katanga (subject to applicable law) will receive one Right for every Common Share owned on the record date (the "Record Date"). The Rights Offering will include an additional subscription privilege entitling holders of Rights who have fully exercised their Rights to subscribe for additional Common Shares, if available, that are not otherwise subscribed for under the Rights Offering.

In accordance with the rules of the Toronto Stock Exchange ("TSX"), and as provided in the standby purchase agreement entered into between the Company and Glencore (the "Standby Purchase Agreement"), the subscription price for the Common Shares to be purchased upon exercise of the Rights (the "Subscription Price") will represent a 25 percent discount to the volume weighted average price of Common Shares on the TSX for the five trading days immediately prior to the day the final short form prospectus for the Rights Offering (the "Final Prospectus") is filed.

Calculated as of today, each Right would entitle an eligible shareholder to purchase approximately 15 Common Shares (the "Basic Subscription Privilege"), being the number of Common Shares as is equal to approximately CDN$7.6 billion (which figure is based on a five day average CDN$/US$ exchange rate as of November 6, 2019), divided by the Subscription Price, and further divided by the number of Common Shares outstanding at the time of pricing (currently 1,907,380,413 Common Shares). The foregoing is provided for illustrative purposes only and the number of Common Shares to which an eligible shareholder is entitled will fluctuate depending on the five day average CDN$/US$ exchange rate in effect when the Subscription Price is determined. Where the exercise of Rights would otherwise entitle a holder of Rights to receive fractional Common Shares, the holder's entitlement will be reduced to the next lowest whole number of Common Shares. The Company will not issue fractional Common Shares or pay cash in lieu thereof.

The Rights will also entitle any shareholder who exercises in full the Basic Subscription Privilege attached to their Rights to subscribe for additional Common Shares, not otherwise subscribed for under the Rights Offering by other shareholders under their Basic Subscription Privilege, pursuant to an additional subscription privilege ("Additional Subscription Privilege"). The period during which Rights may be exercised under the Rights Offering will be determined at the time of filing the Final Prospectus.

Katanga has applied to have the Rights listed for trading on the TSX. The approval of such listing is subject to the Company fulfilling all of the listing requirements of the TSX.

Standby Purchase Agreement

In connection with the Rights Offering, Katanga and Glencore have entered into the Standby Purchase Agreement pursuant to which Glencore will purchase at the Subscription Price, any Common Shares (the "Standby Shares") that would otherwise be issuable upon exercise of Rights offered under the Rights Offering that are not otherwise subscribed for by holders of Rights pursuant to their Basic Subscription Privilege and Additional Subscription Privilege (the "Standby Commitment").

Glencore has agreed to accept the Rights Offering proceeds of approximately CDN$7.6 billion or the equivalent in Common Shares issued from treasury under the Rights Offering to repay US$5.8 billion of debt to Glencore based on a five day average CDN$/US$ exchange rate (see above for further details).

The Rights Offering, and Glencore's ability and obligation to participate in the Rights Offering, including in respect of the Standby Commitment, is subject to certain conditions including, but not limited to, the receipt of all necessary approvals, including the approval of the TSX, which has been notified of the Rights Offering.

Further details concerning the Rights Offering, including the terms of the Standby Purchase Agreement, are contained in the Company's preliminary short form prospectus which will be available on the Company's SEDAR profile. The foregoing description of certain terms of the Standby Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of such agreement, to be filed by Katanga under its profile at www.sedar.com.

Subject to applicable law, a certificate representing the Rights issued, together with the Final Prospectus will be distributed to all eligible registered shareholders who own Common Shares on the Record Date along with instructions explaining how many Rights a shareholder is entitled to receive, the number of Common Shares that can be purchased for those Rights, how to subscribe for the purchase of Common Shares pursuant to those Rights, or instruct such shareholder's broker to subscribe for the purchase of Common Shares on the shareholder's behalf, and how to sell Rights in the market or otherwise transfer them to another party.

Amended Loan Facilities

In connection with the Rights Offering, Glencore (and its affiliates) and Katanga (and its affiliates) have agreed to amend the terms of the existing credit facilities provided to Katanga (and its affiliates) under a secured term facility agreement (the "Glencore Loan Facilities"). Upon closing of the Rights Offering, the Glencore Loan Facilities will be merged into a single US$1.75 billion facility consisting of the remaining approximately US$1.5 billion of Glencore Debt not repaid under the Rights Offering and undrawn committed liquidity of approximately US$250 million, which Glencore has agreed to provide under a subsequent facility agreement. The subsequent facility will mature on January 1, 2023, and bear interest at a rate of 7% per annum. The interest will be capitalized to the extent the Company has insufficient cash to pay it when due.

Special Committee Approval

The Company's decision to undertake the Rights Offering is the result of analysis, discussions and negotiations by and among representatives of the Company, a special committee of independent directors of Katanga (the "Special Committee"), Glencore, and their respective advisors to address the Company's overall indebtedness to Glencore under the Glencore Loan Facilities.

The Special Committee believes that the recapitalization of the Company is in the best interest of the Company and its minority shareholders because it: (i) provides the minority shareholders with the right, but not the obligation, to participate pro-rata in the recapitalization, (ii) is merely an acceleration of what would effectively occur on January 1, 2021 pursuant to the Company's existing rights offering agreement with Glencore if there is a default on the Glencore Loan Facilities, and (iii) is expected to result in less dilution to minority shareholders than repaying the debt at maturity given that (A) interest continues to accrue and be capitalized, (B) Glencore has agreed to extend the maturity of the remaining Glencore Debt (in the amount of approximately US$1.5 billion) to January 1, 2023, (C) a rights issue on January 1, 2021 is expected to be materially more dilutive as the share price is likely to be materially negatively affected by a continued deterioration in the Issuer's credit worthiness resulting from uncertainty with respect to the Issuer's financial condition and the Issuer's efforts to address this, and (D) addressing the recapitalization of the Issuer sooner rather than later removes the uncertainty regarding the Issuer's financial viability that was first disclosed in March 2019. The Special Committee also believes that it is more appropriate to address the debt owed to Glencore now rather than waiting until the maturity of the Glencore Loan Facilities in light of the very limited prospect that the Glencore Debt could be repaid or refinanced by a third party on or prior to January 1, 2021, as well as volatility in the Company's share price.

New Technical Report

In connection with the filing of the preliminary prospectus, the Company has also filed an updated technical report in accordance with NI 43-101 – Standards of Disclosure for Mineral Projects ("NI 43-101") (the "2019 TR") on the material assets of Kamoto Copper Company ("KCC"), the Company's 75% owned operating subsidiary in the Democratic Republic of Congo. The 2019 TR provides certain updates to KCC's technical model and anticipated production profiles based on operational and other developments since Katanga's most recent NI 43-101 technical report was filed on April 2, 2018. The 2019 TR is available on SEDAR at under Katanga's profile at www.sedar.com.

This news release does not constitute an offer to sell, nor the solicitation of an offer to buy, the securities in any jurisdiction; nor shall there be any sale of securities mentioned in this news release in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

About Katanga Mining Limited

Katanga Mining Limited operates a major mine complex in the Democratic Republic of Congo producing refined copper and cobalt. The Company has the potential to become Africa's largest copper producer and the world's largest cobalt producer. Katanga is listed on the Toronto Stock Exchange under the symbol KAT.

Forward Looking Statements

This press release may contain forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. This press release may contain forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved.

All forward-looking statements reflect the Company's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted in these forward-looking statements. All of the Company's forward-looking statements are qualified by the assumptions that are stated or inherent in such forward-looking statements, including the assumptions listed below. Although the Company believes that these assumptions are reasonable, this list is not exhaustive of factors that may affect any of the forward-looking statements.

Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements. Although Katanga has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except in accordance with applicable securities laws.

SOURCE Katanga Mining Limited