Safety in numbers in the DRC

The Boards of Katanga Mining and Nikanor have reached agreement on the terms of a recommended merger of the two companies. This will create a company with a combined market capitalisation of approximately $3.3 billion and the potential to become by 2011 Africa’s largest copper producer and the world’s largest cobalt producer.

The Merger will bring together the adjacent properties in the DRC owned by Katanga and Nikanor, which were previously part of the same mine complex, to create a major single-site operation. Substantial high-grade resources of both copper and cobalt will create a strong foundation for a large-scale, low-cost and long-life operation. Based on work completed to date, the merged company intends to develop a unified mine complex with annual output approaching 400,000 t of copper and 40,000 t of cobalt by 2011. It is believed that the combined operations will be the largest single-site project in the world producing both copper and cobalt. The merger is also expected to result in lower unit operating costs.

More cost effective operations are expected to increase revenue to the DRC government. The coordination of the Merged Company’s infrastructure spend and corporate social responsibility activities will also be more effective in producing positive change for the communities surrounding the operations.

Officials in the DRC have been kept apprised of the potential merger and have expressed their support.

The merger will be implemented by way of an offer by Katanga for Nikanor together with a cash return to Nikanor shareholders of $452 million.

The merged company, which will retain the name Katanga Mining, will be led by Arthur Ditto as President and CEO supported by executives to be drawn from both companies. An integration committee consisting of four members, two from Katanga and two from Nikanor, will be set up to oversee the integration of the two businesses. Katanga Mining will make an application to obtain a primary listing on the Main Market of the London Stock Exchange within five months of the Effective Date. It will therefore have primary listings on the TSX and the Main Market of the London Stock Exchange.

Arthur Ditto, stated: “Combining the assets of Katanga and Nikanor will create an industry leader in both copper and cobalt. We believe it offers the opportunity for a dramatic increase in value for shareholders of both companies and is a transaction where the whole is definitely greater than the sum of the parts. Transacting the deal now gives us the best opportunity to lower the overall capital spending and deliver maximum benefit from a consolidated suite of operations. We will have a much more efficient business model with greater benefits for all stakeholders including employees, shareholders, and the DRC”.

Jonathan Leslie, Executive Chairman of Nikanor, said: “Individually, Nikanor and Katanga both present compelling copper and cobalt investment cases; combined, they transform into an African champion with phenomenal resources and potential. This merger is precisely the type of transaction we envisaged when we listed the company more than year ago, creating a premier publicly traded copper and cobalt company and generating significant operating and financial synergies. The combined company will create value for shareholders and other stakeholders alike and be even better placed to help play a positive role in the development of the Katanga Province and as a long-term partner to Gécamines and ultimately to the DRC”.

Martin Kabwelulu said: “The DRC government would like to highlight its support for the merger of Katanga and Nikanor. This transaction highlights the quality of Katanga and Nikanor’s deposits and provides a natural platform between these two projects for the development of these assets into a major copper and cobalt producer. The combination of operational synergies between these two companies will result in increased financial benefits for the DRC state and shareholders. The DRC has 10% of the world’s copper reserves and less than 1% of its production. This transaction is a significant milestone in the transformation of the DRC’s mining sector towards production. The DRC government welcomes the merger as proof of the confidence of the business community in the future of the DRC mining sector”.

Katanga Mining operates a major copper-cobalt mine complex in the DRC on behalf of the Kamoto Copper Co joint venture, in which it holds a 75% interest. Copper production is expected to begin in December 2007 and the site is expected to reach full production in 2011, when 150,000 t of refined copper and 8,000 t of refined cobalt will be produced a year.

Nikanor holds 75% of a joint venture at Kolwezi. The company’s key mine is KOV, containing one of the world’s largest known high quality copper and cobalt orebodies. Nikanor is rehabilitating this well documented brownfield site and intends to build a major state of the art copper and cobalt refinery to produce 250,000 t/y of LME A-grade copper cathode and 27,500 t/y of cobalt products.