St. LOUIS () -- The Democratic Republic of Congo has revoked Central African Mining & Exploration Co.'s copper and cobalt mining licences - essentially knocking out CAMEC's $1.4 billion takeover bid for Katanga Mining Ltd [TSX:KAT].
CAMEC's [AIM:CFM] shares plummeted on news of the DRC's decision, hitting a low of 30.5 pence on London's AIM exchange Thursday morning. At that share price, CAMEC's offer of 17 shares for each Katanga share - originally valued at $1.4 billion based on CAMEC's closing price of 52 pence on Aug. 28, the day before the offer was made - drops the value of the bid to just 399 million pounds, or $804 million, leaving CAMEC unable to complete the takeover successfully.
The DRC announced late Wednesday that it is stripping London-based CAMEC of its copper and cobalt mining rights to the C19 concession in the country's Katanga province due to "serious irregularities in the original issuing of the licences," according to the DRC's Justice Ministry press release.
"The judicial decision has been taken to revoke and cancel the licences held for the area known as C19," the press release read. "The rights to mine the C19 area revert to Gecamines, the state-owned mining company."
CAMEC officials argue that the DRC's attempt to pull the company's mining licences is a rumour fabricated by critics of proposed Katanga takeover. The mining company said in a press release that it will "refute any allegations or attempts made against its licences."
"(CAMEC) believes that there is no valid basis for this rumoured action," according to the press release. "The leaking of this potential action is clearly timed to impact CAMEC's offer for Katanga Mining Limited which was announced yesterday, and the manner in which it has been processed is highly irregular. CAMEC believes that this action is motivated by commercial forces in the DRC who oppose CAMEC's proposed acquisition of Katanga."
CAMEC Bids, Katanga Resists
CAMEC originally announced its in July, first offering 15 of its shares for each Katanga share and later upping its bid to . The company announced its Wednesday - continuing in its effort to become a global leader in cobalt and copper production. The company already owns 22% stake in Katanga.
The offer was met with resistance from Katanga. Katanga CEO Arthur Ditto advised shareholders to take no action until the Board of Directors provides them with a recommendation.
The London-based miner, which trades on the Toronto Stock Exchange, noted several negative "preliminary observations" about the offer in a press release Wednesday:
"- CAMEC is attributing a value to its assets (80% interest in 467 and 469 and 50% interest in Mukondo Mountain) of 39 pence per CAMEC share based on a technical review to Canadian National Instrument 43-101 standards. However, it includes inferred resources, which are highly speculative and there is no certainty that the assessed value would be realized. It would be excluded from any feasibility study.
- The CAMEC offer does not fall within the terms of a permitted bid under the company's shareholder rights plan.
- If an offer of sufficiently greater value is received, the soft lock-ups signed by certain Katanga shareholders and relied upon by CAMEC are revocable.
- Katanga does not believe there will be any significant financial or operating synergies from combining the two companies, and will address this point in detail in its full response to the offer."
Katanga did not respond to a RI request for a comment.
CAMEC chairman Phil Edmonds, however, said in a press release that the deal is favourable to both companies and reported that in addition to the 22% stake CAMEC already owns, 32% of Katanga shareholders support the offer.
"We believe that the combination of CAMEC with Katanga will benefit both sets of shareholders and position the enlarged business to take an active role in any further consolidation of the sector in the DRC," Edmonds.
"Together with the shares we hold, the offer has the support of shareholders representing approximately 54% of Katanga's shares. I encourage the remaining Katanga shareholders to accept our offer and participate in the creation of a leading international copper and cobalt company."
Mining in the DRC
The DRC has a rich history in mining. The country has produced as much as 475,000 tonnes of copper a year, according to a media report, although output has decreased in the past thirty years.
Plagued by wars, the country began reviewing around 60 mining contracts in June, many of which had been issued during a war in 1998-2003 or during a three-year governmental transition time. The review was launched to ensure the legality of the mining contracts.
The DRC's press release Wednesday said CAMEC's permits, as well as permits held by Savannah Mining, were issued improperly and "without the fundamental articles of transfer." In addition, the licences were never registered.
CAMEC responded that the DRC did not take the proper steps as required by law to revoke the permits.
CAMEC's shares lost a total of 8 pence to close at 39.75 pence today on AIM, down 16.75%. Katanga dropped 88 Canadian cents to finish at C$19.65, a 4.29% loss.