Katanga Mining Ltd. (OTCPK:KATFF) shares were down as much as 25% on Monday morning after the company confirmed it is short on cash and desperate to raise capital, possibly through an equity raise or convertible debt offering, in order to continue as a going concern.
In its interim financial statements for the three and nine month periods ended September 30, 2008, Katanga said it does not have sufficient cash to fund planned capital expenditures needed to support the ramp up of ongoing operations.
Although it has taken steps such as the suspension of cobalt concentrate production and a reduction in work force to mitigate the damage done by falling commodity prices, the miner based in the Democratic Republic of Congo, said it needs urgently to raise capital in order to survive.
Katanga said it intends to seek shareholder approval of a resolution to increase the authorized share capital of the company at a special meeting on January 12.
After hitting C$0.30 in early morning trading, Katanga stock has pared losses and was trading at C$0.36 at 11:35 a.m. ET, down C$0.02.5 from Friday's close.
UBS analyst Onno Rutten lowered his price target on Katanga to C$0.45 Monday morning, saying the company is one of a handful of Canadian-traded miners who have seen its cash balances rapidly decline in the past quarter.
"We have substantially revised our outlook on Katanga in view of the continued deteriorating situation for the company," he said. He told clients that he expects a 61% sequential decline in cash on hand at the company for the fourth quarter.
Mr. Rutten said several miners are experiencing declines in cash balances far in excess of market expectations thanks to the combined effects of declining revenues, still-high operating costs and the dramatic impact of provisional pricing during Q4.
In addition to his cash burn prediction for Katanga, the analyst told clients that he expects a 66% sequential decline in cash on hand for Lundin Mining Corp. (LMC), 61% for Quadra Mining Ltd. (OTC:QADMF), 43% for First Quantum Minerals Ltd. (OTCPK:FQVLF), 35% for FNX Mining Company Inc. (OTC:FNXMF), 22% for Hudbay Minerals Inc. (HBMFF.PK), and 21% for Inmet Mining Corp. (OTC:IEMMF).
Based on his liquidity calculations, Mr. Rutten said Lundin (in addition to Katanga) may require external financing in 2009, while Inmet, Hudbay, and Quadra will not.
First Quantum and FNX, meanwhile, may need to access lines of credit to support their growth. In both instances, the current lines of credit will need to be extended beyond Q1 2009 in order to provide continued access.