Katanga Agreement Signals a Change in the DRC's Investment Policy

Katanga Mining Corp.'s (KATFF.PK) agreement to cede the Dikulwe and Mashamba West deposits to state-owned Gecamines could be a sign that the Democratic Republic of Congo is ready to welcome foreign ownership, says UBS analyst Alec Kodatsky.

Early Monday, Katanga said that it will transfer the two mines and in exchange, Gecamines will replace the deposits with alternate deposits containing 4 metric tonnes of copper and 0.2 metric tonnes of cobalt by 2016, or pay $825-million.

Gecamines has also agreed to sell the exploitation permits and mining rights for the remaining deposits to Kamoto Copper Co. for $135-million. Kamoto is a joint venture between Gecamines and KFL Limited, which is 100%-owned by Katanga.

In a note to clients Mr. Kodatsky said:

With this agreement the DRC government appears to be loosening its tight control on mining rights by now allowing direct foreign ownership. This is an encouraging step that could ultimately improve the investment outlook for the region.

He reiterated his "buy" rating, and left his C$25 price target unchanged.

Blackmont analyst George Topping maintained his speculative "buy" rating and C$24.35 price target, telling clients that DRC remains a "high risk but potentially high rewards country."

He added that the agreement is "not a deal that Katanga would have sought but it may be what it takes to keep Kamoto & Nikanor."