Katanga Mining: Key Production Announcements Could Boost Stock

Katanga Mining Ltd. (KATFF.PK) will have key announcements in the coming months that could act as catalysts for the stock, according to UBS Securities analyst Onno Rutten.

A big one is the release of a feasibility study in October that will give an indication on how the combined assets of Katanga and Nikanor (which it bought last year) will operate together.

Mr. Rutten expects that the study will provide some key details on future production, but that it will also reflect huge increases in capital costs that are plaguing everyone in the industry. He projected a 50% increase in capital costs for the key development, and noted that the production guidance right now seems "overly aggressive in view of operational execution challenges, construction logistics, electrical power infrastructure, and potential capital constraints."

Another key issue is the contract review in the Democratic Republic of Congo. Mr. Rutten wrote that Katanga is in better shape than many of its peers because of the memorandum of understanding it signed with state-owned miner Gécamines last month. That gives the company a better chance at a positive outcome.

A final catalyst is the C$550-million project financing Katanga plans to complete by the end of 2008. Raising that kind of money from commercial banks is not easy in these credit markets, but Mr. Rutten wrote that development banks and import/export credit agencies could also play a role.

He lowered his target on the stock by 10% to C$17 a share based on the lower production expectations. However, he maintained a "buy" rating based on the belief that the debt financing can be arranged and the deal with Gécamines can be ratified.