katanga mining limited/media/files/k/katanga-mining-v2/...o improvements to the froth skimmers in...

KATANGA MINING LIMITED

Management’s Discussion and Analysis For the three and six months ended June 30, 2015 and 2014

The following discussion and analysis is management’s assessment of the results of operations and financial condition of Katanga

Mining Limited (“Katanga” or the “Company”) and should be read in conjunction with the unaudited interim condensed

consolidated financial statements and the notes thereto of the Company for the three and six months ended June 30, 2015, and 2014, and the audited consolidated financial statements and the notes thereto of the Company for the years ended December 31, 2014, and

2013. The unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34 “Interim Financial Reporting” (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”)

issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting

Interpretations Committee (“IFRIC”). All dollar amounts are in United States dollars unless otherwise indicated. This information has been prepared as of August 12, 2015. Katanga’s common shares trade on the Toronto Stock Exchange (“TSX”) under the symbol

“KAT”. Katanga’s most recent filings, including Katanga’s Annual Information Form for the year ended December 31, 2014, dated

March 31, 2015, are available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) and can be accessed through the internet at www.sedar.com. This Management’s Discussion and Analysis contains forward looking statements that are

subject to risk factors as set out in items 13 and 18.

Company Overview

Katanga is a limited company whose common shares are listed on the TSX under the symbol “KAT”. The Company’s registered office address is Suite 300, 204 Black Street, Whitehorse, Yukon, Canada Y1A 2M9. Katanga's ultimate parent company is Glencore

plc (“Glencore”) which owns 75.3% of Katanga's shares through its wholly-owned subsidiaries Glencore International AG and

Glencore Finance (Bermuda) Limited.

Katanga, through its 75% owned subsidiary Kamoto Copper Company SA (“KCC”), is engaged in copper and cobalt mining and

related activities in the Democratic Republic of Congo (“DRC”). KCC is engaged in the exploration, mining, refurbishment, rehabilitation, development and operation of the Kamoto / Mashamba East mining complex (including “KTO Underground Mine” or

“KTO”, “KTE Underground Mine” and “Etang South Underground Mine”), the Kamoto Oliveira Virgule copper and cobalt mine

(“KOV Open Pit” or “KOV”), the T17 Mine consisting of “T17 Open Pit” and “T17 Underground Mine”, various oxide open pit resources, the Kamoto Concentrator (“KTC”) and the Luilu Metallurgical Plant (“Luilu”), (collectively, the “Project”), in the DRC.

http://www.sedar.com/

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

1

1. Highlights during the three and six months ended June 30, 2015, and Outlook

Three months ended Six months ended

June 30, March 31, June 30, June 30,

2015 2015 2014 2015 2014

Financial

Realized copper price $/lb 2.52) 2.51) 3.14 2.51) 3.06

Realized cobalt price $/lb 12.57) 10.54) 11.84 11.56) 11.86

Total sales $'000 248,414) 220,778) 305,208 469,192) 515,056

- including repricing $'000 (9,520) (15,937) 13,700 (25,457) 527

EBITDA* $'000 (32,519) (41,878) 41,223 (74,397) 51,016

Net (loss) income attributable to

shareholders $'000 (84,069) (28,431) 41,458 (112,500) 77,867

C1 cash costs* $/lb 2.46) 2.89) 2.04 2.66) 2.35

Cash flows from operating activities $'000 (23,083) (268,833) 44,685 (291,916) 105,286

Mining

Waste mined tonnes 9,817,347 6,391,114 9,279,543 16,208,461 15,415,546

Ore mined tonnes 2,201,354 1,848,269 2,014,017 4,049,623 3,344,908

Average copper grade % 3.74 3.57 3.84 3.66 3.92

Contained copper in ore mined tonnes 82,311 65,907 77,345 148,218 130,981

Processing

Ore milled tonnes 2,034,949 1,959,724 1,527,708 3,994,673 3,041,924

Finished copper metal and concentrate tonnes 40,096 37,133 41,026 77,229 72,600

Finished cobalt tonnes 943 852 523 1,795 1,001

* Refer to item 20 Non-IFRS financial measures.

Review of 2015 Second Quarter Results

Financial

Profitability during Q2 2015, when compared to Q1 2015 and Q2 2014, was affected by:

o Movements in the copper and cobalt market price, resulting in a positive sales price variance

of $5.0 million when compared to Q1 2015 and a negative sales price variance of $53.7

million when compared to Q2 2014;

o A $35.3 million write-down of inventory to net realizable value driven by the copper price

decline ($10.3 million higher than Q1 2015 and $34.5 million higher than Q2 2014);

o Costs being higher due to increased processing costs at KTC and Luilu which was driven by

higher consumption of reagents and increased depreciation as a result of the enlarged asset

base;

o The cessation of borrowing cost capitalisation during Q1 2015 due to the completion of the

Phase 5 Expansion Project, resulting in Amended Loan Facility interest expense of $74.6

million for Q2 2015 (Q1 2015 - $24.4 million; Q2 2015 – nil); and

o Income tax recoveries of $53.9 million in Q2 2015 (Q1 2015 - $57.4 million; Q2 2014 - $47.6

million) due to deferred tax recognized on tax losses carried forward in the DRC.

Cash flows from operating activities decreased in Q2 2015, when compared to Q2 2014, due to the

decline in profitability, partly offset by decreased working capital requirements, notably prepayments

for mining fleet and capital expenditure. Cash outflows from operating activities improved in Q2

2015, when compared to Q1 2015, due to decreased working capital requirements, notably

prepayments for mining fleet, capital expenditure and royalties. These cash outflows were funded by

customer prepayments from Glencore.


2

Mining

During Q2 2015 the Company increased ore production by 9%, when compared to Q2 2014; this is

principally due to a record level of ore production at KOV Open Pit (an increase of 11% on Q2 2014)

where new mining fleet was commissioned in the intervening year. KTO also contributed with a

record level of ore production (a 4% increase compared to Q2 2014) due to higher stope availability

resulting from increased backfilling and development. Waste tonnes mined were 6% higher than Q2

2014.

Q2 2015 total ore tonnes mined were 19% higher than Q1 2015. Q1 2015 had lower volumes due to

dewatering issues at KOV during the DRC rainy season. Higher average copper mined grade was

achieved in Q2 as higher grade material at the pit bottom became more accessible.

In Q2 2015, the Company commissioned:

o Five new Caterpillar 793D haul trucks operating in KOV to increase ore and waste mining

capacity (increasing the fleet size to 19); and

o One Caterpillar AD45B haul truck operating in KTO to facilitate increased ore and waste

mining capacity (increasing the fleet size to 17).

Processing

Ore milled at KTC during Q2 2015 reached a record level driven by the increased volumes milled at

CM5 (commissioned as part of the Phase 5 Expansion Project). CM5 is currently milling at 99% of

design capacity.

Finished copper metal and concentrate produced decreased by 2% over Q2 2014 driven by the lower

mined grades and lower grade of concentrate feed to Luilu. Finished copper metal and concentrate

produced was an 8% increase over Q1 2015 driven by the increased contained copper in ore mined and

increased volumes of ore milled.

Cobalt metal produced totalled a record 943 tonnes for Q2 2015, an 80% increase from Q2 2014 and

an 11% increase from Q1 2015, due to the increased grades and volume fed together with improved

recoveries thereon.

During Q2, June 2015, the Company commenced with the Whole Ore Leach Project:

o Committed capital expenditure amounts to $10.5 million for site excavation and civil work.

o Concurrent with the construction of the Whole Ore Leach Plant and infrastructure, the current

Life of Mine Plan is being optimized to ensure that the appropriate ore blend will be supplied

to the Whole Ore Leach Process in order to maximize copper and cobalt recovery and to

minimize operating cost per unit.

In Q2 2015, the Company commissioned the following assets at KTC and Luilu in order to improve

throughputs and recoveries:

o Improvements to the froth skimmers in the KTC oxide flotation section which improved

mass-pull in the Wemco cells;

o Upgrade of cleaner bank cells in the oxide flotation section to improve oxide concentrate

grades;

o Upgrade of 20m3 tank cells in the old re-cleaner circuit with additional pre-floatation cells to

increase pre-float capacity;

o Installation of a second concentrate transfer line to increase concentrate transfer to Luilu; and

o A new pumping station at the Mupine tailings facility to increase water capacity to both KTC

and Luilu.


3

Review of 2015 First Half Year Results

Financial

Profitability during H1 2015, when compared to H1 2014, was adversely affected by:

o The decline in the copper and cobalt market price, resulting in a sales price variance of $94.2

million when compared to H1 2014;

o A $60.2 million write-down of inventory to net realizable value driven by the copper price

decline (H1 2014 - $0.8 million);

o Costs being higher due to increased mining expenditure, increased processing costs at KTC

and Luilu as a result of higher reagent consumption, and increased depreciation as a result of

the enlarged asset base; and

o The cessation of borrowing cost capitalisation during H1 2015 due to the completion of the

Phase 5 Expansion Project, resulting in Amended Loan Facility interest expense of $99

million for the six month period.

Income tax recoveries were $111.3 million in H1 2015 (H1 2014 - $103.5 million) due to deferred tax

recognized on tax losses carried forward in the DRC.

Cash flows from operating activities decreased in H1 2015 due to the decline in profitability, in

addition to increased working capital requirements, notably increased inventories and decreased

payables. These cash outflows were funded by customer prepayments from Glencore.

Mining

During H1 2015 the Company increased the ore production by 21%, when compared to H1 2014; this

is principally due to an increase in ore production of 28% at KOV Open Pit where new mining fleet

was commissioned in the intervening year. KTO contributed with an 8% increase in ore production,

compared to H1 2014 due to higher stope availability resulting from increased backfilling and

development. Waste tonnes mined were 5% higher than H1 2014.

H1 2015 contained copper increased by 13%, when compared to H1 2014, as the increased volume

was partly offset by the lower average copper grade achieved.

In H1 2015, the Company commissioned:

o Two Caterpillar R2900G loaders in KTO to increase the ore and waste handling capacity;

o One lube truck for use underground;

o Two Caterpillar D11 dozers and one Caterpillar 834K dozer to optimize mined waste

management;

o Five new Caterpillar 793D haul trucks operating in KOV to increase ore and waste mining

capacity (increasing the fleet size to 19); and

o One Caterpillar AD45B haul truck operating in KTO to facilitate increased ore and waste

mining capacity (increasing the fleet size to 17).


4

Processing

Ore milled at KTC during H1 2015 was 31% higher than H1 2014 driven by the increased volumes

milled at CM5 (commissioned as part of the Phase 5 Expansion Project).

Finished copper metal and concentrate produced increased by 6% over H1 2014 driven by the

increased throughput volumes partly offset by the lower mined grades.

Cobalt metal produced totalled 1,795 tonnes for H1 2015, a 79% increase from H1 2014 due to the

increased volume fed together with improved recoveries thereon.

In H1 2015, the Company commissioned the following assets at KTC and Luilu in order to improve

throughputs and recoveries:




grades;



o Installation of a second concentrate transfer line to increase concentrate transfer to Luilu;

o A new pumping station at Mupine tailings facility to increase water capacity to both KTC and

Luilu;

o An upgrade to the existing water filtration plant;

o A new oxide receiving thickener; and

o Enhancements to the roaster for utilities, calcine cooling and gas treatment.

Outlook

The Board of Directors has approved capital expenditure of $437 million for the upgrading of the

Company's production process to enable Whole Ore Leaching. The Company expects that this new

process, which is planned to be commissioned in 2017, will improve recoveries on oxide ore and

reduce unit costs, as well as increasing the life of mine. Due to related reductions in other planned

capital expenditures, the net effect on capital and operating expenditures through to the end of 2018 is

expected to be an increase of $104 million and a decrease of $488 million respectively. Glencore

International AG has indicated it will provide or procure the additional funding required, if any, for the

Whole Ore Leach Project in addition to any funding of an operational or capital nature necessary for

sustaining ongoing operations during the Whole Ore Leach Project build and commissioning phases.

During Q3 2015, the Company expects to commission:

o One new Caterpillar 6030 Backhoe Excavator in KOV to facilitate increased ore and waste

mining capacity and improve dewatering management;

o Two new Pump stations (P2A and P6A) in KOV to improve dewatering management and

optimize ore and waste removal;

o Upgrade of Wemco cells and reagent addition system (Tank Cells) at KTC to improve oxide

concentrate recoveries and grades;

o Upgrade of Spray Bars (Tank Cells) at KTC to improve recoveries by breaking the froth and

increasing the velocity of concentrate throughput to transfer tank; and

o New Heap Leach Phase 1 at Luilu (first stacking in Q3 2015 to facilitate a low operating cost

per unit model suitable for low grade ore).


5

2. Operational performance

The production of copper cathode, cobalt metal and previously copper concentrate is achieved through

distinct processes which are described and reviewed below. The production statistics for each of these areas

are presented below, for the current and comparative periods, and in item 5 – Summary of Quarterly

Results, for the last eight quarters.

Mining



2015 2015 2014 2015 2014

Ore mined

KOV Open Pit tonnes 1,669,055 1,343,544 1,509,804 3,012,599 2,359,656

Mashamba East Open Pit tonnes 4,312 - - 4,312 -

T17 Open Pit tonnes - - - - 33,638

KTO Underground tonnes 526,292 504,725 504,213 1,031,017 951,614

Etang South Underground tonnes 1,695 - - 1,695 -

Total tonnes 2,201,354 1,848,269 2,014,017 4,049,623 3,344,908

Waste mined

KOV Open Pit tonnes 9,395,807 6,215,360 9,159,252 15,611,167 15,148,828

Mashamba East Open Pit tonnes 304,057 - - 304,057 -

T17 Open Pit tonnes - - - - 30,362

KTO Underground tonnes 57,943 103,179 112,413 161,121 222,045

Etang South Underground tonnes 14,954 - - 14,954 -

KTE Underground tonnes 44,586 67,650 - 112,237 -

T17 Underground tonnes - 4,925 7,879 4,925 14,310

Total tonnes 9,817,347 6,391,114 9,279,543 16,208,461 15,415,546

Average Cu grade

KOV Open Pit % 3.95 3.66 4.05 3.82 4.18

Mashamba East Open Pit % 3.42 0.00 0.00 3.42 0.00

T17 Open Pit % 0.00 0.00 0.00 0.00 2.17

KTO Underground % 3.06 3.32 3.22 3.19 3.31

Etang South Underground % 0.45 0.00 0.00 0.45 0.00

Total average % 3.74 3.57 3.84 3.66 3.92

Average Co grade

KOV Open Pit % 0.52 0.46 0.40 0.49 0.41

Mashamba East Open Pit % 0.41 0.00 0.00 0.41 0.00

T17 Open Pit % 0.00 0.00 0.00 0.00 0.00

KTO Underground % 0.31 0.38 0.48 0.34 0.50

Etang South Underground % 0.45 0.00 0.00 0.45 0.00

Total average % 0.47 0.44 0.42 0.45 0.43

Recorded rainfall

KOV Open Pit mm 193 494 119 687 733


6


KOV Open Pit

The Q2 2015 increase in ore and waste mined, when compared to Q2 2014, is principally due to the

commissioning of new mining fleet during the intervening year. The Q2 2015 increase in ore and

waste mined, when compared to Q1 2015, is due to dewatering issues encountered during the DRC

rainy season during Q1 2015. This effect also resulted in the higher average copper grade achieved as

higher grade material at the pit bottom became more accessible.

In Q2 2015, the Company commissioned five new Caterpillar 793D haul trucks to increase ore and

waste mining capacity.

KTO Underground Mine

KTO mined 4% more ore in Q2 2015 than Q2 2014 and Q1 2015 due to higher stope availability

resulting from increased backfilling and development.

Additional mining fleet was also commissioned during 2014.

During Q2 2015, the Company commissioned one Caterpillar AD45B haul truck to facilitate increased

ore and waste mining capacity.

Other mines

Mashamba East Open Pit, commenced development during Q2 2015, with 304,057 tonnes of waste and

4,312 tonnes of ore mined. As at December 31, 2014, Mashamba East Open Pit had measured and

indicated mineral resources of 75 million tonnes of ore containing 1.8% copper and 0.38% cobalt. Etang South Underground Mine, an extension of KTO, mined 14,954 tonnes of waste and 4,312 tonnes

of ore during Q2 2015. KTE Underground Mine, an extension of KTO, continued development during Q2 2015, with 44,586

tonnes of waste mined and 539 metres of primary development achieved (Q1 2015 - 67,650 tonnes of

waste mined and 767 metres of primary development). T17 Underground Mine development continued during Q2 2015, with developmental ore extraction

still expected to commence in 2016.


KOV Open Pit

The H1 2015 increase in ore and waste mined, when compared to H1 2014, is principally due to the

commissioning of new mining fleet during the intervening year.

In H1 2015, the Company commissioned:

o Two Caterpillar D11 dozers and one Caterpillar 834K dozer to optimize mined waste

management; and

o Five new Caterpillar 793D haul trucks to increase ore and waste mining capacity.

KTO Underground Mine

KTO mined 8% more ore in H1 2015 than H1 2014 due to higher stope availability resulting from

increased backfilling and development.

Additional mining fleet was also commissioned during H2 2014 and H1 2015.

During H1 2015, the Company commissioned:

o Two Caterpillar R2900G loaders to increase the ore and waste handling capacity;

o One lube truck for use underground; and

o One Caterpillar AD45B haul truck to facilitate increased ore and waste mining capacity.


7

Other mines

KTE Underground Mine mined 112,237 tonnes of waste and 1,306 metres of primary development

were achieved. T17 Underground Mine mined 4,925 tonnes of waste during H1 2015 (H1 2014 – 14,310 tonnes).

Processing

Kamoto Concentrator (“KTC”)



2015 2015 2014 2015 2014

Production

Ore milled tonnes 2,034,949 1,959,724 1,527,708 3,994,673 3,041,924

Cu mill grade % 4.00 3.64 4.39 3.83 4.27

Co mill grade % 0.47 0.42 0.35 0.44 0.39

Concentrate produced tonnes 317,392 270,608 187,357 588,000 348,344

Cu grade in concentrate % 16.90 18.53 23.01 17.65 22.80

Co grade in concentrate % 1.63 1.74 1.69 1.68 1.83

KTC processes ore from the various mines.


The increase in KTC ore milled production and concentrate production (when compared to Q1 2015

and Q2 2014) are due to:

o The increased throughput volumes attributable to CM5 ramp up leading to a record level of

ore milled;

o Modifications to the flotation section, increasing capacity and residence time, thereby

improving recovery; and

o Float level automation instrumentation installed during 2014. This instrumentation creates a

more precise and controlled environment surrounding mass pulls and concentrate grade.

The mill grades vary between the comparative quarters due to changes in the grades of material mined

and due to material fed from stockpiles which were mined in previous quarters.

The concentrate grade was lower than Q2 2014 and Q1 2015 due to the increasing proportion of oxide

concentrate produced (mainly from KOV) versus sulphide concentrate produced (mainly from KTO).

In Q2 2015, the Company commissioned the following at KTC in order to improve throughputs and

recoveries:




grades;





Luilu.


KTC ore milled production increased by 31% from H1 2014 and concentrate production increased by

69%.

In H1 2015, the Company commissioned the following assets at KTC in order to improve throughputs

and recoveries:


8




grades;





Luilu.

Luilu Metallurgical Plant



2015 2015 2014 2015 2014

Production

Concentrate fed tonnes 292,671 279,492 276,847 572,163 490,124

Cu concentrate grade % 17.50 18.31 21.29 17.90 21.19

Co concentrate grade % 1.72 1.73 1.66 1.72 1.76

Finished copper metal tonnes 35,974 37,133 40,016 73,107 71,590

Finished copper metal and concentrate tonnes 40,096 37,133 41,026 77,229 72,600

Cobalt produced tonnes 943 852 523 1,795 1,001

Electricity

Power consumption GWh 238 236 220 474 411

Power events number 119 44 94 163 178

Duration hours 192 6 101 198 205

The Luilu Metallurgical Plant processes sulphide and oxide concentrate from KTC through a modern

Solvent Extraction and Electro-Winning (“SX-EW”) circuit.


Q2 2015 copper metal produced was 10% lower than Q2 2014 and 3% lower than Q1 2015 due to the

lower grade of concentrate fed, in addition to less pond stockpile material being fed into the process.

The increased cobalt production, when compared to Q2 2014 and Q1 2015, is due to the increased

material fed together with efforts to increase bleed flow to Purification by Precipitation Selective

(“PPS”) and extension plants, and resolution of lime blockages and density control.

Copper production was achieved despite continuing power disruptions. During Q2 2015,

approximately 192 production hours were lost across the operation due to 119 separate events of power

disruption (Q2 2014 – 101 production hours and 94 events; Q1 2015 – 6 production hours and 44

events). This amounts to approximately 8 days of lost production (Q2 2014 – 4 days; Q1 2015 – 0.25

days) and includes the time from the power disruption until equipment is operating at pre-power

disruption capacity. The lost production time excludes the adverse impact on equipment availability

due to the unplanned abrupt shut downs and subsequent start up of the equipment due to the power

disruptions. In the short term, the diesel cogeneration plants, and in the medium to long term,

improvements in infrastructure as a result of the Power Project (see item 6) are expected to improve the

reliability and stability of electricity supply overall.


H1 2015 copper metal produced was 2% higher than H1 2014 due to the increased SX-EW capacity

installed during the course of 2014, greater roaster efficiency and downtime improvements.

The 79% increase in cobalt production, when compared to H1 2014, is due to the increased material

fed together with efforts to increase bleed flow to PPS and extension plants, and resolution of lime

blockages and density control.


9

In H1 2015, the Company commissioned the following at Luilu in order to improve throughputs and

recoveries:

o An upgrade to the existing water filtration plant;

o A new oxide receiving thickener; and

o Enhancements to the roaster for utilities, calcine cooling and gas treatment.

3. Financial Performance

Operating Results



2015 2015 2014 2015 2014

Sales* $'000 248,414) 220,778) 305,208) 469,192) 515,056)

Cost of sales* $'000 (253,935) (233,545) (222,532) (487,480) (386,359)

Royalties and transportation costs* $'000 (35,712) (29,055) (38,182) (64,767) (68,386)

Depreciation $'000 (62,454) (55,353) (57,751) (117,807) (99,081)

Gross loss $'000 (103,687) (97,175) (13,257) (200,862) (38,770)

Other expenses* $'000 8,714) (56) (3,271) 8,658) (9,295)

Net finance costs $'000 (77,929) (27,734) (2,135) (105,663) (5,432)

Income tax recovery $'000 53,945) 57,367) 47,567) 111,312) 103,461)

Net (loss) income $'000 (118,957) (67,598) 28,904) (186,555) 49,964)

Non-controlling interests $'000 (34,888) (39,167) (12,554) (74,055) (27,903)

Attributable to equity holders $'000 (84,069) (28,431) 41,458) (112,500) 77,867)

EBITDA* $'000 (32,519) (41,878) 41,223) (74,397) 51,016)

Basic and diluted (loss) income per

common share** $/share (0.04) (0.01) 0.02) (0.06) 0.04)

C1 cash cost*** $/pound 2.46) 2.89) 2.04) 2.66) 2.35)

* The aggregation of sales cost of sales, royalties and transportation costs, and other expenses

totals to EBITDA (Refer to item 20 Non-IFRS financial measures).

** Basic and diluted income per common share are the same for the periods presented since the

outstanding share options are anti-dilutive since their exercise prices exceeded the average market

value of the common shares at each period end.

*** Refer to item 20 Non-IFRS financial measures.


10

The movement in sales is due to the following price and volume factors:



2015 2015 2014 2015 2014

Copper sales $'000 223,804 200,220 290,691 424,024 489,738

Copper tonnes sold tonnes 40,308 36,222 42,005 76,530 72,498

Realized copper price $/tonne 5,552 5,528 6,920 5,541 6,755

Closing mark-to-market copper price $/tonne 5,765 6,041 7,015 5,765 7,015

Cobalt sales $'000 24,610 20,558 14,517 45,168 25,318

Cobalt tonnes sold tonnes 888 885 556 1,773 968

Realized cobalt price $/tonne 27,714 23,229 26,110 25,475 26,155

Closing mark-to-market cobalt price $/tonne 30,608 27,717 30,900 30,608 30,900

Total sales $'000 248,414 220,778 305,208 469,192 515,056

Including net repricing $'000 (9,520) (15,937) 13,700 (25,457) 527

Sales for Q2 2015 decreased by $56.8 million over Q2 2014 due to a $53.7 million negative price

variance and a $3.1 million negative volume variance. Sales for Q2 2015 increased by $27.6

million over Q1 2015 due to a $22.7 million positive volume variance and a $5.0 million positive

price variance.

Sales for H1 2015 decreased by $45.9 million over H1 2014 due to a $94.2 million negative price

variance partly offset by a $48.3 million positive volume variance.

Included in sales is a net re-pricing movement incurred. Re-pricing adjustments result from sales

being made at a provisional price in the month of shipment with final pricing based on average

prices at a specified period thereafter. At each reporting date, open provisionally priced sales

which retain an exposure to future changes in prices are marked-to-market based on forward prices

(per the LME) offset by the contractual discount with adjustments being recorded in sales in the

statement of income and receivables on the statement of financial position. As at June 30, 2015,

the Company had 25,170 tonnes of copper (December 31, 2014 – 23,677 tonnes) and 600 tonnes

of cobalt (December 31, 2014 – 521 tonnes) for which final commodity prices have yet to be

determined. These were valued at June 30, 2015, at a forward commodity price net of contractual

discounts of $5,660 per tonne for copper (December 31, 2014 – $6,293 per tonne) and $29,069 per

tonne for cobalt (December 31, 2014 – $29,606 per tonne) (amounts in whole numbers).


11

The movement in cost of sales, depreciation, royalties and transportation costs (operating expenses) is

due to:



2015 2015 2014 2015 2014

Mining $'000 54,402 71,411) 59,630 125,813) 115,418

KTC processing cost $'000 57,570 56,923) 34,609 114,494) 66,699

Luilu processing cost $'000 61,516 57,601) 41,712 119,117) 83,286

Mine infrastructure and support $'000 33,979 32,865) 32,224 66,844) 62,029

Change in metal inventories $'000 6,558 (15,126) 50,727 (8,568) 50,897

Expense on issue of capital spares to

production $'000 4,609 4,930) 3,792 9,539) 10,060

(Gain) loss on disposal of property, plant

and equipment $'000 43 0) 35 43) 103

NRV write-down $'000 35,257 24,941) 769 60,198) 769

Total cost of sales $'000 253,935 233,545) 223,498 487,480) 389,261

Royalties and transportation costs $'000 35,712 29,055) 37,216 64,767) 65,484

Depreciation $'000 62,454 55,353) 57,751 117,807) 99,081

Total operating expenses $'000 352,101 317,953) 318,465 670,054) 553,826

Copper tonnes sold tonnes 40,308 36,222) 42,005 76,530) 72,498

Cost per tonne sold $/tonne 8,735 8,778) 7,582 8,755) 7,639

Review of 2015 Second Quarter Expenses

Mining costs for Q2 2015:

o Decreased by 9% when compared to Q2 2014, due to:

Higher pre-stripping costs capitalized partly offset by higher mining services

and maintenance costs; further offset by

The 6% increase in total ore and waste mined.

o Decreased by 24% when compared to Q1 2015, due to:

Higher pre-stripping costs capitalized partly offset by higher ore and waste

mining costs as a result of the 46% increase in total ore and waste mined.

KTC processing costs for Q2 2015:

o Increased by 66%, when compared to Q2 2014, due to:

The 33% increase in ore milled and the 69% increase in concentrate produced;

and

Increased floatation costs (principally the higher consumption ratio due to

reagent dosing complications), increased ore receiving costs, the mineral

properties of the material fed, higher energy costs and a higher proportion of

oxides vs. sulphides processed.


The 4% increase in ore milled and the 17% increase in concentrate produced;

and

Increased ore receiving costs as a result of the increased volume.

Luilu processing costs for Q2 2015:


The 80% increase in cobalt production, partly offset by the 10% decrease in

finished copper metal production; and

Increased acid and lime consumption, contractor and energy costs.

o Increased by 7%, when compared to Q1 2015, due to increased maintenance, SX plant

and heap leaching costs.

Mine infrastructure and support costs for Q2 2015, were broadly stable over the periods

presented with a 5% increase, when compared to Q2 2014, and a 3% increase, when compared

to Q1 2015.


12

Change in metal inventories expense increased due to the decreased level of work in progress

and finished goods not yet sold in Q2 2015.

Included in operating expenses for Q2 2015 is a $35.3 million write-down of inventory to net

realizable value as a result of the decline in the copper price (Q2 2014 - $0.8 million; Q1 2015

- $24.9 million).

Royalty payments and transportation costs for Q2 2015:

o Decreased by 4%, when compared to Q2 2014, due to the decreased copper tonnes sold

and the decrease in copper sales prices.

o Increased by 23%, when compared to Q1 2015, due to the increase in copper tonnes sold

and the increase in the cobalt sales prices.

Depreciation and amortization increased by 8% from Q2 2014 and 13% from Q1 2015 as a

result of the additional amortization of the pre-stripping costs at KOV as mining tonnes have

increased, additional depreciation on commissioned Updated Phase 4 Expansion Project and

Phase 5 Expansion Project assets, together with greater units-of-production (“UOP”)

amortization and depreciation as overall production has increased.

The decreased gross profit is due to the lower sales prices, the inventory write-down, the higher

processing costs, and the higher depreciation and amortization.

Other expenses were lower due to increased foreign exchange gains largely due to favourable

movements in the USD: ZAR exchange rate.

Net finance costs were higher due to:

o The cessation of borrowing cost capitalisation during Q1 2015 due to the completion of

the Phase 5 Expansion Project, resulting in Amended Loan Facility interest expense of

$74.6 million for Q2 2015 (Q1 2015 – $24.4 million; Q2 2014 – nil); and

o Changes in sales volumes upon which interest is charged for payments received in

advance.

Income tax recoveries vary based on the movements in tax losses carried forward in the DRC.

Review of 2015 First Half Year Expenses

Mining costs increased by 9% due to:

o The 8% increase in ore and waste mined; and

o Higher costs, notably increased mining services and dewatering costs, partly offset by

higher pre-stripping costs capitalized.

KTC processing costs increased by 72%, due to

o The 31% increase in ore milled and the 69% increase in concentrate produced; and

o Increased costs, notably floatation costs (principally the higher consumption ratio due to

reagent dosing complications), ore receiving costs, the mineral properties of the material

fed, higher energy costs and a higher proportion of oxides vs. sulphides processed.

Luilu processing costs increased by 43% due to:

o The 2% increase in finished copper metal production and 79% increase in cobalt

production; and

o Increased acid and lime consumption, tailings, maintenance and energy costs.

Mine infrastructure and support costs increased by 8% to support the higher levels of

operations.

Change in metal inventories expense decreased due to the increased level of work in progress

and finished goods not yet sold in H1 2015.

Included in operating expenses for H1 2015 is a $60.2 million write-down of inventory to net

realizable value as a result of the decline in the copper price (H1 2014 - $0.7 million).

Royalty payments and transportation costs decreased by 1% due to the decrease in sales prices

partly offset by the increased copper and cobalt tonnes sold.

Depreciation and amortization increased by 19% from H1 2014 as a result of the additional

amortization of the pre-stripping costs at KOV as mining tonnes have increased, additional

depreciation on commissioned Updated Phase 4 Expansion Project and Phase 5 Expansion

Project assets, together with greater units-of-production (“UOP”) amortization and

depreciation as overall production has increased.

The decreased gross profit is due to the lower sales prices, the inventory write-down, the higher

mining and processing costs, and the higher depreciation and amortization.


13

Other expenses were lower due to increased foreign exchange gains largely due to favourable

movements in the USD: ZAR exchange rate and lower head office costs as a result of the reversal

of key management compensation accruals upon their resignation in Q1 2015.

Net finance costs were higher due to:

o The cessation of borrowing cost capitalisation during Q1 2015 due to the completion of

the Phase 5 Expansion Project, resulting in Amended Loan Facility interest expense of

$99 million for H1 2015; and

o Increased sales volumes upon which interest is charged for payments received in

advance.

Income tax recoveries were higher due to increases in tax losses carried forward in the DRC.

Further, in H1 2014, the recovery amount includes provision releases as a result of the finalization

of the tax audits for 2008 to 2012.

Cash Flows



2015 2015 2014 2015 2014

Cash flow from (used in):

Operating activities $'000 (23,083) (268,833) 44,685) (291,916) 105,286)

Investing activities $'000 (162,664) (98,345) (121,352) (261,009) (269,976)

Financing activities $'000 241,150) 354,000) 129,300) 595,150) 205,500)

Total cash flows $'000 55,403) (13,178) 52,633) 42,225) 40,810)

Cash, beginning of period* $'000 (23,784) (10,519) 13,929) (10,519) 25,745)

Effect of exchange rate changes on cash

held in foreign currencies $'000 67) (87) (94) (20) (87)

Cash, end of period* $'000 31,686) (23,784) 66,468) 31,686) 66,468)

* Consisting of cash on hand and bank overdrafts.

Review of 2015 Second Quarter Cash Flows

Cash outflows from operating activities were:

o $67.8 million higher in Q2 2015, when compared to Q2 2014, primarily due to:

The decrease in net income, net of non-cash items, of $72.8 million, as described

above; and

A working capital inflow of $8.7 million (Q2 2014, $3.7 million).

o $245.8 million lower, when compared to Q1 2015, primarily due to:

The increase in net income, net of non-cash items, $7.5 million, as described

above; and

A working capital inflow of $8.7 million (Q1 2015, $229.6 million outflow).

Investing activities in Q2 2015, increased by $41.3 million compared to Q2 2014 and by $64.3

million relative to Q1 2015, mainly due to additional mining fleet purchased at KOV and the

higher levels of pre-stripping expenditure incurred. The Q2 2015 additions to mineral interests and

property, plant and equipment relate mainly to the KOV pre-strip ($43.6 million), KOV mining

fleet ($22.5 million), processing expansionary capital ($40.0 million) and sustaining capital ($24.6

million).

Financing activities in Q2 2015, increased by $111.9 million, when compared to Q2 2014, and

decreased by $112.9 million, when compared to Q1 2015, due to draw-downs from customer

prepayments (in 2015). The Q2 2015 draw-downs were in the form of customer prepayments

from Glencore and were mainly utilized to fund additions to property, plant and equipment and

operating cash outflows.


14

Review of 2015 First Half Year Cash Flows

Cash outflows from operating activities were $397.2 million higher primarily due to:

o The decrease in net income, net of non-cash items, of $112.9 million, as described above;

and

o A working capital outflow of $220.9 million (H1 2014, $63.4 million inflow).

Investing activities decreased by $9.0 million, mainly due to the lower level of expenditure

incurred on the Updated Phase 4 and Phase 5 Expansion Projects which are now complete. The H1

2015 additions to mineral interests and property, plant and equipment relate mainly to the KOV

pre-strip ($66.2 million), KOV mining fleet ($22.5 million), processing expansionary capital

($78.2 million) and sustaining capital ($46.8 million).

Financing activities increased by $389.7 million due to higher draw-downs from customer

prepayments (in 2015). The draw-downs have been mainly utilized to fund capital expenditure

and working capital outflows.

4. Statement of Financial Position Discussion

June 30,

2015

$’000

December 31,

2014

$’000

Assets

Cash and cash equivalents 32,221 9,862

Receivables 194,460 188,025

Inventories 612,103 543,341

Prepayments and other current assets 197,078 129,270

Mineral interests and property, plant and equipment 3,929,202 3,789,725

Other non-current assets 560,470 385,415

5,525,534 5,045,638

Liabilities

Current liabilities 369,626 421,631

Customer prepayments 600,900 2,385

Amended Loan Facilities 2,911,826 2,770,863

Other non-current liabilities 19,868 39,886

3,902,220 3,234,765

Total equity 1,623,314 1,810,873

Cash and cash equivalents / liquidity

The cash and cash equivalents balance increased from $9.9 million at December 31, 2014 to $32.2 million

at June 30, 2015. The movements in cash and cash equivalents are discussed in item 3 under the heading

“Cash Flows”.

Receivables

As at June 30, 2015, the receivables balance of $194.5 million principally represents $133.7 million of

VAT input credits receivable and $52.4 million of outstanding balances for copper and cobalt sales

invoiced. Copper and cobalt sales are made under various sales agreements. Sales are made at a

provisional price in the month of shipment with final pricing based on average prices at a specified period

thereafter. Receivables increased by $6.4 million from December 31, 2014 due to an increase in product

receivables of $20.4 million and a decrease in other receivables, mainly VAT input credits, of $13.9

million.


15

Inventories

Inventories increased from $543.3 million at December 31, 2014 to $612.1 million at June 30, 2015,

primarily due to an increase in consumables inventories of $111.8 million and a decrease in current product

inventories of $43.0 million (including a $35.3 million write-down to net realizable value in Q2 2015).

Consumables inventory has increased to support the planned increase in production levels. As at June 30,

2015, $60.2 million of consumables inventory with a useful life of more than one year were included in

property, plant and equipment as capital spares (December 31, 2014 - $54.9 million).

Prepayments and other current assets

Prepayments and other current assets increased from $129.3 million at December 31, 2014 to $197.1

million at June 30, 2015, primarily due to an increase in prepayments for mining fleet, capital expenditure

and royalties.

Mineral interests and property, plant and equipment

Mineral interests and property, plant and equipment increased from $3,789.7 million at December 31, 2014

to $3,929.2 million at June 30, 2015, primarily due to sustaining capital expenditures of $46.8 million,

KOV pre-stripping expenditures of $66.2 million, project related capital expenditures of $88.5 million and

capitalized borrowing costs of $45.3 million offset by depreciation and amortization expense of $117.8

million. As at June 30, 2015, $60.2 million of consumables inventory with a useful life of more than one

year were included in property, plant and equipment (December 31, 2014 - $54.9 million).

Other non-current assets

Other non-current assets increased from $385.4 million at December 31, 2014 to $560.5 million at June 30,

2015, due to an increase in the net deferred income tax asset ($111.8 million) and a $63.2 million increase

in non-current prepayments mainly related to the Power Project (refer to item 6).

Current liabilities

Current liabilities decreased from $421.6 million at December 31, 2014 to $369.6 million at June 30, 2015.

This is primarily due to a decrease in trade payables, accruals and provisions of $25.7 million and a $19.8

million decrease in bank overdrafts.

Customer prepayments

Customer prepayments increased from $2.4 million at December 31, 2014 to $600.9 million at June 30,

2015. This is due to $593.4 million of advance payments received and $5.2 million of interest payable

accrued.

Amended Loan Facilities

Amended Loan Facilities (refer to item 8) increased from $2,770.9 million at December 31, 2014, to

$2,911.8 million at June 30, 2015, due to facility draw-downs of $1.8 million and the accrual of interest of

$139.2 million which is payable on maturity on January 1, 2021.

Other non-current liabilities

Other non-current liabilities consist of the Pas de Porte liability (an “entry premium” obligation payable to

Gécamines for access to the Project), the finance lease liability arising on the sale and leaseback of mining

equipment and the decommissioning and environmental provisions. Other non-current liabilities have

decreased from $39.9 million as at December 31, 2014, to $19.9 million as at June 30, 2015, due to the

non-current portion of the Pas de Porte obligation decreasing by $7.0 million and the non-current portion

of the finance lease liability decreasing by $0.7 million. Additionally, the decommissioning and

environmental provisions decreased by $12.3 million due to a decrease in the liability since the Company

reassessed its estimate regarding the expected closure costs and date of the mining properties.


16

Off-Balance Sheet Arrangements

As at June 30, 2015, the Company had no off-balance sheet arrangements.

5. Summary of Quarterly Results The following table sets out a summary of the quarterly results of the Company for the last eight quarters:

* Includes impact of provisionally priced sales which retain exposure to future changes in

commodity prices being marked-to-market based on the London Metal Exchange (“LME”) prices

for copper, previously concentrate and cobalt at the balance sheet date and repricing of those

provisional sales in future periods.

** The aggregation of sales, cost of sales, royalties and transportation costs, and other expenses totals

to EBITDA (refer to item 20 Non-IFRS financial measures).

*** Basic and diluted income per common share are the same for the periods presented since the

outstanding share options do not have a dilutive effect since their exercise prices exceeded the

average market value of the common shares at each period end.

**** Operating cash flows from customer prepayments have been superseded by the Amended Loan

Facilities (refer to item 8) and financing cash flows from customer prepayments. Q1 2014 to Q2

2015 represents the movement in cash received for copper and cobalt that has been invoiced but

not yet crossed the DRC border (the point of revenue recognition). Refer to item 20 Non-IFRS

financial measures.

In Q1 2014 profitability was adversely impacted by the lower volumes of cobalt sold. In Q1 2014, Q3

2014 to Q2 2015, the declining copper price led to lower profitability. In Q3 2013 and Q2 2014, the

increasing copper price and production led to higher profitability. In Q4 2013, profitability was affected by

increased income tax expense arising from assessments of previous periods offset by increased production.

Income tax recoveries in Q3 2013, during 2014 and 2015 were due to deferred tax credits principally

arising from increases in tax losses carried forward in the DRC. In Q1 2015, the Company incurred a $24.9

million inventory write-down expense together with $24.4 million of Amended Loan Facility interest cost

expensed due to the cessation of borrowing cost capitalization. Similarly, in Q2 2015, the Company

2013 2013 2014 2014 2014 2014 2015 2015

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

($ millions except where indicated)

Statement of Operations

Total sales* 211.2 201.7 209.8 305.2 300.5 262.9 220.8 248.4

Cost of sales** (108.2) (111.1) (163.8) (222.5) (206.7) (190.8) (233.5) (253.9)

Royalties and transportation costs** (39.7) (25.5) (30.2) (38.2) (35.2) (34.6) (29.1) (35.7)

Depreciation and amortization (37.0) (37.9) (41.3) (57.8) (62.8) (44.2) (55.4) (62.5)

Gross profit (loss) 26.4 27.1 (25.5) (13.3) (4.2) (6.8) (97.2) (103.7)

Other (expenses) income** (2.0) (4.8) (6.0) (3.3) (2.4) (6.8) (0.1) 8.7

Net finance cost (2.9) (3.1) (3.3) (2.1) (3.4) (5.6) (27.7) (77.9)

Income taxes recovery (expense) 6.9 (23.9) 55.9 47.6 26.7 15.3 57.4 53.9

Net income (loss) 28.3 (4.7) 21.1 28.9 16.8 (3.7) (67.6) (119.0)

EBITDA** 61.4 60.3 9.8 41.2 56.2 30.7 (41.9) (32.5)

Basic and diluted income (loss) per common share ($ per share)*** 0.02 0.01 0.02 0.02 0.02 0.01 (0.01) (0.04)

Realized copper price ($ per lb) 3.29 3.25 2.96 3.14 3.09 2.84 2.51 2.52

Realized cobalt price ($ per lb) 9.58 10.80 11.89 11.84 13.00 11.69 10.54 12.57

Realized concentrate price ($ per tonne) 594 - - - - - - -

Total copper sold (tonnes) 25,304 26,203 30,493 42,005 40,668 38,308 36,222 40,308

Total copper metal produced (tonnes) 24,511 28,415 31,574 40,016 42,619 42,807 37,133 35,974

Total copper produced in metal and concentrate (tonnes) 34,512 41,406 31,574 41,026 42,619 42,807 37,133 40,096

Total cobalt sold (tonnes) 715 617 412 556 809 886 885 888

Total cobalt produced (tonnes) 741 531 478 523 899 884 852 943

Total concentrate sold (tonnes) 21,580 - - - - - - -

Statement of Financial Position

Cash and cash equivalents 17.1 25.7 13.9 66.5 34.4 9.9 2.0 32.2

Other current assets 775.7 852.5 899.8 694.2 675.5 803.0 986.3 946.0

Mineral interests, property, plant and equipment and

other long term assets 3,228.5 3,419.2 3,591.8 3,947.3 4,134.8 4,232.8 4,386.7 4,547.3

Total assets 4,021.2 4,297.4 4,505.5 4,708.0 4,844.7 5,045.6 5,375.0 5,525.5

Current liabilities 1,519.7 1,787.4 285.3 300.2 312.5 424.0 757.3 970.5

Amended Loan Facilities 700.3 718.0 2,410.2 2,572.1 2,674.5 2,770.9 2,841.3 2,911.8

Other non-current liabilities 49.1 44.9 41.5 38.2 43.2 39.9 34.2 19.9

Total liabilities 2,269.1 2,550.3 2,737.1 2,910.4 3,030.2 3,234.8 3,632.8 3,902.2

Total equity 1,752.1 1,747.2 1,768.4 1,797.5 1,814.5 1,810.9 1,742.2 1,623.3

Cash Flow

Operating activities (before working capital changes) 56.8 37.6 0.8 41.0 56.9 29.1 (39.3) (31.8)

Changes in working capital (excluding customer prepayments) (59.8) (155.7) 50.2 12.9 6.8 21.6 (227.5) 6.6

Increase (decrease) in customer prepayments**** 180.2 282.0 9.6 (9.2) 2.1 (1.1) (2.1) 2.1

Investing activities (211.7) (153.9) (148.6) (121.4) (165.2) (143.4) (98.3) (162.7)

Financing activities - - 76.2 129.3 68.0 48.2 354.0 241.2


17

incurred a $35.3 million inventory write-down expense together with $74.6 million Amended Loan Facility

interest cost. These movements in the results are also reflected in the cash flows from operating activities

before working capital changes. Investing activities increased in Q3 2013, as the Company progressed the

Updated Phase 4 Expansion Project (as detailed in the 2012 ITR – refer to item 16), then again in Q3 2014,

as the Phase 5 Expansion Project progressed, and then again in Q2 2015, due to mining fleet acquisitions

and pre-stripping costs at KOV, and this has also resulted in an increase in the net additions to mineral

interest and other assets. Other movements on the statement of financial position can be primarily attributed

to the changes in production.

The following production information sets out the quarterly results of the Company for the last

eight quarters:

2013 2013 2014 2014 2014 2014 2015 2015

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Copper and Cobalt

Production Statistics

Open Pit Mining - KOV

Waste mined (tonnes) 10,646,705 9,415,149 5,989,576 9,159,252 8,273,637 7,820,548 6,215,360 9,395,807

Ore mined (tonnes) 1,102,207 1,033,631 849,852 1,509,804 1,654,153 1,368,624 1,343,544 1,669,055

Copper grade (%) 3.83 3.82 4.43 4.05 3.72 4.41 3.66 3.95

Cobalt grade (%) 0.41 0.38 0.42 0.40 0.37 0.46 0.46 0.52

Open Pit Mining - T17

Waste mined (tonnes) 40,612 40,398 30,362 - 5,523 - - -

Ore mined (tonnes) 21,204 86,564 33,638 - 74,441 - - -

Copper grade (%) 4.26 3.29 2.17 - 3.81 - - -

Cobalt grade (%) 0.61 0.75 0.56 - 1.03 - - -

Open Pit Mining - Mashamba

East

Waste mined (tonnes) - - - - - - - 304,057

Ore mined (tonnes) - - - - - - - 4,312

Copper grade (%) - - - - - - - 3.42

Cobalt grade (%) - - - - - - - 0.41

Underground Mining - KTO

Waste mined (tonnes) 156,156 173,352 109,632 112,413 111,634 115,529 103,179 57,943

Ore mined (tonnes) 448,206 458,696 447,401 504,213 496,369 495,343 504,725 526,292

Copper grade (%) 3.30 3.35 3.41 3.22 3.37 3.68 3.32 3.06

Cobalt grade (%) 0.45 0.49 0.51 0.48 0.42 0.43 0.38 0.31

Underground Mining - Etang

South

Waste mined (tonnes) - - - - - - - 14,954

Ore mined (tonnes) - - - - - - - 1,695

Copper grade (%) - - - - - - - 2.43

Cobalt grade (%) - - - - - - - 0.45

Underground Mining - T17

Waste mined (tonnes) - - 6,431 7,879 16,799 20,070 4,925 -

Ore mined (tonnes) - - - - - - - -

Copper grade (%) - - - - - - - -

Cobalt grade (%) - - - - - - - -

Underground Mining - KTE

Waste mined (tonnes) - - - - - - 67,650 44,586

Ore mined (tonnes) - - - - - - - -

Copper grade (%) - - - - - - - -

Cobalt grade (%) - - - - - - - -

Total Mining

Waste mined (tonnes) 10,843,473 9,628,900 6,136,002 9,279,543 8,407,593 7,956,147 6,391,114 9,817,347

Ore mined (tonnes) 1,571,617 1,578,891 1,330,891 2,014,017 2,224,963 1,863,967 1,848,269 2,201,354

Copper grade (%) 3.69 3.65 4.03 3.84 3.65 4.22 3.57 3.74

Cobalt grade (%) 0.42 0.43 0.46 0.42 0.41 0.45 0.44 0.47

KTC Concentrator

Ore processed (tonnes) 1,478,387 1,492,893 1,514,216 1,527,708 1,541,926 1,722,177 1,959,724 2,034,949

Concentrate produced (tonnes) 172,862 225,151 160,987 187,357 269,802 287,604 270,608 317,392

Luilu Metullurgical Plant

Total concentrate feed (tonnes) 127,266 163,545 213,276 276,847 305,184 318,096 279,492 292,671

Copper produced (tonnes) 24,511 28,415 31,574 40,016 42,619 42,807 37,133 35,974

Cobalt produced (tonnes) 741 531 478 523 899 884 852 943


18

6. Commitments

The following table summarizes the Company’s contractual and other obligations as at June 30, 2015.

(1) The capital expenditure commitments relate to the Whole Ore Leach Project ($10.5 million) and other

infrastructure projects. Glencore has indicated it will provide or procure the additional funding

required, if any, for the completion of these projects. (2) Pursuant to the terms of the Joint Venture Agreement (the “JVA” – refer to item 15), all installations

and infrastructures within the perimeter of the KCC concession area are being rented for an annual

minimum royalty payment to Gécamines of $1.8 million. (3) In order to meet the needs for additional and reliable electrical power for the development of their

mining activities, KCC and Mutanda Mining SARL (“Mutanda”) (a related party of the Company and

part of the Glencore group), entered into agreements with the DRC electricity provider, La Société

Nationale d’Electricité (“SNEL”), to fund the rehabilitation of certain of SNEL’s generation and

transmission infrastructures (the “Power Project”). KCC will fund $367.1 million for the Power

Project commencing from the second quarter of 2012 to the end of 2017 but will be reimbursed $244.7

million by Mutanda. Accordingly, KCC's net funding contribution will be $122.4 million, of which

$78.5 million has been funded as of June 30, 2015 (included in other non-current assets in the

statement of financial position). $362.1 million of this amount will be reimbursed by SNEL ("Debt

Amount") via credits to power bills payable by the Company and its affiliates. Interest will accrue at 6

months LIBOR + 3% on the Debt Amount from date of drawdown to date of reimbursement. SNEL

will retain ownership of the generation and transmission infrastructures throughout the duration of the

Power Project and thereafter. Glencore has indicated it will provide or procure the additional funding

required, if any, for the completion of the Power Project.

7. Contingent Liabilities

The Company and its subsidiaries are subject to routine legal proceedings and tax audits. While the

Company cannot predict the results of any legal proceedings, it believes it has meritorious defences against

those claims. The Company believes the likelihood of any liability arising from these claims to be remote

and that the liability, if any, resulting from any litigation or tax audits, individually or in aggregate, will not

have a material adverse effect on its consolidated earnings, cash flow or financial position.

The Company’s operations in the DRC are subject to various environmental laws and regulations. The

Company is in material compliance with those laws and regulations. Environmental contingencies are

accrued by the Company when such contingencies are probable and reasonably estimable. At this time, the

Company is unaware of any material environmental incidents at its operations in the DRC.

Refer to item 13 of this Management Discussion and Analysis.

Total Less than 1

year

1-3 years 4-5 years After 5

years

Payments due by year $’000 $’000 $’000 $’000 $’000

Capital expenditure commitments(1) 81,775 81,775 - - -

Gécamines minimum royalty

payment(2) 18,000 1,800 3,600 3,600 9,000

Power Project(3) 43,864 21,802 22,062 - -

143,639 105,377 25,662 3,600 9,000


19

8. Liquidity and Capital Resources

As at June 30, 2015, the Company had cash and cash equivalents of $32.2 million (December 31, 2014 –

$9.9 million), bank overdrafts of $0.5 million (December 31, 2014 – $20.4 million) and a working capital

surplus of $7.7 million (December 31, 2014 – $388.8 million).

In December 2011, the Company announced the execution of two loan facilities with Glencore Finance

(Bermuda) Limited, a subsidiary of Glencore, with total available borrowing of up to $635.5 million (the

“Loan Facilities”). $120.0 million was provided to the Company during the year ended December 31, 2011,

as a new term loan facility (the “Term Loan”) to fund in substantial part the redemption of the Company's

debentures. On December 13, 2012, the second facility (the “Senior Facility”), making up the balance of

the available borrowing and amounting to $515.5 million, was provided to a subsidiary of the Company and

together with other subsidiaries of the Company as guarantors, as a senior secured credit facility to fund a

portion of the Updated Phase 4 Expansion Project not covered by the Company's cash flows.

On November 26, 2014, the Company announced the execution of extended and increased loan facilities

with Glencore Finance (Bermuda) Limited. The amended facilities are comprised of the Senior Facility

and Term Loan, each as amended (the "Amended Loan Facilities") as follows:

The Senior Facility was increased to include the existing $515.5 million Senior Facility (plus accrued

interest thereon) and $1,815.8 million of customer prepayments provided by Glencore International AG to

KCC (plus accumulated interest thereon), which were converted into loans bearing interest at 10% per

annum and provided by Glencore Finance (Bermuda) Limited. Included in the total amount of the

amended Senior Facility was further funding of $50.0 million, which was subsequently fully drawn down,

made available according to the cash flow requirements of KCC based on the approved budgets for the

Phase 5 Expansion Project and the Power Project. The amount of the Term Loan remained unchanged at

$120.0 million plus accumulated interest. The maturity of the Senior Facility and the Term Loan was

extended to January 1, 2021. All other material terms of the Senior Facility and the Term Loan remained

the same.

The Company's 75% interest in KCC (which holds the copper and cobalt project assets) has been pledged

as security for the Senior Facility along with certain other assets of the Company and its subsidiaries. As

security for the Term Loan and additional security for the Senior Facility, the Company has agreed, if a

Loan Facility is in default, to complete a discounted rights offering with a Glencore subsidiary providing a

standby commitment, to repay the Loan Facility. In the case of the Senior Facility, a Glencore subsidiary

has agreed to exercise its right to compel the Company to complete the discounted rights offering prior to

realizing on the Glencore subsidiary's other security. The Loan Facilities contain undertakings which

restrict the Company’s and other Company subsidiaries’ ability to (i) make acquisitions, (ii) grant loans,

(iii) provide guarantees, (iv) pledge or dispose of their assets, as well as certain additional undertakings

which are customary for these type of transactions.


20

The Amended Loan Facilities balance is comprised of the following:

June 30,

2015

$’000

December 31,

2014

$’000

Balance, beginning of the year 2,770,863 717,990)

Changes during the period:

Transferred from customer prepayments - 1,910,355)

Facility draw-down 1,800 48,200)

Interest capitalized and payable on maturity(1) 110,602 67,340)

Interest payable on maturity but not yet capitalized(1) 28,561 26,467)

Accretion - 511)

Balance, end of the period 2,911,826 2,770,863)

(1) Interest is payable on any amount drawn under the Amended Loan Facilities at a rate of 10% per

annum. Before finalization of the Amended Loan Facilities, financing received through customer

prepayments bore interest at a floating rate of 3-month LIBOR plus 3%. Interest is capitalized

twice a year to the Amended Loan Facilities and payable on maturity. The amount of interest

payable has therefore been split between interest capitalized and interest payable but not yet

capitalized to the Amended Loan Facilities.

The Company has in place a rigorous planning and budgeting process to help determine the funds required

to support the Company’s normal operating requirements on an ongoing basis and its planned capital

expenditures. The budgeting process included stress testing of the assumptions underlying the budget. It is

anticipated that the Company’s existing cash balances, cash flow from operations, existing credit facilities

and advances from Glencore will be sufficient to fund the operations, capital expenditure, the Whole Ore

Leach Project and the Power Project for the next year. Glencore has indicated it will provide or procure the

additional funding required, if any, for the operations, capital expenditure, the Whole Ore Leach Project

and the completion of the Power Project. Further detail on the Company’s commitments can be found in

item 6 and 13 of this Management’s Discussion and Analysis.

9. Accounting Policies, Key Judgments and Estimates

The unaudited interim condensed consolidated financial statements have been prepared using the same

accounting policies, key judgments and estimates as applied in the 2014 annual audited consolidated

financial statements. The following new and revised standards and interpretations were adopted effective

for annual accounting periods beginning on or after July 1, 2014:

Amendments to IAS19 – Defined Benefit Plans: Employee Contributions

Annual Improvements 2010-2012 Cycle

Annual Improvements 2011-2013

The adoption of these new and revised standards and interpretations did not have a significant impact on

Katanga’s interim condensed consolidated financial statements.


21

10. Outstanding Share Data

(a) AUTHORIZED

An unlimited number of common shares with no par value.

(b) ISSUED AT JUNE 30, 2015

1,907,380,413 common shares.

(c) SHARE OPTIONS

The following table reflects the continuity of share options during the periods presented:

Number of share

options

Weighted Exercise

Price per Share (1)

Outstanding at January 1, 2014 7,153,658) $2.85)

Unchanged during the year -) -)

Outstanding at December 31, 2014 7,153,658) $2.85)

Forfeited during the period (2,359,636) ($0.99)

Outstanding at June 30, 2015 4,794,022) $3.76)

(1) Denominated in Canadian dollars.

11. Related Party Transactions

Related parties and related party transactions not otherwise disclosed elsewhere in this Management’s

Discussion and Analysis include:

Galif Investments Limited (“Galif”), registered in Bermuda, is an aircraft management company whose

ultimate beneficial owner is Glencore. During 2015 and 2014, Galif provided aircraft maintenance and

auxiliary services to the Company in the normal course of business and on arm’s length commercial terms.

Glencore is the Company’s ultimate majority shareholder and is represented on the Board of Directors of

the Company. In November 2007, Glencore’s wholly owned subsidiary, Glencore International AG entered

into a 100% off-take agreement for concentrate sales with the Company and commencing January 1, 2009,

pursuant to additional off-take agreements, all copper and cobalt metal produced are sold to Glencore

International AG on market terms for the life of any mines and plants operated, acquired and / or developed

by the Company in the DRC. The off-take agreements were entered into before Glencore was a related

party of the Company. In December 2011, the Company entered into the Loan Facilities with total

available borrowing of up to $635.5 million, which was fully drawn down during 2011 and 2012. Such

Loan Facilities were amended in 2014 (refer to item 8).

Mutanda Mining SARL (“Mutanda”) is a copper and cobalt producer located in the DRC and is a 69%

owned subsidiary of Glencore. During the year ended December 31, 2012, the Company commenced the

Power Project with Mutanda and Kansuki SPRL (since merged with Mutanda) (refer to item 6).

Additionally, there is an agreement in place for employees of either Katanga or Mutanda to use charter

flights operated by either company with associated costs invoiced. In November 2014, the Company’s

Board of Directors, including its independent directors, unanimously approved entering into a contract for

the sale by Mutanda of copper concentrate to the Company, in the ordinary course of business and on arm’s

length commercial terms. Further, during 2015 and 2014, Mutanda supplied processing consumables and

medical services to the Company. These services were provided in the normal course of business and on

arm’s length commercial terms.

Mopani Copper Mines Plc (“Mopani”) is a copper and cobalt producer located in Zambia. Mopani is a

73.1% owned subsidiary of Glencore. During 2015 and 2014, Mopani supplied sulphuric acid and other

consumables to the Company in the normal course of business and on arm’s length commercial terms.


22

Glencore Technology Proprietary Limited (“Glencore Technology”) is a provider of mining services and

is a 100% subsidiary of Glencore. During 2015 and 2014, Glencore Technology provided mining

equipment and services to the Company, in the normal course of business and on arm’s length commercial

terms.

All transactions were in the normal course of business and recorded at exchange amounts. The following

table provides the total amount of the transactions entered into with these related parties:


June 30, June 30,

2015

$’000

2014

$’000

2015

$’000

2014

$’000

Purchases from related parties

Galif 693 597 1,170 1,375

Glencore International AG(1) 92,037 50,887 175,128 95,463

Mopani 6,619 3,218 11,734 5,920

Mutanda 2,944 - 5,449 -

Glencore Technology 631 177 1,006 192

Sales to related parties

Glencore International AG 248,413 305,208 469,191 515,056

Mutanda(2) 302 - 3,013 -

As at

June 30,

2015

$’000

As at

December 31,

2014

$’000

Amounts owed to related parties

Galif 1,170 2,384

Glencore International AG(3) 3,513,512 2,773,682

Mopani 4,684 9,442

Mutanda(4) 29,143 29,282

Glencore Technology 809 283

Amounts owed by related parties

Glencore International AG 52,410 29,473

Mutanda - 2,556

(1) Amount includes interest payable under the Amended Loan Facilities and customer prepayments. (2) Amounts included in cost of sales in the Operating Results as these are recoverable charter flight

costs which are netted against the underlying expense. (3) Amount includes customer prepayments and Amended Loan Facilities. (4) Amount represents advanced payments received on the Power Project (refer to item 6) and

amounts owing for the purchase of concentrate, processing consumables and medical services.


23

12. Financial Instruments

At June 30, 2015, and December 31, 2014, the Company’s financial instruments consisted of cash and cash

equivalents, receivables, accounts payable and accrued liabilities, bank overdrafts, customer prepayments,

other non-current liabilities and the Amended Loan Facilities. With respect to all of these financial

instruments, the Company estimates that the fair value of these financial instruments approximates the

carrying values at June 30, 2015 and December 31, 2014, respectively.

The Company values instruments carried at fair value using quoted market prices, where available. Quoted

market prices represent a Level 1 valuation. When quoted market prices are not available, the Company

maximizes the use of observable inputs within valuation models. When all significant inputs are

observable, the valuation is classified as Level 2. Valuations that require the significant use of unobservable

inputs are considered Level 3.

The following table outlines financial assets and liabilities measured at fair value in the consolidated

financial statements and the level of the inputs used to determine those fair values in the context of the

hierarchy as defined above as at June 30, 2015, and December 31, 2014:

Hierarchy

Level

June 30,

2015

$’000

December 31,

2014

$’000

Cash and cash equivalents 1 32,221) 9,862)

Provisional pricing derivative (1) 2 (4,914) (4,683)

(1) Open provisionally priced sales which retain an exposure to future changes in commodity prices are

marked-to-market based on the LME forward prices offset by the contractual discount to the LME

price. As such, these embedded derivatives included in receivables are classified within Level 2 of the

fair value hierarchy.

There have been no transfers between Level 1 and 2 in the respective reporting periods. The methods and

valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous

reporting period. Fair values have been determined by reference to quoted prices at the reporting dates.

The risks associated with these financial instruments and the policies on how to mitigate these risks are set

out in item 13.

13. Risk Factors

The risks associated with the financial instruments (set out in item 12) and the policies on how to mitigate

these risks are set out below. Management manages and monitors these exposures to ensure appropriate

measures are implemented on a timely and effective manner. The Company does not enter into or trade

financial instruments including derivative financial instruments, for speculative purposes.

Credit risk

The Company’s credit risk is primarily attributable to other receivables mainly consisting of value added

tax input credits receivable, trade receivables from copper and cobalt sales and short-term deposits. The

value added tax input credits are receivable from the tax authorities in the countries in which the Company

operates and the collection thereof is closely monitored by management. The Company has a concentration

of credit risk with all sales to one customer, which is closely monitored by management. The customer is a

related party of the Company (refer to item 11). The majority of the Company’s cash and cash equivalents

are on deposit with banks or money market participants with a Standard and Poor’s rating of BBB or

greater in line with the Company’s treasury policy.


24

Market risk

(a) Interest rate risk

The Company had cash balances and bank overdrafts, the Amended Loan Facilities and financing received

through customer prepayments as at June 30, 2015, and December 31, 2014. The bank overdrafts have

fixed interest rates of between 7% and 10%. The Amended Loan Facilities have a fixed interest rate of

10% and the financing received through customer prepayments bears interest at an interest rate of 3-month

LIBOR plus 3% fixed on the date of receipt. The Company held no floating rate debt as at June 30, 2015,

or December 31, 2014.

(b) Foreign currency risk

The Company’s functional currency is the U.S. dollar. Sales are transacted in U.S. dollars and the majority

of major purchases are transacted in U.S. dollars and South African rand. The Company maintains the

majority of its cash and cash equivalents in U.S. dollars but it does hold balances in South African rand,

Canadian dollars, Swiss franc, Congolese franc and Euros (for future expenditures which will be

denominated in these currencies). The Company has not entered into any derivative instruments to manage

foreign exchange fluctuations; however, management monitors foreign exchange exposure.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary

liabilities at the respective dates of the statement of financial position are as follows:

Assets Liabilities

June 30, December 31, June 30, December 31,

As at

2015

$’000

2014

$’000

2015

$’000

2014

$’000

Assets

South African rand 43 754 (1,139) (20,494)

British pounds 38 - -) (8)

Canadian dollars 39 38 (4) (4)

Swiss franc - 34 (1) (1)

Congolese franc 9,082 2,857 (1,300) (6,440)

Euros 6 1 -) (1,513)

Australian dollar - - (5) -)

9,208 3,684 (2,449) (28,460)

A 5% increase or decrease in the U.S. dollar at June 30, 2015, with respect to all of the above currencies,

would result in a movement of the unrealized foreign exchange gain or loss for the period of approximately

$0.3 million (year ended December 31, 2014 – $1.2 million).

Commodity risk

The Company sells copper, cobalt and previously sold copper concentrate at prevailing market prices.

Under certain revenue contracts, final pricing adjustments are made after delivery to customers. The

Company is therefore exposed to changes in commodity prices of copper and cobalt both in respect of

future sales and previous sales which remain open to final pricing.

The Company has not used any commodity price derivatives in this period or the prior year. There is

currently no intention to hedge future copper and cobalt sales.

As at June 30, 2015, the Company had 25,170 tonnes of copper (December 31, 2014 – 23,677 tonnes) and

600 tonnes of cobalt (December 31, 2014 – 521 tonnes) for which final commodity prices have yet to be

determined. These were valued at June 30, 2015, at a forward commodity price net of contractual discounts

of $5,660 per tonne for copper (December 31, 2014 – $6,293 per tonne) and $29,069 per tonne for cobalt

(December 31, 2014 – $29,606 per tonne) (amounts in whole numbers). A 5% increase or decrease in the

forward copper price as at June 30, 2015 would result in a $7.0 million change to revenue and trade


25

receivables (as at December 31, 2014 – $7.3 million). A 5% increase or decrease in the forward cobalt

price as at June 30, 2015 would result in a $0.9 million change to revenue and trade receivables (as at

December 31, 2014 – $0.8 million).

Liquidity risk

It is anticipated that the Company’s existing cash balances, cash flow from operations, existing credit

facilities and advances from Glencore (refer to item 8) will be sufficient to fund the operations, capital

expenditure, the Whole Ore Leach Project and the Power Project (refer to item 6), for the next twelve

months. Glencore has indicated it will provide or procure the additional funding required, if any, for the

operations, capital expenditure, the Whole Ore Leach Project and the completion of the Power Project.

During the year ended December 31, 2014, the existing Loan Facilities and customer prepayments received

up to November 26, 2014 were rolled into new long-term facilities with repayment terms extended to

January 1, 2021 (refer to item 8).

The following table details the Company’s expected remaining contractual maturities for its financial

liabilities at June 30, 2015. The table is based on the undiscounted cash flows of financial liabilities based

on the earliest date on which the Company can be required to satisfy the liabilities.

6 months

or less

6 to 12 1 to 2 Over

months years 2 years Total

As at June 30, 2015 $’000 $’000 $’000 $’000 $’000

Bank overdrafts 535 - - - 535

Accounts payable and accrued

liabilities 330,090 - - - 330,090

Customer prepayments 598,539 - - - 598,539

Amended Loan Facilities – related

parties - - - 4,676,567 4,676,567


Pas de Porte obligation - - 15,500 - 15,500

Finance lease liability - - 1,517 - 1,517

Current portion of finance lease

liability 2,834 1,517 - - 4,351

931,998 1,517 17,017 4,676,567 5,627,099

6 months

or less

6 to 12 1 to 2 Over

months years 2 years Total

As at December 31, 2014 $’000 $’000 $’000 $’000 $’000

Bank overdrafts 20,381 - - - 20,381

Accounts payable and accrued

liabilities 357,183 - - - 357,183

Customer prepayments 2,385 - - - 2,385

Amended Loan Facilities – related

parties - - - 4,624,724 4,624,724


Pas de Porte obligation - 15,000 15,500 - 30,500

Finance lease liability - - 1,409 - 1,409

Current portion of finance lease

liability 2,021 2,021 - - 4,042

381,970 17,021 16,909 4,624,724 5,040,624

Other risks

The Company is exposed to other risks during its course of business and these are discussed in detail in the

Company’s Annual Information Form which is available on SEDAR at www.sedar.com and should be

reviewed in conjunction with this document.



26

The financial information in this Management’s Discussion and Analysis has been prepared using the same

accounting policies and methods of computation as applied in the Company’s 2014 annual audited

consolidated financial statements and no updates are required for the key accounting judgments and

estimates.

14. Health, Safety, Community and Environment

In terms of the health and safety policy, there is explicit recognition of the importance of a safe and healthy

work environment, created as a result of joint responsibility between the Company, its employees and

contracting companies involved in work on the operating site. The Company is fully committed to

continual improvement of its operational conditions and practices. The Company is actively developing

and implementing procedures, conducting training and auditing of protocols across its operation. The

Company has a well-established Emergency Response Team (“ERT”) and a mine rescue team trained to

international standards. Additionally, Katanga has an on-site hospital providing medical and occupational

health services to all employees, contractors and their dependents.

The prevention of fatalities is of utmost importance to the Company. As part of the Glencore “SafeWork”

program, the Company continues to develop and introduce Fatal Hazard Protocols and Life Saving

Behaviours that mandate the processes, conditions and behaviours needed to prevent fatalities. Each

individual employee has provided a commitment to this program. The Company also completed its

comprehensive baseline Health and Safety risk assessment for mining and processing areas in Q4 2014.

During H1 2015, no fatalities occurred. During 2014, regrettably, 3 fatalities occurred in the mining

operations. There were 2 lost time injury (LTI) recorded during Q2 2015 compared to 12 during the whole

of 2014. The H1 2015 LTI frequency rate based on one million man hours was 0.19 (0.40 during the whole

of 2014). There were 3 lost time injury (LTI) recorded during H1 2015..

The Company’s environmental practices are modelled after ISO 14000 and continual improvement is a

consistent theme with the Company’s environmental practices. In March 2008, the Company’s consultants

completed a draft Environmental & Social Impact Assessment (“ESIA”) which is supported by a series of

Environmental & Social Management Plans. This ESIA was carried out on a project description that

envisaged a full build-out to increase the production to in excess of 300,000 tonnes per annum of copper

production. Arrangements were subsequently made to review the draft ESIA based on the Accelerated

Development Plan, the 2012 ITR (refer to item 16) and in consideration of DRC legal requirements and to

re-draft an Environmental Impact Study (“EIS”). Public consultation was completed on April 15, 2010.

The EIS was submitted to the DRC authorities for approval in January 2011. Through the Department for

the Protection of Mining Environment, the DRC Ministry of Mines approved the EIS in March 2011 and as

a consequence, the Company has commenced all necessary steps required to comply with its environmental

commitments referenced in the EIS and its Environmental and Social Management Plans.

Under DRC law, Katanga is required to review its approved ESIA every five years and when any

significant changes to its operations occur. Katanga submitted an amended ESIA, including the Updated

Phase 4 Expansion Project, the Phase 5 Expansion Project and the development of T17 Underground Mine

in April 2014. The Company is also in the process of aligning its security practices with the United

Nation’s Voluntary Principles on Security and Human Rights.


27

Decommissioning and environmental provisions

Decommissioning and environmental provisions arise from the acquisition, development, construction and

normal operation of mining property, plant and equipment due to government controls and regulations that

protect the environment on the closure and reclamation of mining properties.

The decommissioning and environmental provisions are calculated at the net present value of estimated

future cash flows of the reclamation and closure costs which total approximately $102.4 million (December

31, 2014 – $138.5 million) (undiscounted) and are required to satisfy the obligations until 2034 (December

31, 2014 – until 2030). A risk-adjusted discount rate of 11.04% was applied to the expected future cash

flows to determine the carrying value of the provisions (December 31, 2014 – 11.04% discount rate).

The following table details the items that affect the decommissioning and environmental provisions:

As at

June 30,

2015

$’000

As at

December 31,

2014

$’000

Provisions, beginning of the year 24,518) ) ) 14,336) )

Accretion 1,288) ) ) 2,265) )

Charged to cost of sales 40) ) ) 49) )

Revision to estimate (13,662) (1) 7,868(2)

Provisions, end of the period 12,184) ) ) 24,518) )

(1) As at January 1, 2015, the Company reassessed its estimate regarding the expected closure date of the

mining properties from 2030 to 2031. This resulted in a $2.5 million decrease in the provisions and

corresponding decrease to property, plant and equipment.

As at June 30, 2015, the Company reassessed its estimate regarding the total reclamation and closure

costs from $138.5 million to $102.4 million and the expected closure date of the mining properties

from 2031 to 2034. This resulted in an $11.1 million decrease in the provisions and a corresponding

decrease in property, plant and equipment. (2) As at September 30, 2014, the Company reassessed its risk-adjusted discount rate due to changes in the

Company’s weighted average cost of capital. This resulted in a $7.9 million increase in the provisions

and a corresponding increase in property, plant and equipment.

15. Joint Venture Agreement

The amended JVA was entered into with Gécamines on July 25, 2009, and all provisions remain consistent

with those described in the Company's Annual Information Form for the year ended December 31, 2014,

dated March 31, 2015, which is available under the Company’s profile on SEDAR at www.sedar.com.

16. Technical Report

The Company filed its technical report entitled “An Independent Technical Report on the Material Assets

of Katanga Mining Limited, Katanga Province, Democratic Republic of Congo” (“2012 ITR”) on SEDAR

(at www.sedar.com under Katanga's profile) on March 30, 2012. The 2012 ITR covers the mineral reserves

and mineral resources (as defined by National Instrument 43-101 of the Canadian Securities Regulators)

and operations of the Company’s operating subsidiary in the DRC, KCC.

17. Disclosure Controls, Procedures and Internal Control over Financial Reporting

Disclosure control and procedures have been designed to ensure that information required to be disclosed

by the Company is accumulated and communicated to the Company’s management as appropriate to allow

timely decisions regarding required disclosure.

The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for

establishing and maintaining disclosure controls and procedures (“DC&P”) and internal controls over



28

financial reporting (“ICFR”), as those terms are defined in National Instrument 52-109 Certification of

Disclosure in Issuers’ Annual and Interim Filings, for the Company.

The CEO and CFO have concluded that, as at June 30, 2015, the Company’s DC&P have been designed

effectively to provide reasonable assurance that (a) material information relating to the Company is made

known to them by others, particularly during the period in which the annual filings are being prepared; and

(b) information required to be disclosed by the Company in its annual filings, interim filings or other

reports filed or submitted by the Company under securities legislation is recorded, processed, summarized

and reported within the time periods specified in securities legislation. They have also concluded that the

Company’s ICFR have been designed effectively to provide reasonable assurance regarding the reliability

of the preparation and presentation of the financial statements for external purposes and were effective as at

June 30, 2015.

It should be noted that while the Company’s CEO and CFO believe that the Company’s disclosure controls

and procedures provide a reasonable level of assurance that they are effective, they do not expect that the

disclosure controls will prevent all errors and fraud. A control system, no matter how well conceived or

operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are

met.

Internal controls over financial reporting are designed to provide reasonable assurance regarding the

reliability of financial reporting and the preparation of the financial statements for external reporting

purposes in line with IFRS. Management is responsible for establishing and maintaining adequate internal

controls over financial reporting appropriate to the nature and size of the Company. However, any system

of internal control over financial reporting has inherent limitations and can only provide reasonable

assurance with respect to financial statement preparation and presentation.

The Company uses the Committee of Sponsoring Organizations of the Treadway Commission control

framework (2013). There were no changes to the Company’s internal controls over financial reporting that

occurred during the period ended June 30, 2015 that materially affected, or are reasonably likely to affect,

the Company’s internal controls over financial reporting.

18. Forward Looking Statements

Management’s discussion and analysis may contain forward-looking statements, including, but not limited

to, the commissioning of new excavators and pump stations to improve dewatering management at KOV,

the anticipated decrease in power disruption relating to the ongoing upgrade in power infrastructure, the

matters relating to the Power Project, the completion of the upgrade in power infrastructure, the impact of

the upgrade of Wemco cells and spray bars on recoveries at KTC, the impact of the new heap leach at

Luilu, the impact of newly acquired or commissioned equipment on operations, the ongoing development

of T17 Underground Mine, the improvements related to the Whole Ore Leach Project and the overall

expected improvement of recoveries and grades. Often, but not always, forward-looking statements can be

identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget",

"scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or

describes a "goal", or variation of such words and phrases or state that certain actions, events or results

"may", "could", "would", "might" or "will" be taken, occur or be achieved.

All forward-looking statements reflect the Company’s beliefs and assumptions based on information

available at the time the statements were made. Actual results or events may differ from those predicted in

these forward-looking statements. All of the Company’s forward-looking statements are qualified by the

assumptions that are stated or inherent in such forward-looking statements, including the assumptions listed

below. Although the Company believes that these assumptions are reasonable, this list is not exhaustive of

factors that may affect any of the forward-looking statements. The key assumptions that have been made in

connection with the forward-looking statements include the following: there being no significant

disruptions affecting the operations of the Company whether due to labour disruptions, supply disruptions,

power disruptions, rollout of new equipment, damage to equipment or otherwise; permitting, development,

operations, expansion and acquisitions at the Project being consistent with the Company's current

expectations; continued recognition of the Company’s mining concessions and other assets, rights, titles

and interests in the DRC; political and legal developments in the DRC being consistent with its current


29

expectations; the continued provision or procurement of additional funding from Glencore for the

operations, the completion of the T17 Underground Mine and the Power Project; the successful completion

of, and realizing the intended benefits from the Power Project; new equipment performs to expectations; the

successful development of the T17 Underground Mine; the exchange rate between the US dollar, South

African rand, British pounds, Canadian dollar, Swiss franc, Congolese franc and Euro being approximately

consistent with current levels; certain price assumptions for copper and cobalt; prices for diesel, natural gas,

fuel oil, electricity and other key supplies being approximately consistent with current levels; production

and cost of sales forecasts for the Company meeting expectations; the accuracy of the current ore reserve

and mineral resource estimates of the Company (including but not limited to ore tonnage and ore grade

estimates); and labour and material costs increasing on a basis consistent with the Company's current

expectations.

Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and

other factors which may cause the actual results, performance or achievements to be materially different

from any future results, prediction, projection, forecast, performance or achievements expressed or implied

by the forward-looking statements. Such factors include, among others, the actual results of current

exploration activities; actual results and interpretation of current reclamation activities; conclusions of

economic evaluations; changes in project parameters as plans continue to be refined; future prices of copper

and cobalt; possible variations in ore grade or recovery rates; failure of plant, equipment or processes to

operate as anticipated; accidents, labour disputes and other risks of the mining industry; delays in obtaining

governmental approvals or financing or in the completion of exploration, development or construction

activities, delays due to strikes or other work stoppage, both internal and external to the Company as well

as those factors disclosed in the Company's current annual information form and other publicly filed

documents. Although Katanga has attempted to identify important factors that could cause actual actions,

events or results to differ materially from those described in forward-looking statements, there may be other

factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no

assurance that forward-looking statements will prove to be accurate, as actual results and future events

could differ materially from those anticipated in such statements. Accordingly, readers should not place

undue reliance on forward-looking statements.

The Company disclaims any intention or obligation to update or revise any forward-looking statements

whether as a result of new information, future events, or otherwise, except in accordance with applicable

securities laws.

19. Qualified Person

Tim Henderson, a Director and Technical Consultant to the Company, is the ‘Qualified Person’, as defined

in National Instrument 43-101, who approved the scientific and technical disclosure in this Management’s

Discussion and Analysis.


30

20. Non-IFRS Measures

The Company has included three non-IFRS performance measures:

1. EBITDA (earnings before interest, tax, depreciation and amortization);

2. C1 cash costs; and

3. Cash inflows from customer prepayments.

The Company believes that, in addition to conventional measures prepared in accordance with IFRS, these

measures provide useful information to both management and investors to evaluate the Company’s

performance and ability to generate cash flow. Accordingly, it is intended to provide additional information

and should not be considered in isolation or as a substitute for measures of performance prepared in

accordance with IFRS. These measures do not have a standardized meaning prescribed by IFRS and

therefore may not be comparable to similarly titled measures presented by other publicly traded companies

and should not be construed as an alternative to other financial measures determined in accordance with

IFRS.

1. EBITDA has been calculated as:



2015 2015 2014 2015 2014

Sales $'000 248,414 220,778 305,208 469,192 515,056

Cost of sales $'000 (352,101) (317,953) (318,465) (670,054) (553,826)

General and administrative recovery

(expense) $'000 (1,073) 253 (1,775) (820) (5,820)

Foreign exchange loss $'000 9,787 (309) (1,496) 9,478 (3,475)

Exclude: Depreciation $'000 62,454 55,353 57,751 117,807 99,081

EBITDA $'000 (32,519) (41,878) 41,223 (74,397) 51,016

2. C1 cash costs are the operational costs of production per unit of output, this includes the

following:



2015 2015 2014 2015 2014

Cobalt sales $'000 24,610) 20,558) 14,517) 45,168) 25,318)

Cost of sales $'000 (352,101) (317,953) (318,465) (670,054) (553,826)

General and administrative recovery

(expense) $'000 (1,073) 253) (1,775) (820) (5,820)

Exclude:

- Change in product inventory $'000 43,761) 9,815) 51,496) 53,576) 51,666)

- Depreciation (C2 cost) $'000 62,454) 55,353) 57,751) 117,807) 99,081)

- Loss on disposal of property, plant and

equipment (C3 cost) $'000 43) 0) 35) 43) 103)

- Decommissioning and environmental

provisions accretion (C3 cost) $'000 664) 664) 873) 1,327) 1,062)

Total C1 costs $'000 (221,642) (231,310) (195,568) (452,953) (382,416)

3. In item 5, for the 2013 quarterly amounts, cash inflows from customer prepayments have been

presented separately from operating cash flows as these were subsequently rolled into the

Amended Loan Facilities (refer to item 8).

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