However Katanga's gross profit for the full year increased to...

However Katanga's gross profit for the full year increased to $13.4 million from a $6.5 million gross loss in 2017.

It said the profit was related to resuming production and ramping up its Whole Ore Leach project at its majority-owned Kamoto Copper Company (KCC), but was impacted by the temporary cobalt suspension due to its uranium content, and increased mine infrastructure and support costs.

Katanga expects KCC's cash flow deficit for 2019 to be up to $550 million, largely as result of the suspension of cobalt.

It said it was working on "various interim solutions" to resume the export and sale of its cobalt, along with plans for an ion exchange plant which could be commissioned in the fourth quarter of this year.

The DRC also declared cobalt a strategic commodity in November, which triggered a 10% royalty and potentially "an entirely different regulatory regime", Katanga said, adding it was "currently making all payments required under the 2018 mining code under protest and is reviewing its legal options".

Katanga's income tax expenses rose from $1.5 million in 2017 to $12.9 million, and royalties and transportation costs from $3.6 million to $201.7 million, as tax and royalty increases came into effect under the new DRC code.

The company had paid C$30 million (US$22.3 million) in December to the Ontario Securities Commission in a settlement acknowledging misstatements and weak financial and internal controls, and paid US$150 million mid-year to KCC joint venture partner Gécamines to resolve a "capital deficiency" dispute.

It had $5.5 million in cash and equivalents at the end of December, down from $38.1 million a year earlier.

Katanga produced 152,358 tonnes of copper cathode and 11,112t of cobalt contained in hydroxide during 2018, compared with 2,196t and nil in 2017 respectively.

The company has put 2019 guidance at 285,000t of copper cathode and 26,000t of cobalt contained in hydroxide.

Katanga shares were trading at C$2.32 a year ago and fell as low as 36c in November.

They rose 1c yesterday to close at 62c, capitalising it at $1.2 billion.

Just some light reading - any thoughts?


Mining Journal: You've been travelling quite a bit so far this year to South Africa and the US - what have been the main cobalt talking points on these trips?

Caspar Rawles: I guess speople are still kind of questioning what is going on with the price and asking when will it find a floor?

Obviously, we're much lower than we were this time last year when prices were pretty much at the peak around US$40 per pound, we're now around $15/lb, so a very different pricing environment.

I think people maybe expected with the closure announced at [ERG's] Chambishi and Boss, as well as Glencore's KCC [Kamoto Copper Company] export ban and also some potential issues at Mutanda - Glencore is saying they'll be able to maintain cobalt production there, but they are reducing copper production by 50% and losing staff - so people probably thought that those would put a floor under the price in the market, which hasn't yet seemed to have happened.

It seems to be a theme - how much supply is realistically going to come out of the DRC this year and next year. So, prices and exactly what is going on with supply-side of the market in the coming 18 months to two years seem to be the main things at the moment that people are trying to get their heads around.

I think realistically the price obviously hasn't got too much further to fall and it breeds a good environment for OEMs to potentially come in and do some fixed price deals for cobalt raw material, or maybe not only OEMS, maybe cell manufacturers as well. So, we might see something happen, although more and more of those deals are becoming more secretive - we'll probably find that a lot of those go on behind closed doors and they're not really publicly discussed as they have been in the past.

MJ: What do you think is going to happen with supply and the price?

CR: I think 2019 will probably be a relatively challenging price environment for cobalt and by that I don't mean it's going to collapse any further. I don't think it realistically is going to go too much further than where we are today, although I think there probably still is a little space for it to fall.

With negative sentiment in China which has spread to every market in the world at the moment, it's unlikely that we're going to see any kind of price rally.

I think a lot of industries, certainly China, are fairly confident that they can access cobalt as and when they need to at the moment, we might start to see a bit of a squeeze on supply or it might become harder to come by cobalt towards the end of the year - going into H2 and the end of the year.

Regarding the supply, obviously Glencore is investing to put the ion exchange system in at KCC, so the uranium issue should be resolved, although I don't expect there to be any material from that project realistically until 2020 Q1, possibly Q2. Then from Mutanda, at the moment Glencore are saying they are evaluating the investment case to transition from oxide to sulphide, which requires new processing equipment - I think that is likely to happen. I guess maybe Glencore is seeing it as an opportunity to try to negotiate a better royalties deal or some kind of tax break as a result with the new government in the DRC.

Obviously key to anything that happens in the DRC is the appointment of the new policy makers. I know we've got a new government in place, but there are widespread media rumours of a deal between the outgoing president Kabila and the incoming Tshisekedi, so depending on how that government is put together, how much of it is loyal to Kabila may influence what happens in the mining sector.

I think everyone knows the long-term story for cobalt hasn't changed - these things take time and obviously commodity markets can react a lot more quickly in terms of pricing than the auto industry can transition to electric vehicles, so it's a bit of a blip at the moment, but I'm sure the status quo will return in not too long of a timeframe.

MJ: Besides falling prices, have there been any other standout trends you've noticed in the first two months of 2019?

CR: Price has governed everything that's happened. That's been the main talking point.

I guess with prices down here, something that's become a bit more clear, and it's not surprising, is that there is less of a push to go towards these high nickel 8-1-1 cathode types from certain parts of the supply chain, just because it's an R&D cost and it's a risk in terms of the OEMs moving to a new technology, which requires further testing, development, evaluation, qualification etc.

So less of a push, but ultimately, I think it will still have to happen, even if it just happens on an energy density basis rather than cost, but certainly if the price were to go up anywhere near where it was a year ago, that would be very much back on as a main focus.

Automakers do want it due to the energy density improvements you get from higher nickel, but there are a lot of moving parts and it's weighing up against safety, life cycles, higher costs because you have the thermal management system in the pack. There are a lot of moving parts and only when everything has been satisfied will it be introduced commercially.

MJ: Two new battery deals were reported in February - CATL signing an EV battery supply agreement with Honda and SK Innovation announcing plans to build a second new battery plant in Hungary - what do these mean for cobalt demand?

CR: In terms of the deal with CATL, it's pretty big - it's 56GWh of cells by 2027, which will largely go into Honda's Chinese or Asian vehicle sales.

Honda is diversifying their supply away from the Japanese cell providers at the moment and it's a relatively big deal, but it will be one of many that are being discussed and going on at the moment.

The SK Innovation plant is one of a number of European commitments. We saw SK Innovation essentially building their second plant for just under $1 billion even though they haven't finished plant one yet, so obviously doubling down on Europe.

I think that kind of goes to show - and CATL also announced that they would be installing a greater capacity at their German plant than previously planned, so they aren't the only ones - it goes to show the volumes or demand expectations that the European manufacturers are discussing with them that they're willing to commit to these greater capacities, even though neither of those plants are in production yet.

It gives us an idea of the projected market size and obviously the conversations and indications the cell manufacturers are getting from their customers.

I think some of that has also been influenced by the fact that we're seeing more and more stringent targets for CO2 emissions from the EU. I think in February the European government announced plans to reduce bus and truck emissions by 30% by 2030 and realistically that will have to come from electrification, or at least some of it.

I think there'll be some increased interest from those markets as well, which will add to growing demand that we're seeing develop in Europe.

Mining Journal: You've been travelling quite a bit so far this year to South Africa and the US - what have been the main cobalt talking points on these trips?Caspar Rawles: I guess speople are still kind of questioning what is going on with the price and asking when will it find a floor?Obviously, we're much lower than we were this time last year when prices were pretty much at the peak around US$40 per pound, we're now around $15/lb, so a very different pricing environment.I think people maybe expected with the closure announced at [ERG's] Chambishi and Boss, as well as Glencore's KCC [Kamoto Copper Company] export ban and also some potential issues at Mutanda - Glencore is saying they'll be able to maintain cobalt production there, but they are reducing copper production by 50% and losing staff - so people probably thought that those would put a floor under the price in the market, which hasn't yet seemed to have happened.It seems to be a theme - how much supply is realistically going to come out of the DRC this year and next year. So, prices and exactly what is going on with supply-side of the market in the coming 18 months to two years seem to be the main things at the moment that people are trying to get their heads around.I think realistically the price obviously hasn't got too much further to fall and it breeds a good environment for OEMs to potentially come in and do some fixed price deals for cobalt raw material, or maybe not only OEMS, maybe cell manufacturers as well. So, we might see something happen, although more and more of those deals are becoming more secretive - we'll probably find that a lot of those go on behind closed doors and they're not really publicly discussed as they have been in the past.MJ: What do you think is going to happen with supply and the price? CR: I think 2019 will probably be a relatively challenging price environment for cobalt and by that I don't mean it's going to collapse any further. I don't think it realistically is going to go too much further than where we are today, although I think there probably still is a little space for it to fall.With negative sentiment in China which has spread to every market in the world at the moment, it's unlikely that we're going to see any kind of price rally.I think a lot of industries, certainly China, are fairly confident that they can access cobalt as and when they need to at the moment, we might start to see a bit of a squeeze on supply or it might become harder to come by cobalt towards the end of the year - going into H2 and the end of the year.Regarding the supply, obviously Glencore is investing to put the ion exchange system in at KCC, so the uranium issue should be resolved, although I don't expect there to be any material from that project realistically until 2020 Q1, possibly Q2. Then from Mutanda, at the moment Glencore are saying they are evaluating the investment case to transition from oxide to sulphide, which requires new processing equipment - I think that is likely to happen. I guess maybe Glencore is seeing it as an opportunity to try to negotiate a better royalties deal or some kind of tax break as a result with the new government in the DRC.Obviously key to anything that happens in the DRC is the appointment of the new policy makers. I know we've got a new government in place, but there are widespread media rumours of a deal between the outgoing president Kabila and the incoming Tshisekedi, so depending on how that government is put together, how much of it is loyal to Kabila may influence what happens in the mining sector.I think everyone knows the long-term story for cobalt hasn't changed - these things take time and obviously commodity markets can react a lot more quickly in terms of pricing than the auto industry can transition to electric vehicles, so it's a bit of a blip at the moment, but I'm sure the status quo will return in not too long of a timeframe.MJ: Besides falling prices, have there been any other standout trends you've noticed in the first two months of 2019?CR: Price has governed everything that's happened. That's been the main talking point.I guess with prices down here, something that's become a bit more clear, and it's not surprising, is that there is less of a push to go towards these high nickel 8-1-1 cathode types from certain parts of the supply chain, just because it's an R&D cost and it's a risk in terms of the OEMs moving to a new technology, which requires further testing, development, evaluation, qualification etc.So less of a push, but ultimately, I think it will still have to happen, even if it just happens on an energy density basis rather than cost, but certainly if the price were to go up anywhere near where it was a year ago, that would be very much back on as a main focus.Automakers do want it due to the energy density improvements you get from higher nickel, but there are a lot of moving parts and it's weighing up against safety, life cycles, higher costs because you have the thermal management system in the pack. There are a lot of moving parts and only when everything has been satisfied will it be introduced commercially.MJ: Two new battery deals were reported in February - CATL signing an EV battery supply agreement with Honda and SK Innovation announcing plans to build a second new battery plant in Hungary - what do these mean for cobalt demand?CR: In terms of the deal with CATL, it's pretty big - it's 56GWh of cells by 2027, which will largely go into Honda's Chinese or Asian vehicle sales.Honda is diversifying their supply away from the Japanese cell providers at the moment and it's a relatively big deal, but it will be one of many that are being discussed and going on at the moment.The SK Innovation plant is one of a number of European commitments. We saw SK Innovation essentially building their second plant for just under $1 billion even though they haven't finished plant one yet, so obviously doubling down on Europe.I think that kind of goes to show - and CATL also announced that they would be installing a greater capacity at their German plant than previously planned, so they aren't the only ones - it goes to show the volumes or demand expectations that the European manufacturers are discussing with them that they're willing to commit to these greater capacities, even though neither of those plants are in production yet.It gives us an idea of the projected market size and obviously the conversations and indications the cell manufacturers are getting from their customers.I think some of that has also been influenced by the fact that we're seeing more and more stringent targets for CO2 emissions from the EU. I think in February the European government announced plans to reduce bus and truck emissions by 30% by 2030 and realistically that will have to come from electrification, or at least some of it.I think there'll be some increased interest from those markets as well, which will add to growing demand that we're seeing develop in Europe.

hmmmmmm

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