KATANGA MINING LIMITED UNAUDITED INTERIM CONDENSED …/media/Files/K/Katanga-mining-v2/... · 2015-11-13 · KATANGA MINING LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS

KATANGA MINING LIMITED

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

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UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

TABLE OF CONTENTS PAGE

Unaudited Interim Condensed Consolidated Statements of Financial Position 3 Unaudited Interim Condensed Consolidated Statements of Income and Comprehensive Income 4 Unaudited Interim Condensed Consolidated Statements of Changes in Equity 5 Unaudited Interim Condensed Consolidated Statements of Cash Flows 6 Notes to the Unaudited Interim Condensed Consolidated Financial Statements 7-36


UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in thousands of U.S. dollars)

3 The notes on pages 7 to 36 are an integral part of these unaudited interim condensed consolidated financial statements.

September 30, 2015

December 31, 2014

Note $ $

ASSETS

Current

Cash and cash equivalents 4 35,164) 9,862)

Receivables 216,703) 188,025)

Inventories 5 448,229) 485,668)

Prepayments and other current assets 251,290) 129,270)

951,386) 812,825)

Non-current

Mineral interests 6 1,794,824) 1,738,385)

Property, plant and equipment 7 2,186,856) 2,051,340)

Non-current inventories 5 183,742 57,673

Other non-current assets 98,622 91,222

Deferred income tax assets 21 406,052 294,193

4,670,096) 4,232,813)

Total assets 5,621,482) 5,045,638)

LIABILITIES

Current

Bank overdrafts 4 -)) 20,381)

Accounts payable and accrued liabilities 320,603) 357,183)

Provisions 8 45,942) 27,904)

Customer prepayments – related parties 14 901,546) 2,385)

Current portion of other non-current liabilities 10 2,068) 16,163)

1,270,159) 424,016)

Non-current

Amended Loan Facilities - related parties 9 2,984,239) 2,770,863)

Other non-current liabilities 10 352) 15,368)

Decommissioning and environmental provisions 11 12,061) 24,518)

2,996,652) 2,810,749)

Total liabilities 4,266,811) 3,234,765)

SHAREHOLDERS’ EQUITY

Share capital 12 190,750) 190,750)

Reserves 2,540,582) 2,541,816)

Accumulated deficit (1,027,626) (726,933)

Equity attributable to shareholders of the Company 1,703,706) 2,005,633)

Non-controlling interests 13 (349,035) (194,760)

Total equity 1,354,671) 1,810,873)

Total liabilities and equity 5,621,482) 5,045,638)


UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Expressed in thousands of U.S. dollars, except outstanding common shares and per share amounts)

4

Three months ended September 30,

Nine months ended September 30,

2015 2014 2015 2014

Note $ $ $ $

Sales 14 202,006) 300,523) 671,198) 815,579)

Cost of sales 15 (363,818) (304,721) (1,033,872) (858,547)

Gross loss (161,812) (4,198) (362,674) (42,968)

Other (expense) income General and administrative

expense (533) (1,344) (1,353) (7,164)

Restructuring expenses 16 (23,974) -) (23,974) -)

Facility interest 9 (72,411) -) (166,574) -) Customer prepayments

interest 14 (5,983) -) (10,861) -)

Interest income 2,267) 1,296) 4,742) 2,222)

Interest expense (4,304) (4,654) (13,401) (11,012)

Foreign exchange (loss) gain (1,499) (1,049) 7,979) (4,524)

Loss before income taxes (268,249) (9,949) (566,116) (63,446)

Income tax (expense)

recovery 21 (164) 26,729) 111,148) 130,190) Net (loss) income and

comprehensive (loss) income 17 (268,413) 16,780) (454,968) 66,744)

Attributable to

Non-controlling interests 13 (80,220) (21,862) (154,275) (49,765) Shareholders of the

Company (188,193) 38,642) (300,693) 116,509)

Basic and diluted (loss)

income per common share 12 ($0.10) $0.02 ($0.16) $0.06 Weighted average number of

common shares outstanding 1,907,380,413 1,907,380,413 1,907,380,413 1,907,380,413

The notes on pages 7 to 36 are an integral part of these unaudited interim condensed consolidated financial statements.


UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Expressed in thousands of U.S. dollars)

Three and nine months ended September 30, 2015 and 2014

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Reserves

Number of common shares

Share capital

Contributed surplus

Share option reserve

Accumulated deficit

Equity attributable to shareholders

of the Company

Non-controlling interests

Total

$ $ $ $ $ $ $

Balance at January 1, 2014 1,907,380,413 190,750 2,498,068 43,055) (862,708) 1,869,165) (121,997) 1,747,168) Options vested net of forfeited

and expired - - - 693) -) 693) -) 693)

Comprehensive income (loss) - - - -) 135,775) 135,775) (72,763) 63,012)

Balance at December 31, 2014 1,907,380,413 190,750 2,498,068 43,748) (726,933) 2,005,633) (194,760) 1,810,873) Options vested net of forfeited

and expired - - - (1,234) -) (1,234) -) (1,234)

Comprehensive loss - - - -) (300,693) (300,693) (154,275) (454,968)

Balance at September 30, 2015 1,907,380,413 190,750 2,498,068 42,514) (1,027,626) 1,703,706) (349,035) 1,354,671)

Balance at January 1, 2014 1,907,380,413 190,750 2,498,068 43,055) (862,708) 1,869,165) (121,997) 1,747,168) Options vested net of forfeited

and expired - - - 544 -) 544) -) 544)

Comprehensive income (loss) - - - - 116,509) 116,509) (49,765) 66,744)

Balance at September 30, 2014 1,907,380,413 190,750 2,498,068 43,599 (746,199) 1,986,218) (171,762) 1,814,456)

The notes on pages 7 to 36 are an integral part of these unaudited interim condensed consolidated financial statements.


UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of U.S. dollars)

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Three months ended Nine months ended

September 30, September 30,

2015 $

2014 $

2015 $

2014 $

Operating activities

Net (loss) income and comprehensive (loss) income for the period (268,413) 16,780) (454,968) 66,744))

Adjusted for non-cash items:

Depreciation and amortization 54,656) 62,823) 172,463) 161,904)

Restructuring expenses 19,080) -) 19,080) -)

Share-based compensation (recovery) expense (230) 149) (1,234) 544)

Net finance cost 2,037) 3,358) 8,659) 8,790)

Income tax expense (recovery) 164) (26,729) (111,148) (130,190)

Facilities and customer prepayment interest 78,394) -) 177,435) -)

Unrealized foreign exchange (gain) loss (2) 1,744) 68) 1,897)

Decommissioning and environmental provision accretion 381) 532) 1,710) 1,594)

Expense on issue of capital spares to production 4,948) 7,109) 14,487) 17,169)

(Profit) loss on disposal of property, plant and equipment (511) (7) (468) 96)

Interest received 2,267) 1,296) 4,742) 2,222)

Interest paid (4,304) (4,654) (13,401) (11,012)

Income tax paid (3,566) (5,526) (3,566) (21,026)

Changes in working capital (excluding non-cash movements):

(Increase) decrease in receivables (22,243) 20,216) (28,678) 6,537)

Decrease (increase) in current prepayments and other current and non-current assets 14,089) (47,904) (104,413) (74,264)

(Increase) decrease in inventories (22,067) 19,980) (96,086) 34,161)

(Decrease) increase in accounts payable and accrued liabilities (17,549) 12,184) (40,835) 94,778)

(Decrease) increase in provisions (2,434) 2,305 ) (1,042) 8,594)

(Decrease) increase in operating customer prepayments (2,341) 2,143) (2,365) 2,547)

Cash flows (used in) from operating activities (167,644) 65,799) (459,560) 171,085)

Investing activities

Additions to mineral interests and property, plant and equipment (126,364) (165,229) (387,373) (435,205)

Proceeds on disposal of property, plant and equipment 511) -) 511) -)

Cash flows utilized in investing activities (125,853) (165,229) (386,862) (435,205)

Financing activities

Proceeds from financing customer prepayments 296,992) -) 890,342) -)

Proceeds from Amended Loan Facilities -) 68,000) 1,800) 273,500)

Cash flows from financing activities 296,992) 68,000) 892,142) 273,500)

Increase (decrease) in cash and cash equivalents 3,495) (31,430) 45,720) 9,380)

Cash and cash equivalents, beginning of year 31,686) 66,468) (10,519) 25,745)

Effect of exchange rate changes on cash held in foreign currencies (17) (663) (37) (750)

Cash and cash equivalents, end of period (refer to note 4) 35,164) 34,375) 35,164) 34,375)

The notes on pages 7 to 36 are an integral part of these consolidated financial statements.


NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Expressed in thousands of U.S. dollars, except per share amounts and as otherwise stated)


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1. DESCRIPTION OF BUSINESS

Katanga Mining Limited (“Katanga” or the “Company”) is a limited company whose common shares are listed on the Toronto Stock Exchange 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 subsidiary Glencore International AG. 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 (“KOV Open Pit” or “KOV”) copper and cobalt mine, 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. Operations at KTO, KTE, Etang South, T17, KTC and Luilu have been suspended pending the completion of the Whole Ore Leach Project. This suspension is expected to last up to 18 months in duration from September 2015.

2. BASIS OF PREPARATION

Statement of compliance

These 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”). Accordingly, certain information and note disclosure normally included in the annual financial statements prepared in accordance with IFRS have been omitted or condensed. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s 2014 annual audited consolidated financial statements available at www.katangamining.com and under Katanga’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com, since they do not contain all disclosures required by IFRS for annual financial statements. The unaudited interim condensed consolidated financial statements are prepared on a going concern basis (refer to note 3 liquidity risk), under the historical cost convention except for certain financial instruments, which are measured at fair value in U.S. dollars, the Company’s functional currency. All financial information is presented in U.S. dollars rounded to the nearest thousand dollar, except as otherwise stated. The impact of seasonality or cyclicality on operations is not regarded as significant to the unaudited interim condensed consolidated financial statements. The unaudited interim condensed consolidated financial statements of the Company for the three and nine months ended September 30, 2015, and 2014 have been prepared by management, reviewed by the Audit Committee and approved and authorized for issue by the Board of Directors on November 13, 2015. Shortly thereafter, the financial statements are made available to shareholders and others through filing on SEDAR.

http://www.katangamining.com/

http://www.sedar.com/




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2. BASIS OF PREPARATION (continued)

Summary of accounting policies

These unaudited interim condensed consolidated financial statements are prepared using the same accounting policies and methods of computation as applied in the 2014 annual audited consolidated financial statements. The disclosure contained in these unaudited interim condensed consolidated financial statements does not include all requirements in IAS 1, “Presentation of Financial Statements” (“IAS 1”). Accordingly, the unaudited interim condensed consolidated financial statements should be read in conjunction with 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; and

Annual Improvements 2011-2013 Cycle. The adoption of these new and revised standards and interpretations did not have a significant impact on Katanga’s interim condensed consolidated financial statements. During the period the Company suspended the processing of copper and cobalt which is expected to last up to 18 months. During the suspension period the Company will continue with the planned investment into ongoing processing plant upgrades, including the new whole ore leach (“WOL”) process. An optimised life of mine (“LOM”) plan incorporating the WOL process is currently being prepared and is expected to be concluded in Q1 2016. This process is expected to result in optimised oxide and sulphide ore production over the LOM, leading to increased revenues, higher total finished copper recoveries and lower operational costs when operations resume in 2017. Until completion of the optimized LOM plan, significant uncertainty exists regarding the recoverable amount of the non-current assets of the Company when compared to their current carrying value. It is not possible to reliably quantify the extent of any possible difference until the conclusion of the optimized LOM plan process. In Q3 2015, the Company recorded a restructuring provision. The amounts recognized represent the best estimate of the contractor severance and employee redundancy costs arising from the mine operation restructuring and are not associated with ongoing activities (refer to note 16). Uncertainties exist over the exact amount and timing of cash flows as a result of the many elements of the restructuring program. New standards not yet effective

At the date of authorisation of these interim financial statements, the following new standards, which are applicable to the Company, were issued but are not yet effective:

Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation – effective for year ends beginning on or after 1 January 2016. The amendments to IAS 16 Property, Plant and Equipment prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment and the amendments to IAS 38 Intangible Assets introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of intangible assets.

IFRS 15 – Revenue from Contracts with Customers – effective for year ends beginning on or after 1 January 2018. IFRS 15 applies to revenue from contracts with customers and replaces all of the revenue standards and interpretations in IFRS. The standard outlines the principles an entity must apply to measure and recognise revenue and the related cash flows.

IFRS 9 – Financial Instruments – effective for year ends beginning on or after 1 January 2017.




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IFRS 9 modifies the classification and measurement of certain classes of financial assets and liabilities. The most significant change is to rationalise from four to two primary categories of financial assets.

The Company has not early adopted these standards and amendments, however, the Company is currently assessing what impact the application of these standards or amendments will have on the consolidated financial statements of the Company. These standards and amendments will be first applied in the financial report of the Company that relates to the annual reporting period beginning on or after the effective date of each pronouncement.




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3. FINANCIAL INSTRUMENTS Categories of financial instruments

September 30, December 31,

As at 2015

$ 2014

$

Financial assets

Cash and cash equivalents 35,164) 9,862)

Provisional pricing derivative(1)

(1,433) (4,683)

Other receivables(2)

218,136) 192,708)

Total financial assets 251,867) 197,887)

Financial liabilities

Bank overdrafts -) 20,381)

Accounts payable and accrued liabilities(3)

320,603) 357,183)

Amended Loan Facilities – related parties (refer to note 9)(3)

2,984,239) 2,770,863)

Customer prepayments (refer to note 14)(3)

901,546) 2,385)

Current portion of other non-current liabilities(3)

2,068) 16,163)

Other non-current liabilities(3)

352) 15,368)

Total financial liabilities 4,208,808) 3,182,343)

(1) Provisional pricing derivative embedded within receivables has been categorized as fair value through

profit and loss (“FVTPL”) in terms of IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”).

(2) Other receivables have been categorized as loans and receivables in terms of IAS 39. (3) All financial liabilities have been categorized as other financial liabilities at amortized cost in terms of

IAS 39.




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3. FINANCIAL INSTRUMENTS (continued)

Fair value The Company estimates that the fair value of these financial instruments approximates the carrying values at September 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 September 30, 2015 and December 31, 2014:

Hierarchy level

September 30, 2015

$

December 31, 2014

$

Cash and cash equivalents 1 35,164) 9,862)

Provisional pricing derivative (1)

2 (1,433) (4,683)

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

marked-to-market based on the London Metals Exchange (“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 year. Fair values have been determined by reference to quoted prices at the reporting dates. Financial risk management objectives and policies

The risks associated with these financial instruments 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 note 18). 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.




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Financial risk management objectives and policies (continued) Commodity risk

The Company sells copper and cobalt at prevailing market prices. Under the revenue contracts, final pricing adjustments are made after delivery to the customer. 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 sales.

As at September 30, 2015, the Company had 22,938 tonnes of copper (December 31, 2014 – 23,677 tonnes) and 654 tonnes of cobalt (December 31, 2014 – 521 tonnes) for which final commodity prices have yet to be determined. These were valued at September 30, 2015, at a forward commodity price net of contractual discounts of $4,927 per tonne for copper (December 31, 2014 – $6,293 per tonne) and $25,842 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 September 30, 2015 would result in a $5,516 change to revenue and trade receivables (as at December 31, 2014 – $7,273). A 5% increase or decrease in the forward cobalt price as at September 30, 2015 would result in a $825 change to revenue and trade receivables (as at December 31, 2014 – $752). 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 note 9 and 14) will be sufficient to fund the operations, capital expenditure, the Whole Ore Leach Project and the Power Project (refer to note 19), for the next twelve months. Glencore has indicated it will provide or procure the additional funding required while the Company continues the planned investment in ongoing processing plant upgrades, the waste stripping at the KOV and Mashamba East Open Pits and any other operating activities during the suspension period. 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 note 9).




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Financial risk management objectives and policies (continued) Liquidity risk (continued) The following table details the Company’s expected remaining contractual maturities for its financial liabilities as at September 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 September 30, 2015 $ $ $ $ $

Accounts payable and accrued liabilities 320,603 - - - 320,603

Customer prepayments 901,546 - - - 901,546 Amended Loan Facilities – related

parties - - - 4,702,137 4,702,137

Other non-current liabilities

Finance lease liability - - 352 - 352

Current portion of finance lease liability 1,363 705 - - 2,068

1,223,512 705 352 4,702,137 5,926,706

6 months

or less 6 to 12 1 to 2 Over months years 2 years Total

As at December 31, 2014 $ $ $ $ $

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

Other non-current liabilities

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

Market risk

(a) Interest rate risk The Company had cash balances and bank overdrafts, the Amended Loan Facilities and financing received through customer prepayments (refer to note 9 and 14) as at September 30, 2015, and December 31, 2014. The bank overdrafts had 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 September 30, 2015, or December 31, 2014.




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Financial risk management objectives and policies (continued) Market risk (continued) (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

September 30, December 31, September 30, December 31,

As at 2015

$ 2014

$ 2015

$ 2014

$

Assets

South African rand 188 754 (222) (20,494)

British pounds 56 - -) (8)

Canadian dollars - 38 -) (4)

Swiss franc - 34 (51) (1)

Congolese franc - 2,857 (587) (6,440)

Euros 4 1 (299) (1,513)

248 3,684 (1,159) (28,460)

A 5% increase or decrease in the U.S. dollar at September 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 $46 (year ended December 31, 2014 – $1,242).




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4. CASH AND CASH EQUIVALENTS

As at September 30,

2015 $

As at December 31,

2014 $

Unrestricted cash 35,164) 9,862))

Bank overdrafts -) (20,381) Total cash and cash equivalents in the statement of cash

flows 35,164) (10,519)

5. INVENTORIES

As at September 30,

2015 $

As at December 31,

2014 $

Ore in stockpiles – current -) 79,684)

Work in progress – current -) 16,459)

Finished product 2,517) 64,900)

Total product inventories – current 2,517) 161,043)

Raw materials and consumables – gross 459,162) 336,129)

Allowance for obsolescence (13,450) (11,504)

Total inventories – current 448,229) 485,668)

Ore in stockpiles – non-current 157,339) 57,673)

Work in progress – non-current 26,403) -)

Total inventories – non-current 183,742) 57,673)

Total inventories 631,971) 543,341)

The amount of inventories recognized as an expense during the three months ended September 30, 2015, was $169,482 (three months ended September 30, 2014 ‐ $229,030) and is included in cost of sales in the statement of income. The amount of inventories recognized as an expense during the nine months ended September 30, 2015, was $587,022 (nine months ended September 30, 2014 ‐ $684,056) As at September 30, 2015, the Company anticipates that the current inventories balance of $2,517 will be realized within one year. On September 11, 2015, the Company announced the suspension of copper and cobalt production, during the period of the Whole Ore Leach Project construction, which is expected to last up to 18 months. As a result of this suspension, as at September 30, 2015, it has been determined that $157,339 of ore in stockpiles and $26,403 of work in progress would be used beyond 12 months and has therefore been recognized as non-current inventory. As at September 30, 2015, the carrying amount of finished product of $2,517 was valued at net realizable value. During the three months ended September 30, 2015, the Company recognized an expense of $25,692 on the write-down of product inventory to net realizable value (refer to note 15) (nine months ended September 30, 2015 – $85,890; year ended December 31, 2014 – $769).




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6. MINERAL INTERESTS

As at September 30, 2015, $41,943 of the amortization charge was capitalized to inventories (as at December 31, 2014 - $52,527). As at December 31, 2014, additions to Assets subject to amortization included an increase in the Pas de porte asset of $1,525 due to changes in the Company’s weighted average cost of capital (refer to note 10). The amortization expense is included in cost of sales in the consolidated statements of income (refer to note 15).

Assets subject to

amortization

Capitalized borrowing

costs

Total

$ $ $

Cost As at January 1, 2014 1,480,039) 269,621 1,749,660) Additions 157,592) 146,144 303,736)

As at December 31, 2014 1,637,631) 415,765 2,053,396) Additions 100,325) 45,325 145,650) Transfers (2,554) - (2,554)

As at September 30, 2015 1,735,402 461,090 2,196,492

Accumulated amortization

As at January 1, 2014 188,733) 17,047 205,780) Charge for the year 90,874) 18,357 109,231)

As at December 31, 2014 279,607) 35,404 315,011) Charge for the period 73,044) 16,167 89,211) Transfers (2,554) - (2,554)

As at September 30, 2015 350,097) 51,571 401,668)

Net book value

As at December 31, 2014 1,358,024) 380,361) 1,738,385)

As at September 30, 2015 1,385,305) 409,519) 1,794,824)




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7. PROPERTY, PLANT AND EQUIPMENT

Plant and equipment

Land and buildings

Capital spares

Finance lease

assets

Assets under construction

Total

$ $ $ $ $ $

Cost As at January 1, 2014 1,161,875) 34,875 46,453) 34,423 577,230) 1,854,856) Additions 127,874) -) 34,212) - 434,712) 596,798) Disposals (58,943) -) -) - -) (58,943) Transfers 473,252) (114) (25,760) - (447,378) -)

As at December 31, 2014 1,704,058) 34,761) 54,905) 34,423 564,564) 2,392,711) Additions 10,685) -) 21,943) - 219,829) 252,457) Revision to

decommissioning estimate (14,166) -) -) - -) (14,166)

Disposals (14,487) -) -) - -) (14,487) Transfers 400,860) 3,326) (14,487) - (389,867) (168)

As at September 30, 2015 2,086,950) 38,087) 62,361) 34,423 394,526) 2,616,347)

Accumulated depreciation and impairments

As at January 1, 2014 231,057) 12,084) -) 20,391 -) 263,532) Charge for the year 99,714) 2,397) -) 8,580 -) 110,691) Disposals (32,852) -) -) - --- (32,852)

As at December 31, 2014 297,919) 14,481) -) 28,971 -) 341,371) Charge for the period 83,347) 1,909) -) 3,032 -) 88,288) Transfers (50) (118) -) - --- (168)

As at September 30, 2015 381,216) 16,272) -) 32,003 -) 429,491)

Net book value As at December 31, 2014 1,406,139) 20,280) 54,905) 5,452 564,564) 2,051,340)

As at September 30, 2015 1,705,734) 21,815) 62,361) 2,420 394,526) 2,186,856)

As at September 30, 2015, $79,958 of the depreciation charge was capitalized to inventories (as at December 31, 2014 - $106,918). Additionally, during the nine months ended September 30, 2015, $5,036 of the depreciation charge was capitalized to mineral interests relating to the KOV asset (year ended December 31, 2014 - $13,782). The depreciation expense is included in cost of sales in the consolidated statements of income (refer to note 15).




18

8. PROVISIONS

The following table presents the movement in provisions during the period:

Restructuring

provision(1)

$

SX/EW provision

(2)

$

Other provisions

(3)

$

Total

$

January 1, 2014 -) 18,765) 5,477) 24,242)

Additions -) -) 18,603) 18,603)

Utilization and settlements -) -) (14,941) (14,941)

December 31, 2014 -) 18,765) 9,139) 27,904)

Additions 23,974) -) 404) 24,378)

Utilization and settlements (4,894) -) (1,446) (6,340)

September 30, 2015 19,080) 18,765) 8,097) 45,942)

(1) On September 11, 2015, the Company announced the decision to suspend the processing of copper and cobalt during the construction phase of the Whole Ore Leach Project. This suspension is expected to last up to 18 months. The amounts recognized represent the best estimate of the contractor severance and employee redundancy costs arising from the mine operation restructuring and are not associated with ongoing activities (refer to note 16). Uncertainties exist over the exact amount and timing of cash flows as a result of the many elements of the restructuring program. Such elements are subject to employee consultation and supplier negotiation procedures making it difficult to predict with precision when the procedures will be completed.

(2) During the year ended December 31, 2008, the Company indicated its intention to defer expansion plans relating to the development of a solvent extraction and electro-winning plant. As at December 31, 2008, the Company recorded a provision for further amounts based on legal obligations incurred relating to work carried out on terminated contracts before and after December 31, 2008. The balance outstanding at September 30, 2015 represents the estimated amount remaining to be settled.

(3) The other provisions principally consist of expected employee benefit costs for leave pay and long-service awards.




19

9. AMENDED LOAN FACILITIES – RELATED PARTIES 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 $635,500 (the “Loan Facilities”). $120,000 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 $515,500, 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 $515,500 Senior Facility (plus accrued interest thereon) and $1,815,785 of uninvoiced 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 $50,000, 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 and the Power Project. The amount of the Term Loan remained unchanged at $120,000 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

9. AMENDED LOAN FACILITIES – RELATED PARTIES (continued) The Amended Loan Facilities balance is comprised of the following: As at

September 30, 2015

$

As at December 31,

2014 $

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

Changes during the period: )) ))

Transferred from customer prepayments (refer to note 14) - 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)

100,974 26,467

Accretion - 511

Balance, end of the period 2,984,239 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 rate of 3-month LIBOR plus 3% fixed on the date of receipt. 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. $166,574 of the total interest incurred has been expensed and $45,002 has been capitalized to mineral interests (refer to note 6). During 2014, all borrowing costs were capitalized.




21

10. OTHER NON-CURRENT LIABILITIES

The other non-current liabilities balance is comprised of the following:

As at

September 30, 2015

$

As at December 31,

2014 $

Pas de Porte obligation(1)

Current - 12,121

Non-current - 13,959

Total - 26,080

Finance lease liability(2)

Current 2,068 4,042

Non-current 352 1,409

Total 2,420 5,451

Total current portion of other non-current liabilities 2,068 16,163

Total non-current portion of other non-current liabilities 352 15,368

(1) Pursuant to the terms of the joint venture agreement between the Company and La Générale des Carrières et des Mines (“Gécamines”) dated July 25, 2009 (the “Joint Venture Agreement”), a “Pas de Porte” (“entry premium”) obligation was payable to Gécamines for access to the Project. The total amount of $140,000 was paid in instalments on an agreed upon schedule with final settlement of the obligation during the three months ended September 30, 2015. Of the $140,000, $115,500 was paid and $24,500 was deducted representing Gécamines’ outstanding share capital contribution to KCC. The net present value of the outstanding payments has been recognized in these unaudited interim condensed consolidated financial statements and capitalized to mineral interests. The capitalized amount is being amortized over the life of the Joint Venture Agreement on a straight-line basis.

(2) Mining equipment was sold to and leased back from the Company’s primary mine contractor. The related finance lease has a lease term of 5.5 years. The Company has the option to purchase the equipment for its residual value at the end of the lease term. The Company’s obligations under the finance lease are secured by the lessor’s title to the leased assets. The interest rate underlying the obligation is fixed at the contract date at 4.72% per annum. The following table details the present value of the minimum lease payments:

As at September 30, 2015

Minimum payments

$

Present value of minimum payments

$

6 months or less 2,176) 1,363

6 to 12 months 1,517) 705

1 to 2 years 759) 352

Over 2 years -) -

4,452) 2,420

Less: future finance charges (2,015) -

Present value of minimum lease payments 2,420) -




22

11. 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 $102,365 (undiscounted) (December 31, 2014 –$138,500) and are required to satisfy the obligations until 2034 (December 31, 2014 – until 2030). A risk-adjusted discount rate of 11.25% 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

September 30, 2015

$

As at December 31,

2014 $

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

Accretion 1,655) ) ) 2,265) )

Charged to cost of sales 54) ) ) 49) )

Revision to estimate (14,166) (1)

7,868(2)

Provisions, end of the period 12,061) ) ) 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 $2,517 decrease in the provisions and corresponding decrease in property, plant and equipment. As at June 30, 2015, the Company reassessed its estimate regarding the total reclamation and closure costs from $138,500 to $102,365 and the expected closure date of the mining properties from 2031 to 2034. This resulted in an $11,145 decrease in the provisions and a corresponding decrease in property, plant and equipment. As at September 30, 2015, the Company reassessed its risk-adjusted discount rate due to changes in the Company’s weighted average cost of capital. This resulted in a $504 decrease in the provisions and 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 $7,868 increase in the provisions and corresponding increase in property, plant and equipment.

12. SHARE CAPITAL

(a) AUTHORIZED AND ISSUED

As at September 30, 2015, and December 31, 2014, the share capital consisted of:

Number of shares $

Authorized: Unlimited Unlimited

Issued: 1,907,380,413 190,750




23

12. SHARE CAPITAL (continued)

(b) SHARE OPTIONS The following table reflects the continuity of share options during the years 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 (3,095,406) ($0.97)

Outstanding at September 30, 2015 4,058,252) $4.28)

(1) Denominated in Canadian dollars.

The following table summarizes the share options outstanding at September 30, 2015:

Exercise Price per Share

(2)

Exercisable Options Outstanding unvested

Options(3)

Total

$0.01-$1 - 1,933,132 1,933,132 $1-$1.20 1,222,767 - 1,222,767

More than $2 902,353 - 902,353 2,125,120 1,933,132 4,058,252

(2) Denominated in Canadian dollars. (3) The aggregate fair value of these unvested options not yet charged to the statement of income is $77.

The weighted average exercise price of exercisable options is Canadian $7.45 (December 31, 2014 - $5.77) and outstanding unvested options is Canadian $0.80 (December 31, 2014 - $0.82).

During the three months ended September 30, 2015, the Company recorded a share‐based compensation recovery of $230 due to the reversal of previously recognized expense upon the resignation of option holders (three months ended September 30, 2014 ‐ $149 expense) which has been included in general and administrative expenses in the statement of income. During the nine months ended September 30, 2015, the Company recorded a share‐based compensation recovery of $1,234 (nine months ended September 30, 2014 ‐ $544 expense) (c) DILUTED EARNINGS PER SHARE Total share options of 4,058,252 (September 30, 2014 – 7,153,658) were excluded from the computation of diluted earnings per share because the exercise prices exceeded the average market value of the common shares for the period ended September 30, 2015, of Canadian $0.25 (period ended December 31, 2014 – Canadian $0.42).




24

13. NON-CONTROLLING INTERESTS

The following table details the movement in the non-controlling interests for the period:

As at September

30, 2015 $

As at December 31,

2014 $

Non-controlling interests, beginning of the year (194,760) (121,997)

Non-controlling interests’ share of net losses (154,275) (72,763)

Non-controlling interests, end of the period (349,035) (194,760)

The non-controlling interests consist of the 25% investment in KCC held by Gécamines, which is incorporated in the DRC – being its principal place of business. This investment is subject to the Joint Venture Agreement, 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.

The non-controlling interests’ share of net losses includes the effect of intercompany transactions within the Katanga group. These transactions, consisting principally of interest expense on loans received by KCC, are eliminated on consolidation within these financial statements.

Summarised financial information in respect of KCC is set out below: As at

September 30, 2015

$

As at December 31,

2014 $

Current assets 949,090) 809,444)

Non-current assets 3,792,957) 3,384,307)

Total assets 4,742,047) 4,193,751)

Current liabilities (3,283,437) (2,371,135)

Non-current liabilities (3,456,389) (3,203,299)

Total liabilities (6,739,826) (5,574,434)

Capital efficiency (1,997,779) (1,380,683)

Exclude: pre-2010 equity(1)

601,642) 601,642)

Attributable capital efficiency (1,396,137) (779,041)

Non-controlling interests (25%) (349,035) (194,760)

Capital efficiency (1,997,779) (1,380,683)

Elimination of Katanga intra-group balances 3,445,431) 3,176,852)

Equity attributable to owners of the Company 1,796,687) 1,990,929)

(1) A non-controlling interest in the Company’s statement of financial position and statement of income and comprehensive income which represents the 25% share that pertains to Gécamines’ interest is normally recorded regardless of whether the non-controlling interest position is in a deficit balance or not. However, upon the Company’s conversion from Canadian Generally Accepted Accounting Principles to IFRS in 2011, pursuant to the exemption from retrospective application set out in IFRS 1, this was applied prospectively from the date of transition to IFRS, with no reduction of the non-controlling interests’ share of income in the year ended December 31, 2010, as a result of losses in prior years.




25

13. NON-CONTROLLING INTERESTS (continued)

Further summarised financial information in respect of KCC is set out below:

Three months ended

September 30, Nine months ended

September 30, 2015

$ 2014

$ 2015

$ 2014

$

Revenue 202,006) 300,523) 671,198) 815,579)

Expenses (522,886) (387,970) (1,288,298) (1,014,639)

KCC attributable net loss and comprehensive loss for the period (320,880) (87,447) (617,100) (199,060)

Loss attributable to non-controlling interests (25%) (80,220) (21,862) (154,275) (49,765)

Elimination of Katanga intra-group transactions

(1)

114,926) 97,401) 299,494) 250,510)

(Loss) profit attributable to owners of the Company (125,734) 31,816) (163,331) 101,215)

Net cash (outflow) inflow from operating

activities (153,141) 222,552) (429,697)

314,139)

Net cash outflow from investing activities (125,853) (314,251) (386,862) (584,227)

Net cash inflow from financing activities 279,623) 64,658) 861,004) 278,424)

Total net cash inflow (outflow) 630) (27,042) 44,445) 8,335)

(1) Principally interest incurred on intercompany loans.




26

14. SALES

Three months ended


September 30, 2015

$ 2014

$ 2015

$ 2014

$

Copper metal 177,141 277,342 601,165 767,080

Cobalt metal 24,865 23,181 70,033 48,499

Sales 202,006 300,523 671,198 815,579

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 copper and cobalt prices at a specified date as stated in the relevant sales agreement. 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. The marked-to-market gain for the three months ended September 30, 2015 was $3,482 (three months ended September 30, 2014, $10,843 loss) with a corresponding movement in receivables. The marked-to-market gain for the nine months ended September 30, 2015 was $3,251 (nine months ended September 30, 2014, $7,515 loss)

As at September 30, 2015, the Company recognized a customer prepayment balance on copper and cobalt due to advance payments received on future sales and contractual obligations to invoice upon shipment of goods from the mine site. Sales revenue is not recognized in the statement of income until title and ownership has transferred. The customer prepayment balance is comprised of the following:

As at

September 30, 2015

$

As at December 31,

2014 $

Balance, beginning of the year 2,385) 1,585,964)

Changes during the period: )) ))

Change in invoiced shipments awaiting transfer of title (2,365) 1,451)

Advanced payments received 890,342) 273,500)

Interest payable on advanced payments received 11,184) 51,825)

Transferred to Amended Loan Facilities (refer below) - (1,910,355)

Balance, end of the period 901,546) 2,385)

Financing received through customer prepayments bears interest at a rate of 3-month LIBOR plus 3% fixed on the date of receipt. Interest rate risk is discussed under note 3.

$10,861 of the total interest incurred has been expensed and $323 has been capitalized to mineral interests (refer to note 6). During 2014, all borrowing costs were capitalized.

On November 26, 2014, the existing uninvoiced customer prepayments received to that date were transferred to the Amended Loan Facilities (refer to note 9).




27

15. COST OF SALES

Three months ended


September 30, 2015

$ 2014

$ 2015

$ 2014

$

Mining, processing and other costs 243,128) 196,690) 660,828 575,019

Royalties and transportation costs 35,905) 38,106) 100,672 103,590

Depreciation and amortization 54,656) 62,823) 172,463 161,904 Expense on issue of capital spares to production 4,948) 7,109) 14,487 17,169 (Gain) loss on disposal of property, plant

and equipment (511) (7) (468) 96

Inventory write-down(1)

25,692) -) 85,890 769

Cost of sales 363,818) 304,721) 1,033,872) 858,547

(1) During the three months ended September 30, 2015, the Company recognized an expense of

$25,692 on the write-down of product inventory to net realizable value (nine months ended September 30, 2015 – $85,890; nine months ended September 30, 2014 - $769).

16. RESTRUCTURING EXPENSES

The following represent amounts incurred as part of the restructuring of the Company’s operations required to improve the Company’s copper recoveries and operating unit costs:

Three months ended


September 30, 2015

$ 2014

$ 2015

$ 2014

$

Loss on termination of contractor services contracts

(1) 8,324 - 8,324 -

Employee redundancy costs(2)

15,650 - 15,650 -

Restructuring expenses 23,974 - 23,974 -

(1) Certain contractor service contracts were cancelled resulting in early termination or notice charges. (2) Employee redundancy costs represent costs to terminate employees in the DRC as a result of the

plant shutdown.




28

17. NET INCOME AND COMPREHENSIVE INCOME Net income and comprehensive income includes:

Three months ended


September 30, 2015

$ 2014

$ 2015

$ 2014

$

Employee benefit expense(1)

41,438 38,175 120,890 112,731

Operating lease expense 2,951 3,000 15,455 6,850

(1) Consists of salaries, bonuses and allowances provided to employees of the Company.




29

18. RELATED PARTY TRANSACTIONS

Related parties and related party transactions not otherwise disclosed elsewhere in these unaudited interim condensed consolidated financial statements 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 $635,500, which was fully drawn down during 2011 and 2012. Such Loan Facilities were amended in 2014 (refer to note 9). 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 note 19). 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. 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.




30

18. RELATED PARTY TRANSACTIONS (continued)

Transactions 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:

Three months ended


September 30, 2015

$ 2014

$ 2015

$ 2014

$

Purchases from related parties

Galif 727) 935 1,897 2,310

Glencore International AG(1)

97,452) 52,225 272,580 147,688

Mopani 2,396) 5,741 14,130 11,661

Mutanda 2,551) 3,983 8,000 3,983

Glencore Technology 332) 807 1,337 999

Sales to related parties


202,750) 300,523 671,941 815,579

Mutanda(3)

(1,063) 1,073 1,950 1,233

(1) Amount includes interest payable under the Amended Loan Facilities and customer prepayments. (2) Amounts included in sales for copper and cobalt and included in cost of sales in the statement of

income related to the disposal of property, plant and equipment. (3) Amounts included in cost of sales in the statement of income as these are recoverable charter flight

costs which are netted against the underlying expense.

As at

September 30, 2015

$

December 31, 2014

$

Amounts owed to related parties

Galif 727 2,384


3,966,219 2,773,682

Mopani 2,890 9,442

Mutanda(5)

16,970 29,282

Glencore Technology 201 283

Amounts owed by related parties

Glencore International AG 34,029 29,473

Mutanda - 2,556

(4) Amount includes customer prepayments (refer to note 14) and Amended Loan Facilities (refer to

note 9). (5) Amount represents advanced payments received on the Power Project (refer to note 19) and

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




31

19. COMMITMENTS

The following summarizes the Company’s contractual and other commitments as at September 30, 2015:

(1) The capital expenditure commitments relate to the Whole Ore Leach Project ($43,832) 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, all installations and infrastructures within the perimeter of the KCC concession are being rented for an annual minimum royalty payment to Gécamines of $1,800.

(3) In order to meet the needs for additional and reliable electrical power for the development of their mining activities, KCC and Mutanda 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 $372,980 for the Power Project commencing from the second quarter of 2012 to the end of 2017 but will be reimbursed $248,653 by Mutanda. Accordingly, KCC's net funding contribution will be $124,327, of which $84,834 has been funded as of September 30, 2015 (included in other non-current assets in the statement of financial position). $367,980 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.

20. CONTINGENT LIABILITIES

Guarantees are disclosed in Note 9. 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.

Total Less than 1 year

1-3 years

4-5 years

After 5 years

Payments due by year $ $ $ $ $

Capital expenditure commitments(1)

55,595 55,595 - - -

Gécamines minimum royalty payment(2)

18,000 1,800 3,600 3,600 9,000

Power Project(3)

39,493 15,387 24,106 - -

Total commitments 113,088 72,782 27,706 3,600 9,000




32

21. INCOME TAXES

The following table reconciles the expected income tax recovery at the statutory income tax rates to the amounts recognized in the statement of income:

Three months ended


September 30, 2015

$ 2014

$ 2015

$ 2014

$

Loss before income taxes (268,249) (9,949) (566,116) (63,446)

Expected income tax recovery at Canadian statutory rates 77,793) 2,886) 164,173) 18,400)

Effect of difference in foreign tax rates 3,526) 24,341) 31,704) 64,980)

Permanent differences (3,279) 8,098) 6,076) 20,953) Current period temporary differences not

recognized (87,646) (4,446) (100,252) (12,484)

Tax assessments related to previous years -) -) -) (15,500) Utilization of prior year losses not previously

recognized 9,444) -) 9,447) -) Recognition of previous tax losses and other

deferred tax assets -) (4,150) -) 53,841)

Income tax (expense) recovery (164) 26,729) 111,148) 130,190)

The components of the income tax (expense) recovery comprise:

Three months ended


September 30, 2015

$ 2014

$ 2015

$ 2014

$

Current tax expense

Canada -)) -) -)) -))

Foreign (206)) (342) (710)) (16,982)

Deferred tax recovery

Canada -)) -)) -)) -))

Foreign 42) 27,071) 111,858) 147,172)

(164) 26,729 111,148) 130,190)




33

21. INCOME TAXES (continued) The following table reflects the deferred income tax asset and liability amounts at September 30, 2015, and December 31, 2014: As at

September

30, 2015 $

December 31,

2014 $

Deferred income tax assets

Non-capital losses carried forward 601,318) 502,105)

Other 84,598) 89,972)

Total deferred income tax assets 685,916) 592,077)

Deferred income tax liabilities

Property, plant and equipment and mineral interests (279,864) (297,883)

Total deferred tax liabilities (279,864) (297,883)

Deferred income tax assets – net 406,052) 294,193)

As at September 30, 2015, the deferred income tax assets of $685,916 (December 31, 2014 – $592,077) primarily represent tax losses carried forward in the DRC. All of the aforementioned deferred tax assets arise in an entity that has incurred losses in 2015 and 2014. These have been recognized based on the Company’s taxable income projections and its ability to utilize its net operating loss carry forwards and other tax assets relating to KCC. The Company will continue to monitor the assumptions underlying the taxable income projections including commodity pricing and operational issues.

As at September 30, 2015, unremitted earnings of $1,455,166 (December 31, 2014 – $1,350,514) have been retained by subsidiaries for reinvestment. No provision is made for income taxes that would be payable upon the distribution of such earnings. If earnings were remitted, an immaterial tax charge would result based on the tax rates currently in effect.




34

21. INCOME TAXES (continued) The following table reflects the expiry of the Company’s gross losses available for future use:

As at

September 30, 2015

$

December 31, 2014

$

2029 - 8,894

2030 - 21,554

2031 20,973 23,289

2032 16,357 16,357

2033 16,454 16,454

2034 20,352 20,352

Do not expire(1)

2,375,694 1,711,821

Total gross non-capital losses 2,449,830 1,818,721

(1) Due to changes in the Finance Act in the DRC, substantively enacted in January 2015, tax losses

no longer expire and may be carried forward indefinitely and be utilized against 70% of taxable income in any given tax year. As such, these losses have been included in the category “Do not expire” for September 30, 2015 and December 31, 2014 above and below. The losses expiring in the years ended 2029 to 2034 arise in Canada.

The following table reflects the expiry of the Company’s unrecognized gross losses (included in the table above):

As at

September 30, 2015

$

December 31, 2014

$

2029 - 8,894

2030 - 21,554

2031 20,973 23,289

2032 16,357 16,357

2033 16,454 16,454

2034 20,352 20,352

Do not expire 371,299 38,138

Total unrecognized gross non-capital losses 445,435 145,038




35

22. SEGMENTED INFORMATION

The Company has one operating segment being its mining operations in the DRC.

The operating segment comprises the mining, processing and selling of copper and cobalt. The corporate activities comprise the management of cash and cash equivalents, logistics and general corporate activities conducted in Canada and Switzerland. The operating segment is reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating and reporting segments. The accounting policies of the operating and reporting segments are the same as those described in the summary of significant accounting policies.

Mining operations Corporate

costs Total

As at September 30, 2015 $ $ $

Cash and cash equivalents 34,495) 669) 35,164)

Non-current assets 4,649,230) 20,865) 4,670,095)

Other assets 914,594) 1,628) 916,222)

Total assets 5,598,319) 23,162) 5,621,481)

Total liabilities (4,090,802) (176,009) (4,266,811)

Net assets 1,507,517) (152,847) 1,354,670)

As at December 31, 2014

Cash and cash equivalents 7,963) 1,899) 9,862)


Other assets 801,481) 1,482) 802,963)

Total assets 5,021,183) 24,455) 5,045,638)


Net assets 1,975,771) (164,898) 1,810,873)

As at September 30, 2014

Cash and cash equivalents 26,633) 7,742) 34,375)


Other assets 665,204) 10,258) 675,462)

Total assets 4,804,925) 39,747) 4,844,672)


Net assets 1,987,508) (173,052) 1,814,456)




36

22. SEGMENTED INFORMATION (continued) Mining

operations Corporate

costs Total

Three months ended September 30, 2015 $ $ $

Sales (refer to note 14) 202,006) -) 202,006)

EBITDA(1)

(132,249) (913) (133,162)

Restructuring expense (23,974) -) (23,974)

Depreciation and amortization (54,625) (31) (54,656)

Interest income 1,805) 462) 2,267)

Interest expense (27,471) (55,227) (82,698)

Income tax expense (159) (5) (164)

Net loss (212,699) (55,714) (268,413) Additions to mineral interests and property,

plant and equipment

111,670) 2,325)

113,995)

Three months ended September 30, 2014


EBITDA(1)

58,049) (1,817) 56,232)



Interest expense (4,598) (56) (4,654)

Income tax recovery (expense) 26,840) (111) 26,729)

Net income (loss) 18,656) (1,876) 16,780) Additions to mineral interests and property,

plant and equipment 203,873) 613) 204,486)

Nine months ended September 30, 2015


EBITDA(1)

(205,641) (1,918) (207,559)

Restructuring expense (23,974) -) (23,974)


Interest income 3,597) 1,145) 4,742)

Interest expense (75,148) (115,688) (190,836)


Net loss (338,396) (116,572) (454,968) Additions to mineral interests and property,

plant and equipment 393,467) 4,640) 398,107)

Nine months ended September 30, 2014


EBITDA(1)

117,275) (10,027) 107,248)



Interest expense (10,917) (95) (11,012)


Net income (loss) 77,641) (10,897) 66,744) Additions to mineral interests and property,

plant and equipment 693,163) 1,838) 695,001)




37

22. SEGMENTED INFORMATION (continued)

(1) Non-IFRS financial measure The Company uses the non-IFRS financial measure, EBITDA (earnings before interest, tax, depreciation and amortization), as it believes this measure provides useful information to both management and investors in measuring the financial performance of the Company. This measure does not have a standardized meaning proscribed 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. In the table on the previous page, EBITDA has been calculated as net income (loss) excluding: depreciation and amortization; interest income; interest expense; and income tax recovery (expense).

KATANGA MINING LIMITED UNAUDITED INTERIM CONDENSED …/media/Files/K/Katanga-mining-v2/... · 2015-11-13 · KATANGA MINING LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS

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