JOHANNESBURG (miningweekly.com) – State-owned La Générale des Carrières et des Mines (Gécamines), TSX-listed Katanga Mining’s joint venture (JV) partner in the Kamoto Copper Company (KCC), in the Democratic Republic of Congo (DRC), has begun legal proceedings to dissolve KCC.

This follows KCC’s failure to address its capital deficiency by the December 31, 2017, deadline.

Under DRC corporate law, KCC was obliged to address a capital deficiency that arose in 2014 when, as a result of losses incurred in the rehabilitation of KCC’s assets, KCC shareholders’ equity fell below half of its authorised capital.

As the capital deficiency had not been dealt with by the December deadline, Gécamines had the right to seek the dissolution of KCC before DRC judicial authorities.

Katanga, in which diversified miner Glencore holds a 65% interest, on Monday said it had, in 2017, proposed a recapitalisation plan to Gécamines in compliance with the provisions of DRC law and the terms of the JV agreement between them that would have rectified the capital deficiency.

It further stated that KCC had made numerous attempts to engage in constructive negotiations with Gécamines regarding the recapitalisation plan, but that Gécamines has, instead, unilaterally started legal proceedings.

Katanga noted that it would continue to attempt to engage in discussions with Gécamines and would take all other necessary steps to ensure the continuation of the KCC operations and to protect its rights under the law and the JV agreement.

In addition, the company is continuing to assess options for dealing with the deficiency, including the conversion of a portion of existing intercompany debt owed by KCC to Katanga into equity or forgiving a portion of such debt.

Any such outcome would impact on the distribution of future cash flows earned by KCC, which might, in turn, have a materially adverse impact on Katanga but would not be expected to have a material impact on the assets, liabilities and net assets of Katanga.

A court hearing is scheduled to be held in the DRC on May 8, on which the court may grant KCC six months to regularise the situation.

If Katanga and KCC have taken the necessary steps to regularise the deficiency and this is confirmed by KCC’s statutory auditor on or before the day on which the court renders a judgment on the merits, the court cannot issue a dissolution order, Katanga noted in a statement.

It assured shareholders that KCC is generating positive operating cash flows and that it remains liquid. As such, all obligations to KCC’s creditors are being honoured and KCC’s cash flows are expected to be sufficient to allow the repayment of outstanding shareholder debt and to fund distributions to shareholders, including Gécamines.