Katanga Mining Ltd (OTCMKTS:KATFF) has bounced back, after coming under pressure mid last year, on announcing plans to restate financial statements to correct inaccuracies in copper production. Two high ranking executives were forced to step down, following the controversy, a move that spooked investors sending the stock lower.
Fast forward, the dust on management shakeup and financial statement restatement have settled and the stock has continued to spike higher. While the stock has been a laggard in the metal and mining industry, the same cannot be said of its performance in the past year.
A spike to five years is already arousing suggestions that the stock could trade higher given the momentum behind the recent uptrend. Early this year the stock recorded a new 52-week high of $2.25 a share.
Since then, it has pulled back to the $1.56 handle. In our view, the pullback represents a buying opportunity given that pullbacks in the past have acted as solid support from which investors have pushed the stock higher.
Taking into consideration the uptrend, the stock faces immediate resistance at the $2.25 handle above which it could register a new 52-week high. Any sell-offs in the short term could be limited to the $1.22 handle, a key support level.
Katanga Mining Limited Core Business
Katanga Mining Limited is an exploration and mining company. Through its subsidiary, Kamoto Copper Company, the company is engaged in the copper and cobalt mining in the Democratic Republic of Congo.
The mining company is positioning itself to become Africa’s largest copper producer and the world’s largest producer of cobalt.
Financial Results Restatement
Investors’ confidence in Katanga Mining Limited has received a boost ever since the mining company reduced its 2015 net loss by $55 million after restating financial results. In a bid to quell further investors’ concerns, the company reiterated that the review would not have any material impact on income and cash flow.
An internal review of the company’s activities led to the resignation of Glencore’s head of copper, Aristotelis Mistakidis and executives Liam Gallagher and Tim Henderson from Katanga mining board.
The company has since nominated three new directors to the board including Steven Kalmin, Glencore’s Chief Financial Officer. The new board is tasked with his responsibility of implementing remediation measures.
Glencore is the largest shareholder in Katanga Mining Limited with an 86% stake.
However, law firms representing shareholders are not prepared to let the matter slid away anytime soon. A number of class action lawsuits have already been lodged, all looking to represent investors who incurred losses on the company posting inaccurate financial and production results.
Pomerantz is one of the law firms that has lodged a class action lawsuits on behalf of investors.
“The class action, filed in United States District Court, for the District of New Jersey, is on behalf of a class consisting of investors who purchased or otherwise acquired Katanga’s securities between February 11, 2016 and November 19, 2017, seeking to recover damages caused by Defendants’ violations of the federal securities laws and to pursue remedies,” Pomerantz in a statement.
Katanga Mining resumed mining operations at its mines late last year after a two year’s hiatus. The company was forced to suspend mining operations in 2015 as focus shifted towards investing in new processing facilities.
The first copper was produced on December 11, 2017, setting the stage for a revamp of the company’s revenue streams. The company is planning to produce as much as 300,000 tons of copper and 20,000 tons of cobalt a year by 2019
Phase 2 construction of activities at Whole Ore Leach are progressing and on schedule under the 2018 project execution plan. Full commissioning of Phase 2 is slated for the fourth quarter.
Katanga Mining Limited Long-Term Prospects
Katanga mining long-term prospects is susceptible to changes in economic cycle given that its products act as raw materials in the construction industry. A shift in the housing market is one of the factors that will greatly affect its performance as it moves to restart production.
A slowdown in housing development goes a long way in affecting demand for raw materials, which consequently result in a decline in sales as well as price. With basic material analysts projecting a slowdown in new house development in the coming years, Katanga Mining Limited could see its sales channel significantly suppressed.
Basic materials are currently trading at all-time highs on pricing, seen as one of the reasons why Katanga Mining is also touching higher highs in the market. However, with the mining industry trading at a PE ratio of 10.94% compared to 16.29% of the overall Canadian stock market, it appears there is still some room for stocks in the sector to trade higher.
Katanga Mining remains well positioned to generate significant returns and trade higher in the coming months given that demand for basic materials such as copper and cobalt.
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Disclosure: We have no position in KATFF and have not been compensated for this article.