KATANGA MINING LIMITED CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 RESTATED

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 RESTATED 1

2 CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 RESTATED TABLE OF CONTENTS PAGE Management s Responsibility Statement 3 Independent Auditor s Report 4-5 Consolidated Statements of Financial Position (restated) 6 Consolidated Statements of Loss and Comprehensive Loss (restated) 7 Consolidated Statements of Changes in Equity (restated) 8 Consolidated Statements of Cash Flows (restated) 9 Notes to the Consolidated Financial Statements (restated)

3 Management s Responsibility for Financial Reporting The accompanying restated consolidated financial statements of Katanga Mining Limited and its subsidiaries ( Katanga or the Company ) were prepared by management in accordance with International Financial Reporting Standards ( IFRS ). Management acknowledges responsibility for the preparation and presentation of the consolidated financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Company s circumstances. The significant accounting policies of the Company are summarized in note 4 to the consolidated financial statements. Management has established a system of internal control over the financial reporting process, which is designed to provide reasonable assurance that relevant and reliable information is produced. As disclosed in note 2 of the Company s restated consolidated financial statements, following the end of the second quarter of 2017, in the course of an investigation by the Ontario Securities Commission (the OSC ), information drawing into question the appropriateness of certain of the Company s accounting practices came to the attention of the Independent Directors (as defined in Note 2 below) of the Company. An internal review under the direction of the Independent Directors concluded that restatement of previously issued financial statements was necessary. Concurrently, the Board of Directors and management reassessed the effectiveness of the internal controls over the financial reporting process and has concluded that material weaknesses in the internal controls over the financial reporting existed which resulted in the controls not being effective as at The material weaknesses are described more fully in the Company s restated Management s Discussion and Analysis for the three months and years ended 2016 and While management and the Board of Directors are in the process of identifying and implementing remediation measures to strengthen corporate governance, compliance and control processes, the material weaknesses cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time. Notwithstanding the material weaknesses referred to above, based on the work performed during the Review (as defined in Note 2 below) by the Independent Directors, management, external auditors, outside legal counsel and outside accounting advisors, management and the Board of Directors have concluded that the restated consolidated financial statements for the years ended 2016 and 2015 are fairly stated in all material respects in accordance with IFRS. The Board of Directors is responsible for reviewing and approving the consolidated financial statements, the accompanying Management s Discussion and Analysis and for ensuring that management fulfils its financial reporting responsibilities. An Audit Committee which is comprised of a majority of independent non-executive directors assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management as well as with the independent auditor to review the internal controls over the financial reporting process, the consolidated financial statements and the auditor s report. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements for issuance to the shareholders. The Company also has an internal audit function that evaluates and formally reports to management and the Audit Committee on the adequacy and effectiveness of internal controls specified in the internal audit plan. The independent auditor, who is appointed by the shareholders, examines and reports on the consolidated financial statements in accordance with Canadian generally accepted auditing standards. Management recognizes its responsibility for conducting the Company s affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities. Signed by Johnny Blizzard Jacques Lubbe Chief Executive Officer Chief Financial Officer November 20, 2017 November 20,

4 Independent Auditor s Report To the Shareholders of Katanga Mining Limited We have audited the accompanying restated consolidated financial statements of Katanga Mining Limited, which comprise the restated consolidated statements of financial position as at 2016 and the restated consolidated statements of loss and comprehensive loss, restated consolidated statements of changes in equity and restated consolidated statements of cash flows for the year ended 2016 and notes, comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these restated consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ( IASB ), and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these restated consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the restated consolidated financial statements present fairly, in all material respects, the financial position of Katanga Mining Limited as at 2016 and its consolidated financial performance and its consolidated cash flows for the year ended 2016 in accordance with International Financial Reporting Standards as issued by the IASB. Restated Comparative Information The consolidated statement of financial position as at January 1, 2015 has been derived from the consolidated statement of financial position as at 2014 (not presented herein). The consolidated financial statements of Katanga Mining Limited, for the years ended 2015 and 2014 (prior to the restatement of the comparative information described in Note 2 to the consolidated financial statements) were audited by another auditor who expressed an unmodified opinion on those statements on February 11,

5 As part of our audit of the restated consolidated financial statements of Katanga Mining Limited for the year ended 2016 we also audited the restatement adjustments described in Note 2 that were applied to restate the consolidated financial statements for the year ended 2015 and to derive the consolidated statement of financial position as at January 1, In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the consolidated financial statements of Katanga Mining Limited for the years ended 2015 and 2014 or to the consolidated statement of financial position as at January 1, 2015 other than with respect to the restatement adjustments, and accordingly, we do not express any opinion or any other form of assurance on the consolidated financial statements for the years ended 2015 and 2014 or the restated consolidated statement of financial position as at January 1, 2015 taken as a whole. Deloitte & Touche Leon Taljaard Johannesburg November 20,

6 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (RESTATED) (Expressed in thousands of U.S. dollars) December 31, 2016 (Restated Note 2) December 31, 2015 (Restated Note 2) January 1, 2015 (Restated Note 2) Note ASSETS Current Cash and cash equivalents 7 1,518) 37,740) 9,862) Receivables 8 236,634) 201,900) * 146,088) Inventories 9 146,066) 126,177) * 443,905) Prepayments and other current assets ,107) 274,704) 129,270) 497,325) 640,521) 729,125) Non-current Mineral interests 11 1,869,706) 1,834,128) 1,738,385) Property, plant and equipment 12 * 2,270,444) * 2,160,760) * 1,933,023) Non-current inventories 9 * 421,018 * 550,087 * 87,420 Other non-current assets , ,897 91,222 Deferred income tax assets 29 * 421,305 * 424,274 * 333,293 * 5,208,714) * 5,078,146) * 4,183,343) Total assets * 5,706,039) * 5,718,667) * 4,912,468) LIABILITIES Current Bank overdrafts -)) -)) 20,381) Accounts payable and accrued liabilities ,358) * 314,112) 357,183) Provisions 14 7,220) 14,936) 27,904) Customer prepayments related parties 20 1,592,761) 1,208,243) 2,385) Current portion of other non-current liabilities 16 -)) 1,409) 16,163) 1,849,339) * 1,538,700) 424,016) Non-current Amended loan facilities - related parties 15 3,363,267) 3,057,760) * 2,728,927) Other non-current liabilities -) -) 15,368) Decommissioning and environmental provisions 17 15,134) 12,445) 24,518) 3,378,401) 3,070,205) * 2,768,813) Total liabilities 5,227,740) * 4,608,905) * 3,192,829) EQUITY Share capital ,750) 190,750) 190,750) Reserves 2,540,024) 2,540,635) 2,541,816) Accumulated deficit * (1,623,694) * (1,203,807) * (795,359)) Equity attributable to shareholders of the Company * 1,107,080) * 1,527,578) * 1,937,207) Non-controlling interests 19 * (628,781) * (417,816) * (217,568)) Total equity * 478,299) * 1,109,762) * 1,719,639) Total liabilities and equity * 5,706,039) * 5,718,667) * 4,912,468) * Restated amounts Signed by: Hugh Stoyell (Non-executive Chairman) Signed by: Robert G. Wardell (Non-executive Director) 6

7 CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (RESTATED) (Expressed in thousands of U.S. dollars, except outstanding common shares and per share amounts) 2016 (Restated Note 2) Year ended 2015 (Restated Note 2) Note Sales 20 (30,127) 669,701) Cost of sales 21 - * (1,084,463) Gross loss (30,127) * (414,762) Other (expense) income Operating expenses 22 * (236,399) - General and administrative expense (2,283) (2,715) Release of SX/EW provision 14-17,422) Restructuring cost recovery (expenses) ) (36,304) Facilities interest 15 (305,504) (240,098) Customer prepayments interest 20 (43,526) (19,395) Interest income 7,001 7,233) Interest expense (12,935) (16,227) Foreign exchange gain 1,338 5,888) Loss before income taxes * (621,835) * (698,958) Income tax (expense) recovery 29 (9,017) * 90,262 Net loss and comprehensive loss 24 * (630,852) * (608,696) Attributable to Non-controlling interests * (210,965) * (200,248) Shareholders of the Company * (419,887) * (408,448) Basic and diluted loss per common share 18 (0.22) * (0.21) Weighted average number of common shares outstanding 1,907,380,413 1,907,380,413 * Restated amounts The notes on pages 10 to 63 are an integral part of these consolidated financial statements. 7

8 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (RESTATED) (Expressed in thousands of U.S. dollars) Reserves Number of common shares Share capital Contributed surplus Share option reserve Accumulated deficit (Restated Note 2) Equity attributable to shareholders of the Company (Restated Note 2) Noncontrolling interests (Restated Note 2) Total (Restated Note 2) Balance at January 1, ,907,380, ,750 2,498,068 43,748) * (795,359) * 1,937,207) * (217,568) * 1,719,639) Options forfeited and expired (1,181)) -) (1,181)) -) (1,181)) Comprehensive loss ) * (408,448) * (408,448)) * (200,248) * (608,696)) Balance at ,907,380, ,750 2,498,068 42,567) * (1,203,807) * 1,527,578) * (417,816) * 1,109,762) Options forfeited and expired (611)) -) (611) -) (611) Comprehensive loss ) * (419,887) * (419,887) * (210,965) * (630,852) Balance at ,907,380, ,750 2,498,068 41,956) * (1,623,694) * 1,107,080) * (628,781) * 478,299) * Restated amounts The notes on pages 10 to 63 are an integral part of these consolidated financial statements. 8

9 CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED) (Expressed in thousands of U.S. dollars) 2016 (Restated Note 2) Years ended 2015 (Restated Note 2) Operating activities Net loss and comprehensive loss for the year * (630,852) * (608,696) Adjusted for non-cash items: Depreciation and amortization 28,126) * 184,341) Restructuring cost (recovery) expenses (600) 36,304) Release of SX/EW provision -) (17,422) Share-based compensation recovery (611) (1,181) Net finance cost 5,934) 8,994) Income tax expense (recovery) 9,017) * (90,262) Facilities and customer prepayments interest 349,030) 259,493) Unrealized foreign exchange loss (gain) 675) (89)) Decommissioning and environmental provision accretion 1,599) 2,093) Expense on issue of capital spares to production 19,311) 18,792) Profit on disposal of property, plant and equipment (550)) (468) Interest received 7,001) 7,233) Interest paid (12,935) (16,227) Income taxes paid (3,950) (7,654) Changes in working capital (excluding non-cash movements): Increase in receivables (34,734) * (55,811) Decrease (increase) in current prepayments and other current and non-current assets 34,934) (129,860) Decrease (increase) in inventories 115,031) * (159,377) Decrease in accounts payable and accrued liabilities * (39,840) * (92,113) Decrease (increase) in provisions (7,716) 4,454) Increase (decrease) in operating customer prepayments 50) (2,365) Cash flows used in operating activities (161,080) * (659,821) Investing activities Additions to mineral interests and property, plant and equipment (222,513) * (524,365) Proceeds on disposal of property, plant and equipment 9,416) 511) Cash flows used in investing activities (213,097) * (523,854) Financing activities Proceeds from customer prepayments related parties 337,975) * 1,230,143) Proceeds from amended loan facilities related parties -) 1,800) Cash flows from financing activities 337,975) * 1,231,943) (Decrease) increase in cash and cash equivalents (36,202) 48,268) Cash and cash equivalents, beginning of year 37,740) (10,519) Effect of exchange rate changes on cash held in foreign currencies (20) (9) Cash and cash equivalents, end of year (refer to note 7) 1,518) 37,740) * Restated amounts The notes on pages 10 to 63 are an integral part of these consolidated financial statements. 9

10 1. DESCRIPTION OF BUSINESS Katanga Mining Limited ( Katanga or the Company ) is a company governed by the laws of Yukon, Canada, 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 owned 75.3% of Katanga s shares through its wholly-owned subsidiary Glencore International AG as at 2016 which ownership was subsequently increased to 86.3%. 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 ( WOL Project ). The WOL Plant is expected to commence commissioning in the fourth quarter of The WOL Project includes the construction of optimized copper and cobalt circuits to sustainably produce 300,000 tpa of copper cathode and 30,000 tpa of cobalt contained in hydroxide over life of mine. This is achieved by adding additional leach capacity at Luilu in order to leach run-of-mine oxide ore directly rather than concentrating the oxide ore at KTC. Oxide recoveries will be improved, thereby reducing mining and processing volumes consequentially reducing the unit cost of production. 2. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS The Company has restated its consolidated statements of financial position as at 2016, 2015 and January 1, 2015, and its consolidated statements of loss and comprehensive loss, consolidated statements of cash flows and consolidated statements of changes in equity for the years ended 2016 and Following the end of the second quarter of fiscal 2017, in the course of an investigation by the OSC, information drawing into question the appropriateness of certain of the Company s accounting practices came to the attention of the independent directors of the Company. This information led the Board of Directors (the Board ) of the Company to request the independent directors of the Board, being Robert G. Wardell, Terry Robinson and Hugh Stoyell (the Independent Directors ), to conduct a review of these practices. At the direction of the Independent Directors, an internal review (the Review ) was undertaken. The Independent Directors engaged Canadian legal counsel, and a multinational accounting firm, to assist the Independent Directors in conducting the Review. The Review identified accounting practices that, among other things, incorrectly recorded the total tonnage of finished copper cathode production which resulted in an overstatement of finished product inventories and incorrectly recorded the valuation of copper concentrate included in work in progress inventories, the valuation of ore in stockpile inventories and the amounts of property, plant and equipment during 2016, 2015 and prior periods, which practices were not appropriate and required adjustment. The restatement adjustments related to the following items and are described in the paragraphs following the tables below: Receivables; Inventories; Property, plant and equipment; Non-current inventories; Deferred income tax assets; Amended loan facilities - related parties; Accounts payable and accrued liabilities; 10

11 2. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS (continued) Accumulated deficit; Non-controlling interests; Loss and comprehensive loss; Cost of sales; Operating expenses; Depreciation; and Income tax. The following tables present the impact of the restatement adjustments on the Company s previously reported consolidated financial statements as at and for the years ended 2016 and 2015, as well as the impact on the restated consolidated statement of financial position as of January 1, The As Restated columns for 2016 and 2015 reflect final adjusted balances after the restatement. 11

12 Effect on Consolidated Statements of Financial Position As previously reported Adjustments As restated As previously reported Adjustments As restated As previously reported Adjustments As restated January 1, 2015 ASSETS Current Cash and cash equivalents 1,518) -)) 1,518) 37,740) -)) 37,740) 9,862) -)) 9,862) Receivables 236,634) -)) 236,634) 201,900) -)) 201,900) 188,025) (41,936) 146,088) Inventories 146,066) -)) 146,066) 126,177) -)) 126,177) 485,668) (41,763) 443,905) Prepayments and other current assets 113,107) -)) 113,107) 274,704) -)) 274,704) 129,270) -)) 129,270) 497,325) -)) 497,325) 640,521) -)) 640,521) 812,825) (83,699) 729,125) Non-current Mineral interests 1,869,706) -)) 1,869,706) 1,834,128) -)) 1,834,128) 1,738,385) -)) 1,738,385) Property, plant and equipment 2,404,302) (133,858) 2,270,444) 2,294,618) (133,858) 2,160,760) 2,051,340) (118,317) 1,933,023) Non-current inventories 365,271 55,747) 421, ,340 55,747) 550,087 57,673 29,747) 87,420 Other non-current assets 226,241 -)) 226, ,897 -)) 108,897 91,222 -)) 91,222 Deferred income tax assets 403,212 18,093) 421, ,181 18,093) 424, ,193 39,100) 333,293 5,268,732) (60,018) 5,208,714) 5,138,164) (60,018) 5,078,146) 4,232,813) (49,471) 4,183,343) Total assets 5,766,057) (60,018) 5,706,039) 5,778,685) (60,018) 5,718,667) 5,045,638) (133,170) 4,912,468) LIABILITIES Current Bank overdrafts -)) -)) -)) -)) -)) -)) 20,381) -)) 20,381) Accounts payable and accrued liabilities 249,358) -)) 249,358) 303,717) 10,395)) 314,112) 357,183) -)) 357,183) Provisions 7,220) -)) 7,220) 14,936) -)) 14,936) 27,904) -)) 27,904) Customer prepayments related parties 1,592,761) -)) 1,592,761) 1,208,243) -)) 1,208,243) 2,385) -)) 2,385) Current portion of other non-current liabilities -)) -)) -)) 1,409) -)) 1,409) 16,163) -)) 16,163) 1,849,339) -)) 1,849,339) 1,528,305) 10,395)) 1,538,700) 424,016) -)) 424,016) Non-current Amended loan facilities - related parties 3,363,267) -)) 3,363,267) 3,057,760) -)) 3,057,760) 2,770,863) (41,936) 2,728,927) Other non-current liabilities -)) -)) -) -) -)) -) 15,368) -)) 15,368) Decommissioning and environmental provisions 15,134) -)) 15,134) 12,445) -)) 12,445) 24,518) -)) 24,518) 3,378,401) -)) 3,378,401) 3,070,205) -)) 3,070,205) 2,810,749) (41,936) 2,768,813) Total liabilities 5,227,740) -)) 5,227,740) 4,598,510) 10,395)) 4,608,905) 3,234,765) (41,936) 3,192,829) EQUITY Share capital 190,750) -)) 190,750) 190,750) -)) 190,750) 190,750) -)) 190,750) Reserves 2,540,024) -)) 2,540,024) 2,540,635) -)) 2,540,635) 2,541,816) -)) 2,541,816) Accumulated deficit (1,578,680) (45,014) (1,623,694) (1,150,997) (52,810) (1,203,807) (726,933) (68,425) (795,358)) Equity attributable to shareholders of the Company 1,152,094) (45,014) 1,107,080) 1,580,388) (52,810) 1,527,578) 2,005,633) (68,425) 1,937,208) Non-controlling interests (613,777) (15,004) (628,781) (400,213) (17,603) (417,816) (194,760) (22,808) (217,569)) Total equity 538,317) (60,018) 478,299) 1,180,175) (70,413) 1,109,762) 1,810,873) (91,233) 1,719,639) Total liabilities and equity 5,766,057) (60,018) 5,706,039) 5,778,685) (60,018) 5,718,667) 5,045,638) (133,170) 4,912,468) 12

13 Effect on Consolidated Statements of Loss and Comprehensive Loss As previously reported Adjustments As restated As previously reported Adjustments Year ended 2016 Year Ended 2015 As restated Sales (30,127) - (30,127) 669,701) - 669,701) Cost of sales (1,126,290) 41,827) (1,084,463) Gross loss (30,127) - (30,127) (456,589) 41,827) (414,762) Other (expense) income Operating expenses (246,794) 10,395) (236,399) General and administrative expense (2,283) - (2,283) (2,715) - (2,715) Release of SX/EW provision ,422-17,422) Restructuring cost recovery (expenses) 600) - 600) (36,304) - (36,304) Facilities interest (305,504) - (305,504) (240,098) - (240,098) Customer prepayments interest (43,526) - (43,526) (19,395) - (19,395) Interest income 7,001-7,001 7,233-7,233) Interest expense (12,935) - (12,935) (16,227) - (16,227) Foreign exchange gain 1,338-1,338 5,888-5,888) Loss before income taxes (632,230) 10,395) (621,835) (740,785) 41,827) (698,958) Income tax (expense) recovery (9,017) - (9,017) 111,269 (21,007) 90,262 Net loss and comprehensive loss (641,247) 10,395) (630,852) (629,516) 20,820) (608,696) Attributable to Non-controlling interests (213,564) 2,599) (210,965) (205,452) 5,204) (200,248) Shareholders of the Company (427,683) 7,796) (419,887) (424,064) 15,616) (408,448) Basic and diluted loss per common share (0.22) - (0.22) (0.22) 0.01) (0.21) Weighted average number of common shares outstanding 1,907,380,413-1,907,380,413 1,907,380,413-1,907,380,413 13

14 Effect on Consolidated Statements of Changes in Equity Number of common shares Share capital Contributed surplus Reserves Share option reserve As previously reported Accumulated deficit Adjustments As restated Equity attributable to shareholders of the Company As previously As reported Adjustments restated As previously reported Non-controlling interests Adjustments As restated As previously reported Total Adjustments As restated Balance at January 1, ,907,380, ,750 2,498,068 43,748) (726,933) (68,426) (795,359) 2,005,633) (68,426) 1,937,207) (194,761) (22,807) (217,568) 1,810,872) (91,233) 1,719,639) Options forfeited and expired (1,181)) -) -) -) (1,181)) -) (1,181)) -) -) -) (1,181)) -) (1,181)) Comprehensive loss ) (424,064)) 15,616 (408,448) (424,064)) 15,616 (408,448)) (205,452) 5,204 (200,248) (629,516)) 20,820 (608,696)) Balance at ,907,380, ,750 2,498,068 42,567) (1,150,997) (52,810) (1,203,807) 1,580,388) (52,810) 1,527,578) (400,213) (17,603) (417,816) 1,180,175) (70,413) 1,109,762) Options forfeited and expired (611)) -) -) -) (611) -) (611) -) -) -) (611) -) (611) Comprehensive loss ) (427,683) 7,796 (419,887) (427,683) 7,796 (419,887) (213,564) 2,599 (210,965) (641,247) 10,395 (630,852) Balance at ,907,380, ,750 2,498,068 41,956) (1,578,680) (45,014) (1,623,694) 1,152,094) (45,014) 1,107,080) (613,777) (15,004) (628,781) 538,317) (60,018) 478,299) 14

15 Operating activities KATANGA MINING LIMITED Effect on Consolidated Statements of Cash Flows As previously reported As previously reported Adjustments As restated Adjustments Year ended 2016 Year ended 2015 As restated Net loss and comprehensive loss for the year (641,248) 10,395) (630,852) (629,516) 20,820) (608,696) Adjusted for non-cash items: Depreciation and amortization 28,126) - 28,126) 186,601) (2,260) 184,341) Restructuring cost (recovery) expenses (600) - (600) 36,304) - 36,304) Release of SX/EW provision -) - -) (17,422) - (17,422) Share-based compensation recovery (611) - (611) (1,181) - (1,181) Net finance cost 5,934) - 5,934) 8,994) - 8,994) Income tax expense (recovery) 9,017) - 9,017) (111,269) 21,007) (90,262) Facilities and customer prepayments interest 349,030) - 349,030) 259,493) - 259,493) Unrealized foreign exchange loss (gain) 675) - 675) (89)) - (89)) Decommissioning and environmental provision accretion 1,599) - 1,599) 2,093) - 2,093) Expense on issue of capital spares to production 19,311) - 19,311) 18,792) - 18,792) Profit on disposal of property, plant and equipment (550)) - (550)) (468) - (468) Interest received 7,001) - 7,001) 7,233) - 7,233) Interest paid (12,935) - (12,935) (16,227) - (16,227) Income taxes paid (3,950) - (3,950) (7,654) - (7,654) Changes in working capital (excluding non-cash movements): - Increase in receivables (34,734) - (34,734) (13,875) (41,936) (55,812) Decrease (increase) in current prepayments and other current and non-current assets 34,934) - 34,934) (129,860) - (129,860) Decrease (increase) in inventories 115,031) - 115,031) (91,614) (67,763) (159,377) Decrease in accounts payable and accrued liabilities (29,445) (10,395) (39,840) (102,508) 10,395) (92,113) Decrease (increase) in provisions (7,716) - (7,716) 4,454) - 4,454) Increase (decrease) in operating customer prepayments 50) - 50) (2,365) - (2,365) Cash flows used in operating activities (161,080) - (161,080) (600,084) (59,737) (659,821) Investing activities Additions to mineral interests and property, plant and equipment (222,513) - (222,513) (542,166) 17,801) (524,365) Proceeds on disposal of property, plant and equipment 9,416) - 9,416) 511) - 511) Cash flows used in investing activities (213,097) - (213,097) (541,655) 17,801) (523,854) Financing activities Proceeds from customer prepayments related parties 337,975) - 337,975) 1,188,207) 41,936) 1,230,143) Proceeds from amended loan facilities related parties -) - -) 1,800) - 1,800) Cash flows from financing activities 337,975) - 337,975) 1,190,007) (41,936) 1,231,943) (Decrease) increase in cash and cash equivalents (36,202) - (36,202) 48,268) - 48,268) Cash and cash equivalents, beginning of year 37,740) - 37,740) (10,519) - (10,519) Effect of exchange rate changes on cash held in foreign currencies (20) - (20) (9) - (9) Cash and cash equivalents, end of year (refer to note 6) 1,518) - 1,518) 37,740) - 37,740) 15

16 2. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS (continued) Overstatement of Copper Cathode Production in Fiscal 2014 The Review identified that in December 2014, the Company overstated copper cathode production by 6,650 tonnes. This material was provisionally invoiced to Glencore plc ( Glencore ) for 41.9 million after a yearend marked- to-market adjustment of 1.0 million. In addition, over-reporting of cathode production in prior months in fiscal 2014 overstated cathode production by a further 1,266 tonnes resulting in a cumulative overstatement as at 2014 of 7,916 tonnes. As a consequence of the cathode production overstatement, finished product inventories in the Company s consolidated statement of financial position as at 2014 were overstated by 41.8 million and cost of sales for the year ended December 31, 2014 was understated by an equivalent amount. Furthermore, the Review identified that the provisional invoicing to Glencore in December 2014 resulted in an overstatement of receivables of 41.9 million in the Company s consolidated statement of financial position as at Since no revenue was recognized with respect to this invoicing, deferred revenue, which was reported in the amended loan facilities related parties line item in the Company s consolidated statement of financial position as at 2014, was also overstated by 41.9 million. The Review found that the cathode inventory overstatement was written off through a series of journal entries in fiscal 2015, thereby eliminating the overstatement and charging 2015 cost of sales with the 41.8 million of costs that should have been recognized in The provisional invoicing was also reversed in 2015 via credit notes to eliminate the overstatement of receivable and amended loan facilities reported in the Company s consolidated statement of financial position as at As a result of these 2015 entries, the December 2014 and prior cathode production overstatement and resultant finished product inventory overstatement had no impact on the Company s 2015 and 2016 consolidated statements of financial position or the Company s 2016 reported results of operations or cash flows. Overvaluation of Concentrate Inventories Due to large volumes, recurring spillages, the continual power interruptions and plant modifications between 2010 to 2013, operating conditions around the Company s Kamoto Concentrator facility ( KTC ) were not optimal. This resulted in unrecorded material containing copper being discharged at various stages of the KTC operations in varying qualities and some material ending up in locations other than those designated for concentrate storage. In July, 2017, the Independent Directors were advised by management that in April 2014 management quantified the physical concentrate production in the concentrate storage locations. This quantification identified an overvaluation of sulphide and oxide concentrate inventories of 28 million and 79 million, respectively, due to the fact that concentrate reported as produced was not physically present in concentrate storage locations in which it had been recorded. The overstatement of concentrate arose from: operating conditions experienced at KTC as described above; inadequate plant housekeeping and material being transferred and not recorded; and improper measurement of historical concentrate production over a number of years due to inadequate controls, instrumentation and an ineffective metal accounting system. The overstatement of concentrate was not detected on a timely basis due to: failure to reconcile or resolve differences between tonnes of concentrate reported as produced by the KTC facility and tonnes reported as received by the Luilu processing facility; improper adjustments to volume, density and moisture factors used to derive tonnage reported to be contained in the concentrate storage locations; and failure to adjust recorded amounts of concentrate on hand based on periodic quantity surveys and other measurement procedures. 16

17 2. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS (continued) Following quantification of the concentrate inventory overstatements, 28 million of the sulphide concentrate costs was written off over the remainder of fiscal 2014 and a portion of the oxide concentrate inventory overstatement was expensed. However, 66.5 million of the oxide concentrate costs were not written off but improperly transferred from inventories to property, plant and equipment in June 2014 and depreciated using the unit of production method. The restated consolidated statement of financial position as at January 1, 2015 reflects the write off of 66.5 million of costs improperly included in property, plant and equipment, net of depreciation recorded thereon of 1.4 million. Valuation of Ore in Stockpiles In July, 2017, the Independent Directors were advised by management that a review in April 2014 of the valuation of ore in stockpiles identified that the recorded cost of such inventory exceeded its net realizable value. Subsequent movement in copper and cobalt prices reduced the initially identified shortfall to 55.7 million. This 55.7 million was improperly transferred to property, plant and equipment in June 2014 and depreciated using the unit of production method. The Company s restated consolidated statement of financial position as at January 1, 2015 reflects a reclassification of 55.7 million from property, plant and equipment back to the ore in stockpile inventories, net of depreciation recorded thereon of 2.6 million and also reflects a write down of the cost of such inventories of 26.0 million, being the excess of cost over net realizable value on January 1, 2015 based on prevailing metal prices at that date. The Company s restated consolidated statement of financial position as at 2015 and the consolidated statement of loss and comprehensive loss for the year then ended reflect the reversal of the 26.0 million 2014 write down due to subsequent further improvements in copper and cobalt prices in 2015 as well as expected improved recoveries when this material is processed using the Whole Ore Leach ( WOL ) plant, such that 55.7 million of costs remain in the carrying value of the ore in stockpile inventories as at 2015 and Impairment of heap leach assets The Review determined that in 2015 the revised and optimized life of mine plan no longer included the use of the heap leach assets with a cost of 14.7 million and accumulated depreciation of 2.3 million. The assets were determined to be impaired and have been written off in the Company s restated 2015 consolidated financial statements. Other Adjustments As a result of the Review, two additional adjustments were identified: 1. Additional capital costs totalling 3.1 million relating to heap leach assets contained in property, plant and equipment were determined to be impaired and have been written off in the Company s restated consolidated statement of loss for the year ended An accrual with respect to the liability for the cost of concentrate purchased from a related party, Mutanda Mining SARL, in the amount of 10.4 million was incorrectly reversed in 2015 prior to finalization of the amount owing. Accordingly, in the consolidated statement of financial position as at 2015, accounts payable and accrued liabilities have been increased by 10.4 million with a corresponding increase in cost of sales in 2015 and reduction of 10.4 million in operating costs in 2016, the year in which the purchase invoice from Mutanda Mining SARL was finalized. 17

18 2. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS (continued) Tax Adjustments The restated consolidated financial statements also reflect the tax effects of the adjustments described above. The following tables provide further details as to the components making up the restatement amounts in the adjustment columns in the tables displayed above. OSC Staff Investigation Katanga has been advised that OSC enforcement staff are investigating, among other things, whether Katanga's previously filed annual and interim financial statements, MD&A and/or annual information form contain statements that are misleading in a material respect. OSC enforcement staff are also investigating the adequacy of Katanga's corporate governance practices and compliance with those practices and the related conduct of certain directors and officers of Katanga. Katanga has also been advised that OSC enforcement staff are reviewing Katanga's risk disclosure in connection with applicable requirements under certain international bribery, government payment and anti-corruption laws. 18

19 Effect on Consolidated Statements of Financial Position Assets Liabilities and Equity Consolidated Statement of Financial Position as at January 1, 2015 Receivables Current inventories Non-current inventories Property, plant and equipment Deferred income tax assets Accounts payable and accrued Amended loan facilities - related parties Total equity liabilities As previously reported 188, ,668 57,673 2,051, ,193 n/a 2,770,863 1,810,873 Adjustments Reclassification of concentrate inventory costs improperly transferred to property, plant and equipment Write off of oxide inventory overstatement Reversal of depreciation recorded on concentrate inventory Reversal of ore stockpile costs transferred to property, plant and equipment Write down of stockpile inventories to net realizable values as at January 1, 2015 Reversal of depreciation recorded on ore stockpile Reversal of provisional invoicing related to cathode inventory overstatement Correction of overstatement of cathode finished product inventories Tax effect of adjustments above 66,551 (66,551) (66,551) (66,551) 55,747 (55,747) 1,427 1,427 (26,000) (26,000) 2,554 2,554 (41,936) (41,936) (41,763) (41,763) 39,100 39,100 Total adjustments (41,936) (41,763) 29,747 (118,317) 39,100 - (41,936) (91,233) As restated 146, ,905 87,420 1,933, ,293 n/a 2,728,927 1,719,640 19

20 Effect on Consolidated Statements of Financial Position Consolidated Statement of Financial Position as at 2015 Receivables Current inventories Assets Non-current inventories Property, plant and equipment Deferred income tax assets Accounts payable and accrued liabilities Liabilities and Equity Amended loan facilities - related parties Total equity As previously reported 701, , ,340 2,294, , ,717 1,208,243 1,180,175 Correction of opening balances as at January 1, 2015 (see schedule above) (41,936) (41,763) 29,747 (118,317) 39,100 - (41,936) (91,233) Current year adjustments Reversal of credit notes issued in 2015 re 2014 provisional invoicing 41,936 41,936 Reversal of net realizable value write down of stockpile inventories Write off of heap leach capital costs net of depreciation thereon Reversal of cathode finished product inventory write offs in 2015 Recording of liability for concentrate purchases from related party Tax effect of adjustments above 26,000 26,000 (15,541) (15,541) 41,763 41,763 10,395 (10,395) (21,007) (21,007) Total current year adjustments 41,936 41,763 26,000 (15,541) (21,007) 10,395 41,936 20,820 Total adjustments ,747 (133,858) 18,093 10,395 - (70,413) As restated 701, , ,087 2,160, , ,112 1,208,243 1,109,762 20

21 Effect on Consolidated Statements of Financial Position Consolidated Statement of Financial Position as at 2016 Receivables Current inventories Assets Non-current inventories Property, plant and equipment Deferred income tax assets Accounts payable and accrued liabilities Liabilities and Equity Amended loan facilities - related parties Total equity As previously reported n/a n/a 365,271 2,404, , ,358 n/a 538,317 Correction of opening balances as at January 1, 2016 (see schedule above) ,747 (133,858) 18,093 10,395 - (70,413) Current year adjustments Reduction of operating expenses for concentrate purchase costs applicable to (10,395) - 10,395 As restated n/a n/a 421,018 2,270, , ,358 n/a 478,299 21

22 3. BASIS OF PREPARATION Statement of compliance These consolidated financial statements are audited and have been prepared using accounting policies consistent with the International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). The consolidated financial statements of the Company for the year ended 2016 (Restated Note 2) were approved for issuance by the Board on November 20, The previously issued consolidated financial statements of the Company for the year ended 2016 were approved and authorized for issue by the Board of Directors of the Company on February 8, The restated consolidated financial statements have been updated for the effects of events up to November 20, Basis of presentation The consolidated financial statements are prepared on a going concern basis (refer to note 6 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 consolidated financial statements. Summary of accounting policies The following new and revised standards were adopted effective for annual accounting periods beginning on or after January 1, 2016: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations; IAS 16 Property, Plant and Equipment; IAS 19 Employee Benefits; IAS 34 Interim Financial Reporting; and IAS 38 Intangible Assets. The adoption of these new and revised standards and interpretations did not have a significant impact on the Company s financial statements. 22

23 3. BASIS OF PREPARATION (continued) New standards not yet effective At the date of authorization of these financial statements, the following new standards, which are applicable to the Company, were issued but are not yet effective: IFRS 15 Revenue from Contracts with Customers effective for year ends beginning on or after 1 January 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 IFRS 9 modifies the classification and measurement of certain classes of financial assets and liabilities. The most significant change is to rationalize from four to two primary categories of financial assets. IFRS 16 Leases: Effective for year ends beginning on or after 1 January IFRS 16 provides a comprehensive model for identification of lease arrangements and their treatment in the financial statements of both lessees and lessors. It supersedes IAS 17 Leases and its associated interpretative guidance. The Company has not early adopted these standards. The Company is currently assessing what impact the application of the remaining standards or amendments will have on the financial statements. 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. 23

24 4. KEY JUDGMENTS, ESTIMATES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Key judgments and estimates The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting year. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual outcomes could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgments that management has made in the process of applying the Company s accounting policies and the key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Impairments Property, plant and equipment and mineral interests are reviewed for impairment if there is an indication that the carrying amount may not be recoverable. The Company conducts an internal review of the assets at least annually, which is used as a source of information to assess for indications of impairment or reversal of previously recognized impairment losses. If any such indication exists, then an impairment review is undertaken, the recoverable amount is assessed by reference to the higher of value in use and fair value less cost of disposal ( FVLCD ). Refer to notes 11 and 12. The cost levels incorporated in the cash flow forecasts for FVLCD purposes are based on the anticipated updated life-of-mine plan or long-term production plans. This differs from value in use which requires future cash flows to be estimated for the asset in its current condition and does not include future cash flows associated with improving or enhancing the asset s performance. Anticipated enhancements may include the FVLCD calculations and therefore generally result in a higher value. Where the recoverable amount of a cash-generating unit is dependent on the life of its associated orebody, expected future cash flows reflect the current life of mine or long-term production plans, which are based on detailed research, analysis and bespoke modelling to optimize the level of return from investment, output and sequence of extraction. The mine plan takes account of all relevant characteristics of the orebody, including waste-to-ore ratios, ore grades, haul distances, chemical and metallurgical properties of the ore impacting on process recoveries and capacities of processing equipment that can be used. The life of mine plan and/or long-term production plans are therefore the basis for forecasting production output and production costs in each future year. The price forecasts used for ore reserve estimations are generally consistent with the assumptions that a market participant would be expected to use to assess the value of the mines operations. The discount rate applied to the future cash flow forecasts represent an estimate of the rate the market would apply having regard to the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted. The Company s weighted 24

25 4. KEY JUDGMENTS, ESTIMATES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Key judgments and estimates (continued) average cost of capital is used as a starting point for determining the discount rates, with appropriate adjustments to the risk profile of the operation. On September 11, 2015, the Company suspended the processing of copper and cobalt which suspension is expected to last up to 18 months. This, combined with a decline in the copper price, resulted in an impairment assessment being performed utilizing a fair value model. Based on this assessment no impairment was required. The copper and cobalt pricing assumptions used in the fair value model are within market forecasts and anticipate movement up from current spot prices to a long-term price of 6,500/tonne and 26,500/tonne, respectively. The valuation assessment is most sensitive to movements in the long-term commodity price estimates for copper and cobalt and changes in future production volumes and operating costs. The valuation models use the most recent reserve and resource estimates, planned benefits from revisions to the life of mine plan, WOL related processing parameters and relevant cost assumptions in line with current cost reduction initiatives and market based commodity pricing, discounted using an operation specific discount rate of 10.70% The valuation remains sensitive to pricing and other key assumptions as detailed above. Deterioration in the key assumptions may result in significant impairment. Income taxes The Company operates in the DRC, Switzerland and Canada and is subject to several tax jurisdictions, and consequently, income is subject to various rates and rules of taxation. As a result, the Company s effective tax rate may vary significantly from the Canadian statutory tax rate depending upon the profitability of operations in the different jurisdictions. The Company calculates deferred income taxes based upon temporary differences between the assets and liabilities that are reported in its consolidated financial statements and their tax bases as determined under applicable tax legislation. The future realization of deferred tax assets requires management to exercise judgment and make certain assumptions about the future performance of the Company. This can be affected by many factors, including: current and future economic conditions, net realizable sale prices, production rates and production costs and can either be increased or decreased where, in the view of management, such change is warranted. In determining whether a deferred tax asset will probably be realized, management reviews the timing of expected reversals of taxable temporary differences, the estimates of future taxable income and prudent and feasible tax planning that could be implemented. Refer to note 29 Depreciation and amortization of mineral interests and property, plant and equipment Mineral interests and certain property, plant and equipment are amortized using the unit of production method ( UOP ). The calculation of the UOP rate of amortization, and therefore the annual amortization charge to the statement of loss, can fluctuate from initial estimates. This could generally result when there are significant changes in any of the factors or assumptions used in estimating ore reserves and mineral resources, notably changes in the geology of the ore reserves and mineral resources and assumptions used in determining the economic feasibility therein. Such changes in ore reserves and mineral resources could similarly impact the useful lives of assets depreciated on a straight-line basis, where those lives are limited to the life of the Project, which in turn is limited to the life of the proven and probable ore reserves and measured and indicated mineral resources. Estimates of proven and probable ore reserves and mineral resources are prepared by experts in extraction, geology and ore reserve and mineral resource determination. 25