KATANGA MINING LIMITED

Transcription

1 KATANGA MINING LIMITED Management s Discussion and Analysis For the three and nine months ended September 30, 2016 and 2015 The following discussion and analysis is management s assessment of the results of operations and financial condition of Katanga Mining Limited ( Katanga or the Company ) and should be read in conjunction with the audited consolidated financial statements and the notes thereto of the Company for the years ended December 31, 2015, and The unaudited interim condensed consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ) and Interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ). All dollar amounts are in United States dollars unless otherwise indicated. This information has been prepared as of November 9, Katanga s common shares trade on the Toronto Stock Exchange ( TSX ) under the symbol KAT. Katanga s most recent filings, including Katanga s Annual Information Form for the year ended December 31, 2015, dated March 30, 2016, are available on the System for Electronic Document Analysis and Retrieval ( SEDAR ) and can be accessed through the internet at This Management s Discussion and Analysis contains forward looking statements that are subject to risk factors as set out in items 14 and 18.

2 1. Company Overview Katanga is a limited company whose common shares are listed on the TSX 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 copper and cobalt mine ( KOV Open Pit or KOV ), 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 are currently suspended pending the completion of the Whole Ore Leach Project ( WOL Project ) as described further herein. The Whole Ore Leach Plant is expected to commence commissioning in the second half of Highlights during the three and nine months ended September 30, 2016, and Outlook Three months ended Nine months ended Sep 30, Jun 30, Sep 30, Sep 30, Financial Realized copper price $/lb Realized cobalt price $/lb Total sales* $'000 (1,632) (615) 202,006 (30,130) 671,198 - including repricing* $'000 (1,632) (615) (32,039) (30,856) (57,496) EBITDA** $'000 (55,214) (42,919) (133,162) (184,673) (207,559) Net loss attributable to shareholders $'000 (99,499) (96,059) (188,193) (314,464) (300,693) C1 cash costs* $/lb Cash flows from operating activities $'000 (33,141) (42,007) (167,644) (153,990) (459,560) Mining Waste mined tonnes 3,295,872 1,583,434 13,395,209 6,021,978 29,603,671 Ore mined tonnes 825-1,779, ,828,966 Average copper grade % Contained copper in ore mined tonnes 22-70, ,297 Processing Ore milled tonnes - - 1,460,316-5,454,990 Finished copper metal and concentrate tonnes 36, ,674 Finished cobalt tonnes - - 1,105-2,901 * Negative price and sales amounts are a result of quality discounts, adverse repricing and mark to market ( M2M ) adjustments ** Refer to Item 21; Non-IFRS Measures. 1

3 Ongoing suspension of production 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 ( WOL Project ). The suspension continued through the third quarter of 2016 and production is not expected to resume until the WOL Project is commissioned, which is expected to commence in the second half of Mining operations continued during the first nine months of 2016 at KOV and Mashamba East Open Pits with a focus on waste mining. Review of 2016 Third Quarter Results Financial Profitability during Q3 2016, when compared to Q and Q3 2015, was affected by: o Finalization of outstanding 2015 sales resulting in negative sales of $1.6 million (Q $0.6 million; Q nil); o Loss on sale of assets amounting to $0.4 million in Q (Q $1.0 million profit; Q million profit) due to lower sales of non-core products; o Higher loss on sales of warehouse inventory items of $2.4 million (Q $1.0 million loss, Q nil); o Reduced operating expenditures due to the suspension of copper and cobalt processing; o Restructuring costs relating to contractor demobilisations and employee redundancy costs, which totalled $24.0 million in Q3 2015, were nil in Q and Q2 2016; o Income relating to stock-based compensation due to departure of senior employees prior to vesting of their granted stock options. This resulted in reversal of accumulated costs amounting to $0.6 million income in Q and $0.2 million income in Q For Q this was nil; and o Income tax expense of $5.5 million in Q relating to 2014 and 2015 corporate income taxes (Q $0.2 million recovery; Q $0.2 million expense). Deferred tax recognition on tax losses carried forward in the DRC ceased in Q Such recognition will be reassessed on commissioning of the WOL Project. Cash outflows from operating activities decreased in Q3 2016, when compared to Q3 2015, due to lower working capital requirements, notably for the reduction in inventories and prepayments following the suspension of copper and cobalt processing. These cash outflows were funded by Glencore. Mining Waste mined at KOV Open Pit and Mashamba East Open Pit in Q was 1,704,379 tonnes (108.0%) higher than in Q due to increased mining activities following the remediation works due to the geotechnical failure. Compared to Q3 2015, waste mined was 75.4% lower due to the revised waste mining plan (pre strip) in the open pits which was put in place following the suspension of copper and cobalt processing at the end of Q The revised waste mining plan aims to secure sufficient ore availability for processing once the suspension of copper and cobalt processing ends, while minimizing costs during the suspension period; and Ore mined in Q was 825 tonnes at KOV and is related to incidental ore mined during waste mining. Due to the suspension of ore mining underground and the shift in focus towards waste mining in the open pits following the suspension of copper and cobalt processing at the end of Q3 2015, ore mined is minimal. In Q3 2016, the Company commissioned: o 1 fuel truck and 1 service truck at the KOV Open Pit mine. Processing Due to plant shutdown, there was no ore milled at KTC and no copper metal, concentrates or cobalt metal produced in Q During Q work continued on the WOL Project: o Ongoing engineering design optimization continued on the Pre Leach, Leach and Post Leach circuits and satisfactory progress was made on the earth works and civil works, as well as construction of the steel structures; 2

4 o o Related capital expenditures amounted to $12.4 million in Q3 2016, which principally related to site excavation, civil work and prepayments for various long lead time items (Q $17.0 million); and Concurrent with the construction of the WOL Project plant and infrastructure, the current Life of Mine Plan continues to be optimized to ensure the appropriate blend will be supplied to the WOL Project process when complete in order to maximize copper and cobalt recovery and to minimize operating cost per unit. Review of 2016 First Nine Months Results Financial Profitability during Q YTD, when compared to Q YTD, was affected by: o Quality discounts of $27.0 million on finalization of outstanding 2015 sales; o Reduced operating expenditures due to the suspension of copper and cobalt processing; o Lower restructuring costs relating to contractor demobilisations and employee redundancy costs, which totalled $3.1 million in Q YTD, compared to $24.0 million in Q YTD; o The cessation of borrowing cost capitalisation during Q due to the completion of the Phase 5 Expansion Project, resulting in Amended Loan Facility interest expense of $227.0 million for Q YTD (Q YTD $166.6 million); and o Income tax expense of $5.4 million in Q YTD relating to 2014 and 2015 corporate income taxes (Q YTD - $111.1 million recovery). Deferred tax recognition on tax losses carried forward in the DRC ceased in Q Such recognition will be reassessed on commissioning of the WOL Project. Cash outflows from operating activities decreased in Q YTD, when compared to Q YTD, due to lower working capital requirements, notably for the reduction in inventories and prepayments following the suspension of copper and cobalt processing, as well as higher reduction of payables during Q YTD. These cash outflows were funded by Glencore. Mining Waste mined in Q YTD was 79.7% lower than in Q YTD due to the revised waste mining plan in the open pits which was put in place following the suspension of copper and cobalt processing at the end of Q The revised waste mining plan aims to secure sufficient ore availability for processing once the suspension of copper and cobalt processing ends, while minimizing costs during the suspension period; Ore mined in Q YTD was 825 tonnes at KOV and is related to incidental ore mined during waste mining. Due to the suspension of ore mining underground and the shift in focus towards waste mining in the open pits following the suspension of copper and cobalt processing at the end of Q3 2015, ore mined is minimal; and In Q YTD, the Company commissioned: o 1 CAT shovel and 1 excavator at the KOV Open Pit mine; and o 1 fuel truck and 1 service truck at the KOV Open Pit mine. Processing Due to plant shutdown, there was no ore milled at KTC and no copper metal, concentrates or cobalt metal produced in Q YTD. During Q YTD work continued on the WOL Project: o Ongoing engineering design optimization continued on the Pre Leach, Leach and Post Leach circuits and satisfactory progress was made on the earth works and civil works, as well as construction of the steel structures; o Related capital expenditures amounted to $64.5 million in Q YTD, which principally related to site excavation, civil work and prepayments for various long lead time items; and o Concurrent with the construction of the WOL Project plant and infrastructure, the current Life of Mine Plan continues to be optimized to ensure the appropriate blend will be supplied to the WOL Project process when complete in order to maximize copper and cobalt recovery and to minimize operating cost per unit. 3

5 Outlook During Q4 2016: o Work will continue on the design optimization and construction of the WOL Project according to the defined project plan; o Open pit mining operations are expected to continue with focus on waste mining and remediation activities following the geotechnical failure at the KOV Open Pit mine in March 2016; o Care and maintenance activities in the underground mine and at KTC and Luilu are expected to continue; and o Various initiatives relating to cost base reduction, consumable inventory reductions, staff training and process improvements are expected to continue to be developed. 4

6 3. Operational performance The production of copper cathode, cobalt metal and previously copper concentrate is achieved through distinct processes which are described and reviewed below. The production statistics for each of these areas are presented below, for the current and comparative periods, and in item 6 Summary of Quarterly Results, for the last eight quarters. Mining Three months ended Nine months ended Sep 30, Jun 30, Sep 30, Sep 30, Ore mined KOV Open Pit tonnes 825-1,331, ,344,027 Mashamba East Open Pit tonnes ,312 T17 Open Pit tonnes KTO Underground tonnes ,915-1,478,932 Etang South Underground tonnes ,695 Total tonnes 825-1,779, ,828,966 Waste mined KOV Open Pit tonnes 3,282, ,834 11,656,361 5,349,052 27,267,528 Mashamba East Open Pit tonnes - 633,725 1,618, ,725 1,922,438 T17 Open Pit tonnes KTO Underground tonnes 12,934 4,875 53,319 39, ,440 Etang South Underground tonnes ,930-31,884 KTE Underground tonnes , ,454 T17 Underground tonnes ,925 Total tonnes 3,295,872 1,583,434 13,395,209 6,021,978 29,603,671 Average Cu grade KOV Open Pit % Mashamba East Open Pit % T17 Open Pit % KTO Underground % Etang South Underground % Total average % Average Co grade KOV Open Pit % Mashamba East Open Pit % T17 Open Pit % KTO Underground % Etang South Underground % Total average % Recorded rainfall KOV Open Pit mm

7 Review of 2016 Third Quarter and First Nine Months Results KOV Open Pit Ore mined in Q YTD was 825 tonnes and is related to incidental ore mined during waste mining. Due to the suspension of copper and cobalt processing at the end of Q3 2015, ore mined is minimal. Waste mined in Q was 247.5% higher than in Q and 71.8% lower than in Q When comparing Q YTD to Q YTD, waste mined decreased by 80.4%. This is due to the revised waste mining plan, which was put in place following the suspension of copper and cobalt processing at the end of Q Of the total waste mined in Q3 2016, approximately 3,007,869 tonnes related to ongoing search and recovery and remediation activities following the geotechnical failure at KOV Open Pit on March 8, 2016 (Q ,000 tonnes). The revised waste mining plan aims to secure sufficient ore availability for processing once the suspension of copper and cobalt processing ends, while minimizing costs during the suspension period. In Q YTD, the Company commissioned: o 1 CAT shovel and 1 excavator; and o 1 fuel truck and 1 service truck at the KOV Open Pit mine. KTO Underground Mine Ore mined in Q was Nil following the suspension of copper and cobalt processing at the end of Q Waste mined in Q was 8,059 tonnes higher than in Q and 40,385 tonnes lower than in Q The decrease between Q YTD and Q YTD is 175,240 tonnes. This is due to the suspension of ore mining following the suspension of copper and cobalt processing. Other mines Waste mined in Q at Mashamba East Open Pit was Nil, compared to 633,725 tonnes in Q and 1,618,381 tonnes in Q The decrease between Q YTD and Q YTD is 67.0%. At T17 Underground, Etang South Underground Mine and KTE Underground Mine (both extensions of KTO) mining operations were suspended in Q Processing Kamoto Concentrator ( KTC ) Three months ended Nine months ended Sep 30, Jun 30, Sep 30, Sep 30, Production Ore milled tonnes - - 1,460,316-5,454,990 Cu mill grade % Co mill grade % Concentrate produced tonnes , ,647 Cu grade in concentrate % Co grade in concentrate % KTC mills ore from the various mines and concentrates the contained copper and cobalt before transfer to Luilu. Following the suspension of copper and cobalt production in Q3 2015, Nil ore was milled and Nil concentrate was produced in Q YTD. 6

8 Luilu Metallurgical Plant Three months ended Nine months ended Sep 30, Jun 30, Sep 30, Sep 30, Production Concentrate fed tonnes , ,708 Cu concentrate grade % Co concentrate grade % Copper produced tonnes , ,816 Cobalt produced tonnes - - 1,105-2,901 The Luilu Metallurgical Plant processed sulphide and oxide concentrate from KTC through a modern Solvent Extraction and Electro-Winning ( SX-EW ) circuit. Due to the suspension of copper and cobalt processing in Q3 2015, Nil copper and cobalt metal was produced in Q YTD. 7

9 4. Financial Performance Operating Results Three months ended Nine months ended Sep 30, Jun 30, Sep 30, Sep 30, Sales**** $'000 (1,632) (615) 202,006 (30,130) 671,198 Operating expenses (including other expenses)* $'000 (53,582) (42,304) (335,168) (154,543) (878,757) EBITDA* $'000 (55,214) (42,919) (133,162) (184,673) (207,559) Depreciation and amortization* $'000 (6,915) (6,806) (54,656) (21,425) (172,463) Exclude: Other expenses (included below gross loss)* $' (44) 26,006 3,173 17,348 Gross loss $'000 (61,579) (49,769) (161,812) (202,925) (362,674) Other (expenses) income* $'000 (550) 44 (26,006) (3,173) (17,348) Net finance costs $'000 (88,160) (91,433) (80,431) (264,434) (186,094) Income tax (expense) recovery $'000 (5,510) 212 (164) (5,367) 111,148 Net loss $'000 (155,799) (140,946) (268,413) (475,899) (454,968) Non-controlling interests $'000 (56,300) (44,887) (80,220) (161,435) (154,275) Attributable to equity holders $'000 (99,499) (96,059) (188,193) (314,464) (300,693) Basic and diluted income per common share** $/share (0.05) (0.05) (0.10) (0.16) (0.16) C1 cash cost*** $/pound * The aggregation of sales cost of sales, operating expenses, royalties and transportation costs, and other expenses totals to EBITDA (Refer to item 21 Non-IFRS financial measures). ** Basic and diluted loss per common share are the same for the periods presented as the outstanding share options are non-dilutive since their exercise prices exceeded the average market value of the common shares at each period end. *** Refer to item 21 Non-IFRS financial measures. Due to the suspension of production C1 cash costs are not calculated for this period. **** Negative price and sales amounts are a result of quality discounts, adverse repricing and mark to market ( M2M ) adjustments 8

10 The movement in sales is due to the following price and volume factors: Three months ended Nine months ended Sep 30, Jun 30, Sep 30, Sep 30, Copper sales $'000 (1,632) (615) 177,141 (29,682) 601,165 Copper tonnes sold tonnes , ,054 Realized copper price $/tonne - - 4,482-5,180 Closing mark-to-market copper price $/tonne 4,832 4,637 5,194 4,832 5,194 Cobalt sales $' ,865 (448) 70,033 Cobalt tonnes sold tonnes - - 1, ,844 Realized cobalt price $/tonne ,217-24,625 Closing mark-to-market cobalt price $/tonne 26,599 24,559 27,780 26,599 27,780 Total sales $'000 (1,632) (615) 202,006 (30,130) 671,198 Including net repricing $'000 (1,632) (615) (32,039) (30,856) (57,496) No sales of copper and cobalt cathodes or concentrates were made in Q Sales related adjustments for Q increased by $1.0 million over Q mainly due to additional quality discounts of $1.6 million on finalization of outstanding 2015 sales. Sales for Q decreased by $203.6 million over Q due to a negative volume variance, which is the result of the suspension of copper and cobalt processing. Sales for Q YTD decreased by $701.3 million over Q YTD due to a $31.3 million negative price variance and a $670.1 million negative volume variance. Included in sales is a net re-pricing movement. Re-pricing adjustments result from sales being made at a provisional price in the month of shipment with final pricing based on average prices at a specified period thereafter. 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 London Metal Exchange ( LME ) offset by the contractual discount with adjustments being recorded in sales in the statement of loss and receivables on the statement of financial position. As at September 30, 2016, the Company had 25 tonnes copper (December 31, 2015 no copper) and no cobalt (December 31, tonnes) for which final commodity prices have yet to be determined. These were valued at September 30, 2016, at a forward commodity price net of contractual discounts of $1,320 per tonne for copper (December 31, 2015 no copper) (amounts in whole numbers). A 5% increase or decrease in the forward copper price as at September 30, 2016 would result in a $0.002 million change to revenue and trade receivables (as at December 31, 2015 no copper). 9

11 The movement in cost of sales, operating expenses, depreciation, royalties and transportation costs (operating expenses) is due to: Three months ended Nine months ended Sep 30, Jun 30, Sep 30, Sep 30, Mining $' , ,605 KTC processing cost $' , ,434 Luilu processing cost $' , ,896 Mine infrastructure and support $' , ,196 Change in metal inventories $' (34,736) - (43,304) Expense on issue of capital spares to production $' ,948-14,487 (Gain) loss on disposal of property, plant and equipment $' (511) - (468) NRV write-down $' ,692-85,890 Total cost of sales $' , ,737 Mining care and maintenance costs $'000 17,761 16,815-48,067 - KTC care and maintenance costs $'000 3,824 2,062-8,963 - Luilu care and maintenance costs $'000 2,878 2,641-8,349 - Mine infrastructure and support care and maintenance costs $'000 26,964 17,720-74,085 - Expense on issue of capital spares to production $'000 1,230 4,123-13,159 - Loss (gain) on disposal of property, plant and equipment $' (1,015) - (1,334) - Royalties and transportation costs $' , ,672 Depreciation $'000 6,915 6,806 54,656 21, ,463 Total operating expenses $'000 59,947 49, , ,795 1,033,872 Copper tonnes sold tonnes , ,054 Cost per tonne sold $/tonne - - 9,205-8,909 Following the suspension of copper and cobalt processing in September 2015, mining, KTC and Luilu care and maintenance costs decreased significantly. o Mining care and maintenance costs for Q YTD consisted of: The costs of ongoing search and recovery and slope remediation activities following the geotechnical failure on March 8, 2016; The costs of dewatering operations in the open pits and underground; The costs of limited backfilling operations; Labour costs; and Other costs relating to the care and maintenance of the open pits and underground mines. o KTC care and maintenance costs for Q YTD consisted of: Labour costs; The costs of running limited milling operations to support underground backfill activities; and Other costs relating to the care and maintenance of KTC. o Luilu care and maintenance costs for Q YTD consisted of: Labour costs; and Other costs relating to the care and maintenance of Luilu. 10

12 Review of 2016 Third Quarter Expenses Mine infrastructure and support care and maintenance costs for Q decreased by 40.5%, when compared to Q mine infrastructure and support costs, due to lower engineering costs and savings following the suspension of copper and cobalt processing (mainly in relation to labour savings following headcount reductions). Compared to Q2 2016, mine infrastructure and support care and maintenance costs increased by 52.2% mainly due to slightly higher engineering costs of $6.6 million (Q $6.4 million) and a loss on sales of warehouse inventory items of $2.4 million (Q $1.0 million loss) Loss on disposal of property, plant and equipment was $0.4 million in Q compared to a $1.0 million profit in Q2 2016, which relates to lower sales of non-core products. In Q3 2015, profit on disposal of property, plant and equipment was $0.5 million. Royalty payments and transportation costs for Q decreased by 100.0% over both Q and Q2 2016, due to Nil tonnes sold following the suspension of copper and cobalt processing. Depreciation and amortization decreased by 87.3% from Q as a result of lower units-ofproduction ( UOP ) amortization and depreciation following the suspension of copper and cobalt processing and reduced mining due to the revised waste mining plan. Compared to Q2 2016, depreciation increased by 1.6% due to additional waste tonnes mined. Other expenses in Q were lower compared to Q due to restructuring expenses of $24.0 million in Q (Q nil). Compared to Q2 2016, other expenses increased due to higher general and administrative expenses of $1.0 million compared to $0.1 million in Q This is mainly due to income relating to stock-based compensation in Q due to departure of senior employees prior to vesting of their granted stock options. This resulted in reversal of accumulated costs. Net finance costs in Q increased compared to Q and Q mainly due to additional funding drawn under customer prepayments. Amended Loan Facility interest expense amounted to $77.5 million for Q (Q $72.4 million and Q $75.2 million) and customer prepayment interest of $11.1 million for Q (Q $6.0 million and Q $10.4 million). Income tax expense was $5.5 million in Q and is related to 2014 and 2015 corporate income taxes (Q $0.2 million expense and Q $0.2 million recovery). Review of 2016 First Nine Months Expenses Mine infrastructure and support care and maintenance costs for Q YTD decreased by 34.0%, when compared to Q YTD mine infrastructure and support costs, due to lower engineering costs and savings following the suspension of copper and cobalt processing (mainly in relation to labour savings following headcount reductions). Gain on disposal of property, plant and equipment increased to $1.3 million in Q YTD compared to $0.5 million in Q YTD, due to higher sales of non-core products. Royalty payments and transportation costs for Q YTD decreased by 99.9% over Q YTD, due to the decrease in tonnes sold following the suspension of copper and cobalt processing. Depreciation and amortization decreased by 87.6% from Q YTD as a result of lower unitsof-production ( UOP ) amortization and depreciation following the suspension of copper and cobalt processing and reduced mining due to the revised waste mining plan. Other expenses in Q YTD decreased compared to Q YTD, due to restructuring expenses of $24.0 million in Q YTD, slightly offset by a foreign exchange gain of $8.0 million in Q YTD (Q YTD - $1.6 million gain). Net finance costs in Q YTD increased compared to Q YTD, due to the cessation of borrowing cost capitalisation during Q following the completion of the Phase 5 Expansion Project. This resulted in Amended Loan Facility interest expense of $227.0 million for Q YTD (Q YTD $166.6 million) and customer prepayment interest of $31.5 million for Q YTD (Q YTD $10.9 million). Income tax expense in Q YTD was $5.4 million and is related to 2014 and 2015 corporate income taxes (Q YTD $111.1 million recovery). Deferred tax recognition on tax losses carried forward in the DRC ceased in Q Such recognition will be reassessed on commissioning of the WOL Project. 11

13 Cash Flows MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three months ended Nine months ended Sep 30, Jun 30, Sep 30, Sep 30, Cash flow from (used in): Operating activities $'000 (33,141) (42,007) (167,644) (153,990) (459,560) Investing activities $'000 (69,758) (22,979) (125,853) (145,511) (386,862) Financing activities $'000 96,650 71, , , ,142 Total cash flows $'000 (6,249) 6,513 3,495 (35,556) 45,720 Cash, beginning of period* $'000 8,429 1,923 31,686 37,740 (10,519) Effect of exchange rate changes on cash held in foreign currencies $'000 9 (8) (17) 5 (37) Cash, end of period* $'000 2,188 8,429 35,164 2,188 35,164 * Consisting of cash on hand and bank overdrafts. Review of 2016 Third Quarter Cash Flows Cash outflows from operating activities were: o $134.5 million lower in Q3 2016, when compared to Q3 2015, primarily due to: A working capital inflow of $21.6 million (Q $52.5 million outflow); and A decrease in net loss, net of non-cash items, of $60.4 million, as described above. o $8.9 million lower, when compared to Q2 2016, primarily due to: A working capital inflow of $21.6 million (Q $3.8 million inflow); and An increase in net loss, net of non-cash items, of $8.8 million, as described above. Investing activities in Q decreased by $56.1 million, when compared to Q3 2015, mainly due to lower expenditure on the KOV mining fleet, lower KOV pre-strip costs capitalized, lower primary development and lower sustaining capital, slightly offset by WOL Project investments. Investing activities in Q were in line with planned spending on expansionary projects and sustaining capital expenditure. Financing activities in Q were in line with planned funding. The Q draw-downs were mainly utilized to fund additions to property, plant and equipment and operating cash outflows. Review of 2016 First Nine Months Cash Flows Cash outflows from operating activities were: o $305.6 million lower in Q YTD, when compared to Q YTD, primarily due to: A working capital inflow of $29.2 million (Q YTD - $273.4 million outflow); and A decrease in net loss, net of non-cash items, of $3.0 million, as described above. Investing activities in Q YTD decreased by $241.4 million, when compared to Q YTD, mainly due to the completion of the Phase 5 Expansion Project, lower expenditure on the KOV mining fleet, lower pre-strip costs capitalized, lower primary development and lower sustaining capital, slightly offset by WOL Project investments. Financing activities in Q YTD decreased by $628.2 million, when compared to Q YTD, due to lower funding by Glencore. The Q YTD draw-downs were mainly utilized to fund additions to property, plant and equipment and operating cash outflows. 12

14 5. Statement of Financial Position Discussion September 30, 2016 December 31, 2015 Assets Cash and cash equivalents 2,188 37,740 Receivables 220, ,900 Inventories 574, ,517 Prepayments and other current assets 119, ,704 Mineral interests and property, plant and equipment 4,240,497 4,128,746 Other non-current assets 629, ,078 5,786,118 5,778,685 Liabilities Current liabilities 277, ,062 Customer prepayments 1,505,727 1,208,243 Amended loan facilities 3,284,739 3,057,760 Other non-current liabilities 14,688 12,445 5,082,453 4,598,510 Total equity 703,665 1,180,175 Cash and cash equivalents / liquidity The cash and cash equivalents balance decreased from $37.7 million at December 31, 2015 to $2.2 million at September 30, The movements in cash and cash equivalents are discussed in item 4 under the heading Cash Flows. Receivables As at September 30, 2016, the receivables balance of $220.6 million includes $185.7 million of VAT input credits receivable, $14.3 million of outstanding balances for warehouse inventory items invoiced to Mutanda and $7.2 million of outstanding balances for mining fleet invoiced to Mopani. Receivables increased by $18.7 million from December 31, 2015 due to an increase in other receivables, mainly VAT input credits of $17.5 million, and an increase in third party receivables of $3.5 million, slightly offset by a decrease in related party receivables of $2.1 million. Inventories Inventories decreased from $620.5 million at December 31, 2015 to $574.2 million at September 30, 2016, due to a decrease in consumables inventories of $46.3 million following sales of warehouse inventory items to Mutanda and third parties. A review of all inventory levels and the subsequent right sizing of the consumables balance has started following the suspension of copper and cobalt processing and is still underway. As at September 30, 2016, $65.9 million of consumables inventories with a useful life of more than one year were included in property, plant and equipment as capital spares (December 31, $69.3 million). 13

15 Prepayments and other current assets Prepayments and other current assets decreased from $274.7 million at December 31, 2015 to $119.2 million at September 30, 2016, primarily due to a reclassification of $109.3 million relating to royalties and drilling prepayments to Gecamines from current to non-current prepayments following the suspension of copper and cobalt processing. Mineral interests and property, plant and equipment Mineral interests and property, plant and equipment increased from $4,128.7 million at December 31, 2015 to $4,240.5 million at September 30, 2016, primarily due to sustaining capital expenditures of $17.2 million, KOV and Mashamba East pre-stripping expenditures of $23.3 million, project related capital expenditures of $109.7 million and capitalized borrowing costs of $2.0 million offset by depreciation and amortization expense of $21.4 million. As at September 30, 2016, $65.9 million of consumables inventory with a useful life of more than one year were included in property, plant and equipment as capital spares (December 31, $69.3 million). Other non-current assets Other non-current assets increased from $515.1 million at December 31, 2015 to $629.4 million at September 30, 2016, mainly due to an increase in non-current prepayments relating to a reclassification of $109.3 million relating to royalties and drilling prepayments to Gecamines from current to non-current prepayments. Current liabilities Current liabilities decreased from $320.1 million at December 31, 2015 to $277.3 million at September 30, This is primarily due to a decrease in trade payables and accruals of $62.8 million, a $3.7 million decrease in provisions mainly driven by the partial utilization of the restructuring provision and a $1.4 million decrease in the current portion of other non-current liabilities, offset by an increase in credit facilities relating to letters of credit of $25.1 million. Letters of credit were obtained in relation to the purchase of property, plant and equipment, and consumables inventories. The letters of credit carry an interest rate of 1.17% ($13.1 million) and 1.15% ($12.0 million) per annum. The maturity date of the total balance of $25.1 million is in October, Customer prepayments Customer prepayments increased from $1,208.2 million at December 31, 2015 to $1,505.7 million at September 30, This is due to $263.9 million of advance payments received and $33.5 million of interest payable accrued. It is the Company s intention to transfer the existing and future customer prepayments into a loan facility in due course. Amended Loan Facilities Amended Loan Facilities (refer to item 9) increased from $3,057.8 million at December 31, 2015, to $3,284.7 million at September 30, 2016, due to the accrual of interest of $227.0 million which is payable on maturity on January 1, Other non-current liabilities As at September 30, 2016, other non-current liabilities consist of decommissioning and environmental provisions, and have increased from $12.4 million as at December 31, 2015, to $14.7 million as at September 30, 2016 as a result of the accretion ($1.2 million) as well as an increase in the liability of $1.1 million since the company reassessed its WACC rate and lowered it from 11.25% to 10.70%. Off-Balance Sheet Arrangements As at September 30, 2016, the Company had no off-balance sheet arrangements. 14

16 6. Summary of Quarterly Results The following table sets out a summary of the quarterly results of the Company for the last eight quarters: Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 ($ millions except where indicated) Statement of Operations Total sales* (1.5) (27.9) (0.6) (1.6) Cost of sales** (190.8) (233.5) (253.9) (273.3) (77.0) Royalties and transportation costs (34.6) (29.1) (35.7) (35.9) (1.3) (0.1) (0.0) - Depreciation and amortization (44.2) (55.4) (62.5) (54.7) (14.1) (7.7) (6.8) (6.9) Gross loss (6.8) (97.2) (103.7) (161.8) (93.9) (35.7) (7.4) (8.5) Operating expenses** (55.9) (42.3) (53.0) Other (expenses) income** (6.8) (0.1) 8.7 (2.0) (3.5) (0.6) Release of SX/EW provision Restructuring expense (24.0) (12.3) (3.1) - - Net finance cost (5.6) (27.7) (77.9) (80.4) (82.4) (84.8) (91.4) (88.2) Income taxes recovery (expense) (0.2) 0.1 (0.1) 0.2 (5.5) Net loss (3.7) (67.6) (119.0) (268.4) (174.6) (179.2) (140.9) (155.8) EBITDA** 30.7 (41.9) (32.5) (133.2) (78.1) (86.5) (42.9) (55.2) Basic and diluted income (loss) per common share ($ per share)*** 0.01 (0.01) (0.04) (0.10) (0.06) (0.06) (0.05) (0.05) Realized copper price ($ per lb) Realized cobalt price ($ per lb) Total copper sold (tonnes) 38,308 36,222 40,308 39, Total copper metal produced (tonn 42,807 37,133 35,974 33, Total copper produced in metal and concentrate (tonnes) 42,807 37,133 40,096 36, Total cobalt sold (tonnes) , Total cobalt produced (tonnes) , Statement of Financial Position Cash and cash equivalents Other current assets Mineral interests, property, plant and equipment and other long term assets 4, , , , , , , ,267.8 Total assets 5, , , , , , , ,786.1 Current liabilities , , , , ,783.0 Amended Loan Facilities 2, , , , , , , ,284.7 Other non-current liabilities Total liabilities 3, , , , , , , ,082.5 Total equity 1, , , , , , Cash Flow Operating activities (before working capital changes) 29.1 (39.3) (31.8) (115.1) (150.8) (82.6) (45.9) (54.7) Changes in working capital (excluding customer prepayments) 21.6 (227.5) 6.6 (50.2) Increase (decrease) in customer prepayments**** (1.1) (2.1) 2.1 (2.3) (0.3) Investing activities (143.4) (98.3) (162.7) (125.9) (154.8) (52.8) (23.0) (69.8) Financing activities * Includes impact of provisionally priced sales which retain exposure to future changes in commodity prices being marked-to-market based on the London Metal Exchange ( LME ) prices for copper, previously concentrate and cobalt at the balance sheet date and repricing of those provisional sales in future periods. ** The aggregation of sales, cost of sales, operating expenses, royalties and transportation costs, and other expenses totals to EBITDA (refer to item 21 Non-IFRS financial measures). *** Basic and diluted income per common share are the same for the periods presented since the outstanding share options do not have a dilutive effect since their exercise prices exceeded the average market value of the common shares at each period end. **** Operating cash flows from customer prepayments have been superseded by the Amended Loan Facilities (refer to item 9) and financing cash flows from customer prepayments. Q to Q represents the movement in cash received for copper and cobalt that has been invoiced but not yet crossed the DRC border (the point of revenue recognition). 15

17 In Q3 2014, profitability was adversely impacted by reduced income tax recoveries. Income tax recoveries during 2014 and up to Q were due to deferred tax credits principally arising from increases in tax losses carried forward in the DRC. In Q3 2015, the recognition of such deferred tax assets was suspended. In Q4 2014, profitability was adversely impacted by decreasing copper and cobalt prices and reduced income tax recoveries. In Q profitability was adversely impacted by reduced copper and cobalt prices, decreasing copper production, the cessation of borrowing cost capitalisation and the write down of product inventories to net realizable value. These factors were offset by increased income tax recoveries. In Q1 2015, the Company ceased borrowing cost capitalization leading to the expensing of Amended Loan Facility and customer prepayment interest costs of $24.4 million, $74.6 million, $78.4 million and $82.1 million in Q1 2015, Q2 2015, Q and Q4 2015, respectively. In Q1 2015, Q and Q the Company incurred an expense of $24.9 million, $35.3 million and $25.7 million, respectively, on inventory write-down due to the decrease in the copper price. In Q2 2015, profitability was adversely impacted by the expensing of Amended Loan Facility and customer prepayment interest costs of $74.6 million and inventory write down costs of $35.3 million, offset by an increase in copper sales tonnes and an increase in cobalt prices. In Q3 2015, profitability was adversely impacted by decreasing copper and cobalt prices, a $24.0 million restructuring expense recorded following the suspension of copper and cobalt production in September 2015 and the suspension of recognition of deferred tax assets. These factors were offset by an increase in cobalt production and sales. In Q4 2015, profitability was negatively impacted by a further $12.3 million restructuring expense and the recording of a provision of $30.6 million in relation to the write-down to net realizable value of consumables inventory. In Q1 2016, profitability was negatively impacted by additional quality discounts of $25.4 million relating to finalization of outstanding 2015 sales, and a further $3.1 million restructuring expense. In Q2 2016, profitability compared to Q was positively impacted by lower negative sales of $0.6 million relating to the finalization of copper sold in 2015, and cost savings following the suspension of copper and cobalt processing. In Q3 2016, profitability compared to Q was negatively impacted by higher negative sales of $1.6 million relating to the finalization of copper sold in 2015, as well as loss on sale of assets amounting to $0.4 million due to lower sales of non-core products and higher loss on sales of warehouse inventory items of $2.4 million. These movements in the results are also reflected in the cash flows from operating activities before working capital changes. Investing activities increased in Q3 2014, as the Phase 5 Expansion Project progressed, and then again in Q and Q4 2015, due to mining fleet acquisitions and pre-stripping costs at KOV, and this has also resulted in an increase in the net additions to mineral interest and other assets. Other movements on the statement of financial position can be primarily attributed to the changes in production. 16

18 The following production information sets out the quarterly results of the Company for the last eight quarters: Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Copper and Cobalt Production Statistics Open Pit Mining - KOV Waste mined (tonnes) 7,820,548 6,215,360 9,395,807 11,656,361 7,456,107 1,121, ,834 3,282,938 Ore mined (tonnes) 1,368,624 1,343,544 1,669,055 1,331, , Copper grade (%) Cobalt grade (%) Open Pit Mining - T17 Waste mined (tonnes) Ore mined (tonnes) Copper grade (%) Cobalt grade (%) Open Pit Mining - Mashamba East Waste mined (tonnes) ,057 1,618,381 2,303, ,725 - Ore mined (tonnes) - - 4, Copper grade (%) Cobalt grade (%) Underground Mining - KTO Waste mined (tonnes) 115, ,179 57,943 53,319 21,472 21,392 4,875 12,934 Ore mined (tonnes) 495, , , , Copper grade (%) Cobalt grade (%) Underground Mining - Etang South Waste mined (tonnes) ,954 16, Ore mined (tonnes) - - 1, Copper grade (%) Cobalt grade (%) Underground Mining - T17 Waste mined (tonnes) 20,070 4, Ore mined (tonnes) Copper grade (%) Cobalt grade (%) Underground Mining - KTE Waste mined (tonnes) - 67,650 44,586 50, Ore mined (tonnes) Copper grade (%) Cobalt grade (%) Total Mining Waste mined (tonnes) 7,956,147 6,391,114 9,817,347 13,395,209 9,781,277 1,142,672 1,583,434 3,295,872 Ore mined (tonnes) 1,863,967 1,848,269 2,201,354 1,779, , Copper grade (%) Cobalt grade (%) KTC Concentrator Ore processed (tonnes) 1,722,177 1,959,724 2,034,949 1,460, Concentrate produced (tonnes) 287, , , , Luilu Metullurgical Plant Total concentrate feed (tonnes) 318, , , , Copper produced (tonnes) 42,807 37,133 35,974 33, Cobalt produced (tonnes) ,

19 7. Commitments The following table summarizes the Company s contractual and other obligations as at September 30, Total Less than 1 year 1-3 years 4-5 years After 5 years Payments due by year Capital expenditure commitments (1) 20,839 20, Gécamines minimum royalty payment (2) 18,000 1,800 3,600 3,600 9,000 Power Project (3) 30,979 10,196 20, ,818 32,835 24,383 3,600 9,000 (1) The capital expenditure commitments relate to the WOL Project ($15.6 million) and other infrastructure projects. Glencore has indicated it will provide or procure the additional funding required for the completion of these projects. (2) Pursuant to the terms of the Joint Venture Agreement (the JVA refer to item 16), all installations and infrastructures within the perimeter of the KCC concession area are being rented for an annual minimum royalty payment to Gécamines of $1.8 million. (3) In order to meet the need for additional and reliable electrical power for the development of their mining activities, KCC and Mutanda Mining SARL ( Mutanda ) (a related party of the Company and part of the Glencore Group), 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 $385.6 million for the Power Project commencing from the second quarter of 2012 to the end of 2017 but will be reimbursed $257.0 million by Mutanda. Accordingly, KCC's net funding contribution will be $128.5 million, of which $97.5 million has been funded as of September 30, 2016 (included in other non-current assets in the statement of financial position). $380.6 million 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 for the completion of the Power Project. 8. Contingent Liabilities 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 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. Refer to item 14 of this Management Discussion and Analysis. 18

20 9. Liquidity and Capital Resources As at September 30, 2016, the Company had cash and cash equivalents of $2.2 million (December 31, 2015 $37.7 million) and a working capital shortfall of $1,264.7 million (December 31, 2015 $887.8 million). 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 $635.5 million (the Loan Facilities ). $120.0 million 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 $515.5 million, 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 $515.5 million Senior Facility (plus accrued interest thereon) and $1,815.8 million of un-invoiced 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 $50.0 million, 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 Project and the Power Project. The amount of the Term Loan remained unchanged at $120.0 million plus accumulated interest. The maturity of the Senior Facility and the Term Loan was extended to January 1, 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. 19