Nikanor and Katanga Mining announced an agreed merger yesterday that will create one of the world’s largest independent copper and cobalt producers worth about $3.3 billion (£1.6 billion).

The merger will bring together two adjacent copper and cobalt mines owned by the companies in the Katanga region of the Democratic Republic of Congo.

The merged group, which will retain the name Katanga Mining, said that it aimed to be producing 400,000 tonnes of copper annually by 2011 – making it Africa’s largest copper producer – and 40,000 tonnes of cobalt, making it the largest producer of the metal in the world.

John Leslie, executive chairman of Nikanor, claimed the deal would create an “African champion” with “fantastic assets”. He said the merger would lead to cost savings as well as increased production and an improved, phased approach to investment in the mining complex in the south of Congo.

The new group will be led by Arthur Ditto, president, chairman and chief executive of Katanga, while Stephen Jones, chief financial officer of Katanga, will become the CFO.

Under the terms of the deal, Nikanor shareholders will receive 0.613 new Katanga shares and $2.16 in cash. Nikanor shareholders will hold 60 per cent of the merged company.

A separate, exclusive supply agreement has been reached with Glencore, the international raw materials group, to bulk purchase the copper and cobalt supplied by the mine.

The deal represents a blow for Camec, a rival Congolese mining group run by Phil Edmunds, the former cricketer, which owns a 22 per cent stake in Katanga but had failed in an earlier effort to take control of it. “We have noted the announcement and are reviewing our options in relation to our shareholding,” a Camec spokesman said.

Mr Ditto said the deal would “offer the opportunity for a dramatic increase in value for shareholders of both companies” and was “a transaction where the whole is definitely greater than the sum of the parts”.

The group will be listed on the London Stock Exchange and the Toronto stock exchange. The companies also claimed that the deal was unlikely to be threatened by a review of mining licences being undertaken by the Government of Congo.

Mr Leslie said the merger had the “explicit support” of Martin Kabwelulu, Congo’s Minister of Mines.

Congo, which has 10 per cent of the world’s copper reserves and less than 1 per cent of its production, has attracted a flood of foreign investment since the end of the country’s civil war in 2003, in which millions died.

Mr Kabwelulu said: “Congo’s Government welcomes the merger as proof of the confidence of the business community in the future of Congo’s mining sector.”

The transaction is expected to close in the first quarter of 2008, but is subject to shareholder and regulatory approvals. About 74 per cent of the Nikanor shareholding is supportive as is 48 per cent of Katanga.

Katanga is being advised by CIBC World Markets and its legal advisers are Cassels Brock & Blackwell in Canada, Norton Rose in the UK and Appleby in Bermuda. Nikanor is being advised by JPMorgan Cazenove.

Resource riches

— The rich natural wealth of the Congo maintains a huge allure for Western companies, just as it did in the 19th century

— The Democratic Republic of Congo has vast deposits of copper, cobalt, uranium, diamonds and a host of other metals that have attracted a wave of foreign investment since the end of the country’s six-year civil war in 2003

— The country’s potential as a producer and exporter is enormous – in the mid1980s the state mining company Gécamines was producing as much as 470,000 tonnes of copper a year

— Production dropped to virtually nothing during the late 1990s, and by 2005 it was still producing only 14,000 tonnes

— The future of mining in the country is unclear because the Government is reviewing all licences that were issued in uncertain circumstances during the war years

— Katanga and Nikanor claim that their proposed merger has official support from Kinshasa, but other firms including Anvil Mining and First Quantum Minerals are thought to be under threat

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