Former Partner Leads Glencore Even Further Up the Creek in DRC

Mining giant Glencore (LSE:GLEN) now has even more on its plate in the Democratic Republic of the Congo (DRC), with Israeli billionaire Dan Gertler seeking damages against the company to the tune of almost US$3 billion.

Efforts by Glencore to avoid the ire of the US government have led to the company being accused of breaching royalties agreements with the Israeli businessman.

A Congo court has placed a freezing order on the Swiss trader’s assets, including Katanga Mining’s (TSX:KAT) Kamoto Copper Company (KCC) and the Mutanda mine.

A company affiliated with Gertler, Ventora Development, has alleged that Glencore is required to pay US$695 million from Mutanda and US$2.28 billion from KCC to Gertler in future royalties.

Glencore is assessing the impact of the freezing order on Mutanda and KCC’s operations in the DRC, noting that it may materially adversely impact such operations.

KCC is expected by Glencore to produce 150,000 tonnes of copper in 2018, while Mutanda produced 192,000 tonnes of copper in 2017.

After the news, Katanga Mining saw its share price plunge by 18.78 percent on the Toronto Stock Exchange, while Glencore’s share price fell 2.6 percent in London.

The new orders will further frustrate Glencore’s operations in the DRC, where it’s already fighting against an attempted dissolution of KCC by joint venture partner Gécamines, and is wrestling with regulatory changes by the government, which is seeking to raise more royalties and taxes from mining companies.

Glencore bought out Gertler’s shares in Katanga and Mutanda in 2017 for US$960 million, agreeing to pay royalties to the businessman.

However, Gertler was later designated a “Specially Designated National” (SDN) by the US government and had blocking sanctions imposed on him and affiliated businesses, preventing him from dealing in US dollars, and complicating any dealings Glencore could have with him.

The company ceased paying royalties, saying that the agreement had been made prior to his designation as a SDN. As a result, Glencore strenuously denied it was in breach of any agreements in a press release on Friday (April 27).

“Glencore denies that Mutanda and KCC are in breach of any of their obligations under their respective agreements with Ventora … and also entirely rejects Ventora’s calculation of the value of the future royalties allegedly owed to Ventora. Mutanda and KCC will vigorously contest the freezing order and any subsequent proceedings,” the company said in the release.

Analyst Tyler Broda from RBC Capital Markets downgraded Glencore from a top pick to outperform, saying that the new development “complicates the DRC picture,” and that Gertler’s working relationship with the DRC president means that the courts are unlikely to reverse the freezing order in the near term.

The hubbub surrounding Glencore and its assets in the DRC triggered Canadian mining company Ivanhoe Mines (TSX:IVN) to clarify its position in the DRC, saying in a press release that its projects in the country have “absolutely no relation” to Glencore, Gertler or any legal proceedings, and that all of its relationships are rosy.

“Ivanhoe is productively advancing our projects through respectful, cordial and constructive relationships with all of our partners and stakeholders,” said Ivanhoe Mines Executive Chairman Robert Friedland.

On Monday (April 30), Glencore’s share price closed on the London Stock Exchange at GBX 359.42, down 2.6 percent, while Katanga closed on the Toronto Stock Exchange at C$0.78, down 20.81 percent.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.