Glencore under fire over DRC mining deals

Published by MAC on 2012-05-15
Source: Statement, Reuters, Guardian

Glencore under fire over DRC mining deals

By Clara Ferreira-Marques

Reuters

9 May 2012

LONDON - Commodities trader Glencore faced calls for greater transparency around its deals in Congo, one of its most promising but most controversial jurisdictions, as it prepares for its first shareholder meeting since listing.

Anti-corruption campaign group Global Witness, in a new memo reviewing mining transactions in Congo since 2010, said Glencore should provide more detail on what it said were "potentially corrupt deals" in the country and on its relationship with an influential Israeli businessman, Dan Gertler.

Glencore and Gertler, it said, should release the full list of shareholders of all offshore companies involved in Glencore ventures in Congo, adding there was a risk those shareholders could include "corrupt Congolese officials or their proxies".

Global Witness said both Glencore and Gertler had challenged its facts and categorically denied involvement in corruption.

Glencore, which will hold its maiden shareholder meeting in the Swiss town of Zug on Wednesday, said it had a clear anti-corruption policy and "offering, paying, authorising, soliciting or accepting bribes is unacceptable to Glencore".

Fleurette Group, owned by a trust for the benefit of the Gertler family, said it had engaged with the campaign group but rejected any allegation of impropriety and denied wrongdoing.

The Global Witness report, which examines the issue of mining stakes sold by the Congo state, does not accuse Glencore of corruption. But its probe into Glencore's deals in the central African country comes at an awkward time for the world's largest diversified commodities trader.

Glencore, a target for campaigners since its listing last year after almost four decades as a private company, agreed in February to a $36 billion takeover of Xstrata and is currently wooing the miner's institutional and small shareholders, some of whom argue they are not being offered enough premium for the combined company's higher risks.

"(Xstrata shareholders) probably are already using this as an argument for a better deal," said analyst Nik Stanojevic at stockbroker Brewin Dolphin.

"But the counter-argument Glencore might use is that although there is more risk, there is also better growth, and valuation already takes this into account."

Xstrata's own assets are by and large in established mining jurisdictions, from Australia to Chile, while Glencore has been happier than its major mining rivals to tread in riskier, high potential areas, in exchange for better returns.

"Most people know what they are getting themselves into with Glencore; they know they do not operate in normal environments and (sometimes in) jurisdictions where not everyone is completely transparent," analyst Cailey Barker at Numis said.

"It is more likely to affect their PR than their investors."

Glencore, which already owns 34 percent of Xstrata, is offering 2.8 new Glencore shares for every Xstrata share held.

While Glencore's chief executive said last week he had the support of most shareholders, Xstrata's small investors could sink a deal requiring 75 percent backing, excluding Glencore. They flexed their muscles last week, with over a third of voting shareholders rejecting Xstrata's pay plan.

Congo Promise

Glencore has been in Congo since 2007 when it made an initial investment in Nikanor, a miner seeking to revive copper mines in Congo's lucrative Katanga province, alongside Gertler. The investment became a majority stake after the global crisis, and Glencore later merged the miner with rival Katanga to create an operation that will produce 308,000 tonnes of copper by 2015.

It also has a stake in copper and cobalt producer Mutanda mine, where it is ramping up production, and the nearby Kansuki greenfield project. It hopes to combine the two, with a view to ultimately holding a majority stake in the combined entity.

Ore grades in Congo's copper belt are among the highest in the world - 4.2 percent of copper content per tonne in Katanga and 3.4 percent in Mutanda, compared with less than 1 percent for giant, historic copper mines in more mature jurisdictions owned by rivals, like Chile's Collahuasi and Escondida.

But operating in Congo carries high risks, not just operationally but also to miners' reputations. The involvement of miner ENRC in the purchase of a Congo copper operation expropriated from a rival hit its share price, dealing a blow it is still recovering from, even after a $1.25 billion legal settlement with the previous owner earlier this year.

ENRC bought control of the operation, Kolwezi, from a company owned by the prominent but very private Gertler.

Global Witness said it was concerned by the sale of Congolese state mining body Gecamines' stakes in Kansuki and Mutanda to offshore companies associated with Gertler in 2011, arguing the deals were conducted in secret, and involved companies whose full list of shareholders are not known.

The sales of those Gecamines stakes were made public in Glencore's IPO prospectus. The 25 percent Kansuki stake was sold for $17 million, below its commercial valuation of as much as $209 million, Global Witness said, though Gertler representatives disputed this valuation.

"There is a considerable amount of risk attached to these investments, and no other party was prepared to pay a fraction of the sum paid by Fleurette," a spokesman said.

Global Witness said Glencore's shareholders should demand a full external audit of its activities in Congo, warning the trader's participation in "secretive and cosy deal-making" could hurt it in any future government reviews of contracts and could "expose shareholders to corrupt practices".

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Glencore ‘should explain potentially corrupt deals in Congo' - Global Witness

Global Witness press release

9 May 2012

Global Witness is today calling on Glencore to explain potentially corrupt deals in the Democratic Republic of Congo, and is calling on the company to provide more details about its relationship with an Israeli businessman who is key to its substantial mining investments in the country. The concerns, detailed in a briefing for Glencore's shareholders, are being published on the day of the company's first AGM as a publicly listed company.

Since 2010 a number of offshore companies associated with Dan Gertler - an Israeli businessman and friend of Congolese President Joseph Kabila - have secretly bought stakes in several mines from the state, paying only a small fraction of their commercially estimated values. The mines were sold without public tenders and limited details were only released long after the assets were sold off.

After buying the assets, at least two of the offshore companies made huge profits by selling on shares in them soon afterwards. Others are positioned to profit by collecting the mining revenues.

Some of the proceeds of mining sales in 2011 were used by the Congolese government to cover costs related to the 2011 election, which returned incumbent president Joseph Kabila to power. The polls were condemned as flawed by international diplomats and election observers and were marred by killings committed by government security forces.

Mr Gertler and Glencore have challenged Global Witness's facts as laid out in the briefing, and their views are reflected in the note. A spokesman for Mr Gertler has questioned the commercial valuations for some of the mines concerned, while both Glencore and Mr Gertler's representatives categorically deny any involvement in corruption in Congo.

"Glencore's business in Congo is intimately tied up with a controversial friend of the president," said Daniel Balint Kurti, Campaign Leader for the Democratic Republic of Congo at Global Witness. "In a country endowed with vast mineral wealth and yet ranked by the UN as the least developed nation in the world, the company owes its shareholders and, more importantly, the people of Congo, an explanation of exactly who now owns their natural resources."

Mr Gertler is a key intermediary through whom Glencore has acquired stakes in Congolese mining assets. He is also a partner in all three mining ventures in Congo in which Glencore has acquired stakes that have been collectively valued at an estimated $4.6 billion. Two of those ventures, the Kansuki and Mutanda mines, together are expected to add at least 40% to the world's cobalt output and increase Congo's copper production by about 40% (compared to 2011 production figures) once they are fully developed.

Global Witness is asking Glencore and Mr Gertler to release the full list of shareholders of all the offshore companies involved - information which is currently secret. Global Witness believes there is a risk that the shareholders could include corrupt Congolese government officials or their proxies.

"Congo's natural resource wealth should benefit the country as a whole," said Balint-Kurti. "Yet hugely profitable deals are being struck in Congo by secretive offshore companies and multinationals; the Congolese state is getting peanuts and we are extremely concerned that the Congolese people are being deprived of billions of dollars."

As the world's largest commodity-trading firm, Glencore's behaviour helps set the standard for how commodities companies operate across the world. It boasts that it "will not assist any third party in violating the law in any country, nor pay or receive bribes, nor participate in any other criminal, fraudulent or corrupt practice".

"It is now incumbent upon Glencore to show that it is living up to its rhetoric and that it is ready to make public the details of its previously secret business deals," concluded Balint-Kurti.

/Ends

Notes for editors:

Contact:

Daniel Balint-Kurti, +44 (0) 207 492 5872 and +44 (0) 7912 517 146

Notes to editors:

1. The full report on Glencore's investments in Congo and the company's links to Dan Gertler is available at http://www.globalwitness.org/sites/default/files/Global%20Witness%20memo%20on%20Glencore%27s%20secretive%20dealings%20in%20the%20Democratic%20Republic%20of%20Congo.pdf.

2. A Q&A on the "secret sales" scandal can be found at http://www.globalwitness.org/sites/default/files/Global%20Witness%20Q%26A%20on%20Glencore%20in%20the%20Congo_0.pdf.

3. Written responses by Glencore and Mr Gertler's representatives to questions from Global Witness can be found at http://www.globalwitness.org/library/glencore-has-questions-answer-global-witness-investigation-potentially-corrupt-deals-congo.

Global Witness investigates and campaigns to prevent natural resource-related conflict and corruption and associated environmental and human rights abuses.

If you go to the weblink http://www.globalwitness.org/campaigns/corruption/oil-gas-and-mining/glencore, you will find all the associated documents, including Global Witness's note for the attention of Glencore shareholders and replies from Glencore and Dan Gertler.

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Mining firms face scrutiny over Congo deals

Campaigners argue natural resources exploited to benefit multinationals rather than local population

By Simon Goodley and Julian Borger

Guardian (UK)

8 May 2012

MPs are set to launch an investigation into the involvement of British-connected shell companies and London-listed mining groups in opaque deals to acquire prime mining assets in the Democratic Republic of the Congo, one of the poorest countries on Earth.

News of the potential inquiry, which could involve top FTSE 100 mining executives being called to give evidence, comes as campaigners argue that natural resources deals are benefiting multinationals rather than the DRC's population. Commodity trader Glencore will also face calls to explain its involvement in the resource-rich central African country.

Pauline Latham, a Conservative MP and a member of the 11-strong international development select committee, said: "If the money [from the mining deals] stayed in the country and was used for the benefit of the people, they wouldn't need aid money and they'd all be much better off. That's why we'd look at it and why we would do it because our main aim is to make life better for poorer people in different countries."

She added that the committee "hadn't been afraid" of calling top executives to give evidence before, after the likes of Glencore and brewer SABMiller appeared last month to provide evidence on taxation in developing countries.

The MPs' interest in DRC's natural resources has emerged as Glencore, the commodity trader whose 2011 flotation made six executives billionaires, is facing calls from the campaign group Global Witness to explain investments in the country it has made alongside Dan Gertler, an Israeli businessman and close friend of DRC's president, Joseph Kabila. Gertler's stakes in Congo mines are frequently held in offshore jurisdictions such as the British Virgin Islands.

The Global Witness report states: "The dealings raise questions over whether Glencore played a role in secret sales of stakes in the Kansuki and Mutanda mines in Congo's southern Katanga province in 2010 and 2011. They also raise questions over whether cash invested by Glencore shareholders is being used wisely.

"Since early 2010 the Congolese state has sold off stakes in six prize mining projects - including Kansuki and Mutanda - in secret and at vastly undervalued prices, according to commercial valuations by several internationally recognised brokerage houses. Those stakes were divested to offshore companies, most of which are associated with Mr Gertler but whose precise beneficial owners are not known." Apart from Gertler's companies, Glencore holds sizeable stakes in Kansuki and Mutanda. Gertler's stakes were acquired after Glencore-controlled companies allowed him to invest only after waiving their right to first refusal to buy the shares.

A spokesman for Glencore, whose annual meeting takes place , said: "During the period when these transactions took place, Glencore had decided in general not to increase its shareholdings in DRC projects. This was for two reasons - firstly, Glencore already had substantial capital commitments to develop Katanga and Mutanda and preferred to invest its funds in developing its DRC projects rather than paying out shareholders. Secondly, Glencore perceived that there was potentially some uncertainty ahead of the DRC presidential election. The outcome was uncertain and it was possible that there could be very unfavourable implications for the mining industry."

A spokesman for Gertler rejected the claim his companies had bought the mines on the cheap.

The potential parliamentary inquiry and report coincide with calls by a leading DRC opposition party for the UK to stop the £200m a year that UK taxpayers send to the DRC, as well as Glencore's attempts to persuade shareholders in another FTSE 100 mining group, Xstrata, to accept its proposal to merge the two companies.

The structure of many deals behind DRC's natural resource wealth has puzzled campaigners and politicians for some time. Last year Eric Joyce, the controversial MP for Falkirk, published a list of 59 "shell companies" dealing in DRC assets, 55 of which are based in the British Virgin Islands or have other British links. The list also contains 29 companies that are known to have associations with Gertler as well as deals involving another London-listed mining group, ENRC.

A spokesman for Gertler said the Global Witness report's valuations do "not take into account the considerable capital expenditure and time required to bring these assets to full production.

"The value of these assets is determined by what the market is prepared to pay. There is a considerable amount of risk attached and no other party was prepared to pay a fraction of the sum paid by [Gertler companies]. Clearly, there would be limited interest from industry partners in taking a 25% minority stake in such a project," the spokesman said.