Glencore hammered by corruption and accusations of rights violations

Published by MAC on 2018-07-06
Source: Bloomberg, Mining.com

US probe darkens Glencore horizons from Africa to Americas

Bloomberg

4 July 2018

The U.S. corruption and money-laundering probe into Glencore Plc represents the sum of all fears for the world’s largest commodity trader and its billionaire chief executive officer, Ivan Glasenberg.

The possibility that the Justice Department would add to the dizzying array of regulatory and legal headaches the Swiss company is facing around the globe — from Russia to Africa and South America — has been a major worry for both executives and shareholders for months, people familiar with the matter said.

Those concerns crystallized Tuesday with the announcement that U.S. investigators have subpoenaed documents related to Glencore’s activities in the Democratic Republic of Congo, Nigeria and Venezuela dating back to 2007, sending the shares tumbling more than 8 percent.

The most obvious risk from the U.S. investigation is a hefty fine or settlement, but the stock plunge, which erased $5 billion of market value, far exceeded the largest penalty ever imposed under the Foreign Corrupt Practices Act. That suggests investors have deeper apprehensions, according to Maximilian Hess, a senior political risk analyst at AKE International.

"Glencore was long the business that operated where others could not or would not,” Hess said. “That seems like an increasingly untenable position.”

The U.S. hasn’t made any accusations of wrongdoing or specified what’s it’s investigating. Glencore said it’s reviewing the subpoena and will provide further information as appropriate.

Glasenberg in April had to quit the board of of one of Glencore’s biggest aluminum suppliers, United Co. Rusal, after its main owner, Oleg Deripaska, was hit with the most punitive U.S. sanctions imposed on a so-called Russian oligarch.

Glencore’s struggles in Congo, where it operates massive copper and cobalt mines, have also come under legal pressure, including a possible bribery investigation by U.K. prosecutors over its work with Dan Gertler, an Israeli billionaire and close ally of Congo President Joseph Kabila, people familiar with the situation said in May.

But the U.S. is casting a wider net with the addition of Venezuela and Nigeria to its investigation, increasing the likelihood that Glencore’s management will get bogged down in a lengthy legal process. And any fines or charges that result will only further complicate internal efforts to settle on a successor to Glasenberg, 61.

Glencore Executives

Glasenberg has run Glencore since 2002 and is also the company’s second-largest shareholder, according to Bloomberg data. Two of his closest lieutenants are associated with legal challenges in the countries the Justice Department is focusing on.

Glencore curbed the powers of Aristotelis Mistakidis, its head of copper, after a review of operations in Congo raised questions about accounting and management practices. And Alex Beard, Glencore’s head of oil, was named in a 2015 lawsuit filed by a former representative in Nigeria.

Christopher LaFemina, an analyst at Jefferies LLC, said the issue threatens to become a long-term drag on Glencore’s shares, much like the ongoing dispute between rival miner Freeport-McMoRan Inc. and the Indonesian government.

"Investors are likely to assume Glencore will have to pay a large fine, and Glencore’s cost of capital will increase due to increased risk in general," LaFemina said.

Still, analysts at Credit Suisse Group AG said Glencore shares were undervalued as it could be years before the conclusion of any probe.

Recovery Threat

The revelation of the U.S. probe is the latest in a string of headaches that have soured what should have been a triumphant moment for Glasenberg.

Glencore’s share price has more than quintupled from a collapse in 2015, when a commodity-wide downturn triggered a crisis of confidence in the company. It’s been helped by a series of transactions that burnished Glasenberg’s reputation as a shrewd dealmaker.

And Glencore’s mines, particularly in Congo, which competitors such as Rio Tinto Group and BHP Billiton Ltd. found too difficult to operate in, have given the company pole position in the race to supply metals that are vital to the emerging electric-vehicle market. Yet the African country has also been the source of most of Glencore’s woes.

Last year, Katanga Mining Ltd., a Congolese copper producer owned by Glencore, restated financial statements and announced an investigation by Canadian regulators for its corporate governance and accounting practices. Then in December, Gertler, the Israeli tycoon, was sanctioned by the U.S. Treasury, which alleged he’d engaged in "opaque and corrupt” deals.

Mining Code

Glencore has also been battling the Congolese government over a new mining code that hikes royalties and taxes, as well as dealing with lawsuits in the country from Gecamines, the state mining company, and Gertler.

Last month, it settled a dispute with Gertler by agreeing to resume payments to him, in spite of U.S. sanctions against him. The company argued that the deal was the only way to avoid its assets in Congo being seized.

Glencore’s Congo assets, which include the world’s richest mines for battery material cobalt, represent about a quarter of its overall value, according to analysts at BMO Capital Markets.

It may not be in the U.S. government’s interests to press Glencore to stop payments to Gertler, the BMO analysts said, arguing that if the assets were seized, “then it is possible that more than 30 percent of global cobalt supply could end up in the hands of specific third parties, further concentrating the market.” Chinese companies are already dominant in cobalt processing and have been increasing their ownership of cobalt mines over the past few years.

Rich History

This isn’t the first time Glencore has found itself in Washington’s crosshairs. The company’s founder, the late fugitive Marc Rich, was indicted in 1983 in part for trading oil with sanctioned Iran. Rich received a controversial pardon on former President Bill Clinton’s last day in office in 2001.

That was a decade before Glencore first sold shares to the public, which made any future corporate missteps much more costly.

“The fine is a tiny part of the damage this sort of thing does to a company,” said Karina Litvack, former head of sustainable investment at F&C Asset Management. “Some of that damage can be quantified, but much of it cannot and this unquantifiable cost often dwarfs what can be easily measured.”

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Glencore announces $1 bn share buyback days after probe

By Nicholas Larkin and Thomas Biesheuvel

Bloomberg News

5 July 2018

Glencore Plc will buy back as much as $1 billion of its shares, a move that may soothe investor concerns after the world’s top commodity trader was hit by a U.S. Department of Justice probe earlier this week.

The buyback program will start Thursday and last through year-end, the Swiss miner and trader said in a statement. Glencore shares rose as much as 4.7 percent, the most since April.
"Analysts at Liberum Capital Ltd. said Wednesday that Glencore may use a share buyback program to bolster investor confidence, adding that the 8.1 percent share slump on Tuesday was probably overdone."

The announcement comes two days after U.S. authorities demanded documents relating to possible corruption and money laundering regarding Glencore’s business in Nigeria, the Democratic Republic of Congo and Venezuela over the past decade. That wiped about $5 billion off Glencore’s market value on Tuesday, marking the latest twist in a tumultuous year for the company.

Glencore has faced challenges linked to its business in the Congo, where it operates giant copper and cobalt mines. It’s also facing the possibility of a bribery investigation by U.K. prosecutors over its work with Israeli billionaire Dan Gertler, a close friend of Congo President Joseph Kabila, people familiar with the matter have said.

The share buyback “does not seem a coincidence and, in our view, suggests management also believes the recent price moves are extreme,” Barclays Plc said Thursday.

Glencore said Tuesday that it’s reviewing the DOJ subpoena and will provide further information as appropriate.

Analysts at Liberum Capital Ltd. said Wednesday that Glencore may use a share buyback program to bolster investor confidence, adding that the 8.1 percent share slump on Tuesday was probably overdone. The stock is down 15 percent this year, while other mining majors such as BHP Billiton Ltd., Rio Tinto Group and Anglo American Plc have gained.

Glencore has been less focused on returning cash to its shareholders than some of its biggest mining peers, instead choosing to hoard funds for potential deals. Thursday’s announcement, along with a bigger than expected 2017 dividend, helps allay those concerns for investors keen to see returns.

“A concern for some investors has been that this cash will never be returned to shareholders and instead be re-channeled into perpetual growth and M&A,” Credit Suisse Group AG said Thursday. “Today’s announcement shows in itself this is not true.”

Glencore surprised the market with a $2.9 billion dividend earlier this year, while larger rival Rio Tinto promised a $5.2 billion payout, with an additional $1 billion share buyback. Anglo American has also increased investor payouts.

The first part of Glencore’s buyback will total as much as 350 million pounds ($463 million) and end by Aug. 7, and any ordinary shares purchased will be held in treasury, it said. Citigroup Inc. will conduct the program.

Glencore traded at 331.70 pence by 9:15 a.m. in London, recouping about half its losses since the probe was announced.

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Glencore hammered as US requests documents in corruption probe

Cecilia Jamasmie

http://www.mining.com/glencore-shares-hammered-as-us-requests-documents-in-corruption-probe/

3 July 2018

Shares in miner and commodities trader Glencore (LON:GLEN) fell the most in two years after it revealed that US authorities had ordered it to hand documents and other records relating to possible corruption and money laundering.

The Swiss firm said Tuesday it had received a subpoena from by the US Department of Justice (DOJ) to produce documents related to the Foreign Corrupt Practices Act and US money laundering statutes. The records relate to the company’s business in Nigeria, the Democratic Republic of Congo and Venezuela from 2007 to the present.

The company's stock dropped as much as 13% in London, wiping more than 5.5 billion pounds ($7.3 billion) off its market value, or about half the $14.8 billion profit Glencore made last year.

The firm, the world’s biggest commodities trader, said it was reviewing the subpoena and would provide further information “in due course as appropriate.”

The subpoena comes just weeks after Glencore settled a legal dispute with Dan Gertler, its former business partner in the DRC, where the firm is the top producer of copper and cobalt.

In May, Britain’s Serious Fraud Office was also said to be preparing a formal bribery probe into the company and its deals with Gertler.

Separately, the US DOJ has been investigating bribery plots involving payments to Venezuela’s state oil firm PDVSA and charged five individuals last year.

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IndustriALL raises Glencore human rights violations with UN Human Rights Council

http://www.industriall-union.org/industriall-raises-glencore-human-rights-violations-with-un-human-rights-council

28 June 2018

IndustriALL Global Union, together with The Europe-Third World Centre (CETIM), submitted an official statement to the UN Human Rights Council (UN HRC) on violations of workers’ human rights by Glencore.

The UN HRC is currently meeting in Geneva, Switzerland. The statement, titled “Workers’ Human Rights Violations by Glencore around the World”, highlights Glencore’s violations of workers’ human rights in numerous countries, and points to Glencore as an example of why a binding UN treaty on multinationals and human rights is needed.

IndustriALL attended the UN HRC meeting on 27 June and delivered an oral statement. On 21 June, IndustriALL spoke at a UN HRC side event on the need for a binding treaty.

Speaking at the UN HRC meeting, IndustriALL campaigns director Adam Lee said:

“Glencore’s systematic practice of violating workers’ human rights around the world with almost total impunity highlights the urgent need for an international legally binding instrument allowing the regulation of transnational corporations′ activities and their impacts on human rights.

“This instrument would also be an essential tool to guarantee access to justice for the victims and the affected communities.”

The statement highlights instances of rights violations by the company. These include health and safety concerns in Bolivia, Colombia, the Democratic Republic of the Congo and Zambia, where Glencore has displayed a pattern of behaviour that shifts the blame for safety violations onto the workforce.

Despite intensifying work pressure and failing to provide adequate training or equipment, Glencore has threatened to close operations if there are accidents.

Glencore’s workforce is increasingly precarious, as the percentage of contractors used by the company grew to 43 per cent last year. In some cases, the company contracts out workers in violation of local laws. Casualized workers have no security, lower pay and worse conditions. They are deterred from joining unions because they risk being replaced if they do.

Glencore actively undermines its workers’ rights to freedom of association by attempting to break unions. In Australia, workers were locked out of the Oaky North mine and placed under surveillance for resisting plans to replace them with contractors.

In Canada, Glencore hired strike breakers during a recent nine-month dispute at the CEZinc refinery, while in Peru, the company fired union members, offering to reinstate them if they left the union.

Because Glencore is Swiss based, the statement also urges the Swiss government to intervene and ensure that the company does not violate human rights in other countries.

IndustriALL assistant general secretary Kemal Özkan said:

“Our affiliates have consistently raised Glencore’s violations of workers’ human rights over the years. However, Glencore has refused meaningful dialogue, forcing us to appeal to the UN HRC.

“We will continue to raise these issues in every forum available to us until Glencore commits to respecting the rights of its workers and working with us resolve the situation.”

The statement can be viewed at: https://www.cetim.ch/wp-content/uploads/Written_statement_CETIM_Glencore_ENG.pdf

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Glencore settles legal row with former partner over Congo royalties

Cecilia Jamasmie

http://www.mining.com/glencore-settles-legal-row-former-partner-congo-royalties/

15 June 2018

Miner and commodities trader Glencore has settled a potentially damaging legal row with former business partner in Democratic Republic of Congo, Dan Gertler, by agreeing to pay royalties he is owed from copper and cobalt mines.

The Swiss firm will make the payments to the Israeli billionaire in euros so that it doesn’t fall foul of US sanctions, which were placed on Gertler last year. With the move, Glencore is trying to keep access to valuable mining assets, lowering the risk of disruption to copper and cobalt supplies.

Glencore said the settlement with Gertler was “the only viable option to avoid the material risk of seizure” of its Mutanda Mining Sarl and Kamoto Copper Co. assets in Congo. The mines are among the richest in copper and cobalt, and a key part of the company’s strategy of profiting from a rising battery metals boom.

The company will pay Gertler 25.6 million euros ($29.7 million) in royalties from the Mutanda copper mine in DRC this year and 16.5 million euros ($19.2 million) each quarter from Kamoto, starting in 2019.

Out of the woods?

According to RBC Capital Markets, Glencore seems to have eliminated the immediate threat to its assets in Congo. “Should there be any residual risks from paying this, in effect,‎ Glencore has managed to move the dispute from Congolese courts to U.S. courts,” analyst Tyler Broda wrote in a report Friday.

The settlement comes after Gertler , a close friend of DRC President Joseph Kabila, launched a lawsuit against Glencore in April, seeking almost $3 billion in damages for unpaid royalties.

Glencore is also facing a legal challenge from Congolese-American businessman and convicted fraudster Charles Brown, one of the founders of Mutanda Mining. He claims he's owed $1 billion in compensation for a 19% stake he previously held in that company, and which was allegedly sold to Glencore in two fraudulent transactions, in 2007 and 2012.

Earlier this year, the company reached a settlement in another dispute involving its Kamoto copper and cobalt mine in Congo. But the company is still at odds with the Congolese government over a new mining code, which increases taxes and royalties on minerals.

Glencore is the world’s No. 1 cobalt miner, while Congo is the largest producer of the key component for batteries that power electric vehicles

Citi, a US investment bank, calculates that Katanga together with Glencore’s Mutanda mine in the DRC will contribute 35,500 tonnes or 27% of global supply during 2018. Those figures are set to rise to 59,300 tonnes and 39% next year.

The Swiss company’s mounting troubles in the DRC could make it sell a stake in one or both of its local copper and cobalt mines, with the most likely candidates seen as Russian or Chinese companies, analysts say.

Bringing in a partner could help Glencore mitigate against future risks in the country, where elections will be held later this year. However, the move would also add another player to the market, just as automakers are trying to lock up cobalt supplies and so meet aggressive plans to increase electric car production.

Regardless, analysts are already predicting a price spike in Cobalt and other battery metals coming years. Citi says prices for cobalt are set to rise by a further 20% over the next two years hitting $100,000 a tonne by the fourth quarter this year, and average $110,000 by 2020.

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Gecamines says Glencore deal to yield billions for Congo state

By William Clowes

Bloomberg News

15 June 2018

A settlement between a Glencore Plc unit and Democratic Republic of Congo’s state-owned Gecamines will contribute billions of dollars of revenue to the government over the next decade, an official said.

Glencore reached a deal with Gecamines on Tuesday to end a legal dispute over Kamoto Copper Co., which is set to become Congo’s largest copper and cobalt mine. Gecamines had sought to shut down KCC after claiming Glencore failed to address a capital shortfall at the subsidiary.

“We think that by the end of this year the company will be able for the first time to pay profit tax and distribute dividends to its shareholders,” Gecamines President Albert Yuma said at a conference in Lubumbashi in southeastern Congo on Thursday. “In the decade to come, the profit taxes expected by the Congolese state should climb to $3.5 billion. And the expected dividends for Gecamines will exceed $2 billion.”

KCC’s total debt stood at $9.2 billion at the end of December, leading to a $4.2 billion shortfall in working capital that Glencore and Katanga were required by Congolese law to resolve. KCC is owned by Katanga Mining Ltd. and Gecamines, which hold 75 percent and 25 percent respectively. Glencore controls 86 percent of Katanga.

Debt-to-Equity

The debt levels mean the state-owned miner has never received dividends from the project and was unlikely to collect a share of profits even as Katanga ramped up production. Gecamines does not contribute to financing the company’s operations.

The agreement struck between the two companies involves a $5.6 billion debt-to-equity swap for Katanga Mining Ltd., effectively reducing KCC’s debt load . The deal also involves a one-time payment of $150 million to Gecamines and waiver of some mining rights, according to a statement released Tuesday.

“After discussions, our partners have accepted to recapitalize the company,” Yuma said. ""Our partners have accepted to recapitalize the company.”"

The Gecamines boss has repeatedly claimed joint ventures with foreign investors are too generous to companies such as Glencore, China Molybdenum Co. and MMG Ltd., saying existing arrangements provided a bad deal for the Treasury and the state miner.

“We wished to engage the re-evaluation of all our partnerships to create conditions of exploitation that are actually profitable for all: the foreign investors, Gecamines and the Congolese state,” Yuma said. “We have started with the most important among them,” he said, referring to KCC.

Gecamines will now initiate discussions with other partners, Yuma said, adding that companies “are seriously mistaken” if they think they can continue to operate unchanged joint ventures.

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Glencore's great game is avoiding US sanctions

Chris Bryant

Bloomberg Opinion

15 June 2018

When the U.S. imposes sanctions on an individual, western multinationals are quick to fall into line. So if a London-listed company decides that – on reflection – they’ll circumvent the ban by paying the person using a different currency, you can bet there’s something interesting going on behind the scenes.

The question is: What?

Glencore Plc’s announcement on Friday that its Democratic Republic of the Congo mining subsidiaries will restart royalty payments to Israeli billionaire Dan Gertler is eyebrow-raising to say the least. The U.S. imposed blocking sanctions on Gertler in December, following allegations of corruption related to the sale of DRC mining assets. He has denied any wrongdoing.

Glencore worked with Gertler for years to tap into Congo’s vast mining resources, but has since cut ties. In the wake of the sanctions designation, it decided it couldn’t honor its remaining contractual obligations to make payments to Gertler-affiliated entities.

Now, Glencore says its subsidiaries will pay Gertler what he’s owed, only the funds will be transferred in euros and U.S. citizens won’t be involved. Analysts at Goldman Sachs Group Inc. estimate that the payments are worth about $130 million annually (when translated back into dollars, of course.)

The commodities giant can afford decent legal advice. Still, it must have received some pretty copper-bottomed assurances from the U.S. that it won’t be punished for dealing with Gertler – as far as it’s possible to get such a guarantee these days. Glencore acknowledges consulting the U.S., but is tight-lipped about what was said.

So why would the U.S. give the company the green light? My guess is that there’s something akin to the Great Game going on here, with the West and China jockeying for influence over mineral resources that will define the 21st century economy. And Glencore has found itself somewhere in the middle of it all.

Congo is home to about half the world’s cobalt reserves as well as plenty of copper, and both are key ingredients of electric car batteries. In the age of Tesla, it just might be the new Saudi Arabia, analysts say

Glencore, which is less squeamish about frontier markets than some of its rivals, has two big copper and cobalt resources in DRC. They are potentially very lucrative but they’ve been the source of quite a few complications lately. If it had persisted in not paying Gertler what he’s owed, there was a chance that a court would try to enforce the claim, raising the risk of asset seizures.

China has been busily gobbling up Congolese mining assets and one can imagine why the U.S. might prefer to cut Glencore some slack rather than let Beijing end up with a stranglehold on electric cars. The company recently agreed to sell about one-third of its forecast cobalt output to China’s GEM Co.

When you’re playing a high-stakes commodities game, I guess it helps to have friends on both sides.

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Glencore goes from crisis to crisis with possible bribery probe

By Tom Wilson

Bloomberg News

21 May 2018

It’s becoming hard to keep track of all of Glencore’s legal battles in the Democratic Republic of Congo.

The world’s biggest commodity trader is facing the possibility of a bribery investigation by British prosecutors over its work with Dan Gertler, an Israeli billionaire and close friend of Congo President Joseph Kabila.

That’s on top of other disputes, like a conflict with Gertler over unpaid royalties. The Swiss trader is also fighting the government over a new mining code that hikes taxes, and is part of a court case with Congo’s state-owned miner Gecamines, which is pushing to dissolve a local operating unit, saying Glencore overburdened it with debt.The Glencore unit says the debt situation is solvable and dissolving the business is premature.

Still, the legal challenges cast a shadow over Glencore and highlight the risks of doing business in the central African nation. In the last 10 years, while other major competitors such as Rio Tinto Group and BHP Billiton Ltd. turned away from Congo’s rich resources, unnerved by the difficulty of operating in the country, Glencore’s chief Ivan Glasenberg invested heavily.

With copper and cobalt prices surging on demand for electric car batteries, Glencore is positioned to reap the rewards, but now is being hemmed in by its legal troubles.

“Glencore’s more questionable transactions in the DRC with Gertler are coming back to haunt them,” said Ben Davis, an analyst at Liberum Capital Ltd. in London. “No doubt this will cause cheer amongst Glencore’s risk-averse peers, who have been berated by Ivan for misguided investment strategies.”

Glencore’s rise to become the world’s biggest cobalt miner and third-largest copper producer is due at least partly to its relationship with Gertler. Ties between Glasenberg and Gertler date back to 2007, and through a series of investments they developed partnerships in the Mutanda and Katanga Mining copper and cobalt operations.

In 2012, Glasenberg said Gertler had been a “supportive” shareholder in Katanga Mining and that his involvement helped attract foreign investment to Congo. At the same time, the relationship brought Glencore unwanted attention as Gertler was caught up in other U.K. and U.S. bribery investigations.

In 2013, the U.K.’s Serious Fraud Office opened an investigation into Gertler’s Congolese deals with the then London-listed Kazakh mining company ENRC Ltd. Three years later, U.S. hedge fund manager Och-Ziff Capital Management LLC, which funded some of Gertler’s operations in Congo, admitted to having conspired to bribe Congolese officials, including Kabila, with the help of an unidentified Israeli businessman.

Gertler wasn’t charged, but Glencore cut ties shortly after the Och-Ziff settlement, buying out his stakes in their joint ventures in February 2017. Now with the new prospect of a bribery probe, Glencore’s Gertler problem isn’t going away.

"Any investigation, if it does proceed, will potentially take years,” Tyler Broda, an analyst at RBC Capital Markets, said in a note.

The SFO’s probe into ENRC’s involvement with Gertler is still ongoing after six years. Both have consistently denied any wrongdoing and no charges have been brought.

Since Glencore is based in Switzerland, the SFO will have to first show it has jurisdiction because the company’s shares are traded in London. Any final decision on whether to proceed with a formal probe will be up to a committee of SFO senior staff, including interim director Mark Thompson.

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Glencore drops as British regulators looming probe adds to Congo issues

Cecilia Jamasmie

http://www.mining.com/glencore-drops-british-regulators-looming-probe-adds-congo-issues/

18 May 2018

Glencore’s copper operations in the Democratic Republic of Congo will soon be the target of British regulators, which are planning to open a formal bribery investigation into the company and its deals Dan Gertler, an Israeli mining tycoon implicated in the payment of bribes to the country’s leader Joseph Kabila.

An investigation by Britain’s Serious Fraud Office (SFO) “would represent a real breakthrough in the fight to keep London-listed corporations accountable for the business they do overseas," Peter Jones from advocacy group Global Witness told Bloomberg, which broke the news. "If an investigation is launched, Glencore’s management is going to have to explain the opaque deals it struck with Gertler which cost the Congolese people over half a billion dollars in potential revenues."

Gertler, a close friend of DRC President Joseph Kabila, has denied wrongdoing, and even told the Financial Times last year that his efforts to bring billions of dollars in investment to the DRC deserved a Nobel Prize.

Instead of a trophy, he received sanctions from US regulators, who said the billionaire had used his friendship with Kabila to corruptly build his fortune. His assets included previously owned stakes in Glencore’s two key projects in the resource-rich country, before the miner and commodities trader bought him out for $960 million in 2017.

The mining and oil magnate has also been the target of a previous British bribery probe as well as an investigation by Canada's OSC regarding more than $100 million in payments Katanga Mining made to a company owned by Gertler, instead of to Congo's state-run mining company, Gecamines. Glencore later acknowledged the shift in payments, claiming it was done at the request of Gecamines.

Shares in the company dropped about 7% to 370p, their steepest fall in almost two years, following Bloomberg’s report.

In hot water

The news of an imminent SFO probe is the latest problem the world’s biggest commodity trader is facing in the DRC, where it’s the top producer of copper and cobalt.

Gertler recently took its former partner to court, alleging he is owed about $3 billion in damages and unpaid royalties, which Glencore stopped paying after he was sanctioned by the US in December.

Glencore is challenging the government over a new mining code, which increases taxes and royalties, while state-owned miner Gecamines last month accused the Swiss firm of "draining" their Kamoto joint venture of profit and asked a Congolese judge to dissolve the copper-cobalt partnership.

The SFO said it could neither confirm or deny the Bloomberg report, while Glencore declined to comment.

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Glencore is losing billionaire allies to Trump's sanctions

Bloomberg News

http://www.mining.com/web/glencore-losing-billionaire-allies-trumps-sanctions/

12 April 2018

The reach and power of U.S. sanctions are hemming in the world’s largest commodity trader.

In just four months, Glencore Plc chief Ivan Glasenberg has lost two of his closest business allies as President Donald Trump’s aggressive foreign policy hits home, forcing him to cut ties with billionaires Oleg Deripaska and Dan Gertler.

The U.S. actions demonstrate the rising risk from international sanctions for companies like Glencore, which has built a global business by cutting deals with powerful people, and leaves the trader without its key men in two major markets.

Glasenberg has quit the board of Deripaska’s United Co. Rusal, and Glencore abandoned plans to swap its stake in the Russian company with another of the oligarch’s businesses, En+ Group Plc. Deripaska is the second recent Glencore associate to face U.S. sanctions. Gertler, the Swiss trader’s former partner in the Democratic Republic of Congo, was singled out by America in December over allegations of corruption.

Watch out

Analysts see limited damage to Glencore’s bottom line from last week’s raft of Russian sanctions — the company’s shares are still off the low earlier this week — but the long-term implications for the trader and the commodity industry could be more significant.

"The message to companies is you have to watch out who you are doing business with," said former U.S. Ambassador Daniel Fried, who coordinated the State Department’s sanctions policy under the administration of Barack Obama."

Glencore, which trades in 100-odd commodities in more than 90 countries, has partly built its business by dealing with people and places that others avoided. While many of its commodity competitors also operate in high-risk jurisdictions, few have a footprint as large as Glencore. Alongside Congo and Russia it mines Kazakh gold and zinc, drills for oil in Chad, and trades petroleum products in Libya. The Swiss commodity giant declined to comment.

The trader had already distanced itself from Gertler before sanctions hit, buying out his stakes in its two Congo mines 10 months earlier in a near $1 billion deal. Yet, it still faces questions on how to manage royalties it’s contracted to pay the Israeli businessman. With respect to Deripaska, Glencore has an 8.75 percent stake in Rusal, which has already lost more than half its value, and a multi billion-dollar deal to buy its metal.

Trouble shooter

More importantly, U.S. action has now forced Glasenberg to review two relationships he spent a decade cultivating and that gave his firm privileged access to decision makers.

In Congo, where Gertler had aided most of Glencore’s engagement with the government, the company now needs to navigate a series of complicated roadblocks without its trusted trouble-shooter.

In Russia, Glencore has other links to the Kremlin and relationships in the local oil and agriculture industries that have yet to be targeted by the U.S. Last year, Glasenberg was even awarded Russia’s Order of Friendship medal by President Vladimir Putin. Deripaska, a Glencore partner since at least 2007, was one of the company’s most important allies.

High risk

Barclays Plc and Sanford C. Bernstein & Co. analysts are among those arguing the financial fallout from U.S. sanctions will be limited. Yet, there’s no doubt that Trump’s aggressive foreign policy adds uncertainty.

"Russia has always been a high risk, high gain business environment," said Fried from Washington. "They took advantage of the high gain, now they are learning about the high risk."

Glencore has a history of taking such risks in its stride. Founder Marc Rich was indicted in 1983 for trading oil with sanctioned Iran and spent years on the FBI’s most wanted listed.

Three decades later, Glasenberg won oil industry admiration with a bold deal to buy an $11 billion stake in Russia’s biggest oil company, Rosneft PJSC, in a transaction that the U.S. reviewed for potential sanctions violations but didn’t block.

What’s different today is that America has refined its financial arsenal and then put it in the hands of a president who favors gut instinct over chess-like maneuvering. The Obama-era 2016 Global Magnitsky Act, which significantly expanded the reach and flexibility of sanctions, allows the U.S. to punish individuals accused of corruption or human rights violations anywhere in the world, without the need to first establish a specific program to target the behavior.

While the prior administration focused on a longer-term policy agenda, Trump seeks to punish those he views as wrongdoers, according to Maximilian Hess, a senior political risk analyst at AKE International.

Gertler, along with 14 others including including a Myanmar general, a former Gambian president and an organized crime boss from Uzbekistan, was sanctioned in December under the Act.

Glencore’s success has been based in part on operating in places "where others are uncomfortable,” said Hess. With changes in the U.S., “their current model is facing serious challenges."

(Written by Tom Wilson and Thomas Biesheuvel)