Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
By Tom Wilson
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.
“Any investigation, if it does proceed, will potentially take years,” Tyler Broda, an analyst at RBC Capital Markets, said.
“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.
