Faced with the risk of losing control of its mines, Glencore bowed to the demands from two entities with close government ties – the state-run mining company Gecamines and Dan Gertler, who is under U.S. sanctions and a friend of President Joseph Kabila.
In two deals announced within days of each other, Glencore agreed to circumvent U.S. sanctions, give up rights to copper reserves, reduce the debt of a local subsidiary and pay a $150 million fee for reasons it didn’t fully explain.
All that shows just how far Glencore is willing to go to keep doing business in Congo, even if it means pushing the boundaries of acceptable behavior for a FTSE 100 Index company.
While other mining companies have left Congo because of its difficult operating climate, Glencore is hitching its future to the country, home to some of the richest copper and cobalt deposits – materials vital for batteries that power the electric cars.
“It’s good news and bad news,” said Hunter Hillcoat, an analyst at Investec in London. “The goods news is they can get on with the operations. The bad news they have to keep paying a sanctioned individual.”
Glencore still has other problems in Congo. It faces new mining regulation and higher taxes, and a possible U.K. bribery investigation related to its dealing with Gertler.
To get around U.S. sanctions, Glencore plans to use euros and non-U.S. banks, but it’s still a gamble. The company has discussed the matter with U.S. authorities, but there’s no certainty that it won’t be penalized.
Then there’s Glencore’s settlement with Gecamines. As part of the deal, the company’s local subsidiary agreed to forgo compensation from Gecamines for some copper reserves. The agreement means royalties from the mine will continue to flow to Gertler after 2019, when they may have otherwise stopped.
The deals have drawn scorn from non-profit advocacy groups, like Global Witness.
“Glencore is in a mess of its own making,” said Peter Jones, a campaign leader at the firm, which has called for greater oversight. “Getting around sanctions and paying Gertler millions for years on end is not an acceptable solution.”
Still, the deals bring clarity to an issue that has weighed on Glencore’s share price. Since Gertler was sanctioned in late December, the shares have gained 2.6%. That’s compared with a rally of 13 percent or more for rivals like BHP Billiton Ltd., Rio Tinto Group and Anglo American Plc.
Glencore has said the deal was unavoidable and the only way to ensure they held on to the assets. It may be right. Gertler has powerful relationships in the country he first visited 20 years ago, and Congolese mines have a history of suddenly changing hands without due process.