Rather than lose copper and cobalt mines in the Democratic Republic of Congo, Glencore has decided to resume paying Israeli billionaire Dan Gertler after suspending royalties to him because he was sanctioned by the US for alleged corruption.
The sanctions extended to Gertler’s companies, Ventora and African Horizon Investments, which had filed a freezing order against Glencore subsidiaries Mutanda Mining and Kamoto Copper Company after Glencore’s decision to stop paying royalties from the two companies for fear of falling foul of US sanctions against Gertler.
After seeking legal advice and consulting with authorities in the US and Switzerland, where it is domiciled, the mining company came to the realisation it could lose its subsidiaries and possibly pay Gertler’s legal claims of up to $3bn. Glencore has decided to resume royalty payments to Ventora in euros and not have a US national or institution involved.
Glencore believed that payment in a currency other than dollars of royalties and access premiums to Ventora without the involvement of US persons would appropriately address all applicable sanctions obligations.
Mutanda, Kamoto, Ventora and Africa Horizons “have on this basis agreed to withdraw all pending and threatened litigation between them pursuant to a settlement agreement signed by the parties”, Glencore said, bringing a degree of relief to the market as the threat receded.
“This settlement further reduces near-term risks to the DRC assets and considering the magnitude of the valuation discount between Glencore and peers, we would expect the shares to trade higher on this news,” said RBC Capital Markets analyst Tyler Broda.
“Should there be any residual risks from paying this, in effect, Glencore has managed to move the dispute from Congolese courts to US courts. Considering the entire DRC investment (which we held at about $13bn before recent disputes) was at risk of asset seizures via non-payment, this would seem to be a logical solution,” said Broda.
Goldman Sachs analysts said “based on company estimates, total royalties being paid compute to about €28m/quarter, or about $130m/year, which in our view is not material from Glencore’s perspective. This, coupled with the announcement that it had settled the dispute with Gecamines, should allay investor concerns around the DRC assets being under threat of seizure, in our view,” they said.