Glencore to resume DRC royalty payments to Gertler, ending legal dispute

Global trader Glencore plans to resume royalty payments to a former business partner in the Democratic Republic of Congo (DRC), ending a legal dispute that could have resulted in severe disruption to its copper and cobalt mining operations.

The company will make the payments because it is seen as the only viable way to avoid the material risk of the seizure of its assets, which comprise Mutanda Mining Sarl and Kamoto Copper Co SA (KCC), under DRC court orders.

The payments were halted earlier after Dan Gertler was named a specially designated national in December by the United States government, and sanctions were imposed against him and his businesses.

The payments to Gertler will be made in euros without involving US persons, in order to avoid breaching the US sanctions, and all involved parties have agreed to withdraw all pending and threatened litigation between them.

On April 27, Glencore said that its former DRC partner Ventora Development Sasu, a company associated with Gertler, was suing it for $2.28 billion in royalties unpaid by KCC.

Glencore has a tripartite royalty agreement between KCC, state-run miner Gécamines - Katanga’s joint-venture partner in the DRC - and Africa Horizons Investment Ltd (AHIL), a company also associated with Gertler.

Ventora also said in April that the value of future royalty payments owed to it by Mutanda was around $695 million.

If Ventora’s attempt to permanently seize Glencore’s assets had been successful, it would have “severely disrupted the mines and would have enabled Ventora to seize all productive assets at the mines, including mining titles,” Glencore said.

Glencore estimates that it will owe around €10.5 million per quarter for Mutanda starting in July, with access premium payments of as much as €10.4 million per year and a smaller first payment due in 2019. Mutanda will make a true-up royalty payment to Ventora on the date of the settlement agreement of around €4.6 million.

For KCC, Glencore estimates that the royalties for 2018 will be around €10 million per quarter and then for 2019 approximately €16.5 million per quarter.

KCC made a pre-payment to AHIL in 2015 and there is a balance of about €44 million outstanding under the pre-payment, against which current royalties are being offset. Glencore expects that the next royalty payment from KCC will be made in 2019.

The settlement comes amid continuing concern about the sustainability of supplies of the raw materials, which are key in making lithium-ion batteries. Cobalt demand has soared following an expected boom in sales of electric vehicles, with prices hitting near-decade highs last month.

Metal Bulletin’s benchmark price assessment for the low-grade cobalt price settled at $40.50-41.60 per lb, in-warehouse, on June 15, while the high-grade price settled at $40.60-41.75 per lb.

Katanga produced 525 tonnes of cobalt metal contained in hydroxide in the first quarter of 2018 after restarting operations on schedule in March this year.

Earlier this week, Glencore settled a dispute between Katanga and Gécamines, writing off around $5.6 billion in a debt-for-equity swap while it agreed to resolve the capital deficiency at KCC.
 

Andrea Hotter

ahotter@fastmarkets.com

Published

Andrea Hotter

June 15, 2018

18:30 GMT

New York