Glencore’s Katanga settles with OSC via $22.5mln payment and CEO Blizzard's resignation

Glencore’s Katanga Mining Ltd will pay the Ontario Securities Commission (OSC) around $22.5 million as part of a settlement over the copper-cobalt producer’s historical disclosures.

The payments are C$1.5 million ($1.2 million) in costs along with a voluntary payment of C$28.5 million.

The company, which operates the Kamoto Copper Company in the Democratic Republic of Congo (DRC), has also agreed to a review by an independent consultant into how it reports its production as well as the integration of production statistics into its financial accounting.

Katanga chief executive officer Johnny Blizzard, who has been in the role since February 2015, will now resign, subject to a short transition period until his replacement is appointed.

As part of the settlement, Katanga has agreed that it misstated its financial position and the results of its operations; failed to maintain adequate disclosure controls and procedures and internal controls over financial reporting; and failed to disclose material weaknesses in its internal controls.

The settlement was agreed between the OSC, Katanga and certain of its former executives and directors including Blizzard following a hearing on Tuesday December 18.

The settlement agreement also states that Blizzard and some of its former directors and officers authorized, permitted or acquiesced in non-compliance with Ontario securities laws by Katanga and acted in a manner contrary to the public interest in their roles as company directors and officers.

The OSC allegations were made against Katanga and directors and officers including Blizzard, Jeffrey Best, Matthew Colwill, Liam Gallagher, Tim Henderson, Jacques Lubbe and Telis Mistakidis.

Glencore is “disappointed” by the conduct that has led to the settlement, it said, adding that it was working with Katanga to implement changes to improve its reporting and control functions as well as to address the cultural failures that led to the conduct. The OSC described the culture in its statement of allegations as reflecting the “tone from the top.”

Katanga, listed on the Toronto Stock Exchange, has been the subject of two other reviews into accounting practices at the firm.

The first was an independent review into the copper-cobalt producer’s accounting practices covering the financial years ended December 2014, 2015 and 2016, which ultimately concluded that the company had incorrectly stated various financial line items during those years.

The second was an internal review by the Glencore board that led to the resignation of various Katanga executive directors, including head of copper marketing Mistadikis, who has since said he plans to retire at the end of the year.

Gallagher and Henderson also stepped down from the board, with Mike Ciricillo, Steve Kalmin and Tony Moser named as new directors in their place. Additionally, former Katanga chief financial officers Lubbe and Colwill both resigned.

Ties to Dan Gertler

Separately, Katanga - but not its directors and officers - agreed that it failed to adequately disclose its reliance on individuals and entities associated with Israeli businessman Dan Gertler, including the risk that the end to or deterioration in Katanga's business relationships with Gertler and similar individuals and entities could have an adverse impact on Katanga's business.

Gertler was named a specially designated national in December by the United States government; sanctions were imposed against him and his businesses. Katanga resolved in June a dispute over payments to Gertler that had threatened to disrupt the company’s copper and cobalt operations.

The company also agreed under the terms of the settlement that it failed to describe adequately the heightened risks associated with its operating environment, specifically the elevated risk of public sector corruption in the DRC.

In its statement of allegations, the OSC said that Katanga relied upon and paid Gertler and his associates to maintain relations with the DRC government, as well as for a variety of other services that required interactions with DRC government officials to represent Katanga’s interests.

These services, provided by Gertler and his associates through their offices and employees in the DRC, included legal, tax and customs clearing services, the OSC alleged.

Glencore has subsequently implemented various structural and internal control changes across the copper department to enhance and strengthen its financial processes and procedures.

Katanga said it intends to enter into a management agreement early in 2019 with its 75% shareholder, Glencore International AG, which it said will allow operations to be managed more effectively and enhance the implementation of appropriate governance and controls. State-owned miner Gécamines owns the remaining 25%.

"This settlement enables the Company to continue to move forward with improved governance, compliance and control procedures and to focus on the completion of operational enhancements to its 75%-owned copper and cobalt mine in the DRC with enhanced value for all our stakeholders,” Katanga chairman Hugh Stoyell said.

“The company takes full responsibility for failing to meet its disclosure obligations and to maintain effective internal controls as described in the settlement agreement,” he added. “We believe the actions taken by Katanga's board of directors and management since the conclusion of the company's internal review and restatement of certain financial statements in November 2017 have helped strengthen the company.”

Andrea Hotter

ahotter@fastmarkets.com

Published

Andrea Hotter

December 18, 2018

17:13 GMT

New York