Glencore faces new legal challenge against Congo cobalt mine

For Glencore [JSE:GLN] in the Democratic Republic of Congo, problems don’t form an orderly queue: they pile up on top of each other.

In the latest example of the commodity giant’s deteriorating relationships in the country, a convicted fraudster has resurrected a legal claim the company considered dead, launching a billion-dollar bid for compensation for a 19% stake he previously held in Mutanda Mining Sarl - the world’s biggest cobalt miner.

The lawsuit, the third court action this year challenging Glencore’s control of its prized Congolese mines, is another headache for the Swiss commodity trader as it faces down the government over a new mining code that hiked taxes.

It raises further questions about Glencore’s ability to hold onto its assets with state-owned miner Gecamines bidding to dissolve their Kamoto Copper joint-venture and former partner Dan Gertler suing for billions of dollars over unpaid royalties.

Congolese-American businessman Charles Brown, one of Mutanda’s founders, says his shares were fraudulently sold to Glencore in two transactions, in 2007 and 2012, and is demanding more than $1bn in compensation and damages. His ultimate aim is to take back his shares, Brown told Bloomberg.

Court hearing

In March, a High Court in Kinshasa ordered Glencore CEO Ivan Glasenberg and Aristotelis Mistakidis, head of the company’s copper trading business, as well as former Mutanda shareholder Alex Hayssam Hamze, to appear at a public hearing on July 2.

They’re accused of using “violence and threats” to compel Brown to sign an agreement relinquishing his claim in May 2012, according to a summons issued by the court.

The summons follows a ruling in January at the Commercial Court in Kolwezi, the capital of Lualaba province where the mine is located, authorising a request from Brown that he be allowed to seize assets equivalent to $843m belonging to Glencore and Mutanda.

Mutanda’s bid to reverse the decision was turned down in March.

Glencore owns 100% of Mutanda, which last year produced 24 000 metric tons of cobalt, more than any other mine, and 192 000 tons of copper. It described Brown’s claims as “vexatious and baseless.”

“Mr. Brown’s allegations have been rejected on numerous occasions by various courts in the DRC,” the company said in an emailed response to questions. “Glencore will vigorously defend itself in the current legal proceedings.”

Seven rejections

Hamze also denies the allegations. Hamze’s now liquidated company, Groupe Bazano, fairly acquired Brown’s stake in Mutanda in 2004 and 2005, before the mine started meaningful operations and before Glencore was a shareholder, according to a lawyer who represented Bazano.

Between 2006 and 2013, Brown’s claims against Bazano and Glencore were rejected by Congolese courts seven times, the lawyer said.

Court filings confirm Brown has repeatedly tried and failed to enforce his claim. In late 2013, he was given a four-year prison sentence for attempted fraud, which was reduced to six months, following charges brought by Hamze.

Brown’s legal team is asking the court in Kinshasa to cancel the contract he signed in 2012 rescinding his claim on the mine and to order Glasenberg, Mistakidis and Hamze to pay $1.14bn in compensation and damages, according to the summons.

“My fight consists not only of the $1.14bn, but above all the recovery of my shares,” Brown said in a written response to questions.

Greater threat

With the relationship between Glencore and the Congolese government under unprecedented strain, Brown’s allegations may pose a greater threat this time around.

Brown’s legal team now includes a former adviser to President Joseph Kabila and a serving lawmaker from the ruling coalition. Norbert Nkulu, a former minister, also was one of Brown’s lawyers until he was appointed by Kabila to the Constitutional Court last month. None of the three represented Brown during previous lawsuits.

“Even if Charles Brown’s claims are bogus, the involvement of politically connected lawyers suggests the risk is real,” said Elisabeth Caesens, an independent analyst who is an expert on Congo’s mining industry. Combined, the legal cases brought by Gecamines, Gertler and Brown contribute to an escalating climate of pressure and uncertainty for Glencore in Congo, she said.

“When it rains in Congo, it really pours,” Caesens said.

Mediated meetings

Justice Minister Alexis Thambwe and Kabila’s chief-of-staff, Nehemie Mwilanya, have also listened to Brown’s claim. Mwilanya wrote to Thambwe in October 2016 asking him to examine how to find a peaceful resolution to the dispute, Thambwe said in an interview.

 The minister urged the parties to come to an amicable agreement and invited Mutanda to mediate meetings with Brown three times last year, which the Glencore subsidiary didn’t attend, Thambwe said.

A Mutanda representative attended one of the meetings, Glencore said.

Brown says he was forced to sign the 2012 agreement against his will less than two weeks before Glencore announced a $340m deal to boost its interest in Mutanda to a majority stake. He received a payment of $6.39m in compensation at the time, according to the summons.

Emery Mukendi Wafwana, a Congolese lawyer accused in the summons of detaining Brown at his Kinshasa offices, said Brown negotiated and signed the agreement freely, before getting the document notarised and identifying the account to receive the funds.

Glencore was not aware of any payment made to Brown in May 2012 but was aware that he and Hamze were negotiating a settlement to end the dispute, the company said.

“No one at Glencore has ever had any contact with Charles Brown prior to these current proceedings,” it said.