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#ParadisePapers: Glencore defends loan to Israeli who helped seal DRC mine deal

Nov 06 2017 05:45
Matthew le Cordeur

Cape Town – Glencore on Sunday defended making a loan to a firm owned by Daniel Gertler, an Israeli businessman that helped Glencore strike a deal with the Democratic Republic of Congo (DRC) over its massive Katanga mine.

Glencore on Sunday provided Fin24 with an explanation of the loan to Lora (which it said was fully repaid), as well as its Katanga joint venture with a DRC-owned mining firm.

Glencore confirmed that Gertler was tasked by Katanga (which it now has a majority stake in) to negotiate on Katanga's behalf with the DRC regarding the mine, but said Gertler’s loan came with commercial terms and was negotiated at arm’s length.

This follows leaked files from the Glencore Room in offshore law firm Appleby in Bermuda, which revealed that Glencore provided a $45m loan to Gertler-controlled Lora Enterprises, which it believes was “contingent on the DRC authorities agreeing to a deal with Katanga”.

The leak was published as part of the Sunday launch of the Paradise Papers by the International Consortium of Investigative Journalists (ICIJ).

The Paradise Papers is the result of the ICIJ’s second major global investigation – following the Panama Papers - into the offshore activities of some of the world’s most powerful people and companies.

“The leaked files provide the most detailed evidence yet of the behind-the-scenes lobbying and the money flows that helped Katanga, in which Glencore was just a shareholder at the time, acquire mining licenses,” the ICIJ reported on its site.

“The documents reveal that if Gertler failed to get that contract amended, Glencore could have demanded immediate repayment of the $45m, loan,” Elisabeth Caesens, an expert in Congolese mining deals who reviewed the leaked documents, told the ICIJ.

“In doing so, Glencore disregarded the many red flags Mr Gertler’s connections and track record should have raised and exposed itself to the risk of non-compliance with anti-corruption rules,” said Caesens.

Lawyers for Gertler told ICIJ that the “Lora loan agreement reflects appropriate terms negotiated on an arm’s length basis”. Glencore made a similar disclosure to Fin24.

Glencore told Fin24 that the Katanga board resolved in June 2008 to mandate Gertler, who had a significant interest in Katanga, to negotiate with the DRC authorities on the basis of the February 2008 agreement.

“In February 2009, Glencore Finance (Bermuda) Ltd made a loan to Lora Enterprises Limited (Lora), an entity affiliated with Mr Gertler, which was effected through a transfer of a participation in the convertible loan facility, which Glencore had provided to Katanga,” it said.

“The loan to Lora was made on commercial terms negotiated at arm’s length. The loan benefited from an appropriate security package (including a pledge over the associated Katanga shares) in respect of which filings were made with relevant registrars. The loan was fully repaid by Lora in 2010.”

Full statement by Glencore on Sunday:

"In June 2007, Glencore acquired an interest in Nikanor Plc (Nikanor). Nikanor was a publicly listed company on the Alternative Investment Market (AIM) in London.  

Glencore’s shareholding in Nikanor prior to the merger with Katanga Mining Limited (Katanga) was an equity interest of 13.88%.

In January 2008, Nikanor and Katanga merged. The merger resulted in Glencore’s 13.88% equity stake in Nikanor being converted into an 8.52% stake in the combined group.

The main operating company of Nikanor in the Democratic Republic of Congo (DRC) was DRC Copper and Cobalt Project (DCP) and the main operating company of Katanga was Kamoto Copper Company (KCC). Gécamines, the state owned mining company, owned 25% in KCC and DCP.

At the time of the merger, DCP owned various exploitation permits and mining rights in the DRC which had been transferred to DCP in February 2006. KCC was created in 2005 and leased exploitation permits and mining rights from Gécamines pursuant to a joint venture agreement concluded in February 2004.

Joint venture agreement

In late 2007, Katanga commenced negotiations with Gécamines, the state owned mining company, regarding consolidating DCP into the KCC joint venture.  

In February 2008, Katanga reached an agreement with Gécamines regarding the transfer of certain exploitation permits and mining rights from Gécamines to KCC, a subsidiary of Katanga. The February 2008 agreement provided for the payment of a Pas De Porte (access premium) to Gécamines which was to be calculated based on the reserves of copper of KCC identified in a feasibility study.

Katanga announced in February 2008 that the amount payable pursuant to the agreed principle was approximately $135m. Katanga also agreed to release significant copper and cobalt reserves to Gécamines with an estimated value of $825m. Gécamines agreed to contribute replacement reserves or to pay compensation to Katanga if it was unable to replace such reserves.

Katanga thereafter commenced negotiations with Gécamines to implement the February 2008 agreement. The Katanga board resolved in June 2008 to mandate Mr Gertler, who had a significant interest in Katanga, to negotiate with the DRC authorities on the basis of the February 2008 agreement.

In the course of negotiations, Gécamines and Katanga debated the extent of the reserves at KCC which were to be taken into account in calculating the Pas De Porte pursuant to the February 2008 agreement.

During the negotiations, Gécamines put forward various positions regarding the Pas De Porte it believed was payable by KCC, including amounts of $585m and $200m.  

Katanga successfully maintained its position that the sum it had previously announced was essentially correct and reflected the principle agreed in February 2008 before Mr Gertler was mandated which was that the Pas de Porte should only apply to the exploitation permits and mining rights that were actually transferred to KCC.

In July 2009, a joint venture agreement was concluded between Katanga and Gécamines which provided for the payment of a Pas De Porte of $140m.

Financing

In November 2007 Glencore granted a convertible loan of $150m to Katanga. In January 2009, during the financial crisis, Glencore agreed to increase the amount of the convertible loan to $265m.

In February 2009, Glencore Finance (Bermuda) Ltd made a loan to Lora Enterprises Limited (Lora), an entity affiliated with Mr Gertler, which was effected through a transfer of a participation in the convertible loan facility which Glencore had provided to Katanga.

The loan to Lora was made on commercial terms negotiated at arm’s length.  

The loan benefited from an appropriate security package (including a pledge over the associated Katanga shares) in respect of which filings were made with relevant registrars. The loan was fully repaid by Lora in 2010.

In May 2009, Katanga announced a $250m rights issue in which Glencore participated.  

In June 2009, Glencore converted its convertible loan in Katanga and acquired a controlling interest in Katanga.

Following the conversion of the convertible loan and the Katanga rights issue which completed in July 2009, Glencore held approximately 77.9% of Katanga."

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