DRC breakthrough! Glencore overcomes obstacle in way of cobalt dominance

EDINBURGH — Glencore shareholders can breathe a sigh of relief after the company found a solution for one of its messy legal problems in the Democratic Republic of Congo. Glencore has plans to become the world’s largest cobalt producer, but has been caught up in a string of battles. Its foes range from a former business partner to the DRC government. It also runs the risk of a UK probe in connection with corruption. – Jackie Cameron

By Thulasizwe Sithole*

Glencore has agreed to write off $5.6bn of debt to safeguard a joint venture in the Democratic Republic of Congo, which is set to become the world’s biggest producer of cobalt, a battery material, reports the Financial Times.

The debt-for-equity swap announced on Tuesday will plug a capital shortfall at the Kamoto Copper Company and end a dispute with Gécamines, the DRC’s state-owned mining company, says the London-based newspaper.

Gécamines launched legal action in April to dissolve KCC and take control of its mining licences. It claimed Glencore had failed to reduce billions of dollars of intercompany loans, reducing KCC’s ability to pay dividends, says the FT.

A sign for the Kamoto Copper Co. stands outside Katanga Mining Ltd.’s copper and cobalt mine in Kolwezi, Katanga province, Democratic Republic of Congo. Photographer: Simon Dawson/Bloomberg

The heavy levels of debt carried by mining companies are a heated issue in the DRC, where the government is also seeking greater share of industry profits, notes the news organisation. KCC is one of Glencore’s most important growth assets, expected to produce 300,000 tonnes of copper and 34,000 tonnes of cobalt in 2019.

“It is 75 per cent owned by Katanga Mining, a Glencore subsidiary listed in Canada, and 25 per cent by Gécamines. The agreement announced on Tuesday by Katanga will see KCC’s debt fall from more than $9bn to $3.45bn and the interest rate on the intercompany loans reduced.

“In addition, Katanga has also agreed to make a one-off payment to Gécamines of $150m relating to historical commercial disputes as well as $41m to cover expenses incurred as part of an exploration programme.”

Gécamines will also be freed of an obligation to repay $57m of contractor costs and to replace or provide financial compensation for mineral reserves valued at $285m. In return Gécamines will end its legal action, says the FT,

The newspaper quotes Glencore saying that it is pleased that this matter has now been resolved and looks forward to supporting KCC’s closer partnership with Gécamines as the parties work together to ensure that the joint venture reaches its full potential for the benefit of all stakeholders.

According to the FT, the deal is expected to close in two weeks and solves one of the legal problems facing Glencore in the DRC, which have piled up in recent months.

Headaches for the Glencore team, and which remain, include:

  • A fight with the government of Joseph Kabila over a new mining code that will impose higher royalties and taxes;
  • Glencore’s ex-partner in the DRC, Israeli businessman Dan Gertler, suing the company over unpaid royalties;
  • A former shareholder in another of its DRC mines is seeking billions of dollars in compensation;
  • A possible bribery probe by the UK’s Serious Fraud Office over its ties to Gertler, who was sanctioned by the US in December for “opaque and corrupt mining and oil deals” in DRC.

Deals with Mr Gertler and Gécamines have helped Glencore become the world’s third-largest copper producer and the top supplier of cobalt, which is needed in the lithium-ion batteries that power electric vehicles, notes the FT.