Glencore to make non-dollar payments to avoid asset seizures in DRC

Glencore, along with Katanga Mining, said on Friday that it has determined that its “only viable option” to avoid the material risk of seizure of its assets under Democratic Republic of the Congo court orders would be for its subsidiaries Mutanda and KCC to pay relevant royalties as and when they become due to Ventora in non-US dollars, without involving US persons, in order to discharge their obligations under the terms of the pre-existing contracts.

The FTSE 100 firm said Mutanda, KCC, Ventora and AHIL had on that basis agreed to withdraw all pending and threatened litigation between them pursuant to a settlement agreement signed by the parties.

On 27 April, Glencore reported freezing orders filed against Mutanda Mining and Kamoto Copper Company (KCC) by Ventora Development, a company affiliated with Dan Gertler.

Glencore said it had “carefully considered” its legal and commercial options in connection with its dispute with Ventora and Africa Horizons Investments Limited (AHIL), also a company affiliated with Gertler, and its obligations to its various stakeholders, including its shareholders, customers and the communities in which it operates in the DRC.

“Glencore believes that payment in non-US dollars of royalties and access premiums to Ventora without the involvement of US persons would appropriately address all applicable sanctions obligations,” its board said in its statement.

The company described itself as a “substantial investor and partner” in the country, adding that it was committed to sustainable mining, creating employment and supporting local businesses, providing substantial revenues to local and national government and making voluntary contributions to improve living standards in the communities in which it operates.

“On 27 April 2018, Ventora served freezing orders in the DRC against Mutanda and KCC for approximately $695m and $2.28bn, respectively,” Glencore explained.

It said Ventora had alleged that Mutanda breached an agreement with it pursuant to which Mutanda was required to make royalty payments to Ventora.

Ventora asserted that if its claim was upheld, it would be entitled to damages of approximately $695m, which it alleged was the value of the future royalties due to it under the agreement.

“Ventora alleged that KCC had breached an agreement between KCC, La Générale des Carrières et des Mines (Gécamines) and AHIL pursuant to which it alleged KCC was required to make royalty payments to Ventora,” the company further explained.

“Ventora asserted that if its claim was upheld it would be entitled to damages of approximately $2.29bn, which it alleged was the value of the future royalties due to it under the agreement.”

On 28 April, Ventora obtained from the Kolwezi High Court injunctions to pay against KCC and Mutanda in the amount of $2.86bn - an increase of $572m for alleged legal fees - and $869 million - an increase of $174m for alleged legal fees - respectively, which, if they had become final would have potentially enabled Ventora to permanently seize assets at the Mutanda and KCC mines up the to the amounts of these injunctions.

“These assets seizures would have severely disrupted the mines and would have enabled Ventora to seize all productive assets at the mines, including mining titles.”

In December last year, the United States government designated Dan Gertler and affiliated companies as ‘specially designated nationals’ (SDNs), thereby imposing blocking sanctions on them and companies, such as Ventora and AHIL, owned 50% or more by them.

KCC and Mutanda are party to agreements with Ventora and AHIL which were concluded prior to the designation of Gertler as a SDN when the Gertler-affiliated entities acquired these rights from Gécamines.

“The agreement between Mutanda and Ventora provides for royalties to be calculated at a rate of 2.43% of ‘gross sales’ from the Mutanda mine.”

Glencore said the royalties were payable quarterly, and it estimated that the amount payable by Mutanda would be approximately €10.5m per quarter beginning in July.

“The access premium payments are payable based on the number of tonnes of commercially exploitable reserves at a rate of €24 per ton.

“The access premium payment is subject to a cap of €10,464,379 per year, but no payment is due until 2019 in which event the access premium payment will be capped at €2,685,508.”

Glencore said Mutanda would make a true-up royalty payment to Ventora on the date of the settlement agreement in the amount of approximately €4.6m.

It said the agreement between KCC and AHIL provided for the royalties to be calculated at a rate of 2.5% of ‘net sales’ from the KCC mine, subject to certain deductions, also payable quarterly.

Glencore estimated that the royalties for 2018 would be around €10m per quarter, and then for 2019 approximately €16.5m per quarter.

“KCC made a pre-payment to AHIL in 2015 and there is a balance of approximately €44m outstanding under the prepayment against which current royalties are being off-set,” it explained.

“It is therefore expected that the next royalty payment from KCC will be in 2019.”

AHIL had assigned its right to receive royalties to Ventora, such that Ventora would be the recipient of royalties at both Mutanda and KCC with immediate effect.

The amounts set out had been converted to euros based on prevailing exchange rates, but the final amounts payable in euros would be determined based on the exchanges rates prevailing at the time of payment, Glencore confirmed.