MAC: Mines and Communities

DR Congo: When "green energy" mixes with Dirty Dealers

Published by MAC on 2020-07-26
Source: Bloomberg (2020-07-22)

The notorious Israeli mining entrepreneur, Dan Gertler, is responsible for activities, primarily in the DR Congo, that have caused him to be financially blacklisted in the USA.

Now he's set to profit from a new deal in which the equally-mal attested Glencore is centrally implicated.

One of the world's largest "electric vehicles" producer, Tesla run by Elon Musk, has contracted with the Swiss-based, UK-registered, trading company, to purchase 6,000 tonnes of cobalt a year for use in its rechargeable batteries.

Sanctioned Israeli billionaire to gain from Elon Musk cobalt deal

By William Clowes, Franz Wild and Michael Kavanagh, with assistance from
Thomas Biesheuvel

Bloomberg

22 July 2020

Dan Gertler stands to benefit from Tesla’s agreement to buy metal for
batteries from Glencore.

Tesla Inc., the company Musk runs, struck a deal last month with
Glencore Plc to buy as much as 6,000 tons of cobalt annually for use in
the rechargeable batteries that power its electric vehicles. Glencore,
in turn, is obligated to pay Gertler about 2.5% of sales from its mines
in the Democratic Republic of Congo – royalty rights he acquired from
state-owned miner Gecamines.

What makes the arrangement eye-catching is that Gertler has been
blacklisted from the U.S. financial system since December 2017. Now he
stands to indirectly benefit from an American company’s payments, if
only by a few million dollars a year, since most of the cobalt Tesla is
buying will come from Glencore’s Congolese mines, according to people
familiar with the matter.

While Glencore assures buyers that no hand-dug cobalt is treated at
its mechanized mines, the contract signals that the metal remains key to
Tesla’s expansion over the next few years

Tesla has said it aims to eliminate cobalt from its batteries to reduce
costs. That would also remove reputational hazards associated with
sourcing minerals from Congo, including human rights challenges posed by
artisanal mining, which provides income for millions but where
fatalities and child labor are common. While Glencore assures buyers
that no hand-dug cobalt is treated at its mechanized mines, the contract
signals that the metal remains key to Tesla’s expansion over the next
few years, even at the price of exposing itself to another risk in the
central African nation: corruption.

“Buying cobalt from Glencore’s Congo projects doesn’t only raise ethical
issues, it even creates legal risks for U.S. companies like Tesla since
part of the money paid subsequently goes to a sanctioned entity,” said
Elisabeth Caesens, director of Brussels-based transparency group
Resource Matters, who has studied the Congolese mining industry for more
than a decade. “Has it consulted the U.S. Treasury ahead of signing the
deal about any precautions it should take under U.S. law about these
payments to Gertler?”

Tesla didn’t respond to emailed questions, and Glencore and Gertler both
declined to comment. A spokesperson for the Treasury Department wouldn’t
discuss the Tesla contract beyond saying that it “strongly encourages”
U.S. companies to develop a risk-based approach to sanctions compliance.

U.S. companies are barred from doing business with sanctioned entities,
such as Ventora Development Sasu, the Gertler company that receives
royalties from Glencore’s mines in Congo. But Tesla’s contract is with
Glencore, which is based in Switzerland.

Sanctions experts offered differing views of the legal risk for a
company in Tesla’s situation, with some saying the arrangement probably
doesn’t run afoul of the rules and the prospect of a U.S. enforcement
action seems remote. Others said they thought Treasury might take a
harder line.

In sanctioning Gertler, the U.S. said he had used his friendship with
former President Joseph Kabila to act as a middleman for multinational
companies to acquire mining operations in Congo and had profited from
“opaque and corrupt” deals – allegations Gertler has denied. Earlier
this month Bloomberg News reported on financial transactions among a
network of companies and individuals that emerged in Congo largely after
the sanctions were imposed and that raise questions about whether they
somehow enabled Gertler to continue doing business there. Gertler’s
lawyers said he didn’t have any business dealings with, or even know,
most of the individuals and denied he was engaged in sanctions evasion.

Almost three-quarters of the world’s cobalt comes from Congo, where
Glencore owns two of the largest mines, and demand is forecast to surge
in coming years, driven by electric-vehicle sales.

Direct deals between miners and auto manufacturers are rare. Glencore,
the world’s biggest producer of cobalt, has other long-term contracts
with non-U.S. companies in the middle of the battery supply chain,
including Belgium’s Umicore SA, South Korea’s Samsung SDI Co. and
China’s GEM Co. Some U.S. companies, including Apple Inc., source cobalt
products from these suppliers, according to reports published last year.

Glencore halted royalties to Gertler in response to the sanctions but
resumed paying in euros in mid-2018 to resolve a lawsuit filed by the
businessman. On the day Glencore announced its decision, the U.S.
designated an additional 14 companies controlled by Gertler, including
Ventora.

At the time, Glencore said it had discussed the matter with U.S. and
Swiss authorities but declined to confirm whether Treasury approved the
decision. Meeting contractual obligations to Gertler was the company’s
“only viable option to avoid the material risk of seizure” of its mines,
the company said two years ago.

Less than three weeks after Glencore restarted paying royalties to
Gertler, the U.S. Justice Department subpoenaed the company to produce
documents relating to possible corruption in Congo, Nigeria and
Venezuela. Authorities in the U.K. and Switzerland also have opened
investigations. Glencore has said the Swiss probe concerns the company’s
alleged “failure to have the organizational measures in place to prevent
alleged corruption in” Congo, and that it’s cooperating with authorities
in all three countries.It is unclear to what extent the investigations
may focus on Glencore’s relationship with Gertler.

Gertler’s rights to royalties from two copper and cobalt mines in Congo
are his only known remaining financial ties to the world’s biggest
commodity trader. After a decade as joint venture partners, Glencore
bought out Gertler’s minority stakes in both projects in early 2017.

Of Glencore’s Congolese assets, only one, Kamoto Copper Co., is
currently operating. On track to become the world’s largest cobalt mine,
it will be the source of most of the metal Tesla buys, at least until
Glencore’s second site reopens.

Glencore halted royalties to Gertler in response to the sanctions
but resumed paying in euros in mid-2018 to resolve a lawsuit filed by
the businessman

While Gertler’s ownership of the Kamoto royalties was known, how much he
paid for them hasn’t previously been reported. Gertler obtained the
rights to 2.5% of Kamoto’s net sales in May 2013 in exchange for a $150
million reduction in debt owed to one of his companies by Gecamines,
Gertler’s lawyers wrote in a Feb. 3 letter to Bloomberg News in response
to questions about the deal.

In January 2015, Gecamines decided not to exercise an option to buy back
the rights and instructed Kamoto to assign the royalties permanently to
Gertler, according to his lawyers and a copy of the contract. Gecamines,
which didn’t reply to questions, still owns 25% of the mine.

Soon after the royalties were transferred, Kamoto advanced $54.7 million
to Gertler’s company, and then shut the mine for two years to upgrade
equipment. The advances were offset by the end of last year, and Kamoto
was supposed to resume royalty payments to Gertler early this year,
according to a report published in February by the Glencore subsidiary
that controls the mine.

Gertler also benefited from the settlement two years ago of a dispute
between Glencore and Gecamines that arose after the state miner
threatened to dissolve Kamoto over its debt levels. As well as Glencore
writing off billions of dollars of loans, Kamoto waived rights to
compensation for deposits it had ceded to Gecamines by holding back
royalties and dividends starting in 2019. Since the royalties had been
transferred to Gertler, he stands to earn them uninterrupted until
Kamoto is depleted.

Gertler could reap far more than he paid for the rights. In the lawsuit
he initiated in 2018 after Glencore paused the flow of royalties,
Gertler said they were worth $2.3 billion – about 15 times what he
agreed to buy them for.

Glencore’s goal is for Kamoto to produce an average of 300,000 tons of
copper and 30,000 tons of cobalt each year from 2022 until the end of
the mine’s life, expected to run for more than 20 years, according to
company statements. Last year Kamoto generated $1.39 billion in revenue
on output of more than 230,000 tons of copper and 17,000 tons of cobalt.

At the average price over the past year, it would cost Tesla about $191
million to buy 6,000 tons of cobalt, putting Gertler’s annual royalties
from the contract at between $4 million and $5 million.

 

Sanctioned Israeli billionaire to gain from Elon Musk cobalt deal*

By William Clowes, Franz Wild and Michael Kavanagh, with assistance from
Thomas Biesheuvel

Bloomberg News -
https://www.bloomberg.com/news/features/2020-07-22/tesla-congo-cobalt-deal-means-millions-for-sanctioned-dan-gertler

22 July 2020

Dan Gertler stands to benefit from Tesla’s agreement to buy metal for
batteries from Glencore.

Tesla Inc., the company Musk runs, struck a deal last month with
Glencore Plc to buy as much as 6,000 tons of cobalt annually for use in
the rechargeable batteries that power its electric vehicles. Glencore,
in turn, is obligated to pay Gertler about 2.5% of sales from its mines
in the Democratic Republic of Congo – royalty rights he acquired from
state-owned miner Gecamines.

What makes the arrangement eye-catching is that Gertler has been
blacklisted from the U.S. financial system since December 2017. Now he
stands to indirectly benefit from an American company’s payments, if
only by a few million dollars a year, since most of the cobalt Tesla is
buying will come from Glencore’s Congolese mines, according to people
familiar with the matter.

While Glencore assures buyers that no hand-dug cobalt is treated at
its mechanized mines, the contract signals that the metal remains key to
Tesla’s expansion over the next few years

Tesla has said it aims to eliminate cobalt from its batteries to reduce
costs. That would also remove reputational hazards associated with
sourcing minerals from Congo, including human rights challenges posed by
artisanal mining, which provides income for millions but where
fatalities and child labor are common. While Glencore assures buyers
that no hand-dug cobalt is treated at its mechanized mines, the contract
signals that the metal remains key to Tesla’s expansion over the next
few years, even at the price of exposing itself to another risk in the
central African nation: corruption.

“Buying cobalt from Glencore’s Congo projects doesn’t only raise ethical
issues, it even creates legal risks for U.S. companies like Tesla since
part of the money paid subsequently goes to a sanctioned entity,” said
Elisabeth Caesens, director of Brussels-based transparency group
Resource Matters, who has studied the Congolese mining industry for more
than a decade. “Has it consulted the U.S. Treasury ahead of signing the
deal about any precautions it should take under U.S. law about these
payments to Gertler?”

Tesla didn’t respond to emailed questions, and Glencore and Gertler both
declined to comment. A spokesperson for the Treasury Department wouldn’t
discuss the Tesla contract beyond saying that it “strongly encourages”
U.S. companies to develop a risk-based approach to sanctions compliance.

U.S. companies are barred from doing business with sanctioned entities,
such as Ventora Development Sasu, the Gertler company that receives
royalties from Glencore’s mines in Congo. But Tesla’s contract is with
Glencore, which is based in Switzerland.

Sanctions experts offered differing views of the legal risk for a
company in Tesla’s situation, with some saying the arrangement probably
doesn’t run afoul of the rules and the prospect of a U.S. enforcement
action seems remote. Others said they thought Treasury might take a
harder line.

In sanctioning Gertler, the U.S. said he had used his friendship with
former President Joseph Kabila to act as a middleman for multinational
companies to acquire mining operations in Congo and had profited from
“opaque and corrupt” deals – allegations Gertler has denied. Earlier
this month Bloomberg News reported on financial transactions among a
network of companies and individuals that emerged in Congo largely after
the sanctions were imposed and that raise questions about whether they
somehow enabled Gertler to continue doing business there. Gertler’s
lawyers said he didn’t have any business dealings with, or even know,
most of the individuals and denied he was engaged in sanctions evasion.

Almost three-quarters of the world’s cobalt comes from Congo, where
Glencore owns two of the largest mines, and demand is forecast to surge
in coming years, driven by electric-vehicle sales.

Direct deals between miners and auto manufacturers are rare. Glencore,
the world’s biggest producer of cobalt, has other long-term contracts
with non-U.S. companies in the middle of the battery supply chain,
including Belgium’s Umicore SA, South Korea’s Samsung SDI Co. and
China’s GEM Co. Some U.S. companies, including Apple Inc., source cobalt
products from these suppliers, according to reports published last year.

Glencore halted royalties to Gertler in response to the sanctions but
resumed paying in euros in mid-2018 to resolve a lawsuit filed by the
businessman. On the day Glencore announced its decision, the U.S.
designated an additional 14 companies controlled by Gertler, including
Ventora.

At the time, Glencore said it had discussed the matter with U.S. and
Swiss authorities but declined to confirm whether Treasury approved the
decision. Meeting contractual obligations to Gertler was the company’s
“only viable option to avoid the material risk of seizure” of its mines,
the company said two years ago.

Less than three weeks after Glencore restarted paying royalties to
Gertler, the U.S. Justice Department subpoenaed the company to produce
documents relating to possible corruption in Congo, Nigeria and
Venezuela. Authorities in the U.K. and Switzerland also have opened
investigations. Glencore has said the Swiss probe concerns the company’s
alleged “failure to have the organizational measures in place to prevent
alleged corruption in” Congo, and that it’s cooperating with authorities
in all three countries.It is unclear to what extent the investigations
may focus on Glencore’s relationship with Gertler.

Gertler’s rights to royalties from two copper and cobalt mines in Congo
are his only known remaining financial ties to the world’s biggest
commodity trader. After a decade as joint venture partners, Glencore
bought out Gertler’s minority stakes in both projects in early 2017.

Of Glencore’s Congolese assets, only one, Kamoto Copper Co., is
currently operating. On track to become the world’s largest cobalt mine,
it will be the source of most of the metal Tesla buys, at least until
Glencore’s second site reopens.

Glencore halted royalties to Gertler in response to the sanctions
but resumed paying in euros in mid-2018 to resolve a lawsuit filed by
the businessman

While Gertler’s ownership of the Kamoto royalties was known, how much he
paid for them hasn’t previously been reported. Gertler obtained the
rights to 2.5% of Kamoto’s net sales in May 2013 in exchange for a $150
million reduction in debt owed to one of his companies by Gecamines,
Gertler’s lawyers wrote in a Feb. 3 letter to Bloomberg News in response
to questions about the deal.

In January 2015, Gecamines decided not to exercise an option to buy back
the rights and instructed Kamoto to assign the royalties permanently to
Gertler, according to his lawyers and a copy of the contract. Gecamines,
which didn’t reply to questions, still owns 25% of the mine.

Soon after the royalties were transferred, Kamoto advanced $54.7 million
to Gertler’s company, and then shut the mine for two years to upgrade
equipment. The advances were offset by the end of last year, and Kamoto
was supposed to resume royalty payments to Gertler early this year,
according to a report published in February by the Glencore subsidiary
that controls the mine.

Gertler also benefited from the settlement two years ago of a dispute
between Glencore and Gecamines that arose after the state miner
threatened to dissolve Kamoto over its debt levels. As well as Glencore
writing off billions of dollars of loans, Kamoto waived rights to
compensation for deposits it had ceded to Gecamines by holding back
royalties and dividends starting in 2019. Since the royalties had been
transferred to Gertler, he stands to earn them uninterrupted until
Kamoto is depleted.

Gertler could reap far more than he paid for the rights. In the lawsuit
he initiated in 2018 after Glencore paused the flow of royalties,
Gertler said they were worth $2.3 billion – about 15 times what he
agreed to buy them for.

Glencore’s goal is for Kamoto to produce an average of 300,000 tons of
copper and 30,000 tons of cobalt each year from 2022 until the end of
the mine’s life, expected to run for more than 20 years, according to
company statements. Last year Kamoto generated $1.39 billion in revenue
on output of more than 230,000 tons of copper and 17,000 tons of cobalt.

At the average price over the past year, it would cost Tesla about $191
million to buy 6,000 tons of cobalt, putting Gertler’s annual royalties
from the contract at between $4 million and $5 million.

 

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