Glencore has scrapped a contentious deal to buy out an Israeli billionaire’s company from one of its most important mines.
The FTSE 100 mining and commodity trader dropped an arrangement to acquire the 31 per cent minority stake in the Mutanda mine in the Democratic Republic of Congo from Dan Gertler’s Fleurette Group. The deal would have given Glencore, which owns 69 per cent of the mine, outright control.
Mr Gertler’s original investment in Mutanda was criticised because it was acquired from DRC’s state-owned mining company at a price which, some claimed, was far below estimates of its worth. Mr Gertler was accused of profiting from his close relationship with Joseph Kabila, the country’s president.
Kofi Annan’s Africa Progress Panel said that DRC, the world’s poorest country, lost $1.4 billion through five mining deals with companies controlled by Mr Gertler between 2010 and 2012. Suggestions of impropriety have always been denied by Fleurette and Mr Gertler, who has suggested that his work in the country is worthy of a Nobel prize.
Glencore had an option to buy Mr Gertler’s stake in the mine in two tranches, next year and in 2018.
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At the end of the last financial year, Mr Gertler’s stake was valued at $685 million, although the fall in copper prices since then would have reduced its value. Fleurette claims that it paid $220 million for the stake, although that figure is more than the sum included in the original contract.
A footnote buried in Glencore’s first-half results published on Wednesday revealed that it had cancelled the so-called “put and call” option, without either party paying a fee.
Glencore and Fleurette declined to explain the cancellation. However, a source familiar with the matter said that it reflected a strong working relationship between the two parties.
Since the deal was struck, copper prices have dived and Glencore has come under pressure to reduce its debt.
Fleurette’s Mutanda stake remains highly lucrative because it acquired the royalty stream due to Congo’s state mining company along with the shares. These royalties may have already amounted to $115 million.
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Fleurette’s purchase of the stake from Gecamines, Congo’s state mining company, was good business for Mr Gertler and spectacularly bad for the people of Congo. Even using the most generous acquisition price, Gecamines sold the stake in Mutanda at a level that valued the mine at less than half of the implied valuation when Glencore bought a stake from a separate partner about a year later.
A spokesman for Global Witness, the anti-corruption campaign group, said: “Global Witness is concerned that Gertler may have obtained his assets through corrupt means.”
This is strongly denied by Mr Gertler, the grandson of the founder of Israel’s diamond exchange. He ventured to DRC in the late 1990s when the country was in the midst of a war with rebels and befriended Joseph Kabila, who was the son of Laurent Kabila, the president.