Katanga Mining’s penalties in settlement with watchdog to top $20M, sources say
TORONTO Katanga Mining Ltd., a subsidiary of Anglo-Swiss commodities and mining conglomerate Glencore PLC, is expected to settle serious allegations — including making misleading statements and failing to disclose risks associated with its operations in the Democratic Republic of Congo — at a hearing Tuesday in front of Canada’s largest capital markets regulator.
The combined financial penalties in the proposed settlement are understood to exceed $20 million, and a number of individuals are also expected to settle, including a key long-serving executive of the parent company who sat on Katanga’s board, sources say.
The Ontario Securities Commission had been investigating Katanga for months, including whether the firm, whose shares are traded on the Toronto Stock Exchange, adequately disclosed risks pertaining to international bribery, government payment and anti-corruption laws.
Commission staff disclosed their allegations resulting from the probe in a 33-page document made public on Monday.
The settlement, which must be approved by a panel of commissioners Tuesday, marks the first regulatory move against Katanga and people who are associated with the company. The firm’s activities in the Democratic Republic of Congo have also drawn scrutiny from a powerful watchdog in the United States. Sources say the regulatory probes have involved multiple jurisdictions including Switzerland, the U.S., the United Kingdom and the Democratic Republic of Congo, where Katanga has copper and cobalt operations.
The proposed settlement includes a number of Katanga executives, former executives and directors. Seven were named in the statement of allegations published by the OSC on Monday, including Glencore’s former head of copper trading and marketing Aristotelis Mistakidis, a longstanding key lieutenant of the Glencore chief executive, billionaire Ivan Glasenberg. Also named is current Katanga chief executive Johnny Blizzard.
It was revealed this month that Mistakidis would leave Glencore by year-end, amid growing scrutiny by regulators on the Congo operations.
Mistakidis was a director of Katanga, but he stepped down from the majority-controlled subsidiary’s board a year ago along with two fellow Glencore executives, Liam Gallagher and Tim Henderson, after an internal probe prompted by the OSC investigation unearthed “material weaknesses” in Katanga’s financial controls.
The OSC declined to discuss terms of the negotiated settlement with Katanga. Spokesperson Kristin Rose said the regulator doesn’t comment on settlement discussions.
Charles Watenphul, a spokesperson for Glencore, also declined to comment on the OSC matter.
OSC sanctions can include bans on capital markets activities, such as acting as a director or officer of a publicly traded company, as well as financial penalties for corporations and individuals that can reach into the millions of dollars.
An industry source says the OSC would be entering novel territory with allegations related to inadequacies in disclosing risks related to bribery and corruption, as this doesn’t fall under specific provisions of the province’s Securities Act.
Glencore, the world’s third-largest copper miner, has been under increasing regulatory scrutiny over its operations in the DRC and its relationship with Israeli billionaire Dan Gertler, who was sanctioned by the United States government in December of 2017 in a sweep targeting corruption and human rights abuses.
“Gertler has used his close friendship with DRC (Democratic Republic of Congo) President Joseph Kabila to act as a middleman for mining asset sales in the DRC, requiring some multinational companies to go through Gertler to do business with the Congolese state,” the U.S Department of the Treasury declared in a statement at that time.
In the statement of allegations by OSC staff, which led to the behind-closed-doors negotiated settlement, Katanga is accused of failing to disclose the risks posed by its reliance on Gertler Associates, which the regulators says Katanga paid “to maintain relations with the DRC government (of Joseph Kabila) and for a variety of other services which required interactions with DRC government officials to represent Katanga’s interests.”
Katanga had revealed in November 2017 that it was the subject of an OSC investigation and that the regulator was looking into past accounting as well as the conduct of certain directors and officers of the firm.
In the OSC allegations, the Toronto Stock Exchange-listed miner is also accused of misstating its financial position and the results of its operations.
The internal probe by Katanga’s independent directors, triggered by the OSC investigation, resulted in the company restating consolidated financial statements for fiscal 2015 and 2016, in addition to the management discussion and analysis for the quarters ending March 31 of 2016 and 2017.
In addition to overstating inventories, the internal investigation found that some of the accounting adjustments at Katanga resulted from “senior management and executive directors in the office at that time overriding the company’s control processes.”
The probe also revealed that “certain members of management” had received additional undisclosed compensation from the company’s controlling shareholder, Glencore.
The allegations cover a period from January of 2012 through the end of 2017.
The document also spelled out allegations against three former Katanga directors — senior Glencore executive Mistakidis, Gallagher and Henderson — and four former and current Katanga executives including two former chief financial officers, and a former CEO. These allegations are also expected to be settled through the negotiated agreement.