Down to the wire

Ivan Glasen­berg’s gam­bles may have caught up with him

Sunday Times - - Business Times - By LUTHO MTONGANA mton­[email protected]­day­times.co.za

● Ivan Glasen­berg’s Glen­core has built a rep­u­ta­tion for risk-tak­ing and a cul­ture of tap­ping into coun­tries that other min­ers would think twice about en­ter­ing.

One source who has in­ter­acted with Glen­core in busi­ness deals in South Africa said Glasen­berg was known to be ag­gres­sive. He said Glasen­berg’s po­lit­i­cal links had given Glen­core the con­fi­dence to be­lieve that the miner could en­ter into any busi­ness deal it wanted to, and in most cases it had in­deed got what it wanted.

A clas­sic demon­stra­tion of Glen­core’s risk-tak­ing cul­ture and po­lit­i­cal links was the Op­ti­mum coal mine case in South Africa. Glen­core was forced to put Op­ti­mum un­der busi­ness res­cue be­cause of Eskom’s re­fusal to in­crease the price of coal sup­plied to its power sta­tions.

The con­tro­versy around Op­ti­mum arose when then min­eral re­sources min­is­ter Mosebenzi Zwane flew to Switzer­land, where Glen­core has its head­quar­ters, to meet Glasen­berg where he helped fa­cil­i­tate the sale of Op­ti­mum to the Gupta-owned Tegeta Re­sources.

Glasen­berg is known to en­ter­tain and do busi­ness with high-level politi­cians such as Zwane and Cyril Ramaphosa, Glen­core’s for­mer BEE part­ner.

How­ever, Glen­core’s high-risk busi­ness cul­ture prac­tised over the past decade or so might have fi­nally caught up with it.

The multi­na­tional min­ing and trad­ing busi­ness might find it­self in­volved in a long and ugly in­ves­ti­ga­tion by the US depart­ment of jus­tice over al­leged bribery, cor­rup­tion and money laun­der­ing in some of the coun­tries where it op­er­ates.

The news that the depart­ment had sub­poe­naed Glen­core for doc­u­ments dat­ing back to 2007 in­volv­ing its busi­nesses in the Demo­cratic Repub­lic of Congo, Nige­ria and Venezuela came as a shock to the mar­ket two weeks ago and led to a 14% drop in the Glen­core share price on the day of the an­nounce­ment.

The sub­poena, which has sparked a lot of ques­tions about the com­pany’s busi­ness deal­ings and has grabbed the mar­ket’s at­ten­tion, has led to Glen­core set­ting up a board com­mit­tee to re­spond to the US probe.

The com­pany said it would co-op­er­ate with the US jus­tice depart­ment.

Glen­core has op­er­a­tions in 50 coun­tries and trades about 90 com­modi­ties across the world. The tran­si­tion from be­ing mainly a trad­ing busi­ness to be­com­ing a min­ing com­pany hap­pened af­ter Glen­core merged with Xs­trata in 2013. Af­ter the merger 80% of the group’s earn­ings came from min­ing.

Of the coun­tries the US jus­tice depart­ment is look­ing into, only the DRC, where Glen­core op­er­ates two cop­per and cobalt mines, makes a sig­nif­i­cant con­tri­bu­tion to the group’s earn­ings.

Nige­ria and Venezuela, from where it ships oil, are mar­ginal to the group. Glen­core ships about 7 mil­lion bar­rels of oil a day.

In the DRC, Glen­core ac­counts for more than a quar­ter of the world’s cobalt sup­ply; the DRC it­self pro­duces about 60% of the world’s cobalt. The com­pany en­tered the coun­try in 2007, when it ac­quired its first cop­per mine, fol­lowed by a sec­ond one in 2008. By-prod­ucts of cop­per in­clude cobalt.

Be­cause the US is ask­ing for doc­u­ments dat­ing back to 2007, when Glen­core en­tered the DRC, some in­dus­try pun­dits be­lieve the in­ves­ti­ga­tion, if and when it hap­pens, will be largely about the com­pany’s deal­ings in the Congo.

This may be true, given the com­pany’s deal­ings with Is­raeli bil­lion­aire Dan Gertler, who is close friends with the pres­i­dent of the DRC, Joseph Ka­bila, and had sanc­tions im­posed on him by the US late last year. Gertler as­sisted Glen­core in ac­quir­ing its DRC cop­per op­er­a­tions but Glen­core de­nies this. Gertler con­tin­ued to re­ceive roy­al­ties even af­ter Glen­core had bought him out of the busi­ness in 2017.

This was be­cause in April this year, Gertler took Glen­core to court af­ter the com­pany had ceased to pay him roy­al­ties. He wanted up to $3-bil­lion (R40.05-bil­lion).

Glen­core was forced to pay Gertler his roy­al­ties, but in eu­ros, for fear of its op­er­a­tions be­ing frozen by the courts in the Congo and by the US sanc­tions.

One in­dus­try pun­dit, who re­fused to be named due to com­pany pol­icy, said he was not sorry for Glen­core be­cause it knew the risks it was tak­ing when it went into busi­ness with Gertler. “They are in a dif­fi­cult po­si­tion but it’s a mess of their own mak­ing.” No­body has a clue

How­ever, Peter Ma­jor, an an­a­lyst at Cadiz Cor­po­rate So­lu­tions, said the US could find any­thing wrong with any­one it wanted to and Glen­core was a big com­pany with busi­nesses in a lot of coun­tries, so one could slip up at any time.

“No­body has a clue where this will go,” he said. “It puts a dent on the share price. It’s im­pos­si­bly dif­fi­cult to do busi­ness in those ar­eas [Congo, Nige­ria, Venezuela]. You know they [lo­cal politi­cians] are cor­rupt but you try to deal with them in a trans­par­ent man­ner.”

Global Wit­ness, an NGO that spe­cialises in in­ves­ti­gat­ing and ex­pos­ing cor­rup­tion linked to the ex­ploita­tion of nat­u­ral re­sources, said it had pressed for an in­ves­ti­ga­tion into Glen­core for years, so it was en­cour­ag­ing to see the first steps in in­for­ma­tion-gather­ing be­ing taken.

“The sub­poena is just an in­for­ma­tion­gath­er­ing phase but it is fair to say there have been ques­tions raised about Glen­core’s deal­ings in the DRC and their re­la­tion­ship with Gertler,” Pete Jones of Global Wit­ness said. “We have been say­ing for many years that Glen­core has many ques­tions to an­swer about its deal­ings with Gertler. We can’t ex­plain those deals ad­e­quately.”

What oil is to Saudi Ara­bia, min­ing is to the DRC — the back­bone of the econ­omy, which means the gov­ern­ment is heav­ily re­liant on it when it comes to rev­enue.

There­fore, if the min­ing sec­tor is rife with cor­rup­tion, it has a huge neg­a­tive ef­fect on the econ­omy.

This is espe­cially prob­lem­atic for a coun­try such as the DRC, which has high lev­els of poverty.

An­a­lysts spec­u­late that if, af­ter years of in­ves­ti­ga­tion, there is found to have been any wrong­do­ing by Glen­core, the com­pany may be fined mil­lions. Even worse, some ex­ec­u­tives or board mem­bers may face crim­i­nal charges.

Glasen­berg and Glen­core were not avail­able for com­ment.

Pic­ture: Getty Im­ages

Glen­core chief ex­ec­u­tive of­fi­cer Ivan Glasen­berg

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