Business

Glencore to restart royalty payments to sanctioned billionaire

Move is likely to test relationship with US government, investors

Dan Gertler, Israeli mining investor. Photograph: Simon Dawson/Bloomberg

Fri Jun 15 2018 - 07:48

Glencore said it will restart royalty payments to sanctioned Israeli billionaire Dan Gertler in a bold move likely to test the company's relations with the U.S. government and investors.

Glencore, which had cut ties with Gertler after he was sanctioned for alleged corruption, will make the payments in euros using a non-US financial institution, according to a statement on Friday. A spokesman said the company discussed the matter with US and Swiss authorities, but declined to confirm whether the US Treasury had given assurances that it will not pursue secondary sanctions.

The commodity trader has a long history with Gertler as its main partner in the Democratic Republic of Congo, where Glencore owns some of the world's richest copper and cobalt mines. But Mr Gertler, the heir to a diamond fortune, has attracted scrutiny for his friendship with President Joseph Kabila and allegations of bribery in mining asset sales.

US Sanctions

The sanctions prevent US companies from doing business with Mr Gertler and block his access to dollars. Non-US entities, such as Glencore, can deal with Gertler in a different currency if they find a bank willing to process the transactions, though even then they face a risk of secondary sanctions.

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To be sure, Glencore was in a difficult position. It is contractually obliged to pay Mr Gertler production royalties from mines in Congo, where the Israeli billionaire remains a powerful figure. In April, he won a court ruling in Congo to freeze Glencore assets worth almost $3 billion, leading to speculation that he could disrupt and even take over Glencore’s operations in the country. Glencore challenged the ruling in a UK court in May and the parties sought an out of court solution.

The decision to pay the royalties could alarm investors already uncomfortable with the attention generated by Mr Gertler. Glencore bought his stakes in two mines last year but has struggled to shake off the shadow of their shared history, and now the UK’s Serious Fraud Office is said to be considering an investigation.

Glencore’s mines in the Congo are increasingly important to the future of the company and are the world’s biggest producers of cobalt. Congo produces two-thirds of the world’s supply of cobalt, the critical ingredient in batteries needed to power electric vehicles. – Bloomberg

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