DRC’s MoM criticises NGO “secret sales scandal" report
IRJ - June 21 - The mines ministry of the Democratic Republic of Congo (DRC) has hit back at an NGO’s accusation of “secret sales” of copper and cobalt mines in the country, some of which got around straight dealings with state-backed entities opting instead for asset purchases through offshore structures connected to Dan Gertler, a friend of the country's president.
Responding to the long-simmering scandal in an English translation of the original French press statement, the Ministry of Mines (MoM) said: “Allegations made by the NGOs reflect their lack of information on the subject and a double standard...In order to improve its financial capacity, over the past two years [100 per cent state-owned] Gecamines has drawn up a strategic plan which has instituted a programme that includes selling off assets of little interest in order to manage its debt, while at the same time consolidating its position in relation to other assets.”
MoM added that the use of offshore companies is a common commercial practice used by the world’s largest mining companies for asset acquisitions.
Global Witness has for two years carried out an investigation into the dealings, which it claims involve Dan Gertler, a friend of DRC president Joseph Kaliba, FTSE 100 company ENRC and commodities trading giant Glencore among other unknown entities.
The NGO alleges that through his holding company, Fleurette Group, Gertler acquired assets sold off in secret by Congolese state mining companies at a fraction of their commercially estimated values. The immediate buyers of the mining assets were offshore companies which have in some cases sold stakes in the mines for substantial profits.
In a memo to ENRC shareholders that coincided with the company’s annual general meeting, Global Witness pointed to five mining deals which it believes carry with them risks of corruption and paint a larger picture of consistent offshore dealings linked to Gertler. In the acquisition of SMKK copper and cobalt mine, offshore company Emerald Star Enterprises sold the mining asset to ENRC for five times the original value paid, at $75 million, raising the question why ENRC did not purchase the 50 per cent stake directly from Gecamines.
Other acquisitions detailed in the ENRC shareholder memo include the Kolwezi tailings project, Frontier and Lonshi projects, Dezita and the AIM-listed CAMEC. Across the transactions, ENRC paid hundreds of millions of dollars to Gertler’s companies, Global Witness said.
The Kolwezi tailings project and Frontier and Lonshi copper mines were confiscated from Canadian-based miner First Quantum in 2010.
Another project highlighted by Global Witness is the Mutanda mine in Katanga province, 60 per cent owned by Glencore, which the company plans to merge with the nearby Kansuki project in which it holds a 37.5 per cent stake. The combined entity would lift production capacity to 160,000 tonnes per year (t/y) of copper cathodes and 23,000 t/y of cobalt in hydroxide by the first half of 2013. The expansion will require $283.5 million in power grid upgrades.
In May this year, Glencore announced it acquired the majority interest stake in Mutanda for $340 million when it bought the mine's operating company Samref's 24.49 per cent stake, with a further 1 per cent stake bought from Samref's DRC subsidiary Groupe Bazano.
According to Global Witness, in March 2011 Gecamines sold its 20 per cent stake in Mutanda mine below commercial estimates for $120 million to Rowny Assets (an entity associated with Dan Gertler according to Glencore's May 2011 IPO prospectus though its ultimate beneficial owners remain unclear). According to a Golder Associates valuation of Mutanda, the 20 per cent stake had an NPV of $849 million.
Samref, which had issued half its shares to Glencore, declined to exercise its right of refusal to purchase the 20 per cent share recommending that Gecamines sell the share to Rowny Assets.
In response to Global Witness, Glencore stated that money was better spent developing Mutanda and that the Golder valuation did not take into account nearly $1 billion in debt and was outdated considering Glencore's slumped share price since its IPO.
In response to accusations of Gertler's cosy relationship with DRC's president and central role played by him and the Fleurette Group in the transactions, the mines ministry defended a long-term investment record in the DRC through Gertler's companies, which "have always obeyed the required regulations and standards".
"The Fleurette Group has teamed up with other international industrial players to create an investment flow that has been critically important for the development of local industry. The notion that there is something indecent in the fact that foreign investors structure their activities through companies set up in the BVI is a misreading of the practices relating to operations in this sector. The DRC wishes to do business with those who are prepared to share the risks [and] those who want to work with it over the long term for the benefit of the country and the Congolese people," the MoM said in the translated statement.
According to the Fleurette, over the past 15 years, Dan Gertler, through the group of companies, has contributed over $2 billion of investment into the mining sector and an additional $5 billion of indirect investments through its partners, created over 10,000 jobs and together with the Gertler Family Foundation contributed over $150 million in community support and environmental programmes in the country.
Fleurette also took aim at the NGO’s practices: “[Global Witness’] claim to be looking out for the interests of the people of the DRC is hard to believe whilst they are calling for international aid to Congo to be cut, whilst they are funded by current or previous competitors of Fleurette Group and its partners in the DRC, such as Glencore and ENRC, and whilst they continue to ignore, disbelieve or overlook facts which rebut the story they wish to tell.”
Daniel Balint-Kurti, spokesman for Global Witness, denied any funding connection to Fleurette’s competitors and furthermore has repeatedly requested evidence of such connections but received no reply.
The dealings and resulting accusations punctuate the tangled, complicated relationships that exist between mining companies, international financiers and industry watchdog groups as the extractive industry ventures further into frontier jurisdictions with a stigma of endemic corruption.
"Global Witness has posed dozens of questions to the companies that it talks about in its report and we publish their responses on our website...The companies involved must explain the role they have played in these secretive and questionable deals and full light must be shed on the beneficiaries of the offshore companies and their transactions. The Congolese state is getting very little in return for many of its best mines. The profits are going into the hands of unknown people and their international partners,” Balint-Kurti added.
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