Glencore Resolves Congo Dispute With $5.6 Billion Debt Deal

KINSHASA (Capital Markets in Africa) – Glencore Plc reached a deal with the Democratic Republic of Congo’s state mining company to end a legal dispute and save of one of its most important growth projects.

The agreement involves a $5.6 billion debt-to-equity swap for Katanga Mining Ltd., effectively reducing the debt load of the subsidiary which Glencore co-owns with Gecamines. The deal also involves a one-time payment of $150 million to Gecamines and waiver of some mining rights, according to a statement released Tuesday.

The agreement brings an end to legal proceedings brought by Gecamines in April to shut down one of Glencore’s subsidiaries in Congo, Kamoto Copper Co., and overcomes the first of a series of hurdles for Glencore in the central African country. Glencore is facing two other court cases in Congo and a new mining code that has hiked taxes.

The announcement “finally provides some positive news for Glencore in the DRC following what seemed to be a persistently deteriorating environment,” Tyler Broda, an analyst at RBC Capital Markets, said in a note. The resolution provides some clarity on the future of the mine and “lowers the probability of any worst-case outcomes,” he said.

Glencore shares climbed 1.8 percent to 390.50 pence as of 9:03 a.m. in London. Katanga’s shares rose 26 percent in Toronto on Tuesday.

Debt Levels
The dispute with Gecamines stemmed from the Congo miner’s claim that Glencore failed to address a capital shortfall at KCC for more than a decade. KCC’s total debt stood at $9.2 billion at the end of December — more than six times Katanga’s market value — leading to a $4.2 billion shortfall in working capital that Glencore and Katanga were required by Congolese law to resolve.

The debt levels mean the state-owned miner has never received dividends from the project and was unlikely to collect a share of profits even as Katanga ramped up production. Gecamines owns a quarter of KCC, though it doesn’t contribute to investment costs, which have been wholly funded by Katanga.

The agreement announced Tuesday will also reduce the interest rate Katanga is allowed to charge KCC on the $3.5 billion of debt that remains. In addition, Katanga agreed to pay Gecamines a further $41 million to pay for historic exploration costs incurred by the state miner. The deal is expected to close in the next two weeks, Katanga said.

KCC resumed production in December after a two-year hiatus during which it invested in new processing facilities. It expects to produce as much as 300,000 metric tons of copper and 34,000 tons of cobalt in 2019. That would make it Congo’s biggest copper mine and the world’s largest producer of cobalt.

Source: Bloomberg Business News