OSC close to settlement with Glencore subsidiary Katanga Mining: sources

Katanga Mining Ltd., a subsidiary of Anglo-Swiss commodities and mining conglomerate Glencore PLC — as well as a key long-serving executive of the parent company — is expected to settle serious allegations levelled by Canada’s largest capital markets regulator.

A settlement deal including millions of dollars in financial penalties could come as early as this week, sources say.

The Ontario Securities Commission has been investigating whether Katanga made materially misleading statements and is also said to have been looking into whether the firm failed to adequately disclose risks pertaining to international bribery, government payment, and anti-corruption laws.

The OSC action would be the first against Katanga and people who are associated with the company, whose shares are traded on the Toronto Stock Exchange. The move is in connection with the company’s activities in the Democratic Republic of Congo that have also drawn scrutiny from a powerful watchdog in the United States. Sources say the investigation has 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 combined financial penalties in the proposed settlement are understood to exceed $20 million.

The most noteworthy name in the settlement is understood to be Glencore’s former head of copper marketing, Aristotelis Mistakidis, a longstanding key lieutenant of the Glencore chief executive, billionaire Ivan Glasenberg. It was revealed this month that Mistakidis would leave Glencore by yearend, 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.

No matter what the stage, settlement discussions are without prejudice, privileged and must be held in strict confidence by all parties

OSC spokesperson Kristin Rose said the regulator doesn’t confirm or comment on settlement discussions.

“No matter what the stage, settlement discussions are without prejudice, privileged and must be held in strict confidence by all parties,” she said.

“As general background not specific to this matter on enforcement process, a settlement agreement must be approved by a Panel at a public hearing. If approved, a copy is then published on our website.”

Charles Watenphul, a spokesperson for Glencore, declined to comment on the OSC matter.

The proposed settlement in the Katanga case is expected to include a number of Katanga executives, former executives, and directors.

A Caterpillar Inc. mining truck drives past an open pit excavation at the Mutanda copper and cobalt mine in Mutanda, Katanga province, Democratic Republic of Congo, on Wednesday, Aug. 1, 2012.

Simon Dawson/Bloomberg

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 entity-specific risks, as this doesn’t fall under specific provisions of the province’s Securities Act. The regulator has broad powers, however, to deal with matters that fall under its “public interest” jurisdiction.

Glencore, the world’s third-largest copper miner, revealed in July that a subsidiary had been subpoenaed by the U.S. Department of Justice to produce documents dating back to 2007 with respect to compliance with rules governing foreign corruption and money laundering. The subpoenas were in connection with business in Nigeria, Congo and Venezuela, Glencore said.

Katanga has also faced scrutiny over its relationship with Israeli billionaire Dan Gertler, who was sanctioned by the U.S. government in December, 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 said at that time.

Gertler has used his close friendship with DRC President Joseph Kabila to act as a middleman for mining asset sales in the DRC

Just a month earlier, in November of 2017, Katanga had revealed 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. Katanga also revealed that its risk disclosure in connection with compliance with international bribery rules was being examined.

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.

After the three Glencore executives stepped down from Katanga’s board last November, Mistakidis’ role at Glencore was scaled back to focus on copper marketing. Then, earlier this month, it was announced that he would leave the company by the end of the year.

Mistakidis joined Glencore’s predecessor company Marc Rich & Co. in 1993. In 2011, it was disclosed that he was one of the top three holders of Glencore stock, with a 6.9 per cent stake valued at US$3.5 billion, based on the price of the firm’s initial public offering. As of 2015, he reportedly still owned a three per cent stake. Glencore’s market capitalization is more than US$42 billion, and Forbes estimates Mistakidis’ current net worth at around US$2 billion.

He was viewed at one time as a potential successor to Glasenberg, 61, who has reportedly indicated plans to retire as Glencore’s CEO sometime in the next three to five years.

Published at Sun, 16 Dec 2018 21:39:32 +0000