Monday, November 26, 2018

Cobalt: "Trouble in the Congo: The Misadventures of Glencore "

A major piece from Bloomberg Businessweek, November 16:

What a time to own the world’s most valuable cobalt mine, and to have to fight to keep it.
A dozen years ago the future of technology bounced out of a remote corner of Africa on the back of a truck, along with a world of potential trouble. Both, embodied in the same load of rock, landed in the hands of Ivan Glasenberg, chief executive officer of Glencore Plc, the world’s largest middleman for the raw materials that fuel, feed, and underpin civilization. Glasenberg’s obsession was copper, because China’s appetite for it was insatiable, with copper wire electrifying the nation’s rising cities and running through the appliances its factories sold to the West. The metal’s price had quadrupled in less than three years, triggering a global frenzy. Miners blasted it from Chilean mountaintops and dug it from the African earth as fast as they could.

At a processing plant in Zambia, Glencore was buying up all the ore containing copper it could get its hands on when technicians noticed something extraordinary. One trader consistently rolled in with rocks showing levels of purity that were off the charts—not just for copper, but also for the blue metal cobalt. Glencore’s men asked the trader to take them to the source, and Glasenberg joined the contingent that trekked to the site some weeks later. The trader led them up a bumpy track of red earth that crossed into the Democratic Republic of Congo and led to a meadow covered with bluish-purple flowers. Locals dug up rocks by hand and shoveled them into threadbare sacks. The place was called Mutanda. 

In 2007, Glencore bought a large stake in Mutanda, assumed operational control, and fenced off the property. The subsistence miners who were locked out had unwittingly discovered the richest vein of cobalt on earth. Cobalt is essential for the batteries that power electric vehicles and our ubiquitous mobile devices, and Congo produces two-thirds of the world’s supply—it’s the Saudi Arabia of the electric vehicle age, in the words of one analyst. With demand skyrocketing, the price of the metal has tripled since mid-2016, and at one point had quadrupled. Mutanda produces more cobalt than any other mine, and the only one likely to overtake it anytime soon is nearby and also owned by Glencore.

Glasenberg couldn’t have known just how important cobalt would become when he invested in Mutanda, but he did know Congo would yield something special. And he understood that in a country as physically and politically unnavigable as Congo, Glencore would need good relations with its temperamental government. The solution he struck upon served the company well for many years: He teamed up with a brash Israeli diamond trader named Dan Gertler, who’d been forging bonds with Congolese elites for a decade.

Just six months ago, Glasenberg sounded confident that the crowning moment of his journey remained ahead, reminding shareholders of predictions that the world would need to triple cobalt production by 2030 to meet demand. “We’re the best placed of all the large-cap companies to take advantage of this electric vehicle phenomenon,” he said at Glencore’s annual meeting in May. But in July that promise clouded. Glencore announced that the U.S. Department of Justice had subpoenaed documents and other records related to its Congolese investments and other deals, and was examining its compliance with U.S. laws on foreign corruption and money laundering. The U.K.’s Serious Fraud Office is also considering whether to open an investigation, people familiar with the agency’s thinking told Bloomberg Businessweek. These actions do not necessarily mean that the company committed any wrongdoing or that charges will be filed. Glencore and Glasenberg declined to comment for this article.

At the center of it all: a two-decade swath of corruption allegedly cut across Congo by Gertler. Public and confidential records, some of them contained in the Paradise Papers obtained by the German newspaper Süddeutsche Zeitung and shared by the International Consortium of Investigative Journalists, as well as interviews with three dozen sources, including government officials, people who’ve worked on Glencore’s Congolese operations, and mining executives, show the business relationship between Gertler and Glasenberg is deeper than was previously known. It’s becoming apparent that Glasenberg’s ties with Gertler could threaten not only Glencore’s cobalt dreams but also, perhaps, Glasenberg’s career and legacy at the very moment he appears poised to own the future.
A billion years ago, a series of geological events began that would, improbably, concentrate the majority of the planet’s cobalt on one tiny slice of Earth. A stew of cobalt and copper began collecting in a basin between the shifting plates of continental crust that formed southern Africa. As those plates collided, they thrust the deposits upward, forming a metal-rich belt 300 miles long and 150 miles across. The process took hundreds of millions of years.

Cobalt almost always occurs in combination with other metals, and along the part of the belt that fell inside modern-day Congo, it mixed with copper. While even high-quality ore from other parts of the world has copper and cobalt concentrations of less than 1 percent, some portions of the Central African Copperbelt have 10 times that. Select spots yield ore with 25 percent minable metal.
This rich earth became the key to power during the three-decade reign of Mobutu Sese Seko, a totalitarian and kleptocrat in a leopard-skin hat. Billions of dollars generated from copper production paid for soldiers and outlandish extravagances, including an almost two-mile-long runway (long enough to accommodate a Concorde) that was carved out of the jungle near Mobutu’s home village. When a section of the nation’s biggest mine collapsed in 1990, production halted and Mobutu’s cash started running out. Unpaid soldiers mutinied, and Kinshasa, the prim riverside capital, fell into chaos, leaving an opening for rebel leader Laurent-Désiré Kabila to seize power in 1997. His rise came with a pitch to foreign investors. “Come work with us,” one of his lieutenants told the Wall Street Journal that April. “Those who trust us today will have a jump-start.”

Gertler, a wildly ambitious man whose grandfather co-founded Israel’s diamond exchange, heeded the call. Weeks after the regime change, Gertler, then just 23, flew to Kinshasa. He bonded with Kabila’s son, Joseph, who was his age and was running the Congolese army. Within a few years, Gertler had paid $20 million to secure a monopoly on the country’s diamond exports. When a bodyguard assassinated the elder Kabila in 2001, Joseph became president—giving Gertler a direct line to the palace just as global commodity prices were starting a decade-long surge....