Dan Gertler is expected to gain advantages from Tesla’s agreement to buy battery steel at Glencore.
Dan Gertler at the Mutanda copper and cobalt mine in the Democratic Republic of the Congo in August 2012.
Photo: Simon Dawson / Bloomberg
Tesla Inc., the company run by Musk, reached an agreement last month with Glencore Plc to purchase up to 6,000 cobalt a year for use in rechargeable batteries that force its electric vehicles. Glencore, in turn, is required to pay Gertler about 2.5% of its mine sales in the Democratic Republic of the Congo, royalty rights it acquired from state-owned miner Gécamines.
What makes the deal catchy is that Gertler has been blacklisted through the U.S. monetary formula. Since December 2017. Now, it’s maximum to gain advantages from a U.S. company’s bills, even a few million dollars a year, as Tesla’s maximum cobalt This acquisition will come from Glencore’s Congolese mines, according to others close to the issue.
Tesla has said it aims to eliminate cobalt from its batteries to reduce costs. That would also remove reputational hazards associated with sourcing minerals from Congo, including human rights challenges posed by artisanal mining, which provides income for millions but where fatalities and child labor are common. While Glencore assures buyers that no hand-dug cobalt is treated at its mechanized mines, the contract signals that the metal remains key to Tesla’s expansion over the next few years, even at the price of exposing itself to another risk in the central African nation: corruption.
“Buying cobalt from Glencore’s Congo projects doesn’t only raise ethical issues, it even creates legal risks for U.S. companies like Tesla since part of the money paid subsequently goes to a sanctioned entity,” said Elisabeth Caesens, director of Brussels-based transparency group Resource Matters, who has studied the Congolese mining industry for more than a decade. “Has it consulted the U.S. Treasury ahead of signing the deal about any precautions it should take under U.S. law about these payments to Gertler?”
Tesla did not respond to emailed questions, and Glencore and Gertler declined to comment. A Treasury Department spokesman would not talk about Tesla’s contract beyond saying that it “strongly encourages” U.S. corporations to expand a risk-based technique to comply with sanctions.
U.S. corporations cannot do business with sanctioned entities, such as Ventora Development Sasu, the Gertler corporation that receives royalties from Glencore mines in Congo. But Tesla’s contract is with Glencore, which is in Switzerland.
Sanctions experts presented different perspectives on the legal threat to a company in the Tesla situation, and some said the deal is to violate regulations and that the prospect of U.S. enforcement seems remote. Others said they think the Treasury could take a harder line.
In sanctioning Gertler, the United States stated that it had used its friendship with former President Joseph Kabila to act as an intermediary for multinational companies to obtain mining operations in Congo and had benefited from “opaque and corrupt” agreements, claims that Gertler denied. Earlier this month, Bloomberg News reported on currency transactions between a network of corporations and Americans that emerged in Congo largely after the imposition of sanctions and raised questions about whether they have somehow allowed Gertler to continue to do business there. Gertler’s lawyers said he had no business dating, or even didn’t know them, and denied being concerned about sanctions fraud.
Nearly three-quarters of the world’s cobalt comes from Congo, where Glencore owns two of the largest mines, and demand is expected to increase in the coming years, driven by sales of electric vehicles.
Direct agreements between miners and car brands are rare. Glencore, the world’s largest producer of cobalt, has other long-term contracts with non-U.S. corporations in the middle of the battery chain, adding Belgian company Umicore SA, South Korean company Samsung SDI and Chinese company GEM. Some U.S. corporations, adding Apple Inc., get cobalt products from those suppliers, reportedly released last year.
Glencore suspended royalties from Gertler in reaction to the sanctions, but resumed payment in euros in mid-2018 for a lawsuit filed by the entrepreneur. The day Glencore announced its decision, the United States appointed 14 other corporations controlled through Gertler, adding Ventora.
At the time, Glencore said it had discussed the factor with the US and Swiss authorities, but refused to check whether the Treasury had approved the decision. Compliance with contractual obligations with Gertler is the company’s “only viable option to avoid the significant threat of seizure” of its mines, the company said two years ago.
Less than three weeks after Glencore restarted paying royalties to Gertler, the U.S. Justice Department subpoenaed the company to produce documents relating to possible corruption in Congo, Nigeria and Venezuela. Authorities in the U.K. and Switzerland also have opened investigations. Glencore has said the Swiss probe concerns the company’s alleged “failure to have the organizational measures in place to prevent alleged corruption in” Congo, and that it’s cooperating with authorities in all three countries.It is unclear to what extent the investigations may focus on Glencore’s relationship with Gertler.
Gertler’s rights to royalties from two copper and cobalt mines in Congo are his only known remaining financial ties to the world’s biggest commodity trader. After a decade as joint venture partners, Glencore bought out Gertler’s minority stakes in both projects in early 2017.
Of Glencore’s Congolese assets, only one, Kamoto Copper Co., is currently operating. On track to become the world’s largest cobalt mine, it will be the source of most of the metal Tesla buys, at least until Glencore’s second site reopens.
While Gertler’s ownership of the Kamoto royalties was known, how much he paid for them hasn’t previously been reported. Gertler obtained the rights to 2.5% of Kamoto’s net sales in May 2013 in exchange for a $150 million reduction in debt owed to one of his companies by Gecamines, Gertler’s lawyers wrote in a Feb. 3 letter to Bloomberg News in response to questions about the deal.
In January 2015, Gecamines decided not to exercise an option to buy back the rights and instructed Kamoto to assign the royalties permanently to Gertler, according to his lawyers and a copy of the contract. Gecamines, which didn’t reply to questions, still owns 25% of the mine.
Soon after the royalties were transferred, Kamoto advanced $54.7 million to Gertler’s company, and then shut the mine for two years to upgrade equipment. The advances were offset by the end of last year, and Kamoto was supposed to resume royalty payments to Gertler early this year, according to a report published in February by the Glencore subsidiary that controls the mine.
Gertler also benefited from a deal two years ago from a dispute between Glencore and Gécamines that arose after the state miner threatened to dissolve Kamoto over his debt levels. In addition to Glencore’s billions of dollars in loan cancellation, Kamoto waived the repayment of deposits he had transferred to Gécamines by withholding royalties and dividends as of 2019. Since royalties were transferred to Gertler, you have the right to earn them frequently until Kamoto runs out. .
Gertler could reap far more than he paid for the rights. In the lawsuit he initiated in 2018 after Glencore paused the flow of royalties, Gertler said they were worth $2.3 billion – about 15 times what he agreed to buy them for.
Glencore’s goal is for Kamoto to produce an average of 300,000 tons of copper and 30,000 tons of cobalt each year from 2022 until the end of the mine’s life, expected to run for more than 20 years, according to company statements. Last year Kamoto generated $1.39 billion in revenue on output of more than 230,000 tons of copper and 17,000 tons of cobalt.
At last year’s average price, it would charge Tesla about $191 million to buy 6,000 cobalt, which would raise Gertler’s annual royalties in the contract between $4 million and $5 million.
— With assistance by Thomas Biesheuvel