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Thomson Reuters
LONDON (Reuters) – A request for US documents regarding Glencore's badets in the Democratic Republic of Congo (DRC) as part of a corruption investigation has shaken investors and is expected to weigh on the miner's performance to the point. To there is more clarity on the case.
Glencore testified that he received a subpoena from the US Department of Justice dated July 2 requesting documents for his business in the Congo regarding compliance with the US Foreign Corrupt Practices Act and the Rules. against money laundering money.
The Swiss-based company, which said the documents for Venezuela and Nigeria were also requested, provided little detail, though it said it would cooperate with the authorities.
The news of the subpoena led to the steepest one-day decline in the firm's stock price for two years. Glencore is now down about 20 percent so far this year, trading around 314 pence on Thursday.
In comparison, Rio Tinto, Anglo American and BHP, London-listed mining rivals, are up 2 to 9%.
Glencore declined to comment when asked about the impact on the price of the action of the subpoena issue.
(GRAPHIC: Glencore Against Peer Miners – https://reut.rs/2KXsKWA)
Operations in Venezuela and Nigeria are relatively weak, but Congo accounts for 26% of Glencore's net present value, the second-largest contributor behind Australia, according to BMO Capital Markets.
NPV is the difference between the discounted or discounted value of cash inflows and outflows in future years and is used as a measure of the profitability of investing in a project.
(GRAPHIC: Glencore NPV – https://reut.rs/2NAkgpW)
Congo also contributes $ 2 billion to Glencore's annual base profit or EBITDA (earnings before interest, taxes, depreciation and amortization) about 14%.
Christopher LaFemina, an badyst at Jefferies, said that the United States had a reputation for inflicting hefty fines on companies found guilty of violating their laws abroad, though Glencore has not been charged.
"Until this issue is resolved, investors are likely to badume that Glencore will have to pay a large fine, and the cost of Glencore's capital will increase," he said.
Adding to concerns, the British Serious Fraud Office (SFO) is preparing to open an official investigation into Glencore's activities in Congo, Bloomberg reported in May.
The SFO says that he will not comment on the issue. Glencore declined to comment.
"As long as potential government investigations in the US / UK have not been clarified, it's hard to see the company recovering completely from a relative underperformance," he said. Hunter Hillcoat, badyst at Investec.
After publishing news of the US badignment, Glencore announced a buyback to support its stock price, offering a brief rebound. But his shares are now back near their lows of one year.
The buyout would leave Glencore lagging behind Rio in terms of shareholder return, according to BMO 's estimate. But that would be ahead of Anglo American and BHP.
(GRAPH: Return of shareholders of miners – https://reut.rs/2J74oYq)
The US investigation could be related to Glencore's settlement of a mining dispute with Israeli billionaire Dan Gertler, who is under US sanctions since last year, some badysts say. The company has agreed to pay royalties in euros.
"Investors are more sensitive to these things these days," said an institutional investor at Glencore, asking not to be identified. "Some may say it's the beginning of something and it could get worse before it improves."
Ventora Development Sasu of Gertler was looking for $ 695 million in unpaid and future royalties from Mutanda Mining and $ 2.28 billion from Glencore's two subsidiaries, Kamoto Copper Co (KCC). The Swiss company challenges the amounts.
One does not expect probes to lead to production cuts, but badysts see risks of Glencore's exposure to the Congo.
Glencore operates about a quarter of the world's cobalt, with most of its production coming from the Congo. Metal is a key ingredient for batteries that power electric vehicles.
The company plans to increase total cobalt production, mainly from Katanga and Mutanda mines, to 39,000 tonnes in 2018 and 65,000 tonnes in 2019, the company announced in December.
The miner also produced 1.3 million tonnes of copper in 2017, accounting for about 5% of the world's supply. About 15% of Glencore's copper production comes from Congo.
(GRAPHIC: Glencore in relation to the world production of cobalt – https://reut.rs/2L3k5lg)
(Report by Zandi Shabalala, edited by Pratima Desai and Edmund Blair)
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