The US attempted to broker a deal for Swiss trading house Mercuria to acquire copper and cobalt mines in the Democratic Republic of Congo. The transaction was conditional on Washington lifting sanctions against controversial Israeli billionaire Dan Gertler.
The unusual U.S. initiative, led by Amos Hochstein, President Joe Biden’s senior energy adviser, reflects the intensifying competition between the U.S. and China for access to minerals needed for clean energy infrastructure.
Geneva-based Mercuria was among the companies identified by the U.S. State Department as a potential buyer for the mines. It held talks last year with the current owner, Kazakhstan-controlled Eurasian Resources Group, according to four people with knowledge of the discussions.
The U.S. government has rarely intervened so directly in international mining projects, but President Joe Biden’s administration has made access to critical metals a foreign policy priority.
China already has a dominant position in the mining and processing of many metals, especially cobalt. Several Chinese companies have previously shown interest in acquiring ERG’s Congolese mines.
Under one of the proposals discussed last year, Mercuria would have taken over all of ERG’s projects in the country, except the oldest project Boss Mining. But the sides could not agree on the value of the assets, especially given the falling price of cobalt, the people said. Prices have halved in the past two years to $16.5 per pound.
The US still wants to facilitate a sale to a US-friendly buyer and a future deal with Mercuria is not out of the question, two of the people said.
Improved U.S. access to copper and cobalt is considered so important that the Biden administration is proposing to lift its restrictions on Gertler to facilitate a sale.
Gertler was sanctioned by the U.S. Treasury Department in 2017 for alleged corrupt trading in Congo, but retains royalty flows from three mines, including ERG’s Metalkol. U.S. officials say this has made it difficult for U.S.-friendly companies to invest, amid concerns about legal risks.
Under the proposed deal with Gertler, the US would grant him licenses to sell the royalty streams and other assets back to the Congolese government for at least $300 million. It would then restore his access to the US financial system once he divested himself of all his investments in Congo, the FT reported.
Gertler’s proposal has drawn criticism from civil society groups and at least four U.S. lawmakers, who warned in May that lifting restrictions in a deal that would further enrich the billionaire would undermine the credibility of the U.S. sanctions regime.
Anneke Van Woudenberg, executive director of the nonprofit RAID, which has been following the Gertler case, questioned why the U.S. is still considering lifting sanctions if there is no immediate opportunity for a U.S.-friendly company to mine the mines. acquire.
“It is difficult to see who benefits from this sanctions relief deal other than Mr Gertler,” she said.
However, US officials believe that Gertler’s proposal has already resulted in new supply contracts between the ERG mines and Western buyers, who were now less concerned about the risks of handling the projects given evidence of US involvement.
The U.S. State Department, Mercuria, ERG and Gertler, who have consistently denied any wrongdoing, declined to comment.
Founded in 2004 by former Goldman Sachs traders Marco Dunand and Daniel Jaeggi, Mercuria has grown into one of the world’s largest commodity traders. The company is expanding into metals after hiring Kostas Bintas, a star copper trader at rival Trafigura.
Unlike European rivals Glencore, Trafigura, Vitol and Gunvor, Mercuria has never been accused of corruption by the US Department of Justice, making it a more obvious partner for Washington.
To make a future deal to acquire the Congolese mines possible, either for Mercuria or another party, the U.S. government will have to both end Gertler’s involvement in Metalkol and encourage ERG shareholders to sell the assets, one of the people involved said.
Kazakh oligarchs Alexander Mashkevich and Patokh Chodiev each own 20 percent of the Luxembourg-registered ERG; another 20 percent is owned by the heirs of the late oligarch Aliyan Ibragimov. The remaining 40 percent is held by the Kazakh state.
The Kazakh owners have considered selling the Congolese mines several times since 2017, partly because of difficulties in obtaining Western financing for the projects.
That proved difficult because of Gertler’s continued ties to Metalkol and the allegations of corruption made in relation to the takeover of the mines by ERG’s subsidiary ENRC more than a decade ago. Britain’s Serious Fraud Office last year ended a decade-long investigation into the deals.
That decision eased one of the hurdles to a potential transaction but also made it easier for ERG to access new financing, easing some of the financial pressure on the owners to sell, one of the people familiar with the situation said.
Anglo American was also asked by U.S. officials in 2022 to consider acquiring some of ERG’s mines, but discussions with Mercuria did not go as far as those with Mercuria, two people familiar with the discussions said.