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(Bloomberg) -- Glencore Plc’s head of copper and two other executives stepped down as directors of the trader’s Congolese copper and cobalt unit, Katanga Mining Ltd., after an internal review found "material weaknesses" in financial reporting controls at the operation.
Questions about the "appropriateness" of some of Katanga’s accounting practices arose during an investigation by Canada’s Ontario Securities Commission, the company said. The investigation led to an internal review of the firm’s activities, after which Glencore’s head of copper, Aristotelis Mistakidis, and executives Liam Gallagher and Tim Henderson offered to step down, Katanga Mining said in a statement. Katanga’s Chief Financial Officer Jacques Lubbe also resigned.
Billionaire Mistakidis is one of Glencore’s most senior executives, having overseen the firm’s growth to become the world’s third-biggest copper miner and is a longtime key lieutenant to Chief Executive Officer Ivan Glasenberg. He owns the third-largest stake in Glencore of any executive, behind Glasenberg and head of zinc, Daniel Mate.
The resignations, following a recommendation by Katanga’s independent directors to recompose the board, are the latest in a series of headaches for Glencore in the Democratic Republic of Congo. The Swiss commodity giant was forced to respond to renewed questions this month about its operations in Congo after leaked documents known as the Paradise Papers revealed new information about its historic partnership with controversial Israeli billionaire Dan Gertler.
Read more: Glencore’s role in Paradise Papers: What you need to know
The internal review conducted by Katanga’s independent directors and external advisers found that the company had among other things overstated copper output in 2014 by about 7,900 metric tons and failed to disclose additional compensation paid to named executive officers. In some cases, senior management and executive directors were responsible for "overriding the company’s control processes," it said in a statement.
Glencore has nominated three new directors to the Katanga board, including the group’s CFO Steven Kalmin. It will also strengthen controls across its copper department to enhance its financial, corporate governance and control processes, Glencore said in a statement.
The OSC is investigating, among other things, the accuracy of Katanga’s financial reporting, the adequacy of its corporate governance practices and the conduct of some of its directors and officers, Katanga said. It’s also reviewing the compliance of its disclosures with international bribery, government payment and anti-corruption laws, it said.
Katanga’s disclosure of government-related payments has been questioned before. In March, a London-based advocacy group, Global Witness, said more than $100 million in bonus and royalty payments originally due to state-owned Gecamines were instead paid to a firm controlled by Gertler and that the payments were not clearly described in Katanga’s reporting. In filings between 2013 and 2015, Katanga either said the payments went to Gecamines or didn’t specify the recipients.
Glencore said at the time that it made the payments to Gertler’s Africa Horizons Investments Ltd. at Gecamines’s request, and had complied with all Canadian disclosure obligations.
Glencore owns about 86 percent of Toronto-listed Katanga Mining. It began investing in the business a decade ago through the merger of Katanga and London-listed Nikanor Plc, in which Gertler also held shares. Gertler was a shareholder in Katanga until February, when he sold his 10 percent stake to Glencore for $38 million. The sale was part of an almost $1 billion dollar deal, through which Glencore ended its decade-long partnership with Gertler in Congo.
Katanga will be one of Glencore’s biggest mines when it restarts production. It suspended mining in 2015 to invest in new processing facilities, but will produce as much as 300,000 tons of copper and 20,000 tons of cobalt a year from the unit by 2019.
Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.
(Updates with details on head of copper from third paragraph.)
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