July 3, 2018 / 11:55 AM / 4 months ago

Breakingviews - Glencore's Washington risks are starting to add up

The exterior of the U.S. Department of Justice headquarters building in Washington, July 14, 2009. REUTERS/Jonathan Ernst.

SINGAPORE (Reuters Breakingviews) - Glencore’s Washington risks are starting to add up. The commodity giant saw as much as $10 billion wiped off its market value on Tuesday after the U.S. Department of Justice asked for details of anti-corruption compliance in Nigeria, the Democratic Republic of Congo and Venezuela. It’s a separate issue to last month’s settlement with U.S-sanctioned businessman Dan Gertler, but both involve annoying Uncle Sam.

Mining and oil companies often work in unsavoury places: that’s where the good stuff is hidden. The big names have also had their collars felt: Rio Tinto is under investigation in Britain over payments in Guinea, where it had a giant iron ore project. BHP was hit for taking foreign government officials to the 2008 Beijing Olympics. It eventually paid a $25 million fine. 

Glencore investors have cause to hope any resulting hit would be similarly minimal or non-existent. Their company has built a fearsome reputation - and an enviable bottom line - on its ability to navigate the complexities of places like Congo, where it has become a leading producer of copper and cobalt, key ingredients for rechargeable batteries. And thus far Department of Justice is asking for information and paperwork: Glencore is not under investigation. Any probe, if it happens, can take years.

The share drop on Tuesday suggests investors are worried, though. At one point Chief Executive Ivan Glasenberg’s group was down 14 percent, implying a post-tax hit in the region of $900 million on current multiples. That would be in line with the $965 million bribery fine on telecoms firm Telia and its Uzbek subsidiary last year. Money laundering can be costlier still. In 2012, HSBC was fined $1.9 billion by U.S. authorities for allowing itself to be used to launder drug money.

Investors will know U.S. authorities are not inclined to do Glencore any favours. Last month’s settlement with Gertler, a mining linchpin in Congo whom U.S. authorities placed on a list of “specially designated nationals”, will have irked Washington. Stuck between threats to its mines on the ground and U.S. sanctions, Glencore found a way to pay in euros. Even though it consulted with U.S. officials, more companies linked to Gertler were added to the U.S. blacklist the same day. Glencore needs to limit the potential for any more flashpoints.

Breakingviews

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