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Business Last Updated: Mar 6, 2011 - 12:18:29 PM


Israeli Holds Key to Congo Riches
By Danny Fortson. Sunday Times 6/3/11
Mar 6, 2011 - 12:17:19 PM

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The daily chaos of Kinshasa starts early. Gangs of street children rise with the sun, hammering on the windows of vehicles that brave the potholed roads. Piles of rubbish burn on the corners of shanty towns that long ago encircled the old colonial centre as millions fled a brutal civil war.

Eight years after that conflict officially ended, the capital of the Democratic Republic of Congo still feels like a city on the edge.

Its 8.4m inhabitants face a daily struggle to make ends meet, but their nation is wealthy. Africa’s third-largest country has the continent’s greatest reserves of copper, cobalt and industrial diamonds, as well as big deposits of tin, gold, coltan and uranium.

Western mining companies and resource-hungry Asian states are desperate to get their hands on Congo’s mineral riches, but doing business there entails big risks. It is, according to the World Bank, one of the most corrupt countries on the planet.

Yet a fierce landgrab has developed as rival mining groups battle each other — and China — and bribe-taking officials subvert a minority striving to convert the country’s astonishing natural endowments into schools, roads and the other basics of a functioning state.

Once a week, a controversial Israeli tycoon at the heart of the scramble touches down in his Gulfstream G5 jet to tend to his empire. Dan Gertler is Congo’s biggest investor. He arrived when few western investors dared to and has built a sprawling operation that began with diamonds and now spans copper and cobalt mining, banks and even a safari park.

At 36, his net worth is at least $750m (£460m), based on publicly-available information, and he is the partner of choice in the country to some of the biggest resources firms in the world, such as ENRC, the FTSE 100 miner, and Glencore, the secretive commodities giant.

The City of London has played a critical role in his empire building, having handed over hundreds of millions to finance his exploits. Most have done well out of backing him, even if they are less than comfortable about it. Google his name and lurid allegations of corruption and dirty deals abound. None has been substantiated.

Little is known about Gertler. He fiercely protects his privacy and has never given an interview. The Sunday Times spent several months following his activities, tracking down former associates, people who have done business with him and gaining unprecedented access to those once in his inner circle in Kinshasa.

The picture that emerges is of one man’s blinding ambition and appetite for risk. It is also a story about Congo, a country almost entirely bereft of infrastructure or functioning government after 130 years of brutal colonial rule, dictatorship and civil war.

In 1997, rebel factions forced Mobutu Sese Soko, one of Africa’s most notorious dictators, to flee after three decades. A shaky coalition replaced him. The country was lawless and broke, and Laurent Kabila, the rebel leader turned president, faced a revolt that would become a five-year war leaving more than 4m dead.

It was at that point, just a few months after Kabila took power, that Gertler boarded a flight to Kinshasa for an appointment with the new lord of Congo. He was only 23.

Much has changed since then. The price of copper, of which Congo has some of the world’s richest deposits, has multiplied sixfold to $9,985 a tonne, a near-record high. A global commodities boom has sent the prices of tin, gold and diamonds soaring as well, while the country’s uranium deposits, used for the bombs dropped on Hiroshima and Nagasaki, are back in demand as the West builds more nuclear power stations.

The world wants what Congo has. Yet last year it mustered only $12.6 billion in GDP — less than the city of Bristol. Analysts estimate the black market economy is at least as large, nonetheless tiny for a country the size of western Europe.

The view of most companies, and many aid organisations, is that the Congo is untouchable because of its corruption. “Government income is more likely to end up in a politician’s pocket than in a new road,” said a western diplomat.

Matata Ponyo, Congo’s bookish finance minister, said that this should be seen in context: given where it was, the country is better off than it was even five years ago.

“We are coming out of a long period of decay, a long period of war. When there is war, government institutions are weakened. When the state is weak, there is corruption, fraud, poverty. Our priority is to reinforce the state. That is happening,” he said. “The train has left the station and it is going in the right direction. We have international partners helping us along.”

Like Dan Gertler? “Yes,” Matata said. “He is a big investor here, so, of course, he is welcome.”

Gertler has built up a lot of goodwill by coming here when few others would. Of his many defenders none is more important than Joseph Kabila. Gertler and Kabila met in 1997, soon after the president’s father came to power. Gertler was a young man on the make. Grandson of Moshe Schnitzer, founder of the Israeli diamond exchange, he spent his youth learning the trade at his grandfather’s side.

At 21, he started his own firm, Dan Gertler International. Success came quickly but he wanted to expand into rough diamonds, straight from the source. Few countries had deposits as rich as the Congo.

Through a dealer in Kinshasa, he was introduced to Joseph Kabila. He and Gertler were of similar age — Kabila is three years older — and they soon became friends.

Joseph’s father, meanwhile, was desperate. The country was descending into civil war, and Kabila was virtually penniless. So he did what so many others had done since Leopold, the 19th-century Belgian king who infamously ran the country as his personal estate: Kabila used Congo’s natural resources for his own ends.

As a panel set up by the UN later put it, he “relied on [Congo’s] minerals and mining industries to finance the war”. By 1998 Gertler was making regular visits. At Joseph’s urging, Kabila agreed to meet him one evening.

Gertler is, by all accounts, not a charmer. He is blunt and direct. Just a few days after their meeting, the president called. He needed $20m — immediately. It was an enormous risk, but Gertler complied, and just over a year later he was rewarded.

In 2000, Kabila granted Gertler a two-year monopoly on artisanal ( non-industrially-mined) diamonds. The previous holder of the concession, thought to be worth hundreds of millions, was the world’s largest diamond firm, De Beers.

The terms of the deal, and the lack of clarity about where the money went, raised hackles, not least with the UN. A former associate of Gertler said: “You have to understand, at that time nobody would lend Congo $500,000, let alone $20m. Dan was doing well, but it was still a big stretch for him. It angered a lot of people.”

A UN panel accused him of securing the monopoly by providing arms and military training as well as cash, but exised the allegations from its final report.

As a business venture, it was a nightmare. The country was disintegrating into violence, and artisanal diamonds was a cash-only business. “We were flying cash, sometimes hundreds of thousands of dollars, way out to the bush,” another former associate said. “It was impossible to manage.”

Gertler briefly held talks with the Russian Military Brotherhood, a group of ex-soldiers, to provide security, but never hired them. Laurent Kabila was assassinated in 2001. Joseph replaced him at the age of 29 and immediately came under pressure from NGOs, the UN and local politicians to cancel the diamond monopoly. After eight months, he did.

It took 18 months of dogged negotiations for Gertler to recoup his cash. He rebuilt his relationship with Joseph, which had been strained by the cancelled contract, to such an extent that he was named special ambassador to America. The friendship has been paying dividends ever since.

Antoine Ghonda, a roving ambassador for Kabila, said: “Dan Gertler is a friend. The way our president works, he has close contacts and protects them.”

After the diamond monopoly was cancelled, Gertler struck a deal in 2003 that gave another of his companies, Examon, marketing rights over the state’s diamond output for four years. Speculation was that the arrangement was being used to siphon cash to members of the transitional government. This was never proved.

A former associate of Gertler said: “All the false allegations made against us were based on the frustration of business rivals who were and are short-sighted.”

Gertler’s empire, meanwhile, continued to sprout new branches. He and partner Beny Steinmetz, another Israeli resource tycoon, took over BIC bank, one of the country’s largest. He launched Congo Star Safaris, which owns a handful of jungle lodges near Kinshasa and in the bush outside Lubumbashi in the south.

The most important piece, however, fell into place in 2004, when the government awarded him a derelict mine in Katanga, the copper-rich province in the southeast that extends like a finger into neighbouring Zambia. The KOV mine had world-class deposits but having been abandoned years earlier, was a shambles. When Gertler took possession he had better chance of catching fish than extracting ore from it. The pit was under more than 100ft of water. Gertler needed money, so off he went to London.

Moise Katumbi is standing 1,000ft underground surrounded by slate-grey tunnel walls. “This is the heart of the Congo,” he said from within the bowels of the Kamoto copper mine. “Even during Mobutu times this produced, but it was closed down for years until Katanga Mining came here. Now it’s working. People have jobs.”

Katumbi’s words carry weight. The governor of Katanga province and owner of TP Mzembe, the biggest football club, is arguably the country’s most popular politician. And, as he sees it, times have never been better.

 

The Kamoto mine is one of a pair owned by Gertler’s main operation in the Congo, Katanga Mining, a $3.3 billion firm listed in Canada. (The other is KOV, which today is drained and back to producing some of the highest grade copper in the world.) Gertler’s 20% stake is worth $690m based on Friday’s closing share price. His holding can be traced back to 2004, when he formed a company called Nikanor to fund the rehabilitation of KOV. He didn’t have the money to do it himself, but City fund managers did. He just had to convince them. All the false allegations made against us were based on the frustration of business rivals who were and are short-sighted

By that time Gertler’s reputation had put more than a few investors on edge. “We had 20 different private eyes around the City looking into us,” said a source involved in the float. “They were following us around for months, but they never came up with anything.”

When Nikanor pulled off its $400m listing in July 2006, it was one of the largest fundraisings on London’s junior Aim market. Gertler wasn’t done.

A rival firm, Katanga Mining, owned the Kamoto operation, which sat right next to KOV. Gertler spent more than $300m buying shares in the market and eventually forced a merger.

That deal, like his gamble on diamonds years before, nearly broke him. Almost as soon as it was completed, the global recession sent the copper price into a tailspin.

Katanga’s shares dropped 97%. His saviour came in the form of Glencore, the Swiss commodities giant. It covered most of $500m cash infusion — though Gertler paid as well — to see the company through. The terms were painful.

Glencore ended up with 75% of the company but Gertler was safe. Again. Whether his latest brush will turn out so well is far from clear.

First Quantum, the London-listed miner and one of the biggest investors in Congo, had been developing the Kolwezi mine, not far from Gertler’s operations in Katanga, for years. But on January 7 last year, Congo’s state mining company, Gecamines, informed it that the site, into which it had sunk $700m to bring to the brink of production, was now state property.

The same day, Gecamines signed another deal, this one selling on Kolwezi for $60m to a joint venture majority-controlled by Gertler via a British Virgin Islands company. Gecamines was a minority partner.

First Quantum took its case to the International Commercial Court (ICC) in Paris. But as that Byzantine process ground into action, Gertler in August sold a majority stake in the mine and a handful of other concessions to ENRC for $175m.

The deal caused an uproar, especially at the World Bank, which had the month before agreed to forgive $12.3 billion of Congo’s debt. It was also a shareholder in the project.

Ponyo, the finance minister, said that since the initial upset, the Bank has come round. “It is true they were very upset and First Quantum made a big effort to show we were in the wrong,” he said. “I went to Washington, I explained our legal position and managed to change their perspective considerably. Our reputation is restored.”

The ICC ruled in October that, at best, First Quantum may be awarded damages; its mine is irretrievable.

The firm filed a separate $2 billion suit in the British Virgin Islands two months later, but worse was to come. Last September, troops seized its other mine, Frontier. That has since been incorporated into a $6 billion deal in which China agreed to build infrastructure in exchange for copper exports.

Katumbi, whose province is ground zero for the disputes, is dismissive of the furore over First Quantum’s exile, and Gertler’s role in it. “Congo is ready for the judgment from Paris, and we will accept it,” he said. “Some people say Dan Gertler is a bad guy, but he’s built roads, hospitals, schools.

“The Congo is a place of rumours. Am I going to listen to what some people say, or am I going to do what helps my province?”

Foreign investors are spooked. The diplomat said: “When the government makes what are seen in many circles as high level politicised decisions like on the First Quantum contracts, it undermines the progress they’ve made.”

Malcolm Bruce, the Liberal Democrat MP who chairs the Commons committee on international development, said the controversy could endanger £1 billion in aid Britain has committed to until 2015.

So are these simply isolated incidents on Congo’s long and bumpy road toward legitimacy? Or is it, as campaigners argue, a case of a clique of businessmen and senior government officials lining their pockets?

Ghonda, the roving ambassador, said Congo’s objective is simple. “We have a population of 60m people. At a minimum, we want to inject $500 a person, so that gets to $30 billion in schools, roads, police.

“With our international partners, we are taking a mortgage against our natural resources to fund our development.”

Last Sunday, at 2pm, men armed with machetes and rifles stormed Kabila’s palace in Kinshasa. Seven died, and a presidential guard who helped repel the attack was wounded. The government dismissed it as an incident perpetrated by rogue elements trying to “sow fear” ahead of the country’s presidential elections in November.

Others called it a sign of a frustrated population in danger of boiling over. A businessman in Kinshasa, speaking on condition of anonymity, likens it to 1991 and 1993, when people took to the streets in mass lootings to take what the government was failing to provide. The incidents left the country in ruins and chased away the last of the investors.

The danger, he said, remains. “Every time I am at a stop light, the car is mobbed by shegues [street children] asking for money. When I say ‘no’, about once a week one of them stares back at me and says, ‘Wait for the looting day. I know where you live.’ That is still part of the collective conscious and that is what the politicians are really worried about.”

What is certain is that amid so much suffering, whoever does well arouses suspicion, and Gertler, who has risked so much, has done better than anyone.

His supporters say he is one of the few to stick by Congo in its darkest hours. In the streets of Kinshasa, most are more concerned about promises — running water, hospitals, electricity — that remain unfulfilled.

Amédée Bobotobi Ndjony, director of a human rights organisation, said: “Congo’s mineral resources have been taken hostage by a small circle at the top.

“Everything has gone backward. I regret being born a Congolese.”

Workaholic who won’t let staff work on the sabbath

Despite his crucial role in several big mining deals, Dan Gertler remains a mystery.

“He isn’t part of the normal business world. He keeps to himself,” said a former associate, “But he is not a one-timer in Congo. He is there to stay. All of his business is there.”

Allegations about his business dealings and his privileged position in Congo bubble up constantly. The typical answer from Gertler’s camp is silence, or a stern letter from his lawyers.

What is known is that he is an assiduous follower of the ultra-Orthodox Jewish faith. He is teetotal and spurns the social circuit. He sleeps little and works constantly, firing off emails to lieutenants at all hours. He is a hard negotiator who has that rare ability of the frontier capitalist to get comfortable with characters others would not.

At 36 he has amassed an empire that is unrivalled in Congo, but isn’t flashy with his wealth.

He has a private jet, but sources close to him say he uses it only to return every Friday to Tel Aviv to spend Shabbat, the 24-hour period of rest that begins at sunset, with his wife and 8 children.

He rules his empire along those lines. None of his employees is allowed to work on the sabbath. That includes travelling for company business. If a flight isn’t available before Friday night, they must stay where they are. Most weeks he is in Congo, where his house in Kinshasa is just a short drive from Joseph Kabila’s presidential residence. He and Kabila are close friends and in touch regularly.

Gertler’s companies own a transit house in Lubumbashi, the capital of Katanga province, but he rarely spends time there.

The positive work Gertler has done gets little press. According to sources in Katanga, where most of his mines are, he helped to fund the first HIV hospital in the region, and has financed new roads as well as providing electric power to the slums.

 


Source:Ocnus.net 2011

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