Aleph in action: Marc Rich, Anvil Mining and the art of doing business in the DRC

I have long had an interest in the infamous figure of Marc Rich, the sanctions-busting tax-evading founder of Glencore. So, when testing out the OpenOil Aleph search tool, the first thing I was attracted to searching for was ‘Marc Rich’.

Scrolling down the entries I stumbled upon this document from 2006, detailing a share sale agreement between a Mr Machado Moura Jose Augusto – the seller of the shares – and the buyer, Anvil Mining, a company incorporated in the British Virgin Islands, but based out of Australia and Canada. So how is this connected to Marc Rich? Well, it turns out that the share sale was induced by some kind of a dispute with Mr Rich. That made me want to dig deeper, so I started reading the document.

I discovered that Mr Machado Moura Jose Augusto normally goes by the name of Jose De Moura. The document is set in 2006 – so this is no longer current – but imagine for a moment we’re back in 2006 looking at this: Jose owns 12.5% of the shares of a company called Emiko, and it turns out that Anvil owns the remaining 87.5% of Emiko. That makes Mr Augusto a minor shareholder and Anvil the major shareholder. Emiko, in turn, owns 80% of a company called SMK (we don’t immediately find out who owns the other 20%), and SMK in turn is said to be the owner of the Mutoshi Copper Project in the Democratic Republic of Congo. Here’s a pretty impressive picture of Mutoshi.

Here is an ownership diagram I created using the OCCRP Visual Investigative Scenarios tool:

 

 

Thus, in 2006 Anvil owns 87.5% of Emiko, which means it effectively controls Emiko and by extension controls SMK and by extension controls Mutoshi. But this is where Marc Rich comes in, and this is where it gets strange. The document notes that ‘SMK has incurred certain liabilities to Marc Rich in relation to the Marc Rich dispute’. So SMK has been sued by Marc Rich for something and now owes him money. But… rather than SMK being responsible for paying Marc Rich, it is said that Mr De Moura – the minor shareholder in SMK’s parent company – is responsible for meeting these liabilities. That’s immediately mysterious to me. If SMK is the one being sued, and Anvil is the major shareholder in SMK’s parent company, why isn’t Anvil also responsible for paying out the lawsuit? The reason for De Moura having to foot the bill is vague. All it says is that “By virtue of certain contractual arrangements, Seller (De Moura) is the party responsible for meeting these liabilities”. So here is the picture now:

 

Mutoshi 2

 

So where does the share sale come into it? It turns out that Mr. De Moura is agreeing to sell his 12.5% stake in Emiko to Anvil as a means to settle the amount owed to Marc Rich. My first thought is that perhaps Mr De Moura has gone bankrupt and the court has ordered that he sell his shares in order to get the money to pay Mr Rich. All the document initially says is that the ‘parties have agreed that Mr De Moura will sell his shares in Emiko to Anvil mining’ as part of the settlement agreement, so it seems the share sale is being enforced for the sole purpose of getting Mr Rich his money.

The picture gets confusing, though, when I go further down the document and find this line:

“Buyer (Anvil) will, at Completion, pay to Seller (De Moura) the sum of US$6,600,000. Buyer will, from completion, assume responsibility for paying the amount due to Marc Rich under the Settlement Agreement.”

Ok wait, I thought the document earlier stated that De Moura was responsible for the liabilities. Remember it said “SMK has incurred certain liabilities to Marc Rich in relation to the Marc Rich Dispute. By virtue of certain contractual arrangements, Seller (De Moura) is the party responsible for meeting these liabilities”. But this new line is saying that Anvil will pay $6.6 million to De Moura for the shares, and after that will then assume the responsibility for paying Marc Rich. What is going on here?

I decide that I need some more information, so using the Aleph database I come across another account of the affair, this time from Anvil itself. They describe the situation in single paragraph:

In the fourth quarter of 2005 Marc Rich & Co Investment AG commenced arbitration proceedings in the London Court of International Arbitration against the Corporation’s indirect 80% subsidiary SMK. The arbitration concerned a claim relating to an alleged unperformed “off-take agreement” that was entered into by SMK prior to the Corporation’s acquisition of its interest in SMK. In November 2006, the parties reached a settlement agreement and the Arbitration concluded.

So Anvil is trying to distance itself from the affair, saying it is from some previous dispute that doesn’t really involve them. This may reveal something about the nature of the mining business in politically fragile countries. Groups like Anvil will often not be the ones who initially develop or own the mines. They often come in to buy up mining developments started by others, or perhaps those being sold off in privatisations. They often find themselves in bed with local powerbrokers who retain minor interests in the mines, but bring with them historical baggage.

This still doesn’t explain the share sale though. I only get some more clarity into that when I come across this 2006 Anvil press release found on a copper website, which finally shines some new light on the affair.

Anvil Mining Limited is pleased to announce that it has finalised an agreement for the acquisition of an additional 10% interest in the Mutoshi Copper-Cobalt Project… The additional interest is being acquired through the purchase of the remaining 12.5% interest in Emiko s.p.r.l. (“Emiko”) not held by Anvil. Emiko holds an 80% interest in the Mutoshi project through its investment in SMK s.p.r.l. with La Générale des Carrières et des Mines (“Gécamines”) holding the remaining 20%. Completion of this acquisition will take Anvil’s interest in the joint venture from 70% to 80%.

All right, so we now know who owns the mystery 20% stake – it’s Gecamines, the big DRC state-owned mining firm. And Anvil is pitching the share acquisition as a pleasing increase in their ownership of Mutoshi (rather than something that has stemmed from a court ruling). They then go on to say:

The cash consideration to be paid by Anvil is $6.6 million after netting off costs relating to the development of the Kulu mine and in connection with the assumption by Anvil of responsibility for payment of an arbitration award settlement involving SMK and the EMIKO shareholder… The preliminary estimate of the value to be attributed to the additional 10% interest in Mutoshi is $10.0 million.

Aha! So here it is. It seems that they are buying the shares at a discount to what they’re actually worth from De Moura, as compensation for the fact that Anvil will have to pay Marc Rich out. Rather than De Moura paying Rich, he’s agreed to sell his shares to Anvil at below their actual value. Anvil says in the press release that the preliminary estimate of the additional interest they’re purchasing is $10 million, but they’re only paying $6.6 million for it…

A couple more documents pull the story together more. I discover a document which shows that in the past the mine was a joint venture between Gecamines and Emiko, which another document shows is directed by Mr De Moura. So the big state-owned company Gecamines maintains an ownership stake while licensing the actual running of the concession for Mutoshi to Emiko, who runs Mutoshi via SMK. SMK enters into an offtake agreement with Marc Rich’s commodity trading business: we don’t have the precise details of this agreement, but I’m assuming that SMK agreed to supply Mr Rich with a certain amount of metal from the Mutoshi mine at a certain price. At some date SMK – under De Moura’s control – antogonises Rich by not fulfilling some element of the offtake agreement. Then both De Moura and Gecamines want to reduce their stakes (or exposure) in the mine and Anvil comes in to buy a majority stake off Emiko, although De Moura retains a minor stakeholder portion. Anvil somehow manages to legally shield themselves from any dubious baggage from the past, and put an end to the disputes by finally buying De Moura out at a discount and using the excess to pay Marc Rich off. They don’t want any more trouble in future, which is evidenced by the short clause in the 2006 share sale agreement, directed at De Moura, requesting the following warranty:

Apart from the Marc Rich Dispute, there is no other dispute, litigation or claims, present or threatened, affecting the Sale Shares or Emiko

Or at least this is what my preliminary investigation suggests and it is always possible that I’ve misinterpreted the story. Nevertheless, what do we learn more generally from this? The human and political dimensions of activities like copper mining in politically fragile countries gets expressed through a morass of legal and technical jargon. Learning to decode it is not easy, but we notice patterns over time. The case above actually appears strangely similar to another DRC case I’ve previously worked on: the controversial Mutanda Mine, majority owned by Glencore-Xstrata. They bought it off Gecamines, who then went on to sell the remainder of the shares to a shell company controlled by Dan Gertler – a local billionaire in DRC – leaving Glencore as co-shareholders with a rather politically-exposed person. Check out the Global Witness work on that case.

The pattern we derive from the Anvil case can be summarised like this: A politically unstable country has a state-owned mining corporation in a joint venture with a private Congolese company – dominated by a single individual – to get copper. A powerful commodity trader has agreed to buy the copper they produce. Things change and go pear-shaped. A listed foreign company comes in to try take over the business, but doesn’t want the legacy of the previous disputes.

Of course, Anvil has its own dark skeletons. If we fast forward in time to 2016 we discover that they’ve effectively disappeared, bought out by a company called MMG Limited, and that they ditched the Mutoshi project after apparently having faced competition from poor artisanal miners on the property. I guess the fact that self-employed miners were competing with them on their own property reveals something about the socio-economic situation in the DRC.

And this is political. Did I mention that the firm was potentially implicated in the killing of 100 people who occupied another mine they controlled? Here’s the CNN report and the UN report on the matter: It’s called ‘Report on the conclusions of the Special Investigation concerning allegations of summary executions and other human rights violations perpetrated by the Armed Forces of the Democratic Republic of Congo (FARDC) in Kilwa (Katanga Province) on 15 October 2004.’ Anvil’s website address is down, and not up for sale. Seems like a tainted property.

 

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