Dan Gertler earns billions as mine deals fail to enrich Congo

Simon Dawson/BLOOMBERG - Israeli billionaire Dan Gertler talks on his smartphone while walking past mining rubble during a visit to Comide SPRL's Mashitu copper mine in the Katanga province of Congo.

Dan Gertler’s bearded face lights up as he looks out the helicopter window. Below, an installation rises from a clearing in the central African forest, where it transforms ore mined from the ochre earth into sheets of copper.

“Look at it, look at it,” the Israeli billionaire, 38, shouts through the headset. “This is what life is all about,” Gertler says as the chopper lands in the scorching afternoon heat of the Democratic Republic of Congo. “Everyone comes with dreams and illusions and promises. Everyone wants quick deals. They don’t want to invest. We are real.”

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Gertler hops out into the dust of Mutanda, a mine controlled by his partner, Glencore International, that holds cobalt and some of the highest-grade copper in the world. He climbs into a Toyota Land Cruiser to tour the mine, tapping messages into one of three BlackBerrys, whose batteries, like those of most smartphones and laptops, often depend on cobalt to keep their charge.

Gertler has stakes in companies that control 9.6 percent of world cobalt production. That’s just the beginning of his influence in Congo, the largest country of sub-Saharan Africa, with the world’s richest deposits of cobalt and major reserves of copper, diamonds, gold, tin and coltan, an ore containing the metal tantalum that is used in consumer electronics. His Gibraltar-registered Fleurette Properties owns stakes in various Congolese mines through at least 60 holding companies in offshore tax havens such as the British Virgin Islands.

Gertler, whose grandfather co-founded Israel’s diamond exchange in 1947, arrived in Congo in 1997 seeking rough diamonds. The 23-year-old trader struck a friendship with Joseph Kabila, who then headed the Congolese army and today is the nation’s president. Since those early days, Gertler has invested in iron ore, gold, cobalt and copper as well as agriculture, oil and banking. In the process, he’s built a net worth of at least $2.5 billion, according to the Bloomberg Billionaires Index.

Roster of critics

He’s also acquired a roster of critics. Many of the government’s deals with Gertler deprive Congo’s 68 million people of badly needed funds, according to the London-based anticorruption group Global Witness and lawmakers from Congo and Britain, the country’s second-biggest aid donor after the United States.

“Dan Gertler is essentially looting Congo at the expense of its people,” said Jean Pierre Muteba, the head of a group of nongovernmental organizations that monitor the mining sector in Katanga province, with most of Congo’s copper. “He has political connections, so state companies sell him mines for low prices and he sells them on for huge profits. That’s how he’s become a billionaire.”

In the eight months preceding the November 2011 elections, in which Kabila won a second five-year term, companies affiliated with Gertler bought shares in five mining ventures from three state-owned firms, according to minutes of board meetings, company filings and documents published later. The state companies didn’t announce the sales.

In some cases, prices paid were below valuations of the projects made by analysts at Deutsche Bank, Numis Securities and Oriel Securities. Gertler said he did not buy companies at below-market rates or engage in kickbacks.

“The lies are screaming to the heavens,” he said in his native Hebrew during three days Bloomberg reporters spent with him in Congo and Israel. He returns home to Bnei Brak, an ultra-Orthodox suburb of Tel Aviv, each week to spend the Sabbath with his wife, Anat, and nine children.

Congo has a history of making deals out of the public view. The International Monetary Fund has halted a $532 million loan program with the country. It said the government didn’t adhere to its demand to publish the full details of a 2011 mining deal between a state-owned miner and a company that reportedly is affiliated with Gertler. Congo will lose out on three loan disbursements worth about $225 million, according to Oscar Melhado, the IMF’s resident representative in Congo.

As the country’s mineral wealth is developed, the lot of Congo’s people isn’t improving. Congo remains the world’s most destitute nation, according to the U.N. Development Programme. Most of the country lives without electricity or running water, and one in five children dies before his or her fifth birthday.

Kabila’s reelection was marred by irregularities, according to observers. Kabila’s opponent, Etienne Tshisekedi, contested the 49 to32 percent vote, charging it was fraudulent. The Congolese Supreme Court ruled it valid.

Global Witness has called on Glencore and FTSE 100 Index-listed Eurasian Natural Resources Corp. (ENRC), two companies involved in the pre-election deals with Gertler, to publish details of the transactions and dispel the anti-corruption group’s suspicions that Congolese officials received kickbacks for selling assets to Gertler.

“Offering, paying, authorizing, soliciting or accepting bribes is unacceptable to Glencore,” spokesman Charles Watenphul said. The ENRC declined to comment.

Gertler said disclosing the deals to the public is the Congolese government’s responsibility. “We’re a private company. Why should we announce?” he said.

“I should get a Nobel Prize,” added Gertler, who paced and waved his arms as his demeanor swung between anger and charm. “They need people like us, who come and put billions in the ground. Without this, the resources are worth nothing.”

‘Braved the hurricane’

The government insists it’s following the rules of the IMF agreement, which calls for it to disclose deals for its natural resources. And Kabila, 41, defends Gertler as a man who staked his fortune on Congo at a time when the country was wracked by war and desperate for cash.

“The truth is, during our very difficult times, there were investors who came and left and others who braved the hurricane,” he said of Gertler at his riverside palace in December 2011. “He’s one of those.”

The bond between the two men is so strong that Kabila at times uses Gertler as a special diplomatic envoy, including in 2002, when the Israeli businessman met with then-U.S. national security adviser Condoleezza Rice to ask for help ending Congo’s war with its neighbors.

Diamonds have been a backdrop to Gertler’s life since his childhood in affluent northern Tel Aviv, where he had a secular upbringing. His mother ran a pop-music radio station, and his father was a goalkeeper for Maccabi Tel Aviv, a top-division pro soccer team, before becoming a diamond dealer.

As a youth, Gertler got up at 5 a.m. to learn how to polish gems before heading to school. He joined his grandfather, Romanian emigre Moshe Schnitzer, at business meetings to watch him negotiate diamond deals. When Schnitzer died in 2007, Benjamin Netanyahu, now Israel’s prime minister, gave a eulogy.

Gertler recalled a business lesson his grandfather imparted: “He told me: ‘Dan, you meet your bankers and you ask for credit only when you don’t need it. Just to secure it. Because when you need it, it is too late.’ ”

Gertler said he started buying rough diamonds at age 22, so he could work with larger volumes. Gertler flew between war-torn nations such as Liberia and Angola and the major diamond centers in the United States, India and Israel, buying and selling gems, he said.

“From the beginning, he went his own way,” says his uncle, Shmuel Schnitzer, 63, former president of the World Federation of Diamond Bourses.“The guy has guts.”

Gertler broke with his family’s secular tradition when he and Anat decided to adopt an ultra-Orthodox lifestyle. They’ve banned television and computers from their five-story, terraced house. In Congo, he supports the Chabad-Lubavitch center, which provides religious and educational services to Jews throughout Africa.

Gertler’s love affair with Congo began in 1997, when the country was one of the world’s top five producers of diamonds. That May, insurgents led by Laurent Kabila, the father of the current president, overthrew the corrupt regime of Mobutu Sese Seko, a U.S. ally who had ruled for 32 years. After taking Kinshasa on May 17, Laurent Kabila declared himself president and renamed the country Democratic Republic of Congo.

A few days later, Shlomo Bentolila, chief rabbi of Kinshasa’s Chabad-Lubavitch center, arranged for the young diamond merchant to meet Kabila’s son Joseph, the new army chief, at the InterContinental hotel, Gertler said.

The two clicked, he recalled. Both carried a heavy responsibility: Kabila was the commander of thousands of troops, and Gertler was trading $2 billion of diamonds annually, he said. One day, Kabila suggested that Gertler meet the president. Laurent needed money to fight his war and offered Gertler a monopoly on Congo’s diamond sales, he said. Kabila asked for $20 million in cash. Gertler agreed.

He was back in Israel celebrating the deal when the Congolese president called. He needed the money immediately. Using a mix of bank credit, inheritance, cash reserves and liquidated stocks, Gertler said he scraped together the payment and sent it to the Swiss account of Congo’s central bank. Gertler had bet his fortune on a president at war.

The risks became evident in January 2001, when a bodyguard shot Laurent Kabila dead and his son took power.

Role as envoy

The young president needed friends: When he took over, vast swaths of the country were under the control of rebel factions backed by Uganda and Rwanda.

Kabila asked Gertler to help woo U.S. support to bolster his position as leader and start peace talks with his neighbors.

In April 2002, Gertler said, he secretly shuttled between Washington, Kinshasa and Kigali, Rwanda, relaying letters between Kabila and Rice. Jendayi Frazer, a former special assistant to President George W. Bush, said Gertler’s intervention was instrumental to talks that resulted in a peace accord. “He was serious and credible,” Frazer said.

By the time the peace deal was signed between the government and rebel factions in 2002, millions had died in Congo.

Gertler won back a near monopoly of Congo’s diamond trade. One of his companies, Emaxon Finance International, paid $15 million in cash and loans to the country’s state-owned diamond miner, known as MIBA, for a four- year contract to sell 88 percent of its production. Congo was desperate for investment, Frazer said. “It’s not like he crowded out a lot of other investors,” she said. “There weren’t many.”

Kabila, who had formed a government in which former rebel chiefs were cabinet ministers as part of the peace deal, tried to kick-start Congo’s economy. The ministers signed deals to exploit the country’s natural resources with foreign companies, many of them at prices that undervalued the assets, the World Bank said.

In 2006, Kabila’s People’s Party for Reconstruction and Development, with a platform of rebuilding the country’s infrastructure, was elected in Congo’s first free elections in four decades. The backroom deals continued, said Peter Rosenblum, a professor of law at Columbia University who headed the Carter Center’s mission to observe the mining review. “What happened in 2008 and 2009 really proved that the Gertlers of the world would win by doing business the way they’d been doing it all along,” Rosenblum said. Today, Transparency International ranks only a dozen countries below Congo in its Corruption Perceptions Index.

As Kabila cemented his hold on power, Gertler expanded beyond diamonds into mining of other minerals and metals.

Charm and aggression

Six mining executives who have done business with Gertler say he mixes charm and aggressiveness to make deals. During negotiations, which are often in French — a language Gertler only partially understands — he will hunch over his BlackBerry, seemingly oblivious to the debate, said Pieter Deboutte, the Belgian who runs Gertler’s business in Congo. Then, suddenly, he’ll catch everyone off guard by interjecting, “Stop, wait a bit!” and launch into a list of orders in English to his staff.

Gertler’s dealings can be wildly profitable. In one case, he earned a 500 percent return in six months without risking a single penny as the middleman in a deal for SMKK, which owns a copper and cobalt deposit in the heart of Katanga’s richest mining zone.

Gertler said it’s not his fault if the government didn’t get a good price for its SMKK holding. “That is what we know how to do better than anyone else: We know how to maximize value for our projects,” he said. “If the government would like to hire my services to maximize value for their stake, they should approach me. No problem.”

Copper is what attracts most miners to Congo, with one of the world’s biggest reserves, Gertler said. The metal traded at $7,991 a ton in London on Dec. 5, more than double its price on Jan. 5, 2009.

In June 2010 and March 2011, state-owned miner Sodimico sold more than 30 mining licenses, including those for two copper projects, to Gertler-linked companies for a total of $60 million. The two projects were estimated to be worth $1.6 billion, though their valuations included ore-processing plants and the licenses.

Laurent chief executive Lambert Tshisola Kangoa, said the mines ministry demanded Sodimico give $10 million to the country’s general election fund.

“It was not an economic decision by Sodimico,” he said of the sale. Gertler’s joint venture relinquished the rights to the biggest of the mines, Frontier, according to the mines ministry. In July 2012, Congo sold the ENRC the license for Frontier, which in 2009 had been the country’s biggest taxpayer, for $101.5 million.

“When you see similar things with slightly different variations happening again and again, you have to stop and think, ‘Obviously something is going wrong,’ ” said Daniel Balint-Kurti, chief researcher at Congo for Global Witness.

At the Mutanda project, too, Gertler paid far less for his 20 percent than his partner, Glencore International, paid for similar assets. Glencore’s outside consulting firm valued the entire mine at about $3 billion. Based on net present value calculations using figures from Glencore’s May 2011 prospectus, Gertler’s stake, including royalties and other payments, was worth $849 million at the time.

One of Gertler’s British Virgin Islands-based companies bought the stake from Gecamines for $120 million in March 2011, according to a copy of the contract. About a year later, in May 2012, Glencore paid $340 million, plus $140 million in assumed debt, for 20 percent of the mine, increasing its holding to 60 percent. Gertler says Glencore’s 20 percent purchase was worth more than his because it gave them control of the company.

Gertler said he will stick by Congo. “I took a decision that I wanted to be a long-term player in Congo,” he said. “At the end of the day, yes, I’m looking to create a lot of wealth.”

Gertler dismissed critics who say he’s amassed a fortune at the expense of the world’s poorest people. “Our deals and performance speak for themselves,” he said. “And whoever doesn’t feel comfortable investing with us will not.”

— Bloomberg Markets

The full version of this Bloomberg Markets article appears in the January issue.

 
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