13 Years After a Bribery Scheme Derailed a Mining Project, Its Investors Get Paid

Tony Harwood had just completed a $150 million international fundraising round when he received a call that everything was on the verge of collapse, about $130 million for the development of a lucrative copper and cobalt mine in the Democratic Republic of Congo.

The competitor claimed he, not Mr. Harwood’s Africo Resources Ltd. owns the rights to the Kalukundi mine. South Africa learned it on Saturday in 2007. Without a permit, Africa’s mining development plans were in jeopardy and the millions of dollars it had raised may have had to be returned to investors.

It was traumatic, Harwood said about the job. It was one of the most unusual things – you think it must be a joke, someone tricking you.

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Harwood tried to resolve the lawsuit, but that did not happen until 2016, when an agreement was reached between the U.S. law firm and the hedge fund.

Och-Ziff Capital Management Group Inc.

that he’d get a full story on the corruption plan to take over Africa’s rights.

Corruption is often presented as a victimless crime, but African history proves otherwise. A federal judge ruled this year that M. Harwood and a group of investors are considered victims under U.S. law. Last week, $138 million was paid back to investors. The agreement should open the door for further similar statements by victims of corruption.

The speaker from Oh Ziff, who changed his name last year to

Sculptor Capital Management Ltd.

and tried to end the corruption scandal, refused to comment on the restitution decision.

In 2007, Mr Harwood had just arrived in Cape Town to help his daughter find a place to get married when he received a phone call from the CEO of Gécamines, a state-owned mining company in Congo and Africa’s partner in the Kalukundi project. The head of Gécamines stated that representatives of the Congolese mining company Akam Mining SPRL are claiming development rights for the mine.

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lump of cobalt ore from the Kalukundi mine.

Photo:

kindly provided by George Ireland

According to George Ireland, chairman of Geologic Resource Partners LLC in Boston and one of Africa’s leading investors, the Kalukundi mine has an estimated 27 million tonnes of raw ore reserves containing copper and cobalt.

Copper is used in many electrical components and devices, and cobalt is widely used for the production of high-strength steel alloys for aircraft engines and electric car batteries. The Kalukundi stock contains an exceptionally high level of both elements, he said.

AFRICO’s mining development plans attracted investors who invested $150 million in equity and almost the same amount in debt from a consortium that included the World Bank’s International Finance Corporation. The first orders for shares were $350 million, but the company expected a lower amount in order not to dilute other investors’ shares.

In the months that followed, Africa had to divert its troops to keep its mining permit for Kalukundi. It uncovered a series of opaque Byzantine court cases brought before a provincial court by a former director for Africa which, according to the company, had not been made public and which apparently led to a judicial auction in which the Kalukundi licence was sold to Akam.

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George Ireland, President and Chief Investment Officer of Geologic Resource Partners.

Photo:

kindly provided by George Ireland

In the summer of 2007 Africa decided to return the collected money to investors. It continued the dispute in Congo in order to regain control of the licence. But as the months passed, the outcome seemed less certain.

At the time, Israeli businessman Dan Gertler made an offer to acquire a majority stake in Afriko for 100 million dollars, which at the time was roughly the equivalent in US dollars. He also offered to settle the licensing dispute, Harwood said. Gertler, who owns less developed land around the Kalukundi assets, had already applied for the company in Africa in 2006. At that time, Mr Harwood, but because the permit was in jeopardy and the company’s efforts to get it back came to a standstill, Afriko voted in 2008 to accept the Israeli agreement.

What Afriko’s management and board of directors did not know was that Gertler was working behind the scenes to force the company to meet his requirements, including bribing Congolese judges and officials, as described in the 2016 agreement at Skulptor Capital.

Afriko must be screwed (sic) and fully finished !!!!. By way of comparison, Mr Gertler had written a letter to a member of staff only one week before the vote in the board.

Mr. Gertler has repeatedly denied any crime in the Congo. In 2017 he was blacklisted by the United States because it is believed that he made a fortune in the country thanks to corrupt mining and oil companies. Mr Gertler’s representative did not respond to the invitation to comment.

We knew there was corruption in the background, Harwood said. The evidence before us undeniably shows that this is a fabricated case. We just didn’t know who was behind it.

Mr Harwood left Africa about nine months after his deal with Gertler. By that time, the world had already entered the global financial crisis. According to Mr Harwood, the Kalukundi mine is largely undeveloped.

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After learning the whole story through the Oh Ziff settlement in 2016, a group of former AFRICO investors intervened in a hedge fund case in New York and demanded restitution. They argued that they would be entitled to compensation based on an estimate of the costs which the Kalukundi would have had to bear if it had been designed. Sculpture capital, which initially struggled with the lawsuit, argued that investors should only be compensated for damages to their actions after the acquisition of Gertler.

West African investors were not the only victims of the program, Harwood said. Among Afriko’s former investors were local Congolese workers. The wife and children of one of the company’s local geologists, who later died of cancer, will receive compensation, he said.

The law firm representing the majority of major investors in Africa refused to discuss the amount of the specific payments, but said they were based on the amount of individual investments in the period prior to the agreement with Mr Gertler. The Irish investment company owned approximately 10% of Afriko in 2007.

The four-year-old case was closed last week. On the day that a federal judge in Brooklyn condemned Sculptor’s African subsidiary, Mr. Ireland sent a letter to Geologic’s investors with the company’s monthly results, which included the final payment of the refund.

I have a surprise for you, Mr. Ireland said. Consider it an early Christmas present.

Write to Dylan Tokar at [email protected]

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