RDC: Fleurette Group Statement “re: KCC Royalties” (15.11.2016)

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KINSHASA, Democratic Republic of Congo, November 15, 2016Fleurette Group notes the statement made by Global Witness today concerning the sale of royalties from Katanga’s KCC project by Gecamines to a Fleurette-owned entity. The Global Witness statement is highly misleading, based on factually inaccurate information designed to manipulate data in an effort to undermine a legitimate transaction.

Fleurette Group categorically refutes the allegations by Global Witness that the DRC economy has somehow lost money through the sale of the KCC royalty stream. The transaction between Africa Horizons Investment Limited (“AHIL” – which is a 100% Fleurette subsidiary) and Gécamines. With hindsight, Gécamines negotiated a highly lucrative transaction to the benefit of the DRC.

Additionally, Global Witness’s financial calculations are amateurish to the point of bogus. They do not follow even the basic valuation techniques used by all professionals in this field, and fail to include further discounts (such as withholding tax payments) that are both obvious and important. Global Witness has no excuse for making these mistakes. The manipulation of data seems wilful in nature, and designed to support a pre-ordained conclusion. It is difficult not to infer that Global Witness is trying to mislead journalists, the general public and other stakeholders at Fleurette’s expense.

DRC made net profit from deal, Fleurette a net loss

The transaction ultimately resulted in Gecamines safeguarding value for the DRC economy and Fleurette making a considerable loss due to the subsequent collapse in commodity prices and suspension of KCC’s operations. This is because Gecamines sold the royalty right before operations at KCC were suspended, meaning Fleurette had paid in full for a royalty stream that that ceased soon afterwards. While Fleurette was left unable to recoup its investment, Gecamines received full value for it.

This should not come as a surprise. Fleurette recognizes this as inherent industry risk in the mining sector. KCC, meanwhile, was well advised. It carried out its own verification, taking reasonable measures in accordance with its procedures to satisfy itself the sale was authorized by Gecamines and that there was an underlying basis for the sale. Independent international financial institutions advised both sides, and the transaction was priced in accordance with the valuations provided to the parties. Global Witness does not acknowledge these facts. Instead, despite these facts, it attempts to crititicize a deal which demonstrably and unequivocally benefited both Gecamines and the DRC.

Global Witness mistakes

Global Witness’ statement implies that KCC royalties were worth $880m to Fleurette. By referencing the Independent Technical Report of March 2012 prepared by Golder Associates, Global Witness was duty bound to provide an accounting and valuation in a bona fide manner, which they did not. Global Witness’ implication that the royalties were worth $880m shows a lack of understanding of the most basic business and accounting principles of Discounted Cash Flow and Net Present Value, used to value royalty streams (as well as a host of other assets that are expected to provide value into the future).

Even though Golder Associates provide a very conservative 10% discount factor to their valuation of the KCC project (including royalty cashflow streams they expected to be generated), Global Witness applied 0% discount when expressing the worth of the royalty stream in their statement. If they had applied an industry-standard 15% discount factor, the cashflow they misleadingly referred to would have determined a $245m valuation for the royalty right until 2030.

There is another valuation factor that Global Witness has omitted entirely, even though it hugely impacts the assessment of value for the KCC Royalty. Crucially, AHIL’s royalty right will almost certainly fall away in on 1 March 2019. As per the terms of the original KCC JV Agreement between Katanga, Gecamines and KCC (all publicly available), Gecamines has a “Replacement Reserves” obligation which requires it to deliver 4m tonnes of copper reserves and 200,000 tonnes of cobalt to KCC. If it doesn’t, under the terms of the agreement, Gecamines needs to pay $285 million to compensate KCC. If it is not able to do that, the JV Agreement requires the repayment to be made by way of set-off of the royalty, ie KCC will withhold the royalty until that debt has been paid. In short, the royalty that Fleurette paid for will not be paid to Fleurette from 1st March (assuming KCC is back in operation and paying royalties), but will be used to cover off a pre-existing Gecamines debt.

Global Witness also intentionally omitted the annual rental deduction of $1.2m from their calculation and 10% withholding tax on royalties.

Questions for Global Witness

Unfortunately for AHIL and KCC, the project ceased production in September 2015. AHIL does therefore not expect to receive any more royalties, and will have suffered a huge loss as a result – as royalties paid up to this point were far less than the amount AHIL paid for the royalties. This is an example of how industry risk can play a major part in the life of a DRC project in addition to the broader risks associated with operating in a country like the DRC.

Global Witness needs to be held to account on this occasion given the unnecessary damage this misleading report will do to the DRC’s extremely delicate economy and the reputation of Gecamines as well as Fleurette, which is leading the recovery effort following the collapse of global commodity prices. In essence, this was a good deal by Gecamines, independently verified by multiple stakeholders, which safeguarded value for the DRC, but a poor deal for Fleurette. It is deeply regrettable Global Witness is publishing such inaccurate information.

-Ends-

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About Fleurette – http://www.fleurettegroup.com / LinkedIn  / Twitter

The Fleurette Group of Companies (“Fleurette”) is an entrepreneurial business with significant investment in diverse sectors, including natural resources, infrastructure, agriculture and technology. Fleurette has substantial investments and operations in the Democratic Republic of Congo (DRC). The parent company of the group, Fleurette Properties Limited, a Dutch resident company, is owned by Line Trust Corporation Limited strictly and solely as trustees of the Ashdale Settlement, a trust established in 2006 for the benefit of the family of Dan Gertler. Mr Gertler is a citizen and resident of Israel and the DRC (and honorary counsel to the DRC) and is committed to developing the country’s natural resources and infrastructure, while investing in the Congolese people and their communities.

Fleurette has a proven track record of successful co-operation with diverse parties, including the DRC State-owned mining company Gécamines, and to date has brought more than USD $7 billion of investment into the DRC, on top of its USD $2 billion in private investment. As a result, Fleurette’s subsidiaries and partnerships support around 30,000 jobs in the DRC and are amongst the DRC’s leading taxpayers, contributing significant revenues to the State.

Fleurette is also a major contributor to social development in the DRC through the Gertler Family Foundation (GFF) and through direct investment in social infrastructure. The GFF is the largest charitable organization in the DRC, funding more than 50 programs and projects across the DRC, which help tens of thousands of Congolese every year. These include rebuilding key hospitals, notably the Kisangini “Hospital du Cinquantenaire”; supporting the Operation Smile campaign in Lubumbashi and Kinshasa; rebuilding Blaise Pascal School in Lubumbashi; and supporting the Lubumbashi Zoo.

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[Wish I had a bigger Microphone] The World right now is too Bloody…

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There aren’t only murders and mysteries on the telly, its real life and not fiction as the Syrian civil war continues rapidly without whomever force and whomever ally around Aleppo or other check-points where the Presidents force, rebels or ISIS are shooting. The bullets don’t have names, but the men and woman on the side-line and at the battle who dies does; the men and woman who loses their life for themselves or a Nobel-cause.

As much as there are forces battling inside the Iraq nation as Government Forces are attacking together with American soldiers ISIS stronghold around Mosul. There are continued fighting inside of Afghanistan. Still battles between civilians and the Indian Army inside the Kashmir state that has issues there and on the Pakistan side of Kashmir. The long battle for freedom or justice, as the Kurds are battling for in Syria, Turkey and in Iraq; being the minority in the middle of the civil war in Syria and Iraq.

That is just some places, as the deteriorating state of affairs are attacking all sort of freedoms inside Ethiopia, as the army and Aghazi squad are killing and harassing the people’s in Amhara and Oromia states. Together with the arrests of bloggers, silencing media outlets, and detaining demonstrators, burning the homes of people and inflicting violence on the citizens. This state of emergency is used as a useful tool to oppress, silence and make sure the violence and killings doesn’t get out; while the Central Government works to find reasons and solutions to ways of total control of minds and bodies in the states of demonstrations against the Addis Ababa regime.

In Burundi the central government are using the Police and army, together with the Imbonerakure that are detaining, harassing, killing and torturing civilians, silencing the opposition and the ones not loyal to the  President Pierre Nkurunziza narrative of keeping power by any means. The Burundian Government has claimed that the Rwandan Government has created armies and guerrillas that wished for a coup d’état against the Nkurunziza regime. Therefore the fleeing civilians are in the wind as the Rwandan government has been wonder for a spell, if they would banish the Burundian refugees a place in the country.

FARDC Beni May 2016

While in the Democratic Republic of Congo, several guerrillas are still running wild, burning and killing villagers in the States of North and South Kivu, Katanga and so on. Where the foreign based groups that have been started in Rwanda and Uganda, continues to battle the locals for the valuable minerals; as even today a former M23 Commander Sultani Makenga who been in Uganda has crossed with a militarized group, surely from Kisoro as before to cause more havoc in the Kivu’s. The ADF-NALU, Mayi-Mayi and others doesn’t create enough death and crimes against humanity already, as the MONUSCO and FARDC haven’t the ability or will to silence them.

In South Sudan, the internal battle that started in July 2016, the resurgence of skirmishes between the SPLA/M and the SPLM/A-IO who are the TGNU and the Opposition party, which is the armies for President Salva Kiir and his former First Vice-President Riek Machar. That has since July battled each other with forces, in Western Bahr El Ghazal State, Equatoria State and Upper Nile State. There been fighting between the two in other states, but just show how big and powerful the forces are. The South Sudanese civilians are the losers who flees to Ethiopia, Uganda and Democratic Republic of Congo, even in Congo because the Opposition we’re there has been asked to leave to other destinations. Therefore the internal power-struggle those fear of genocide, as still creating implications inside other nations.

In Somalia the Al-Shabab, the different state continues to have infighting together with the AMISOM mission. The running battles for land between Galdumug Interim Administration and the Puntland Government inside the Federal Republic of Somalia. Doesn’t really help for a peaceful session and making dialogue in the war-torn nation where Piracy and Khat been the ways of securing funds for ammunition and AKs, not for building a state and security.

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Eritrea is closed and the continuation of the flow of refugees, as the internal controlling central government that forces the freedoms and liberties, as the men and woman does what they can to even enter Ethiopia, where they are badly treated. Eritrean reports are staggering as they are even supporting internal guerrillas in Ethiopia and Djibouti to unsettle their neighbours.

There are wars and running battles between government forces and rebels in Central African Republic, Mali, Mozambique and so on. This is happening in silence and without little flash, even as the ones are guerrillas like Boko Haram that are going in between Nigeria and Cameroon, to stop the Government from functioning and spreading fear of locals.

What is worrying how these actions continues, and how there are other I could mention, the issues in Libya, the Algerian complex and the Western Sahara colony of the Kingdom of Morocco.

Peace Ethiopia

The death that dies in silence, in the midst of homes, villages where their families have been living for decades, while big-men fight like two elephants; the grass get hurt, but the big-men be fine. The same is with all of these civil wars, the civilians are dying, the societies are deteriorating, the central government are controlled by little amount of people instead of procedure and rule of law.

The worry is how it becomes pro-longed, how the innocent dies and the power-hungry survive and the lucky get refugee somewhere else in uncertainty, like for how long can they stay, as been seen with the Kenyan Government work to get rid of Somali refugees in Dadaab Refugee camp during this calendar year, while the Somalian Federation if far from peaceful. Even as the Ethiopian troops has went home again surely to use their knowledge to chop heads in Amhara and Oromia. That is what they do now, they just doesn’t want people to know about it.

We shouldn’t allow this actions to happen, this killings, this violence and the silence of freedom, liberty and justice to our fellow peers, we should act upon it, question our power-to-be and the men who rules over these armies, the ones creating the havoc and the ones who are behind the crimes against humanity. Those are the ones that earning money on the wars and the ones that doesn’t want the words on the acts; those are the worst ones in it all as they are accomplices to destruction of lives and societies as we speak. Peace.