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Glencore makes 'logical' decision in DRC dispute, says RBC
Analysts at RBC Capital Markets said Glencore's settlement in its dispute over royalty payments to former business partner Dan Gertler further reduced near-term risks to its assets in the Democratic Republic of Congo.
Considering the magnitude of the valuation discount between Glencore and peers, RBC expects Glencore's shares to trade higher following the deal, which will see the mining giant pay Gertler 21m in royalties from the Mutanda copper mine in 2018 and 16.5m each quarter from the Kamoto Copper Company, starting in 2019.
RBC noted that the move to paying Gertler, who is subject to US sanctions, in euros appeared to have been orchestrated to circumvent the sanctions, but noted that, should there be any residual risks, Glencore had managed to move the dispute from Congolese courts to US courts.
"Considering the entire DRC investment (which we held at ~$13bn before recent disputes) was at risk of asset seizures via non-payment, this would seem to be a logical solution," RBC said.
RBC reiterated its 410p target price on the firm, noting that the "financial impacts of the resolutions, although more onerous, are hardly meaningful for the financial position of Glencore as a group".
Analysts continued to rate the shares 'outperform'.