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Congo, U.S.-Controlled Venture Lose $100 Million Vulture Claim

A court in Jersey in the Channel Islands ordered a joint venture partly owned by OM Group Inc. to pay a distressed-debt investor more than $100 million dollars owed by the Democratic Republic of Congo.

Groupement de Terrils de Lubumbashi, or GTL, must send “all future payments” owed to one of its partners, Congolese state-owned miner Gecamines, to FG Hemisphere Associates LLC until it satisfies a debt claim, the Royal Court said in e-mailed court documents today. FG Hemisphere, a so-called vulture fund, is trying to collect on a 1980s-era debt owed by Congo.

OM Group, the world’s biggest cobalt producer based in Cleveland, Ohio, is the majority owner of GTL, which is registered in Jersey. Gecamines owns 20 percent and George Forrest Group owns 25 percent.

The court rejected GTL’s claim that it lacked jurisdiction and said FG Hemisphere could collect the debt through Gecamines because it is “an organ of the state.” GTL, Congo and Gecamines can appeal the decision, according to the documents.

OM Group didn’t immediately respond to e-mail and voicemail requests for comment on the decision. Gecamines Director General Calixte Mukasa called the decision “incredible and revolting” when reached by phone today in Lubumbashi. The company will appeal, he said.

FG Hemisphere bought the debt in 2004 from Energoinvest d.d., a Sarajevo-based company that won two arbitration cases against Congo at the International Chamber of Commerce in 2003 over unpaid loans. The loans, which originally totaled about $37 million, according to the court documents, were for power- transmission lines and a hydropower dam near Gbadolite, the home of former Congolese dictator Mobutu Sese Seko. Mobutu died in 1997.

Growing Debt

The debt is now worth more than $100 million in principal, fees and interest, and grows by about $27,500 a day, according to Jersey Court of Appeal documents. Attempts to negotiate a settlement failed, according to the Royal Court documents.

Since buying the debt, FG Hemisphere has frozen hundreds of millions of dollars owed to Congo through court cases around the world in an attempt to enforce the ICC’s 2003 ruling.

In November 2008, a South African court effectively halted sales of electricity from Congo to South Africa by ruling that FG Hemisphere could seize any payments for Congolese power sold to the country. In February, Hong Kong’s Court of Appeal froze about $100 million from a signing bonus for Congo’s $6 billion minerals-for-infrastructure deal with China until the ICC claim is resolved. Congo is in the process of appealing.

Payments Frozen

Through June 30, the Jersey injunction had already frozen $57.7 million owed to Gecamines by GTL, according to OMG’s second-quarter report. The company releases its third-quarter report tomorrow. GTL operates a smelter in Congo that is OMG’s primary source of cobalt.

FG Hemisphere has also tried to seize Congolese diplomatic property in the U.S., according U.S. Court of Appeals documents. Last year, the fund tried to confiscate payments to Congo by a joint venture involving Randgold Resources Ltd. and AngloGold Ashanti Ltd. In February, a Jersey court denied the request, saying it could have ruined a deal in which the two companies took control of Africa’s largest unexplored gold field, according to Jersey Court of Appeal documents.

An FG Hemisphere official, who declined to be identified because the case may face an appeal, wouldn’t comment on the decision when contacted today by e-mail.

Vulture funds buy debts at a discount when a country is in default and attempt to recoup as much of the funds as possible through negotiation or litigation.

Congo is rich in natural resources including gold, copper, cobalt and diamonds, according to the U.S. Geological Survey. The country is recovering from more than four decades of dictatorship and war that destroyed its infrastructure.

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