Legal Business Blogs

Glencore picks Freshfields as mining giant sues Colombia over coal deal

Mining and commodities giant Glencore has instructed Magic Circle firm Freshfields Bruckhaus Deringer to sue Colombia over claims the government sought to revoke parts of a coal mining license.

Glencore, which in March reported a 32% drop in annual profits after being hit by weak commodity prices, has filed an arbitration claim at the International Centre for Settlement of Investment Disputes (ICSID) in Washington DC over claims the Colombian government has sought to revoke parts of an amended concession agreement signed with government in 2010 to expand the mine.

The damages could run into billions of dollars, with a 1,637-page prospectus put out by Glencore as part of its $11bn IPO on the London Stock Exchange in 2011 stating it had spent $2.6bn on expanding coal production in Colombia. The plan was to double production at its Calenturitas and La Jagua mines to 20.7 million metric tonnes per annum by 2015, with $1.5bn spent on mining concessions, mining equipment, transport, port and other infrastructure up until the end of 2010. Two years after the amendment to the concession, then Colombian mines and energy minister Amylkar Acosta said Glencore must pay higher royalties after purchasing different companies operating in Colombia and reducing costs through integration.

A team from Freshfields, led by Washington-based Nigel Blackaby, is representing Glencore in a claim brought under the 2006 Switzerland-Colombia bilateral investment treaty. Blackaby is global co-head of Freshfields international arbitration group and its Latin America group.

Dechert has been instructed to defend Colombia, with Paris-based Eduardo Silva Romero leading a team that includes Washington-based international counsel Alvaro Galindo and Juan Felipe Merizalde Urdaneta.

Glencore’s activites in Colombia have been dogged by scandal, with at least 10 people murdered when paramilitaries seized a patch of land called El Prado next to Glencore’s Calenturitas coal mining concession in 2002, while communities have been rehoused over environmental damage and the firm has faced large-scale strikes by workers over low salaries.

In the past the metals firm has used Magic Circle firms Linklaters and Clifford Chance to implement plans to cut $10.2bn from the business’ $30bn debt pile, in Glencore’s biggest mandate since its $66bn acquisition of Xstrata in 2013. The legal team chosen by Glencore was the same team from Linklaters and Clifford Chance that executed the drawn-out Xstrata deal.

In disputes Glencore used Clyde & Co last year when it lost a high court case against Romanian oil company OMV Petrom. It was ordered to pay out just over $40m for fraudulently shipping oil of a lower than supposed quality to Romania in the 1990s.