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ENRC tensions grow as two directors dismissed

June 9, 2011

“Private feuding within Eurasian Natural Resources Corporation, the Kazakh miner, spilled out into the open on Wednesday as investors in the tightly held company overwhelmingly voted against the re-election of Sir Richard Sykes, the senior independent director, and fellow board member Ken Olisa.

The public dismissal of the two directors highlights the deepening tensions within the FTSE 100 miner. It has been dogged by corporate governance concerns since it floated in 2007. Speculation about boardroom battles has intensified since the group announced controversial acquisitions in central Africa last year, most notably the purchase of mining assets in the Democratic Republic of Congo that the Congo government had recently expropriated from a Canadian mining company.

In particular it will focus attention on the position of foreign companies that list in London and rely on City grandees to give comfort to shareholders. The presence of boardroom heavy-hitters was especially valuable to ENRC during last year’s controversy over acquisitions in Africa, most notably the purchase of mining assets in the Democratic Republic of Congo that the government had recently expropriated from a Canadian mining company.”

Source: Financial Times, June 8 2011

Observations:

  • ENRC was formed in 2006 by consolidation of assets privatized in the mid ’90s. The founders are Alexander Mashkevitch, Alijan Ibragimov, and Patokh Chodiev; each still holding 14.6% of the shares, with the Kazakh government holding 11.7% and Kazakhmys 26%. Because Kazakmys abstained from voting the founders and government held at least 75% of the voting shares.
  • Current CEO Felix Vulis announced his departure in February, and the founders are rumored to want to replace several other executives and board members. The dismissal of the directors has tipped the weight of the board to the founder’s side, giving them significant power.

Implications:

  • Unless the dismissal of the independent directors came as a surprise to the persons in question the fact that they did not make a quiet move out of the board should be understood as a means to draw the attention to the governance issues of the miner. It appears that the founders and the Kazakh government want to strengthen their control over the company, even though it has mainly been expanding internationally in the past years.
  • The debates in the board about the acquisition of the projects in Congo including the Kolwezi asset, formerly owned by First Quantum, indicates a cultural difference between the Kazakh hardliners and the more western independent directors with more eye for corporate social responsibility. With various other Eastern companies listing on western stock markets this will be an issue that will surface more often in the future as many development projects are undertaken in politically unstable areas.

©2011 | Wilfred Visser | thebusinessofmining.com

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