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Posts Tagged ‘Kolwezi’

ENRC tensions grow as two directors dismissed

June 9, 2011 Comments off

“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

Disquiet over ENRC’s purchase of Congo assets

September 7, 2010 Comments off

“Anger is growing among London’s investor community over the decision by a FTSE 100 miner to buy a disputed copper project in the Democratic Republic of Congo.

Eurasian Natural Resources Corp, the London-listed Kazakh miner, last week bought a majority stake in a collection of Congo mining assets that includes the controversial Kolwezi project.

First Quantum Minerals, a Canadian copper miner, is fighting what it sees as the Congo government’s expropriation of Kolwezi and other assets. First Quantum and its partners spent $700m developing Kolwezi until September 2009, when a government prosecutor shut down the project citing contract violations. “

Source: Financial Times, September 3, 2010

Observations:

  • ENRC paid $175mln for a controlling stake of the asset that has been partly developed by Quantum Minerals. The government of Congo seized the asset after Quantum invested $700mln. The company and the government disagreed on the rights given to the company for prospecting and/or mineral extraction.
  • ENRC is strongly integrating vertically, buying mining assets around the world. The potential IPO of Zamin would make the ENRC benefit from the capital this would free up to develop the Bamin iron ore deposit in Brazil, one of the most important projects.

Implications:

  • Though the Kolwezi asset is a financially attractive asset many miners refrained from bidding as the government’s action against Quantum was regarded to violate the business code. Many miners will have been afraid of similar future action of the government in case they would buy the asset.
  • This year the government of Guinea decided to take part of the rights to the Simandou deposit away from Rio Tinto, saying the company did not honor the investment agreements made earlier. Redistribution of these rights have not yet led to a reaction in the mining industry that would hurt the reputation of a future owner of the rights.

©2010 | Wilfred Visser | thebusinessofmining.com