ENRC Congo deal is passed despite largest shareholder's lack of support

ENRC Congo deal is passed despite largest shareholder's lack of support

Simon Goodley

The Guardian

28 December 2012

The largest shareholder in Eurasian Natural Resources Corporation, the embattled FTSE 100 mining group, has refused to back a deal to buy out the company's controversial business partner in the Democratic Republic of the Congo, as the company was separately accused of opening itself to the "gravest of corruption risks".

Kazakhmys, another FTSE 100 miner, which owns a 26% stake in ENRC, abstained from a vote on Friday to approve the transaction, which was waved through with the support of 99.24% of the votes cast - although only 61% of the company's shares were voted in favour of the deal.

The company declined to explain why it opted not to back the deal, which has always been contentious.

Daniel Balint-Kurti, a representative of anti-corruption group Global Witness, told the meeting: "I strongly oppose this deal as a shareholder of ENRC. I think you are laying yourself open to the gravest of corruption risks with this, which you've already outlined in your prospectus. And whatever the legalities of it, it is completely morally wrong to rip off one of the poorest countries in the world in such a blatant fashion." ENRC has always said it is "resolutely opposed" to bribery and corruption.

The company is paying controversial Israeli billionaire Dan Gertler $550m (£340m) for his 50% stake in their Congo copper mining partnership, following months of pressure from politicians and campaigners.

Gertler, who is a close friend of DRC president Joseph Kabila, has been accused of being allowed to buy the country's mining assets on the cheap. He has consistently denied the allegations and, in an interview with Bloomberg earlier this month, declared he should be awarded a Nobel prize for his work in the DRC, which remains rooted to the foot of the UN's human development index.

ENRC will now control 100% of the Camrose Group, which holds stakes in a series of the country's mines. ENRC's chairman, Mehmet Dalman, added: "This transaction is an integral part of the corporate governance and company structure optimisation which I set as a key priority when assuming the chairmanship. It is a value-enhancing transaction which will benefit both ENRC and, importantly, the people of the DRC."

Cracks in ENRC's relationship with Gertler began to emerge in June when Dalman, who became chairman in February, failed to back the Israeli. When asked by the Guardian if he had ever had any concerns about doing business with Gertler, Dalman replied: "Oooh ... You know that is such a leading question I'm not even going to respond to it, right? ... Any comment I make, whatever you write down, it will not look right. Why would I answer that question? It is a no-win situation for me."

ENRC's circular to shareholders outlining the deal also contains a clause that states that Gertler's companies cannot "materially and adversely interfere in the Camrose Group's relationships with contractors, suppliers [and] governmental entities" nor "initiate any action or procure, facilitate or encourage any action to be taken by a governmental entity ... which results in ... assets of the Camrose Group being confiscated or seized".

The Camrose deal was always likely to be approved as ENRC is 45% owned by a trio of founders - Alexander Machkevitch, Patokh Chodiev and Alijan Ibragimov - while the Kazakh state holds 12% of the shares. However, Kazakhmys had been widely expected to vote with the company's board.

ENRC has suffered a terrible 2012, during which its shares have lost 55% of their value. The company has investigated allegations of corruption in its business in Kazakhstan, and is currently doing the same in Africa, in order to report its findings to the Serious Fraud Office.