How do three old friends build a business empire in Kazakhstan? Just as in Russia-buy assets on the

How do three old friends build a business empire in Kazakhstan? Just as in Russia-buy assets on the cheap.

9th March 2006

After a day carving the slopes in the French Alps, three middle-aged men settle in for tea in the lounge of Les Airelles, a luxurious inn at the top of the mountains in Courchevel, France. Sinking into a chintz sofa, Alexander Machkevich, a head taller and more than a few pounds lighter than his two companions, exchanges greetings with a gaggle of the hotel's well-heeled guests. His shorter, stouter pals tease him about being the handsome one who gets all the attention. "He is the face of this trio," admits Patokh Chodiev. Seated to his left, Alijan Ibragimov laughs approvingly as Chodiev recounts the time they insisted Machkevich grow back a mustache after he had shaved it off.

Every Christmas the three men gather in Courchevel to trade barbs, ski and, most importantly, tend to a Swiss-incorporated metals and mining conglomerate, Eurasian Natural Resources Corp., in which they own equal shares. Last year ENRC generated an $800 million profit on sales, mostly in Kazakhstan, of $2.9 billion. Taken public, it might command a market value of $6 billion.

Most of the conversation at Courchevel this year was spent figuring out how best to tell their story to smooth the way for a listing on the London Stock Exchange. Kazakhstan is a geopolitical link between China, Russia and Europe and is abundant in oil and precious metals. GDP has been expanding by 9% a year for the last five years, enticing an influx of foreign investment. The offerings of two other Kazakh mining companies that went public in London in the past six months were four times oversubscribed.

But the trio carries some baggage. They battled with Britain's billionaire Reuben brothers over the assets that made them rich. Regional experts have accused them of orchestrating sweetheart deals with Kazakhstan's long-serving president, Nursultan Nazarbayev, and getting "special commissions" from steel tycoon Lakshmi Mittal. Then there are the money-laundering charges and reams of bad press. The partners scoff at most of these allegations. Indeed, when asked to comment on the rumor that Chodiev was once a KGB agent, they erupt in laughter. "These tall tales about us are endless," says Machkevich.

Their tale begins in Kyrgyzstan, the country south of Kazakhstan where Machkevich and Ibragimov grew up. The two met at a wedding in 1971. (Chodiev, a native of nearby Uzbekistan, was studying in Moscow at the time.) Over the next 16 years they pursued separate careers. Chodiev took a job with the Ministry of Foreign Trade and lived in Japan for several years; Machkevich became one of the youngest university deans in Kyrgyzstan; Ibragimov, also in Kyrgyzstan, worked as a manager at various industrial plants.

Lured by Gorbachev's economic reforms, Machkevich and Ibragimov moved to Moscow in 1987 to trade "anything and everything" that produced cash--scrap metal, iron ore, aluminum and oil. Chodiev joined them two years later. "You paid a stupid price, sold at a crazy price and made a lot of money," recalls Chodiev. Much of their trading was done with companies from Kazakhstan, a country they knew well, having grown up in neighboring Kyrgyzstan and Uzbekistan. In Kazakhstan they exploited the Soviet Union's lax trading rules and porous borders, selling commodities to the West and importing computers, televisions and manufacturing components--anything in high demand. They also formed a joint venture with Permoil (now part of Lukoil, Russia's largest oil company) to refine crude oil.

Though the large loopholes were good for business, the region's increasing lawlessness created security risks for their families, they say. Today they reside in the U.K. and Switzerland.

By 1994 the threesome had established 25 different operating companies. But the hyperinflation raging at the time in Russia and Kazakhstan yielded chaos. Kazakhstan's export business came to a near standstill, and its domestic output fell by 39%. Industrial plants that were running at capacity a few years earlier were driven into near-bankruptcy.

The partners smelled opportunity. Though they knew they could buy the newly distressed assets for a song, they lacked the capital to finance the deals. They turned to another big player in the Soviet Union's metals markets, Transworld, a U.K.-based commodities behemoth run by billionaire brothers David and Simon Reuben and trader Lev Chernoy. With little more than a handshake, the two camps formed a joint venture via a number of offshore entities to buy four of Kazakhstan's largest mining companies for an initial $300 million investment. The trio says they provided the local management expertise and Transworld brokered the commodities abroad.

But the relationship crumbled in 1997 when Transworld was fined $250 million by the Kazakh government for, as Transworld claims, unpaid taxes, or, as the trio claims, for breaching transfer-pricing regulations. Transworld refused to pay the penalty and denied the charges, then sued the trio after they set up their own trading companies. After three years of court battles in Kazakhstan, the British Virgin Islands and London, Transworld agreed to sell its joint-venture interest to the trio (neither party would comment on the terms); all outstanding taxes and liabilities against Transworld were dropped.

Before the Transworld deal came unglued, the partners worked together to land a management contract to run Aluminum of Kazakhstan, a state-owned alumina manufacturer whose employees hadn't been paid in a year. The trio turned things around by demanding cash payments rather than relying on traditional barter deals. In just a few months employees began getting paychecks and lenders were made whole. When Kazakhstan's government, led by President Nazarbayev, auctioned off the company a few months later as part of its privatization program, the trio won the bidding.

In 1995 they successfully bid for SSGPO, an iron ore mine, and Kazchrom, a ferroalloy producer. The following year they landed a coal mine and a power plant. It was this series of deals that cast a pall over the trio--murmurs of insider dealing and unusually close ties to Nazarbayev. "People have questions about how they became so rich," says Zeyno Baran, a director at think tank Nixon Center. "They didn't do business in a way that is competitive or transparent. It's mainly based on relationships."

Though the details surrounding the early days of Kazakhstan's privatization efforts are fuzzy, the trio denies receiving special consideration from the government, especially from President Nazarbayev, who is known to keep a tight rein on foreign investors.

"These guys are not Kazakh, yet somehow they got the trust of the president and used their relationship with the president actively," says Leyla Abdimomunova, a Kazakhstan analyst based in the capital, Astana. Other regional experts agree that the troika received special favors; at least two separate private investigators have looked into the trio's ties to Nazarbayev, one of which yielded hotel documents that show they traveled together in 1998. Alexander Ignatov, whose company consults in the former Soviet Union states, says rumors are rampant that the three partners were active financiers of Nazarbayev's latest presidential campaign. But they deny any political lobbying and only admit to meeting Nazarbayev five to ten times a year in their official capacity as members of the president's foreign investors council, to which they were appointed in 1998. "You don't know Nazarbayev," says Machkevich. "He is so difficult to get close to."

Controversy also arose in Belgium, where they are being investigated for money laundering and were witnesses in a government audit of Tractabel, a Belgian subsidiary of French utility Suez. The trio deny any wrongdoing and said they would welcome the chance to go to court and clear their name. But with the investigations nearly a decade old and no trial looming, a Belgian official who worked on the cases says they will most likely be dismissed.

Turmoil like that would drive most partnerships to ruin. But these three have forged an unbreakable bond. They finish one another's sentences, tease one another incessantly and keep close watch over one another's affairs. In the beginning they divided the management duties: Ibragimov was the operations man, Chodiev the strategist and Machkevich the public face. In 2001 they hired Johannes Sittard, an executive who worked for Lakshmi Mittal, to run the company. Sittard expanded ENRC into new minerals, including nickel in the Balkans and cobalt in Zambia. He is also guiding the company's biggest project to date--construction of an $800 million aluminum smelter in Kazakhstan. They also brought in Dutch tax lawyer Peter Hamelink to scrub the books. He believes the firm will be ready for a public offering by 2007. To raise the company's profile with international investors, ENRC plans to issue bonds by the end of 2006.

Yet, despite the trio's efforts to burnish their image, conspiratorial whispers persist. In 2002 the BBC reported that Mittal paid them $100 million when he bought Kazakhstan's steel plant and assorted property in 1995, an extraordinary fee considering the $400 million purchase price. The trio confirms the payment, though they claim it was for "services and parts," and today supplies the Mittal plant with iron ore pellets. A spokesperson for Mittal Steel (nyse: MT - news - people ) says the trio was not paid a special commission for helping broker the deal.

Mingling with magnates like Lakshmi Mittal also offers the trio other means to cash out: a sale or merger. Timothy McCutcheon, a mining analyst at Aton Capital, says: "They just want to make a nuisance of themselves so that the big boys come and take them out," says McCutcheon. "That is the standard business plan for this part of the world."

For now the three hobnob in Courchevel with other billionaires and share the decisions about where to take the company. "One head is good, but three is the best," says Ibragimov.