Congo spectre hangs over ENRC as investors meet

LONDON Tue Jun 12, 2012 12:11am BST

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LONDON (Reuters) - Shareholders in Kazakh miner ENRC ENRC.L will meet its overhauled board for the first time on Tuesday, as the London-listed group tries to shake off a reputation tainted by deals in Congo that continue to raise governance concerns.

ENRC has tried to draw a line under a corporate governance storm that hit last year, when the 2010 purchase of a controlling stake in a disputed Congo operation, Kolwezi, was followed by a boardroom spat that pitted founding shareholders against some directors.

Last June's annual shareholder meeting ended with the abrupt departure of two of those directors, one of whom SAID ENRC'S behaviour was "more Soviet than City".

This year's meeting will be the first under the new chairman, veteran investment banker Mehmet Dalman, a move in February that has reassured some, but which has failed to boost the miner's stock.

A lack of clarity over the minority owners of African assets and an outstanding internal inquiry into whistleblower allegations of corruption at a Kazakh subsidiary have all weighed, analysts say. That internal inquiry, expected to conclude this month, is being led by law firm Dechert. The results are not expected to be made public.

"There is residual mistrust from some investors ... The company is not being given credit for the full potential value of the African assets it has acquired, but it is because it is not quite clear how it is all owned," analyst Gavin Wood at Panmure Gordon said. "They need to give some more clarity."

ENRC settled the long-running and acrimonious battle over Kolwezi, the Congo operation expropriated from Canadian group First Quantum (FM.TO), with a $1.25 billion deal in January.

Weeks later it replaced its chairman with Dalman, in a move seen as a gesture to disgruntled minority investors in a group controlled by three founders, rival Kazakhmys (KAZ.L) and Kazakhstan.

ENRC has since brought in other new independent directors.

Its shares are still underperforming the battered London-listed sector, and the lack of clarity over Congo and related issues are likely to hang over ENRC as shareholders gather.

Shareholder advisory service Pirc has said investors should vote against ENRC's annual report, remuneration plans it considers "excessive", and changes to long-term incentive plans.

CONGO WORRIES REMAIN

In a memo published to coincide with the meeting, anti-corruption campaign group Global Witness on Tuesday revived questions over Kolwezi and other Congo deals that saw ENRC pay hundreds of millions to offshore companies associated with reclusive Israeli businessman Dan Gertler and which do not declare their full list of beneficiaries.

"Global Witness believes that these offshore structures could allow corrupt Congolese officials to benefit from these deals," the group said. "If this is correct, ENRC may have poured money into corrupt transactions."

ENRC said it was "committed to upholding the highest standards of corporate governance and implements a zero-tolerance policy to bribery and corruption across all of our operations", adding it had fully complied with regulations.

A spokesman for Gertler, an influential figure in Congo's mining sector, told Global Witness the businessman always operated with the "utmost honesty, integrity and fairness" and the beneficiaries of offshore firms associated with him were limited to his family.

Responding to the report, Gertler said Global Witness had not taken up an offer of an independent audit of its companies to establish the beneficiaries.

Last month, Global Witness published a report on Gertler and dealings with Glencore (GLEN.L) in Congo, saying the commodities trader should provide more detail on what it said were "potentially corrupt deals" - again because of a lack of clarity over beneficiaries in offshore firms.

Tuesday's report on ENRC centred on five deals done by the miner in the Democratic Republic of Congo.

They included the 2009 option to buy 50 percent of SMKK copper and cobalt mine, the controversial acquisition of the Kolwezi tailings project, and the likely acquisition of two other licenses formerly held by First Quantum from offshore companies whose beneficial owners are not known.

Shareholders in ENRC, which has diversified away from its core Kazakh business since 2008, are also likely to question the company about tentative plans to split those original assets from its international projects and operations.

(Editing by Dan Lalor)

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