July 8 (Bloomberg) -- Eurasian Natural Resources Corp., a miner of metals in Kazakhstan, risks hampering its search for a chief executive officer and losing managers should it fail to resolve board conflicts, independent director Paul Judge said.
“The current uncertainty about the board’s future format must unfortunately increase the risk of other senior managers leaving,” Judge said in an e-mailed response to questions yesterday. “It also means that it is more difficult to assemble a good short-list of potential chief executives.”
ENRC is down 22 percent this year in London, compared with a 2.6 percent gain in the FTSE 100 Index of U.K. stocks, after a spate of management reshuffles beginning when then-CEO Johannes Sittard took over as chairman in August 2009. Felix Vulis became the new CEO only to submit his own resignation on Feb. 4, 2011. He remains in the post while the company seeks a replacement.
The situation deteriorated on June 8 as shareholders voted against rehiring independent directors Richard Sykes and Kenneth Olisa, while two other directors also left and ENRC set up a review to restructure the board. On June 13, Company Secretary and General Legal Counsel Randall Barker quit.
“We shall be announcing our half-year results in mid-August and I would hope that this governance review will be completed by then,” Judge said. The review will probably follow the recommendations of the Institute of Chartered Secretaries and Administrators, a corporate-governance adviser, he said.
Genesis of Dispute
ENRC, based in London, said June 16 Sittard will “serve at the pleasure of the board” after the Daily Telegraph reported the same day that the ICSA recommended he step down as chairman.
Arguments between independent board members and the main shareholders followed Sittard becoming chairman, Olisa said in a July 1 interview. The dispute worsened with ENRC’s purchase in 2010 of a tailings-project license in the Democratic Republic of Congo that was claimed by First Quantum Minerals Ltd., he said.
First Quantum, pursuing an arbitration case against Congo for revoking the Kolwezi license in August 2009, has submitted a complaint against ENRC to the U.K. Financial Services Authority and is suing ENRC subsidiaries in the British Virgin Islands.
ENRC’s lawyers advised the board the license was legally canceled and transferred to companies affiliated with Israeli investor Dan Gertler by Congo, while a suit by First Quantum was likely, said Judge, who voted against the deal.
“On the scale of ENRC, it was a small acquisition and I felt that it was not worth the reputational risk or the likely diversion of management time,” he said.
ENRC, which produces ferroalloys, iron ore, aluminum and power in Kazakhstan, and mines copper and cobalt in Congo, paid $175 million and provided a $400 million loan facility to companies affiliated with Gertler as part of the transaction.
ENRC required Gertler to sign a letter saying he wasn’t involved in the loss of First Quantum’s license, Judge said.
The company’s corporate governance review, led by Sittard and announced at the annual general meeting, is proceeding on schedule and is due to be completed “by the end of the summer,” said Charlotte Kirkham, a spokeswoman for ENRC.
“There is no change to this timetable and in the meantime the views of stakeholders from every relevant constituency, including of course those of Sir Paul, are being solicited and will be taken into account with a view to arriving at the right size and structure of the Board to support the Group’s next phase of growth whilst fully complying with the governance code,” Kirkham said.