ENRC to Pick Machkevitch, Helping Resolve Dispute, Analysts Say

Eurasian Natural Resources Corp. will probably select billionaire founder Alexander Machkevitch as chairman, helping resolve a dispute over board appointments and bringing clarity to decision-making, according to analysts.

“Machkevitch becoming chairman is an event that most investors and analysts expect,” said Anindya Mohinta, an analyst at Citigroup Inc. “It’s not a bad thing when you look at Russian and CIS companies like Kazakhmys.” London-listed Kazakhmys Plc, Vedanta Resources Plc and Antofagasta Plc have founding shareholders who also serve as their chairmen.

ENRC is preparing to announce the result of a three-month corporate governance review that began June 8 after shareholders voted against rehiring independent directors Richard Sykes and Kenneth Olisa. The exercise also followed the Feb. 4 resignation of Chief Executive Officer Felix Vulis after board conflicts. He has remained in the post while the company seeks a replacement.

A row between independent directors and major shareholders began August 2009 as Chairman David Cooksey was replaced by then CEO Johannes Sittard, and Vulis was hired, Olisa said June 10.

“That appointment shifted the gravity of the board from independent chairman, independent non-executives and therefore independent board to basically dependent chairman and dependent directors,” he said of the producer of metals in Kazakhstan.

Machkevitch applied for U.K. Listing Authority clearance to be chairman, the Observer said Sept. 11. Paul Judge, one of two U.K. independent directors, opposes the bid and plans to become chairman himself, it reported. The authority wouldn’t comment on the matter and Machkevitch didn’t respond to e-mailed questions. Charlotte Kirkham, an ENRC spokeswoman, declined to comment.

‘Only Solution’

“Machkevitch as chairman is the only solution,” said Leila Kulbayeva, an analyst at Kazakhtan-focused brokerage Visor Capital. “That will bring clarity to the decision-making.”

It would end any misunderstanding over whether the board is dominated by the main shareholders or independent directors.

ENRC’s three founders, Machkevitch, Alijan Ibragimov and Patokh Chodiev, hold 14.6 percent of London-based ENRC, which makes ferroalloys, iron ore, aluminum and power in Kazakhstan.

“ENRC seemed to have an independent board of directors but the shareholders’ influence became obvious,” Kulbayeva said. “For this, minority shareholders decided to punish the company by selling off. So what’s the solution to that? Just officially put those influencing the strategy on the company’s board.” It won’t be the only London-listed company that does so, she said.

The company needs to explain its management deficiencies and how to resolve them in its review, Mohinta said. It should also “urgently” hire a CEO and more independent directors.

Weak in Front

“ENRC has a strong asset base but very weak corporate structure in the front,” he said. “People are generally confused about how decisions are made and if the board is really independent. There are lots of questions you get from investors on this. That’s the perception they need to change.”

The company, which also mines copper and cobalt in the Democratic Republic of Congo and has projects in Brazil, may seek to spin off its foreign operations, Kulbayeva said.

“Some investors may prefer a CEO with more experience in Africa and Brazil,” she said. “I think appointing Machkevitch as chairman and Felix Vulis as CEO and then spinning off the international business would be a positive.”

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