Eurasian Natural Resources Corp. shareholder Alexander Machkevitch said he is considering joining his two fellow founders and the Kazakh government to make an offer for the mining company.
The deliberations are at a preliminary stage and there can be no certainty that an offer will ultimately be made for ENRC, Machkevitch said today in a statement. ENRC surged 27 percent to 291 pence in London trading, valuing the company at 3.7 billion pounds ($5.6 billion).
Machkevitch and fellow controlling shareholders Patokh Chodiev and Alijan Ibragimov own almost 44 percent of the company. ENRC has iron ore, ferroalloy and power-production operations in Kazakhstan, copper and cobalt businesses in Africa, and a Brazilian iron ore project. Today’s announcement followed a 58 percent slump in the past year because of lower commodity prices and corporate governance concerns.
“An offer for the company appears opportunistic given ENRC shares have been very weak,” Liberum Capital Ltd. said in a note. About 18 percent of ENRC’s shares are freely tradable, suggesting an acquisition cost of about $1 billion based on today’s share price.
The mining company advised its shareholders to take no action. “The board confirms that it has not received any proposal that could result in an offer or possible offer for the group,” ENRC said in a statement. Machkevitch has until May 17 to make a firm offer under U.K. takeover rules.
ENRC’s owners may consider selling its international assets after taking the company private, said Patrick Jones, a London-based analyst at Nomura International Plc.
Glencore International Plc has expressed interest in ENRC assets in the past, said Jeff Largey, an analyst at Macquarie Group Ltd. in London, and “there are certain components of it they would find very attractive,” especially in Kazakhstan, he said. The commodities trader and mining company might also be interested in ENRC’s operations in the Democratic Republic of Congo, Largey said.
Glencore’s Chief Executive Officer Ivan Glasenberg commented on the decline in ENRC’s stock at a Moscow conference yesterday.
“Its share price has fallen considerably on the back of commodity prices,” Glasenberg said. “Will there be some form of consolidation in Kazakhstan with Kazakhmys with the copper, with ENRC with their assets? I don’t know, but people will be looking at them.”
Shares in Kazakhmys Plc, Kazakhstan’s biggest copper producer which owns about 26 percent of ENRC, jumped 24 percent to 385.7 pence in London.
CEO Felix Vulis said March 20 ENRC was in talks with its five main owners on selling new shares to expand its free float and raise cash. The three founders each own 14.6 percent of the company, with the Kazakh government holding 12 percent.
“The strong underperformance of ENRC’s share price relative to its peers has presumably left the government and three founders dissatisfied,” Tony Robson, an analyst at BMO Capital Markets, said in a note to clients.
ENRC appointed Mehmet Dalman chairman in February 2012 to oversee a reorganization and upgrade corporate governance after corruption allegations. The U.K.’s Serious Fraud Office is investigating payments made by an ENRC unit in Kazakhstan, and anti-corruption groups have questioned its dealings in the DRC.
On April 11, the London-based company said Chief Commercial Officer Jim Cochrane had stepped down. On the same day, ENRC replaced Dechert LLP, a U.S. law firm hired to investigate corruption allegations.
In 2010, ENRC made a deal with Israeli billionaire Dan Gertler to take control of copper and cobalt mines he’d obtained from the DRC government, which had seized them from Vancouver-based First Quantum Ltd.
Anti-corruption groups including Global Witness have criticized the transaction, arguing Gertler obtained the assets at knock-down prices from the state as a result of his close relationship with the DRC president. Gertler denies he purchased companies at below-market rates. First Quantum also sued ENRC, which settled for $1.25 billion.
ENRC traces its roots to the founders’ participation in the 1990s privatizations of Kazakh state assets, which were gradually combined into a single group of companies and listed in London in 2007. Kazakhstan is ruled by Nursultan Nazarbayev, who has been president of the central Asian country continuously since its 1991 independence from the Soviet Union.