Following the launch of a corruption probe in the UK involving a natural resources giant with strong links to Kazakhstan, the company, ENRC, has become the subject of a hostile takeover bid by powerful interests with connections to the Central Asian state.
The three oligarchs who founded the London-listed Eurasian Natural Resources Corporation – Alexander Machkevitch, Patokh Chodiev and Alijan Ibragimov (who are all believed to have powerful connections in Kazakhstan) – have teamed up with the Kazakh government to mount the takeover. Together the four parties hold a combined 55.33 percent of ENRC, with the three founders owning equal shares of 14.56 percent each and Astana owning 11.65 percent.
ENRC’s committee of independent directors has rejected the bid on the grounds that it “materially undervalues ENRC,” according to a May 17 statement.
The committee said that the City of London’s Panel on Takeovers and Mergers, which regulates takeover bids for London Stock Exchange-listed firms, had granted its request for an extension until June 3 for a decision on the bid, to allow the consortium time to make a better offer – something there is no guarantee it will do.
The takeover panel issued a statement on May 20 saying that another London-listed company linked to Kazakhstan, the Kazakhmys copper miner, is officially to be treated as part of the takeover bid, because Astana plans to use its stake in Kazakhmys to finance the ENRC buyout.
The United Kingdom’s Serious Fraud Office (SFO) has launched a criminal investigation into alleged corruption at a London-listed natural resources giant with strong links to Kazakhstan, British media report.
The SFO probe targets the Eurasian Natural Resources Corporation (ENRC), a company with interests in the energy and mining sectors mainly in Kazakhstan but also in China, Brazil and some African states. It is partially owned by three oligarchs believed to have powerful connections in Kazakhstan. The Kazakh government also holds a stake.
“The focus of the investigation will be fraud, bribery and corruption relating to the activities of the company or its subsidiaries in Kazakhstan and Africa,” The Guardian newspaper quoted the SFO – an arm of the British government – as saying in an April 25 statement.
ENRC, which is listed on the London Stock Exchange, said in a statement the same day that it “is assisting and cooperating fully with the SFO” and “is committed to a full and transparent investigation of its procedures and conduct.”
The news follows a troubled period for ENRC, whose chairman Mehmet Dalman resigned on April 23, less than two weeks after a law firm appointed by ENRC to pursue an internal inquiry into the corruption allegations – first made by a whistleblower – was abruptly replaced.
A band of crooks in Kazakhstan seems to think that a mine is a terrible thing to waste - but authorities see things differently.
Officials in Kazakhstan have announced they charged “several” people involved in a case of illegal gold mining in the western village of Bestyube in Akmol Province, Russia’s Lenta.ru, is reporting. Another suspect, who appears to have been a co-organizer of the illegal operation, remains on the lam and faces an Interpol warrant. The illegal mining operation is believed to have started in 2012, Lenta.ru reported.
In the course of the investigation, police discovered “at least seven” units of drilling and sifting equipment at several addresses, as well as more than six kilos of ore containing gold materials worth about $265,000, according to Lenta.ru. A separate report distributed by the newskaz.ru website stated that several units of processing equipment were discovered at seven addresses. Neither outlet named the suspects. The ore came from mines belonging to the Kazakh nationalized mining agency, Kazakhaltyn.
Several news outlets also reported a sinister-sounding development: one of the suspects is said to be one of the leaders of Bestobe Jaamat, a Salafi Islamist group. While not illegal in Kazakhstan, the movement, which advocates adherence to a pure form of Islam, is considered radical and “non-traditional.” The newskaz.ru report throws in a mention of unregistered weapons being discovered alongside the ore.
A state commission in Kyrgyzstan has used claims of environmental damage at the country’s largest, most lucrative gold mine, Kumtor, to argue for a new agreement with the company operating the mine, Toronto-based Centerra Gold, and to fine Centerra almost half a billion dollars.
Economics Minister Temir Sariev, who headed the commission, says he has evidence, including two reports by European scientists, that the mine is inflicting “colossal damage” on the environment.
But, until now, hardly anyone in Kyrgyzstan has seen those scientists’ supposedly damning reports.
In December and February the commission, acting, respectively, through two state agencies – the State Inspectorate for Environmental and Technical Safety (SIETS) and the State Agency for Environmental Protection and Forestry (SAEPF) – fined Centerra approximately $467 million for alleged environmental damages, waste disposal and water treatment violations dating back to 1996. Centerra calls the claims “exaggerated or without merit.”
In its report for the state commission, SIETS said discharge from Kumtor is a "serious contamination threat" leading to "irreversible environmental impact on water resources."
Yet the two independent environmental audits Sariev commissioned, carried out by Slovene and German researchers last fall, found nothing unusual in Kumtor’s discharge. The Slovenes said water samples do not “indicate an environmental pollution or contamination situation.” The Germans said cyanide (used in the gold milling process) and heavy metals in Kumtor effluent “are significantly below the limit values of the German Ordinance on Waste Water.”
Basically, the reports – which EurasiaNet.org has seen – do not support the state commission’s environmental claims.
An industry survey has called Kyrgyzstan one of the world's “least attractive” places for mining companies to invest. In one category, Kyrgyzstan, which is embroiled in a contract dispute with its largest foreign investor, ranked last for "uncertainty concerning the administration, interpretation and enforcement of existing regulations.”
The survey, released February 28 by the Fraser Institute, a non-profit Canadian research outfit, is based on interviews with representatives of 742 mining companies working in 96 jurisdictions (countries, states, provinces) who spent a total of $6.2 billion in exploration worldwide last year.
Fraser uses something called the Policy Potential Index (PPI), “a comprehensive assessment of the attractiveness of mining policies in a jurisdiction, [which] can serve as a report card to governments on how attractive their policies are from the point of view of an exploration manager.”
Overall, Kyrgyzstan ranked 92nd of 96.
Miners answered questions about topics like environmental and tax regulations, land disputes, “socioeconomic agreements, political stability, labor issues” and security. Corruption (where Kyrgyzstan also plumbed the bottom of the rankings) was surveyed but not factored into the PPI.
Kyrgyzstan fared slightly better in “potential” and quite high in “room for improvement.”
Numbers released this week by Kyrgyzstan’s National Statistics Agency suggest a strike at the crucial Kumtor Gold Mine last winter played a major role in shrinking the country’s economic growth from 5.7 percent in 2011 to minus 0.9 percent in 2012.
Workers at Kumtor laid down their tools last February to demand parent company Centerra Gold cover their social security taxes. The walkout was resolved after 10 days, with Toronto-listed Centerra – which is one-third owned by the Kyrgyz government – agreeing to make the payments, even though it said the strike was illegal because it violated a collective agreement with workers.
By then the damage was done. Centerra later reported that while workers were neglecting the high-altitude open-pit mine, ice had formed there, and the company decreased its production forecast by one-third. It had previously predicted it would mine 575,000 to 625,000 ounces of gold in 2012; it eventually pulled 315,238 ounces from the ground.
The mine’s fundamental role in the delicate Kyrgyz economy is well documented. In 2011, Kumtor’s output accounted for 12 percent of Kyrgyzstan’s GDP, and over 50 percent of industrial production, according to official figures. That year, GDP was hurt by another incident: In November, villagers blocked the road leading to the mine. Their weeklong protest drove down the country's year-on-year GDP growth from 8.5 percent for the first 11 months of the year to 5.7 percent by year's end.
Investors operating in three post-Soviet Central Asian republics face an “extreme risk” of having their businesses expropriated, according to a survey released last week in the UK.
Maplecroft, a Bath-based political risk consultancy, said on January 9 that it had found plenty of reasons to be wary of the business climate in Kyrgyzstan, Tajikistan and Turkmenistan after “evaluating the risk to business from discriminatory acts by the government that reduces ownership, control or rights of private investments either gradually or as a result of a single action.” Recent fits of resource nationalism in Kyrgyzstan -- where the Kumtor gold mine, operated by Toronto-based Centerra Gold, accounted for 12 percent of GDP in 2011 and more than half the country’s industrial output – and rampant authoritarianism in places like Tajikistan and Turkmenistan have led Maplecroft to rank these countries among the most risky in the world. Not far behind, Kazakhstan and Uzbekistan both fall in the “high risk” category.
It’s rare a Chinese businessman publicly airs a complaint about doing his job in Central Asia. So an op-ed complaining about the deteriorating situation for miners in Kyrgyzstan, published by a state-run Chinese media outlet, deserves flagging.
Last week protestors in Kyrgyzstan’s northern Chui Province succeeded in shutting down work at the Taldy-Bulak Levoberezhnyi gold field. Local news agencies reported that several hundred locals picketed the headquarters, in Orlovka, on October 22, demanding the company be closed. China's Superb Pacific Ltd was working to prepare the site, scheduled to go into operation in 2014. Some media reported that Chinese and Kyrgyz workers engaged in a mass brawl. Radio Free Europe said protestors were angry over what they called the Chinese company’s illegal sacking of Kyrgyz citizens and polluting of the local environment.
Approximately 250 Chinese workers reportedly were evacuated and operations suspended indefinitely.
In response, the head of the Chinese Chamber of Commerce in Kyrgyzstan, Li Deming, wrote in the English-language Global Times (a baby of the Communist Party’s People’s Daily) on October 28 that doing business in Kyrgyzstan is “not easy.”
Police in Bishkek clashed with protestors calling for the nationalization of a strategic gold mine on October 3. Dozens of men climbed over the fence surrounding the parliament building, known as the White House, before police drove them away with tear gas and stun grenades.
Two deputies from the nationalist Ata-Jurt (“Fatherland”) party led the protests, which local media reports say were attended by over 1,000 people. Photos show Ata-Jurt leader Kamchybek Tashiev -- who said he suffered a leg injury -- leading the assault. A deputy interior minister said Tashiev led the protestors over the fence.
Another member of Ata-Jurt, Sadyr Japarov, reportedly told protestors to follow him to the White House, where they would “sit in the offices of the deputies, the president, the prime minister,” the Knews.kg news agency quoted him as saying. Ata-Jurt has the most seats in parliament, but is not a member of the ruling coalition.
At least 12 people were injured, Kloop.kg reported, several with gunshot wounds. It is not clear who fired at whom or if some of the rioters were armed. Police were among the injured.
Just in case foreign investors needed another reason to be wary of Kyrgyzstan, the country’s swashbuckling parliamentarians are again picking on a promising mining venture.
Stans Energy Corporation, a Toronto-based mining startup aiming to resuscitate Kyrgyzstan’s Soviet-era heavy rare earth metals (HRE) industry, is taking legal action after parliament recommended the annulment of the company’s licensing agreement.
Prospectors and investors have fanned out across the globe to develop new rare earths supplies following a Chinese export ban in 2010. HREs are crucial components in many electronics and high-capacity batteries, and China produces over 95 percent of world supply.
All of this was fortuitous for Stans, and Kyrgyzstan, which sold the company a 20-year lease to redevelop its HRE assets in 2009. At the time, Stans owned rights to one of the world’s only previously proven sets of rare earth metals outside China. Its stock soared on Canadian exchanges when it was first floated in 2011.