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GOVERNANCE REVIEW
 
Miner ENRC starts governance review, slashes board
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8th June 2011
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LONDON – Kazakh miner ENRC succumbed to its critics on Wednesday, launching a comprehensive governance review and slashing the size of its board with the departure of four directors including veteran Richard Sykes.

ENRC, whose shares trade at a sharp discount to the sector because of the governance and other issues, said the three-month corporate governance review would look at board structure.

"At the conclusion of the corporate governance review any changes to the composition of the board wil be announced to the market," it said in a statement.

Four directors including well-respected former GlaxoSmithKline chief executive Sykes, who was the senior independent director and head of the remuneration committee, left with immediate effect at the end of the miner's shareholder meeting on Wednesday. The board retained the other 10 directors.

ENRC said in its 2010 annual report that it was reviewing the composition of its board, being "mindful of the need to ensure that it does not become so large as to be unwieldy".

It had been expected to discuss the review at a Wednesday shareholder meeting, closed off to all non-shareholders including the press, but had not been expected to make a formal announcement.

The board of London-listed ENRC – which until Wednesday's surprise announcement ran to 14 directors, half of whom were independent – has faced repeated reports of internal wrangles and disagreements, particularly after a controversial deal last year involving the purchase of a disputed licence to mine copper in the Democratic Republic of Congo.

The Sunday Times reported earlier this year that at least one of ENRC's three founder-shareholders had lost confidence in Chairman Johannes Sittard, a former chief executive of the group, and was planning to replace him.

Over the past two years, ENRC has replaced its chairman, chief executive and chief financial officer. Current CEO Felix Vulis announced his planned departure in February.

SHAREHOLDERS' DISCONTENT

The persistent governance worries and underperforming shares have prompted institutional shareholders and some of the group's own advisors to express frustration at its inability to grapple with the problem and resolve the long-standing discount to the sector, currently around 15 percent on a P/E basis.

"We have never invested actively in ENRC, primarily for corporate governance reasons, and this situation is unlikely to change until their corporate governance standards improve," said one top-20 institutional shareholder who declined to be named.

"We have concerns about the board dynamic ... between chairman, controlling shareholders and the executive."

The shareholder also expressed concerns over ENRC's "aggressive" acquisition strategy, which has led it to expand into new commodities but also higher-risk locations.

ENRC is controlled by its three Kazakh founders, who together own over 40%, according to the miner's website, while rival Kazakhmys has a 26% holding and the government of Kazakhstan has 12%. It has a free float of less than 20%.

Analysts had said that while any governance improvements would be welcomed by the market, it was unclear whether a board reduction would be positive and the departure of Sykes, a respected City figure, was negative.

ENRC shares, which have underperformed the broad mining sector over the past year despite attractive growth assets and a generous dividend yield, recovered some ground on the news, trading down 1.2% at 810p at 13:25 GMT, outperforming a sector hit by fresh doubts over the economic recovery.

Edited by: Reuters

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