4th Sep 2007 07:02
Kazakhmys PLC04 September 2007 4 September 2007 Kazakhmys PLC proposes to acquire 18.8% stake in ENRC PLC • The independent directors of the Board have approved the exercise of Kazakhmys' option to acquire an 18.8 per cent. holding in ENRC. Completion is subject to the receipt of approval from the Government of Kazakhstan and the approval of the independent shareholders of Kazakhmys at an EGM • The investment will give Kazakhmys exposure to chrome, iron ore, alumina, coal and additional power assets in Kazakhstan, delivering on the Company's stated strategy of leveraging its competitive position within Kazakhstan and the neighbouring countries to seek further growth opportunities in natural resources • Estimated cost of exercising the option will be US$810 million, pursuant to the terms of an option agreement • The acquisition will be put to a vote of the independent shareholders of Kazakhmys in due course Kazakhmys PLC ("Kazakhmys" or the "Company") today announces the proposedacquisition of a stake in Eurasian Natural Resources Corporation PLC ("ENRC"),subject to Governmental and independent shareholder approvals, from a vehiclewholly owned by the Chairman of Kazakhmys, Mr Vladimir Kim. The ENRC Group is a large diversified mining and natural resources group withsignificant, high quality assets in Kazakhstan. The Independent Directorsconsider the investment key to Kazakhmys' long-term strategy of seeking toacquire interests in existing regional natural resources businesses withattractive internal and external growth prospects and its execution will bringsignificant benefits to Kazakhmys and its shareholders. Commenting on the Acquisition, Oleg Novachuk, Chief Executive of Kazakhmys said"The proposed acquisition of the interest in ENRC is an integral part of ourstrategy to diversify Kazakhmys' portfolio by acquiring other resource assets inKazakhstan and the Central Asian region." James Rutland, Senior Independent Non-executive Director of Kazakhmys said, "TheIndependent Directors are unanimous in believing that this transaction willcreate value for shareholders and consider that it will be in the best interestsof the shareholders as a whole to vote in favour of this transaction." Background Kazakhmys notified the market on 14 March 2006 that it had been granted anoption (the "Option") to acquire a 25% stake in ENRC Kazakhstan Holding B.V.("EKH") by Mr Vladimir Kim. As stated in Kazakhmys' Annual Report and Accountspublished on 5 April 2007, the 25% stake in EKH represented an 18.8% economicinterest in ENRC, the holding company of the ENRC Group and its operatingassets. Following receipt of Governmental approval, the final step of therestructuring will take place, so that by exercising the Option, Kazakhmys,through a wholly owned subsidiary, will become the direct owner of 3,756,725shares in ENRC PLC, the holding company of the ENRC Group, representing 18.8% ofENRC's share capital. In its announcement on 14 March 2006, Kazakhmys stated that the then independentmembers of the Board of Kazakhmys had considered the possibility of Kazakhmysitself acquiring the 25% stake in EKH but had decided that this would not beappropriate due to, among other things, the ongoing restructuring of the ENRCGroup and the fact that EKH was not, in the opinion of Kazakhmys, in a positionto provide the type of due diligence or warranty package which a listed companywould expect. The reorganisation of the ENRC Group is now substantially complete following asignificant restructuring as part of its own efforts to simplify its groupstructure as ENRC management consider options for the strategic direction of thebusiness, including a possible initial public offering. In addition, with theconsent and co-operation of ENRC, a due diligence exercise has been undertakenin respect of the ENRC Group with, among other things, production and certainfinancial information in respect of ENRC having been made available to Kazakhmysand site visits to ENRC's operations in Kazakhstan have been undertaken byKazakhmys' management and technical advisers, IMC Consulting Ltd. TheIndependent Directors believe that it is now in the best interests of theShareholders as a whole that Kazakhmys acquire the ENRC stake currently held bya vehicle wholly owned by Mr Vladimir Kim. The Board consider the Acquisition to be in the best interests of Kazakhmys and,having been so advised by JPMorgan Cazenove and Merrill Lynch, to be fair andreasonable so far as the shareholders of Kazakhmys as a whole are concerned. Inproviding advice to the Board, JPMorgan Cazenove and Merrill Lynch have takeninto account the Directors' commercial assessments of the proposed acquisition.In addition, Kazakhmys has received legal advice from Linklaters LLP, advice onaccounting for the Acquisition from Ernst & Young LLP, tax advice fromPricewaterhouseCoopers LLP and technical mining advice from IMC Consulting Ltd. Vladimir Kim, the Related Party, has not taken part in the Board's considerationof the Acquisition. In addition, none of Oleg Novachuk, David Munro or VladimirNi has taken part in the Board's consideration of the Acquisition as it wasdeemed appropriate that only the non-executive directors of Kazakhmys, who areindependent in relation to the Acquisition, should consider the Acquisition. ENRC ENRC is a privately owned natural resources company with fully integratedmining, processing, energy and transport operations in Kazakhstan. ENRC'soperations, spread throughout Kazakhstan, are principally comprised ofvertically integrated ferroalloy, iron ore and alumina businesses which employover 60,000 people and generated estimated revenues of approximately US$3billion in 2006. ENRC benefits from high operating margins as its operations andgrowth profile are underpinned by relatively low costs of production at thecompany's major operations and it has access to a captive energy supply andin-house logistics and transportation operation. ENRC's operations are comprised of: • Kazchrome, whose principal activities include the extraction and sale of chrome ore as well as the production and supply of high quality ferroalloys to steel-makers worldwide. It is one of the top three ferrochrome producers in the CIS, based on volume of chrome (as of 2006) and is ranked in the lowest cost quartile amongst global ferrochrome producers. Kazchrome is 98.30 per cent. owned by ENRC; • SSGPO, which is a significant CIS iron ore producer with sizable reserves estimated to be in the region of 1.5 billion tonnes which would ensure a mine life of approximately 40 years. It is a low cost producer which produces iron ore pellets and iron ore concentrates. SSGPO is 98.14 per cent. owned by ENRC; • Aluminium of Kazakhstan, which is Kazakhstan's largest producer of alumina and a substantial producer globally. Aluminium of Kazakhstan also has its own bauxite reserve. Aluminium of Kazakhstan is 96.59 per cent. owned by ENRC; • Kazakhstan Aluminium Smelter, which is scheduled to start production in late 2007 with an anticipated initial capacity of 60,000 tonnes of aluminium per annum expected to increase to 250,000 tonnes by 2011. The smelter will be 100 per cent. owned by ENRC; • EEC, which operates an open pit coal mine and is Kazakhstan's largest electricity supplier, with a 2,155MW capacity, providing approximately 16 per cent. of the country's current installed capacity. EEC is 99.11 per cent. owned by ENRC; and • Other divisions including ENRC Logistics (100 per cent. owned by ENRC, a transportation and logistics company); ENRC Marketing (100 per cent. owned by ENRC, the trading and marketing arm of ENRC) and Zhairemskiy GOK (99.83 per cent. owned by ENRC, a producer of manganese, ferromanganese and barite). Acquisition Price, Financing and Financial Effects of the Acquisition • The amount payable by Kazakhmys in respect of the Acquisition under the terms of the Option, which were disclosed in the announcement of 14 March 2006, will be approximately US$810 million, assuming completion within the expected timeframe. • The cost is based on the initial purchase price of US$751 million paid by Mr Kim to acquire the 25% stake in EKH (the "Original Acquisition"), plus transaction and related costs, including a 10% margin of US$75.1 million reflecting the risk that Mr Kim took in making this investment on his own account. Dividends and other capital distributions of approximately $95 million received by Mr Kim in respect of his shareholding in EKH since the date of the Original Acquisition have been deducted. The acquisition of the stake will be accounted for as an investment by Kazakhmysand it is intended to be funded from existing cash resources of Kazakhmys. EGM and Voting Following receipt of Governmental approval and the subsequent completion of thefinal step of the restructuring of the ENRC group in which it is anticipatedthat Kazakhmys' interest will be directly held in ENRC PLC, a circular will bedistributed to shareholders and an Extraordinary General Meeting of the Companywill be convened. Only independent shareholders of the Company shall bepermitted to vote on the acquisition at the Extraordinary General Meeting. A further announcement will be made in due course when the shareholder circularis dispatched to shareholders. - ends - For further information please contact: John Smelt, Head of Corporate Communication Tel:+44 20 7901 7882 Mob:+44 787 964 2675Sergei Stephantsov, Investor Relations Manager Tel:+44 20 7901 7814Kazakhmys PLC Robin WalkerFinsbury Tel:+44 20 7251 3801 NOTES TO EDITORS Kazakhmys PLC Kazakhmys PLC is the largest copper producer in Kazakhstan and one of theleading copper producers in the world. Kazakhmys is a fully integrated copperproducer from mining ore through to the production of finished copper cathodeand rod. The Group produces significant volumes of other metals as by-products,including zinc, silver and gold. Existing operations include 19 open pit andunderground mines, 8 concentrators, two copper smelting and refining complexes,a copper rod plant, a zinc plant and a precious metals refinery. Production isbacked by a captive power supply and significant rail infrastructure. Kazakhmysalso owns MKM, a copper products fabrication company in Germany, and has Goldand Petroleum Divisions with assets in Kazakhstan and Central Asia. The Group'sstrategic aim is to diversify and participate in the development of thesignificant natural resource opportunities in Central Asia. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
KAZ.L