2nd Oct 2007 07:01
Kazakhmys PLC02 October 2007 2 October 2007 Kazakhmys PLC calls EGM to approve acquisition of 18.8% stake in ENRC PLC • EGM convened for 19 October 2007 to allow independent shareholders of Kazakhmys to approve the exercise of the option to acquire an 18.8% holding in the ENRC Group • Approval from the Government of Kazakhstan has now been received to allow Kazakhmys to become a direct 18.8% shareholder in ENRC PLC • Acquisition is conditional on the approval of independent shareholders and the receipt of regulatory approval from the Government • Estimated cost of exercising the option is US$806.5 million, pursuant to the terms of the option agreement • The Independent Directors of Kazakhmys unanimously recommend that shareholders vote in favour of the acquisition • Shareholder circular and notice of EGM will be sent to Kazakhmys shareholders today Kazakhmys PLC ("Kazakhmys" or the "Company") today announces that further to itsannouncement of 4 September 2007 and following receipt of approval from theGovernment of Kazakhstan ("Government"), an Extraordinary General Meeting("EGM") has been convened to allow independent shareholders of Kazakhmys to voteon the proposed acquisition of a direct 18.8% stake in Eurasian NaturalResources Corporation PLC ("ENRC"), from a vehicle wholly owned by the Chairmanof Kazakhmys, Mr Vladimir Kim. The Acquisition is conditional on the approval of independent shareholders ofthe Company at the EGM and the receipt of regulatory approval from theGovernment relating to the indirect change in ownership of subsoil rights. 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 upon the Acquisition, Mr James Rutland, Senior IndependentNon-executive Director of Kazakhmys said, "As stated at the time of our InterimResults, the Independent Directors are unanimous in believing that thistransaction will create value for shareholders and consider that it is in thebest interests of the shareholders as a whole to vote in favour of thistransaction at the forthcoming EGM." BackgroundKazakhmys 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 the receipt of Governmental approval, as mentioned above, achange in the EKH corporate structure has now taken place, so that by exercisingthe Option, Kazakhmys, through a wholly owned subsidiary, will become the directowner of 3,756,725 shares in ENRC PLC, representing 18.8% of ENRC's sharecapital. 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 that 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 considers the Acquisition to be in the best interests of theShareholders as a whole and, having been so advised by JPMorgan Cazenove andMerrill Lynch, to be fair and reasonable so far as the Shareholders as a wholeare concerned. In providing advice to the Board, JPMorgan Cazenove and MerrillLynch have taken into account the Directors' commercial assessments of theproposed Acquisition. In addition, Kazakhmys has received legal advice fromLinklaters LLP, advice on accounting for the Acquisition from Ernst & Young LLP,tax advice from PricewaterhouseCoopers LLP and technical mining advice from IMCConsulting Ltd. Mr Vladimir Kim, the Related Party, has not taken part in the Board'sconsideration of the Acquisition. In addition, none of Messrs Oleg Novachuk,David Munro or Vladimir Ni has taken part in the Board's consideration of theAcquisition as it was deemed appropriate that only the non-executive directorsof Kazakhmys, who are independent in relation to the Acquisition, shouldconsider the Acquisition. Acquisition Price, Financing and Financial Effects of the AcquisitionThe amount payable by Kazakhmys in respect of the Acquisition under the terms ofthe Option, which were disclosed in the announcements of 14 March 2006 and 4September 2007, will be approximately: • the initial purchase price of US$751 million paid by Mr Kim to acquire the 25% stake in EKH (the "Original Acquisition"); • a 10% margin of US$75.1 million reflecting the risk that Mr Kim took in making this investment on his own account; • the associated actual transaction costs incurred by Mr Kim at the time of the Original Acquisition and the actual financing costs incurred by him relating to the Original Acquisition, (totalling approximately US$75.4 million) (subject to non-material adjustment when known in March 2008); • less dividends and other capital distributions amounting to US$95.0 million received to date by Mr Kim in respect of his shareholding in EKH since the date of the Original Acquisition. The total cost to Kazakhmys of purchasing the interest in ENRC will therefore beapproximately US$806.5 million, subject to non-material adjustment. Theacquisition of the stake will be accounted for as an investment by Kazakhmys andit is intended to be funded from the existing cash resources of Kazakhmys. EGM and VotingAn Extraordinary General Meeting of the Company has been convened in connectionwith the Acquisition to be held at 9.00am on Friday 19 October 2007 at theoffices of Linklaters LLP, One Silk Street, London EC2Y 8HQ. Mr Vladimir Kim,the Related Party, will abstain, and has undertaken to take all reasonable stepsto ensure that his associates will abstain, from voting at the ExtraordinaryGeneral Meeting and at any adjournment of such meeting. Mr Kim and hisassociates currently have voting rights over 44.3 per cent. of the IssuedOrdinary Share Capital. In addition, each of Messrs Oleg Novachuk (being theChief Executive of Kazakhmys), Eduard Ogay (being the Chief Executive ofKazakhmys Corporation LLC, Kazakhmys' principal operating subsidiary inKazakhstan) and Vladimir Ni (being a Non-Executive Director of Kazakhmys) (andhis immediate family) and their associates have volunteered to abstain fromvoting at the Extraordinary General Meeting in relation to the approval of theAcquisition and at any adjournment of such meeting. Although Messrs Novachuk,Ogay and Ni (and his immediate family) and their associates are not associatesof Mr Kim for the purposes of the Listing Rules, they do form a concert partywith Mr Kim for the purposes of the Takeover Code. Although being a member of aconcert party would not of itself prevent them from voting in relation to theAcquisition, they have volunteered not to vote and this is consideredappropriate by the Independent Directors. They have however confirmed to theIndependent Directors that if they were to vote in relation to the approval ofthe Acquisition, they would vote in favour of the Resolution. Messrs Novachuk,Ogay and Ni (and his immediate family) and their associates together currentlyhave voting rights over 12.1 per cent. of the Issued Ordinary Share Capital. Capitalised terms used in this announcement but not defined herein shall havethe meaning given to them in the shareholder circular dispatched to shareholdersof Kazakhmys today. - ends - For further information please contact: John Smelt, Head of Corporate Communication Tel:+44 20 7901 7882 Mob: +44 787 964 2675 Sergei Stephantsov, Investor Relations Manager Tel:+44 20 7901 7814 Kazakhmys PLC Robin Walker Finsbury Tel:+44 20 7251 3801 Notes to Editors Kazakhmys PLCKazakhmys 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. ENRC GroupENRC 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 due to start production in late 2007 with an anticipated initial capacity of 60,000 tonnes of aluminium per annum which is 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). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
KAZ.L