Kazakh Report Looks at Why State Plans to Buy Back Shares in Copper Giant

Reporter Ulbolsyn Kozhantayeva says the Kazakh government’s intention to buy back a 15-per-cent stake in the copper giant Kazakhmys seems to come from the desire to help one of the copper tycoons troubled by the mortgage crisis. In an article published by the Kazakh newspaper Delovaya Nedelya, she explains that the state sold its shares in the cooper corporation when copper prices reached “rock bottom” and now it is going to buy the shares “at a time when copper prices have peaked”. The following is an excerpt from Ulbolsyn Kozhantayeva’s report “Copper turn; the government is planning to acquire shares in Kazakhmys”, published by the Kazakh newspaper Delovaya Nedelya on 28 March:

The Kazakh government’s intention to purchase a 15-per-cent stake in Kazakhmys [Kazakh Copper] plc has given rise to mixed feelings. Having sold the state-controlled block of shares when copper prices reached rock bottom the average price dropped to 1,578 dollars per tonne now the government is going to buy the shares at a time when copper prices have peaked. Copper prices have increased almost five- fold since then, exceeding 8,000 dollars per tonne. Possibly, now the authorities are not merely driven by patriotic feelings and good strategic intentions. One gets the impression that the government, by using the budget as a magic wand, wants to come to the rescue of one of the copper kings who have invested in construction or banks and who are now in a difficult situation over the mortgage crisis.

[Passage omitted: the website of the Kazakh Stock Exchange (KASE) corroborated the above information]

In early March, Delovaya Nedelya [newspaper] sent an inquiry over the establishment of a national mining company (NMC) to the Kazakh Ministry of Finance which was instructed to purchase up to 15 per cent of shares in Kazakhmys to the state ownership. The ministry’s press service said that they had not had such information yet. Even though the fact that Prime Minister Karim Masimov signed a resolution “On some issues of organizing the mining industry” had already been known.

At the same time, the committee for state property and privatization under the Kazakh Ministry of Finance gave Delovaya Nedelya clarified information about the size of the state- controlled block of shares in another metallurgical giant

the ENRC [Eurasian National Resources Corporation] plc. After IPO (Initial Public Offering) in London, the state-controlled shares dropped from 24.8 per cent to 19.31 per cent. As for the new company and the inclusion of mining assets to it, it was reported that “in line with the protocol No17-27/005-1235 of a session held by Deputy Prime Minister Umizak Shukeyev on 14 February 2008, the Samruk state assets holding has been instructed to draw up the blueprint for establishing the NMC”. “The list of assets to be given to the NMC will be defined within the framework of work being carried out to establish the NMC,” the Finance Ministry’s letter says. Another inquiry of the editorial office sent to the Ministry of Industry and Trade as to where the committee for metallurgy was handed over after the reorganization of the MEMR [Ministry of Energy and Mineral Resources] of Kazakhstan, remains unanswered for the time being.

Thus, recent media reports about a proposal by the ENRC Plc which expressed its intention to acquire a block of shares in the copper corporation was not “just a canard” despite the company’s denial. It can viewed as one of the options of the deal, which the copper corporation did not possibly like to accept. Let us recall that co- owners of the metallurgical companies represent Kazakhstan in the list of billionaires in Forbes. The head of Kazakhmys, Vladimir Kim, has increased his fortune to 4.7bn dollars, while the co-owners of ENRC, Aleksandr Mashkevich, Patokh Shodiyev and Alidzhan Ibragimov, have 3.3bn dollars each. Thus the aggregate fortune of Kazakhstan’s metallurgical brotherhood accounts to 14.6bn dollars.

At the same time, the press started to carry various assumptions over the government’s intention to set up a state-run mining company, and among other things, there was talk about the two Kazakh metallurgical giants’ possible merger with the company.

Of course many things have changed since then in terms of conceptual and strategic approaches, especially when the state sold out shares in mining and metallurgical companies. The government continued to sell the remaining state-controlled blocks of shares even during the period of developing business and growing world prices for metals, although there was a budget surplus. Shares were sold at symbolic prices, which also provoked disputes, criticism and denials. This issue was especially acute around 20 per cent of shares in Kazakhmys.

Of course the state can and should support business. But at the same time, it should not forget that it uses funds of taxpayers for this purpose, including of rank and file employees and workers who get very modest wages on which they have to pay tax to the budget. Even more heated debates were held over environmental aspects of the copper company’s activities.

[Passage omitted: the state-controlled shares were sold when prices for copper reached rock bottom]

Now, as it turned out, the government is going to help the same owners of the copper giant [by buying shares] at a time when copper prices are at the peak of growth. Of course all this can be explained by a new strategy in the state’s policy. But on the other hand, having sold the deposits that had been discovered back in the Soviet era, the government is continuing to show concern over the problem of supplying raw materials to mining enterprises. There is no logic in this… [ellipsis as published]

[Passage omitted: the author says that private mining companies should also be concerned about the supply of raw materials for their enterprises]

Owners of the Kazakhmys joint-stock company, which was later turned into a limited liability company, have been replaced many times over these years, except for the main owners. Shareholders have become fantastically rich, but they have not built anything; they prefer to buy ready facilities. About a month ago, Kazakhmys bought the largest power station in Kazakhstan, Ekibastuz, for 1.5bn dollars and the coal field of Maykuben which belongs to it. Another player the joint stock company Kaztsink [Kazakh Zink] has become the owner of the joint-stock company Kaz-Tyumen (in the town of Ridder in East Kazakhstan Region), which is engaged in recycling lead and used to manufacture mild lead for the Tyumen Car Battery Plant joint stock company [in Russia]. There has been no report about the sum of the deal.

[Passage omitted: some metallurgical plants are planned to be commissioned in Kazakhstan this year]

Originally published by Delovaya Nedelya, Almaty, in Russian 28 Mar 08p7.

(c) 2008 BBC Monitoring Central Asia. Provided by ProQuest Information and Learning. All rights Reserved.