Key advisers to Eurasian Natural Resources Corporation (ENRC) have quit the FTSE 100 miner as they look to distance themselves from the scandal-engulfed Kazakhstan-based group.
It emerged yesterday that Morgan Stanley and Deutsche Bank, both of which are thought to have earned tens of millions of dollars in advisory fees from ENRC's London flotation in 2007, resigned as brokers in recent weeks.
The Serious Fraud Office is investigating ENRC following corruption allegations over mining operations in Kazakhstan and Africa, the latest in a series of accusations against the company. These have included a former director calling ENRC "more Soviet than City" and the company paying £1.25bn to settle a dispute with First Quantum Minerals over what the Canadian group alleged were "stolen" copper assets in the Democratic Republic of Congo.
The First Quantum situation is believed to have resulted in the resignation of Morgan Stanley's top mining banker, Peter Bacchus, and senior members of his team in 2010. They are said to have argued that the US bank should have backed First Quantum. When that team re-emerged at Jefferies, the first client they secured was First Quantum.
A mining source said: "I'm not surprised Morgan Stanley has finally left. It was just a matter of time before the Morgan Stanley name would have been rubbished by staying put."
A senior mining banker added that the problems at ENRC were gathering like a "snowball rolling down a hill".
Deutsche is believed to have quit marginally before Morgan Stanley for the same reason, though there was talk that the bank was angered not to be involved in the defence of ENRC against a possible takeover bid from a consortium led by Alexander Machkevitch. The former literature professor was one of a trio of billionaires who formed ENRC out of Kazakhstan's privatisation programme in the 1990s. Mr Machkevitch confirmed last month that he was in talks with his co-founders and the Kazakhstan government over a possible bid.
ENRC's chief executive, Felix Vulis, confirmed that an offer had not yet materialised and that the SFO case related to "a number of historical allegations".
ENRC has hired Lord Goldsmith, a former attorney general in Tony Blair's government, to "look afresh" at the situation.
Mr Vulis added: "I would reiterate that the vast majority of external comment appears to focus on issues and processes which were resolved through pre-IPO checks and clearances. As a management team, we are confident that the vast majority of issues will be proved to have been satisfactorily investigated and where necessary dealt with internally."
ENRC warned yesterday that first-quarter sales were lower than last year, having been hit by declining commodity prices and severe weather knocking production in its iron ore division.
Last month ENRC's chairman, Mehmet Dalman, quit, having staked his reputation on clearing up the group's problems. Mr Dalman argued that he had "achieved all I can" at the group, unusually departing in the middle of a bid situation.
An ENRC spokesman said: "After many years with the company Morgan Stanley and Deutsche have stepped down as brokers and we are reviewing a final shortlist of potential replacements."