8 Dec 2010 12:58

Polyus Gold to sell KazakhGold assets to Assaubayev family for $509 mln

MOSCOW. Dec 8 (Interfax) - Polyus Gold has entered into a binding agreement (with AltynGroup Kazakhstan,, a limited liability partnership controlled by the Assaubayev family, for the sale of its operating subsidiaries in Kazakhstan, Romania and Kyrgyzstan and the withdrawal of all claims made and litigation brought against the Assaubayev family and its interests, Polyus Gold said in a statement.

The AltynGroup is to acquire the following shareholdings in a number of operating subsidiaries making up the KazakhGold Group not later than March 11 2011: 65% of JSC MMC Kazakhaltyn, 65% of Romaltyn Mining S.R.L. and Romaltyn Exploration S.R.L., and 43.33% of CJSC Talas Gold, which amounts to 65% of the total number of shares held by a KazakhGold subsidiary. This is the first tranche of the transaction.

The second tranche, to be completed by June 2012, involves the Assaubayev family buying up the outstanding interest in these assets.

Payment of the consideration for the First Tranche in the amount of $331 million will be effected simultaneously with transfer of the shareholdings in cash and by way of set-off of the amount owed by KazakhGold under its loan agreement with Gold Lion Holdings Limited (GL), worth $31.025 million plus interest accrued under the loan.

In addition, on or before the payment date of the First Tranche the AltynGroup will provide funds to KazakhGold in order to repay its loan from Jenington International Inc., which is part of the Polyus Gold group, in the amount of $52.7 million plus accrued interest.

The payment for the Second Tranche will amount to $178 million plus interest accrued at a rate of 9.375% per annum from the settlement date under the First Tranche. Payment of the Second Tranche may be effected in part by shares of KazakhGold held by GL at arm's length at the time of payment.

Prior to settlement under the First Tranche the buyer is to provide KazakhGold guarantees satisfactory to KazakhGold of payment under the Second Tranche.

As far as the Eurobonds in the amount of $200 million with a coupon rate of 9.375% p.a. due in 2013, AltynGroup will provide KazakhGold with an irrevocable unconditional guarantee satisfactory to KazakhGold prior to completion of the First Tranche in payment of all sums payable under the Eurobonds.

In the event that closing does not take place by the agreed date through the fault of either party, such party must pay the other party a fee in the amount of $14.6 million

In August 2009 Polyus Gold completed the acquisition of 50.1% of the shares of KazakhGold and subsequently increased its stake to 65%in July 2010.

As has been widely reported in press releases and the media, in June 2010, certain claims were brought by KazakhGold, Kazakhaltyn and Jenington against the Assaubayev family and its interests, Polyus Gold said.

In July - August 2010 the Government of the Republic of Kazakhstan retracted its previously issued approvals for transactions involving the shares of KazakhGold, thus preventing the reverse takeover with OJSC Polyus Gold from going ahead.

The negotiations on the sale of the operating subsidiaries to AltynGroup became a part of the process to resolve the disputes between the parties and relating to KazakhGold, with the support of the Kazakhstan governmental authorities. The Principal Agreement provides for release by all parties of these claims and a formal settlement.

The transaction price of $509 million (or $4.24 per KazakhGold share) enables the Polyus Gold group to recoup its investment and acknowledges, in equal measure, the interests of KazakhGold's minority shareholders.

A key condition precedent to completion of the First Tranche is that all necessary approvals are obtained (including reinstatement of those previously withdrawn) from the competent agencies of the Governments of the Republic of Kazakhstan, Kyrgyzstan and Romania, which would pave the way for KazakhGold to complete the reverse takeover by Polyus Gold. In October 2010 it was decided that this transaction could not be completed on the terms previously announced.

The transaction will be completed after the parties sign the relevant definitive agreements, including a share purchase agreement, which will, inter alia, set forth in detail the rights and obligations of the parties and a mechanism for completion of the transaction and provision of the guarantees envisaged in the executed agreement.

One of the aims of the transaction in which Polyus Gold increased its stake in the Jersey-registered KazakhGold to 65% was to carry out a reverse takeover (RTO) of Polyus Gold by the Kazakh company to enable it to obtain a London listing. But Polyus Gold called the RTO off due to difficulties that arose with Kazakhstan's authorities.

Mikhail Prokhorov, president of the Onexim Group, said in an interview with Bloomberg Television this week that Polyus Gold intends to merge with an international rival once it has obtained a London listing and become one of the world's top three gold miners. He said Polyus might obtain the listing next year - it would all depend how merger talks progress. Prokhorov himself will look to secure a minority stake that is large enough to influence the new company's strategy. He said a London listing might lift Polyus Gold's value 20%.