An escalating row between a Kazakh gold company’s old and new owners has tarnished the image of one of the country’s most dazzling commercial prizes. The scandal is casting doubt over the company’s future and has sent foreign investors into a tailspin.
Two Russian oligarchs are pitted against Kazakhstan’s Asaubayev family, which until last year was a driving force in the country’s gold industry through its control of Kazakhstan’s largest gold producer, the London-listed KazakhGold, which has reserves of 46.6 million ounces.
Mikhail Prokhorov and Suleyman Kerimov took over the firm last August when their Polyus Gold snapped up the controlling stake in KazakhGold. Polyus Gold bought 50.1 percent in the company and later increased its stake to 65 percent, while the Asaubayevs retained an 8.8 percent share.
The two companies then started devising plans to carry out a reverse takeover, publicly unveiling the plans on June 30. KazakhGold – a minnow of a company with market capitalization of $260 million, compared to Polyus Gold’s $8.74 billion – would swallow up its erstwhile buyer in a deal that would create the largest gold company in the CIS.
In return, Polyus Gold would receive KazakhGold’s listing on the London Stock Exchange through the agreement. But now the deal is bogged down in acrimonious legal proceedings stretching from London to Astana via Moscow, and foreign investors are taking notice. Does Polyus Gold feel it got a raw deal?
The first whiff of trouble came when Polyus Gold and its subsidiary Jenington International filed a lawsuit against five former KazakhGold directors – all members of the Asaubayev family – at the London High Court on June 29. Polyus Gold is suing them for $450 million, alleging that they made false claims about gold extraction in Kazakhstan and defrauded the company.
The Asaubayevs deny the allegations. “We are firmly convinced that the legal proceedings begun against us are groundless, and resolutely reject all charges presented,” Kanat Asaubayev, the former chairman of KazakhGold’s board, said in a statement on August 5.
Soon after the lawsuit was filed in London, the now-Russian-owned KazakhGold ran into trouble when Astana unexpectedly revoked its approval for the reverse takeover and followed up by freezing the accounts of Kazakhaltyn, KazakhGold’s main operating subsidiary. The Ministry of Industry and New Technologies said on July 12 that it suspected that the law governing the use of subsoil assets had been violated during the takeover, a charge Polyus Gold rejects.
In a statement on July 22, the Moscow-based Polyus Gold insisted the acquisition was “open, transparent and in the interests of all shareholders,” adding that the sale was unanimously approved by KazakhGold’s board, including the Asaubayevs, and by 96 percent of KazakhGold shareholders.
The Kazakh financial police are also pursuing a fraud case against three members of KazakhGold’s current board: Yevgeniy Ivanov, Aleksey Teksler, and German Pikhoya. Ivanov is general director of Polyus Gold, Pikhoya is his deputy, and Teksler is general director of Kazakhaltyn.
Polyus Gold denies any wrongdoing, saying in a statement on August 3 that it “strongly refutes these allegations against the three current directors, which it believes are without factual or legal basis.”
As the investigation continues, Kazakh authorities have frozen Kazakhaltyn’s accounts. KazakhGold is appealing against the freezing order in court, and has succeeded in having funds released to pay salaries to 4,000 miners.
KazakhGold’s Teksler warned on August 5 that if the company does not pay electricity bills, operations could shut down this week. He also said that lack of access to funds created a potential environmental hazard. If the electricity supply is cut off, equipment used to store poisonous and explosive substances safely will be knocked out of action, he said, which could cause an accident.
Kanat Asaubayev fired a fresh salvo in the battle over the company on August 5, alleging that Polyus Gold had recently tried to sell its shares back to his family as part of a plan to bypass Russian law and “change the domicile of Polyus Gold,” he said in a statement.
Polyus Gold declined to comment on that allegation to EurasiaNet.org. “What Kanat Asaubayev says and who he says it to are the personal business of the Asaubayev family,” PR Director Anton Arens said by telephone from Moscow. “We are not entering into a public polemic with them through the media.”
As the dispute grows more acrimonious, KazakhGold’s image has taken a hit and its share price has dropped. Polyus Gold purchased its stake on August 13, 2009 at $7.18 per share; on August 6, 2010 shares were trading at $4.37 in London.
The dispute looks set to run for a while yet, and neither side appears willing to back down. After all, KazakhGold is a lucrative asset, and the battle over the future of this glittering prize is far from over.
Joanna Lillis is a freelance writer who specializes in Central Asia.