Kazakhstan on Monday annulled the sale of shares in KazakhGold to Polyus Gold, putting in jeopardy plans for a merger of the two groups to create a gold-mining giant. "Due to newly discovered information regarding violations of the law on mineral resources during the purchase of the stake in KazakhGold by Polyus Gold, the competent authority has cancelled the previously taken decisions to allow the sale of KazakhGold shares," the Kazakh Industry Ministry said in a statement. "For the same reason, there is a ban on the additional share issue by KazakhGold." The ministry provided no further details. Yevgeny Ivanov, chief executive officer at Polyus and chairman of KazakhGold, confirmed that he had received a letter from the Kazakh ministry annulling its earlier approval.
Polyus global depositary receipts closed down 3.1 percent in London on Monday. “The letter requests information on the value of the share acquisition transactions from KazakhGold,” Ivanov said in an e-mailed statement. The company “intends to provide all available information requested.” Polyus, controlled by billionaires Mikhail Prokhorov and Suleiman Kerimov, acquired a majority stake in KazakhGold last year, and last month launched a $450 million legal case against KazakhGold's former owners. Analysts from VTB Capital said the latest action by Kazakh authorities creates uncertainty around the deal. "Now, after so much work has been put in, we believe it is facing certain risks. In the longer term, it might undermine Polyus' plans to attract a global player through a merger or acquisition to develop its large reserve base," VTB said.
After acquiring KazakhGold, Polyus proposed earlier this year a reverse takeover transaction under which it would turn from parent into a subsidiary of KazakhGold. A government commission on foreign investments gave a green light to the reverse takeover in April. The unusual transaction, which would see a $307 million firm acquiring a parent company more than 30 times its size, holds advantages for Polyus since it will increase its liquidity and make the combined group eligible for a listing on the London Stock Exchange's premium listing category. Polyus' reverse takeover of KazakhGold was meant to create a $10.8 billion group that should have become the largest pure gold miner on the London Stock Exchange. This could reduce the company's borrowing costs and also increase its investor base. The two companies had planned to close the deal by Aug. 10.