Kazakhstan cancels KazakhGold stake sale to Polyus

July 12. Reuters

* Ministry cites new information on mineral law violations
* KazakhGold new share issue also banned
* Follows Polyus legal case against former owners
* Analysts say merger faces risks
* Polyus shares down 0.5 pct

Kazakhstan cancels KazakhGold stake sale to PolyusKazakhstan on Monday annulled the sale of shares in KazakhGold <KZGq.L> to Russia’s Polyus Gold <PLZL.MM>, 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 the Russian company 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.

Polyus, controlled by Russian billionaires Mikhail Prokhorov and Suleiman Kerimov, acquired a majority stake in KazazkhGold last year, and last month launched a $450 million legal case against KazakhGold former owners.

Shares of Polyus were down 0.5 percent, underperforming the broader Russian index <.MCX>.

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 Russian 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 its will increase its liquidity and make the combined group eligible for a listing on the London Stock Exchange’s premium listing category.

Polyus’s 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 August 10.