Open letter

RNS Number : 1894S

KazakhGold Group Ltd

06 September 2010

 



President of the Republic of Kazakhstan                                                      6 September 2010

H.E. Mr. Nursultan Nazarbayev,

On behalf of all our stakeholders, including our employees and unaligned shareholders, the Board of KazakhGold Group Limited ("KazakhGold" or the "Company"), having discussed and approved this letter at the meeting held on 2 September 2010, is writing to you in your capacity as President of Kazakhstan and because Kazakhstan holds the Chairmanship of the Organisation for Security and Co-operation in Europe. We write to express our concerns surrounding recent events related to KazakhGold's proposed reverse acquisition of Polyus Gold.

The commercial and strategic rationale underlying the combination of KazakhGold and Polyus is clear and compelling - to create the leading London listed gold producer and market leader in the CIS, and, by this transformation, to secure fresh and much needed investment into KazakhGold's assets in Kazakhstan and to secure thousands of jobs in the region.

Last year, after completion of Polyus's acquisition of its initial 50.1% stake in KazakhGold, a number of irregularities in the Company's accounts were identified. These were disclosed in the Company's 2009 audited accounts, which were approved by the Board of the Company, including at that time Aidar Assaubayev.

The Company's continuing investigations into these irregularities indicate that companies controlled by members of the Assaubayev family were responsible for the misappropriation of at least USD 180 million of the Company's funds, which, instead of being used for their proper purpose, were diverted through sham contracts to companies controlled by them. Due to the size of this loss, the Board of KazakhGold has a duty to seek recovery of these missing funds on behalf of all of the Company's shareholders. Hence, legal proceedings were commenced against Kanat, Marusia, Aidar, Sanzhar and Baurzhan Assaubayevs (hereinafter the "Assaubayevs Family" or the "Family") who were former Directors of the Company, as well as the entity that holds the Family's shareholdings in KazakhGold. This action should not just be of concern to KazakhGold and its shareholders. The proceedings also implicitly allege that these members of the Assaubayev Family misled the authorities in the Republic of Kazakhstan and the UK for several years in reporting falsified production and financial data.

The initiation of legal proceedings against these members of the Assaubayev Family appears to have triggered a surprising and unfortunate chain of events. First, the Kazakh Ministry of Industry and New Technologies notified the Company that it was annulling the prior decision to waive the state's pre-emptive right to acquire KazakhGold securities, not just for Polyus's acquisition of its initial 50.1% stake, but also the waiver obtained as recently as on 17 June 2010 for the proposed business combination between Polyus Gold and KazakhGold. The Kazakh Agency for Competition also announced the retrospective revocation of its approval for Polyus Gold's acquisition of a majority stake in KazakhGold. Following this, KazakhGold was notified that a freezing order had been placed by the Agency on Economic and Corruption-Related Crimes ("AECC") on certain bank accounts held in Kazakhstan by its main operating subsidiary, JSC Kazakhaltyn MMC. The freezing order was made in connection with an investigation by the AECC into allegations of fraud by three individuals who are currently executive members of KazakhGold's Board of Directors (Mr. Evgeny Ivanov, Mr. German Pikhoya and Mr. Alexey Teksler). The Board of KazakhGold strongly refutes all allegations made against its directors and believes the freezing order only serves to harm the interests of local employees, suppliers and business partners.

Based on the rapid sequence of these events, the only plausible explanation is that the actions of the Kazakh authorities and the AECC investigation is in direct response to the legal proceedings brought against the Assaubayevs Family by KazakhGold.

The Board believes that the transaction between Polyus and KazakhGold was conducted in accordance with all regulatory requirements and with the full support of the Russian and Kazakh governments. The agreement was open, transparent and in the interest of all shareholders, who overwhelmingly supported the deal. The deal effectively saved KazakhGold and its local subsidiaries from a position of insolvency. For the Kazakh authorities to rescind their approval for such a transaction a year after its completion is highly unusual.

The actions by the Kazakh authorities are not only to the detriment of the companies concerned and the thousands of employees whose incomes depend on it, but also may call into question the reputation of Kazakhstan itself as a forward looking, growing economic centre and secure investment destination.

We ask that, as Kazakhstan holds the Chairmanship of the OCSE, a body concerned with the promotion and fostering of business relationships with Europe, you personally intervene to investigate the matters of serious concern which we have raised.

Board of Directors of KazakhGold Group Limited

 

END

 

 

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