Litigation matters

RNS Number : 4287O

KazakhGold Group Ltd

29 June 2010

 



 FOR IMMEDIATE RELEASE

29 June 2010

KazakhGold Group Limited

On 25 June 2010 KazakhGold Group Limited ("KazakhGold"); its wholly-owned subsidiary, KAZAKHALTYN MMC JSC ("Kazakhaltyn"); and Jenington International Inc., a wholly-owned subsidiary of OJSC Polyus Gold ("Jenington"); commenced proceedings in the High Court of Justice (Chancery Division) in London against five members of the Assaubayev family who were former directors of KazakhGold; Gold Lion Holdings Limited ("Gold Lion") and Hawkinson Capital Inc., ("Hawkinson"). Gold Lion was, prior to completion of the Partial Offer by Jenington to acquire 50.1% of the issued share capital of KazakhGold in August 2009, the principal shareholder of KazakhGold. The defendants include Kanat Assaubayev, who was Executive Chairman of KazakhGold until the completion of the Partial Offer, and Aidar Assaubayev, the former Executive Vice Chairman, who continued as a director until his appointment was terminated on 17 June 2010.

In the proceedings, the claimants allege that the former director defendants, among other things, breached their fiduciary duties to, and service contracts with, KazakhGold by misappropriating funds intended for capital expenditures through sham contracts entered into by Kazakhaltyn.  The claimants also allege that the former director defendants deceived Jenington into making the Partial Offer by, among other things, misrepresenting production and sales revenue in 2006-2008 and the amount of capital expenditures made by KazakhGold in KazakhGold's public disclosures and other disclosures relied upon by Jenington in making the Partial Offer. The claimants seek damages in excess of USD 200 million in respect of the claims made by KazakhGold and Kazakhaltyn and damages in excess of USD 250 million in respect of the Jenington claims, as well as other remedies. In connection with these proceedings, KazakhGold, Kazakhaltyn and Jenington have obtained freezing orders in various jurisdictions against the assets of the defendants.

In particular, the claims allege that the former director defendants caused KazakhGold to expend a substantial portion of the proceeds of the USD 200 million Senior Notes offering received in 2006 not for capital improvements, exploration and development and for general corporate purposes in accordance with the publicly disclosed use of proceeds of the Senior Notes, but for the benefit of the defendants through causing Kazakhaltyn to enter into sham contracts solely to disguise the transfer of monies to third parties for no consideration. KazakhGold alleges that the false contracts were purportedly entered into with construction and exploration companies which were vehicles of the defendants or persons or entities associated with them for the purpose of diverting funds to their benefit. KazakhGold also alleges that USD 179.9 million was paid directly by Kazakhaltyn between 2007 and April 2009 under such sham contracts, and an additional USD 27.8 million of funds from Kazakhaltyn was paid in 2008 by a party affiliated with the defendants under sham contracts, including a substantial portion of the proceeds of a USD 8 million loan obtained by Kazakhaltyn in 2008.

KazakhGold also alleges that the former director defendants and MAED, which had entered into contracts with KazakhGold for the completion of three new tailings re-treatment plants and a central elution plant, secretly agreed to a joint venture arrangement that entitled the defendants to 50% of the profits from certain of those contracts, which had an aggregate contract value of USD 69 million.

The Jenington claims allege that the former director defendants and Gold Lion fraudulently misrepresented KazakhGold Group's reported gold production and sales revenue information in 2006, 2007 and 2008 contained in its public disclosures and other disclosures relied upon by Jenington in making the Partial Offer, by, amongst other matters, improperly including fictitious sales to an entity in the United Arab Emirates. Jenington also alleges that the public and other disclosures relied upon by Jenington also were inaccurate because of the incorrect capital expenditure information described above.

These proceedings have been brought following KazakhGold's investigation into the material errors identified in its financial statements for the year ended 31 December 2008 which were previously announced and subsequent restatement of such financial statements.  These investigations continue.

On 17 June 2010, Mr. Aidar Assaubayev was removed as a director of KazakhGold.

The litigation is at a very early stage, and whilst KazakhGold is unable to predict its outcome, further information will be provided in due course.

For further information, contact:

Alexey V. Chernushkin, Director, CM and IR

Evguenia V.Buydina, IR manager

[phone]

[phone]

 [e-mail] 

Anton A. Arens, PR Director

[phone]

[phone]

 [e-mail] 

 

END

 

 

MSCKMGZVMLZGGZM