Possible Offer Update

RNS Number : 8438K

KazakhGold Group Ltd

29 December 2008

 

 

FOR IMMEDIATE RELEASE

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, THE RUSSIAN FEDERATION, CANADA, JAPAN OR ANY OTHER RESTRICTED JURISDICTION

 

29 December 2008

 

KAZAKHGOLDGROUP LIMITED

 

PROPOSEDPARTIAL OFFER UPDATE

 

 

Following the announcement on 29 September 2008, OJSC Polyus Gold (“Polyus Gold”) and KazakhGold Group Limited  (“KazakhGold” or the “Company”) hereby announce that they have reached agreement on revised terms of a proposed partial offer to be made by Jenington International Inc (“Jenington”), an indirect wholly-owned subsidiary of Polyus Gold, to acquire 50.1 per cent. of the issued and to be issued share capital of KazakhGold (the “Proposed Partial Offer”).

 

The Board of KazakhGold has indicated that it is supportive of the Proposed Partial Offer and the Revised Terms, and its current intention is that, if the Proposed Partial Offer is made, it will unanimously recommend the Proposed Partial Offer.

 

Gold Lion Holdings Limited (“Gold Lion”) has indicated that it is supportive of the Proposed Partial Offer and the Revised Terms, and its current intention is that, if the Proposed Partial Offer is made, it will irrevocably undertake to accept the Proposed Partial Offer for its entire holding of 22,100,000 KazakhGold shares, representing in aggregate, approximately 41.7 per cent. of the existing issued ordinary share capital of KazakhGold. This announcement has been made with the agreement of Gold Lion.

 

This announcement does not constitute an announcement of a firm intention to make an offer under Rule 2.5 of the Takeover Code. Accordingly, there can be no certainty that an offer will ultimately be made and no certainty as to whether any offer will be made on the terms described herein, even if the Pre-conditions are satisfied or, if capable of waiver, waived.

 

1.           The Proposed Partial Offer

 

The Proposed Partial Offer is being made for such number of KazakhGold shares (which includes each KazakhGold share represented by a KazakhGold GDR) as shall amount to 50.1 per cent. of the issued and to be issued share capital of KazakhGold on the business day immediately preceding the date on which the Proposed Partial Offer becomes unconditional as to acceptances.

 

Under the revised terms of the Proposed Partial Offer (the “Revised Terms”), KazakhGold shareholders would be entitled to receive:

 

for each KazakhGold share                                    0.423 Polyus Gold ordinary shares,

 

·     The Proposed Partial Offer:

 

-        implies a value per KazakhGold share of US$11.59 (based on the closing price of a Polyus Gold ordinary share on MICEX of RUB 785.50) and a RUB/US$ exchange rate of 28.6735 taken from the Central Bank of Russia on 26 December 2008, the last business day in Russia prior to the date of this announcement;

 

-        implies a value per KazakhGold share of US$9.62 (based on the closing price of a Polyus Gold share on MICEX of RUB 570.00) and a RUB/US$ exchange rate of 25.0703 taken from the Central Bank of Russia on 25 September 2008, the last business day prior to the commencement of the offer period; and

 

-        values 50.1% of the issued and to be issued share capital of KazakhGold at approximately US$308m as at 26 December 2008, the last business day in Russia prior to the date of this announcement.

 

·     The Proposed Partial Offer represents:

 

-        a premium of 424 per cent. to the closing price of US$2.21 per KazakhGold GDR on 24 December 2008, the last business day in London prior to this announcement;

 

-        a premium of 10 per cent. to the closing price of US$10.49 per KazakhGold GDR on 25 September 2008, the last business day prior to the commencement of the offer period; and

 

-        a discount of 5 per cent. to the average daily closing price of US$12.18 per KazakhGold GDR for the one month ended 25 September 2008, the last business day prior to the commencement of the offer period.

 

If the Proposed Partial Offer is made, KazakhGold shares tendered in excess of 50.1 per cent. will be accepted from each KazakhGold shareholder in the same proportion to the extent necessary for Jenington to obtain 50.1 per cent. of the issued and to be issued share capital of KazakhGold on the relevant date.

 

Polyus Gold ordinary shares are listed on the RTS and MICEX stock exchanges, Polyus Gold ADRs are traded on the main market of the London Stock Exchange and on the Frankfurt Stock Exchange, and also traded in Level 1 ADR form in the OTC market in the United States of America. For the avoidance of doubt, only Polyus Gold ordinary shares would be offered as consideration under the Proposed Partial Offer, if made.

 

2.           Additional equity capital raising

 

Upon completion of the Proposed Partial Offer, KazakhGold intends to raise new equity capital in the amount of approximately US$100 million which will be fully underwritten by Polyus Gold, or a subsidiary of Polyus Gold, on terms to be agreed between the parties (the “Equity Capital Raising”). KazakhGold intends to invite certain KazakhGold GDR holders who are qualified investors, subject to applicable securities law restrictions, to participate in the Equity Capital Raising provided that Polyus Gold retains its 50.1 per cent. holding in the issued and to be issued share capital of KazakhGold. For the avoidance of doubt, although Polyus Gold intends to underwrite the Equity Capital Raising, it has no current desire to increase its holding above 50.1 per cent. and will accordingly use its reasonable endeavours to ensure that up to 49.9 per cent. is taken up by other KazakhGold shareholders or other institutions and that existing KazakhGold GDR holders can participate on a pro rata basis.  The Equity Capital Raising is intended to strengthen KazakhGold’s balance sheet and enable KazakhGold to meet its existing development plans.

 

3.           Reasons for the Proposed Partial Offer and plans for KazakhGold

 

Polyus Gold has previously stated its objective of seeking expansion opportunities outside of Russia as part of its long-term corporate strategy. Polyus Gold has identified Kazakhstan as a very prospective geological region and an area for strategic external growth. KazakhGold is the largest gold producer in Kazakhstan and Polyus Gold believes that KazakhGold represents an attractive opportunity to acquire producing assets with strong growth potential.

 

Polyus Gold, as the largest gold producer in Russia with a proven track record of successfully developing and operating gold assets in the region, would bring management and technical expertise, particularly in the field of open pit mining, and the financial strength to advance the development of KazakhGold’s assets, which would allow both KazakhGold’s shareholders (through the remainder of their holdings) and Polyus Gold to realise significant value in the future.

 

Polyus Gold intends to procure that KazakhGold maintains its listing of KazakhGold GDRs on the London Stock Exchange.

 

Polyus Gold is committed to ensuring that KazakhGold continues to adopt similar levels of corporate governance at KazakhGold.

 

4.           Background to and reasons for the Revised Terms

 

During the process for the Proposed Partial Offer and further to the Company’s trading update announcement released on 24 December 2008, Polyus Gold and the Company have established that KazakhGold requires additional capital in order to meet its ongoing commitments and continue with its projected development plans. Given the current disruption in the financial markets and the restriction on indebtedness in the terms of the US$200 million Senior Notes due 2013 (the “Senior Notes”), the KazakhGold Board believes that KazakhGold would not be able to raise this capital through either the debt or the equity markets.

 

Furthermore, production levels for the year ending 31 December 2008 will be materially lower than production in the prior year, principally because of inadequate access to capital throughout 2008. With the inability to raise capital in the current difficult market conditions and due to the fact that production has been significantly lower than anticipated, there has been a severe deterioration in the Company’s cash balance over the second half of 2008. Consequently the Company will require a funding commitment during the first quarter of 2009, otherwise it will not be able to operate as a going concern in its current form.

 

Had Polyus Gold not been permitted to proceed with the Proposed Partial Offer on the Revised Terms announced today, Polyus Gold would not have been willing to continue with the Proposed Partial Offer and would not be willing to enter into the Equity Capital Raising.

 

The Revised Terms reflect Polyus Gold’s intention to underwrite the Equity Capital Raising and the Board of KazakhGold, who have been so advised by Canaccord Adams, have concluded, in wholly exceptional circumstances, that the Revised Terms are currently in the best interests of KazakhGold and its shareholders. In providing its advice, Canaccord Adams has taken into account the commercial assessments of the directors of KazakhGold given the current wholly exceptional circumstances.

 

5.           Pre-Conditions

 

The making of an announcement in accordance with Rule 2.5 (the “2.5 Announcement”) of the Takeover Code is subject to certain pre-conditions, including:

 

(i)         the receipt of a waiver, on terms that are acceptable to Polyus Gold, from the holders of the Senior Notes in respect of their right to require KazakhGold to repurchase all or any part of the Senior Notes on a change of control of KazakhGold, and which would enable KazakhGold to raise additional debt from Polyus Gold or members of the Polyus Gold group (the “Waiver”);

 

(ii)        receipt of anti-trust clearance in respect of the Proposed Partial Offer from the Agency for Competition Protection of the Ministry of Industry and Trade of the Republic of Kazakhstan in a form acceptable to Polyus Gold;

 

(iii)       receipt of an appropriate waiver reflecting the Revised Terms from the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan of the Republic of Kazakhstan in respect of the pre-emptive right of the Republic of Kazakhstan to acquire shares in KazakhGold arising out of Kazakhstan subsoil laws;

 

(iv)       the approval of the final structure of the Proposed Partial Offer as required by Rule 36 of the Takeover Code by the Panel;

 

(v)        the execution of a hard irrevocable undertaking to accept the Proposed Partial Offer in respect of its entire holding of22,100,000 sharesby Gold Lion, on terms to be agreed between Gold Lion, Jenington and Polyus Gold;

 

(vi)       the final approval of the Board of Polyus Gold of the Proposed Partial Offer; and

 

(vii)      the unanimous recommendation by the Board of KazakhGold of the terms and conditions of the Proposed Partial Offer in the 2.5 Announcement and in the offer document,

 

together, the “Pre-conditions”.

 

Polyus Gold and KazakhGold believe that it should be possible to secure resolution of these pre-conditions before 20 February 2009. A further announcement on the Proposed Partial Offer will be made in due course.

 

Jenington reserves the right to waive, in whole or in part, the Pre-conditions other than those described at Paragraphs 5(i) and 5(iv) above at its sole discretion.

 

In addition, the posting of the Proposed Partial Offer document and, therefore, the making of the Proposed Partial Offer will be subject to certain conditions, such as the approval by the UK Listing Authority of the prospectus to be issued by Jenington and Polyus Gold in connection with the Proposed Partial Offer.

 

6.           Conditions

 

The Proposed Partial Offer, if made, will be subject to a number of conditions customary for a partial offer of this nature, including, inter alia:

 

(i)         the approval by over 50 per cent. of the voting rights held by KazakhGold shareholders who are independent of Polyus Gold;

 

(ii)        valid acceptances being received in respect of not less than 50.1 per cent. of the issued and to be issued share capital of KazakhGold; and

 

(iii)       approval by KazakhGold shareholders of an increase in the authorised share capital of the Company to facilitate the Equity Capital Raising.

 

7.           Information relating to Polyus Gold

 

Polyus Gold, headquartered in Moscow, is the largest gold producer in Russia, according to the Russian Union of Gold Producers, and one of the world’s leading gold producers based on mineral resources and production volumes. Polyus Gold develops and mines hardrock gold and alluvial gold deposits, with operations in four main regions in Russia. In 2007, Polyus Gold produced 1.2 million troy ounces of gold, or about 23% of total Russian gold production. In the first six months of 2008, Polyus Gold produced 0.6 million troy ounces of gold.

 

Polyus Gold’s major gold deposits are:

 

·        in the Krasnoyarsk region – the Olimpiada deposit, which is one of the largest gold deposits in Russia, the Blagodatnoye, Titimukhta, Quartsevaya Gora, Tyrada and Olenye deposits, and the Razdolinskaya, Zyryanovskaya, Kuzeevskaya and Panimba fields;

·        in the Irkutsk region – the Zapadnoye, Verninskoye, Pervenets and Chertovo Koryto deposits, and the Artemievskoye, Medvezhy and Mukodek goldfields, as well as 113 alluvial deposits as at 31 December 2007;

·        in the Magadan region – the Natalka deposit, the Degdekan, Vostochnoye and Omchak fields and the Chai-Yurinskaya field; and

·        in the Republic of Sakha (Yakutia) – the Kuranakh ore body and the Kyuchus, Piniginskoye and the large Nezhdaninskoye deposits.

 

8.           Information relating to Jenington

 

Jenington is an indirect wholly-owned subsidiary of Polyus Gold, incorporated in the British Virgin Islands.

 

9.           Information relating to KazakhGold

 

KazakhGold, is the leading specialist gold mining company in Kazakhstan. The KazakhGold group has gold reserves and resources of 59.6million ounces, estimated by KazakhGold to be the largest in Kazakhstan and over 25 per cent. of the country’s known gold reserves. The KazakhGold group’s principal operations are in Northern Kazakhstan and it also has development properties in Eastern and Central Kazakhstan plus Romania. KazakhGold produced 0.2 million ounces of gold in 2007, and produced 67 thousand ounces of gold in the first six months of 2008.

 

KazakhGold’s business dates back to 1929, when gold ore was discovered at the Aksu deposit in northern Kazakhstan. Exploration began at the KazakhGold group’s Bestobe and Zholymbet deposits in the 1950s and 1930s respectively. The KazakhGold group’s principal assets comprise:

 

·        the Aksu mine, which includes the Aksu and nearby Quartzite Hills deposits;

·        the Bestobe mine; and

·        the Zholymbet mine.

 

It also has further exploration and development properties in Kazakhstan, Romania, Kyrgyzstan.

 

10.         Other matters

 

This announcement has been made with the consent of the Panel Executive.

 

A further announcement regarding the Proposed Partial Offer will be made in due course.

 

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Enquiries:

 

Canaccord Adams Limited (financial adviser to KazakhGold)

Mike Jones		Tel: [phone]
Rory O’Sullivan
Henry Fitzgerald O’Connor

 HSBC Bank plc (financial adviser to Polyus Gold)

Jan Sanders	Tel: [phone]
Sergei Chinkis

 

Canaccord Adams Limited (“Canaccord Adams”), which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for KazakhGold and no one else in connection with the Proposed Partial Offer and will not be responsible to anyone other than KazakhGold for providing the protections afforded to clients of Canaccord Adams, nor for providing advice in relation to the Proposed Partial Offer, the contents of this announcement or any other matter referred to herein.

 

HSBC Bank plc (“HSBC”), which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Polyus Gold and Jenington and no one else in connection with the Proposed Partial Offer and will not be responsible to anyone other than Polyus Gold and Jenington for providing the protections afforded to clients of HSBC, nor for providing advice in relation to the Proposed Partial Offer, the contents of this announcement or any other matter referred to herein.

 

General

 

The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom should inform themselves about, and observe, any applicable requirements. This announcement has been prepared for the purposes of complying with English law and the Takeover Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of England.

 

This announcement is not intended to, and does not constitute, or form part of, an offer to sell or an invitation to purchase or subscribe for any securities or a solicitation of any vote or approval in any jurisdiction.

 

The Polyus Gold Shares have not been, and will not be, registered under the United States Securities Act of 1933 (as amended) or under any relevant securities laws of any state or district of the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Polyus Gold does not plan to make a public offering of securities in the United States.

 

The Proposed Partial Offer, if it is made, will not be made, directly or indirectly, in or into the United States, Canada, Australia, Japan or any other jurisdiction if to do so would constitute a violation of the relevant laws of such jurisdiction. Accordingly, copies of this announcement are not being, and must not be, mailed or otherwise distributed or sent in or into or from the United States, Canada, Australia, Japan or any other such jurisdiction.

 

Neither this announcement nor any information contained herein is an offer, or an invitation to make offers, sell, purchase, exchange or transfer any securities in Russia, and does not constitute an advertisement of the securities in Russia. KazakhGold shares and KazakhGold GDRs to which this communication relates have not been and will not be registered in Russia and are not intended for “placement” or “public circulation” in Russia. Polyus Gold ordinary shares to which this communication relates have not been and will not be registered outside Russia and are not intended for “placement” or “public circulation” outside Russia as each term defined under Russian securities laws.

 

Forward Looking Statements

 

This announcement, including information included or incorporated by reference in this announcement, may contain 'forward‑looking statements' concerning Jenington, Polyus Gold or KazakhGold. Generally, the words 'will', 'may', 'should', 'continue', 'believes', 'expects', 'intends', 'anticipates' or similar expressions identify forward‑looking statements. The forward‑looking statements involve risks and uncertainties that could cause actual results to differ materially from those suggested by them. Many of these risks and uncertainties relate to factors that are beyond the companies' abilities to control or estimate precisely, such as future market conditions and the behaviours of other market participants, and therefore undue reliance should not be placed on such statements which speak only as at the date of this announcement. Each of Jenington, Polyus Gold and KazakhGold assumes no obligation and does not intend to update these forward‑looking statements, except as required pursuant to applicable law.

 

Dealing Disclosure Requirements

 

Under the provisions of Rule 8.3 of the Takeover Code (the 'Code'), if any person is or becomes 'interested' (directly or indirectly) in one per cent. or more of any class of 'relevant securities' of the Company or Polyus Gold, all 'dealings' in any 'relevant securities' of the Company or Polyus Gold by such person (including by means of an option in respect of, or a derivative referenced to, any such 'relevant securities') must be publicly disclosed to a Regulatory Information Service and the Panel on Takeovers and Mergers ('Panel') by no later than 3.30 p.m. (London time) on the London business day following the date of the relevant transaction. This requirement will continue until the date on which any offer for the Company becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the 'offer period' otherwise ends. If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire an 'interest' in 'relevant securities' of the Company, they will be deemed to be a single person for the purpose of Rule 8.3.

 

Under the provisions of Rule 8.1 of the Code, all 'dealings' in 'relevant securities' of the Company or Polyus Gold, by the Company, or by any of it’s respective 'associates', must also be disclosed by no later than 12.00 noon (London time) on the business day following the date of the relevant transaction.

 

A disclosure table, giving details of the companies in whose 'relevant securities' 'dealings' should be disclosed, and the number of such securities in issue, can be found on the Panel's website at www.thetakeoverpanel.org.uk.

 

'Interests in securities' arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes in the price of securities. In particular, a person will be treated as having an 'interest' by virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced to, securities.

 

Terms in quotation marks are defined in the Code, which can also be found on the Panel's website.

 

If you are in any doubt as to whether or not you are required to disclose a 'dealing' under Rule 8, please contact an independent financial adviser authorised under the Financial Services and Markets Act 2000, consult the Panel's website at www.thetakeoverpanel.org.uk or contact the Panel by telephone [phone]) or by fax [phone]).

 

 

 

 

END

 

 

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