Shareholders in KazakhGold, Kazakhstan's largest metal producer, would receive $7.95 and 0.298 Polyus shares per share under the deal, KazakhGold said in a statement posted on the London Stock Exchange web site Monday.
Polyus, the country's largest producer of the precious metal, finished up 21.1 percent on the MICEX on Monday, at 823 rubles per share, on a day when the MICEX Index fell by 5.5 percent. KazakhGold, traded on the London Stock Exchange, was down 16.1 percent, to $10.07 per share, in late afternoon trading there.
Gold Lion Holdings Limited, which owns a 41.7 percent stake in KazakhGold, said in the statement that it was "supportive of the [offer] and … will irrevocably undertake to accept."
The deal has yet to be approved officially by the boards of the two companies.
The major Polyus shareholders — Mikhail Prokhorov and Vladimir Potanin, each with stakes of about 30 percent — were unavailable for comment Monday. Polyus Gold CEO Yevgeny Ivanov did not answer a request for an interview, and there was no answer at KazakhGold's London or Almaty offices Monday.
The deal will be discussed at a Polyus board meeting on Tuesday, a source close to the company said Monday.
The value of the potential offer was based on Polyus' price on the MICEX at Thursday's close of 570 rubles per share and represents a premium of 23 percent over the KazakhGold share price for that day, analysts said.
KazakhGold's first-half production fell 18 percent, to 66,863 ounces, the company said in a statement on Friday. But total revenues jumped 61 percent on the back of climbing metals prices, to $66.4 million.
Nonetheless, KazakhGold has seen its market capitalization fall by almost half over the past year.
The announcement of the pending deal drew positive reviews Monday.
"It is a good price offered for a quality asset in the right time," said Marat Gabitov, head of research at UniCredit Aton.
The Kazakh asset offers Polyus lower production costs, at about $262 per ounce, compared to $348 at Polyus. Gold was trading at $887.33 per ounce just before noon in London on Monday.
"The deal will also enable Polyus to increase its output quickly, as its main production facility projects aren't to be launched any earlier than 2010-2013," Gabitov said.
Production at the Natalka mine, Polyus' biggest asset, is slated to turn out 1,700,000 ounces of gold annually, but will only begin in 2013. The addition of KazakhGold could boost output by as much as 30 percent, Gabitov said.
Russian media reported last month that billionaire Suleiman Kerimov had offered Potanin $1.6 billion for his stake in Polyus. There were also reports that Prokhorov had reached an agreement with Potanin to acquire his share.
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