The fight between shareholders Mikhail Prokhorov and Vladimir Potanin over the future of Polyus Gold, Russia's leading goldminer,  escalated angrily at the board meeting on May 21, when chief executive Evgeny Ivanov called for a vote to eliminate independent director, Lord Patrick Gillford, from the slate to be submitted to the annual shareholders' meeting next month. 

Ivanov also rebuffed board consideration of a proposal to sell a 2.5% bloc of company-controlled shares to the Kazimir group in London.

Details of the board meeting were summarized in an official press statement by Polyus. This sidesteps the conflict, reporting only that Gillford, who has been an independent board member since 2006, was dropped due to the ongoing investigation initiated by Lord Patrick James Gillford in relation to his status as an independent director. The language suggests that it had been Gillford, who had initiated the move, not Prokhorov and Ivanov.

Gillford was not available to answer Mineweb questions on what has happened. However, his office in London issued a formal statement. This charges that Ivanov and the board statement had cynically misinterpreted in a wholly unacceptable way the independence issue, and Gillford's earlier request to Ivanov to find out where a press leak, challenging his independence, had come from.

Lord Gillford disagrees with and objects to the [Polyus] press release, the statement said. He has made his position clear regarding his independence and his continued objection to the management carve-out of assets.

Polyus spokesman Elena Evstigneeva refused to clarify the investigation referred to, and why it had resulted in Gillford's replacement by Ivanov's selection of Christophe Charlier.

Charlier was a well-known member of a team of advisors to Prokhorov four years ago, when the latter headed the management of Norilsk Nickel. Charlier worked with Dmitry Razumov, who is now head of Prokhorov's holding Onexim; and with Leonid Rozhetskin, an advisor forced out by Potanin.  Rozhetskin was recently murdered in Latvia.

Charlier withdrew from Norilsk Nickel after the completion in 2004 of the acquisition of a 20% stake in Gold Fields from Anglo American. He told Mineweb at the time he was retiring to a chateau he had purchased in France.

Charlier's closeness to Prokhorov has raised questions about the criteria used in assessing the independence of directors on the Polyus board. Evstigneeva declined to say what these criteria are. 

A Russian independent on the Polyus board, Valery Braiko, who heads an association of Russian gold mining companies, was asked if he is an independent, and what he believes should be the standard of independence. He told Mineweb: I will not comment on the questions, as no-one from the board is allowed to talk, except Ivanov.

At Onexim, Prokhorov's spokesman said he would issue no statement. At Potanin's Interros holding, no-one would speak.

On the current and proposed 9-seat board, three directors -- Sergei Batekhin, Kirill Parinov,  and Pavel Skitovich -- appear to be aligned with  Potanin, who reportedly now controls at least 34% of the Polyus shares. Prokhorov, with about 30%, controls the votes of 5 of the board members, including his own and Ivanov's; if the AGM votes to replace Gillford with Charlier, they may control a sixth director as well.

The removal of Gillford is unprecedented in Russian corporate practice, for the purported investigation of Gillford's independence was triggered by a leak to the RBC newspaper, charging that Gillford's London firm has done work for Potanin, while an associate has also done work for Potanin.

In a statement issued to the board before yesterday's meeting, Gillford said his firm has done work in the past for firms connected to both Potanin and Prokhorov. However, he said there was no conflict of interest with his role as an independent director. According to Gillford, his role on the Polyus Gold Board is to provide independent strategic advice and act on behalf of all shareholders. He has carried out these duties without compromise, voting as he believes is correct and, as his record shows, not voting in line with any particular shareholder or shareholder group.  

No Russian corporate board is known to have ever initiated a comparable investigation. 

The motive for targeting Gillford, market sources believe, is that Polyus Gold's minority shareholders have become increasingly resistant to the alleged carve-out plan of Prokhorov and Ivanov. This, it is believed, threatens to empty the Polyus Gold company of its valuable exploration and prospecting licences, and transfer the value to a new company controlled by Prokhorov and Ivanov.

Gillord is expected to remain a candidate for the independent seat on the board, when the shareholders meet in a month's time.

Meantime, as Mineweb reported early in the week, the Prokhorov-Ivanov group on the board are trying to limit the potential for a swing of shareholder votes against them. This led at yesterday's board meeting to a vote to resist a proposal for purchase of additional shares, and votes, by the London investment fund, Kazimir Partners.  Last week, when Kazimir made its offer to buy at $73.45 per share, Polyus Gold was trading at $59.50.

According to the official company statement, after yesterday's board session, the agenda of the Board meeting also included the item suggested by a Board member Sergei Batekhin relating to the recent offer made by investment fund Kazimir Partners to acquire 4,766,000 shares of OJSC Polyus Gold for US$73.44 per share. The Board commissioned the management to prepare a backed up position on the proposal of Kazimir Partners by May 26, 2008.

This delays approval of the sale, while there was an attempt at lifting the share price above the Kazimir offer. During market trading on May 21, Polyus Gold rose to a record high on the RTS exchange of $80. Twenty-fours later, it had fallen back to $66.

If successful, Kazimir's bid would remove the 2.5% share bloc from Jennington, an offshore Polyus subsidiary under direct control of Prokhorov and Ivanov, and thus reduce their voting strength at the AGM, in relation to the Potanin bloc.

Prokhorov and Ivanov made sure at the May 21 board meeting that they intend to continue controlling the Jennington votes. According to the company statement, the Board commissioned General Director of OJSC Polyus Gold Evgueni Ivanov to insure that the stake in OJSC Polyus Gold belonging to Jenington International Inc. will vote in accordance with the recommendations of the Board of OJSC Polyus Gold.