The end of Sherlock Holmes came when he and his greatest adversary, Professor Moriarty, wrestle at the cliff's edge above the Reichenbach Falls, in the Swiss Alps. Locked in combat, they take each other to their deaths down the 250-metre drop - although Holmes was subsequently resurrected.  The Alps, on the Swiss side, have also been bad luck for Mikhail Prokhorov.

In his latest move, he has taken his fight over Polyus Gold, the leading Russian gold miner, with ex-partner, Vladimir Potanin, to the precipice. There,  with one more stumble, each risks having acquired more than 30% of the shares of the company;  and with that, the costly obligation to buy out the minority shareholders.

After share trading last Friday evening, Polyus Gold confirmed that it had received an offer from Prokhorov's holding company, Onexim, to acquire the 12,476,401 ordinary shares in Company held by the Company's wholly-owned subsidiary, Jenington International Inc. (representing approximately 6.54% of the total issued and outstanding ordinary shares of the Company) and confirms receipt of such offer. The offer is stated to expire at 6 p.m. (Moscow time) on 6 June 2008. There can be no assurance as to whether the offer will be accepted, or on what terms.

Polyus does not reveal how much Onexim is offering. This contrasts with the public disclosure of the London-based Kazimir Partners' bid to buy a 2.5% bloc of the same Jenington shares at the premium price of $73.44 per share. That offer was delivered after Friday trading a fortnight earlier, on May 16.

That offer triggered a sharp rise in the Polyus price, to be followed by an equally sharp correction, once it became clear in the market that Prokhorov and his chief executive, Evgeny Ivanov, intended to refuse. The stated reason posted on the Polyus website was that the company is flush with cash right now, and doesn't need to sell Jenington shares, when it would be more beneficial to wait. The share price gyrations, and possibly also the conduct of Polyus's management, are now under investigation by the Financial Services Authority (FSA).

Jenington is an offshore shell company, registered in the British Virgin Islands and with an office in Switzerland. It is owned by the closed joint-stock company form of Polyus Gold, and controlled by Ivanov and Prokhorov.  Although technically Jenington's shares may be considered to be treasury shares of the listed open joint stock company Polyus Gold, legally they are treated by Prokhorov and Ivanov as their own shares, and they have said they will vote them accordingly, when the annual general meeting of Polyus shareholders convenes on June 26.

Whether the Jenington sale goes through or not, the shares will be voted by Prokhorov to support his slate of board candidates, who in turn will vote for a revision of the board charter to make a spinoff or carve-out of the company's exploration assets easier to accomplish.

The UBS brokerage didn't need to be Sherlock Holmes to detect, according to its Monday report, that in our opinion, the above development could indicate that Onexim and Interros have not yet reached an agreement on the possibility of consolidating control by either of the parties.

Nor did anyone require Moriarty's criminal genius to speculate that Onexim's offer must be above that of Kazimir's $73.44/share, an 18% premium to market at the time it was made.  Market reaction in Monday trading took Polyus shares up 11% to $69. The upward momentum is likely to continue. According to UralSib analyst Michael Kavanagh, it is estimated that Onexim Group now holds up to 30% in Polyus Gold (an Onexim representative officially confirmed it holds a 25% stake). If Onexim acquires the 6.5% stake from Jenington, its total stake in the company will exceed 30% and it will be obliged to make an offer to all shareholders of Polyus Gold. The price of the offer by law cannot be below the six-month weighted average or the implied price at which Onexim acquires the shares. In our view, Onexim will need to offer at least $73/share (Kazimir's price) or higher to acquire the 6.5% stake, which implies a premium of at least 18% to the current market price.

In effect, Prokhorov is challenging Potanin to a costly duel, in which each must outbid the other for the minority shares, or face defeat.

Kavanagh warned that Prokhorov's challenge could be fatal. From a fundamental point of view, we believe the stock is overpriced at current levels, and we would use this potential speculative hike in the shares as a good opportunity to lock in profits in the stock.