Lord Patrick Gillford, the influential independent on the board of Polyus Gold, Russia's leading goldminer, has warned the board  that the company is in danger of an asset stripping scheme devised by chief executive Evgeny Ivanov, and his stakeholding ally, Mikhail Prokhorov.

Gillford issued a letter following a press leak to a Moscow business news service that suggested Gillford had a vested interest in the battle for Polyus Gold with Vladimir Potanin. At present, Potanin and his Interros holding control about 34% of Polyus Gold; Prokhorov and his Onexim holding control 30%. In practice, control of the board remains for the time being with Ivanov and Prokhorov.

Gillford is the sole international independent on the Polyus board, as the two other named independents, Russians, don't qualify. An old Etonian, Tory advisor, and career PR agent, Gillford took his Polyus seat before the company's London float in 2006. He runs Policy Partnership Ltd. at an address in southwest London.  According to the firm's website, we provide expert advice and sound judgement to help our clients anticipate and respond to regulatory, policy and communication challenges, both domestically and internationally.  Gillford does not hold shares or share options in Polyus. The verbatim text of his letter is as follows:

Lord Gillford would like to clarify his position as an Independent Board Director of Polyus Gold.  

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.  

The Policy Partnership, a strategic communications consultancy, provides advice to Interros concerning the Potanin Fountation and has historically advised Onexim. In addition, Locksley Ryan, a consultant to the Policy Partnership, is the owner of the RLF Partnership advising Interros in its attempt to improve corporate governance standards at Polyus Gold. Lord Gillford has no beneficial interest in RLF Partnership.   

As is common practice in banks, financial institutions and legal firms, clear Chinese walls operate between these activities and Lord Gillford's performance as his duties as a director.  

The Policy Partnership operates to the standards expected of a professional organisation.  

Lord Gillford has behaved entirely appropriately in his role as an independent Director for Polyus Gold and ensures the relevant information barriers are in place to safeguard this position.

Gillford declined to speak on the record with Mineweb. 

The significance of his public statement now, just before the May 21 meeting of the Polyus board, is that it adds to the pressure on Prokhorov and Ivanov, as Potanin rallies shareholder backing for a change of management,  and of the company's charter, to prevent the carve-out of the company's exploration licences and assets, and their transfer to a separate company, controlled by Prokhorov. This new company is called Polyus Exploration, registered in the British Virgin Islands. 

Ivanov has sought to sway shareholder and director support for this scheme with an offer to share 20% of the shares in the BVI company.

Mineweb has already reported on several earlier rounds of this fight.  Recently, Potanin increased his stake in Polyus with the proceeds of an agreement with Prokhorov to take the Polyus shares the two men formerly shared in the KM Invest vehicle.

Another 2.5% stake has been put in contention in recent days, following an offer from the London investment fund, Kazimir Ltd., to pay $350 million for the shares, which are currently held by Jennington International. The offer price amounts to $73.45 per share. Last Friday morning, before trading began, the share was at $59.50; at the end of the day in Moscow, it was $63.75. The Kazimir offer premium was thus a premium of 15% to 24%, depending on when you start counting.

The market impact on Monday, when news of the Kazimir offer became better known, was electric:


Kazimir spokesman Karen Clarke declined to return a call to explain why Kazimir was making this offer at such a time of uncertainty for Polyus's asset value. Interros would not comment, nor Polyus Gold.

The Kazimir offer ought to be tabled for a decision by the Polyus board tomorrow. However, if Prokhorov and Ivanov vote their shares to block discussion and refuse the offer, it will make dramatically clear to the market that their plans for Polyus Gold do not anticipate the preservation of long-term value.

Kazimir may therefore be wagering that, if they can buy Jennington's 2.5%, they can add those votes to the Potanin support bloc, and put a stop to the Polyus Exploration scheme.

As Mineweb has already reported, Polyus Exploration is wholly owned by Jennington International,  which turns out to be registered in BVI also. Jennington was the vehicle once used to hold the 20% stake in Gold Fields, which Prokhorov and his then advisers, Leonid Rozhetskin and Dmitry Razumov, acquired in March 2004, beginning what they thought would be a takeover of Gold Fields's offshore assets, and a reverse listing for Norilsk Nickel. That scheme aborted when the Kremlin vetoed the deal. 

Forensically, Jennington is 100% owned by closed joint stock company (ZAO) Polyus, and not by the open and listed parent. But Jennington holds a 9% shareholding in the parent. About 2.4% of those shares have been set aside by Ivanov for his management options scheme. But all of the Jennington votes can be cast for Prokhorov and Ivanov, against Potanin and the minorities.

This can happen, because ZAO Polyus Zoloto is the parent of both Jennington and Polyus Exploration (BVI). In theory, that makes the BVI unit a wholly owned subsidiary of the publicly listed parent, OAO Polyus Zoloto. But in practice, according to the current charter and corporate governance rules of Polyus Gold, Ivanov can make asset purchases and disposals through ZAO Polyus without permission, vote, consultation, or even knowledge, of the board of directors of the parent company. That means Ivanov can sell assets without telling the shareholders of the company - except for Prokhorov.

The sale of portion of the Jennington shares to Kazimir increases the likelihood that the shares would be voted to keep Polyus Gold intact. Refusing the Kazimir offer, and premium, means Prokhorov and Ivanov want to keep the shares and votes for their carve-out plan.