Prokhorov Plans 2011 Merger to Create Top-3 Gold Miner

Russian Billionaire Mikhail Prokhorov
OAO Polyus Gold, Russia’s largest producer of the metal, may merge with a global competitor as early as next year to form a “Top 3” gold miner, billionaire owner Mikhail Prokhorov said. Photograph: Alexander Zemlianichenko Jr./Bloomberg

OAO Polyus Gold, Russia’s largest producer of the metal, plans to merge with a global rival as early as 2011 to become one of the world’s three-biggest miners of the commodity, billionaire owner Mikhail Prokhorov said.

“We’ll need to be in the world’s top three,” he said in a Bloomberg Television interview yesterday in Moscow. Polyus will “make a merger with one of the leading gold companies in the world” after it completes plans to gain a primary listing in London, he said, declining to name acquisition candidates.

Russian producers are seeking to extend their reach after gold prices rose about 30 percent this year. OAO Polymetal aims to change its domicile to Jersey, U.K., to get more investors and OAO Severstal’s Nord Gold unit plans a London initial public offering. Polyus has sought a primary listing in London by combining with its Jersey-based unit KazakhGold Group Ltd.

Polymetal, a Russian producer of gold and silver, surged as much as 20 percent in Moscow trading, the most in two years, after Prokhorov’s comments. The company, which also operates in Kazakhstan, advanced 0.4 percent to 624.95 rubles in Moscow.

Polyus rose 7 percent to 1,927.28 rubles, the highest since May 2008, valuing the company at 367 billion rubles ($11.8 billion).

Polyus’s market worth will jump 20 percent after it gains a U.K. listing, Prokhorov, 45, said in the interview.

“We don’t need acquisition cash,” he said. “As soon as we have a London listing, we can merge with any international company because it’s the same as money.”

Merger Blocked

Barrick Gold Corp., Newmont Mining Corp. and AngloGold Ashanti Ltd. were the largest gold miners last year, according to London-based researcher GFMS. They are followed by South Africa’s Gold Fields Ltd., U.S.-based Freeport-McMoRan Copper & Gold Inc., and Goldcorp Inc. and Kinross Gold Corp. of Canada.

“Among the senior producers, Kinross is the most likely candidate to tie up with Polyus,” George Topping, a Toronto- based analyst at Stifel Nicolaus & Co., said today in a telephone interview. “Kinross has Russian gold production and is in Russia to stay.”

Polyus canceled a planned merger with KazakhGold after failing to resolve a shareholder dispute over the so-called reverse takeover before an Oct. 29 approval deadline. The company said on Oct. 26 that despite stopping the transaction, it still aimed to complete a deal allowing London-listed KazakhGold to take over Polyus, increasing the parent’s access to global investors.

Gold Fields was little changed at 124.65 rand in Johannesburg trading, while AngloGold declined 1.4 percent to 339.90 rand.

Gold Reserves

Polyus spent almost a decade amassing the world’s fifth-largest gold reserves. Prokhorov, who controls the Moscow-based company with fellow billionaire Suleiman Kerimov, plans to keep a minority stake. Prokhorov and Kerimov each own 37 percent, according to Polyus.

Polyus previously abandoned a proposal to combine with Gold Fields in 2004. The Russian company was then a unit of OAO GMK Norilsk Nickel, which bought a 20 percent stake in Gold Fields to expand abroad before selling the holding in 2006.

Gold Fields is “the most likely candidate” for a merger with Polyus, Mikhail Stiskin, an analyst at Troika Dialog, said in Moscow.

Sven Lunsche, a spokesman for Johannesburg-based Gold Fields, said he wasn’t aware of any approach.

‘Less International Experience’

An international merger “would be complementary as Polyus has a large amount of gold reserves but less international experience and transparency,” said Alexander Pukhaev, an analyst at VTB Capital in Moscow.

Polyus also studied a merger with Kinross “several years ago,” Chief Executive Officer Evgeny Ivanov said in February.

Kinross owns a 75 percent stake in the Kupol mine in eastern Russia, according to the company’s website. The deposit has proven and probable gold reserves of 2.57 million ounces. Topping estimates Kupol represents about 14 percent of Kinross’s net-asset value.

Kinross also holds 100 percent of the high-grade Dvoinoye gold deposit, 90 kilometers (56 miles) north of Kupol, according to the website. Kinross is currently exploring the area near Dvoinoye.

Steve Mitchell, a Kinross spokesman, declined to comment today when contacted by e-mail.

‘Political Risk’

“Most investors would be unlikely to accept Polyus paper, even if the shares are traded in London,” Stifel Nicolaus’s Topping said. “The political risk in Russia is just too high.”

Kinross fell 53 cents, or 2.7 percent, to C$18.84 at 4:25 p.m. in Toronto Stock Exchange trading.

AngloGold, seeking to add 3 million ounces of new projects in the next decade, expects industry consolidation, Chief Executive Officer Mark Cutifani said on Nov. 30. Alan Fine, a spokesman in Johannesburg for AngloGold, declined to comment.

Forbes magazine this year ranked Prokhorov as Russia’s second-richest man, after OAO Novolipetsk Steel Chairman Vladimir Lisin.