Legal Obstacles May Block Sale of IG ALROSA Gold Assets

By Elena Kiseleva

Legal action in the British Virgin Islands could throw a monkey wrench into the reported agreement under which Polus, a wholly-owned subsidiary of Norilsk Nickel, is to buy 5 million worth of gold mining areas in Yakutia from IG ALROSA, a 51 percent owned subsidiary of Russian diamond monopoly ALROSA. Under the terms of the agreement as reported by the Russian business newspaper Kommersant since mid-August, but never officially confirmed by the companies, Polus will buy the rights to mine more than 700 tons of gold that IG ALROSA has in license areas under its management, including the Nezhdaninskoe deposit, the Kyuchyus deposit, and 10 separate deposits in the Kuranakhskoe ore field.

Yuzhno-Verkhoyansk Mining Co. holds the license for the Nezhdaninskoe deposit. The company’s owners are Yakut Mining Co. (50 percent), Celtic Resources (20 percent), Golden Invest Corp. and Davenport Ventures Ltd. (30 percent). IG ALROSA holds a 96.6 percent stake in Yakut Mining Co., and this is what Polus reportedly claims to acquire.

Celtic Resources, an Irish company, brought suit in the British Virgin Islands to prevent Golden Invest Corp. and Davenport Ventures Ltd., which are incorporated in the Cayman Islands, from disposing of their stake in Yuzhno-Verkhoyansk Mining Co., and the Supreme Court of the territory has ruled in its favor. Celtic Resources claims that this 30 percent stake actually belongs to it, which would give the company a total interest in the firm of 50 percent, as Celtic Resources Chairman Peter Hannen argued in a letter to Russian Finance Minister Alexey Kudrin, who chairs the supervisory board of ALROSA. “Celtic Resources claims it owns a 50 percent stake in the Nezhdaninskoe deposit, and in the event of conclusion of a deal with Polus, it will assert its rights in the Russian and foreign courts.” The company expressed confidence that it will win the case in a press release, while IG ALROSA, Polus, and Yuzhno-Verkhoyansk all declined to comment for the record.

Zenit Bank gained control of the 30 percent interest in Yuzhno-Verkhoyansk that Celtic Resources is contesting in 2001, under a loan agreement with the company. In September 2002, the bank transferred the stock to the two offshore companies. Celtic Resources filed suit that same year to challenge the deal and try to gain possession of the stake, which it says belongs to it. The deals concluded by Zinit Bank as an agent, and the accounting records of the shareholders of CJSC Yuzhno-Verkhoyansk and OJSC Yuzhno-Verkhoyansk, are all being contested in the foreign courts, which have issued a restraining order freezing the shares.

Celtic Resources now suspects that the 30 percent stake in Yuzhno-Verkhoyansk Co. is actually included in the reported agreement between IG ALROSA and Polus. Sources in these two companies don’t seem shocked by the news, but deny any involvement in the offshore transactions. “This stake is not included in our deal. It is solely a question of selling 50 percent of Yuzhno-Verkhoyansk Co,” these anonymous sources told Kommersant, perhaps a bit disingenuously. In any case, since it will not gain a majority stake in Yuzhno-Verkhoyansk Co. by purchasing IG ALROSA’s 50 percent interest, sooner or later Polus will have to enter into negotiations with Celtic.

Another potential snag for Polus in its attempt to corner the Yakutian gold mining industry is the Russian Funds Capital Group, which is challenging IG ALROSA’s right to dispose of the 10 gold mining licenses held by Aldanzoloto. The Russian Funds Group, which holds a 34 percent stake in the company, is now in the second year of a lawsuit challenging IG ALROSA’s right to dispose of these assets, and it filed two new lawsuits touching on the matter in the Republic of Sakha (Yakutia) in September.