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27 Jul, 2011 11:33

Polyus Gold completes Kazakh Gold reverse takeover

With Russia's leading gold producer, Polyus Gold, completing its reverse takeover of KazakhGold, which will see it get a London listing Business RT spoke with Manoj Ladwa, Senior Trader at ETX Capital about the implications.

RT:  Does this seem like an unusual way to get a London listing for Polyus Gold?ML:  "Well these kind of deals seem to be few and far between, and it is fairly unconventional.Typically when a company wants to list in any market it will go to an investment bank and they will underwrite the stock and it will float in that manner.But this is a reverse takeover, its KazakhGold, which is a limited company which has gone and bought out its parent which is fairly unusual, and looks as though it wants to continue doing that which is a process to expand going forward.So it is not conventional but it does happen once in a while."RT:  Are there any drawbacks to this kind of reverse takeover? ML:  "Well there typically are and one of the main drawbacks is shareholder value.It is likely that this kind of reverse takeover can dampen shareholder value in the near term, and shareholder performance as well, and having looked at the recent performance of Polyus and KazakhGold, it has been underperforming its rivals fairly considerably, despite the price of gold increasing on the upside.And you tend to find that smaller companies or certainly private companies buying out public companies – the CEO’s of private companies tend not to be experienced in dealing with public companies.But in this case you have got the CEO of Kinross Gold, the former CEO of Kinross gold, Robert Buchan, to oversee the entire merger, so it is not really a factor here.He is fairly well experienced in the gold industry.There are some pros and cons involved here."RT:  How do you rate the prospects for the company now? ML:  "Well I think they are going to be fairly subdued given that Polyus Gold is looking at bigger and better mergers.It is looking to become a major player in the industry and that could mean another reverse takeover and therefore the share price is likely to e subdued for a considerable period of time, while this goes ahead.Fortunately with regards to these types of transactions there tends to be a lot of cash involved from the buying company, and that could significantly impact on the balance sheet and ultimately affect the share price."RT:  One of the biggest shareholders in Polyus Gold has been talking about a merger with global rival. Who do you think that could be? ML:  "Well without trying to start any takeover rumours there are a number of companies that could be appealing for Polyus Gold to take over.Now it is interesting that the former CEO of Kinross Gold has joined the company and Kinross Gold could be a potential target if Polyus Gold are to enter into the top three of the industry. Then you have also got other smaler players within the industry such as Yamana Gold and Ashanti Gold – I don’t think they will be looking for any of the bigger players such as Newmont Mining or Barrick Gold, but I wouldn’t rule anything out at the moment." RT:  Is buying gold stocks a good way to cash in on the rally in physical gold prices? ML:  "It is a way to cash in on the rally in gold but the price of gold stocks don’t really move in momentum with, or move in tandem with a rising gold price.Probably the best way is to buy either gold bullion or the ETF.Gold companies can underperform or overperform the price of gold. It is not a perfect correlation here."