Further to the announcement of KazakhGold Group Limited (“KazakhGold”), OJSC Polyus Gold (“Polyus Gold”) notes that KazakhGold has entered into a binding agreement (the “Principal Agreement”) with AltynGroup Kazakhstan (“AltynGroup”), a limited liability partnership controlled by the Assaubayev family, for the sale of its operating subsidiaries in Kazakhstan, Romania and Kyrgyzstan and the withdrawal of all claims made and litigation brought against the Assaubayev family and its interests.

The key terms of the Principal Agreement and the asset acquisition mechanism are as follows :
First Tranche:
The AltynGroup is to acquire the following shareholdings in a number of operating subsidiaries making up the KazakhGold Group not later than 11 March 2011:
• 65% of JSC MMC Kazakhaltyn (“KazakhAltyn”),
• 65% of Romaltyn Mining S.R.L. and Romaltyn Exploration S.R.L.,
• 43.33% of CJSC Talas Gold, which amounts to 65% of the total number of shares held by a KazakhGold subsidiary (subject to waiver by the second shareholder of its pre-emptive right to acquire the shares).
 
Payment of the consideration for the First Tranche in the amount of US$331,000,000 will be effected simultaneously with transfer of the shareholdings in cash and by way of set-off of the amount owed by KazakhGold under its loan agreement with Gold Lion Holdings Limited (“GL”), worth US$31,025,000 (plus interest accrued under the loan).

In addition, on or before the payment date of the First Tranche the AltynGroup will provide funds to KazakhGold in order to repay its loan from Jenington International Inc. (“Jenington”), which is part of the Polyus Gold group, in the amount of US$52,669,195.05 plus accrued interest.

Second Tranche:
The AltynGroup will acquire all of the holding companies holding the remaining interests in the operating subsidiaries making up the KazakhGold group from KazakhGold not later than 8 June 2012.
 
The payment for the Second Tranche will amount to US$178,000,000 plus interest accrued at a rate of 9.375% per annum from the settlement date under the First Tranche. Payment of the Second Tranche may be effected in part by shares of KazakhGold held by GL at arm’s length at the time of payment.

Prior to settlement under the First Tranche the buyer is to provide KazakhGold guarantees satisfactory to KazakhGold of payment under the Second Tranche.

As far as the Eurobonds in the amount of US$200,000,000 (with a coupon rate of 9.375% p.a.) due in 2013, AltynGroup will provide KazakhGold with an irrevocable unconditional guarantee satisfactory to KazakhGold prior to completion of the First Tranche in payment of all sums payable under the Eurobonds.

In the event that closing does not take place by the agreed date through the fault of either party, such party must pay the other party a fee in the amount of $14.6 million

In August 2009 Polyus Gold completed the acquisition of 50.1 percent of the shares of KazakhGold and subsequently increased its stake to 65 percent in July 2010.

As has been widely reported in press releases and the media, in June 2010, certain claims were brought by KazakhGold, Kazakhaltyn and Jenington against the Assaubayev family and its interests.
 
In July – August 2010 the Government of the Republic of Kazakhstan retracted its previously issued approvals for transactions involving the shares of KazakhGold, thus preventing the reverse takeover with OJSC Polyus Gold from going ahead.

The negotiations on the sale of the operating subsidiaries to AltynGroup became a part of the process to resolve the disputes between the parties and relating to KazakhGold, with the support of the Kazakhstan governmental authorities. The Principal Agreement provides for release by all parties of these claims and a formal settlement.

The transaction price of US$509 million (or $4.24 per KazakhGold share) enables the Polyus Gold group to recoup its investment and acknowledges, in equal measure, the interests of KazakhGold’s minority shareholders.

A key condition precedent to completion of the First Tranche is that all necessary approvals are obtained (including reinstatement of those previously withdrawn) from the competent agencies of the Governments of the Republic of Kazakhstan, Kyrgyzstan and Romania, which would pave the way for KazakhGold to complete the reverse takeover by Polyus Gold. In October 2010 it was decided that this transaction could not be completed on the terms previously announced.

The transaction will be completed after the parties sign the relevant definitive agreements, including a share purchase agreement, which will, inter alia, set forth in detail the rights and obligations of the parties and a mechanism for completion of the transaction and provision of the guarantees envisaged in the executed agreement.

In the year that it has managed Kazakhaltyn, the Polyus Gold group has developed, approved and implemented the Program of Priority Measures to Stabilise Production at Kazakhaltyn in 2009 and Increase Output of Finished Product in 2010. On the whole, over this period Kazakhaltyn was able to attain impressive results (9 months 2010 / 9 months 2009):
Mine footage –  increased by a factor of 2.4;
Ore extraction – increased by a factor of 2.5;
Ore processing – rose by 46%;
Heap leaching of ore –  increased by a factor of 2.9.

It is expected that year-end production volume performance results will have grown by 50 percent compared to last year.

“Over the past year of operations in Kazakhstan we were able to achieve dramatic and tangible improvement in the operational and financial performance results of the company, and we continue to view Kazakhstan and Kirgyzstan as highly promising regions for the development of gold mining operations. We do not rule out the possibility of entering into future projects in this region with new partners”, says Evgueni Ivanov, General Director of OJSC Polyus Gold. “The most important thing is that as a result of this transaction, not only will Polyus recoup all of the cash funds used to acquire KazakhGold without incurring a loss, it also gains an excellent arena from which to develop its presence on the global market”, notes Ivanov.

OJSC Polyus Gold is Russia’s leading gold producer and one of the world’s largest gold mining companies in terms of market capitalization, mineral reserves base and output. The Company’s asset portfolio includes hard-rock and alluvial deposits in the Krasnoyarsk, Irkutsk, Magadan and Amur Regions, the Republic of Sakha (Yakutia). The company produced 1.3 m oz of gold in 2009.

For further information please contact:
 
For investors:
Alexey V. Chernushkin, Director, CM and IR
Evguenia V.Buydina, IR manager
 +7 (495) 641-3377
 +7 (495) 785-4031
 ir@polyusgold.com

For media:
Anton A. Arens, PR Director
 +7 (495) 641-3365
 +7 (495) 544-5496
pr@polyusgold.com