Potanin-Led Boycott Blocks Polyus Deal

Board members of Polyus Gold on Tuesday failed to approve carving out of some of its exploration assets because of a lack of a quorum, a Polyus statement showed.

Board members representing Polyus co-owner Vladimir Potanin, who opposes the carving out, boycotted the meeting, while one of two independent directors failed to appear, a board member said. A proposed share issue was not discussed.

"The board entrusted [Polyus general director Yevgeny] Ivanov to prepare and submit to the board the comparative analyses of possible variants to carve out the above exploration assets," the statement said.

It said the variants included "delivery of exploration licenses to an independent entity with the subsequent listing of this entity on Russian and international stock exchanges or by means of selling these exploration assets."

On the nine-seat board there are two independent directors, four who represent the interests of co-owner Mikhail Prokhorov, and Potanin's three members. In order to establish a quorum, both independent directors had to participate.

Billionaires Potanin and Prokhorov are in a protracted process of dividing assets, including Polyus and its former parent company, metals giant Norilsk Nickel.

Prokhorov said last week that Polyus, which sits on the world's third-largest gold reserves, had no means to develop its deposits and needed to raise cash through an additional share issue, which he wanted to discuss at the meeting Tuesday.

A Polyus spokeswoman said the share issue was not discussed.

"We are happy that no decision has been made on a share issue, due to the lack of a quorum," said Sergei Batekhin, a Polyus board member representing Potanin.

"We are against the carving out and we have only one formal lever to stop this process -- through blocking the [share] issue which may finally result in the carving out," said Batekhin, who is also a deputy head of Potanin's holding company Interros.

Batekhin said depriving Polyus of its assets -- as proposed by the management -- damaged both the shareholders' interests and the business itself because it reduced the company's value.

"We also suspect that [our opponents] are trying to dispose of deposits, which the market values at a higher price than at which they may be proposed to be sold," Batekhin said.

"We hope that Ivanov prepares documents for the next board in such a form that board members would not have a suspicion they are being manipulated," he said.

He said the main reason for disagreement lies in management not adjusting Polyus' structure to internationally accepted standards of corporate governance, under which important decisions are made by shareholders rather than managers.

Polyus expects to produce 1.215 million ounces of gold in 2007, the same amount as in 2006, the Polyus statement said.