Millhouse in $400M Gold Deal

Roman Abramovich will acquire a 40 percent interest in miner Highland Gold for $400 million by subscribing to a new share issue.

Highland's stock rose Tuesday to its highest in more than seven months as investors bet on the financial and political clout of the Kremlin-friendly billionaire helping the miner to fulfill expansion plans and acquire more assets in the country.

"Abramovich wouldn't go there if he didn't see potential. The guy wants to make money," said Dmitry Kolomytsyn, equity analyst at Aton.

Highland Gold, which produced 3.2 percent of Russia's gold last year, has seen its London-listed stock plummet to a record low this year after falling short of production targets and the disposal of a mine where 25 people died in a fire in 2006. In July, the Natural Resources Ministry's environmental watchdog said it was in breach of its license at the Maiskoye field in the Chukotka region, where Abramovich is the governor.

But the company, 34 percent owned by world gold-mining leader Barrick Gold, is developing several promising new projects, including Maiskoye.

"This transaction provides us with significant funding to enable the progress of our very active development program at a number of key sites," Highland Gold chairman James Cross said.

Millhouse, Abramovich's investment vehicle, will subscribe to 130.1 million new shares in Highland in two separate transactions, the first to be completed around Dec. 11. Millhouse will own 25 percent of Highland's enlarged share capital after the first subscription, rising to 40 percent after the second. It has agreed to pay ?1.51 ($3.12) per share.

"This investment in Highland Gold fits perfectly with our approach of taking strategic stakes in businesses with strong growth potential," Millhouse chairman Eugene Shvidler said.

Abramovich, who holds a 41 percent stake in steelmaker Evraz, has bought Dvoinoye, another gold field in Chukotka.

Kolomytsyn said Millhouse had received a good price, well below his target $4.00 per share price for Highland.