Emerging Money's  Instablog

Gold prices may be at record levels, but Russia's biggest gold miner is having a hard time generating profits as its plans to merge into subsidiary Kazakhgold drift. Polyus OPYGY reported 37% higher revenue in the first half of 2010 as bullion prices surged 17%. However, the company reported a 30% lower net profit as costs rose faster than underlying gold prices.

Consensus forecasts had already primed traders to expect a bearish result, and in fact OPYGY managed to protect its margins better than most analysts predicted.

KazakhGold progress would be bullish

Meanwhile, traders are getting some hope that the company's long-delayed plans to fold its business into subsidiary KazakhGold will finally meet with regulatory approval some time soon. Moscow brokers say any progress on negotiations with the Kazakh government -- which has blocked the reverse takeover on the grounds that it undervalues KazakhGold assets -- will be bullish for OPYGY. Legal proceedings in London against KazakhGold minority shareholders are ongoing and OPYGY has extended its share exchange offer until October 29.

Meanwhile, KazakhGold's accounts are frozen except to make necessary payments. If the deal goes through, ADR holders will get the rare opportunity to own U.K. shares of Kazakhgold. Each ADR of OPYGY will be exchanged for 4.885 GDRs (London-traded shares) of the new Kazakh-based company.