OREANDA-NEWS. December 21, 2010. The Board of KazakhGold Group Limited (“KazakhGold”) announces that it has entered into a principal agreement (the “Agreement”) for the sale of its operating subsidiaries and related matters (the “Transaction”) with AltynGroup Kazakhstan LLP (“AltynGroup”), a limited liability partnership controlled by members of the Assaubayev family. The Transaction is subject to a number of conditions, including release of the claims made by KazakhGold, Jenington and JSC Kazakhaltyn MMC against Gold Lion and members of the Assaubayev family, approvals from the Government of the Republic of Kazakhstan, receipt of financing by AltynGroup to complete the transactions and the entry into definitive agreements.

As part of the Transaction, KazakhGold will sell, subject to a number of conditions, its interests in its operating subsidiaries in Kazakhstan, Romania and Kyrgyzstan to AltynGroup. The total cash consideration is approximately USD 509 million, which will be partly satisfied by the set off of the principal amount of the existing loan of approximately USD 31 million to Gold Lion Holdings Limited ("Gold Lion”), a company controlled by trustees of discretionary trusts, the beneficiaries of which comprise members of the Assaubayev family and the value of the approximately 9% shareholding in KazakhGold held by Gold Lion.  Under the Agreement, the sale by KazakhGold of its operating subsidiaries is conditional, amongst other things, on the settlement of all outstanding claims and actions between the parties, and the receipt, of all necessary waivers and approvals from the Kazakhstan Government in relation to the Partial Offer by Jenington International Inc. (“Jenington”), an indirect wholly-owned subsidiary of Polyus Gold (“Polyus Gold”), for KazakhGold completed in August 2009 and the USD 100 million equity share placement completed by KazakhGold in July 2010, as well as the receipt of all necessary waivers and approvals for a possible business combination between KazakhGold and Polyus Gold.

The sale of shares in the operating subsidiaries is expected to be completed in two tranches, with approximately 65% of the shares being sold following the entry into of definitive agreements, and satisfaction of conditions, with the remaining interests being sold within 18 months, following the signing of the Agreement. The Agreement also provides for the transaction documentation to include a formal settlement and release of the claims made by KazakhGold, Jenington and JSC Kazakhaltyn MMC against Gold Lion and members of the Assaubayev family and of all criminal and civil investigations and proceedings in Kazakhstan against KazakhGold, its subsidiaries and affiliates, and certain directors of KazakhGold.

In addition, AltynGroup is required to provide a guarantee satisfactory to KazakhGold of all obligations under the USD 200 million Senior Notes of KazakhGold, due 2013, and to provide funds to KazakhGold in order to repay the existing approximately USD 53 million loan to Jenington International Inc., an indirect subsidiary of Polyus Gold.

The Agreement also provides for the payment of a fee in the amount of USD 14.6 million, payable by AltynGroup (through the reduction in the amount of the Gold Lion loan payable by KazakhGold in November 2014, in the event closing of the sale of the first tranche of shares in the operating subsidiaries does not occur by a date failing three and a half months from the date of the Agreement, due to: (i) a material breach by AltynGroup of the terms of the Agreement; (ii) failure by AltynGroup to obtain the required waivers and consents in Kazakhstan; or (iii) failure by AltynGroup to obtain the debt and equity financing required for the first tranche closing.  USD 14.6 million will also be payable by KazakhGold in November 2014, in the event the first closing does not occur as a result of material breach of the Agreement by KazakhGold.

Following completion of the sale of the first tranche of shares in the operating subsidiaries, KazakhGold and Polyus Gold intend to renew their consideration of a business combination between the two companies.

There can be no assurance that the conditions to the Transaction will be satisfied, or that the Transaction will be completed. A further announcement will be made as appropriate.

Commenting on the entry into the Agreement, Evgeny I. Ivanov, Chief Executive Officer and Chairman of the Board of Directors of KazakhGold, said:

“…We believe that entry into the Agreement and execution of the Transaction, if completed, will provide significant benefits to the shareholders and holders of global depositary receipts of KazakhGold.  It will resolve the disputes between the parties and the Kazakh authorities on an appropriate basis, and put the company in the position to consider a possible business combination with Polyus Gold, which we believe is in the interests of all shareholders….”