According to what Morgan Stanley has written on page 7 of the Nord Gold prospectus just released , the goldminer owned by Alexei Mordashov – this week trying to sell its shares on the London Stock Exchange — “has entered into a relationship agreement with OAO Severstal and the Selling Shareholder to ensure that it will be able, at all times, to carry on its business independently of each of OAO Severstal and the Selling Shareholder and that all transactions and relationships between the Company, OAO Severstal and the Selling Shareholder are at arm’s length and on a normal commercial basis.”

Turn just two more pages of the 1,021-page document, and the prospectus concedes the risk that Mordashov may break his word. For Russian offer documents on the stock exchanges of the world, this is an unprecedented acknowledgement.

On page 9, Risk-1 relating to the group’s structure is spelled out: “the Major Shareholder will exercise significant control over the Group after the Offer and, as a result, investors may not be able to influence the outcome of important decisions in the future.” Risk-2: “The Group may enter into arrangements with related parties or affiliates.” And since Mordashov has been publicly accused of self-dealing in his businesses more than once before, and over the past two years has been accused of taking the Nord Gold assets by stiffing minority Canadian shareholders in High River Gold; Norwegian minorities in Crew Gold; Russian minorities in Prognoz Silver; and the Government of Guinea, investors now have the task of judging Mordashov’s character as a discount to the asking price for his shares.

His target range, announced along with the prospectus during last week’s roadshow, is between ₤3 and ₤3.90 (US$4.77-$6.20). According to Uralsib Bank, which is the first of the Moscow investment houses to issue a report on the Nord Gold attempt, “we view the announced price range as very expensive, and do not recommend participating in the IPO at such a price. We would buy Nord Gold only below Gbp220/share [$3.50].” That takes down Mordashov’s pants by almost 50%.

The other risks identified in the prospectus cannot be news to readers who have been following here the stories of Mordashov’s takeover tactics for High River Gold and Crew Gold: As noted in those reports, Sergei Loktionov, the spokesman for Severstal’s mining division and now spokesman for Nord Gold, has explicitly refused to answer questions or requests for clarification of the company’s positions towards its minority shareholders, and towards asset challenges from the Guinean government.

The prospectus is thus the first time Mordashov has allowed his men to respond to criticism of his stock market tactics, takeover strategy, and asset valuations. Strikingly, he admits to the possibility that he didn’t know what he was doing. “A substantial portion of the Group’s assets,” acknowledges the prospectus, “were obtained through the acquisition of interests in public companies, and limited due diligence was conducted in connection with such acquisitions.” That may surprise Severstal’s public shareholders. They may take the view that Mordashov had no business spending the company’s money carelessly or blindly.

Then there is the coyness with which the prospectus reports to the market about actions under way by Canadian and Norwegian market regulators, and about litigation filed in Canada, which Mordashov’s critics among the shareholders of Nord Gold’s units have already initiated. Watch this risk dissolve into the subjunctive tense: “A significant subsidiary within the Group remains a public company with minority shareholders [High River Gold and Crew Gold]. The Group may face potential third party challenges or regulatory review in relation to the acquisition of certain of its businesses [Crew Gold].” In fact, Nord Gold has been advised that court papers commencing litigation by the Norwegian minorities of Crew Gold will shortly be filed in the Supreme Court of the Yukon Territory. .

Faced with explicit warnings from the Mining Ministry of the Guinean Government in Conakry over several months now, this is how Mordashov claims the risk of losing the assets he is trying to sell is purely hypothetical: “While the [Nord Gold] Group has violated certain provisions of certain licences and has been subject to inspections carried out by governmental authorities with respect to such violations, the Group is not aware of any decisions or sanctions on the revocation or termination of the licences from governmental authorities applied as a result of such violations.” That’s not what former Guinean Mining Minister Mahmoud Thiam, now advisor to the elected President, Alpha Conde, has said publicly.

On January 17, Thiam repeated his warning to Mordashov: “Crew has yet to settle with GoG [Government of Guinea]. Until they do. Their legal hold on LEFA mine is at risk. Therefore the main asset they hold may not be theirs.” Why does the conflict over this asset mean so much? Because, in the prospectus tabulation of Nord Gold’s measured and indicated gold reserves, the LEFA propect area is the single most important asset in Nord Gold’s entire portfolio. Total Guinean reserves, according to this published account, amount to 4.8 million ounces. This figure represents 39% of the company’s global asset portfolio. No other asset or prospecting area, not in Africa, Russia or Kazakhstan, comes close.

But here’s what Mordashov authorised Morgan Stanley to publish on January 27: “Guinea’s military government has been reviewing the terms of the Group’s mining concession in Guinea, which has resulted in Crew Gold having to pay additional amounts to the government and could result in further financial or other burdens being imposed on the Group. See “— Risks Relating to Burkina Faso and Guinea — The current Government of Guinea has been reviewing the terms of existing mining permits and licences”. Moreover, government authorities also have the power in certain circumstances, by regulation or government act or any means of political discretion, to interfere with the performance of, nullify or terminate contracts. Unlawful, selective or arbitrary governmental actions could include denial or withdrawal of licences, sudden and unexpected tax audits, forced liquidation, criminal prosecutions and civil actions. Although unlawful, selective or arbitrary government action may be challenged in court, such action, if directed at the Group or its shareholders, could have a material adverse effect on the Group’s business, results of operations, financial condition and future prospects.”

The prospectus then undercuts the claim that it was the Guinean military junta which was to blame for Crew Gold’s troubles. “In the correspondence regarding the above proposal, the former Minister of Mines [Thiam] also indicated that he believed that the Company should have obtained approval from him before acquiring its indirect interest in SMD (when it acquired control of Crew Gold in 2010), citing Article 62 of the Guinean Mining Code. The new Minister of Mines has reiterated this claim.”

The disclosure that the newly appointed Guinean minister, Lamine Fofana, has not changed Thiam’s negotiating position is new. But Mordashov insists in the prospectus that Crew Gold won’t budge from its previous position: “The Company believes that the provision does not apply to its acquisition of Crew Gold and has received legal advice confirming this position.” In fact, according to Thiam, that isn’t what Crew Gold’s representatives have been saying in the negotiations to date. What the prospectus appears to be doing is to mislead potential new shareholders, and shift the blame for the risk of asset value loss to the Guineans: “Given the uncertain political environment, issues raised and the statements reported to have been made, there can be no assurance that the new Government of Guinea will not seek significant payments or significant equity interests from the Company or modify its mining concessions whether based on the claims raised by the previous government, Article 62, amendments to or repeal of the Guinean Mining Code or other relevant legislation, import duty provisions or a re-negotiation of existing mining concessions, which could have a material adverse effect on the Group’s business, results of operations and financial condition and the price of the Shares.”

Norwegian shareholders have been hurt, they say, by Mordashov’s takeovers of Crew Gold, and a more recent one last September of Intex Resources, an Oslo-listed junior with nickel mining rights in the Philippines. Intex isn’t mentioned in the Nord Gold prospectus, because it is being held by a Mordashov company outside the Nord Gold structure. But Intex was a significant creditor of Crew Gold, and the two companies were linked by common Norwegian shareholders and common management strategy. Norwegian shareholders with stakes in both companies now charge that Mordashov had insider help in both takeover transactions to lower his acquisition price, and to brush aside objections from shareholders who refused to sell at Mordashov’s offer price.

As one of the registered Norwegian stakeholders in Crew Gold explains, Crew Gold evolved from a merger between the Norwegian Mindex, which had many small Norwegian shareholders, and the Canadian Crew Development Corporation, whose stakeholders were mainly large North American institutions. Until Mordashov outbid rivals for the company last year, the corporate shareholding structure remained divided between the Canadian TSX stock exchange in Vancouver, and the Oslo Stock Exchange. However, when Mordashov moved last December to buy or squeeze out the small Norwegians, they faced restrictions on registering their shares in Canada, and then registering their opposition to the terms of Mordashov’s deal. They are now suing.

Limited public disclosures by Crew Gold relating to court actions taken by Jan Vestrum, a Norwegian who at one time ran the company, and by Piscedda Mining Corporation of Canada, are the tip of an iceberg of liabilities and maybe corporate misconduct, according to sources in Oslo.

Vestrum was removed from Crew Gold by its then controlling shareholder, Jens Ulltveit-Moe in mid-2009. The fact of the removal, and the terms of a secret exit agreement paying Vestrum 17 million krone ($2.3 million), ought to have been confidential. But when Ulltveit-Moe revealed publicly what he claimed had happened, casting a negative light on Vestrum, the latter sued Crew Gold for 50 million krone ($6.9 million).  Last November, Crew Gold reported to the market that it had resolved Vetsrum’s claim. But it omitted to give the claim particulars, or the cost to the company of the settlement. Since then, Oslo sources believe Vestrum has been advising Mordashov and the Nord Gold management on the Crew Gold and Intex takeovers The Norwegian press has reported in detail about these matters; there is no reference to Vestrum in the Nord Gold prospectus. Loktionov declined to say if Vestrum has been engaged in any capacity by any of the Mordashov companies.

Nord Gold aims to have completed its initial public offering by February 11. The company says it will place 113.1 million new shares (14% of the enlarged share capital); Severstal is to sell 94.9 million existing shares (11% of the enlarged share capital); Mordashov owns 83% of Severstal. There is also an overallotment option for the Nord Gold book runners of an extra 15% of shares.

If the market accepts the selling price, Mordashov is hoping to take home £327 million ($520 million). The company won’t be so fortunate, for it expects to net £367 million ($584 million) from the share sale, and then to hand it over to the Severstal parent group, which has been funding the asset accumulation to date. According to the accounting notes in Appendix 1, sections A and B, of the prospectus, most of these proceeds will be required to pay off the related party loans, financings, interest charges, administrative costs, and other obligations between Nord Gold and the Severstal group.

A leading UK fund manager explained his position even before he had seen the prospectus: “we won’t be buying shares in this IPO. Some of the funds are really our own, so we don’t gamble.”

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