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By John Helmer in Moscow

Is holding hedge fund a gold share price hawk or a vulture?

On Thursday of last week, Oxus Gold, a junior gold miner listed on the London Alternative investment Market (AIM), lost 18% of its market value, pricing at 25.5 pence, with a market cap of GBP93 million. The chart of the company’s share price shows that it hit this year’s high in May at 66.25 pence. It then held in the 50 to 60-pence range until November. But from then, the price plummeted downwards.

During October, the price of gold was marching steadily upwards from $730 per ounce to hit November highs of around $840.

Oxus, whose principal gold assets are in the former Soviet republic of Uzbekistan, is flummoxed by the share movement. “As far as I know,” Oxus investment relations shpokesman Julia Flowers told Mineweb, “there isn’t anything to cause the share price to go down.”

Two days later, on Friday November 30, the price shot up 28% on a trading volume of almost 5 million shares (1.4%). Today, on smaller volume, the share price gained another 9%. It is currently at 35.5p.

In the months of October and November, Oxus released relatively little news, because it says there has been none. On October 22, the company announced the intention to acquire a 16% minorioty shareholding in subsidiary Marakand Minerals Ltd. which it did not already own. Marakand, according to the Oxus statement, is a mining exploration and development company focused on base metals and silver. “Its principal asset is its interest in the Khandiza polymetallic deposit in South East Uzbekistan. Until recently, the Company had pursued a strategy to acquire exploration assets in Turkey. The Khandiza deposit contains, above a 2 per cent. zinc cut off, a JORC classified and audited Measured and Indicated Resource containing 11.8Mt at an average grade of 7.66 per cent zinc, 3.65 per cent lead, 0.91 per cent copper, 129 g/t silver and 0.38 g/t gold, plus an Inferred Resource containing 2.6Mt at an average grade of 5.36 per cent zinc, 2.81 per cent. lead, 0.65 per cent copper, 161 g/t silver and 0.38 g/t gold.”

At the same time as the Marakand announcement, Oxus released its final results for the financial year ending June 30, 2007:

Assets were reported to have increased marginally; debts reduced. A reported loss of $18.91 million stemmed from the company’s loss in 2006 of its development rights in the Jerooy project in Kyrgyzstan. While Oxus continues to litigate against the Kyrgyz government, it sold its position there to KazakhGold. That deal, completed in June 2007, comprised shares in KazakhGold worth $73 million, and potential deferred cash of up to $80 million, in the event KazakhGold retrieves mining and operating rights at Jerooy. A net $8 million on this deal was booked on the year by Oxus.

In its gold and silver mining operations in Uzbekistan – Amantaytau goldfields (AGF) and Vysokovoltnoye silver – gold output was down, silver output was up. AGF [production of gold dropped to 59,373 oz in FY 2007, compared to 146,937 oz in FY 2006, and a net loss of $6.4 million was recorded, compared to a profitr of $20.3 million in the earlier period.

The first silver produced and sold from Vysokovoltnoye amounted to 58,502 oz.

Current proven and probable reserves listed by the company are 1.49 million oz of gold; 3.4 million oz of silver.

The troubles Oxus has encountered in Uzbekistan, which presented themselves last year as a state audit and back-tax claim for $225 million, were resolved by the local courts, and by a strategic agreement with Zeromax GmbH, Uzbekistan’s largest private-sector company. Zeromax is owned by a Tashkent entrepreneur, Miradil Djalalov, whose protective political relationships are well-known in the country. Zerox bought into Oxus at 21.5 p per share, and took a 15.6% stake. A Zeromax executive, Harry Eustace, joined Oxus as Vice President for Corporate Development.

Eustace told Mineweb he is mystified by the sharp drop in Oxus’s share price. “We don’t have a clear and precise explanation for the fall.” Eustace noted that Morgan Stanley had bought a stake of less than 3% and then sold it during the period. He added: “There is no single shareholder to blame [for the price fall]. There was retail selling [of shares], but our institutional shareholding has remained stable.”

Morgan Stanley told Mineweb it would not comment. It is understood that Morgan Stanley’s securities arm bought, held, and sold for a client.

The Oxus shareholding data show that RAB Capital (RabCap) holds 28.96%; Capital International, 9.3%; Insight Investment, 8.8%; Capital Research & Management, 7.9%; Renaissance Capital, 6%; LR, 4.98%; William Trew, Oxus’schief executive, 4.4%; George Robinson, 3.83%; Fidelity International, 2.85%; and UBS Global Asset Management, 2.8%.

RabCap spokesmen Marc Popiolek and David Trenchard confirmed to Mineweb that on or about November 26 RAB Special Situations, managed by Philip Richards, had acquired additional Oxus shares, boosting its stake to 28.96%. Bloomberg charting suggests that this lifted the Oxus share price, but not for long, as it continued downwards until Friday.

Oxus told Mineweb that it briefs shareholders from time to time, and apart from that, according to Eustace, there has been no direct contact with RabCap or other leading shareholding groups. Popiolek at RabCap has spoken to Mineweb off the record, and referred to his independent PR spokesman, David Trenchard from the Tulchan agency. Asked if RabCap had been speaking to other shareholders recently to discuss the direction of the Oxus share price, Trenchard said “we do not have any comment. We never comment on things like this. We have been a consistent buyer of Oxus.”

Hedge fund RabCap enjoys a mixed reputation in the London market. Some consider it a hawk for opportunity; some, a vulture. A statement from RabCap says that RAB Special Situations “was recently named by Barrons magazine as the best performing hedge fund in the world over the three years to June 2007, after compounding at an average 47.7%.” This month, the group launched an extension of the Special Situations unit, called RAB Global Mining and Resources Fund.

RabCap’s spokesmen are naturally sensitive to the public perception of their tactics, and their results. Eustace says he has heard nothing negative about RabCap in the market. It is not clear whether RabCap has misread the direction of the Oxus share price, or has benefited from it. It is also uncertain why the market took the four days to draw confidence from RabCap’s share buy on November 26; and who the buyer reviving the share really is.

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