Oxus Gold (OXS.L) laid the ground for a legal battle with the government of Uzbekistan over the future of its ill-fated investment in the central Asian state, wiping out more half of its market value on Thursday.

Oxus said on Thursday it had informed the Uzbek government of its intention to move directly to international arbitration should it fail to receive fair value for its half of a joint venture in the ex-Soviet nation, one of the world's top 10 gold miners. London-traded Oxus said its Amantaytau Goldfields (AGF) joint venture had been subjected to an audit since the company agreed last month to sell its 50 percent stake to its Uzbek state-run partners. Oxus has yet to agree a price for its exit.

The practices employed by the audit commission have led the directors to conclude that there is no evaluation of the assets taking place in good faith, Oxus said in a statement.

There is a risk of the audit committee using the process to find reasons to justify putting AGF into liquidation, it said.

Shares in Oxus closed down 53.5 percent to 1.52 pence. Oxus also announced that long-serving employee Richard Wilkins, most recently the company's finance director, had quit with immediate effect for personal reasons.

Landlocked and mineral-rich, Uzbekistan has been ruled for two decades by strongman President Islam Karimov, who tolerates no dissent and has crushed political opposition.

NO EVIDENCE

The Oxus case highlights the difficulties often faced by investors operating within the authoritarian regimes of former Soviet central Asia.

There is no evidence of serious commitment to reform, said Kate Mallinson, senior political risk analyst at GPW Ltd. There are lots of investors queuing up, but Uzbekistan has lost out to Kazakhstan as the regional hub.

Oxus suffered a similar fate in neighbouring Kyrgyzstan under the regime of former president Kurmanbek Bakiyev, when it was ousted from the Jerooy gold project just as it was preparing to bring the country's second-largest gold mine into production.

Also on Thursday, Russian mobile phone company MTS (MTS.N) issued a warning to investors over the perils of operating in Turkmenistan, where it fears its assets could be expropriated after its license was suspended in December.

Without its key Uzbek asset, Oxus Gold would effectively become a shell company. Company directors were unavailable for comment and did not return calls to its London headquarters.

This is a very valuable asset. It's worth fighting for, said John Meyer, mining analyst at Fairfax I.S.

It has potential for more than 20 million ounces of gold, some of which could be extremely high grade. There are a number of experienced international mining groups that would like to acquire this asset.

One mining source, speaking on condition of anonymity, said he believed the Uzbek government's move for Amantaytau could be a pre-emptive strike to guard against a decline in ore supplies at its Muruntau gold mine, one of the world's largest.

A power struggle within Uzbekistan's opaque business circles is another theory.

Entrepreneur Miradil Djalalov, founder of the Zeromax group that controlled strategic businesses before its assets were seized last year, was a non-executive director of Oxus Gold, but resigned when the firm announced its plans to sell out of AGF.

Kyrgyzstan Investment Earth Gold