High River Gold Mines Limited (HRG) is the target of a takeover bid by Severstal, this offer in our humble opinion is derisory. If you are a shareholder then we ask you to join the growing team of investors who have rejected this offer including us.
The resistance to this offer is being co-ordinated by Chris Charlwood and you can contact him on email at email@example.com. Chris will send you a form and all you have to do is sign it and fax it back to him.
By Peter Koven, Financial Post July 28, 2009 6:01 PM
Russian metals giant OAO Severstal is closing in on a takeover of Canada’s High River Gold Mines Ltd., but a core group of shareholders continue to oppose the merger and show no signs of relenting.
It all comes to a head at midnight August 10th, when Severstal’s newly sweetened offer expires. “I have to say this is our final offer,” Nikolai Zelensky, head of Severstal’s gold business, said in an interview Tuesday.
High River’s messy saga began last fall, when the Toronto-based company ran into a liquidity crisis in the middle of the market meltdown. After an overhaul of the board, High River was bailed out through a pair of private placements with Severstal, which assumed a 57% control stake.
Severstal was not done. It then made a friendly all-cash offer for the whole company in June, valued at 22¢ a share. That was well above the 4¢ that the stock bottomed out at last year, but a fraction of its value prior to the liquidity problems.
A group of large shareholders, including Sprott Asset Management and funds from Russia, complained that the offer was too low for a company that could produce 300,000 ounces of gold this year from mines in Russia and West Africa.
Severstal responded by raising its bid yesterday to 30¢ a share, valuing High River at about $195-million. But those investors continue to oppose the merger, and believe they have the necessary shares to block Severstal from taking enough stock to close the deal.
“This company could cash flow close to $100-million this year. So [Severstal] is bidding two times cash flow, which seems inordinately low when you look at what everybody else trades at,” Eric Sprott said in an interview. He acknowledged that the company has debt issues, but said those are “easily resolvable” today. He even offered to convert his High River debt holdings into shares, but the company said no.
Chris Charlwood, a retail investor who mobilized people with more than 62 million shares to oppose the offer, said the average minimum price his group would accept is $1.44 a share.
“I don’t think [the sweetened offer] is going to make much difference in terms of how many people will tender,” he said. Since taking control of High River, Severstal has made some personnel changes at the mines and improved performance. But Mr. Zelensky said that the only way to make the necessary wholesale changes is to take the company private.
“The fact of the matter is that the cash flow from these mines has not been enough to service the debt facilities and generate enough capital to make improvements to the assets,” he said. “The low-hanging fruit has been fixed. We now have to make investments that are difficult to do with this balance sheet.”
He expressed confidence that Severstal’s offer will succeed once investors see that it is above analyst target prices and is the best way to fix the company’s operational and financial woes.
HIGH RIVER GOLD MINES LTD.
Close 30¢, up 2¢
Avg. 6-month vol. 1,950,160
© Copyright (c) National Post
By John Helmer in Moscow
Alexei Mordashov, owner of the Russian Severstal steel and mining group, has lifted his takeover offer for High River Gold (HRG:CN) by 8 Canadian cents per share, after his earlier bids for the 43% minority shareholding failed at 18 cents and 22 cents. The new offer is 30 cents. If there are any takers, that would oblige Mordashov to reach into his pocket for C$84 million (US$77 million). The institutions holding roughly half of the minorities, and the smaller, individual shareholders, say that’s too little, too late.
The new offer was posted on Severstal’s website yesterday. Because HRG’s share price has been held in check by the previous offers, the new one lifted the price on a modest increase in trading to 30 cents. The range for HRG is between last year’s peak of $3.47 in February of 2008, and 4 cents last November. In the year to date, HRG has been restricted between 12 and 24 cents.
According to the latest announcement, the 30-cent proposal “represents a premium of 90% over the volume weighted average High River share price for the 60-trading day period preceding and including May 21, 2009, the last trading day prior to High River’s announcement that it was in discussions with Severstal regarding a possible transaction. It also represents a 7% premium to the closing High River share price on July 27, 2009 and a 36% premium over the volume weighted average High River share price for the period since May 21, 2009. The Board of High River (with Severstal nominees abstaining) unanimously recommends that High River shareholders accept the Increased Offer. Severstal further confirms that the Increased Offer is full and final and that the Increased Offer will not be extended beyond the revised closing date of August 10, 2009.”
Severstal and HRG spokesmen refuse to say how many shares have been tendered to the 18-cent offer of May 22, or the 22-cent offer of June 9. Market sources in Moscow and Toronto claim the number is very low. According to the new offer, “those High River shareholders who have tendered their Common Shares under the terms of the original offer will receive $0.30 per Common Share in cash and are not required to take any further steps to accept the Increased Offer.”
The Finam brokerage of Moscow told clients today: “in our opinion, Severstal’s new offer price looks quite fair.” Many of the minority shareholders, currently with about 43% of the shares, disagree.
Sprott Asset Management of Toronto, Firebird of New York, and two Moscow institutions, Alfa Group and Specialised Asset Management, are among the institutions resisting. One of the organizers of a blocking move by Canadian minority shareholders told Minesite he believes the new offer will fail: “There are approx. 648M HRG shares outstanding with the minority holding approximately 277M and Severstal holding the other approx. 371M Shares. I have collected 637 letters and e-mails to date identifying over 61,497,164 shares that will not be tendered at $.22. Out of this number, the holders of 53,457,843 shares have indicated that the average share price that they would consider tendering at is $1.44. In addition, it has been confirmed to me that a group of institutions with over 100M shares will not be tendering at $.22. These institutions have said that their minimum tender price would be $1. I am hoping these institutions will raise their minimum tender price due to the overall results. Therefore, with over 160M shares not tendering, it looks like we have been successful in getting the majority of the minority to support us. As long as minority shareholders stick together and do not tender to higher offers, this majority of minority will block any low priced amalgamation or ‘ plan of arrangement’ proposals that Severstal might put forth.”
Neither Severstal Resources, the mining division of Mordashov’s group, nor executives of HRG, will respond to questions.
Severstal’s financial reports to date indicate that a total of about $1.9 billion in debt matures this year, and must either be repaid or refinanced. In February already, the group repaid $325 million in Eurobond obligations; and must repay another $480 million by year’s end. In 2010 Severstal will have another $900 million in debt repayments. Then between 2010 and 2013, about $4 billion in debt will reportedly fall due.
Although Severstal, the third-ranked Russian steelmaker, has indicated confidence it has enough cash on hand, and current cashflow, to handle this year’s repayments, the Eurobond loan agreements which Severstal signed are putting pressure on Mordashov to remove losses from his current balance-sheet by selling loss-making North American steelmills and other assets. For the time being, says one London banker, there are no takers for the steelmills.
At the same time, the loan covenants imposed by the loans outstanding and Eurobonds sharply curtail Mordashov’s refinancing and restructuring options. The terms of covenants, which have been released, prohibit new borrowings or new acquisitions of $150 million or more. Were Mordashov to offer to pay for HRG shares at the institutional target of C$1 (92 US cents), he would be up for an outlay of US$255 million. The higher target set by the small stakeholders for their HRG shares would cost US$368 million. These numbers are bank-busters. According to the covenants, they would represent “a Material Adverse Effect”, and are bound to be nixed by Severstal’s lenders. The highest Mordashov can go, without triggering that, is 58 Canadian cents.
The spokesman for Mordashov and Severstal Resources was asked by Minesite to explain what impact the loan covenants may be having; why they still want to take HRG private; and at what price they believe this can be effected. The spokesman responded that they have reviewed the questions, and decided “not to comment.”
Moscow sources say the financial pressure is now so intense on Mordashov to restructure his group’s debts, and lower his debt to Ebitda ratio, in line with the covenants, he may consider selling out himself from High River Gold. All the Russian goldminers had looked at HRG before Severstal moved in last year. The more liquid of them are showing signs that they are reconsidering the target once more. “I believe Severstal is ready to sell,” says one well-known Russian goldminer, “but the buyer would have to acquire all the gold assets of Severstal Resources, including some which were very over-valued when Mordashov’s managers bought them. Some of those managers are no longer with the company.”
by John Helmer - Wednesday, July 29th, 2009
A recent missive from Chris:
We have gathered the majority of the minority (more than 160M shares) to not tender against the $.22 offer. Due to summer holidays, there are many that did not send in the reject letter, so the actual numbers that will not tender are likley higher. I do not see the new $.30 bid announced today making any difference. If we all stick to what we signed in the 'Reject Severstal Offer' letter, then this higher bid will not succeed either for Severstal.
The good news with today's HRG press release is that it looks as though Severstal is giving up after August 10. Thereafter, it will only make sense for them to realize on their investment in HRG and start running this business for maximum value to ALL shareholders. If they do in fact take on this new direction, then we will all be aligned in our motivations. There is no reason this stock can not get $1-3 range that many of us think it should be. Q2 profit and cashflow will be stronger than Q1, debt is reducing and gold production increasing. Also, looks like gold price ready to rise.
Below are Share Counts (posted on Stockhouse yesterday)
"There are approx. 648M HRG shares outstanding with the minority holding approx. 277M and Severstal holding the other approx. 371M shares. I have collected 637 letters and e-mails to date identifying over 61,497,164 shares that will not be tendered at $.22. Out of this number, the holders of 53,457,843 shares have indicated that the average share price that they would consider tendering at is $1.44. In addition, it has been confirmed to me that a group of institutions with over 100M shares will not be tendering at $.22. These institutions have said that their minimum tender price would be $1. I am hoping these institutions will raise their minimum tender price due to the overall results.
Therefore, with over 160M shares not tendering, it looks like we have been successful in getting the majority of the minority to support us. As long as minority shareholders stick together and do not tender to higher offers, this majority of minority will block any low priced amalgamation or ' plan of arrangement' proposals that Severstal might put forth."
Every share counts so if you agree with this stance then please support this effort.
High River Gold Mines Limited trades on the Toronto Stock Exchange under the symbol of HRG
Have a sparkling day.
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