Chris Charlwood has very kindly sent us this missive updating us on the current state of play over at High River Gold Mines Limited (HRG) which we hope that you find interesting and informative.
To Minority Shareholders of High River Gold,
Please see the Reuters article below regarding Severstal’s attempt on acquiring Crew Gold as well as its thoughts on High River Gold. The article has been translated from Russian, so it is a bit convoluted. The interesting part for us is that for the first time Severstal has publicly stated it will not try and buy out minority shareholders of HRG. The statement was made in response to a recent letter that was sent by the institutional shareholders of HRG announcing that if an offer were made, they will not sell for less than $1.50 (more than twice the current price). I see this Severstal statement as a milestone and very good news for us as we have made strong efforts to dissuade them from trying to buy us out since last May. The threat of another low ball offer prior to the Q4 and year end results has now been removed. This should make new investors feel comfortable coming into HRG at these low prices.
It is speculated in the article that Severstal Gold could do an IPO with vending in only their 51% of HRG. Although a Severstal representative states that the paper work for an IPO has not been prepared, I would suggest that if it were to go ahead later in the year, then it will be very good for HRG shareholders as it will be easy for investors to track the values between Severstal Gold’s shares and HRG’s shares (based on gold ounces produced). Such a scenario could attract arbitrage traders thereby reducing the gap between values. The question is will Severstal stick to their statement longer term. An IPO will place a lot of pressure on them to consolidate as much revenue and cash flow as possible. Of course, post IPO, minority would likely be open to being bought out with Severstal Gold shares as long as the respective share prices are trading at comparatively fair values. Another point to consider is that since HRG currently makes up 50-60% of Severstal's gold production, HRG's share price could likely move up to the pro-rata values being justified by the investment banks that would take Severstal Gold public.
HRG management has stated that Q4 and year end results will be reported at the end of March. We are expecting up to $45M in cash flow for Q4 and up to $130M in cash flow for 2009. If the Q4 cash flow does in fact hit $45M, then all looks good for at least $180M in cash flow for 2010. Also, we are expecting the year end numbers to show that HRG has enough liquid assets (once Royal Gold collateral released) to cover off all debts with up to a $45M surplus. At $.70, the stock is currently trading at 3.1 times Q4 cash flow whereas the peers are trading at an average of 18.1 times Q3 cash flow. The peers are Randgold Resources, Northgate Minerals, Centerra Gold, Golden Star Resources, Red Back Mining, Eldorado Gold, Semafo Inc., Gammon Gold, New Gold Inc., Alamos Gold, Aurizon Mines, Jaguar Mining.
Severstal will make a proposal for Crew Gold
Thursday, February 25, 2010 17:22 MSK
MOSCOW (Reuters) - One of the largest steel company Severstal of Russia intends to make a takeover bid of British Crew Gold Corporation, but does not plan to completely buy out the Canadian High River Gold, despite the interest of minority shareholders.
High River minority shareholders believe that Severstal will seek to buy the remaining shares of the Canadian company, if decides to IPO of its gold assets. Severstal, controlled by its General Director Alexei Mordashov, already owns a controlling stake in High River, its shares for the year increased fourfold.
"We are currently very busy with projects related to business development and improvement of production. We are not going to make an offer to buy back all outstanding shares of High River", - said director general of Severstal Gold Nikolai Zelensky, in comments sent to Reuters via email.
Comment Zelensky was a response to last week circulated a letter minority High River - which included Sprott Asset Management, Prosperity Capital Management, Specialized Asset Management and Firebird Management - which said that the minority shareholders would not accept an offer to sell its shares until it price would not be fair.
Such is the price, in their opinion, could be the level of 1.5 Canadian dollars per share, more than twice the current market price (0.66 Canadian dollars).
Capitalization of High River for the year increased fourfold to $ 477 million. The assets of the company contributed about half produced in 2009, Severstal gold. Last Severstal make an offer to buy back shares of High River in the summer of 2009. Price then was offered at 0.30 Canadian dollars, after that there was no new offers.
"In the beginning, the shares of High River reached 95 (Canadian) cents, so 1.5 (Canadian dollar) is the real price", - told Reuters the representative of one of the funds involved in the preparation of letters of minority shareholders.
In response to the question why Severstal, in his opinion, should make such an offer, he said: "Companies (Severstal), it would logically prior to placing a consolidation of assets removed from the stock exchanges have zalistingovannye.
Severstal began to acquire assets in the field of precious metals in 2007, saying that the IPO could be one of the options for the development of these assets. Rumors of imminent Listing intensified earlier this year, when analysts Uralsib Bank reported that in their opinion, Severstal this year may sell up to 50 percent of the shares of gold assets in the IPO. However, representatives of Severstal said that preparations for listing are not maintained.
EBITDA for the gold mining business Severstal for 9 months of 2009 amounted to $ 140 - $ 150 million, believes Uralsib evaluating the entire business in the $ 2-3 billion.
"If the acquisition of Crew Gold will be successful, then I think it will be included in the IPO", - said on Thursday Uralsib analyst Dmitry Smolin.
"I understand that Severstal wants to buy back shares from minority shareholders of High River at an affordable price. She did not want to pay a significant premium, it could be the listing of" gold "of assets from 51 per cent stake in High River, which it already has," - added Smolin.
In 2009, Severstal produced 533,967 ounces of gold. For the nine months of 2009 net loss the company made $ 878 million, net debt - $ 4.71 billion.
ABSORPTION CREW GOLD
Severstal reported on Thursday that increased its share in Crew Gold by 6,8 percentage points to 26.59 per cent and now intends to make an offer to purchase the remaining shares.
"We owe this proposal to Canadian law, as well as abroad have exceeded 20 per cent", - explained Zelensky.
Russia company bought shares in Crew Gold at a price 1.10 Norwegian kroner per share, which corresponds to the current market price. For the same price Severstal intends to make an offer to repurchase the remaining shares of the company, noting that the price of its offer twice quotes Crew Gold at the beginning of the year. On Thursday, after the publication of reports of Severstal shares Crew, capitalization currently stands at $ 392 million, grew by 5.8 percent.
Details of its offer to purchase the remaining shares Crew Severstal intends to announce within two weeks.
Crew Gold, gold mining at the deposit LEFA in Guinea, in 2009 produced about 179,000 troy ounces of precious metal, and, thus, can add 33 percent to the production of Severstal.
In December 2009, Crew Gold held a restructuring, under which about $ 300 million of its debt were converted into new shares, which constitute about 95 percent of the total capital of the company and traded on the Oslo Stock Exchange.
($ 1 = 5.983 Norwegian Crown)
(With the participation of Olga Popova and Alfred Kuppersa. Editor Tatiana Mosolov)
The picture continues to improve so all we can do is hang on in there.
High River Gold trades on the Toronto Stock Exchange as HRG.
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