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.
March 31, 2010 (All numbers below are approximate and in C$)
High River Gold (HRG.TO) today announced that their audited financials for 2009 will be released 2 weeks late on April 15th. Based on previous release dates, the Q1 2010 numbers should be released one month later on May 15th. In today’s release (linked below), management did provide enough information for us to make the following calculations:
1) $126.7M cash flow from operations for 2009 less $86M for the first 9 months confirms $40.7M in Q4 cash flow from operations – up from $33M in Q3.
2) The $82.1M in cash and equivalents at the end of 2009 covers 98% of the current $84M of debt.
3) HRG’s third party investments at current market values stand at $64M, therefore, the company had a net surplus of $62M at 2009 year end after allowing for all debts.
4) HRG revenues for first 9 months of 2009 were $263M, therefore, Q4 revenues were $100M to total $363.3M for the year.
5) Gold production was 241,781 oz in the first 9 months, therefore, 94,555 oz (85k oz attributable to HRG) were produced in Q4 to total 336,336 oz for the year (303,000 attributable to HRG).
6) HRG’s gold production made up approx. 57% of Severstal’s total gold production for 2009 (533k oz).
7) Q1 2010 cash flow from operations (already complete) should again be $40M+.
At the current $.71 share price, the market cap is approx. $567M on 799.2M shares outstanding. On annualized Q4 cash flow of $162.8M, the shares are trading at approx. 3.5 times. As all mining operations showed improvement in Q4, it is hard to imagine any further write downs in 2009, therefore, the financials, once released, should show a significant Q4 and annual profit based on the cash flow from operations.
The Troika shares become free trading on April 2nd after a 4 month hold period. It has been leaked to the papers that Severstal may acquire these 150M shares from Troika at $.76 - double their purchase price - increasing Severstal’s ownership in HRG to just under 70%. This would be good for minority shareholders as once they are acquired by Severstal they become part of majority and then cannot be voted in any future amalgamation transactions. Severstal recently mentioned in a Bloomberg article (linked below) that they no longer intend to buy out minority shareholders of HRG and that they may take Severstal Gold public with the stakes they own. They claim that Severstal Gold is worth $3.9B. On a production basis only, this would suggest that HRG should be valued at $2.22B (57% of total) or $2.78/share.
Royal Gold recently announced that HRG was trying to meet the production tests as stipulated in the financing agreement with HRG. We are expecting an announcement shortly as to whether HRG has passed these tests. If so, then all of HRG’s third party shares worth $64M (currently pledged for the loan) could become available to the company. The $62M surplus at end of 2009 (after covering all debts) plus Q1 2010 cash flow of $40M + provides the company with over $100M capital to fund the planned $27M in exploration and feasibility programs, the extraction program at Irokinda and Zun-Holba and some of the start up capital for putting the multi-million oz. Bissa project into production in future.
Once the Royal Gold tests are met, the Troika shares repurchased and year end financials released, it would make sense for HRG management and Severstal to make efforts to increase the HRG share price in preparation for the potential Severstal Gold IPO.
2009 Financial Highlights
Bloomberg article on Severstal Gold
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