High River Gold Update 29 April 2010

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.


The Olma Investment report has been amended with a lower price target of $1.76. Therefore, I am re-sending this communication edited for the change. 
 
HRG’s 2009 audited financial results (linked below) show cash flow from operations of $125M.  This is comprised of approx. $29M in cash flow for Q1, $22M for Q2, $33M for Q3 and $41M for Q4. HRG had EPS of almost $.05 in Q4. The company ended the year with 81.2M in cash and equivalents -  almost matching its $84M of debt. In addition, HRG’s third party investments currently stand at $65.5M.  At the current market cap of $631M, HRG is trading at 3.9 times annualized Q4 cash flow. The Olma Investment report (linked below) shows a new target price of $1.76/share – an upside potential of 120%. Nicolai Zelensky, CEO of the gold division, recently stated in a Bloomberg article that Severstal Gold is worth a similar value to OAO Polymetal. Polymetal’s market cap is $4.2B. Since HRG makes up 57% of total Severstal Gold production, this could suggest that HRG’s value is $2.4B or $2.99/share.
 
Investors are waiting to see if Severstal will buy back Troika’s 150M shares. Severstal had leaked to the media that  they may  buy back these shares at double the investment price or  $.76.  If Severstal Gold does intend to do an IPO, it makes sense for them to move to 70% ownership of HRG by buying these shares back. However, as we have not had any updates, perhaps Troika has decided to hold long term due to HRG's financial success. Either way, investors are eagerly waiting for a statement on this topic as the uncertainty of the potential transfer price could be holding the share price down.
 
Once investors see a strong signal that HRG and Severstal management will promote this story, there should be strong demand for the shares with few sellers. This statement below extracted from the HRG 2009 MD&A is management's most positive statement yet:
 
``Outlook
At the end of the year, the restructuring is mostly complete. The Company has cash in the bank and debt has been reduced to manageable levels, resulting in a stronger balance sheet. After making some necessary and sometimes painful adjustments, management believe that the restructuring was a success and that High River is positioned to benefit in 2010.`` 
 
Good news soon?  
1.    Q1 results should be reported on May 15th with significant cash flow and a net profit.
2.    News on the production tests for the Royal Gold loan should be out soon. If HRG passes the tests, then the third party investments of $65.5M are released as collateral.
3.    The Bissa feasibility study (Burkina Faso) is due prior to June 30th  -  with multi million ounce potential.
 
Disclosure: I own 5.5M shares of HRG
 
HRG’s 2009 Financials:
 http://finance.yahoo.com/news/High-River-Gold-Reports-2009-ccn-330669406.html?x=0&.v=1
 
Olma Invesment Research Report:
http://freepdfhosting.com/c2578fb7a1.pdf
 
Chris Charlwood
Retail Investor
604-718-2668
Rainerc7@gmail.com        
 

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Comments

[Greek Fire]

I've been following this site for a while - great stuff!

Quick question, is the price target a short, medium or long term target? For example, $1.76/share within 1 year? 6 months? 2 years? I've never fully understood the time frame for when people release a price target.

thanks.

[Gold Prices]

For what its worth we would be talking about a price target being achieved in 12 to 18 months, but others might have a different view to ours.