Apart from the above chart the data contained below has been very kindly provided to us by Chris Charlwood:
To High River Gold Minority Shareholders,
Shortly after I sent my communication this afternoon, the below press release came out confirming that the Troika/Polenica Investment will close shortly. As I said in my communicaton, we have more than enough shares to beat any future amalgamation proposal as long as we stick together and don't sell our shares.
Polenica Investments Limited: Proposed Acquisition of High River Gold Shares
TORONTO, ONTARIO--(Marketwire - Nov. 30, 2009) - Polenica Investments Limited ("Polenica"), an investment company and affiliate of the Troika Dialog Group, one of Russia's leading private investment banking group, entered into a subscription agreement with High River Gold Mines Limited ("High River") dated as of October 29, 2009 to acquire 150,000,000 common shares of High River (the "Shares") from treasury on a private placement basis at a price of CDN$0.38 per share, representing gross proceeds to High River of CDN$57,000,000 (the "Private Placement").
The Shares to be acquired by Polenica represent approximately 23.1% of High River's issued and outstanding common shares as at the date hereof. After giving effect to the Private Placement, Polenica will own and control a total of 150,000,000 common shares of High River representing approximately 18.77% of the issued and outstanding common shares of High River. As High River has obtained the conditional approval of the Toronto Stock Exchange with respect to the Private Placement and the personal information form relating to Polenica has cleared, it is expected that the Private Placement will close shortly.
Polenica will be acquiring the Shares for investment purposes. Polenica and its joint actors may in the future increase or decrease their respective ownership of securities of High River from time to time depending upon the business and prospects of High River and future market conditions.
Polenica's address is: 7 Perdica Street, Strovolos, P.C. 2057, Nicosia, Cyprus.
An early warning report (the "EWR") will be filed on SEDAR and will be available for review at www.sedar.com under High River's profile. A copy of the EWR can be obtained from the contact below.
About Troika Dialog
Founded in 1991, Troika Dialog Group is the leading independent full service investment bank and asset management firm in Russia. The Group's business consists of securities sales and trading, investment banking, private wealth and asset management, retail distribution and alternative investment. Troika Dialog's operations are located in 25 cities across Russia plus offices in London, New York, Kyiv, Almaty and Nicosia. In March this year, Troika Dialog Group announced a strategic alliance with Standard Bank under which Standard Bank acquired a 33% stake in Troika Dialog.
About High River
High River is unhedged gold company with interests in producing mines and advanced exploration projects in Russia and Burkina Faso. Two producing mines, Zun-Holba and Irokinda, are situated in the Lake Baikal region of Russia. Two new open pit gold mines, Berezitovy in Russia and Taparko-Bouroum in Burkina Faso, are also in production. Finally, High River has two advanced exploration projects with NI 43-101 compliant resource estimates, the Bissa gold project in Burkina Faso and 50% interest in the Prognoz silver project in Russia.
For more information, please contact
Troika Dialog Group Press Office
+7 (495) 258-05-19
Nov. 30, 2009
To HRG Minority Shareholders,
(All numbers below are approximate and in C$)
Management at HRG has improved operations significantly. Following shows HRG's state of affairs since the beginning of the year:
Financial Performance for first 9 months of 2009
1) $263M revenues vs. $123M in first 9 month of 2008 – a 114% increase
2) 82% increase in Gold production to 241,781 from 133,130 in first 9 months of 2008.
3) $86M positive cash flow from operations – an increase of 12 times over first 9 months last year. (HRG potentially on track to over $130M in cash flow for 2009).
4) $67M of debt paid down to a balance of $121M at end of Q3. (Severstal debt to be retired in Q4 with Troika proceeds - thereafter, HRG debt at approx. $91M).
5) $18.5 million in working capital, up from a $42.1 million deficit at 2008 year-end.
6) 25% and 38% decrease in Q3 direct mining costs (cost per ounce produced) compared to Q2 2009 and Q3 2008, respectively.
7) Loan payments are all current.
8) HRG meets all TSX listing requirements.
9) Nearly 90% of minority did not tender to Severstal’s latest take-private bid of $.30.
10) Severstal’s debt to be cleared, thereby eliminating the risks of breached loan covenants.
11) HRG says 300,000 oz to be produced in 2009
12) Bankable Bissa feasibility study to be completed in 2010 with goal to advance resource to multi-million oz level.
13) Prognoz has 102M oz indicated and 103M oz inferred silver.
14) Many analysts predict gold prices to trade in the $1200-1300/oz range in 2010. This could increase 2010 cash flow from operations by $60-90M.
15) Enticing investment opportunity with Q3 cash flow multiple of 2.7 times (post Troika closing).
Based on the Q3 numbers and upon completion of the Troika investment of $57M, HRG is debt free on a net basis. At the end of Q3 the total debt was $121M plus $23M in payables for a total of $144M. To counter this, there was $39M in cash (and equivalents) at end of Q3, $64M in third party stock investments (at latest share prices) plus the $57M from Troika - bringing the total to $160M. Hence, HRG will have a surplus of $16M on a net basis. The impressive piece of the Q3 results is the $33M in positive cash flow from operations. With gold moving close to $1200/oz, we can likely expect a minimum average of $1100/oz in revenues for Q4. If HRG produces at the same rate as in Q3, this could add another $11M to cash flow bringing Q4 cash flow to $44M. Although some investors are discouraged by the write-downs of the last 2 quarters, there could be write-ups in future for other HRG assets once an increase in reserves is established through more exploration and drilling.
With the recent closing price at $.44, HRG’s market cap would be approx. 2.7 times cash flow from operations (post Troika deal closing). Since Russian companies only report every half year, for this communication, a different Global mid-tier peer group is used for the Q3 comparison. Historically, the numbers have been in the same ballpark as the West Africa-Russian peer group. HRG’s Global peer group of mid-tier public gold companies (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) is trading at an average of approx. 18.2 times Q3 Operating Cash flow on an annualized basis. If HRG were trading at this average multiple, the share price would be C$3.00 (after Troika dilution). HRG was trading at $3.40 early last year.
It seems to be taking some time for the Troika investment in HRG to be completed. Perhaps the many complaints sent in are causing the TSX/OSC to carry out extra due diligence. Although minority shareholders are hopeful that the shares issued to Troika won’t carry votes in an amalgamation transaction, this communication assumes the deal will be approved as announced. When the Troika investment completes, there will be approx. 798.9M shares outstanding. Severstal will own approx. 400.7M shares (50.16%). Minority will own approx. 398.2M shares (49.84%) including Troika and approx. 248.2M shares (31.06%) excluding Troika. If Severstal were to propose an amalgamation, only minority shareholders are able to vote and majority of the minority wins. Severstal’s ability to vote its approx. 28M shares (purchased by way of tender to its bid this summer) for an amalgamation expires on Dec. 8. The rules state that they were able to vote these shares as long as the vote occurred within 120 days from their last offer date of August 10. The Articles of Incorporation state that they need to give shareholders 21 days notice for a special meeting. The timing now precludes Severstal from voting these 28M shares (or any of its shares) for amalgamation. Therefore, even if Troika is friendly to Severstal and votes all its 150M shares for an amalgamation, it should be relatively easy to get more than 150M minority shares (out of 248.2M) voted against such a proposal. For instance, during Severstal’s bid this summer, minority holding approx. 173M shares stated in writing they would not tender for less than an average of $1.41. In total, almost 90% of minority did not tender their shares. The institutions confirmed last week that they currently hold approx. 115M shares and would vote against any amalgamation proposal for under $1. It is likely that even more than 173M shares worth of minority will come out to vote against an amalgamation due to increased minority’ organization’. Based on this information, it would seem a wasted effort for Severstal to attempt such a transaction.
Many believe the reason for HRG’s low multiple is that potential investors are holding off buying this stock due to the perception that Severstal still intends to buy out minority shareholders at a low price. If some of the rumours are true and Severstal intends on selling its entire gold division next year, the sooner HRG trades to its potential value, the higher the price for the whole division. Therefore, Severstal ought to consider announcing that they no longer intend to buy out minority - possibly resulting in HRG trading towards its peer multiples. Severstal’s approx. 50.16% ownership (after the Troika deal completes) could be worth more in a shorter time frame than attempting to buy 100% and losing the next vote. Also, as the gold price continues to rise, so will the share price that minority are willing to sell at.
Hopefully, this HRG story catches the attention of new funds or institutions that see an opportunity of investing with the goal of creating momentum in the share price with Severstal possibly paying a premium to whatever the price moves to. Clearly, there is potential for a fund to make a decent return in short order if there is another Severstal buyout offer. If minority defeat an amalgamation attempt, then the upside may be 7 times the current share price. All efforts are being made currently to contact such new funds/institutions. As we await HRG’s next announcements, the more shares minority own, the more votes we will have against an amalgamation proposal. Some of the friendly institutions are currently buying in the market, however, so may be Severstal and/or Troika.
If you received this communication by e-mail, you are already on the communication list. If not and you would like to be on the list, please e-mail to my address below. It is important to be on the list in the event of another minority buyout proposal.
HRG Q3 press release:
HRG 2008 yr end press release:
HRG Q3 2008 press release:
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