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« Even our 50 worst Trades still returned 18.61% per Trade, SK OptionTrader | Main | A Raging Case of Bailout Fatigue »

HIGH RIVER GOLD (HRG) - Summary September 6, 2011

HRG Chart 07 sep 2011.JPG

Always appreciated we now have an update from Chris Charlwood who 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

all numbers in CDN $ except where noted

HRG is an un-hedged gold producer trading on the TSX under the symbol HRG.
HRG’s share price of $1.40 has it trading at 5.2 times cash flow (net of liquid assets). 

Corporate structure
840,218,962 shares outstanding.
630,627,472 shares owned by Nord Gold (75.06%) - a subsidiary of LSE listed OAO Severstal.
209,591,490 shares owned by minority (24.94%).

HRG Q2 results (Nord numbers converted at June 30 rate of .9643 US/Cdn)
HRG produced 96,093 oz of gold – 48.5% of Nord Gold’s Q2 production of 198,092 oz.
HRG's revenue was $139.1M – 48.2% of Nord Gold’s revenue of $288.7M.
HRG's cash flow was $42.9M – 47.2% of Nord Gold’s cash flow of $90.9M.
HRG's total cash costs/oz was US$704 – versus Nord Gold’s US$719.
HRG's EBITDA was $80M – 62.2% of Nord Gold’s EBITDA of $128.6M.
HRG's Net Income was $41.4M ($.05/share) – 94.5% of Nord Gold’s Net Income of $43.8M.
HRG had $307.2M of working capital and $281M net liquid assets (cash, third party stock less debt). Note: Without Severstal/Nord loans and with Detour Gold’s latest stock price, working capital at $350M.

HRG’s Mines & Properties
HRG is undergoing a $178M capex program for 2011 – 58.4% of Nord’s capex (per Nord Prospectus).
-- Berezitovy mine in Russia
-- 1,035 kOz of proven and probable reserves
-- 1,238 kOz of measured + indicated resources
-- 132 kOz of inferred resources
-- Taparko-Bouroum mine in Burkina Faso
-- 627 kOz of proven and probable reserves
-- 758 kOz of measured + indicated resources
-- 186 kOz of inferred resources
-- Bissa advanced exploration project in Burkina Faso
-- 1,653 kOz of proven and probable reserves
-- 2,649 kOz of measured + indicated resources
-- 218 kOz of inferred resources
-- Yeou: 82 kOz of inferred resources
-- Ankouma: 74 kOz of inferred resources
-- Bouly: 253 kOz of inferred resources
-- Gougre: 225 kOz of inferred resources
-- Zinigma: 139 kOz of inferred resources
-- Prognoz silver property in Russia (HRG’s 50%)
-- 51,000 kOz of silver indicated (1,159 kOz gold equivalent @ 44 to 1 ratio)
-- 51,500 kOz of silver inferred (1,159 kOz gold equivalent @ 44 to 1 ratio)

Total gold & equivalent indicated resources of 5,804 kOz

Additional Potential
If HRG is able to convert the above inferred resources into the M&I category, then it would add 2,468 kOz of resources. Also, in the Nord Gold Prospectus it mentions that Bissa may have another 2,000 kOz, in Nord’s Denver Mining Conference presentation it is stated that Bouly may have up to 2,000 kOz (1,750 kOz additional) and per the Micon report on Prognoz, HRG may have an additional 184,500 kOz of silver (4,193 kOz gold equivalent). If HRG eventually converted all of the above into the M&I category, HRG could potentially have 16,218 kOz of gold & equivalent resources.

HRG Management
The Board of Directors and Management positions are majority populated by capable Severstal employees. Severstal is an LSE listed steel and resource company with a market capitalization of more than $15B.

Prognoz Silver Property

HRG owns 50% of one of the top ten silver deposits in the world with 102M oz of indicated resources of silver at 704g/t and 103M oz of inferred resources of silver at 659 g/t. As stated in the 2008 Micon Report, “In addition to the resource estimate for the Prognoz property, an evaluation of the conceptual resource potential was conducted for 16 of the other known mineralized zones which were not included in the resource estimate.” “Conceptual Mineral Potential for a Further 16 Mineral Zones on the Prognoz” range from 161M oz to 369M oz of silver. As announced on September 2, Prognoz is no longer subject to bankruptcy proceedings as the criteria for bankruptcy are no longer in place. This removes 15 months of uncertainty for HRG shareholders. HRG shareholders look forward to the two partners in this project working towards getting this property into production. All shareholders in Prognoz could benefit from having this project spun out into a separate publicly traded entity.

Nord takeover attempts

Severstal made an offer to buy out minority shareholders in 2009. Almost 90% did not tender their shares. Nord, the subsidiary that now owns Severstal’s gold assets, continues to increase its ownership position in HRG by buying shares when available. Nord attempted to do an IPO on the LSE early this year at a valuation of $4-5B. Nord postponed the IPO as it did not want to reduce its valuation to meet investor interest which fell below the target range. On the recent Nord Q2 conference call, Nord Management said they may organize investor presentations in the fall. Media has reported that Nord may attempt another IPO late this year or early next year. A core Minority Shareholder group with 115M shares (55%, majority of minority) have stated they believe HRG is worth at least 50% of Nord Gold’s value.

HRG’s Q2 results

HRG’s resources

Prognoz 43-101 report (see pp. 4 & 6) 080627.pdf

HRG’s third party stock investments

Nord Gold prospectus - excerpts on HRG

Nord Gold Q2 results


Chris Charlwood
HRG shareholder – approx. 5M shares
604-718-2668 – for ongoing HRG investor communication.

Chris Charlwood

So there you go.

For what its worth we continue to hold onto our shares in HRG, but as always do the work and make your own investment decisions, after all its your cash.

Stay on your toes, volatility will be the order of the day and have a good one.

Regarding We currently have a number of open trades at the moment, however, we do not update the charts until the trade is closed and the cash is back in our account.

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Our model portfolio is up 396.58% since inception

An annualized return of 119.04%%

Average return per trade of 42.21%

85 closed trades, 82 closed at a profit

Average trade open for 45.41 days

sk chart return on SK OptionTrader Model Port 22 aug 2011.JPG

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