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« Gold Prices: Second Half Performance Dependent on Quantitative Easing | Main | Gold Backed Bonds for Europe? »
Tuesday
Jun052012

High River Gold vs Nord Gold Q1 2012

 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  April 7, 2012  

June 4, 2012

High River Gold Shareholders,

High River Gold (HRG.TO) and Nord Gold (NORD: LI) Q1 2012 results continue to illustrate the dramatic performance differences between HRG and Nord. In Q1 HRG made up 79% of Nord’s EBITDA and 105% of Nord’s profit. HRG’s cash flow was positive $71M whereas Nord’s was negative $19M. Nord owns 75.06% of HRG and has been determined to gain 100% ownership of the company for over 3 years now.

These numbers show why.

HRG vs. Nord Q1 2012 results (numbers approx.)

Production: 84.5Koz vs. 156.2Koz or 54.1%.

Revenues: $140.7M vs. $263.9M or 53.3%.

EBITDA: $89.8M vs. $114M or 78.8%.

Cash flow from Operating Activities: $71.4M vs. negative $19.2M.

Profit: $62.6M vs. $59.7M or 104.8%.

Cash & Cash Equivalents: $95.6M vs. $170.5M or 56.1%. Note: If HRG sold its third party stock and collected its loans to Nord, it would have $322M of cash. Nord would have $21M in cash.

Debt: $11.1M vs. $432.6M or 2.6%.

Not only did HRG make up the majority of Nord’s cash flow, EBITDA and profit in Q1, but Nord’s $432M of debt dwarfs HRG’s almost non-existent $11M of debt. Also, if HRG were to sell its unrestricted $77.5M in third party stock (mostly Detour Gold) and call in its $149M in loans to Nord, it would have $322M in cash. Nord borrowed an additional $67M from HRG in Q1 to get to this total of $148.95M. Nord has been borrowing HRG’s cash against minority shareholders’ wishes for 18 months now and using it to acquire more shares of HRG and to fund their non-HRG mines. HRG minority have complained to HRG’s Board and regulators that these loans are not in the best interests of all HRG shareholders - but only in the interests of Nord. HRG minority would much rather have seen HRG do a share buy- back with the cash or declare a dividend so that all shareholders benefit. Excluding HRG’s $322M of cash and equivalents, HRG trades at a 3.1 times P/E - which coincidentally works into Nord’s plans of trying to acquire more HRG shares cheaply.

HRG’s CEO, Mr. Zelenski, in recent media reports, has hinted that Nord may offer to buy out HRG minority shareholders with a share swap. He stated that a share swap would increase Nord’s public float to 20% from its current 10.6%. This translates to 42.16M of new Nord shares for HRG minority or a share swap of 5 to 1. In response to these media reports, Nord has been sent several communications from larger minority shareholders of HRG stating that we have no interest in a share swap unless it is in a range of 4 to 1 or more like 3 to 1. As a guideline, 4 to 1 would represent HRG being valued at 50% of Nord’s total value. However, based on the continuing poor performance of Nord vs. HRG (highlighted above) and Nord’s continued borrowing of HRG’s cash (against minority wishes), I am certain it will now take a 3 to 1 share swap proposal to get majority of minority to tender – contingent on the swap being tax free and Nord acquiring a TSX co-listing. A 3 to 1 swap would give HRG minority approx. 68M new Nord shares or 16% of Nord. HRG minority currently own 24.94% of HRG.

To get such a share swap proposal to succeed, Nord needs majority of minority of HRG to vote in favour. I communicate with a core cohesive group of shareholders holding 115M shares (majority of minority) and we believe we would have some influence over the other 95M shares. Please see share swap calculations in the link below. As an aside, Polar Silver Resources, which holds the other 50% interest in Prognoz via a subsidiary (I believe, Argentum CJSC), has sold a 40% interest in its stake for $20M to Baker Street Resources. Baker, in turn, resold 15 of the 40% to another third party for $14.9M. This transaction with Baker Street puts a value of $100M on Prognoz and the flip to the third party puts a value of $199M on Prognoz. It appears that these investments were transacted last year to help Argentum come up with its $18M required to settle the claims of last year’s bankruptcy and lawsuit with Buryatzoloto – an HRG subsidiary. (Subsequently, the bankruptcy claim was reinstated). As the article states below, Polar Silver was seeking a TSX listing last year, but I suspect the bankruptcy proceedings delayed things. I hope they succeed at securing the listing. It will be interesting to see if they can convince HRG Directors and Nord to contribute HRG’s shares in Prognoz into this vehicle to finally settle all issues. I believe HRG minority would be in favour of such a transaction on a 50/50 ownership basis between HRG and Polar Silver. Of note, the Baker Street report states that Polar Silver has a 43-101 report from Micon dated July 2009 showing 293M oz of silver (up to 773 g/t) – a 43% increase over the 205M oz of silver HRG has reported in its June 2008 43-101 report. This confirms my past claims that this report was completed – even though HRG Management denied it. Either way, this is material information that should be disclosed by HRG.

HRG Q1 2012 results

http://ca.finance.yahoo.com/news/high-river-financial-results-first-222710308.html

Nord Gold Q1 2012 results

http://www.morningstar.co.uk/uk/News/NewsFeedItem.aspx?id=200413911548965

Article - Prognoz financing

http://www.ogier.com/Deals/Pages/OgierBVIadviseonacquisitionforBakerSteelCapitalManagersLLP.aspx

Baker Street report - see p. 5

http://www.bakersteelresourcestrust.com/reports/2011/IFS_30_06_2011.pdf

HRG Nord Share Swap Calculations

http://freepdfhosting.com/d2d8988dc7.pdf

Chris Charlwood

HRG shareholder

Rainerc7@gmail.com – e-mail ‘Remove’ to be taken off list.

604-718-2668

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Reader Comments (4)

Gentlemen, the team is always good about informing your readers in a timely manner of your buys/sells as it pertains to your portfolio. Would you be so kind as to divulge your position in HRG, only as it pertains to if you have sold out, increased your position or holding steady. As always your insight and opinion is much appreciated. Thanks!

June 6, 2012 | Unregistered CommenterVincent

All this sounds promising but HRG has never gotten above 1.35 or so in the two years plus that I have held this stock. Reaching the 1.30's and then retreating to around 0,80 cents. It has been dead money for sometime now. When will the stock reflect the promise that is always spoken about in these updates. As this money would have been better served somewhere else with my average price being !.28? Two years plus and counting and nothing has happened.

June 6, 2012 | Unregistered CommenterGary

Vincent,

We do apologize for not making our position clear.

We are holding steady and have not sold any shares in HRG.

We have not increased our position either and as always if we consider either selling or buying we will publish accordingly.

Hope that this clarifies the matter for you and as per usual you have to do the work in terms of due diligence, to the best of your ability.

Bob K

June 6, 2012 | Registered CommenterGold Prices

Gary,

Yes indeed its a difficult call to make. There comes a point when you fold and walk away. We are not financial advisers so we cant say what you should do, we can only give you our view on the situation and after that its your move.

June 6, 2012 | Registered CommenterGold Prices

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