High River Gold Update 01 March 2010

Print This Post | Topic: Gold Mining Companies — March 1st, 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.

To Minority Shareholders of High River Gold,

Please see the Reuters article below regarding Severstal’s attempt on acquiring Crew Gold as well as its thoughts on High River Gold. The article has been translated from Russian, so it is a bit convoluted. The interesting part for us is that for the first time Severstal has publicly stated it will not try and buy out minority shareholders of HRG. The statement was made in response to a recent letter that was sent by the institutional shareholders of HRG announcing that if an offer were made, they will not sell for less than $1.50 (more than twice the current price). I see this Severstal statement as a milestone and very good news for us as we have made strong efforts to dissuade them from trying to buy us out since last May. The threat of another low ball offer prior to the Q4 and year end results has now been removed. This should make new investors feel comfortable coming into HRG at these low prices.

It is speculated in the article that Severstal Gold could do an IPO with vending in only their 51% of HRG. Although a Severstal representative states that the paper work for an IPO has not been prepared, I would suggest that if it were to go ahead later in the year, then it will be very good for HRG shareholders as it will be easy for investors to track the values between Severstal Gold’s shares and HRG’s shares (based on gold ounces produced). Such a scenario could attract arbitrage traders thereby reducing the gap between values. The question is will Severstal stick to their statement longer term. An IPO will place a lot of pressure on them to consolidate as much revenue and cash flow as possible. Of course, post IPO, minority would likely be open to being bought out with Severstal Gold shares as long as the respective share prices are trading at comparatively fair values. Another point to consider is that since HRG currently makes up 50-60% of Severstal’s gold production, HRG’s share price could likely move up to the pro-rata values being justified by the investment banks that would take Severstal Gold public.

HRG management has stated that Q4 and year end results will be reported at the end of March. We are expecting up to $45M in cash flow for Q4 and up to $130M in cash flow for 2009. If the Q4 cash flow does in fact hit $45M, then all looks good for at least $180M in cash flow for 2010. Also, we are expecting the year end numbers to show that HRG has enough liquid assets (once Royal Gold collateral released) to cover off all debts with up to a $45M surplus. At $.70, the stock is currently trading at 3.1 times Q4 cash flow whereas the peers are trading at an average of 18.1 times Q3 cash flow. The peers are 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.

Chris Charlwood
Retail Investor
604-718-2668 office
604-718-2638 fax