Arbitrage?I too believe this will play out shortly, HRG should have paid $7 million in debt in March '09, and HRG has $27 million due in the second quarter, and finally $22 million in the last second half (that wording is strange?) We have no idea on the timing, but who knows if it is front end loaded or not. In order to keep HRG going Severstal will have to either 1) pay debt from earnings, thus increasing HRG's value or (2) negotiate different repayment schedule, great for cash flow or (3) Replace the current debt with either their cash or new lenders. In any event Severstal has to put cash or risk losing their investment. In short Severstal must assume more risk to keep HRG going. Severstal won't bail as long as POG stays close to or even better above $900 US oz. HRG is cash positive in the first quarter and they will have a hard time keeping that a secret.
Management cannot trade until the FY08 statements are out. Q1 financials are due by May 15, 2009. HRG must address the TSX listing issue by June 10, 2009,
and the AGM has still not been announced. While Mr. Crow leaving has poor optics, things are moving much faster now, Severstal now has almost 100% of the board.
This is not a value play any longer, but an arbitrage play. What will they pay to take it out? Investors will weigh the risk/reward card. Who is to say that a hedge fund would not like those odds, at least a double on their money. With the current economic environment I do not believe POG will tail off in any sustained substantial manner, it might even be pushing higher. GM going bankrupt, US housing is not getting better, DOW and S&P 500 Q1 earnings will be horrible etc.
FYI Severstal also pulled out a coal project, how much will that save them? Perhaps to put that capex money to a currently producing asset.....HRG? Hmmm
Severstal Resources pulls out of Mongolian coal project
London 19 March 2009 11:39
Russia’s Severstal Resources has pulled out of a consortium which planned to develop the Tavan Tolgoi coal deposit in Mongolia.
Good luck to us all, and may the mills keep milling!
CJ