| | Reply Attention of: | Grant Weaver |
| | Direct Phone: | 604.641.4827 |
| | E-mail: | gkw@bht.com |
| | Our File: | 04-2056 |
| | Date: | July 13, 2009 |
BY E-MAIL
| Toronto Stock Exchange 130 King Street West P.O. Box 450 Toronto, Ontario M5X 1J2 Attention: Eleanor Fritz, Director of Compliance and Disclosure Eleanor.fritz@tsx.com | <> | <>
Dear Sirs/Mesdames:
| Re: | High River Gold Mines Ltd. and Subsidiaries (“High River”) |
We are lawyers representing a minority shareholder of High River. We refer to the TSX Bulletin 2008-1343 dated November 21, 2008, which states that TSX was reviewing the common shares and warrants of High River with respect to meeting the continued listing requirements. We further refer to the TSX News Release dated June 19, 2009 that TSX has extended its review of the eligibility for continued listing of the common shares and warrants of High River for 60 days. The High River Press Release dated June 18, 2009 notes that the delisting review period has been extended to August 17, 2009 due to the pending take-over bid by Severstal and that in the absence of such take-over bid, the TSX would have determined to delist High River’s securities due to its current financial condition.
Our client would like the TSX to confirm that it has in fact advised High River that “in the absence of such take-over bid, the TSX would have determined to delist the Corporation’s securities due to its current financial condition”. We find it surprising that the TSX would prejudge the delisting decision in this way. Even if such advice were given, if subsequently the circumstances changed, to leave this impression in the public domain creates an uncertainty which plays into the hands of the majority shareholder in the context of its pending takeover bid. If the TSX did not so advise High River, then in our view this statement in a High River press release is highly misleading and in the circumstances of the take-over bid this statement would have a significant influence on the investors’ decision to tender or not to the bid and enhance the coercive elements of the bid. Indeed, we have been advised that representatives of the bidder have been calling shareholders and pointing out to them that the Company could be delisted.
Furthermore, it is our understanding that High River is now in compliance with respect to its financial reporting obligations and has as well provided all of its Default Status Reports in accordance with National Policy 12-203- Cease Orders for Continuous Disclosure Defaults. We are not aware that High River has been given notices of default under any of its credit and loan agreements. In fact, High River has stated in its press release of May 19, 2009 that no action has been taken thus far by Royal Gold Inc. and Severstal in relation to the breach of the loan agreements. The Company has stated in its May 19, 2009 press release that it is in breach of certain “financial covenants”. Notwithstanding this, we are informed that the Company’s mines are currently producing at expected levels. Therefore it seems implausible to us that the loans would be called.
As you know, we wrote a letter to you dated April 24, 2009 wherein we expressed concerns regarding the approval of a private placement which resulted in a change of control without shareholder approval, the delisting review, conflict on the Board and other matters. It appears to our client that this delisting review, for which we can find no compelling basis at the present time, is playing into the hands of the majority shareholder, Severstal, because it is in Severstal’s better interests to allow the delisting review to continue unopposed. We have concerns that the delisting issue is not being vigorously dealt with by the Board of High River and we question whether appropriate efforts are being made to re-list the shares on another exchange. A delisting review outstanding when all financial reporting is now up to date creates an undue influence on the minority shareholders to tender their shares in a coercive transaction. Our client now is very concerned that the TSX and the other regulators are not exercising their discretion and influence to protect minority shareholders.
We are advised by our client of the following financial information. High River announced on May 15th a $931,000 profit and $29.7M in cash flow from operations as well as reduction in working capital deficit of $12.4M for Q1 2009. The profit included $22m of unrealized foreign exchange loss. We are advised that High River is likely to have an even stronger Q2 with increased mine production and much lower foreign exchange losses, if any. On May 19th, a press release stated that High River had debt of US$122M as of April 30th. Payments of US$15M were to be paid in the month of May and June. Our client believes that these have now been made with help of the recent Severstal private placement. This would leave the company with US$107M of debt. It appears that High River may well finish the year with enough cash flow to cover the US $22M of debt payments due in the 2nd half of the year. Accordingly, we fail to see what possible reason there can be for a delisting review in light of present circumstances. If Severstal has informed the TSX that it will call its loan (purchased from the Standard Bank in Q1) then would this information not have required a press release? This Standard Bank facility is not due until 2010. For the above reasons, if the TSX chooses to delist High River without waiting until the Q2 financial results are released to the public, the minority shareholders could be seriously disadvantaged
As a final note, we ask you to consider the situation where a significant number of minority shareholders remain after the bid and the Company is delisted with the rationale for the delisting originally being the failure to file financial information which has now been remedied. Is it rational to believe that Sevestral will call its loan when there are funds to pay it? The TSX has many companies listed in various stages of financial distress. Surely this case has to be far from a situation where delisting would be warranted, especially when one takes into account the prejudice which the minority will suffer.
We are certain that the TSX does not need to be reminded that it has a certain profile and reputation in the mining industry which we Canadians, like to think is a good one worldwide. If the statements attributed to the TSX in High River's press release are true, the TSX has allowed and inadvertently fostered an environment whereby the majority shareholder is able to create fear of illiquidity in the minds of minority shareholders such that they sell out at an unfair and low price. To countenance this state of affairs is extremely disturbing. The TSX has an oversight role and ought to be doing all it can to ensure that fairness to all shareholders prevails in these circumstances.
As you can appreciate, the take over bid by Lybica Holding B. V. will expire on July 31, 2009 and these matters are of the upmost importance. We look forward to having your response to these concerns as soon as possible.
Yours truly,
Bull, Housser & Tupper LLP
Grant Weaver
GKW/evb/1961200.05
c.c. British Columbia Securities Commission
c.c. High River Gold Mines Ltd.
c.c. Ontario Securities Commission