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High River Gold Mines Ltd HRIVF



GREY:HRIVF - Post by User

Comment by discernon Jan 08, 2010 2:15pm
1121 Views
Post# 16656400

RE: HRG update article (by John Helmer)

RE: HRG update article (by John Helmer)

John Helmer’s article is fantastic.

Basically John is saying that it looks like Severstal is in need of funds and that they need to raise money with their gold division through an IPO or selling it outright.


There are three end game options mentioned by Helmer.


The first is to gain full ownership of HRG and sell all their gold assets to a Chinese company.  This would require Severstal to first offer enough money so that the majority of the minority shareholders (particularly the institutional) will accept it.


The second is to neutralize minority ownership by purchasing another company through the issue of new shares.  This would give HRG control over the company but would also trigger a lawsuit, if a transaction occurred that was not at fair value.


The third is to spin off the gold division in an IPO which would create a new ownership and new shares. 

Helmer mentioned a fourth which was would be quite similar to the third.  Instead of making a new company to IPO, consolidate all of Severstals gold assets into HRG by having HRG buy Severstal’s gold properties and operations and further dilute minority ownership.


From previous articles John Helmer seems to be very legit and likely correct so here are a few of my observations:

#1  I think that there is a degree of pressure for Severstal to raise capital and reading between the lines there are debts due such that HRG must be sold (or IPO’d in a new company).

#2  Severstal would love to walk away by messing with shareholders to increase their return.

#3  The threat of a lawsuit is serious by institutional and retail shareholders.

#4  Severstal likely can’t afford the length of time that would be required to wade through a lawsuit because they need to act promptly (I would rate this ideas as a 75% chance).


If #4 is correct, then Severstal has really only two options. 


The first is to buy our shares at a price high enough that is acceptable for the big funds and retail investors.  I think it would be good if we could find out their new price.  The figure of $1 was set in the summer and gold prices and gold miner shares have significantly increased since then.  I wouldn’t be surprised if the price is $2+ today.


The second is to sell all their gold assets and HRG directly.  In this scenario, a Chinese company for example would offer an amount ($3.50/share) to all shareholders – by the way this would make Troika the most money and they have Chinese connections.

My only other comment speculation is that Putin just might have told Mordashov to stop messing around with Canadian Investors.  As much as we collectively are all small potatoes, if Russian assets can be traded on the TSX this increases their value and potential for future capital – Russia will have gone through a period of deficit greater than Canada and US and likely needs all the capital they can get.  Bad publicity like HRG could keep the great BEAR from other more strategic acquisition.


Finally, outside of Severstal playing hard ball and risking a lawsuit (which I would place at 25%), the lowest amount that we will receive for our shares is the price that large investors like Sprott and other institutional holders will sell for.  Can anyone determine what this price is now specifically instead of my guess of $2.00?

 

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