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High River Gold Mines Ltd HRIVF



GREY:HRIVF - Post by User

Post by production05on Feb 04, 2010 7:20pm
737 Views
Post# 16754016

IMO, games, greed and guerrilla tactics

IMO, games, greed and guerrilla tactics

Severstal has done a good job with HRG operationally.  However, IMO, their business approach with HRG over the past 1.3 years has resulted in significant opportunity costs (or opportunity delays) for all stakeholders.

Hopefully they will soon consolidate HRG with their other gold holdings.  They should do this by offering HRG minorities a fair value equity of the consolidated company, instead of a cheap cash payout.  It`s better if they roll their other gold assets into HRG (and leave the consolidated company trading on the TSX), but, again, without using an unfair value approach (one that disadvantages minorities).

They should have taken this approach a year ago.  Opportunities still remain, but some good acquisition opportunities may be lost forever (during the crisis period).  If they had consolidated all of the gold assets under HRG (at some point over the past year) then the consolidated production would now be around 550,000 annual ounces.  HRG`s share price would have been over $3.00 for a while now.  They then could have used the 150,000,000 Troika shares for a $3.00 PP (instead of a $.38 PP).  That would have raised $450,000,000 in cash (of note, HRG did a $3.25, $100,000,000, PP in late 2007), during the periods earlier in the year when other similar size gold producers were having no problems raising that that type of cash via the equity market.  They could have used that $450,000,000 cash plus the $33,000,000 - 45,000,000 in quarterly cash flow to pay down the remaining debt, re-initiate work on both Bissa and Prognoz and acquire more production from undervalued juniors that were still struggling to raise financing at the time.

The acquisitions could have raised the production for the consolidated company from 550,000 to 750,000, if executed properly.  Expanding Berezitovy from 100,000 to 120,000 and Taparko from 90,000 (attributable) to 126,000 (attributable) which was the original plan (pre-Severstal) and will likely occur over the next year (we are already awear of the new mill purchase and installation at both locations).  That would have then moved the consolidated production to 800,000 ounces, with us being a dominate global gold player, but establishing HRG firmly as the number 2 gold focused Russian producer (behind Polyus` 1,200,000 oz production).

We could then focus on bringing Bissa into production in about 3 years - start with heap leach production, cheap and quick to develop, then use the cash flow to put in a milling operation for the high grade ore.  We are likely eventually looking at 5,000,000 ounces (or more) at Bissa (almost 2 million established already from only 1 of 5 high potential areas).  If executed properly, this could eventually be a 200,000 ounce per year production operation, IMO.  That could eventually bring the consolidated production ounces up to 1,000,000 (an exclusive level).  They could also move the Prognoz project forward (including consolidation of the remaining 50% - I think we are also owed about $13M from the other party so we can get a good price).  There are already 205,000,000 ounces of silver established.  That`s equivalent to 4,000,000 ounces of gold.  Aggressive exploration work could move the resource to 400,000,000 silver or 8,000,000 gold equivalent.  With the already established 205,000,000 ounces of silver coming mainly from 2 of 30 known minerialed veins, I personally believe that Prognoz will get to 1,000,000,000 ounces of silver eventually (almost 20,000,000 gold equivalent ounces).

HRG can look to bring it into production in about 5 years time (or however long it takes), as a giant remote project (with about 400,000 gold equivalent ounces per year production).  Use the same approach as Bema Gold/Kinross with Kupol (Kinross`flagship operation).  It is located in remote Siberia (I think), Russia and it has been hugely successful.  They even had to build an airport.  Prognoz, with 700 g/t grade silver, easy to access adit mining (silver located within hills, thus can be accessed with adits through sides of the hills, which should require less or no hugly expensive shafts).  Who cares if they end up building significant roads and power lines to a remote location up front.  The operating economics (not just one of the higher silver grade operations in the world and easy mining access to the silver in the hills, but also the huge economies of scale with a 400,000 gold equivalent operation) should be very strong.  The aim would be to create a highly efficient 25 - 50 year operation that has a 700 g/t grade that can be successful under any silver price environment.  I personally feel that`s what we have here.

IMO, all of this is worth billions and billions and billions of dollars.  We could have been well down this path already, in my view.  I think some of the easy acquisition opportunities are now gone from the market.  That`s an opporuntiy costs we already paid.  However, the model I described ablove is still salvagable.

I guess we`ll see which path they decide to choose. 

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