High River Gold Mines Ltd HRIVF

March 3, 2010 Bloomberg article - indirectly value

[ccharlwood]

I just sent these comments out to the HRG investor database.

Yesterday's Bloomberg article (posted below) reiterates some of the statements made in the recent Reuters article. Severstal is definitely not making a low ball offer to HRG shareholders short term, are probably going to buy out Troika's (?) shares and have acknowledged that when they do take their gold assets public, they may do so with only the stakes they own. As mentioned, this is good news as the HRG shares will have to move up to mirror the values Severstal would be stating to the investment banks taking them public. Otherwise, if HRG is still trading at these low levels, the banks could be doubting the Severstal Gold values with HRG as the measuring stick.

Could this be the turning point for us shareholders in that Severstal may start promoting the HRG turn around story? The answer could be in this article where Severstal for the first time puts a value on their gold asset at $3.9B - similar to Polymetal. If true, then HRG should be worth 56% of this number due to its projected 300,000 oz of production out of Severstal's 533,000 total for 2009. In essence, this values HRG near $2.2B or $2.75/share. Also, I suspect a majority of the projected 25% growth in production will come from HRG. Not surprisingly, the $2.75/share value is not too far off the recent $2.48/share target price Olma put on HRG.


https://www.bloomberg.com/apps/news?pid=20601082&sid=aSrIu8dlhuQU

Bloomberg
Severstal May Buy Foreign Assets to Boost Gold Output (Update1)
March 03, 2010, 12:22 PM EST
By Ilya Khrennikov
March 3 (Bloomberg) -- OAO Severstal, the steelmaker controlled by Russian billionaire Alexei Mordashov, said its gold unit may buy more foreign assets as it seeks to expand production of the precious metal.
“We will consider acquisitions in those regions where we operate already, which are Russia, Kazakhstan and West Africa,” the unit’s Chief Executive Officer Nikolai Zelenski said.
Mordashov, 44, vowed in 2007 to turn Severstal into Russia’s third-biggest gold miner. Last year, it became Russia’s second-largest, after OAO Polyus Gold, as the price of the precious metal rose to a record. Crew Gold Corp., a producer of the metal in Guinea, last week said it received a 2.35 billion- kroner ($400 million) offer from Severstal.
Severstal’s bid “represents a good opportunity for minorities to cash out at a good price,” Zelenski said in a Feb. 27 interview in Moscow. Severstal has a 27 percent stake in Weybridge, England-based Crew, while Canadian bank Endeavour Financial owns 38 percent.
Severstal, which is Russia’s largest steelmaker, entered the gold industry in 2007 when it bought a stake in London-based Celtic Resources Holding Plc. Severstal Gold has the potential to increase output by as much as 25 percent at current mines to about 650,000 ounces a year, Zelenski said.
It hasn’t decided whether to sell shares of the gold unit in an initial public offering and has no timetable for any potential sale, Zelenski said.
Company Valuation
“We aren’t preparing for an IPO,” he said. “What we could list some day is a holding company which owns all stakes in gold producers that Severstal currently owns.”
Severstal Gold should be valued at a similar price to OAO Polymetal, the Russian gold and silver producer, Zelenski said.
“We are approximately the same size, if you convert Polymetal silver production into gold equivalent,” he said. St. Petersburg-based Polymetal’s depositary receipts closed yesterday in London at $9.80, valuing the company at $3.9 billion.
Spinning off the gold unit would mean Severstal doesn’t need to buy out minority shareholders in High River Gold Mines Ltd., which accounts for more than half of its output, he said.
“We may buy out one or two large minority holders of High River but plan no tender offer for all of the holders,” he said.
Largest Minority
Troika Dialog is the largest minority shareholder in Toronto-based High River with 19 percent, according to data on High River’s Web site.
Severstal plans $130 million of capital expenditure for gold this year, after spending a combined $200 million in 2008 and 2009, Zelenski said. Severstal has carried out studies on two potential mines with output of as much as 250,000 ounces, he said.
Severstal rose 2.8 percent today in Moscow and closed at 364.18 rubles. Crew Gold fell 11.3 percent in Toronto to C
.315. High River Gold rose 1.3 percent in Toronto to C
.79.
--Editors: Tony Barrett, Simon Casey
To contact the reporter on this story: Ilya Khrennikov in Moscow at [e-mail]
To contact the editor responsible for this story: Simon Casey at [e-mail]