High River Gold Mines Ltd HRIVF

RE: Severstal exercised their warrants today

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It`s odd that Severstal would exercise their warrants at this time.  The warrants had an expiry date of September 29, 2013.  Severstal exercised the warrants more than 2 years early (with High River Gold already cash loaded, with $195 million in cash and investments, and not needing a cash injection).

The extra 41 million shares does Severstal absolutely no good if they were considering another attempt of a severely discounted takeover of the remaining minority shares.  Severstal will not be able to vote these new 41 million shares in a minority takeover attempt, thus today`s warrant exercise serves absolutely not purpose towards a takeover.  As such, it is sounding more and more like they will not attempt another minority takeover.

Where it does benefit Severstal is if they go forward with the IPO.  They can claim a slightly higher percent ownership of HRG when they price their IPO, due to now having a bigger piece of the pie.

Another potential option for the HRG cash:  High River (headed by Severstal mgmt of course) could use the cash to buy back HRG shares on the open market then retire those shares.  This will not only increase the HRG share price towards benefitting Severstal IPO ask price, but also eliminate more minority shares via the open market (instead of a takeover) which would also serve the purpose of giving Severstal a higher piece of the pie for their IPO.  Under this scenario Severstal doesn`t have to pay out any new cash (as they would in a takeover situation) but still get the benefit of gaining a bigger piece of the HRG pie.  At least the remaining minority shareholders would benefit from a much higher share price.  I doubt this is what Severstal is up to though.  I don`t know what the regulatory rules are, but I always hear about companies needing regulatory approval ahead of time for share buybacks.  It`s possible they can do some buybacks up to a certain limit without regulatory approval, but again, I honestly have no clue what the rules are.

Yet, another potential option for the cash:  They could use some of the now $220 million (cash + investments) to purchase an operating gold mine or advance stage gold property for the High River Gold porfolio.  This would also serve to boast the IPO value of Severstal`s IPO.  It would be like Severstal buying 70% of a new gold mine without spending anymore of their own cash (as everything will be funded 100% out of HRG`s cash).

Ok, just one more option for the cash:  They could publish a positive feasibility study for Bissa and then give the official green light that the project is moving forward with production development (though, I can`t remember if it`s the prefeasibility they are working on or the full feasibility).  They do this while telling the market they have $220 million (cash and investments) to move forward with construction of Bissa, thus no financing is required.  At the same time, show the market that the feasibility study profiles 100,000 - 150,000 ounces of gold production @ sub US$500 cash cost per oz.  This would serve to give HRG`s share price a significant boast and subsequently give Severstal a better IPO asking price. 

As I always say, you just don`t know with Severstal.