Complaint letter to HRG Board re: loans
I sent this letter today.
"September 6, 2011
Board of Directors of High River Gold
Alexey Khudyakov
Evgeny Tulubensky
Oleg Pelevin
Karl Glackmeyer
Sergey Stepanov
Andrew Matthews
Yury Lopukhin
67 Yonge Street
Suite 1502
Toronto, Ontario, M5E 1J8
Dear Sirs,
I am writing to express concerns on behalf of certain minority shareholders of High River Gold (HRG). The Q2 financial and MD&A filings on Sedar reveal some transactions that we object to and are at a loss to understand how they can be in the best interest of the company and all shareholders. Specifically, during 2011 there have been two loans to subsidiaries of Nord Gold amounting to over $20M and total receivables from Severstal/Nord now stand at approx. $30M. Considering the inherent conflicts on the Board of HRG, were these not material events that should have been press released? Secondly, in the last few weeks Nord Gold has announced two block purchases of HRG shares totalling 20,265,300 shares for a total purchase price of over $26M. These loans and subsequent stock purchases have been carried out while HRG Management is going out of its way to not promote, disseminate or communicate the prospects of HRG to the investment community.
Lending money to the controlling shareholder and or its subsidiaries is clearly not in the interest of the company and all HRG shareholders – especially when the borrower is indirectly using the money to buy HRG shares at a price representing a discount to the intrinsic value of the company. If anything, HRG should have been buying these shares with the same cash and retiring them for the benefit of all shareholders. Also, it is perplexing that any funds need to be borrowed from HRG when Severstal is a $15B market cap company with significant cash resources. We assume HRG’s non-independent Directors abstained from voting when lending money to Nord/Severstal. If so, then we fail to see how the remaining Board members could see such loans being in the best interests of HRG and all of its shareholders.
Since Severstal/Nord took a control position in HRG, HRG’s Management has not done one roadshow, one investor conference call or one presentation at an investor/mining conference for the purpose of promoting HRG and maximizing shareholder value. In fact, the opposite effort is taking place. Over the last few years dozens of shareholders have asked management to devote time to Investor and Public Relations. Management did not respond. Recently, the editor of well known Gold newsletter e-mailed Konstantin (HRG’s CEO) 3 times to request an interview. Again, there was no response.
We expect that the Board of Directors will carefully review their duties and legal responsibilities and do not lend any additional funds to Severstal/Nord. We also, expect the Board to call in these existing loans. In terms of any future HRG stock purchases, we expect HRG Management to seek out block sellers before Severstal/Nord do with the goal of HRG buying the shares and retiring them. Lastly, we expect the Board of Directors to instruct HRG management to engage in Investor & Public Relations activities with the same effort that Nord Management is making for Nord Gold. Clearly the capabilities exist.
In terms of any future undervalued buyout attempts of HRG by Severstal/Nord, we want to convey that the core minority shareholder group has over 115M shares. This makes up almost 55% - majority of minority shares - and well over the 84M shares required to keep from being squeezed out using the 90% rule. As the Q2 numbers continue to show, HRG makes up a minimum 50% of the total value of Nord. We await results from several drilling programs underway (some results having been delayed for over a year now). We believe that when released they will uncover significant increases in resources. In fact, even if Nord were to make an offer to minority shareholders, we would ask for securities regulators to insist that all information to date on drilling and exploration be released prior to any special meetings on a buyout vote.
Chris Charlwood
HRG shareholder – approx. 5M shares
cc: The Superintendent of Securities Yukon Securities Office - corporateaffairs@gov.yk.ca
cc: Jeffrey Fennell, Senior Inquiries Officer, Ontario Securities Commission - inquiries@osc.gov.on.ca
cc: Grant Weaver, Bull Housser & Tupper
cc: Konstantin Sobolevskiy – CEO HRG
cc: Nikolai Zelenski, Chief Executive of Nordgold
PS. Below are quotes from Sedar filings and the Yukon Business Act pertaining to the above topics.
Quotes from Q2 2011 Interim Consolidated Financial Statements
“During 2011, Buryatzoloto and Berezitovy provided 6.0% interest bearing secured loans to affiliates of Nord Gold in the amounts of approximately US$10.2 million and US$10.6 million respectively (2010 – US$7.6 million). Total receivables from Nordgold and Severstal – US$29.8 million, payables – US
.7 million (2010 – US
.4 million in payables).”
Quote from the Q2 2011 MD&A.
“Conflicts of Interest of Officers and Directors (strategic)
Certain of the officers and directors of the Company are associated with other companies involved in the mining industry, including the Company’s Chief Executive Officer, Chief Financial Officer and four of the Company’s current directors, all of whom are employed by Severstal, the Company’s majority shareholder. These associations may give rise to conflicts of interest from time to time. The Company’s policy on conflicts of interest complied with the procedures established in the Canada Business Corporations Act in 2010, which sets out the necessity of full disclosure of any conflict of interest prior to the Board dealing with the subject matter giving rise to the conflict of interest and the interested party refraining from voting on such matter. Since the Company’s continuance to the Yukon Territory, the Company’s policy on conflicts of interest complies with the procedures established in the Business Corporations Act (Yukon) which are similar to those established in the Canada Business Corporations Act. The directors are further required to act honestly and in good faith with a view to the best interests of the Company and its shareholders.”
Quotes from the Yukon Business Act.
“Duty of care of directors and officers.
124(1) Every director and officer of a corporation in exercising powers and discharging duties shall(a) act honestly and in good faith with a view to the best interests of the corporation; and(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.(2) Every director and officer of a corporation shall comply with this Act, the regulations, articles, bylaws and any unanimous shareholder agreement.
(3) Subject to subsection 148(7), no provision in a contract, the articles, the bylaws or a resolution relieves a director or officer from the duty to act in accordance with this Act or the regulations or relieves them from liability for a breach of that duty.
(4) In determining whether a particular transaction or course of action is in the best interests of the corporation, a director, if elected or appointed by the holders of a class or series of shares or by employees or creditors or a class of employees or creditors, may give special, but not exclusive, consideration to the interests of those who elected or appointed that director.”"