With special thanks to OutofWork for his initiating this effort and helping canvass the shareholders, please see the letter below that was just couriered to HRG and Severstal Resources.
December 23, 2010
High River Gold Board of Directors & CEO
67 Yonge Street, Suite 1502
Toronto, ON M5E 1J8
Alexey Khudyakov – Chairman of the Board of Directors
Evgeny Tulubensky – Director
Oleg Pelevin – Director
Karl Glackmeyer – Director
Igor Klimanov – Director
Andrei Maslov – Director
Andrew Matthews – Director
Konstantin Sobolevskiy – Chief Executive Officer – info@hrg.ca
Alexander Grubman – CEO Severstal Resources – mail@severstalresurs.ru; marketing@severstalresurs.ru
2/3 Klara Tsetkin Street
Moscow, RU-127299, Russia
Gentlemen,
I am writing to remind you that there is a core group of High River Gold (HRG) shareholders that are unified to resist any attempts at undervalued buyout offers, amalgamation proposals or minority squeeze out transactions from Severstal. As you may recall, with Severstal’s last buyout attempt almost 90% of minority shares were not tendered. In the last few weeks I have been in touch with many shareholders (including retail and institutional), explained the contents of this letter and have their support in making the statements in this letter. With fairly limited effort, I and another shareholder have identified shareholdings that amount to 56.86% of minority shares outstanding or 130,695,723 shares. The average price of those that stated a minimum sell price was $2.67/share. The reason I emphasize ‘with fairly limited effort’ above is that we were able to collect these share counts without a broad canvassing of the shareholders. I very much believe that our numbers will increase significantly if we canvass all of the shareholders. With a majority of minority share count we are able to block any proposed unfair buyout or amalgamation transactions, but this also puts us well above the 10% needed to keep Severstal from using the exemptions under Canadian securities regulations permitting it to avoid the need for majority of minority approval and to vote its own shares. We have watched, with interest, the transactions that occurred at Crew Gold and we are determined not to suffer the same fate.
Severstal’s management team has done a very good job operationally since acquiring its majority interest, but ‘unfortunately’ it has also done a very good job at minimizing any sort of promotion, guidance and positive news from HRG. To date we have seen no effort to attend mining conferences, investment conferences, speak with the media or to garner research coverage for HRG. In fact, any attempts I and others have made to encourage such activities have been declined. For instance, I introduced an IR group to Igor Klimanov. Also, I and another institutional investor offered Igor meetings in Toronto with Canadian research analysts to start coverage on HRG last summer. He declined both. The majority of public companies make some sort of effort to tell their corporate stories at such above-noted events with the goal, in part, of increasing their share price. I would think the lack thereof supports our case that Severstal’s intention is to keep the share price as low as possible for future buyout attempts.
We note that in the Management Circular as of May 25th, 2010 (and filed on June 8, 2010) it states one of the criteria in establishing the basis for payment of a bonus to HRG executives is the management of investor relations and whether they have maximized investor awareness of HRG activities. I also note that the Board Mandate makes the Board responsible for the stewardship of the business and affairs of the Company with a fundamental objective to enhance and preserve shareholder value. The Mandate also states that the Board must ensure that policies and procedures in place are able to effectively govern the activities of HRG and allow for effective communication with shareholders, other stakeholders and the public. Clearly maximizing investor awareness of HRG and enhancing shareholder values are stated priorities for HRG. However, it seems that none of these mandates or objectives have been followed except for the bare minimum legal disclosure requirements.
Rumour has it that your Nord Gold IPO was delayed, in part, due to the markets not agreeing with the underlying value of your assets – in particular HRG trading at a fraction of the multiple you were hoping to extract for its pro-rata contribution to Nord Gold. It would seem to make the most business sense, considering minority’s intent on resisting any undervalued buyouts, that Severstal/HRG Board would instruct HRG management to promote HRG. Clearly you have these skills evidenced by Severstal’s own Investor Relations and PR efforts as a public company. If you succeed at raising HRG’s market value to a level where the Nord Gold IPO makes sense, Severstal can only benefit. If the IPO still does not succeed, HRG’s market value can only benefit Nord Gold in future financings. To that end, I am again offering the services of an IR group that seems to have had some success at helping the HRG stock price move up from the $.75 level – the time I hired them at my own expense for US$195K. I would be happy to have them send you a proposal for 2011 which includes a European road-show for institutional investors. I would also like to repeat the offer for us to arrange for meetings between research analysts and HRG management in Europe and Canada.
Lastly, the bankruptcy process is coming to an end shortly for Prognoz. There have been rumours that HRG’s 50% interest in Prognoz could end up in the hands of a Mordashov related party through an auctioning of the assets. If HRG’s 50% interest in Prognoz is lost, you will force us to accept an offer from a Toronto lawyer for a class action. Surely, HRG management had other options to risking an asset supposedly worth hundreds of millions of dollars for a nominal $18M sum. As you can imagine, with silver appreciating recently, the feelings of minority shareholders have only grown stronger on this subject.
We expect a significant effort on Investor Relations and Public Relations in the near future. Such effort can only result in a positive outcome for all shareholders – as compared to a Nord Gold IPO potentially being bogged down with another lawsuit from disgruntled partners.
Sincerely,
Chris Charlwood (on behalf of a core group of HRG minority shareholders)
Investor
rainerc7@gmail.com
604-718-2668
cc: Eric Sprott – Sprott Asset Management
cc: Ivan Mazalov – Prosperity Capital
cc: Mikhail Kobishchanov – Arbat Capital