From the Wires
HRG vs. Nord-9 Months YTD 2012 Comparison
By: Marketwired .
Nov. 19, 2012 07:20 PM
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 11/20/12 --
To High River Gold Shareholders,
Both High River Gold and Nord Gold put out their Q3 financial results last week. Below is a comparison of the first 9 months of 2012:
HRG had production of 254.8koz. vs. Nord at 515.0k oz. - 49.5% of Nord's total. HRG had revenues of $422.5M vs. Nord at 851.1M - 49.6% of Nord's total. HRG had EBITDA of $208.8M vs. Nord at $349.2M - 59.8% of Nord's total. HRG had cash flow of $179.2M vs. Nord at $71.0M - 252% of Nord's total. HRG had a net profit of $137.0M vs. Nord at $123.2M - 111% of Nord's total. At end of Q3, HRG had liquidity of $257.7M (including $89.4M third party stock (Detour Gold), $113.3M loans to Nord and $55M in cash). It had $10.3M debt owed to the 50% partner in Prognoz. At end of Q3, Nord had $102.4M in cash and total debt of $523.2M.
Note: these numbers reflect 100% of both companies and do not deduct for non-controlling interests.
Without HRG, in the first 9 months of the year, Nord would have had negative cash flow of $108.2M, a loss of $13.8M and a negative cash balance of $10.9M. The EBITDA comparison continues to show the superior performance of HRG's assets over Nord's non-HRG assets. The cash flow and profit comparisons highlight the substantial debt that Nord is carrying.
There have been a few interesting events recently that are worth mentioning. Firstly, Nord has repaid $52.7M in loans to HRG bringing the total loans from HRG down to $113M. Secondly, in HRG's press release it says, "The Bissa project is on track to deliver first gold in H1 2013 and we now believe that production of gold at Bissa can be started in the earlier part of the announced period. " To remind you, a Morgan Stanley report dated Feb. 17, 2012 projects that Bissa will produce 95koz. of gold in 2013 and add $145M of EBITDA.
In regards to the Prognoz silver project, it is interesting to note that certain parties to the lock-up agreements (for the current offer) have some connection to both HRG and Prognoz via direct and indirect investments. Therefore, it would not be surprising if HRG/Nord and the other 50% partners in Prognoz come to some sort of agreement on settling legal disputes and bankruptcy proceedings next year. As I have stated previously, a spinoff of Prognoz would be beneficial to all parties - especially considering certain predictions that silver will play catch up to gold in terms of historic ratios. Prognoz is in the top ten silver properties in the world in terms of resources, but tops the list with grades.
Nord's most recent offer for HRG of $1.40 share is at a P/E of 7.3 vs. the industry average (for mid-cap gold producers) at a 25 P/E. Based on this average, Nord's cash offer should be $4.80/share. The share swap offer of .285 Nord share for each HRG share translates to 100% of HRG being worth 58% of Nord's total value. This is almost equal to the 59.8% of Nord's EBITDA contributed by HRG, however, this does not reflect HRG minority's portion of the $247.4M of HRG's net liquidity. When factoring this in, it brings 100% of HRG up to 70% of Nord's total value. This means HRG shareholders should have been offered 76M shares of Nord which works out to an exchange of .363 Nord share for each HRG share (calcs linked below). Even this number gives zero value for the Prognoz property.
Nord's offer expires in one week's time. To date we have collected confirmations from shareholders with approx. 90.2M shares (10.73% of total HRG shares and 43% of minority) that they will not tender to Nord's offer. This includes shares owned in funds managed by Eric Sprott (HRG's largest minority shareholder). Nord would have needed 90% of minority to tender to the current offer in order to squeeze the rest out. With 43% of minority indicating they will not tender, this should prevent this from happening on the Nov. 27th expiry date. Also, since those holding over 10% of total shares have indicate they will not tender, Nord will not be able to use an exemption eliminating the requirement for a majority of minority vote in a second stage transaction. To use this exemption they would have needed to own 90% of total shares. Therefore, if Nord wants to continue its buyout effort and acquire all shares and vote the shares tendered to this offer, it will have to announce a subsequent amalgamation offer and complete the transaction within 120 days of the expiry of the current offer. Nord would need to call a special shareholders meeting with proper notice, which puts the earliest possible meeting dates around Dec. 31 - Jan. 2 range - depending on mailing and preparation time. At this meeting, only those voting in person or by proxy count. If a majority of minority is required, we may already be able to win this vote with the 90.2M shares if Nord cannot get a greater number to vote in its favour. However, to be certain we will be able to block, it would be best if we collect another 14.6M shares to garner ultimate majority of minority (104.8M shares). As with Nord's take-over attempt in 2009, there are certain funds that will not confirm their share counts or intentions, but will vote with us anyway. Therefore, I believe our numbers to be greater than stated above.
If any funds owning HRG shares have not contacted me yet, I encourage you to do so. Confirming that we have support of majority of minority will send Nord the message that they need to up their offer significantly. If we defeat this offer outright, we could see a significant increase in HRG's share price. In 2009, when we defeated Severstal/Nord's offer, HRG's share price tripled within 5 months of the offer expiry date.
Link to HRG Q3 results
Link to share swap calculations
Disclaimer: I have received written or verbal confirmations of shareholder counts from those that will not tender. If any of these shareholders have changed their mind, since sold their shares, or not been accurate in their statements, it will change the share counts stated above.
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