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Home / News / Today's Headlines / Severstal: Offer to High River Gold Shareholders

10.06.2009

Severstal: Offer to High River Gold Shareholders

(Severstal) - ZAO Severstal Resources (“Severstal”), the mining division of OAO Severstal (LSE: SVST; RTS CHMF), announces cash offer (the “Offer”) to minority shareholders of High River Gold Mines Ltd (“High River” or the “Company”) priced at CDN$0.22 C per share.

 

OFFER HIGHLIGHTS

• The Offer represents a 14.6% and 32.3% premium to the 30-day and 60-day volume-weighted average prices per share for High River common stock as quoted on the Toronto Stock Exchange

• The Offer is not subject to minimum acceptance conditions such that share holders can achieve the certainty of a cash price for their shares should they wish to tender into the offer

• Prior to the Offer, Severstal will acquire 59.02 million shares in High River at a price of CDN$0.18 per share via a private placement  (the “Private Placement”), taking its total shareholding in High River to 57% of the total outstanding common shares

•The proceeds from the Private Placement will be used by the Company to repay US$10 million in debt due on June 12, 2009

• The Offer has been unanimously recommended to shareholders by the Board of Directors of High River and the Special Committee of High River, convened to oversee discussions with Severstal as previously disclosed by High River on 22 May, 2009

•The Private Placement and the Offer will be subject to customary conditions, including the completion of definitive documentation

•The Private Placement is expected to close on or about June 12, 2009 with the Offer to remain open for minimum of 35 calendar days following a mailing of the shareholder circular by Severstal expected on or about June 20, 2009

 

BACKGROUND TO OFFER

Severstal acquired a 53 percent interest in High River in November 2008, when it acquired 282.2 million shares via a private placement pursuant to a review of strategic alternatives conducted by High River in order to address its operational and liquidity difficulties.

The proceeds from this private placement were used by the Company to repay approximately US$25 million in bank debt and to provide working capital for ongoing operations.

Following the private placement to Severstal, High River continued to face operational difficulties and its liquidity position deteriorated as detailed in the High River Toronto Stock Exchange releases throughout the first quarter of 2009.  As previously disclosed on 30, March 2009, the ability of the Company to continue as a going concern was dependent on the results of ongoing discussions with the Company’s lenders, ongoing accommodation of the Company’s trade creditors, the establishment of the steady production at the Taparko-Bourum and Berezitovy mines and obtaining additional financing.

Despite the Company’s continued efforts to negotiate with its creditors, in April 2009, following a demand of Standard Bank plc, approximately US$27 million of debt under two credit agreements between Standard Bank plc and High River or its affiliates was assigned to OAO Severstal, which agreed to this assignment in order to prevent immediate default due to the breach of certain covenants  and assist the Company with its liquidity position. To date, this debt continues to be in default.

Despite the additional liquidity provided by Severstal and High River’s efforts to improve its operational and financial performance, the Company continued to experience difficulties at the Taparko and Berezitovy mines with the mills still continuing to underperform.  This has contributed to High River’s difficult liquidity position which may not be sufficient to fulfill the Company’s future debt obligations including approximately $10 million in debt to Nomos bank due on June 12, and the $27 million in debt assigned to Severstal by Standard Bank plc which is currently in default.

Following the November 2008 private placement to Severstal, High River is also currently undergoing a TSX delisting review with results expected to be received shortly.  In order to conduct this review, the TSX takes into consideration operational stability of the Company, its liquidity position and its ability to operate as a public company among other factors.  At this time, there is no assurance that the Company will remain listed on the Toronto Stock Exchange.

In light of the on-going operating and financial difficulties of High River and the TSX delisting review, Severstal has decided to extend an offer to all minority shareholders which allows them to exchange their shares for cash should they wish to do so.

This Offer is not conditional upon receipt of any given level of acceptances.

 

ENDORSEMENT OF THE OFFER

Severstal’s Offer falls within the valuation range prepared by the Independent Advisor to the Special Committee and has been unanimously recommended by the Board of High River and its Special Committee.

Given the uncertain financial position and outlook for High River, Severstal has decided to make the Offer unconditional with respect to the level of acceptances so that all minority shareholders who wish to realise a cash price for their shares can do so with certainty.

Alexey Kulichenko, CFO of Severstal Resources division said:

 “High River Gold has had a difficult year, and Severstal has supported the Company financially to the best of its ability.

 Following substantive discussion with High River’s Special Committee and feedback from shareholders, we now feel that it is appropriate to provide shareholders with the certainty of a cash offer for their shares."

- Copyright 2009, Severstal. All rights reserved.  

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