Goldrush Cuts Ties With High River

Goldrush Resources (GOD-V) is calling it a day with High River Gold Mines (HRG-T).

Despite its thin cash reserves and current lack of an exploration team, Vancouver-based Goldrush will go it alone rather than continue to deal with High River’s new management.

The two companies had reached an impasse in negotiations to modify a three-year-old strategic agreement.

Len Brownlie, Goldrush’s president and chief executive, says High River’s new management — who came in earlier this year with the arrival of Russian-based steel giant Severstal as a majority shareholder — has brought a different focus to High River.

Where once the company was keen to work hand-in-hand with Goldrush to develop exploration ground in Burkina Faso, High River is now more squarely aimed at being a gold producer, and its relationship with Goldrush has suffered.

“It became a different relationship, unfortunately,” Brownlie says. “The distance, the language, although they all speak perfect English, it’s still a different culture.”

While officially, High River’s head office is still listed as Toronto, corporate communications with the company are now conducted through Moscow.

High River’s recently appointed chief executive, Igor Klimanov, is also the manager of strategy and corporate development at Severstal Gold — a company rumoured to be preparing an initial public offering (IPO) in London.

The original deal between the two companies was announced back in 2006 and gave Goldrush 21 of High River’s exploration permits covering 4,690 sq. km of gold-prospective land in Burkina Faso, with more permits subsequently added to the agreement. High River maintained certain back-in rights on the concessions.

While Goldrush loses the exploration team it had through High River, it gains the ability to decide its own fate.

“We’re free to acquire ground without a back-in right now,” Brownlie says. “Before, any ground we had in Burkina carried a back-in right, and that was viewed negatively by the market.”

But disagreements over Goldrush’s liability for certain exploration ground remain unresolved.

It had been negotiating with High River on $159,699 of the accounts payable sum as recently as November, but its break with the company leaves the status of the liability in question.

The $159,699 sum comes from administrative charges owed to High River in connection with exploration work done from 2007 to 2008.

Also key to the former negotiations was the money shortfall in connection to certain exploration permits — which have since been returned to High River.

Brownlie explains that the Burkina Faso government has minimum expenditure requirements on exploration grounds, and that during the financial crisis, when funds were tight, Goldrush was unable to keep up on all of its expenditures.

It returned 29 permits to High River, and of those, 24 were returned to the government with High River holding onto five.

And while the government has made no demands on any company to make up for the shortfall in expenditures, High River wants Goldrush to pay for the shortfalls on all 29 permits, not just the five it retained.

Brownlie had no estimate for the total sum High River is demanding.

In its most recent quarterly report, however, the company said that the amount required for the permits is beyond its resources, and that if negotiations didn’t go well, it might not be able to maintain and develop its properties in Burkina Faso.

For the permits, Goldrush issued 6.5 million shares common shares to High River and gave it a $1.9-million non-interest bearing loan that is due in 2011.

The deal also gave High River a one-time right to purchase a 50% interest in each property at a cost of 1.5 times Goldrush’s expenses, whereupon a joint venture would be formed with High River as operator.

The best discovery to come from the arrangement was the Ronguen deposit, which is part of the Kindo Group, located only 6 km northwest of High River’s Bissa deposit.

Ronguen, which Goldrush has hung onto, hosts an inferred resource of 5.9 million tonnes grading 1.31 grams gold for 249,000 oz. of gold.

Goldrush estimates that High River’s back-in rights on Ronguen would cost it roughly $4.8 million.

Brownlie says Goldrush’s next step will be to raise capital and assemble an exploration team so that it can advance Ronguen with an in-fill- drilling program.

As of Sept. 30, the company had just $128,808 of cash in its coffers and $250,402 in accounts payable under its current liabilities, so expect it to turn to the market for financing soon.

As for High River, while the company seems to be emerging from the massive debt issues that put its solvency at risk, the very company that saved it from creditors — Severstal — has won few fans among the company’s shareholders.

Severstal attempted an outright takeover of High River this summer, offering 30¢ per share. But shareholders rallied, arguing that with two producing gold mines that will turn out close to 300,000 oz. of gold a year, the company was surely worth more.

Severstal’s offer was rebuked, and the Russian company had to instead settle for increasing its stake in High River to 61.7%.

The company makes no mention of Severstal’s failed takeover bid on its website, and issued no press releases in connection to the event.