Russian billionaire aims for full control of High River Gold

In a story that reads somewhat like a 1980s spy novel, Russian gold miner Nord Gold, the nation’s third-largest gold producer, looks poised to finally gain full control of Toronto-based producer High River Gold Mines (HRG-T).

What makes the story interesting is that the Russian outfit has been attempting to nail down a 100% stake in the Canadian-listed company since 2009, and Nord Gold is controlled by elusive Russian billionaire Alexei Mordashov, who holds roughly 89% of the company, according to a June regulatory filing.

High River operates three gold mines with a focus on Russia and West Africa. The company’s assets include the Zun-Holba and Irokinda underground mines in Buryatia, Russia; the Berezitovy open-pit mine in Russia’s Amur region; and the Taparko-Bouroum open-pit mine in Burkina Faso.

Gold production from High River’s three operations totalled 368,000 oz. gold in 2011 at US$650 per oz. The company recorded net gold revenue of US$564 million, including cash flow from operations that totalled US$189 million.

High River is also developing its Bissa deposit 100 km north of Ouagadougou, Burkina Faso’s capital city. The US$250-million project is on pace to pour first gold in early 2013, and holds proven and probable reserves totalling 31 million tonnes grading 1.83 grams gold per tonne, for 1.8 million contained oz. gold.

Mordashov began amassing a stake in High River in 2008 when he completed a non-brokered private placement with the Canadian junior under the umbrella of OAO Severstal — Russia’s largest steel company, which is 82% owned by Mordashov.

Severstal bought 282 million shares of High River at a price of 16¢ per share, providing US$45 million for the Toronto-listed junior and granting Mordashov’s group a 50% interest in the company. Interestingly, High River billed the transaction as an equity financing, while Severstal stated it had acquired a “controlling stake in High River Gold.”

To close the financing, Severstal made it conditional on the resignation of High River’s president and CEO David Mosher, and subsequently replaced him with Severstal’s Nikolay Zelenskiy. The Russian company also added three of its own to High River’s board of directors, including: Roman Deniskin, Evgeny Tulubensky and Oleg Pelevin.

Mordashov has been wrestling the outstanding 50% of High River from shareholders ever since.

In June 2009, Severstal made a takeover bid for the remaining High River shares at a price of 22¢ per share, while closing another private placement with the Canadian company that raised the Russian interest to 57%. When minority shareholders opted to hang onto their High River shares, Severstal bumped its offer to 30¢, but the bid expired two months later, with only 28 million shares being deposited, raising Severstal’s stake to 62%.

 In 2010, Severstal’s gold subsidiary Nord Gold swooped in to grab 150 million shares of High River when Polenica Investments — an affiliate of Troika Dialog Group, one of Russia’s leading private investment firms — conveniently sold its 18% stake barely six months after completing a private placement with the Canadian company, worth US$57 million at 38¢ per share.

Coincidentally, Standard Bank had just acquired a 33% stake in Troika a few months earlier, and High River listed the impetus for the Polenica financing as “repaying US$27 million outstanding under the two credit agreements that were assigned by Standard Bank to Severstal as of April 20, 2008.”

The Russian outfit would bump its share of High River to 73% in mid-2011 by exercising various warrants and buying another 8.2 million shares at $1.29 per share.

In June 2011, Nord Gold would attempt another takeover bid, though by then High River’s share price had jumped to highs of $1.15, and shareholders controlling the 27% minority stake in the company refused to take the Russian company up on its offer for a second time.

By July 18, 2012, High River accounted for 51% of Nord Gold’s production and 30% of the Russian miner’s total gold reserves, and has provided Nord Gold with US$150 million in loans over the past six months. Yury Lopukhin, a former senior manager of strategy at Severstal, holds High River’s CEO position, and the Russian group is once again courting High River’s minority shareholders in a bid to consolidate its position.

On July 18 Nord Gold announced that 28% of High River’s minority shareholders had tendered shares and supported its bid. Nord Gold’s offer includes an option to convert High River shares into paper at a rate of 0.285 Nord Gold global depositary receipts (GDR) per share — trading on the London Stock Exchange at $5 per GDR — or $1.40 in cash per share.

According to the release the offer represents a 17% premium relative to Nord Gold’s and High River’s July 17 closing prices, and values High River at US$1.2 billion. Nord Gold is likely banking on most High River shareholders taking the equity option. A potential dilution would serve Nord Gold’s purpose, as the company has been attempting to diversify its equity holdings and score a premium listing on the London Stock Exchange.

Not surprisingly, High River jumped around the bid level on the news, trading 10 million shares en route to a $1.41 presstime close, which marked a 15%, or 18¢ increase. High River has 840 million shares outstanding for a $1.2-billion market capitalization.

Nord Gold sits on the London International Exchange with its country of issuance listed as the U.S. The Russian company has 360 million shares outstanding and a US$1.8-billion presstime market capitalization after closing the daily session at $4.95 per GDR.