UPDATE:Goldrush and High River cut the ties

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

Despite having thin cash reserves and no current exploration team, the Vancouver-based company will go it  alone rather than continuing to deal with High River’s new management.

The two companies had reached an impasse on negotiations over the modification of a three year old strategic agreement.

Goldrush’s president and chief executive Len Brownlie says High River’s new management – who came in earlier this year with the arrival of Russian-based steel giant Severstal as majority shareholder – 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 focused on 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, any corporate communications with the company is now done 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 rumored to be preparing an initial public offering (IPO) in London.

The original agreement between the two companies gave Goldrush permits to a large swath of gold exploration ground in Burkina Faso that were explored by High River geologist with High River maintaining certain back-in rights.

And 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 I that was viewed negatively by the market.”

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

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

The $159,699 sum comes from administrative charges due 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 a minimum expenditure requirement on exploration grounds and that during the financial crisis, when funds were tight, Goldrush was unable to meet all of its commitments.

All of the 29 permits in question have since been returned to the government except for five, which were held on to by High River.

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 is holding.

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

In its most recent quarterly report, however, Goldrush said the amount required for the permits is beyond its resources, and that if negotiations didn’t go well it could result in its inability to maintain and develop its properties in Burkina Faso.

The original deal between the two companies was announced back in 2006 and gave Goldrush 21 of High Rivers exploration permits that covered 4,690 sq. km of gold prospective land 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 six km northwest of the High River’s Bissa Deposit.

Ronguen has 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. 30th 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 which put its solvency at risk, the very company that saved it from creditors – Severstal – has won few fans amongst the company’s shareholders.

Severstal had attempted to takeover High River outright in the summer for 30¢ per share. But shareholders rallied, arguing that two producing gold mines that will turn out close to 300,000 oz. of gold 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.