Chris Charlwood

June 30, 2009 13:46 ET

To All Minority Shareholders of High River Gold Mines Ltd.

VANCOUVER, BRITISH COLUMBIA--(Marketwire - June 30, 2009) -

You have received or will soon receive an offer from Lybica Holding B.V., an affiliate of ZAO Severstal Resources, the mining division of OAO Severstal, by way of a take-over bid, to buy all of the issued and outstanding Common Shares (excluding the Common Shares currently controlled by Severstal) for cash at a price of C$0.22 per Common Share. You have the choice to tender or not tender your shares at this price by July 31. There is no minimum tender requirement, so if you tender, you will have sold your shares to Lybica and it will be obliged to take up and pay for your shares.

I am writing on behalf of a group of minority shareholders to advise you of our rationale as to why you should NOT tender your shares. We view this price as extremely opportunistic and it dramatically undervalues High River Gold Mines Ltd. (HRG). We believe that the company is worth significantly more. We have received 3 different summaries of value based strictly on the opinions of one institutional shareholder, one minority shareholder and one analyst. Minority Shareholders should carry out their own valuation research carefully and come to their own conclusions of value. Minority Shareholders who are in doubt as to how to respond to the offer should consult with their own investment dealer, stockbroker, bank manager, lawyer or other professional advisor. Minority Shareholders are advised that acceptance of the Offer may have tax consequences and they should consult their own professional tax advisors. To summarize the value ranges of the 3 sources, HRG should be trading in a range of $.65 - $2.44 (the $.65 target being at a 50% discount). This compares to Lybica's offer of $.22.

In the press release announcing the proposed offer, HRG states that "The Special Committee of the independent members of the Board of Directors of the Company have unanimously determined that the Offer is fair to minority shareholders and is in the best interests of the Company and Paradigm Capital Inc., acting as an independent appraiser, has provided a valuation and fairness opinion to the Special Committee that the consideration under the Offer is fair, from a financial point of view, to the Company's minority shareholders. Based on this conclusion, the Board of Directors (with Severstal nominees abstaining) unanimously recommends that shareholders accept the Offer."

We strongly disagree with the above statement. Firstly, we question the degree to which the independent committee is truly independent. With a significant number of directors on the Board associated with Severstal, we are concerned that this price has been determined more with Severstal's interests in mind and not the minority shareholder's. In reaching their conclusion, we cannot understand how Paradigm found that $.22 is fair when in their own report the share price ranges go as high as $.58. We are concerned that the securities laws and the processes mandated by the Toronto Stock Exchange and the Securities Commissions have been employed to give the appearance that a fair and objective process was followed when in fact the result, from the point of view of the minority shareholders, is far from fair. We believe that the debt of the company is manageable based on current company cash flows and as best as we can understand, the Board of Directors and Management have made no concerted effort to raise new money or refinance current debts from third party lenders. In fact, as disclosed in the Director's circular, an offer was made by a third party for $50M in financing on June 2nd, but was rejected and replaced by an opportunistic financing with Severstal. Please see the quote copied from the circular below and pay attention to the end of the last sentence:

"the Special Committee received a non-binding expression of interest regarding an alternative transaction that included a US$50 million loan. The Special Committee met on June 2, 2009 with its financial and legal advisors to consider the expression of interest and review the status of the valuation work. The Special Committee met again on June 3, 2009 to consider the alternatives and receive an update on the valuation work. The Special Committee evaluated the alternative transaction contemplated by the expression of interest but concluded that the proposed terms were onerous from a financial perspective and highly conditional and that completion of such a transaction was highly unlikely due to the immediacy of High River's near term financial obligations and Severstal's required approval of such transaction."

In Q1 2009, the company reported a $1M profit and $29M of positive cash flow. This included servicing the debt and included a $22M foreign exchange loss. We believe that in Q2, HRG will report very little foreign exchange loss and maybe even a gain. Also, we believe that with improved mining operations, the company will have higher revenues than in Q1. In fact, there are some minority shareholders that believe that this company will cash flow over $100M in 2009 and can be debt free in the next 24 months.

High River Gold Mines Ltd. recently announced that it has closed its previously announced private placement of 59,019,367 Common Shares of the Company. Lybica Holding B.V., an affiliate of ZAO Severstal Resources, the mining division of OAO Severstal purchased the Common Shares for a price of $0.18 per Common Share for total aggregate gross proceeds to High River of $10,623,486.06. As a result of the private placement, Severstal controls 371,790,497 Common Shares representing approximately 57.3% of the outstanding Common Shares. We minority shareholders control approximately 42.7% of the company with approximately 277, 058,538 shares. In order to keep Severstal from forcing a going private transaction, more than 27M shares need NOT be tendered. If we would like the High River Gold Board and Management to keep the company public and run it for maximum shareholder value, we need to have close to 140M shares NOT tender to any low price. This will serve to block future transactions which could force out the minority shareholders at a low price. I am currently aware of shareholders representing up to 125M shares that will not tender to this offer. Therefore, we only need another 15M shares that will not tender. Please sign the letter being mailed out in a package (over next few days) saying you will not tender at $.22 and indicate what price you would tender at. (An article today on Bloomberg stated that 4 funds controlling over 10% of the shares of HRG want to see Severstal's offer raised fivefold - over $1/share). These letters are important to make an accurate share count that will not tender. If we are successful, we may be able to negotiate with Severstal with the weight of the share count.

United we can work together to achieve a fair transaction for High River's minority shareholders or, alternatively, we can encourage the HRG Board to run this public company for optimum value to ALL shareholders . With the price of gold nearing $1000/oz and predictions of significantly higher prices, the opportunities for HRG look very positive on a stand alone public company basis.

If you would like to follow what is happening regarding this bid, you are welcome to join (for free) and monitor the High River Gold 'Boards & Blogs'.

As this is a press release only, you will be receiving a full package in the mail shortly, including the letter to sign and 3 valuation opinions. If you would like to receive this full package sooner, please send request to e-mail below. If you believe you have opted to not to be identified as a shareholder of HRG through you brokerage house, then also, please send e-mail request as you will not receive the package in the mail.

Thank you for your attention to these matters which affect us all. Send signed letter to:

HRG: Reject Severstal bid
900-1199 West Pender St.
Vancouver B.C. V6E 2R1
604-718-2638 fax

Sincerely, (on behalf of a group of minority shareholders)

"Signed: Chris Charlwood"

Chris Charlwood, Investor

Ryan Dodd, Investment Manager of Sayan Investments Limited

D. Richard Casnig, Huronia Finance Corporation

William J. Thomson, Investor

Roy Cavalieri, Executive Director, Huronia Finance Corporation

Saif A. Siddiqui, Investor

Thomas A. Shields, Investor

James Yii & family, Investors

Chieng & family, Investors

Rene Marcotte, CGA, Investor

Contact Information

  • Chris Charlwood