HRG vs. Nord 2011 cont'd8 Apr 2012 18:34
Alexei Mordashov, who owns approx. 82% of Severstal and approx. 89% of Nord, recently stated to the media that Nord could increase its share float (currently approx. 10.6%) by swapping shares with HRG minority. On Nord’s conference call, Mr. Zelenski confirmed this was one way to increase liquidity and another was for Nord to merge with another publicly traded gold company to combine the floats. In a recent article linked below, Zelenski insinuated that they may make an offer after the resource update in April. He suggested such a swap would increase Nord’s float to 20%. In other words, Nord is considering offering HRG shareholders approx. 9.4% of Nord’s shares.
If Nord wants HRG minority to swap shares, they will need to entice us with a much more attractive offer. HRG minority have observed the very low trading volumes of Nord Gold and note it is very expensive and time consuming using international brokers to trade LSE shares vs. TSX shares. Although a share swap may increase Nord’s float, the majority of HRG shareholders would not be sellers of Nord shares until they see a significant increase in the price. This situation would be similar to the existing Nord shareholders not selling at these low prices after swapping for Severstal shares. In essence, contrary to Zelenski’s belief, Nord’s stock liquidity problems would continue. As such, many minority shareholders are resistant to any share swap proposals. Since HRG minority own 25% of HRG, at a minimum of 50% of Nord’s value, minority would require 12.5% of Nord’s shares post swap (51M shares at 4 to 1). However, with HRG’s EBITDA making up 54% of Nord, profit making up 68% and a $730M gap between Nord’s $400M debt and HRG’s $330M liquidity, HRG is likely worth over 60% of Nord’s value. For example, at 50% of Nord’s value (12.5% of Nord’s shares) plus HRG minority’s portion of HRG’s cash, you get to 15.4% of Nord’s shares for HRG minority (65M shares or close to a 3 to 1 share swap). See link below. Another option for Nord would be to dividend out HRG’s $330M cash before doing a 4 to 1 share swap. Before minority even consider a share swap proposal, we want to see a better plan for increased liquidity of Nord’s shares and updated resource estimates for Buryatzoloto and Prognoz. Also, any share swap proposal would need to include a TSX co-listing and be a non-taxable event.
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