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By John Helmer, Moscow

It has taken Alexei Mordashov (image lower right) three and a half years to persuade shareholders of Toronto-listed High River Gold (HRG) to accept his takeover of the company. That’s the longest foreign defence against a Russian takeover in the oligarch record-book. But when the count was completed on December 11, Mordashov’s victory was still a close-run thing. What has happened is that most of the holdout shareholders opted to take cash for their shares, and abandon the business, rather than accept a swap of their HRG shares for shares of Mordashov’s larger goldmine holding, London-listed Nord Gold.

Mordashov has the company he wanted, but not with a vote of confidence in his or his goldmining future. In the process, not a single Canadian court, Canadian stock market regulator, nor even a Canadian newspaper reporter took the side of the minority shareholders. They have included Sprott Asset Management, one of Canada’s leading independent fund managers; according to its latest performance sheet, its investments in gold and precious metals stocks have been bleeding red for the year to date, the full year, and indeed for the past three years.

The announcement from Nord Gold, issued on December 10, says that with the expiry of the extra time it offered to the minority shareholders to sell or swap, it had “acquired an aggregate of 192,039,770 High River shares under the Offer, representing approximately 91.6% of the High River shares held by shareholders other than Nordgold as of the commencement of the Offer. Nordgold now owns 822,667,242 shares of High River, representing approximately 97.9% of the issued and outstanding High River shares.” The small remainder will be acquired on the same terms within the next quarter, according to a statement from Nikolai Zelenski, the chief executive of HRG. The share price of Nord Gold has fallen 10% on the victory. The HRG share price continues to hover a cent below Mordashov’s takeover offer price of C$1.40.

The cost to Mordashov of this round of acquisitions, including the 2.1% leftovers, will come to about C$200 million.

“On our side,” said Chris Charlwood, one of the leaders of the Canadian resistance to Mordashov, “those holding 101.4 million shares or 48.4% of minority did not tender to the offer. It was a very close race with us short of majority by 3.4 million shares. Since Nord Gold already received a majority of minority shares by way of tender, they will vote these shares in favour of the subsequent transaction. This guarantees the transaction will proceed and the rest of the HRG minority will be squeezed out.”

On August 1, 2008, the Alfa Group had proposed to buy HRG shares at C$1.79, in a deal that was intended to boost the gold and other hard-rock assets of the Alfa mining division headed by shareholder Alexei Kuzmichev and chief executive Alexei Mikhailovski. At the time Mikhailovski said: “Alfa Group’s investment in High River is strategic for Alfa Group as High River has created a solid foundation for growth to the next level. High River has been successful in accumulating an impressive portfolio of precious metal assets both in production and in the advanced exploration phase.” That was just before the financial collapse of the group’s telecommunications unit Vimpelcom. Desperate for liquidity, Mikhail Fridman, Alfa’s control shareholder, overruled Kuzmichev, and ordered him out of the goldmining business, and leaving just a small nickel operation in Cuba.

Mordashov stepped into HRG in Fridman’s stead. The share price had dropped from a year high of C$3.37 to a low of 6 cents. But Mordashov’s first offer to the HRG minorities in May, the following year, was just 8 cents. That was then increased to 22 cents, and when that failed, to 30 cents on July 28, 2009. The case against Mordashov’s buy-out was that HRG was worth much more to Nord Gold than Mordashov was willing to pay for, and thus the minorities rallied behind rejection of his offer until he raised it. But Mordashov refused to go above the C$1.40 offer proposed on July 18, 2012.

That proved enough, but the majority of the hold-out minorities, 65%, decided to take the money; 35% opted for a swap of their HRG stock for Nord Gold shares. Mordashov had struck private lock-up agreements with several institutions, so the popularity contest which followed for the remaining small stockholders was a nose-holding affair. “Very few, other than those locked up, tendered for Nord Gold shares,” reports Charlwood. “This would indicate a lack of trust in how Nord Gold would treat its future minority shareholders, the extreme trading costs on the LSE from Canada, lack of liquidity of Nord Gold itself and investors not wanting to trade shares of a high performing HRG into the mediocre performance of Nord. At a 15% float, they are still a far way off from the 25% needed to get a main LSE listing, which would in theory drive liquidity.”

“This is a very disappointing result for us after years of fighting for the fair value of HRG. HRG is a company with strong assets and an impressive balance sheet. It is a shame to see it diluted by combining it with a far less impressive company. Having said this, I do believe that our collective resistance over the years has resulted in Nord Gold paying almost 8 times the original intended price of $.18/share.”

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