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By John Helmer, Moscow

The Canadian valuer hired to provide an independent valuation of High River Gold (HRG) for Nord Gold’s takeover offer appears to be recommending a higher price than Alexei Mordashov, owner of Nord Gold and 75% shareholder of HRG, wants to pay, leaving the takeover in limbo.

Paradigm Capital’s research department, headed by Daniel Kim of Toronto, has been working on the valuation since July, when Nord Gold announced a share swap or cash purchase equivalent to C$1.40 per share of HRG. That valued HRG at C$1.18 billion. To consolidate the minority shareholders, and absorb HRG entirely into Nord Gold – with the aim of lifting the latter’s struggling share price and worsening financial performance– Mordashov with 75% of the HRG shares in hand needs to have his bid accepted by another 15%. If he can reach or cross the 90% stake threshold, under Canadian takeover rules the remaining shareholders can be squeezed out by a mandatory buyout. As told in this sequence, the opposition to Mordashov has been successful so far in denying him the prize.

Paradigm Capital was engaged three years ago to recommend the “fairness” of an even lower takeover price for HRG. Commissioned to do the job over again, the Toronto firm should take around three months to complete its task and report to the HRG board. Voting by shareholders to accept the report must exclude the control shareholder’s votes, and in favour there must be a majority of the minority remaining out of Mordashov’s hands. The opposition, which includes Sprott Asset Management, still have enough votes for the veto.

On August 24, Nord Gold acknowledged in a financial report that it had gotten acceptances for just 7.13% of the HRG shares. That leaves them 8% short of the threshold, and far short of the takeover. In that release also, Nord Gold said “the transaction continues to proceed according to our timetable. We expect High River to have completed its independent valuation report shortly, after which a formal offer and take-over bid.”

Nord Gold chief executive Nikolai Zelenski was asked yesterday morning in Moscow what exactly his timetable is and how soon shortly is. His spokesman, Diana Anosomova, replied she would send the answer as soon she could get it. That wasn’t soon, and this story was published.

After it had appeared, Yulia Fedorinova, a Bloomberg reporter at a Moscow mining conference where Zelenski was speaking, noted that he was asked if he is planning to raise the Nord Gold offer price for HRG. His reply she understood to mean no. Late in the afternoon Bloomberg ran a brief report saying: “Nordgold NV’s official offer for High River Gold Mines Ltd. (HRG) will be made ‘soon’, ‘definitely by the year-end’, and is ‘fair’, Chief Executive Officer Nikolay Zelensky told reporters in Moscow”. The headline was “Nordgold Official Offer for High River Gold Is ‘Fair’”.

An earlier version carried a headline that cannot be retrieved, but Bloomberg is now reporting the correction which explains what it was: “(Corrects headline to cut reference to keeping same bid.)”. The time was 8:14 in the Moscow evening. In Toronto, it was 12:14 in the afternoon – time for stockbrokers, their clients and tipsters to start stirring their lunchtime cocktails.

Fedorinova was asked what the circumstances of her conversation with Zelenski had been. She replied: “I just asked Mr Zelenski if Nord Gold may rise the offer. The answer was that the terms they announced in July are fair and that they are preparing an offer to send to HRG holders. He declined to comment when this ‘soon’ may happen. I regret if the story is confusing. As you noticed I have corrected it, because initially for me if the guy says the offer is fair (whatever he means), this means he will keep the bid. But since he didn’t say it directly, after some consideration we have corrected.”

Bloomberg declines to say if Zelenski asked for the change in the published text in order to remove the impression he had given the reporter that whatever valuation Paradigm reports to HRG, Mordashov won’t change his offer.

Canadian experts believe that since Paradigm Capital had already assessed and reported on HRG in 2009, a five-month delay for another valuation until the end of the year is unusually long. Kim of Paradigm, and the chief operating officer Michael Noland, were asked to explain the reason for this delay. They were also asked to confirm if their interim valuation has been discussed with HRG, and whether that includes a higher valuation than would justify the offer price of C$1.40. There has been no reply.

While Zelenski and Bloomberg were considering whether to change the story headline, the Toronto stock market was in afternoon trading. What happened next can be read from this chart, showing that at afternoon tea time HRG was at C$1.38, and in less than an hour it was down to C$1.31, a 5% fall.


The chart also reveals the role played by Morgan Stanley as one of the drivers of the selloff and the price decline. Just how big and determined a seller of HRG Morgan Stanley has been can be gauged from this next chart, showing the bank’s positions in HRG from September 13 through October 3. The broker code #53 in the chart stands for Morgan Stanley.

If Morgan Stanley had an inkling that Paradigm is recommending the rejection of Mordashov’s offer because it is too low, and that Mordashov will not accept this, then the selloff of HRG may have been based on inside knowledge. Noone is suggesting that Morgan Stanley, with whom Jack Wadsworth of Paradigm Capital’s advisory board has been associated, also as an advisory director, would do a discreditable thing like that. Not Morgan Stanley in Canada, where it recently attempted to flog Mikhail Prokhorov’s Intergeo shares to unsuspecting buyers. Not Morgan Stanley in London and Moscow, where it has been the nominated financial advisor, underwriter and money-losing promoter of Nord Gold shares.

A source close to the charted Toronto trading has a different hunch of how Morgan Stanley is mixed up in this business. “Mordashov via proxy through Morgan Stanley is sending a message to HRG shareholders, and it says ‘you will take what I offer, or else see what I can do!’ The response of HRG’s minority stockholders will be to scream murder at the OSC [Ontario Securities Commission] to finally do something. I believe Mordashov has done something very stupid, and has left a trail which can be followed.”

Mordashov was asked whether there has been any change in his direct and indirect shareholding in HRG since the July proposal was issued, and whether he or any of his associates had instructed Morgan Stanley to sell HRG shares this week. His spokesmen argued about who is responsible for him, for Nord Gold, and for the Severstal group’s mining division, but there has been no authoritative response by publication time.

One of the active minority shareholders organizing the opposition to Mordashov’s offer says: “either they are having trouble with the low valuation report or they want to buy more time to convince funds to convert to their Nord shares. By the looks of it, no one is willing to do that, except those already locked up.”

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