High River Gold Mines (HRG-T) has agreed to a share-swap deal that will see its stake in Russian gold producer Buryatzoloto climb to 63.1%.
Under the deal, High River will exchange around 11.8 million of its own shares for 800,000 Buryatzoloto common shares plus 200,000 preferred convertible shares held by the European Bank for Reconstruction and Development (EBRD).
The deal is valued at about $15.9 million based on High River’s closing price of $1.35 on the Toronto Stock Exchange on Aug. 25.
High River currently owns a 54.1% (or 51% on a fully diluted basis) equity interest in Buryatzoloto. The latest agreement requires regulatory approval in Russia and Canada.
In mid-June, High River shareholders approved a plan to issue up to 30 million shares to acquire shares in Buryatzoloto at a rate of 11.76 High River shares per Buryatzoloto share; if all the shares were issued, High River’s stake in the Russian miner would come to 84% on a fully diluted basis.
High River is also in talks aimed at selling Buryatzoloto a half-interest in the Berezitovy gold project in the Amur Region of southern Siberia. A bankable feasibility there pegged the internal rate of return at 21.9%, based on a gold price of US$400 per oz. The open-pit mine is expected to reach a commercial production rate of 100,000 oz. per year by 2006. The estimated initial capital cost comes to US$59 million, including US$9 million in recoverable value-added taxes. The mine is expected to run for nine years.
Buryatzoloto owns the Zun-Holba and Irokinda underground gold mines in the Republic of Buryatia in southern Siberia, as well as a small placer operation.
Buryatzoloto first-half gold production slipped slightly from a year earlier to 73,011 oz., as total cash cost climbed by 30% to US$236 per oz. The higher costs reflect substantial mine development, the transition to shaft mining using a cut-and-fill method at Zun-Holba, and a stronger Russian rouble. The company realized an average of US$400 for each oz. of gold sold during the period. The company expects to produce 150,000 oz. during all of 2004.
Earlier this summer, Buryatzoloto initiated a dividend of 21 roubles, 87 kopecs for each of its 413,010 class A shares, and 2 roubles, 60 kopecs for each 6.8 million common shares to holders on record as of May 17, 2004. The dividend payment totals around US$920,000, based on a rouble -U.S.-dollar exchange rate of 29.1 to 1. High River’s share of the payment is about US$330,000.
For its part, High River’s attributable gold production for the first half fell by about 10% to 54,072 oz. owing to lower production from the 50%-owned New Britannia mine in Manitoba, which is nearing the end of its life. Total cash costs rang in at US$265 per oz., up from US$222 per oz. a year earlier.
At the halfway mark, High River’s net income totalled $3.2 million (or 3 per share) on revenue of $51 million. Cash flow from operations before changes in non-cash working capital was $9.9 million. At the end of June, the company had debt of $25.1 million.