High River Gold Mines may get bail out from Severstal

Financially strapped High River Gold Mines (HRG-T) says its largest shareholder, Russian steelmaker Severstal, has expressed a non-binding interest in making a cash offer of C18 per share to minority shareholders.

Severstal has already provided significant support to High River Gold, including a private placement of US$45 million in November last year and the reassignment in April of loans in default amounting to US$27 million.

The troubled gold miner said there “can be no guarantee” that such an offer will be made but that without further financial support, High River’s board “believes that the outlook for the company remains uncertain.”

Total scheduled principal and interest debt repayments due in May and June amount to about US$15.5 million, with about US$22 million additional repayments due in the second half of 2009.

“The Board of High River has formed a special committee consisting of independent directors to oversee discussions with Severstal and evaluate any proposal that may be made,” the company said in a statement.

In the first quarter of 2009, High River Gold reported that its current and long-term debt levels fell to $175.8 million in the first quarter from $188.1 million at the end of 2008.

The Toronto-headquartered company with gold operations in Burkina Faso and Russia also reported that cash flow from operations moved out of the red to $29.7 million in the first quarter, while it cut its working capital deficit from $42.1 million at the end of 2008 to $29.7 million in the first three months to Mar. 31.

Cash and equivalents increased to $25 million from $19.1 million at the end of 2008.

The struggling mining company also managed to pare down its operating and non-operating cash costs to $572 per oz. in the first quarter, down from $670 per oz. in the first quarter of 2008.

Consolidated debt outstanding at the end of April reached about $122 million (down from $137 million as of Mar. 1), including US$54 million under loans between Nomos Bank and High River’s Russian subsidiaries, Buryatzoloto and Berezitovy; US$27 million under a loan agreement between Royal Gold and High River’s subsidiary, Somita SA; and about US$27 million under loan agreements between Severstal and High River and Somita SA (this loan was previously held by Standard Bank and assigned to Severstal on Apr. 20).

At mid-day in Toronto, High River was trading down 17.4% or 4 per share at 19, with 4.9 million shares changing hands.

The company has a 52-week trading range of 4-$1.91 per share with 590.2 million shares outstanding.