Hi mrb,
I did a chapter on Medinah recently called “Stink bids and the ‘if….then approach’”. Stink bids are basically good til cancel buy orders that last for 60 days. You place them well under the current highest bid and hope for the best.
What convinced me to use these is what happened on Nov. 1 of 2019 to the Medinah market. The market was creating a nice bottoming formation at the time at about $0.0016 and all of a sudden on a Friday afternoon (when many were heading out of town) with 5 minutes to go in the trading day somebody dumped 26 million shares and took out bid after bid all of the way down to the $0.0005 level. My “stink bid” got about one-third of these shares unbeknownst to me until a day or two later.
Clearly the seller did not care at all at what he got for his shares. I sense that this was a forced “sell out” by a broker/dealer but I have no proof of that. The recent month end might have something to do with it. When these occur, typically the market would migrate back to the $0.0016 level after a day or two. This did not occur in Medinah’s case. Instead the $0.0005 to $0.0006 level became the new norm. There was zero resilience in the market as if it was in a coma and in a sense it is. The participation level on this forum has pretty much fallen out of bed. Except for a handful of us nobody is currently watching. “Stink bids” are good for busy people that can’t be glued to a computer screen all day long.
The ”if….then approach” is Medinah specific. For me, the safest bet on the planet right now is that gold is going much higher. So where can I get the most bang for the buck? The new gold producers fetch a higher EPS multiple than the majors because they are the only ones that can create truly dynamic growth profiles. Maurizio hinted at this phenomenon back at the informational meeting in Las Vegas. At one moment he was projecting an initial level of 25,000 ounces of gold production. Minutes later he was talking about becoming a “mid-sized gold producer” in the not too distant future. The concept has to do with the ability to generate a low “PEG” ratio. This is the price earnings multiple divided by the growth rate. If an early producer can fetch an EPS of 30 times earnings and if it can grow at 30% per year then its “PEG” would be 1.
Because of these realities, the “if….then approach” for Medinah specifically would be IF Medinah can prove to me that it is about to go into gold production THEN I’m going to end my “stink bid” approach and be much more aggressive on my buying. In my opinion, the first triple should be relatively easy because the share price shouldn’t have gone to $0.0005 just because somebody dumped 26 million shares in a 5-minute stretch at the close on a Friday afternoon. As the share price “retraces” technically there shouldn’t be a whole lot of “back-filling” in this range. Medinah’s share price should be out of its “coma” after announcing going into gold production. Note that if Medinah didn’t have any early gold production opportunities on site and if gold hadn’t gone up in price by about $500 since management made its production projections then this approach wouldn’t make much sense. If the Covid-19 virus never occurred and if the Central Banks didn’t flood the system with an endless amount of cash WHEN THE DEBT LEVELS WERE ALREADY OUT OF CONTROL then it might not make as much sense.
So how can Medinah convince me that it is indeed ready to go into gold production?
- They’re about 3 years behind the earlier projected schedule because SERNAGEOMIN made them fabricate 3 ventilation/safety raises i.e. in other words they’re way overdue. A positive production decision has already been made otherwise they wouldn’t be fabricating those raises.
- In December of 2018 management announced that the 3 raises were nearing completion. But this still leaves the final production permitting process and addressing any deficiencies found.
- About 9 months ago they announced the hiring and appointment to VP of Engineering of an operations firm (Dumas Contracting) that contracts out to mining personnel.
- For me, any announcement that a formal production permit is in hand would be highly suggestive of near-term production. Why? Because there could be close to $1,000 per ounce in margins available now due to the POG being where it is and the price of oil being where it is.
- Any announcement that the AUMC share unrestricting, allocation and distribution is about to commence would be critical. Why? For the life of me, I can’t imagine a new gold producer going into production right now with all that is going on with only 5% of its shares in a free-trading status.
- In the Larrissa Adit (“Adit #3”) high grade ore has already been reached and identified. The ultra-high grade found in “Vein 2A” may or may not have been intercepted during the construction of the 3 raises. Quite a while ago, management sensed that they were within 20 meters of this highly sought-after vein.
The approach I would recommend is to do your due diligence grunt work AHEAD OF TIME so that if an “If….then” moment occurs then you’ll be in a position to act upon it. This grunt work should include an estimate for all-in sustaining costs at the ADL with the infrastructure it has (my guess is somewhere around $850), where the POG is going to be over the next several years, the projected growth profile starting at about 25,000 ounces of gold annually based on 5,000 tonnes per month mining allowance, a separate estimate for how this allowance might go up over time, a proper EPS multiple for a new gold producer, an approximate timing estimate for when the Fortuna Mine might kick into production if you feel it is going to, etc. Even though the remaining die-hards on this forum might have been living and breathing Medinah for seemingly and actually decades for the most part NOBODY HAS EVER HEARD OF MEDINAH/AUMC and the baby (the mineral assets) have been pretty much thrown out with the bath water.
