Hi Zotron,
Lots of good insights. I think the key here is what Kevin said right after the funding news came out. He said, “if they max out on their loan repayment ($20 million) then just think what we shareholders would have been paid.”
I’m picturing an agreed upon “split” between the shareholders and the funders on the profits which will be paid out as cash dividends. That “just think” phraseology suggests that the shareholders get the lion’s share of the cash dividends. Let’s say it’s an 80/20 split in favor of the shareholders (Maurizio owns 63% of the shares). If the funders were to max out after 5 years, then this means that the shareholders share of the cash dividend disbursements over that 5 years was $80 million and the total dividends paid out were $100 million. Imagine a deal in which the shareholders were rooting for the funders to max out on their repayment for the loan.
In other words, hay Mr. Funder, we’ll pay you a fortune for that loan if and only if we shareholders make 4 fortunes. If I were “Mr. Funder”, I’d be incentivized to move heaven and earth to help Auryn become super profitable, super quickly. Remember, the 5-year clock is ticking.
Let’s say that the funders max out after perhaps 3 years or so (my projections say that this is a very real possibility at today’s POG). If Auryn could pump out $100 million in profits/cash dividends over “X” amount of time, THEN WHAT THE HECK SHOULD THAT STOCK BE TRADING AT? The funders are smart financial people. You know darn well that when they saw only 70 million shares outstanding and 63% held by management, they pounded the table and asked for common shares as part of the deal. As you mentioned, Maurizio has promised us several times that the 70 million shares outstanding figure IS GOING NOWHERE.
When I first saw that funding press release and read “EQUITY FINANCING”, I about had a heart attack. I immediately contacted Maurizio and he swore up and down that there are ZERO common shares involved. One of my legal colleagues reminded me that PREFERRED SHARES are technically a form of EQUITY, even if they’re not convertible into common shares.
The big money here as well as the quick money is going to be made IN THE MARKET. Notice that the funders didn’t want principal and interest, THEY WANTED A CHUNK OF THE PROFITS PAINTED AS “CASH DIVIDENDS”, WITH ALL OF THE FAVORABLE TAX IMPLICATIONS THAT BRINGS WITH IT.
Auryn is what I call an “SPPT”. With 63% of the shares owned by management it is basically “SEMI-PRIVATE”, but it is also “PUBLICLY-TRADED”. Rule 144 of the 1933 Securities Act, handcuffs the owners of “RESTRICTED/CONTROL” SECURITIES from selling many shares. They can only sell dribs and drabs per quarter based on 1 of 2 formulae. More importantly for us, they can only sell shares if they first publicly file a “Form 144” citing their intent to sell shares at some point in the future. We MINORITY SHAREHOLDERS have excellent VISIBILITY of management’s shares. To me, that is worth a fortune.
Rule 144 should have told all of us a long time ago that this was going to be a CASH DIVIDEND play because “RESTRICTED/CONTROL” shares do indeed earn cash dividends. “SPPTs” are cash dividend plays. The emphasis for management is on PROFIT GENERATION as quickly as possible. Watching the share price on a minute-by-minute basis and being willing to throw out a puff press release every time the share price downticks is not in the cards in these deals. There aren’t likely to be any promised “NEXT WEEKs”.
The key event is obviously going into production. In a deal like this, SHAREHOLDER REWARDS might not be coming as quickly as in other deals, with periodic upticks in the share price, but they’re likely to be twice as big. Think about what Auryn management, despite the lousy share price, has pulled off here. They’re going into EXTREMELY HIGH-GRADE PRODUCTION, AT A TIME WHEN THE POG IS AT ALL-TIME HIGHS, AND THEY’RE DOING THIS WITH ONLY 70 MILLION SHARES OUTSTANDING to divide those cash dividends amongst.
WHAT IS THE IDEAL JUNIOR MINERAL EXPLORATION PLAY LOOK LIKE:
THEY DO WHAT IT TAKES TO MAKE IT INTO PRODUCTION. If they can pull this off, they’ve already left 98% of the competition in the dust.
GET YOUR PROJECT FUNDED-The juniors are having the worst time ever in getting even drill programs funded.
THE DISCOVERY NEEDS TO BE A HIGH-GRADE VEIN DISCOVERY. Open pits cost billions in CAPEX and take light years to permit. The environmentalists say that they’re just too “dirty”.
YOU HAVE TO HAVE THE PERMIT SITUATION UNDER CONTROL
YOU WANT TO HAVE THE MINIMUM NUMBER OF SHARES OUTSTANDING ON DAY 1 OF PRODUCTION
YOU WANT THE DEPOSIT TO BE “POLYMETALLIC” PREFERABLY GOLD AND COPPER. Most investors are currently keying in on GOLD or COPPER or preferably both. The universe of potential investors or suitors goes up nicely when GOLD and COPPER are both present with VERY HIGH GRADES.
YOU WANT MANAGEMENT TO BE WILLING TO ACT AS A “SUGAR DADDY”. Maurizio’s generosity in advancing all of that cash at zero interest rate is why Auryn only has 70 million shares outstanding.
YOU WANT YOUR VEIN DEPOSIT TO HAVE BEEN IN HIGH-GRADE PRODUCTION AT SOME TIME IN THE PAST. You want management, the “sugar daddy”, to be able to make a POSITIVE PRODUCTION DECISION, without selling hundreds of millions of shares in order to drill out the deposit. The “sugar daddy” needs to be willing to shoulder all of the RISK by advancing the project into production without drilling. The DL2 Vein strikes on surface for over 1,000-meters. It has been traced at depth to at least 700-meters. The artisanal miners mined out a 350-meter length at surface, down to a depth of over 100-meters. The grades were through the roof (64 gpt average) and BOTH THE GRADES AND VEIN WIDTHS WERE INCREASING WITH DEPTH. That’s all Maurizio needed to know in order to be willing to cut the checks.
YOU WANT TO BRING THE DEPOSIT INTO PRODUCTION AT A TIME WHEN THE POG IS ON A ROLL. Auryn was flat out lucky in this regard.
IT IS PREFERABLE THAT YOUR VEIN DEPOSIT BE A “MESOTHERMAL VEIN” DEPOSIT. These veins tend to be massive in size and they go down to depths that the epithermal veins could only dream about. Increasing in BOTH grades and width with depth is the hallmark of a MESOTHERMAL VEIN.
THE HOST COUNTRY WOULD PREFERABLY BE HEAVILY DEPENDENT ON MINING FOR ITS GDP AND THE MINING INFRASTRUCTURE IS ALREADY PRESENT. THE GEOPOLITICAL RISK SHOULD BE DE MINIMIS.
IF THE “JUNIOR PRODUCER” CAN DO SOME OF THE ORE PROCESSING ON-SITE WITH THEIR OWN EQUIPMENT, THEN THIS WILL PAY OFF HANDSOMELY.
DO NOT BE DEPENDENT UPON THE MINING MAJORS FOR EITHER THEIR FINANCIAL WHEREWITHAL OR THEIR TECHNICAL EXPERTISE. THEY’LL SCREW YOU EVERY TIME. IF A MAJOR WANTS TO TAKE YOU OUT, THEN THEY’LL JUST HAVE TO PAY THROUGH THE NOSE. THERE IS A HUGE LACK OF NEW MINERAL DISCOVERIES AND THE OUNCES OF MR/MR ON THE BALANCE SHEETS OF THE MAJORS IS DWINDLING FAST. YET IT IS EXISTENTIAL FOR THE MAJORS TO REPLACE THE OUNCES THEY MINE ON AN ANNUAL BASIS. THERE AREN’T MANY NEW JUNIOR PRODUCERS OUT THERE TO CHOOSE FROM AND AS THE SAYING GOES, TODAY’S JUNJIOR PRODUCERS DON’T STAY IN THAT CATEGORY FOR VERY LONG. THEY EITHER RAPIDLY GRADUATE TO MID-SIZED PRODUCERS OR THEY GET TAKEN OUT.