JimmyP,
Common sense might suggest that when that which is being funded, an FF plant, is DIRECTLY able to help the funders get reimbursed because of the HUGE economic advantages it brings (a much lower AISC as a starter), that the terms shouldnât be that usurious. Compare the funding of an FF plant with a funder providing funds for a diamond drill program that may or may not have favorable results and even if it did have favorable results, production might still be 8 to 10 years down the line. So, theoretically, the funding of an FF plant shouldnât be that usurious relative to other uses of capital in the mining sector.
With the POG going nuts, and no guarantee that it will go up in a straight line forever, then time would be of the essence to get some money to the manufacturers of the FF plant ASAP, in order to get the ball rolling. This QUICK MONEY may not have as good of terms as more long-term money but since that which is being funded will directly help the funders get reimbursed, the terms shouldnât be that bad. I could easily a bifurcated loan structure, with Term Sheet âAâ in effect prior to the definitive permitting being in hand, and the funder incurring more risk, and Term Sheet âBâ being in effect, once the funder is protected by the permit being in place. I could see where management might be hesitant to disclose too much UNTIL the definitive permit landed, lest they got accused of misleading anybody. In other words, management currently doesnât know the exact terms UNTIL the definitive permit landed.
The question then arises as to whether or not âdirect shippingâ to Enami was a viable option or not. You have been told that it wasnât an option because the DL2 Vein grades are mediocre and that the TRANSPORTATION COSTS were going to be through the roof. Iâm going to suggest to you that the vein grades are anything but mediocre and the TRANSPORTATION COSTS will be dirt cheap compared to the average miner mining âaverageâ grade ore.
TRANSPORTATION COSTS are one of the 7 categories of âALL IN SUSTAINING COSTSâ (AISC) to produce each ounce of gold by a miner. They are extremely tightly related to GRADE in an inverse fashion. GRADES in the top decile (10%) of all deposits, like Aurynâs appear to be, will likely have TRANSPORTATION COSTS in the bottom decile of all mining operations. You folks on this investment forum have been played like a fiddle in regard to these THEORETICALLY âmassiveâ TRANSPORTATION COSTS that Auryn will be facing.
Kevin tried to tell us that Auryn had 2 options on the table in regards to funding the FF plant. #1 was to âdirect shipâ ore to the Enami smelter, for an undetermined amount of time, and cross fingers that Enami didnât screw us financially. This was the âself-fundâ option.
Option #2 was to go with an outside financier. This would be quicker and since the POG is at all-time highs, quickness is important. If the outside financier route was 1-year quicker, then the calculus becomes, how much money could Auryn make in that âextraâ year of production, while using the FF plant.
The results of the smelting test done in Lima, Peru told us that Enamiâs seemingly generous âsettlement offerâ to pay 57 gpt for the gold component of the ore (which is a HUGE amount compared to industry norms) actually only represented Enami paying 44-cents on the dollar, since the Plenge smelting test results showed that THIS VERY SAME ORE actually contained 128 gpt gold.
Since there is an undisclosed tonnage of stockpiled ore on-site, the question then becomes do you ship it, as well as other new freshly mined ore, and âself-fundâ and plug your nose and take 44-cents on the dollar, or wait and run that stockpiled ore through a new FF plant and get about twice as much per tonne for it. The point is that there was a viable option on the table at the time. THIS SUGGESTS THAT WHATEVER THE TERMS ARE ON THE FUNDING AGREEMENT THAT AURYN DID ACCEPT, THEYâRE PROBABLY NOT THAT USURIOUS, EVEN THOUGH AT FIRST GLANCE THEY MIGHT APPEAR SO.
Enamiâs âsettlement offerâ for the ore at the location where Auryn has been mining (on level 3 at about 1,850 masl) came in at 70 gpt âgold equivalentâ, which included the extremely high-grade silver (978 gpt) and very high-grade copper (3.23%). That is a very significant offer, but again, only 44-cents on the dollar. The question becomes, which way should a BOD member vote, knowing that he or she owes the shareholders a fiduciary duty of care.
TAKEAWAY #1: Whether you look at the channel sample results of the DL2 Vein at the intersection point of the Antonino Adit, 164 gpt gold, or the results from the second channel sampling done near the same site, about 150 gpt gold, or the Plenge Lab results (about 157 gpt when you factor in the 128 gpt gold plus the silver and copper), or the âsettlement offerâ from Enamiâs smelting of the âtest batchâ which came in at 70 gpt âgold equivalentâ, AFTER ENAMI TOOK OUT ALL OF THEIR SMELTING FEES AND PENALTIES ASSESSE FOR IMPURITIES (which puts the pre-smelting grade around perhaps 140 gpt âgold equivalentâ), THE GRADE OF THE ORE FOUND AT LEVEL 3 OF THE NEW MINE IS VERY, VERY, RICH. The post-intersection samplings of the DL2 Vein only confirmed what we already knew from the historical mining results of the artisanal miners. They mined 2,000 tonnes of ore from the upper/less well-mineralized aspect of the DL2 Vein, and averaged 64 gpt gold AFTER ENAMI TOOK OUT ALL OF THEIR ORE PROCESSING FEES AND PENALTIES.
If you study the press release regarding the funding with âSTRATEGIC INVESTMENTS, SACâ, youâll notice that the terms use two âup toâsâ in the description. Auryn could draw down âup toâ $1 millionâ through the loan facility, and âup toâ $3 million through the preferred shares/cash dividend facility.
To me, this suggests that Auryn does not have the mandate to take the money and meet whatever repayment terms are in place, but instead they have the right to draw down on that facility, if and when they so choose.
Prior to all of the definitive permits being signed off on, I could see where a funder would be a little hesitant to act. Why would you hand money to a borrower with the intent to build an FF plant if the PERMITTING wasnât in place. That would be ultra-risky and worthy of less lenient loan terms. But from managementâs point of view, the POG is through the roof TODAY, and they want to get some QUICK MONEY to the manufacturer in order to get the ball rolling.
After the plant is built and/or near completion and/or the definitive permits are in place, then all of a sudden, the RISK to any funder drops markedly, and the terms would deserve to be much more lenient. Could this funding arrangement be set up such that âXâ terms are in place during the pre-permitting stage and âYâ terms are in place post-permitting. Wouldnât this be a good reason WHY management couldnât release the exact terms of the deal lest they be accused of misleading shareholders or potential investors? If the permitting didnât show up for an extended amount of time, then the more usurious terms might apply unless management found a better deal elsewhere in the interim timeframe.
Recently the Chilean legislature amended Rule No. 21,420 and replaced/augmented it with Rule No. 21,649 i.e. the Small Mining Producerâs Statute cited by Auryn in a recent update. This greatly streamlined the permitting process for Chileâs smaller miners. With its passage, I could see where a funder might be willing to go out on a limb and lend money for the construction of an FF plant to an Auryn-type company BEFORE its definitive permit for the FF plant landed.
