Cerro/Medinah/Auryn- 2018 Q1 General Discussion 🌄

Market cap is based on current pps
No one knows where real value should be but based on no information, current pps drives it.
There is a big difference between .005 and .0031 in market cap

Correct. Current PPS is saying that the package of assets/resources is valued at ~$50M (based on MDMN). If one were to claim that we should be valued at 3 cents or $500M that would be a substantive debate. To your point, there is a lot we don’t know but, IMO, this is simply b/c Auryn has run into delays. Once they get rolling again it will be less of a speculative discussion as there will be actual data points to reference. However, the market is a constant discounting machine. If we all knew everything there was to know stocks would always be reflecting fair value (efficient market hypothesis). Sooo, the market is a discounting machine, currently assigning a $50M number. I’m not sure if $50M is fair but I know $500M is a long way from here.

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Thanks John, I have to be honest with you. After being around these here parts for actually about twenty years, I was really in the mood for some inspiration by Doc’s unwavering optimism.And I am sure I am not alone.LOL
Hopefully he will soon finish and share his report which I hope is his usual lengthy style.
And hopefully Auryn mining is also in the process of preparing something to share with us .

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Hi Funnyman,

If what I possess is “unwavering optimism”, it is based on “the rocks” and the current realities within the mining industry. I don’t comment on the appropriateness of a certain market cap. I would have to know everything there is to know about some other company’s deposit (and their management, etc.) if I were to make a “comparable analysis” regarding appropriate market caps. I don’t have the time to do that. I’ve been actively investing in this industry for 37 years partly due to the fact that my Dad sold molybdenum for 71 of his 93 years. I’ve been digging through this paper looking for a reference to VALUE in regards to what I concentrate on i.e. “the rocks” and the mining industry. The one mining analyst that I have the most respect for is probably Brent Cook. As a geoscientist, he knows “the rocks”. As a mining analyst, he knows the industry. Here’s a snip-it of from my paper of what might have the most relevance:

FROM AN INDUSTRY POINT OF VIEW HOW MIGHT WE CHARACTERIZE TODAY’S MINING INDUSTRY?

There is a “quintet” of current realities in today’s mining industry which keep getting cited over and over: 1) 1-in-1,000 junior explorers will ever make a discovery that gets permitted and advanced all of the way into production, 2) even for that lucky one according to the World Gold Council it now takes an average of 25 years to advance from the commencement of exploration efforts to actual permitted production, 3) the majors for the most part have shut down their own exploration efforts and now MUST REPLACE their constantly dwindling reserves via the ACQUISITION of any discovery made by a junior, 4)we’re currently in a 25-year low for new discoveries. 5) Today’s majors and mid-tier miners find themselves digging deeper and deeper while going after lesser and lesser hypogene grades in more and more geopolitically risky environs.
If you combine realities #1 and #2 you can see why the majors aren’t in a hurry to explore by themselves. Many are still writing down the reserves and resources they overpaid for back in 2011 or so when gold peaked. Even if they were the lucky 1-in-1,000 they’d still have to wait 25 years to get any cash flow out of the operation. Why not let the shareholders of the junior explorers shoulder all of that 1-in-1,000 RISK and let the juniors “derisk” the project by advancing the project through several developmental steps like PERMITTING? Sure you might pay through the nose for the deposit but at least you circumvented a lot of RISK. Reality #3 is what keeps the juniors taking on that 1-in-1,000 RISK i.e. the majors need their discoveries. It is EXISTENTIAL for the majors to acquire the discoveries of the juniors if they’re not exploring on their own. Their reserves and resources are constantly dwindling so the DEMAND variable is always there.

The agreed upon price for a buyout or the terms of any JV strategic alliance will be predicated on the SUPPLY OF and DEMAND FOR discoveries of the description of the ADL Mining District with the infrastructure it was blessed with. In the midst of a 25 year low in new discoveries (which is only going to get worse with time) it might seem to be a very FORTUITOUS time to have a new discovery of this description. Because of the current supply and demand imbalance a recent discovery would have more VALUE than a similar discovery would have had back when the supply and demand variables were in better balance IF THE JUNIOR EXPLORER IS TRYING TO ATTRACT A JV PARTNER ON SOME SUBDIVISIONS OF IT’S MINING DISTRICT AND PERHAPS GO IT ALONE ON OTHERS. TRULY “DISTRICT SCALE” DEPOSITS LIKE THE ADL ARE FEW AND FAR BETWEEN.

THE GRADES OF ORE BEING MINED ARE GOING NOWHERE BUT DOWN WITH TIME

Within any given copper deposit, the grade being mined will drop with time because any higher grade “supergene enriched ore” will typically be mined first if at all possible. The number of “supergene enriched zones” being currently mined is dropping constantly because once that ore is gone it’s gone. The average copper head grade being mined in 2008 was 0.48% Cu. In 2012 it dropped to 0.44%. Today it is about 0.4%. The average moly grade being mined in 2008 was 0.018%. In 2012 it dropped to 0.013%. IMPLICATIONS: JVs with favorable terms are highly likely in this environment especially on massive projects like the Pegaso Nero. The key point is that from the point of view of a major that shut down its in- house exploration efforts, replacing mineral reserves and mineral resources (MR/MR) is not an option it is EXISTENTIAL. The demand variable for new discoveries is always there. It’s the current (lack of) supply variable that’s going to determine prices and or terms for a JV strategic alliance.

As I see it, the task at hand therefore is for US to close up the gap between what management knows and what we shareholders know BEFORE we potentially get inundated with high tech geojibberish associated with the increased communication levels expected of a publicly-traded corporation with material information disclosure mandates.

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Brent Cook is great. He’s been bullish on the junior space for the past forever but that’s no different than any other gold bug. There is a big difference b/w savvy investors vs. geos. He’s clearly in the latter but will nonetheless make a lot of money once the market turns.

Totally agree on your macro points on supply/demand. We are reaching peak supply territory and dollars spent on exploration have been nose diving for the better part of a decade. However, b/c the precious metals space is still considered distressed (especially for the juniors) the dollars paid per ounce in the ground (through JV or acquisition) are near historic lows. You may have noticed that none of the exploration stage companies are being rewarded for new “monster drill results.”

In time this will change but it’s a bit reckless to ignore the comps when offering commentary on an investment blog. It seems like the biggest disconnect when it comes to MDMN is the “story and potential” vs. the merits of the investment. At some point the two will merge. Unfortunately, because the jockey(s) riding this horse have been toxic the wedge has grown even further. Hopefully in a year’s time the dust will have settled a bit, allowing room for more of the “high tech geojibberish.”

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Sorry Doc, I meant no disrespect by the “unwavering optimism” in my post, I was only quoting John’s prior posting comment and I am sure he also appreciates your posts. Now I will finish reviewing your much appreciated latest report/post. Those of us who remain are all in this together .

Bernie 's sons both dead; cancer and suicide.

Interesting Sunday read…

Can someone please explain again the reason why our new shares might be restricted for a year? Thanks…

Hi Mangelsen,

Unless Rule 144 has been recently changed it always had a 144 (d) clause that said that if the issuer was not an SEC “reporting company” then the restriction period was 12 months otherwise the hold period was 6 months. Cerro was not an SEC “reporting company”.

Which brings me back to another question I asked that nobody had any interest in answering. Would anyone take the “risk” of selling their mdmn now and buying shares after the conversion? That way your money will not be locked up for a year. It would also avoid other problems such as getting the correct number of shares and the “mass exodus” there will be once they are no longer restricted. You will still have your loses to use against any gains in the conversion shares which you could sell at any time…

Medinah may no longer exist after the share conversion depending on how it is done. You can buy Cerro shares right now that aren’t restricted but the parity ratio and lack of liquidity suggests that you can’t really flip much.

Buying MDMN now offers an arbitrage opportunity based on an imbalance in the conversion ratio. Though the lockup is a time premium a buyer must consider in that decision.

I wouldn’t be too concerned with a “mass exodus” once those shares become free trading. If the share price languishes at what is perceived to be undervalued levels, there won’t be many more sellers then than there is now. Conversely, if the shares appreciate based on progress and visibility provided by Auryn, any short term selling due to shares being unrestricted could conceivably viewed as a buying opportunity. That being said, I’ve never put much, if any, weight on the price impact of conversion or dividend shares becoming available here or in other stocks. Historically, the stocks have never behaved as I anticipated in those situations.

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All good points. Two additional variables to consider. If someone decided to sell $50k of CDCH the “arbitrage opportunity” would go away. As Mgold pointed out, there’s simply no liquidity in CDCH so, IMO, it’s important to look at the valuation MDMN is reflecting today (~$50M for the Auryn assets) vs. where CDCH is trading. This is no longer a trading stock. Anyone who’s looking for liquidity in less than 12 months shouldn’t consider this investment in the first place. Bottom line: CDCH has been the better way to play this investment for the last couple years but MDMN is the better play, today, for anyone looking to add or initiate a position.

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I’ll feel better when they give us the conversion date and it’s near term.
I’ll feel even better when and if I actually get the shares.

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Thanks Rick…Just to be clear. I value your opinion. Lets say I have 2 million shares. I decide to keep one million shares for the conversion and wait out the one year restriction. But I decide to sell the other million shares. Based on today’s trading that would have net me $3,200 based on today’s price of .0032. I now have the cash and my loses. I now wait for the conversion and put my $3,200 into the new stock. I understand I could win or lose on the stock price. But either way I will not be restricted for the year on what I can or can not do. It is probably not the prudent thing to do, but at this point why not diversify?

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Hi Mangelsen,

I’m not going to recommend to anyone what to do with their money as we all have different expectations, time horizons and risk tolerances. So I can only comment on the example you provided and use math.

At current prices, 1 million shares of MDMN are worth $3,200 as you pointed out. Those million shares will convert to 558,000 CDCH shares which at .01 comes to a current hypothecated value of $5,580. For argument’s sake, let’s say that CDCH’s price doesn’t move for an entire year. That’s a 74% ROI merely for holding onto the stock for a year.

Now let’s look at it from selling MDMN. You’d have $3200 if sold today. If you want to buy CDCH, you can only buy 320,000 shares at .01 (and that’s if you can buy at the bid). Would you rather have 320,000 shares that are free trading, or 558,000 shares that are locked up for a year? I personally prefer the latter.

If someone wishes to relinquish that 74% ROI in order to have flexibility to sell the stock without being locked in for a year, then that is their prerogative. I personally don’t know any 1 year investment vehicles offering that kind of return. This is the arbitrage opportunity that I mentioned previously. Now, realistically speaking the share prices and arbitrage value will change over the year and as Baldy pointed out previously, any concentrated selling in CDCH could erase that arbitrage opportunity. So there is no guarantee to the outcome. However, currently there is a significant advantage to owning MDMN over CDCH until the price of the stocks come closer to the .558 ratio. Personally, if I were inclined to sell MDMN, I would wait until the share prices are closer to the .558 ratio, otherwise I’d be leaving too much value on the table.

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And in case Rick’s comments weren’t enough, try buying 558,000 shares of Cerro and see where the share price goes. I suspect it would at least double before you got all of your shares.

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Question regarding this:

AURYN has sold its mining claims to Cerro for 6,650,000,000 common shares of Cerro and cancellation of Cerro’s AURYN shares. The remaining AURYN shareholders now own 95% of the issued and outstanding shares of Cerro. These shares have a one-year restriction on them

It states Auryn “has sold”.
It “remaining Auryn shareholders now own”
"These shares have a one yr restriction

I take this language to mean the shares are now real and in Auryn possession.
Does Auryn have to now transfer cdch shares received from the sale to Mdmn?
I might also assume the one yr restriction began when the shares were created
Does this mean we could receive shares a year from now after restriction expires?
It’s unclear to me

Even thou the CDCH shares are restricted for one year for Auryn, I would not expect that MDMN’s stock goes away until those shares are distributed to MDMN and free trading, therefore MDMN’s stock price should eventually close the gap between the exchange ratio the closer we get to the date they are free trading shares. My guess at that point MDMN stock goes away. JMO

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