MDMN - 2016-01-25 Weekly Discussion

Weekly Discussion
309

SOME THOUGHTS

  1. Note that Masglas’s 9 assets purchased from First Quantum/Inmet did NOT get tucked into their 100% owned subsidiary “AMC,SpA”. I would picture Masglas as a giant square with a circled inside of it labeled “AMC”. AMC used to “hold” 3 or (4)? options (Medinah, Nuoco, Cerro and Caren(?) but now they “own/holds title” to several groups of mining concessions on the mountain as per the recently updated SERNAGEOMIN map. The 9 FQM assets might be pictured as floating around within the giant square. We don’t know what else might be in that giant square. The giant square is in turn “owned” and has been funded by “Peruvian private capital”. The recent CER article stated that this giant square/Masglas has a voracious appetite to buy even more properties in the Chilean Coastal Range. It appears to me that this “giant square” clearly has access to “giant capital”. One question that arises is whether or not there is an even larger perhaps “gigantic rectangle” out there desirous of the assets being tucked into the “giant square” or perhaps the AMC circle.
  2. AMC now “owns/holds title” to all of the Nuoco properties (LDM, Los Amigos, Mambo and Columbo) as well as the Caren concessions as per SERNAGEOMIN’s website. They are strongly rumored to have also acquired Cerro’s Fortuna Mine and their two concessions. To me, it does not appear that the “earn in” terms of the prior option agreements with Nuoco and Cerro have been completed especially in terms of drilling meterage. Perhaps these terms have been bypassed and supplanted with other terms especially as they pertain to the early production opportunities.

What exactly does all this mean to Medinah TODAY especially in regards to the probability of AMC exercising the ADL option with Medinah and Medinah soon to be holding a minimum of $100 million in its coffers plus a 15% equity stake in the corporation (AMC) holding title to ALL of the concessions in the entire property complex? As we can all recognize using hindsight, this overall process took a very, very long period of time especially if you start about 40 years ago when the Quijanos sold the family farm and rolled the proceeds into the acquisition of mining concessions on the mountain.

In doing this handicapping you have to recall that Medinah currently owns 100% of the vast majority of the early production opportunities centered on the Merlin Vein system. As far as AMC suddenly doing an abrupt U turn and walking from the deal, I don’t think so. The centralized location of the Medinah claims might make an eventual open pit mine cost prohibitive. This doesn’t even bring into account the permitting packages Medinah has accumulated to date or the surface rights portfolio. THE VISION OF THE “NEW MEDINAH” IS GOING TO BECOME A REALITY VIA ONE ROUTE OR ANOTHER. I would continue to recommend that you not be too concerned with handicapping the probability of a tender offer versus an option exercising because the shareholder rewards would no doubt be similar due to the need for a fairness opinion which would be predicated on the terms of the original option agreement.

  1. Medinah, the “offeror” in this “offeror/optionee” relationship uncharacteristically gave permission to AMC to go ahead and annex any contiguous mining concessions that they deemed to be of strategic value. How could Medinah possibly justify that unless they had some sort of quasi-guarantee that the option was going to be exercised? As the puzzle pieces continue to be revealed you can now get a better insight as to what occurred at the earlier negotiating tables. Medinah took on the role as the primary facilitator in bringing about the vision of the Masglas/AMC team i.e. the consolidation of both a massive amount of mining concessions and the ownership interests therein into AMC.
  2. Since Medinah had nothing to do with the acquisition of the 9 FQM assets it would make sense that they don’t deserve a 15% interest therein and thus they are not housed within the AMC circle. AFTER Medinah’s exit from this entire scenario one might assume that those 9 assets might be consolidated into the AMC entity since they are located mainly in the Chilean Coastal Range.
  3. It appears that in exchange for allowing AMC to annex nearby properties that an option “offeror” like Medinah would typically demand vehemently forbid, it appears that Medinah will indeed gain a 15% stake in these assets as they are integrated into the ADL option agreement. The willingness to perform in the role of the “facilitator” might have been the basis of any quasi-guarantee that the ADL option would be exercised i.e. no performance no guarantee. Forcing your partners to PERFORM before rewarding them seems like a very smart way to motivate your partner to perform.
  4. Medinah’s already owning 15% of Nuoco and Medinah’s having an option to acquire the 85% that they currently don’t own suggests that the Nuoco assets will be treated in a similar fashion and incorporated into the ADL option agreement. We already have this intent in writing.
  5. Since Medinah already owns 7.5 million shares of Cerro, one might anticipate that Medinah will somehow end up with a 15% stake in Cerro’s properties (which these shares may or may not already represent) so that its assets might be integrated into AMC in a fashion similar to all of the other assets. AMC would have to acquire the other 85% of the Cerro mining concessions either by fulfilling the terms of their option agreement or via some other route. If an open pit is contemplated anywhere in the future then you almost have to incorporate the Cerro assets into the overall pooling of concessions. How else could you figure out which ore belongs to whom? With all of the recent shifting of attention to the early production opportunities at the Merlin/Caren/Fortuna areas was there even time or the intent to fulfill those drilling meterage terms? A massive amount of new roadwork appears to have been completed and these expenditures may have been disseminated out towards fulfillment of the various option mandates. The drilling mandates do not seem to have been fulfilled yet.
  6. As these developments proceed, with time it’s going to be difficult to tell the difference between Medinah and AMC especially with Medinah receiving a 15% equity interest in AMC upon option exercising. At that point in time the entity to concentrate on might be “AMC/Medinah” which will control the entire mountain. At that point in time we don’t know what the Medinah BOD composition will be. As far as the “use of proceeds” of the cash component of the ADL purchase price, that matter could probably be addressed via a corporate resolution no matter what the Medinah BOD composition ended up being.
  7. If AMC intends to go public in the near term on the TSX or TSX.V then they’re going to need a completed NI 43-101 and they’re going to need to “own” a “material or significant interest” in the concessions that are the subject of the 43-101 technical report/F-1. Recall that AMC delivering an NI 43-101 or SEC IG 7 to Medinah is part of the ADL option agreement. My read here is that at that point in time early on AMC was not aware of which exchange they contemplated going public on if that is indeed their goal. That might be why the “or” is interposed between those 2 types of technical reports.
  8. According to CHFIR’s published “road map”, an NI- 43-101 on the ADL properties is due somewhere around February-March of 2016 i.e. very soon.
  9. We don’t know exactly which mining concessions are going to be the subject of the 43-101 or SEC IG-7 or if they are already incorporated into that which SERNAGEOMIN tells us that AMC now “owns”.
  10. If a public listing for AMC is scheduled in the near term, the question arises as to how will AMC acquire “ownership” of the Medinah ADL concessions that are the subject of the 43-101 technical report if they are yet to do so.
  11. The most information gathered to date that would pass the rigor of a 43-101 technical report would probably be that acquired on the Gordon bx pipe. To my knowledge, AMC does not currently “own” this property at the SE corner of Medinah’s Millalelfun concession group. During the drilling campaign, I had a tough time figuring out why AMC targeted certain drill collars in between already fairly tightly spaced preexisting collars. That made no sense if their drilling was being done to acquire information helpful in telling them whether or not to exercise the ADL option. In retrospect, I think they were just targeting their drill collars as per how a QP filing a 43-101 would do it almost as if the decision to exercise the option was already all but made. Recall that AMC had a two year work permit with the Quijanos in the area of the Caren Mine and now we know what kinds of grades have been found there.
  12. Would not an option exercising of the ADL option pretty much have to happen prior to any AMC public listing so that AMC could gain “material or significant ownership” (TSX.V mandate)of the concessions that are the subject of the mandated 43-101 technical report and that constitute the more advanced assets of the company going public? I don’t think of the Gordon bx as being one of Medinah/AMC’s more stellar assets but it has had the most amount of work done on it to date.
  13. I think we need to separate the efforts to bring on line the “early production opportunities” and those needed to pull off the public listing which I believe is the reason why CHFIR (a Canadian firm) got brought into play so early. Why would a U.S. firm and a Peruvian firm retain a Canadian firm to do their IR work? In regards to the TSX and TSX.V the regulators highly, highly, highly recommend that the issuer going public maintain some type of presence in Canada, preferably Toronto, even if it’s just the IR department.
  14. Thus if you’re of the opinion that AMC is going public in the very near term, then I think most of the puzzle pieces needed to assimilate are already in front of us. They need to “own” the concessions that are the subject of their 43-101 which is mandated prior to gaining a listing.

WHY DOES THE MARKET NEVER REACT TO THE REACHING OF HUGE MILESTONES LIKE AMC GAINING OWNERSHIP TO THE NUOCO, CAREN AND CERRO CLAIM GROUPS WHICH OBVIOUSLY CONFIRMS THE INTENT TO EXERCISE THE ADL OPTION?

Due to the length of time this project has taken, I think that those of us that follow the developments on a day by day basis tend to forget how incredibly complex this scenario must be to a new prospective investor recently hearing about it from his brother-in-law. It would take an incredible amount of time for the average mining investor to get to a comfort level at which she or he would pull the trigger on an investment.

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