###Clearing Up (Mis)Expectations
Hopefully this post clears up some expectations or mis-expectations in our case.
The option agreement contract MDMN has with AMC is public. AMC will receive 100% of the MDMN’s Altos de Lipangue properties and in return MDMN will receive $100 million dollars (no less, no more) and a 15% equity interest in AMC.
This option can be exercised at any point in time before its expiration based on AMC’s discretion. MDMN has no right to refuse or renegotiate, regardless of what is or isn’t found on the property. If AMC presents a check for $100 million and 15% interest in AMC to MDMN, the property is AMC’s and the equity in AMC is MDMN’s.
It really is that simple. I think some of us initially misconstrued the words of the contract and ran off in some fanciful direction (not uncommon for us dreamers.) People get so focused on the word “minimum”. The focus is misplaced. It’s basically stating “an amount no less than.” It means AMC cannot expect to pay $95 million and receive some pro rata percent. But it also means AMC won’t be paying $125 million or $175 million based on what they find. I suppose they could if they wish, but there is no way they would do that. There are no auxiliary contracts with special formulas regarding a scaling or escalating option amount. Let’s get that notion out of our heads.
###Renegotiating the Option
Let me see if I can help clear this up using AMC’s and MDMN’s Feb 1st shareholder updates.
In MDMN’s update we read.
After many meetings and negotiations between all parties involved and multiple trips to Chilean Notaria’s, an amalgamation of the NUOCO, Caren and CDCH interests on the ADL plateau occurred. With specific regard to the NUOCO properties, it is important to note that the position of Medinah Minerals, Inc. (MDMN) is currently unchanged. MDMN still possesses a 15% interest in the NUOCO property claims.
This is saying that AMC now has full control over the NUOCO claims, Caren Claims, and CDCH claims and that MDMN still retains their 15% interest in the NUOCO claims. How? Because AMC bought an 85% interest in NUOCO, AMC bought an external company, and AMC bought the two claims that CDCH owned. You can read AMC’s own release for this information.
Santiago, Chile, February 1, 2016 – AURYN Mining Chile SpA (“AURYN” or “the Company” or “AMC”) today announced the following three acquisitions:
- 85% of the outstanding shares of NUOCO (LDM), and in doing so effectively exercised the corresponding mining option agreement.
- The Caren mine, through the acquisition of Minera Mantos Azules Chile, which in turn holds exploitation and environmental permitting to start early production of up to 5,000 t/month on the identified high grade veins that yield grades as high as 124 g/t (Update on bonanza gold grades in Caren mine, have returned over 100 g/t Au at Fortuna - Merlin system in the Altos de Lipangue project, Chile. - AURYN Mining Chile)
- 100% of the Fortuna and Lonco Millarepu mining properties, that constitutes the Fortuna de Lampa mine.
Plainly speaking, they bought 85% of the outstanding shares of NUOCO. (MDMN owns the other 15%.) AMC bought Minera Mantos Azules Chile, and AMC bought the two properties that were under Cerro Derado Chile’s control.
It is not disclosed what they paid for them. It’s up to NUOCO, Minera Mantos Azules Chile, and Cerro Dorado Chile to disclose if they desire. I have heard through the grapevine that a couple of shareholders have spoken with LP and have heard the terms. I’m sure many of you have heard them as well. Nevertheless, I won’t put them on the boards until one of the entities involved discloses publicly.
AMC continues there release and quotes their Executive Chairman Maurizio Cordova,
“This now consolidates the entire mining district, called Altos de Lipangue. With this consolidation, AMC expects to start production this year on the exposed high grade veins, namely Caren-Merlin-Fortuna. A team of mining engineers is travelling to Santiago in February to start the preparation and design work to achieve AMC’s production goal. We expect it to be cash flow positive that will supplement AMC’s exploration efforts and ultimate exercise of the JV Mining Option Agreement, with MMC,”
They are clearly stating the EXPECTATION of being in early production and making money (being cash flow positive.) This will supplement the cost of doing further exploration and the ultimate exercising of the option they have with MDMN, i.e. paying MDMN $100 million and a 15% stake in AMC for MDMN’s ADL claims.
When the option is exercised MDMN will have the following assets: $100 million in cash, 15% equity in AMC, 15% equity in NUOCO, and some stock in CDCH. They’ll have to pay some commissions and taxes and debts with the cash. So don’t expect that they’ll be left fully with $100 million.
In MDMN’s version of the update they state the following.
With specific regard to the ADL, at this point, Medinah Minerals Inc. continues in its Option Agreement with AURYN that calls for the payment of a minimum of $100 million US funds while maintaining a 15% interest in production coming from their ADL properties. . . .
Here we have MDMN restating that they are still under the option agreement with AMC. An option that pays them $100 million while retaining a 15% interest via an equity stake in AMC (see the original contract.) Remember what I wrote earlier about “minimum”. Read it as “an amount no less than”. It’s not stating that there is some magic escalation clause that scales. It’s contract language for “you get nothing until you pay the full amount of $100 million.”
But after that we read the following in the update.
. . . Based upon the positive results published by AURYN, negotiations are ongoing between the Companies to consider AURYN’s outright purchase formula for the Company’s Altos de Lipangue (“ADL”) property claims at a much higher ownership holding that would enhance Medinah’s longterm prospects.
Here they are basically echoing what AMC said. Because of the expectation of positive cash flow negotiations are occurring to consider MDMN getting a higher percentage in ownership of AMC for MDMN’s longer term benefit (and I may add AMC’s shorter term benefit.)
The current option agreement is in force. AMC will likely be making money this year. There is no reason for them to pay MDMN more than $100 million and 15% of AMC for the claims. However it may be in both parties interest for them to pay less than $100 million and more than 15% for the claims. That is where the negotiations are ongoing.
But if you think MDMN is going to pull a JJ and not honor the contract and try to strong arm more money and a larger percentage you are deceiving yourself. The moment AMC presents $100 million and 15% in AMC, MDMN accepts.
Because AMC is likely to be cash flow positive, it may be in MDMN’s best interest to accept less cash up front and a greater percentage of the overall pie. It may be in AMC’s interest for that to happen as well because it expedites the exercise of the option while allowing them to retain precious working capital. That is what is being discussed.
Now we wait to see how it unfolds. AMC giving us a bit better look at how likely or not positive cash flow is, and how large it is will go a long way in helping us evaluate whether to take less cash and more equity. Obviously MDMN will need that information to make a decision.
So there you have it. This is all very good news. The ADL mining district is proving to be economical and we’ll have a large chunk of cash and 15% of it or some lesser chunk of cash and an even larger stake in it!
