MDMN - 2016-02-15 Weekly Discussion

I am pretty sure he did and keeps doing so. Whether or not they listen is a different story…

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ONE QUESTION: Let’s say Auryn bites and decides to do this. Once MDMN receives $14 Million from Auryn would MDMN be required to first announce such receipt to the public?

It seems like they would - but maybe that wouldn’t cause enough of a move in the stock to queer the deal.

Another read on this scenario might be this: Let’s say that Medinah’s PPS just won’t budge primarily because of “outside influences”. Assume that Masglas/AHC/AMC owns half of our shares by then or 675 million shares but the share price is stuck at perhaps 3-cents. Masglas’s Medinah investment is worth only $20 million and it just refuses to appreciate despite the mountain’s value ramping up nicely.

Medinah says that we’ll buy those 675 million Medinah shares for $20 million worth of our 15 percentage points in the mountain. The value of the mountain is doing just fine it’s only the Medinah market cap that’s “mysteriously” suffering. Let’s say a fairness opinion renders that a percentage point in AMC/the entire mountain is worth $5 million (a paltry $500 million for the entire mountain).

Medinah could hand AMC 4 (27%) of their percentage points and take back and cancel half (50%) of their shares. Medinah now owns 11 percentage points instead of 15 but the cash dividends that 11 percentage points can generate is only divided by the 675 million remaining shares. The dividend amount PER SHARE will go up even though the share price is mysteriously in the gutter. The point being that when a DISCONNECT is present there are a lot of ways to lever it because the corruption in our markets does not extend to the values of cash producing assets. If the cash dividend flow is to be measured in terms of “decades” then a one time swap involving shares for assets might pay handsomely.

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(yet more drivel)

I believe the key thing to realize is that once an issuer like Medinah has ACCESS TO CASH then the shareholder rewards commensurate with “fair value” are all but GUARANTEED. In these markets NO CASH NO GUARANTEE. With cash in hand you don’t have to rely upon corrupt markets to determine shareholder rewards via share price appreciation. Corrupt markets featuring artificial share price depression become a POSITIVE when you have cash in hand. Prior dilution becomes not only reversible but reversible with a very large lever depending upon just how large the DISCONNECT is. The steps go something like this:

  1. Management needs to BENCHMARK the actual fair market value of the assets. Upon option exercising, if AMC hands us $100 million then you simply ask them, what would you give us TODAY for our share of the early production opportunities and the 15% stake in AMC. Let’s say the answer is another $80 million. So Medinah’s “benchmarked” fair market value is about $180 million. Now management is in a position to allocate the cash resources wisely. Let’s say Medinah’s market cap is still a lowly $ 26 million. The resultant DISCONNECT would be about 7-to-1. It sounds incredible but with a 7-to-1 DISCONNECT and cash in hand a company can buy back and cancel, let’s say, 49% of its shares while spending only 7% of its net assets. That LEVERAGE is insanely powerful but no more insane as a market cap with a 7-to-1 DISCONNECT. It takes CASH and the ability to BENCHMARK asset values for people to recognize the presence of a massive DISCONNECT. The addressing of the DISCONNECT is MECHANICAL there’s no need for promotion or relying upon favorable metals markets.

  2. If the market remained as corrupt as it is today, then Medinah could THEORETICALLY buy back and cancel maybe 350 million shares by spending about $7 million. I think most of us sense that there CLEARLY is an artificial “cap” that has been placed on our share price. Post-buy back, all of a sudden we’re down to a FMV of $173 million ($180 million minus the $7 million spent) but we are also down to 1 billion shares issued and outstanding. What a buy back in the face of a massive DISCONNECT does is increase “book value” and also prime the pump for future cash dividend issuances because given a fixed amount of cash available to be dividended out the dividends will be much more generous on a PER SHARE basis than prior to the buy back. Higher cash dividends on a PER SHARE basis is a form of “shareholder rewards” that actually BENEFITS from market corruption. Shareholder rewards tied to share price enhancement ARE DECREASED in corrupt markets. The thesis is that a shareholder doesn’t particularly care if his “shareholder rewards” come from share price appreciation, buy backs followed by cash dividends or a combination.

The GENEROSITY of cash dividends on a PER SHARE basis can also drive upwards share prices by opportunists wishing to garner more of those generous cash dividends by buying more shares before the “Ex-Dividend” date. I would suggest that a perhaps 30 to 50% cash dividend would attract a lot of buying even if only by “flippers” that will sell after the dividend record date. This “flipping” of the dividend and decrease in the post-dividend share price would be a VERY GOOD THING if a second more generous cash dividend was right around the corner. It’s all about TIMING, both corporations and investors want low prices when they have cash in hand. Shareholders might have the opportunity to buy the shares sold by the flippers at cheap prices with the money the company just handed to them. This could result in shareholders being in a position to present PROGRESSIVELY LARGER SHAREHOLDINGS to PROGRESSIVELY LARGER CASH DIVIDENDS throughout time. This is the worst case scenario; if the share price takes off then so be it.

The safest bet in all of the markets is to bet on market corruption not going anywhere as we apparently recently witnessed with what happened to Claro’s shares. The sequence of events is BENCHMARK THE FMV, BUY BACK, DEMAND DELIVERY AND CANCEL SHARES AND ISSUE PROGRESSIVELY LARGER CASH DIVIDENDS. It’s not necessarily the amount of the cash dividend. That’s fixed by circumstances. It’s the PROGRESSIVELY LARGER aspect that is the key to augmenting shareholder rewards. You actually want the bad guys to attack when the company OR THEIR SHAREHOLDERS temporarily have a big pot of money in front of them and a generous dividend around the corner.

It doesn’t seem fair that an issuer like Medinah would have to go to all of this work to make sure that shareholders are rewarded commensurate with the risks they took and the success the company has attained but OUR MARKETS ARE WHAT THEY ARE ESPECIALLY IF CERTAIN PLAYERS GOT THEMSELVES PAINTED INTO A CORNER AND HAVE BECOME SOMEWHAT FORCED TO PUT AN ARTIFICIAL CAP ON THE SHARE PRICE. The least we can do is take advantage of it.

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Doc, just breezed through your commentary, but maybe an accounting class is in order. If you spend cash and buy back stock, your book value remains the same.

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Book Value per Share = Equity / Number of Common Shares Outstanding

When you buy back common shares, Equity is reduced. Therefore, Book Value per Share goes down.

I was making the assumption the bought back shares were held in treasury and not retired. Under this scenario you have $7MM less cash, but $7MM in treasury stock. No change in book value

But under you scenario, you are right that assets/cash goes down $7MM and equity goes down $7MM.

Treasury shares are also contra-equity, therefore would reduce the BV per share.

Why is this so hard? Shares are retired. Equity and shares both go down equally. Book value per share stays constant. But DIVIDEND per share held by us shareholders goes UP for a given size cash dividend.

Mr. Bubba is correct, my initial post is wrong. Think of this way. You spend $7MM cash to buy back shares. So you have $7MM less cash which is/was an asset. The shares are retired and the net worth/equity go down and balance sheet then remains in balance.

I believe the correct accounting is the cash goes down $7MM, and the common stock o/s goes down by the number of shares times the par value. The difference is subtracted from Paid in Capital.

When stock is bought back by a corporation, the stock is Treasury Stock and is no longer outstanding (and is reported as a negative against Equity, hence “contra-equity”) - that is, the NUMBER of shares is no longer outstanding. The Treasury Stock can subsequently be “retired”, meaning it is no longer “issued” either.

So I did go back in the files MDMN Sept 17 news release. and it says"15% interest in the auryn company capital structure". It appears that Auryn does not see the difference between shares and equity, and may-be there is none, but I like the share interpetation better. moo

if i’m not mistaken, I think Doc means:

  1. you have no cash
  2. you determine you should / will get $180M in a “fair deal”
  3. BEFORE you get that cash and raise your SP to be at least book value with $180M, you ‘borrow’ $7M while the SP is still $0.02, and buy back 350M shares (or whatever).
  4. AFTER that, you get your $173M remaining, and then the BV of that $173M is accounted for by only 1B shares remaining.

So you guys are missing the sequencing which is the core of his argument, or as an engineer, I would say “you are thinking like accountants” :slight_smile: (no offense to accountants)

Your statements are correct in regard to the transaction with the $7M. But Doc was talking about the larger transaction with the $180M, using a small part of it to increase BVPS compared to if you do not do such a sequencing.

Having said all that, I suspect Auryn cares less about leveraging the MDMN disconnect than they do the PM market disconnect, which is the current value of an ounce in the ground compared to what it will be in the future. And the way they leverage that disconnect is to maximize the amount of money they “put in the ground” via exploration expenses and that means negotiating with MDMN to see if they want contribute to playing that disconnect to their benefit with their $100M in option money.

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It’s book value per share (BVPS) I’m referring to, I should have made that clearer. Let’s say a company has $100 in assets all in the form of CASH, no debt and 100 shares issued and outstanding. Its book value per share is $1 PER SHARE (bvps). I’m defining book value per share (BVPS) as assets minus liabilities divided by the # of shares I/O.
Let’s say it got beat up and it’s trading at a 10-to-1 DISCONNECT at 10-cents per share. At the prevailing PPS, this company could (theoretically) buy back 50% (half) of its shares by using only 5% of its cash i.e. $5. That’s insanely powerful LEVERAGE. After demanding them for delivery (powerful in and of itself since many of the repurchased shares were probably fake) and cancelling them the I/O drops to 50 shares. Their assets are now $95 ($100 minus $5). Their new BVPS becomes $95 divided by only 50 remaining shares equals $1.90. The ALWAYS ATTAINABLE (in terms of shareholder rewards) BVPS went up 90% from $1 to $1.90 without lifting a finger.

A beat up corporation trading at a large DISCONNECT to its FMV can always increase its BVPS by simply buying back and cancelling ridiculously priced shares. By DISCONNECT I mean the company’s market cap versus the FMV of its assets. A company can always cash in on its BVPS by simply selling its assets and dividing up the cash amongst its shareholders.

In my opinion, 10 seconds after option exercising I would estimate Medinah’s DISCONNECT to be in between 8 and 12-to-1. I think the NPV of the early production opportunities will surprise some people. The share price will go up no doubt but probably nowhere near FMV.

It’s a simple concept but you rarely see it play out in real life in the junior exploration sector. The statistical odds of a junior explorer ever being cash flow positive from early production opportunities or receiving a minimum of $100 million for 85% of its assets is negligible. The chances of a bunch of would be “boneheads” managing the company that turned out to be the 1-in-1,000 junior explorer to make a huge discovery, hop in bed with a group like AMC and get it funded into production is beyond negligible. The chances of a company fitting the above description having a GIGANTIC DISCONNECT is 100%.

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Just because I love a good “what if” discussion just for the fun of it:

  1. What if AMC owned 40% of Medinah’s outstanding shares.
  2. What if AMC paid Medinah a $7,000,000.00 non-refundable down payment toward the final ADL option payment.
  3. What if Medinah purchased 20% - 25% of their own outstanding shares and retired them.
  4. AMC’s ownership of Medinah would go from 40% to 50% - 55%.
    (4a.) AMC increases their percentage of Medinah ownership without buying an additional share and at the same time the $7M Medinah used to buy down the float is credited toward AMC’s ADL option payment.
  5. 7% of a $100M just reduced the number of shares to be paid a dividend with the remaining $93M by 20 to 25%.

Note: I do understand that these numbers would never work out as shown but there is a number that the math would say, ok, you can use the $7M to buy to (?) price per share and then it makes no since to buy above that price because your dividend would tip to costing dividend rather that providing a profit from the dividend.

Equip yourself with a go-pro. I want to see the exchange of pleasantries between you and Les.

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To much common sense for this board. Even if AMC wanted to take advantage of the disconnect why would they forward money to MDMN to reap the majority of the rewards vs using this money to buy back shares for themselves? Answer: they wouldn’t. The bigger question: why isn’t AMC buying shares in the open market? Cash strapped? Skeptical of the capital structure with insiders like Claro recklessly selling shares? Who knows but I’m fairly confident we’ll know if/when they start

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This is either an oversimplification if one is being charitable, or erroneous, depending on one’s perspective, no offense.

The effect on BV/Share is entirely dependent on price of the stock repurchased.

If the PPS paid for shares repurchased is less than BV/share, then book value per share GOES UP.

If the PPS paid for shares repurchased is the same as BV/share, then we have equilibrium and there is NO EFFECT on book value/share.

If the PPS paid for shares repurchased is greater than BV/share, then book value per share GOES DOWN.

The effect on equity in any of these examples is essentially irrelevant, as assets decrease by the same amount as the cost of repurchased shares. The effect of stock repurchases on BV/share is solely driven by the price of the repurchased shares (compared to pre-repurchased BV/share).

From a practical perspective, public companies generally do NOT record stock repurchases as treasury stock (though there are exceptions); rather the stock is cancelled or retired. Same difference, in any case, as equity remains the same either way. The primary benefit of such repurchases is higher EPS and ROA, post repurchase, as well as general market perception that the move signifies optimism on behalf of the company’s BOD. By the same token, it can also be perceived negatively as an inefficient allocation of capital, e.g. “the company can’t find a more productive use of its cash horde in its business model”. I can’t comment with respect to supposed “disconnects”.

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Yes, it’s an oversimplification, but the discussion is in the context of leveraging the “disconnect” between the market cap of the company versus the current share price. I think brecciaboy did a good job above of explaining a scenario where the company buys company stock back at a price LOWER than current BV, which resulted in the BV/sh going UP. But, let’s be specific: Using the June 30, 2015 financials, the BV/sh is now about .0359 (48,286,000 / 1,345,603,000 sh outstanding). If the company was to use say $7 Million to buy back shares at 2 cents/share, then it could buy back 350,000,000 shares ($7 Million / .02 = 350,000,000 sh). The point is that reduction in the number of shares outstanding would provide a more healthy atmosphere (understated) for future share price appreciation due to people figuring out the market disconnect. And I think brecciaboy is trying his best to create that atmosphere.