The Mining Play

MDMN - 2016-02-29 Weekly Discussion

MDMN discussion for week beginning 2016-02-29

Mdmnholder:

The best way to explain this is it appears there will be TWO new tax regimes a business in Chile can choose from, one where shareholder tax is imposed as the business entity earns it (i.e. the accrual basis) (“Attributed Regime”), and the other where shareholder tax is imposed only when distributions are made by the business entity (“Distributed Regime”). Under both regimes, the earnings of the business entity itself are taxed at about a 25% rate on their current year earnings (scheduled to increase to 27% under the Distributed Regime). Then, the shareholder gets hit with an additional 10%. Reporting-wise, it seems that under the Attributed Regime the shareholder gets taxed at a full 35% with a credit for whatever the business entity has already paid; under the Distributed Regime, the shareholder gets taxed at 35% with a credit for only up to 65% of the tax already paid by the business entity. Of the two regimes, the Distributive Regime seems to have the highest burden since the shareholder gets to claim a credit for only 65% of the tax paid by the entity. Thus, it seems Chile is encouraging current taxation of all income earned by a business entity regardless of whether it is distributed or not (i.e. the Attributed Regime). I’d have to run through all the Chilean tax forms to make sure my interpretation is correct. Either way you look at it, tax rates on business in Chile are going up from the effective 20% under the old tax law to 25% and up.

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Thanks, I think we can all agree it is complicated.

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Does anyone have an idea when we get new information released by Auryn?

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Rumors say before PDAC conference

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It sounds like after taxes and BOD cuts there will not be much left for the share holders, which means that the 7 cent sp may be optimistic. moo

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I could see temporarily “packaging” more AMC equity percentage points into Medinah and taking a little less cash especially if there were an interested buyer in the background for those AMC percentage points. With the current DISCONNECT in place the explosivity is contained within this thing called a Medinah “share”.

Any parties desiring percentage points in the mountain which will be wholly owned by AMC can buy them INDIRECTLY through purchasing Medinah shares. Because of the DISCONNECT they’re going to be cheaper than purchasing them DIRECTLY through buying AMC shares where there is no DISCONNECT. If AMC owns a gazillion Medinah shares then they’re not losing CONTROL of those “extra” AMC equity percentage points (temporarily) stored within Medinah. The owners of Masglas or any new party seeking a large chunk of the action don’t care if they own percentage points IN THE MOUNTAIN directly or indirectly.

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It will become extremely RELEVANT as AMC goes public. If AMC is about to go public, the first thing they’re going to want to do is to buy up Medinah shares until the DISCONNECT disappears. It’s a no brainer. Medinah represents cheap percentage points in the mountain. Otherwise investors are going to figure out that buying percentage points IN THE MOUNTAIN would be a lot cheaper via buying Medinah shares and not AMC shares. It’s basically an arbitrage play. One way to force the unwinding of a DISCONNECT is to have a higher priced competitor enter the market.

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Little Jimmy owns a lemon tree. His neighbor Johnny, who owns a homemade lemon press (to make lemonade), approaches Jimmy with an offer to buy the lemon tree for $5 and give him 15% ownership in the lemonade stand. The lemonade stand costs nothing to build (table, two chairs, cardboard sign). The only real value of the stand is the actual lemon tree (for obvious reasons).

Three months later, the lemon tree starts to produce lemons and Johnny decides to offer Jimmy 25% of the lemonade stand and 50 cents (instead of the $5). Jimmy is elated with the prospect of owning 25% of the stand instead of a measly 15% and runs to his parents to share his good fortune.

Jimmy’s parents can only shake their head and laugh at their “young entrepreneurs” lack of common business sense. They explain to their son that Johnny just got 75% of his lemon tree (the only thing of value) for a 90% discount to it’s original value.

A classic case of Johnny making lemonade out of lemons at the expense of Jimmy, who lost his tree.

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We really don’t know if AMC is or isn’t buying shares in the open market. They very well could be buying.

This is a fair point but, once again, you are making the assumption that AMC if going to go public at a very lofty valuation. I haven’t seen evidence/commentary shared on these boards that would support a $200M let alone $100M market cap. But I’m here to learn…

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This is not the market for AMC to go public in. Put that idea out of your heads. It seems clear AMC isn’t buying shares in MDMN. AMC already owns the Caren, the Fortuna, and 85% of NUOCO.

Read my post from the weekend. For MDMN it all hinges on the ADL. If the ADL proves economical the option is exercised. At that point I expect AMC and plenty of other entities to begin aggressively buying shares in MDMN.

I think once the drills start turning on Pegaso Nero, we may begin to see a little speculative money coming into the market. Until then, the current market is what it is.

Regarding PDAC . . . LP is not going, nor is anyone from MDMN. That leads me to believe that AMC is not there for MDMN. They are there for AMC / Masglas. Recall the article from January where reference was made to the abundance of other opportunities that Masglas is considering. I expect they are there as investors, not as promoters; otherwise they would have a booth and be telling the story.


It’s time shareholders completely discount the vast majority of rumors and focus only on what is seen in the contract and what AMC has published (and MDMN has republished.) Also, if there is fuzzy wording in MDMN’s releases that cannot be verified contractually or through AMC’s releases, I suggest the more conservative interpretation is in order.

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But Johnny is the one who is working and if it wasn’t for Little Johnny, Jimmy would not even see a penny from his lemon tree (which could even be worth $1M)

John - here’s where your story breaks down and I’ll just put it in our situation so it’s clear.

We have always had really strong claims (at least we thought.) The problem is we’ve never had any capital at all. JJ was always land rich and cash poor. Secondly, we may have money and we may have land, but not have any knowledge or expertise in being able to know how to deploy the money in an appropriate way to monetize the land. MDMN has never had any knowledge or expertise in that.

Basically here is the story of MDMN in a nut shell. A guy has been land rich with what may be one of the last world class deposits available. He had NO money. The people he first did a deal with (MDMN) had no EXPERTISE. Plenty of companies have come and gone and offered their expertise at reasonable prices, but the owner of the land thinks the the land is worth all the money, and doesn’t value the money or the knowledge of how to deploy it. Consequently the property has sat for 40 years with very little real work being done.

Thus essentially the same set of assets that were once 100% available to shareholders with about 40 million shares out 20 years ago — will finally be in the hands of someone competent who has money and expertise. It cost Johnny 85% of his property because he didn’t appropriately value the MONEY and EXPERTISE people to begin with.

Fortunately for some of us, the 15% is going to be valuable enough that we’ll get out of dodge with real gains. Were they commensurate to the risk? No, they weren’t. But as someone once said, at this point “I’m more interested in a return of capital than a return on capital.” :smile:

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My point (which is probably lost in the story) is the following: take the $5 for the tree and a nice percentage of the upside. Until that upside is proven you’re basically giving up the tree/mountain for unknown upside. We have a deal on the table and it’s a good one

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