Hi Mangelsen,
I can’t give investment advice but I can help you set up the calculus for the NPV of Medinah subsequent to this new deal because a lot of visibility has been opened up by the deal and a lot of DERISKING accomplished by the deal (for me anyways). I’m a big fan of the concept to never trust our OTC markets to properly distribute shareholder rewards through share price appreciation. I personally would rather be able to sense a clear pathway to cash dividend flow especially if the dividends are likely to be PROGRESSIVELY LARGER through time. I now feel that I have that.
From here on out everything becomes MECHANICAL. If the share price remains out of synch with corporate performance resulting in abnormally generous cash dividends then I can simply take my artificially generous cash dividends and buy back ridiculously priced shares in order to expose larger shareholdings to subsequent PROGRESSIVELY LARGER CASH DIVIDENDS. I can’t ask for a shareholder reward GUARANTEE any stronger than that.
Medinah’s current market cap is about $20 million and they hold or are about to hold a 25% equity stake in AMC and about 28% of “the action” (on average) for the entire mining district. The new 25% AMC stake plus Medinah’s market cap in combination suggests that AMC, the team they’ve put together and their 100% owned (now open pitable) mining district is only worth $80 million. To some the absurdity of that is obvious but to others it might take more information in order to make that deduction using standard industry metrics which we’ll soon have access to. We shareholders don’t know the projected cash flow numbers but we do know that whatever they are Nuoco, Cerro and now Medinah know them and have all said “heck yes” to the terms of their deals.
For simplicity’s sake, I’d divide the valuation of AMC’s mining district into the net present value (NPV) of the high grade near surface early production opportunities as determined by discounted cash flow (DCF) projections plus the NPV of the deeper porphyritic assets which is a tougher assignment for now. The Caren Mine production will come first and then probably that 400 ha plot of land encompassing the Merlin Veins and the various Fortuna Veins second. The latter early production opportunities appear to be open pitable.
Nearly all porphyries are mined via open pits using bulk mining methodologies. I feel that this deal, in and of itself, has increased the NPV of AMC’s mining district enormously because it is now open pitable and pit optimization studies can be carried out post-drilling without any issues related to Medinah’s intervening ground if Medinah (or Cerro or Nuoco for that matter) didn’t cut a deal. One of my paranoias was that some party might hold up progress in search of a better deal. A tremendous amount of DERISKING for this deposit was recently accomplished for a variety of parties.
Medinah’s market cap now provides us a BENCHMARK to gauge the MARKET’S VALUATION of 25% of the mining district and how appropriate or inappropriate the market is rendering that judgment. The management factor in this industry based on “management, management, management” is now focused on the bona fides of the team AMC put together. Back when AMC merely had an OPTION that they may or may not have been exercised the benchmarking process was much weaker because the mining district might have been worth a fortune but AMC might have had trouble raising the money independent of the mining district’s value. My own fear was that they might opt to raise the entire $100 million by mining the Caren for several years and then exercising the option if Medinah chose to extend it. By no means do I think AMC would have had any trouble in raising the money but THE MARKET doesn’t know that.
Once we get some cash flow numbers out of the Caren Mine the initial NPV of just that relatively tiny aspect of the mountain’s early production opportunities will be more apparent. From my standpoint, the exciting part will be to project the increase in the allowable production rates on a daily basis over time. The Caren Mine is permitted currently for 5,000 tonnes per month. That number sounds modest at first glance until you start multiplying it by the grades encountered to date in those two Caren adits.
As yesterday’s PR stated, AMC has been aggressively going through the permitting processes in order to not only add several other early production centers but also to get the allowable production rates per production center increased. Thus the initial cash flow numbers could take on more of a parabolic growth pattern through time until any future open pit is commissioned at which time the production numbers might take on more of a vertical nature.
With the AMC geoscientists now steering the ship, I think the pathway has been clearly established for a very, very long stream of progressively larger cash dividends. To me, these recent developments has clearly confirmed the existence of an enormous DISCONNECT between Medinah’s current market cap and it’s about to be easier to estimate approximate NPV.