HR,
I understand and agree with that argument which is similar to what John has stated. And I understand that it is formulated with the intent to counter the “perpetual ATM” idea promoted (and most likely believed) by our guys. I get that.
My comments:
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If you use the words “obligated” and “compel” I agree 100%. I doubt anything will compel or obligate them. Although, as a person who is a majority owner in a business with a minority partner, minority partners are not without rights. They do own their minority % of the cash flow of the company. Company to company arrangements tend to dominate what level of input they get for making decisions of what to do with it. We have an “operating agreement” for example between myself and my partner that limits the level of decisions I can make without explicit permission from my partner even though it is a 60/40 ownership arrangement. Such agreements are very common. I will not assert that such an agreement is in place between MDMN and AMC because we have no way of knowing. But they are common and it would have been an obvious concession to get in giving up the $100M cash. But let’s leave that aside for the moment.
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I agree with the argument that the priority for revenues generated by early production will be expanding exploration. That is clear and makes sense, IMO.
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My only argument is that there is a “may” still available for consideration, IMO. My argument is formulated as follows:
a. if you just calculate the potential cash flows for 5000 tpm at any grades above 25 gpt or so and gold at $1275 or above, they are going to generate a non-trivial amount of cash.
b. Although in theory you could spend almost limitless amounts of money exploring the ADL, as a matter of practicality, especially in the early stages, you can only usefully spend so much, maybe $15M per year for a couple of years. Why? Good “next decisions” are limited by data and by people to use the data for next decisions. E.g. you need this years drilling to decide on next targets. You need this years data in order to hire a company to design metallurgical processes. etc. Even if you have infinite dollars, you can not do exploration infinitely fast.
So I think there is room for a “may”, if they get to 5000 tpm, probably not till end of 2016 or so, and their accessible grades are high enough, they could generate enough cash flow to have some left over to dividend. They could just save it of course. But if production continues to look good going forward, they will not be short in the future either. And we will now have representation on their BOD and have a legitimate representation to at least ask for shareholder consideration, if it makes sense in light of future plans and future production.
The other side of the above though is that as lots of money is spent on exploration in the next 12 to 18 mos the asset value of the mountain will rise especially if the POG continues to improve. As it does so, and as more significant mining stages are considered, ones which require $50M or $100M, or $500M in capital expenditure, then it will make sense for everyone to consider a TO.
MDMN owns 25% of AMC and 15% of NUOCO, which makes for about 32+% of the LDM. I think once they seriously start considering LDM production (and maybe even open pit Fortuna/Merlin production), which could be long before any porphyry production, and thus are staring something on the order of $75M or $100M +/- of expenses in the face, it starts to make a lot of sense to test the TO waters and get back that mountain ownership so you get the return on that investment. IMO, building an open pit on the LDM when you you do not own 32% of it is unlikely. And at that time when capital expenses really move up the curve and MDMN shareholders see that dividends will be hard to come by for several years due to construction expenses, everyone will be in a TO mood, imho.
