Thanks again for all you’ve done. There’s a different way to look at this scenario. When you factor in that Medinah owns a 36.25% stake in the 4 Nuoco properties (15% on their own plus 25% of AMC’s 85%) which make up one fourth of the mountain because of their residual 15% of Nuoco they never sold to AMC in essence Medinah has a 28% stake in the mining district as a whole, Masglas has a 63% and both Nuoco and Cerro have a 4.5% stake.
At the end of the day, Masglas’s profits will be associated with their 63% of the action plus whatever percent they own of Medinah multiplied by 28%. For instance, if they owned half of the Medinah shares (14% of the profits of the district) then their profits will be tied to a 77% stake subject to the TERMS AND CONDITIONS of the agreement. In the MOU press release, Medinah cited several “free carried interests” that were part of the deal. It appears that Medinah is responsible for ZERO of the “mining costs”, ZERO of the “operations costs”, ZERO of the further exploration expenditures, ZERO of the future drilling costs, ZERO of the tax encumbrances and ZERO of the costs for the purchase of further mining concessions around the mining district. They will, however, receive 25% of the “action” on any new annexations. I do sense that Medinah needs to take a portion of its portion of the mill check and pay off its pro rata portion of TRANSPORTATION costs.
These 63 and 28 percentage points of “the action/profits” are not at all created equal when one party’s percentage points have added “encumbrances” and responsibilities attached. The “end profits” attached to these percentage points will be quite different as Masglas needs to take its portion of the check from the mill or smelter and go pay off a bunch of expenses that Medinah need not pay.
Somewhere along the line the investment community is going to have to assess a VALUE for Medinah’s “package of assets” including 28% of the action PLUS all of the freebies contained in the TERMS AND CONDITIONS. Recall that the MOU press release also stated that further negotiations on or around the notary appearance date might be engaged in so put an asterisk for now on these “freebies”. If you apply industry standard costs for various mining activities like taxes, “mining costs”, etc. Medinah and AMC’s “profits” might be very closely aligned for the next perhaps 25 to 30 years UNLESS MASGLAS DECIDES TO DO SOMETHING ABOUT IT.
If Medinah’s share price were to trade at a severe discount to what 28% of the action PLUS the value of all of these “freebies” would justify in mining terms, then I would think that Masglas would quietly gobble up everything in sight in order to raise up their percentage of Medinah ownership and therefore their share of 28% of the profits. Nobody has better visibility of the FMV of 28% of the action than Masglas.
If Masglas had an interest in using the Medinah corporate vehicle in order to go public via a reverse merger then after gaining 50.1% of Medinah they could simply tender for the whole Medinah enchilada. Any tender would be subject to a FAIRNESS OPINION both to protect Masglas and Medinah. If there is still a gigantic disparity between Medinah’s market cap and the FMV of 28% of the action subject to the agreed upon TERMS AND CONDITIONS then the FAIRNESS OPINION would reveal this disparity. A 28% piece of the action/profits with a whole bunch of free carried interests thrown in (if the MOU press release is accurate) is “worth” a lot more than a 28% “working interest” in the mining district. If Medinah is entitled to a 25% stake in all further annexations by AMC then the FMV of Medinah’s perhaps 27.5% of the action (adjusted downwards because they won’t earn the full 28% of the action at these new annexations) at that time will go up markedly.
This generosity by Masglas should not be that shocking because Medinah did take Masglas off of the hook for not only $100 million 18 months down the road but also the “cost of capital” related thereto. After what Masglas has discovered, I think it fair to say that their chances of exercising the option at the option expiry date were significant. Is the market savvy enough to realize that Medinah is getting a whole lot more than 28% of “the action”? I don’t know but I’m pretty sure Masglas does. In retrospect, I think it’s the lousy share price that led to the design of this “win-win” solution. Masglas can recoup its “generosity” by simply buying ridiculously cheap Medinah shares. They don’t care if their overall profits come DIRECTLY from their 63% of “the action” or INDIRECTLY from their percentage of ownership of Medinah shares at the finish line if from a “net profit” point of view the two are almost equal.