IF MEDINAH/AMC WERE TO HIT BIG GRADES AT THE MERLIN VEINS 2-5 TRENCHING AND DRILLING PROJECT WHAT EXACTLY MIGHT IT MEAN?
- The NPV of both Medinah as a corporation and the currently 100% owned ADL deposit itself will spike because of BOTH the early production opportunity aspect and extended mining life both of which are intricately tied to NPV. Why is this “double whammy” aspect so important? It’s because the all-important NPV of a deposit is calculated by a “discounted cash flow” (DCF) analysis. The two most important parameters are the timing of the COMMENCEMENT of the cash flow (early production opportunities) and the length of time the cash flows (mine life). The near surface Merlin Vein grades are tied to BOTH parameters as opposed to, for example, the average grades found in the porphyries themselves.
- The question then arises, will any spike in NPV associated with stellar grades at the Merlin Veins and the subsequent enhanced amount AMC could get for the sale of any of their 85% post-option exercising points induce AMC to bring in heavy hitters to co-develop the project on terms more favorable to AMC because of this spike in NPV i.e. less dilution of their 85%?
- Would the bringing in of any new heavy hitters by AMC necessitate AMC acquiring “ownership” via exercising the ADL option with perhaps multiple parties then paying the purchase price? My guess would be that AMC would want to fly solo on this project UNTIL a breakthrough of the NPV occurred.
- Will the ability to make some big production cash quickly induce the exercising of the option? Can AMC earn income without being an “owner”? Did Medinah have the leverage back at the Toronto meetings to say sure we’ll cut you in on the cash flow from the Merlin Vein early production opportunities RIGHT AFTER YOU EXERCISE THE OPTION?
- The NI 43-101 and/or SEC IG 7 technical report will be that much more favorable with strong Merlin vein results. This would allow BOD members of interested majors more leeway to get involved as their actions would be more defensible with one of these technical reports on file. What exactly goes into one of these reports:
Trimetalsmining.com - The combination of a favorable 43-101/IG 7 plus an early option exercising should qualify both Medinah (with the cash and the 15%) and AMC (with the 85% stake) for exchange listings. Any listing on a higher exchange should enhance credibility and expand the universe of potential investors perhaps even institutional investors.
- An exchange listing for AMC could provide enormous financing opportunities for covering the CAPEX. Might an IPO associated with an exchange listing be used to fund the purchase price and CAPEX?
- Stellar grades at the Merlin Veins might (depending upon the agreed upon formula) increase the cash amount of the $100 million MINIMUM “purchase price”. The term MINIMUM implies that the amount could scale up as per a previously agreed upon formula.
- Any enhanced amount of up front cash as determined by the agreed upon formula might induce AMC to exercise the ADL option sooner than later just to stop the calculation clock. This would enhance the NPV of Medinah that much quicker and lessen the timeframe for gettlng a higher listing and the attached superior financing opportunities through things like an IPO.
- The enhanced value of the ore from stellar Merlin Vein results would probably hasten the development of the project since time is money.
- Enhanced early cash flow to Medinah (with higher grade ore) could fund share repurchase activities that would take advantage of (lever) the DISCONNECT before it dissipates. How much cash flow are we talking about and how soon might it commence?
- Extremely high grade ore at surface could increase the probability that the underlying hypogene ore might be of a higher grade than otherwise contemplated.
- The presence of extremely high grade ore in the Merlin Veins as well as at the LDMC 70 meter depth level 3 Km away could suggest that other very high grade epithermal deposits might be discovered in the future or perhaps already identified on the aeromagnetic survey.
- With high grades at the Merlin Veins the internal rate of return (IRR) will be greatly enhanced and the payback period lessened.
- With high grades at the Merlin Veins there will be a race to go into production. Since transportation charges in Chile are a large percentage of C-1 cash costs (mining, milling admin and transportation) I would think that there would be a race for AMC to build their own processing facility perhaps while shipping some of the higher grade ore just to get some cash flowing. Building production facilities further solidifies the odds of exercising the option perhaps sooner than later in order to enjoy some of that cash flow. All of these trips to Toronto and Santiago might be associated with hammering out new agreements to incorporate into the original “binding framework agreement” in regards to splitting up the proceeds of production.
- High grades at the Merlin Veins might expedite AMC’s efforts to gain CONTROL of Medinah once the Quijano issues are resolved. One might expect that gaining CONTROL of Medinah might precede any option exercising so that AMC will be in CONTROL of both the cash and 15% AMC stake at all times.
- Simultaneous with gaining VOTING CONTROL one might anticipate AMC also attaining BOD CONTROL and a transition process of swapping out Medinah management for AMC management.
- What exactly are “stellar grades” at the Merlin 1-5 veins? Is it realistic to think that the 27 gpt gold grades (plus highly anomalous copper findings) found in the surface trenching of the Merlin 1 Vein will follow through to the other 4 Merlin Veins? First of all, finding 27 gpt gold AT SURFACE IN TRENCHING SAMPLES is a bit insane in a highly weathered, oxidized and leached area. But then again, this isn’t really “at surface” in terms of the original stratovolcano before it blew its top off. Today’s “surface” is in the belly of the mountain where supergene enrichment from acid leaching can be found. Usually you’d expect grades to increase with depth from the surface in a vein. So the jury’s out for now. I would assume that first we’ll get surface trenching results from Merlin 2-5 and then some grades down deeper subsequent to drilling out these gigantic “sheets of plywood”.
- Most “gold mines” mine veins in an underground fashion. The average grade is often cited at perhaps 2-4 gpt gold. The average “mining width” of the veins being mined is 1.2 meters. In “high sulfide” veins (high acid) the metals tend to permeate into the wall rock and the grades are moderate to low. In “low sulfide” veins (lower acid) the metals are typically confined to the vein itself but the grades are typically higher.
- What do we want to learn from any press releases concerning the Merlin Veins? How many total kilometers have been traced at surface? If all 5 are 1.5 Km long then the answer is 7.5 Km. What is the average width? M 1 was 1.35 meter. What is the average grade at surface? M 1 ran at 27 gpt gold which, to me, is insanely high. I’ll be doing cartwheels at anything north of 5 gpt gold. WARNING: The cartwheels may not be pretty. What is the recovery rate as determined by the “bulk testing”? What are the copper grades in terms of “gold equivalent”? ARE THESE VEINS CLOSE ENOUGH TO BE OPEN PITABLE? Has AMC been busy scooping up nearby concessions now that they know more about the trending of the ore? Has drilling commenced? How many rigs involved? Is the 43-101/IG 7 still scheduled for early in the new year?