Understanding the possibilities.
Here is what "I GUESS" the structure of this deal would look like.
1. A new entity is created.
2. The properties or claims are transferred to new corporation in exchange for a portion of debt and the remaining in equity.
3. MDMN Chile initially owns 100% of corporation. MDMN US has carried interest through it's 51% ownership in MDMN Chile ownership in these specific properties.
4. JV partners invest an initial amount of money (1st tranche)into new corp for ownership percentage. (amount unknown)
5. 1st tranche is broken into three pieces, 1st - cost of planned drilling program, 2nd - working capital for operations and infastucture improvements, 3rd - funds for repayment of prior period costs incurred to date as reflected in debt portion of of #2 above.
6. MDMN US balance sheet reflects these changes by decreasing capitalized cost in asset section of balance sheet, records note receivable and investment in MDMN Chile investment in JV for agreed transfer price. Any difference would be recorded as earnings from the sale or transfer.
IMPORTANT: a 51% interest in the property does not equate to a 51% interest in MDMN Chile. Our understand currently is that MDMN Chile contains no other non co-owned assets but that may not be the case. I make this statement based on the wording of both Q & A and updates over the years but this is just my opinion. Either way it does not change the value of what we own.
7. Under #5 (3) above a portion of the funds received by MDMN Chile will be paid to MDMN US. These funds will be used to repay accounts payable and shareholder's advances first, a portion will be retained to fund current operations and working capital needs and the remaining will be available for either a dividend or capital stock repurchase program.
8. MDMN US or MDMN Chile will have no obligations related to funding the drilling program, feasibility study or future production, this will be the obligation of New Corporation if the JV partners determine to proceed at each mile stone. Future distributions reflecting our net earnings from the production will be based on fixed distributed earnings from the new corp through MDMN Chile based on our carried interest. Thus if we estimate a 20% carried interest in the JV (high end) and a $400 million net operating profit on an annual basis in New Corp, we looking at $80 million in annual distributed earnings against immaterial operating cost in MDMN US.
9. Additional traunches will have simular cash components that will provide MDMN US with free cash flow for distribution or repurchase. However, we will be giving up ownership with each payment. The agreement will spell out the max and min of these percentages and will probably be based on the result of the drilling program and the feasibility study with lookback provisions.
The result of the agreement is that we monitize the value of minerals in the mountain. After the drilling program and feasibility study, the reserve studies should allow us to more closely estimate the future value of these distributions. Additionally, there is alway the possibilities that New corp is acquired prior to production which would result in immediate cash liquidation and distribution.
I offer this as just a narative and MY OPINION only based on my DD of this investment and other transactions in the field. Nothing contained in this is meant to either suggest anyone should buy or sell this investment. This is for discussion purposes only. But based on this structure, I believe that:
IF You're In, You're In.
AI
