-- Posted Wednesday, 31 August 2005 | Digg This Article
Preamble:
A Preamble would make some folks believe I am writing a constitution for a sovereign nation, but alas I am not. I am simply offering you a bit of an interim update due to the action in gold these past several weeks. It is currently August 25, 2005 and as most of you realize, gold has been enjoying a positive motif. Nothing spectacular, but it’s been holding its own.
This is a good thing if you are long gold or gold shares. Will it last? I honestly don’t know and after the way the general markets have performed over the past several months, it gives one pause to wonder. But then again, we are always wondering Dear Reader, always wondering. Currently we are considering the relationship between the larger indices, oil, the “housing bubble” and gold. The one thing I actually do not concern myself with at great lengths is that the price of gold will eventually be moving higher. I believe it to be a coiled spring and one of these days, it will unleash its mighty power and that would be the power of truth.
If there is one thing we need to consider it is that the PTB (Powers That Be) don’t want gold moving too far too fast because it will shed the light of truth on the inflationary model that is being used. In other words, there is no inflation if you don’t live somewhere, eat, drive, or use energy in any capacity. Gold is a barometer. Break the barometer or thermometer, if you will, and you don’t receive an accurate reading.
Jim Sinclair, another one of those gentlemen doing yeoman’s work to expose the problems encountered by the gold community, believes that there may be a sudden lurching of gold to the upside one of these days. This is a view confirmed by Dan Norini. Yes, these guys are from the “gold positive” camp, but they are also gentlemen of impeccable character and people who have a genuine interest in unleashing the truth for altruistic purposes. Indeed, altruism does exist.
If we can break through $450 on a close we may well be on our way towards $500 before years end. Does this affect Madison Minerals? Yes and No.
Yes, because an increasing gold price will help all quality gold shares rise and I still believe that MMR is a quality junior. It has resources and the potential for a bunch more because of where both of their properties lie.
No, because it has been established empirically that Madison has “the goods” and if they connect with the “right” JV partner, they will prosper whether gold is at $420 or $460. If the Mt Kare proposal currently on the table materializes, Madison will do just fine, thank you very much.
The breath of these thoughts will become clearer as we continue on with our story.
You will need patience as this is not a simplistic story line, but then again, are any of them? Madison Minerals (MMRSF) is only one part of Mine-Tech, which is the umbrella company that also contains Oromin Explorations (OLE-V) and Lund Gold LTD (LGD-V). Each one of these companies has exciting properties and at any given time, news can be forthcoming.
Background, August 5, 2005
I’ve written about Madison Minerals Inc. (MMRSF) and the Mine-Tech Group several times over the past few years. This follow up piece is a way for me to present my perceptions to you about the latest sequence of effects affecting the company.
I won’t kid around with you. Madison’s shareholders are disgruntled and one can make all the excuses in the world as to why the share price is where it is at but it doesn’t help anyone feel better about the company, especially if you’ve bought in at significantly higher levels. Yes, even though there has been a positive bias to gold in the short term, the junior market has been in the doldrums over the long term. Yes, the stock should be considerably higher based upon the assets and the properties the company possesses. But, the fact of the matter is the stock is trading at depressed levels. Everyone wants to know why.
One thing I do need to point out is that Madison is not alone in this scenario. I could go down a long list of junior mining companies that are dealing with the same set of problems. As much as it doesn’t help the value of one’s portfolio, it does help us recognize the fact that these problems are a result of a resource market that is just beginning to feel its legs again after what seems an eternity of consolidation.
It is important to offer you the reality of the situation as I see it and not as I wish it was. You’ll hear me say that frequently because it is truth.
The Mine-Tech Team, of which Madison is a part, has enormous talent within and without the company. Technical talent has always been their strong suit.
So what’s the problem? They have excellent properties— the Lewis Property in Lander county Nevada, (the property right next to Newmont’s Phoenix-Fortitude Complex) and the Mt. Kare Property in Papua New Guinea which has substantial gold and silver reserves. They have experienced management; this is the same group that was instrumental in Eskay Creek and Hemlo. They have the ability to raise capital although in this market that capital is expensive and in many cases difficult to acquire. They have a share structure that is attractive after the 1-5 roll back in November of 2004 (about 23 million fully diluted). One would think that the share price should be appreciating, not contracting.
Madison seems to always be a whisper away from the discovery of a big deposit. Even now, both Mt. Kare in Papua New Guinea (PNG) and The Lewis Property in Lander County, Nevada hold enormous promise. Remember that Mt. Kare is contiguous to Placer Dome’s Porgerra Deposit where over 20 million ounces of gold, past and present, have been discovered and or mined. Remember also, that the Lewis Property is contiguous to Newmont’s Phoenix Fortitude Complex where the numbers are equally staggering.
I’ve been over this before so I’ll direct you to the links at the end of this article and have you read or revisit those previous pieces, as the case may be.
What everyone wants to know right now is what is transpiring with Madison and the deals being discussed affecting Mt. Kare in Papua New Guina and why is the share price where it is?
The most significant area of difficulty that Madison Minerals and the Mine Tech team have encountered center around how to present the information that has been unfolding without offending anyone: the companies involved in the deal or deals, the Canadian Exchanges, and the investors in the community. With those types of limitations, the attitude from management has been a “wait and see what develops” mode.
This attitude, by its very nature, constricts the flow of information for which the investors hunger. If investors don’t understand what is transpiring, they have a tendency to shy away. Subsequently, the share price descends on very limited volume which is exactly what has been occurring. Add to the equation the summer doldrums and a gold market that has been stuck in a trading range, and folks are just plain irritable!
Now, is that the problem? Perhaps it is in part. My personal belief is there has been a lack of confidence demonstrated by the investing community in Madison because of the way the deals have been explained and because the flow of news has been erratic. This is the way management chooses to handle the situation, but then this is the way this group has always handled these kinds of issues. Is that good or bad? It is what it is. How Zen! Seriously though, if we understand the history of this group and their approach to Investor Relations, we have a better view of how they are handling this particular situation. At the risk of being redundant, we need to understand that this is a technically oriented group—therefore; they would prefer to let the drill holes “do the talking”.
I personally believe that management feels that these things will sort themselves out, once a suitable JV partner is in place and the details of a deal have been agreed to. In the interim, the attitude is “don’t rock the boat”. When one of these deals is consummated, then both the JV partner and the senior management of Madison will have more reason to once again begin to tell the story in earnest. Until then we’ll have to be patient.
The Deals
There is a new deal on the table that involves Longview Investment Ltd (LVI) out of Scotland and the press release of July 17, 2005 explains the details of the proposed transaction. (www.madisonminerals.com)
This new deal on the table preempts the previous deal with the Equatorial Group out of Australia. Many people have asked, what happed to Equatorial? Did they discover something that they didn’t like when sifting through the Mt. Kare information? People seem to have arrived at that inaccurate conclusion.
The Real Story
My understanding is that The Equatorial Group needed more time to complete their due diligence and they were not granted the extension because there was another player in the wings by the name of Longview Investment Ltd. (LVI). Equatorial had three months (some would argue that they actually had more time given their familiarity with the property) to complete the information transfer and for some reason, even though they had sound knowledge about Mt. Kare and the programs that had been undertaken, they were not prepared to complete the terms of the initial agreement. Equatorial was quite interested in pursuing the pending transaction and the door has been left open for them to reenter in the event that the details of the proposed deal with LVI do not evolve to everyone’s satisfaction.
I believe it was the view of Mine-Tech’s management that with the clock ticking, especially on the operating costs of keeping the Papua New Guinea Camp open, it was necessary to move on and explore new opportunities. What most folks do not realize is that LVI was also re-examining the Mt. Kare Property three months ago and they were not quite ready to make a move. Therefore, this time when the opportunity arose, they took immediate advantage of it.
I say re-examine because Longview and Mine-Tech go way back. In fact it was Longview that first brought Mt. Kare to the attention of the Mine-Tech/Madison Group. So these two entities know each other well and have had a long standing relationship that has generated a certain comfort level and trust. I cannot over emphasize this point. LVI has long held an appreciation for Mt. Kare and all the promise contained therein. The time appears right for them to take that appreciation to the next level.
In summary, Equatorial did not abandon the deal but were preempted by another group who moved swiftly when the opportunity arose. Not wanting to burn bridges, the Mine-tech Group quietly exited from one deal and into another with minimal fanfare. You must also understand that the track record of Mine-Tech clearly indicates a lack of aggressive promotion and a more subdued approach to presenting news to the investing community. Consider for example, the idea of what would have happened if MMR had made a huge deal over the Equatorial proposal only to have it fall through. Clearly, in retrospect, Madison’s management team chose the correct course of action. This was one of minimal fanfare.
If we understand their approach to promotion, then there is less cause for alarm. It is my belief that they are continuing to elevate the awareness their three companies {Madison Minerals Inc. (MMR); Oromin Explorations Ltd (OLE); and Lund Gold (LGD)} in a systematic and studied fashion.
Comments on the New LVI Proposal
I’d like to make a few brief comments about the new agreement with LVI. My personal belief is that it is a stronger agreement for Madison Minerals and for their shareholders. For instance, Madison received what is in essence a private placement of $200,000 from LVI which clearly indicates that LVI is making an investment in Madison Enterprises (PNG) Ltd. As such, one would assume that they would anticipate a return on that investment over the course of the relationship. LVI owns 200,000 shares of MMR and consequently, they now have a vested interest in the success of the company. There seems to be something infinitely substantial to this type of an arrangement as in there being an optimistic expectation of a positive return on their investment. Companies don’t buy into other companies anticipating that they will be losing money any more than investors do. Ultimately, it may be a long and rambling road, but at the end of it we would hope to see something positive occurring.
If you compare the (previous) Equatorial Agreement versus the (current) LVI Agreement, you’ll see that the new arrangement is more leveraged to time, funding, and work to be performed than was the Equatorial Deal. In other words there is more incentive for LVI to perform and at the end of the day, it would appear that Madison and their shareholders will participate more equitably in the development of the assets contained at Mt. Kare. (again, please go to www.madisonminerals.com for the press release dated July 7, 2005 and titled Madison signs Agreement for Development of Mt. Kare).
Over these past many months, there has been shareholder confusion about exactly what the nature of these Madison Agreements entail in terms of both properties. The Lewis Property in Nevada is not part of these proposed agreements and the JV discussions with LVI pertain solely to the Mt. Kare property. This leaves the Lewis property, which has enormous potential in its own right, to be developed by Madison Minerals Inc. at their sole discretion.
Another point I’d like to make is that when Madison and LVI are talking about completing a bankable feasibility study, both companies realize that this will entail the expenditure of millions of dollars in exploration capital. While the pre-feasibility study and subsequent exploration programs are on going, my understanding is that LVI will be releasing regular news in a manner that will keep the investing public abreast of their progress. LVI is known to be a market savvy group. This is an attribute that will serve them well in this market.
Ultimately, Mt. Kare will need to be explored to an extent that allows both parties to expeditiously evaluate the real financial potential of the property. This is similar to the arrangement Madison had with Equatorial, only it is more leveraged in a linear fashion thereby allowing both parties to have a solid understanding of exactly what needs to be accomplished and in exactly what period of time. In this deal, more I’s are dotted and T’s crossed.
Conclusions
I believe that Madison’s management has a plan, they are comfortable with it, and they are endeavoring to implement it. That plan entails securing a joint venture partner for Mt. Kare leaving them wider latitude to explore the potential of the Lewis Property in Nevada. Does this not indeed offer Madison the best of both worlds? I think it does. There often comes a time when a junior mining exploration company needs a complementary partner to move a substantial project forward. Mt. Kare in PNG is a substantial project and that time has come for Madison. It’s a long jaunt from Vancouver to Papua New Guinea and that trip can get very old after eight years. A little help sure wouldn’t hurt at this stage of the game.
Additionally, Madison has expended well over 30 million dollars Canadian in PNG over this past eight years. They would make an excellent JV partner for another company of merit because of the magnitude of information they’ve acquired over that period of time. Add to the equation, their extraordinarily talented geologists who can lend their expertise to any ongoing operation and you have a situation that could be explosively positive in an appreciating gold market.
LVI would appear to meet so many of the perquisites mandated by Madison in order to secure that complimentary relationship. Add to that the idea that these two groups know each other and the relationship would only seem to grow stronger and the potential even more exciting.
Madison, at this point in time, has now fully entered into the category of “sleeper” status. By that I mean, that this project is a sleeper and when everyone else is looking in one specific direction, you should be looking in the other. In business, and in life, this is not an inconsequential talent to develop!
There is one more point I need to make—perhaps two or three but I shall keep it to one. Madison has approximately 23 million shares outstanding. This is quite reasonable for a junior mining company. It gives them options. Given the fact that much of it is held in “strong” hands bodes well for the future. Management, to their credit, has made a few strategic business moves over the past several years which were painful at the point of imposition but now appear to be well thought out.
With all this firmly in mind, we now need to wait until October at which point we will know whether or not the LVI Deal will be moving forward, held in abeyance, replaced with another, or abandoned.
I, for one, would like to see that deal become an ongoing and successful venture as I see it as a win-win-win (MMR-LVI-Shareholders) type of scenario. This is only my opinion but as one who has followed this company and this group quite closely for almost six years, I believe I am qualified to offer at least an opinion.
I am always mandated to present to you that these are my ideas and this information is presented solely for informational purposes.
Until next time,
D. Stewart Armstrong
Consultant to the Junior Mining Sector
August 25, 2005
-- Posted Wednesday, 31 August 2005 | Digg This Article
