S.A. Advisory E-Mail Update
February 28, 1999
Subject: Special E-mail from S.A.Advisory concerning press release for AROYF
Sender: owner-saadvisory@myer.com
Note: This report was not produced by S.A.Advisory! AROYF contracted us to release this
document to our e-mailer's for investor consideration. The company has an active website,
namely, http://www.agarmeno.com . Upon review of this document it will be easy to
conclude that huge upside potential exists when considering the actual subject matter.
We received a $1500 fee exposing this specific opp.
TECHNICAL RESEARCH REPORTS inc.
Specializing in Corporate Communications
70-50 Austin St., ste 104, Forest Hills, N.Y. 11375
(718) 268-3300
Ag Armeno Mines & Minerals Inc.
#shares: 32 million fully diluted
Vancouver AGM.V
Recent quote: 7¢-10¢ US
OTC Bulletin Board AROYF
52 week range: 3¢-12¢ US
printed February 17, 1999
AN UNUSUAL SPECIAL SITUATION
This tiny junior precious metals company is the minnow which has an
excellent chance of swallowing the whale. It has entered into an
agreement to acquire an 18% interest in one of the largest, if not
the largest, recent copper-gold porphyry discoveries in the world.
This property is owned 45% by Newmont mining and 35% by Japan1s giant
Sumitomo Mining Corporation. It is being brought to production at a
cost of $1.9 billion.
In May, 1998 Armeno reached an acquisition agreement with Jusuf
Merukh (Merukh) and PT Pukuafu Indah (PI), a private Indonesian
company, which owns 20 % of the BATU HIJAU copper-gold mine located
east of Bali on the island of Sumbawa. The BATU HIJAU, scheduled
for production at the end of 1999 presently contains mineable
reserves of 12 million ounces of gold and 10.6 billion lbs of copper.
Employing 4,000 workers, annual production for 25 years, based on
current reserves, is estimated at 550,000 ounces of gold and 540
million lbs of copper. At $285 gold and 75¢ copper annual revenue
will be $560 million. 18% of this comes to a very significant
valuation, a rough estimation of which is offered later in this
report. The PI interest is a sweet ownership because it is not
responsible for any of the start up costs of the mine.
THE LEGALITIES
PI, the private Indonesian company is controlled by Merukh, an
Indonesian business man, who had acquired 20% of the BATU HIJAU
mine. The agreement, concluded in May, 1998, was that Armeno would
buy 90% of the 20% interest (effectively 18% in the BATU HIJAU)
leaving Merukh 2%, for payment of $2 million and 50 million shares of
Armeno common stock. It soon became apparent that Merukh was not
planning to honor the contract. In October, 1998 Armeno brought an
action against PI and Merukh. On January 7, 1999 Armeno was granted
a default judgment by the Supreme Court of British Columbia, with
damages and costs to be assessed against PI. A few days later a
default judgment was also granted against Jusuf Merukh personally.
On January 11, 1999 the court included Newmont Gold Company as a
defendant in the action based on written evidence submitted by Armeno
that Newmont had attempted to interfere with the agreement between PI
and Armeno. The filing against Newmont stated that the officials
of Armeno, along with Merukh, met with Newmont in June to brief them
and assurances were given that Newmont did not object to the deal.
3Almost immediately after the meeting Newmont began engaging in
tortuous conduct directly interfering with the contractual relations
between Armeno and PI and Merukh.. . to repudiate the deal 3 .
Merukh claims that he wanted to develop his BATU HIJAU interest
through a junior Canadian company which he could control. Armeno was
ideal and with 50 millions shares he would own over 70% of the
company. One wonders, however, if he was pressured by Newmont to
renege on his agreement.
It now looks like Armeno has both PI and Newmont over a barrel.
Having won the suit against PI and Merukh Armeno expects to receive
either a huge monetary compensation or the 18% interest in BATU HIJAU
without having to pay the $2 million or the 50 million shares. By not
contesting the lawsuit Merukh and PI have defaulted. Theoretically,
Merukh might attempt to by-pass the British Columbia courts and sell
his asset elsewhere. But it is highly unlikely that he could
successfully negotiate a new contract with the legal hazard hanging
over the asset. Any company would be wary of legal entanglements
interfering with an acquisition under scrutiny by the Canadian
courts.
Armeno now awaits the response from Newmont to its charges. This
should occur by the end of February. The Canadian Courts have a
history of not being sympathetic to powerful mining interests raping
poorly financed junior companies. For example, Murray Pezim1s
International Corona defeated the giant Lac Minerals in court and
recently TVX Gold Inc. was defeated in an Ontario court in a
confrontation with three individuals who claimed an interest in a
major property held by TVX.
EVALUATION
Armeno's suit against PI, Merukh and Newmont is for damages and costs
for breach of contract and it has received a default judgment against
PI and Merukh. If PI and Merukh are unable to pay the costs imposed
by the judgment, they may only be able to offer their interest in the
BATU HIJAU in payment.
Should Newmont also be required to pay damages and costs to Armeno
the amount of these damages and costs would have to be assessed on the
basis of the value of the 18% interest in the BATU HIJAU which
Newmont1s illegal action intended to deny to Armeno. The court
would appoint a referee to negotiate this value amongst PI Merukh,
Newmont and Armeno. The annual average revenue from the BATU HIJAU
with gold at $285 per ounce and copper at 75¢ per lb is $560 million.
Cash costs are estimated at less than $270 million. Net comes to $290
million annually. Based on these numbers the mine will generate $7.25
billion over the next 25 years. 18% of this comes to $1.3 billion.
Allowing for costs other than cash costs and discounted at 15% we
calculate the net present value of the 18% interest at plus or minus
$200 million. The complications of establishing an accurate net
present value are formidable therefore a final number which emerges
from negotiations may be considerably higher or lower than this
ballpark estimate.
In whatever proportion damages and costs are assessed on PI, Merukh
and Newmont it is clear that either a huge monetary settlement will
be offered to Armeno or, alternatively, PI and Merukh will be
required to surrender the 18% interest to Armeno. A variety of
possible arrangements could develop. Newmont could buy out the Merukh
20% interest and turn over 18% to Armeno. In this event the next
move would be for Newmont to buy Armeno and thereby increase its
interest in the BATU HIJAU to 65%. In another scenario Newmont
would buy Armeno first and in that manner acquire the Armeno default
judgment against PI and Merukh which it would then exercise, again
eliminating PI and Merukh and increasing its position in the mine.
THE UNLIKELY DOWNSIDE
Anything can happen in the courtroom. Newmont may not be found
guilty as charged. Even found guilty it might delay by appealing.
Merukh might find an unwary buyer whose country did not have
reciprocal agreements with Canada and who, because of a ridiculously
low offering price and the extraordinary value of the asset, would
chance the intrusion of legal problems. However, since Merukh failed
to contest the lawsuit against him he is apparently demoralized and
possibly immobilized. Any effort on his part to subvert the court
ruling might lead to suspicion of Newmont as an agent of continuing
collusion to interfere with the court. The Canadian courts do not
look kindly on efforts to outwit their rulings and Newmont does much
business in Canada.
Also, as noted above, the outcome of a conviction may not be negative
for Newmont since it would lead to the elimination of PI and Merukh
as a partner in the BATU HIJAU. With Newmont and Sumitomo running the
show who needs PI and Merukh as a junior partner? Of course, who
needs Armeno also as a junior partner ?
As far as Indonesia goes, the country is desperate for income.
Regardless of the political future of the country it will need foreign
investment and an asset such as BATU HIJAU will be developed. Is it
possible that Newmont and Sumitomo invested $1.9 billion carelessly?
Newmont has other successful interests in Indonesia and is well
regarded.
CONCLUSION
Armeno has a very strong position. The inevitable cash infusion into
Armeno would result in an increase in the share value, currently
reflected in its 11¢ US price by a huge factor. If a cash settlement
of $200 million to Armeno is the outcome or Newmont buys Armeno
this would equal approximately $6.25 per share of the presently fully
diluted issue. That would be well over 50 times the current share
price. However, there is no predicting where negotiations will lead.
On the one hand, Newmont will probably attempt to discount the $200
million. On the other hand, Armeno1s negotiators may have arguments in
the other direction.
Finally, even if there are delays in settlement, the low price of
Armeno's shares is not likely to be seriously eroded as long as the
case remains alive. And Armeno1s aggressive legal actions will be
continued in the event there are delays in reaching a settlement. The
risk-reward ratio is very high. Those with speculative money will
have difficulty finding a similarly leveraged opportunity.
Contact : 1-800-665-3119. Web site: www.agarmeno.com.
Ed Fishbaine
Editor
This corporate outline has been prepared solely from public documents
and news releases. The information in this report is reliable to the
extent that its sources are reliable but TECHNICAL RESEARCH REPORTS
INC. does not guarantee the accuracy or completeness of the
information in these sources. Ag Armeno Mines & Minerals Inc. has
paid a fee to TECHNICAL RESEARCH REPORTS INC. for the purpose of
publication and dissemination of corporate information to the
investment public. TECHNICAL RESEARCH REPORTS INC. holds a position
in the shares of this company. This report is for information
purposes and does not constitute a solicitation to purchase shares in
the company. TECHNICAL RESEARCH REPORTS INC. does not solicit nor
does it accept any fees from any source other than sponsors of the
publications it issues.
