S.A. Advisory E-Mail Update
February 28, 1999
Subject: Special E-mail from S.A.Advisory concerning press release for AROYF Sender: [email protected] 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.
