Background
MeDaVinci plc is a UK registered company and is listed on the Alternative Investment Market (AIM) of the London Stock Exchange under the ticker (MVC). It certainly has an action packed history, with it being close to bankruptcy in 2009.
MeDaVinci plc was an investment company focusing on the health and wellness sector. It's objective was to identify and assemble a group of portfolio companies in this sector, building from its investments, ErgoDynamics Applications BV (back pain treatment in the work place), Emotion Fitness Kft (Hungarian Gym business) and Demecal Europe B.V (blood analytics).
During 2009, MedaVinci made a £5.2m loss, and as a result management carried out a review of its business and its portfolio of medical technology investments. In July 2009, the company concluded that its investment portfolio had negligible value, and with its recently established new management team it began to restructure the business. One of its three primary investments, Demecal Europe B.V., the blood analysis technology business, in which the Company took a 30 per cent. stake in August 2007, was placed into bankruptcy by the Dutch Courts on 24 June 2009. Without a fund raising in July 2009 at 0.1p to raise £421,000, Medavinci would have been forced to wind up.
In August 2010, MedaVinci announced plans to acquire unlisted Serbia-focused gold explorer Orogen Gold and change its name to Orogen Mining. Further to this announcement, in September 2010, the company agreed to buy 49% of Orogen for £370,000 in cash, with an option to acquire the remaining 51% over the next twelve months by issuing a 29.2% stake in MedaVinci. Orogen Gold was incorporated in Ireland in April 2010, and its primary interest is in the Deli Jovan gold project, in eastern Serbia. Orogen has the right to earn a 55% stake in Deli Jovan, through an earn-in agreement.
On February 16th 2011, Medavinci announced it was acquiring the remaining 51 percent of Orogen Gold Ltd. John Barry, Ed Slowey and Alan Mooney (directors of Orogen Gold) joined the Medavinci board. In March 2011, Medavinci will change its name to Orogen Gold Plc (ORE) with the objective of being an explorer, appraiser and developer of gold deposits in Europe following a shareholder meeting on 4th March 2011 with the name change and enlarged share capital due March 7th.
The acquisition for £3 million (a reverse takeover), will be raised through the issue of of 315,351,636 new Ordinary Shares.
Assets and Strategy
The Initial focus is on the Deli Jovan Gold Project, a 69 sq km permit-area in eastern Serbia covering two historical shallow underground gold mines (the Rusman and Ginduša Mines), that were last in production pre World War II, and over which Orogen Gold has an Earn-in Agreement. Under the Earn-in Agreement Orogen Gold has the right to an initial interest of 55 per cent. in the Deli Jovan Gold Project if it spends a minimum of C$1.5 million (£945,000) on exploration by 20 June 2012 and a further interest of 20 per cent. upon an additional spend of C$2.0 million (£1.26 million) by 20 December 2013, giving Orogen Gold an aggregate interest in 75 per cent. of the Deli Jovan Gold Project.
SLR consulting as part of the Competent Persons Report (CPR) in February 2011 commented, "Prior to World War II there was extensive gold lode mining down to a shallow depth of 100m at the Gindusa and Rusman mines on the Deli Jovan permit. There are no existing gold production records but judging by the volume and gold grade required to make the mines profitable an unverifiable mention in historical reports that 20 tonnes of gold (625,000 ounces) may have been produced from mines in the area is credible to the author. Since mining ceased at Deli Jovan in 1938 political and economic conditions did not favour narrow lode gold mining in Serbia and the region remained underexplored until conditions began to improve in recent years. In 2011, Serbia is a stable democracy with a good infrastructure and a strong mining tradition to support any prospective mining development."
The initial stage Phase I Exploration Programme, which will comprise surface trenching, re opening and re sampling three underground levels at the Rusman and Ginduša Mines and may also include some diamond drilling. This phase will also include reconnaissance exploration along the eight kilometre trend which includes gold prospects at Cuka Perina and Seliste. Phase 1 works will cost approximately £600,000 (C$950,000) and is expected to take 12 months. The second stage Phase exploration programme will involve driving new underground development with detailed channel sampling intended to confirm lateral continuity of mineralisation. More systematic diamond drilling from the surface is intended to confirm further lateral and depth continuity of the mineralised structures, is expected to cost approximately £1.1 million (C£1.74 million) and to take a further 9 months.
Contingent on success in Phase I, a Phase II Exploration Programme will commence which will include diamond drilling and new underground development and sampling to determine whether there are sufficient gold reserves to support an initial two to three years of production. Once in production the intention is to fund the blocking out of new resources from cash-flow and this will involve extending underground headings to determine grade and drilling to establish continuity in the lodes. It is estimated that Phase II will cost £1.25 million (C$1.97 million) and will take 12 months
In 2010, SRK assessed the Deli Jovan project and made the following conclusions that "SRK considers it likely that a small scale mining operation can be established and sustained at Deli Jovan using handheld pneumatic drilling equipment. The current constraints on operations are the unknown processing recovery and the limited information on the continuation of the ore zone outside the known working areas. The target of 30,000 ounces per annum as set by Deli Jovan Exploration d.o.o ("DE") could be achieved, on the condition that the historically reported widths and grades can be substantiated by the DE exploration programme."
Financial
On 9 August 2010, the company raised £842,000, before expenses, through a placing of new Ordinary Shares at 0.2p per share. In December 2010, the Company raised a further £1.5 million, before expenses, by way of a placing of new Ordinary Shares at 0.4p per share. As of December 2010, the company had £1.546 million in cash. The net proceeds of the placings were intended to be used to fund both stages of the Company's Phase I Exploration Programme at the Rusman and Ginduša Mines.
It was interesting to see that "Under the terms of the Placing Agreement, Xcap Securities plc has used reasonable endeavours to procure subscribers for the Placing Shares and will receive a commission on the gross funds that they have raised. In addition, Xcap has been granted warrants over 5 million new ordinary shares exercisable within 5 years of the date of Admission, at an exercise price of 0.4p per share."
The company unapproved share option Plan was set up in February 2011. Share options, conditional upon Admission, were granted on 16 February 2011 over 240,000,000 Ordinary shares at 0.95p per share, which vest as to 50 per cent. on the first anniversary and the balance on the second anniversary on the satisfaction of certain performance conditions.
Total number of Existing Ordinary Shares 1,353,660,817
Number of Deferred Shares in issue 73,599,817
Acquisition Consideration Shares 315,351,636
Total number of Ordinary Shares in issue immediately following Admission 1,669,012,453
Shares in issue will increase by 23.2% following Orogen aquisition
Market capitalisation of the Company following Admission £15,855,618 (from offer documents) - but assuming a share price of 0.8p = £13.3 million
The Company's audited results for the 9 months ended 31 December 2010, the Company's new accounting reference date, were announced earlier today. The Company generated £0 income in the 9 months ended 31 December 2010 (12 months ended 31 March 2010: £nil) and a loss after tax of £435,000 (12 months ended 31 March 2010: £662,000). The Company had cash of £1,546,000 and net assets of £2,223,000 as at 31 December 2010. Since 31 December 2010, the Company has continued to trade in line with the expectations of the Board.
On 9 August 2010, the Company stated that, on exercise of the Option, it would be its intention to undertake a share consolidation of the Ordinary Share Capital. Since that date the share price of the Company has risen from 0.2p (the price at which the placing was undertaken) to 0.78p. The company has stated that "The Board however, will continue to review whether, in the future, a share consolidation would be in the best interest of Shareholders.
The share price is currently 0.82p (52 week range 0.23-1.26p) giving a market capitalisation of £11million.
Management team
Directors:
Adam Reynolds (Executive Chairman)
Paul Foulger (Finance Director)
Michael Nolan (Non-Executive Director)
Glyn Hirsch (Non-Executive Director)
Michael Hough (Non-Executive Director)
Proposed Directors:
John Barry (Non-Executive Chairman)
Edward Slowey (Chief Executive Officer)
Alan Mooney (Finance Director)
In March 2011, Paul Foulger, Glyn Hirsch and Michael Hough will stand down from the Board, Adam Reynolds will become a non executive director and the Proposed Directors will be appointed to the Board.
Adam Reynolds, Executive Chairman (aged 48)
Began his career as a stockbroker before moving into investor relations. In 2000 he established Hansard Group plc, a financial PR firm, listing it on AIM in November 2000, before jointly leading a management buy-out of the business in 2004. Adam is also the chairman of Porta Communications plc, a non-executive director of EKF Diagnostics plc and a director of Wilton International Marketing Group.
Reynolds took over from Rob Westerhof, who headed Philips's Asia, North American and Medical Systems business during a 35-year career at the Dutch electronics giant and who later resigned from Medavinci in 2009 following its financial difficulties. Excutive Chairman, Peter Teerlink, also resigned on 25 March 2009.
Michael Nolan, Non-Executive Director (aged 48)
Nolan is a Chartered Accountant and has worked in the resources industry for 16 years. He is currently chairman of Vancouver-based Rathdowney Resources Limited, a private natural resources company operating in Ireland and Poland, Finance Director of AIM-traded Cove Energy plc and a Director of AIM traded Tiger Resource Finance plc. He acted as chief executive officer of AIM-listed mining company Minmet Plc from 1999 to August 2007. He also serves on the board of several resources exploration and investment companies.
Note re. Minmet - http://www.independent.co.uk/news/business/news/minmet-auditor-deloitte--touche-refuses-to-sign-off-2008-accounts-1935132.html
Paul Foulger, Finance Director, Glyn Hirsch, Non-Executive Director and Michael Hough, Non-Executive Director intend to stand down from the Board upon completion of the acquisition of Orogen. Paul Foulger will remain as Company Secretary following completion.
John Barry (aged 55)
John Barry has worked in the exploration and mining industry since 1988 and has consulted to the industry as a Qualified Person on a range of gold and base metal deposits in Europe, Africa, Australia and South-East Asia. He has degrees in Geology from The State University of New York and The Pennsylvania State University and an MBA from the Edinburgh Business School at the Heriot-Watt University in Scotland. He has worked for over 20 years on a range of gold and base metal deposits in Europe, Africa, Australia and Asia and has been involved in the discovery, sourcing and supervision of feasibility studies on multi-million ounce gold deposits in Ghana (Ahafo), Tanzania (Nyanzaga) and Mali (Yanfolila). He is currently Chief Executive of Vancouver-based Rathdowney Resources Limited which is involved in base metal exploration in Europe and he is Exploration Director of Sovereign Mines of Africa plc, exploring for gold in sub Saharan Africa currently focused on Guinea.
He has extensive experience in the specialist areas of mineral exploration, project management and the technical and financial appraisal of mineral exploration and mining projects. He is a professional member in good standing of the European Federation of Geologists, the Institute of Geologists of Ireland and the AusIMM, and therefore qualifies as a competent person under the terms of the VALMIN Code and by reciprocity, Canadian National Instrument NI43-101.
Edward Slowey (aged 60)
Edward Slowey is an economic geologist in the minerals sector. He is currently Managing Director of a private, London-based junior explorer, Silvrex Limited, with gold projects in Africa and also continues to undertake independent consulting assignments covering a range of commodities. Previously he had been attached to the CSA Consultancy Group working out of London and Dublin as Project Manager responsible for independent review, valuation and due diligence in mining and exploration, covering base metals, bulk commodities, precious metals and diamonds in Europe, Africa, Asia and America. Work included completion of Competent Person's Reports and 43-101 independent reports for the AIM, OFEX (now PLUS) and TSX markets. Other roles undertaken in a consultancy capacity include Exploration Manager, Russia for AIM-listed Eurasia Mining Plc, as well as minerals project management through feasibility studies, including at the giant Sukhoi Log gold deposit in Siberia. He has also worked in the Balkans on a range of base metal projects, primarily in Macedonia and Kosovo.
Previously, he managed the Irish exploration arm of Rio Tinto over a 12-year period, focussing on base and precious metals in carbonate, volcanic and metamorphic terrain. This work led to the discovery of the small, high-grade Cavanacaw gold deposit in Northern Ireland. Prior to that, he worked as an exploration geologist in Ireland for a Canadian junior company and as an underground mine geologist at the world class Navan zinc-lead deposit. He holds a geology degree from University College, Dublin and is a professional member of the Institute of Geologists of Ireland and the European Federation of Geologists.
Alan Mooney (aged 60)
Alan Mooney has worked in the natural resource sector since 2001 with Cove Energy plc, Minmet plc, Tiger Resource Finance plc, GoldQuest Mining Corp and Rathdowney Resources Limited. He was previously divisional CFO at Sonae SA, Portugal's largest commercial group. Prior to that he worked with Continental AG the German tyre manufacturer and was Finance Director of their operations in the UK and in Portugal. He also worked in Mergers and Acquisitions at Continental's headquarters in Hanover, Germany and formally as Chief Accountant at their Irish tyre manufacturing plant. He speaks Portuguese, German and French. He is a Chartered Accountant and MBA. He trained with PWC in Dublin.
Key timings
Reopening of Deli Jovan mine - March 2nd 2011
Shareholder general meeting to approve acquisition of Orogen Mining - March 4th 2011
Admission of new shares and change in company name to Orogen Mining - March 7th 2011
SWOT
Strengths
- Renewed and clear corporate strategy - to be a European mineral explorer and producer
- Serbian Deli Jovan Gold Project (the Rusman and Ginduša Mines), have had historical gold production, albeit pre-Second world war
- Able to finance 1st stage of mine development up to Q1 2012 using £1.5 million cash following placings in 2010
Weaknesses
- Checkered history with significant losses under its old guise as a healthcare company.
- Production 3 years away and currently no income.
- Size of Deli Jolan mine unclear (SRK have commented that "The current constraints on operations are the unknown processing recovery and the limited information on the continuation of the ore zone outside the known working areas. ")
- Penny share status - bid/offer spread issues, more market maker manipulation, increased volatility
- Management team not A grade - some worrying links with companies which have had issues e.g. Minmet, Slowey and Mooney close to retirement
- Xcap has been granted warrants over 5 million new ordinary shares exercisable within 5 years of the September 2010 placing, at an exercise price of 0.4p per share
- 240 million shares issued as part of share option plan at 0.95p (The options will vest as to 50 per cent in March 2012 and the balance in March 2013)
Opportunities
- Strong gold price which is likely to rise further over the next few years
- Consolidation of shares
- Institutional support
- Further exploration upside - From the CPR Feb 2011 written by SLR consulting- There is a high probability that other gold occurrences are present under soil cover elsewhere on the property, which may be located by a combination of geological mapping, soil geochemistry and ground geophysics and would merit investigation by drilling. As the soil cover in much of the large prospective area appears to be less than a couple of metres thick, soil geochemical sampling could well locate new prospects for investigation. There is also scope for geophysical investigation, especially Induced Polarization (IP) surveys on selected areas where disseminated pyrite similar to that occurring in the known gold veins is anticipated, especially in the vicinity of the old mines and mineral occurrences. Lacking the capability of diamond drilling the work of previous times had to rely on finding gold in outcrop or under shallow cover. New discoveries to be made following improved, modern methods may be as good as or better than known prospects.
- Sale of Hungarian gym business (Emotion Fitness) with a book value of £200,000
Threats
- Further fund raisings at a discount to begin mine development programme
- Acquisition allows up to 1.25 billion additional shares to be issued without shareholder approval (1,669 012,453 in issue when company becomes Orogen)
- Exploration permits have been renewed annually in respect of the Deli Jovan Gold Project since 2006. The new permit is valid until 5 October 2011 and the Company would expect the permit to be renewed on its next anniversary. Annual permit renewals add to uncertainty.
Whilst the Directors have no current intention of issuing further Ordinary Shares (other than pursuant to the warrants already granted and the options under the Share Option Plan as set out in paragraph 13 above), they believe that it is important to have the flexibility to issue up to a further 500,000,000 new Ordinary Shares without seeking prior Shareholder approval.
Share outlook
It is commendable that the management team has rebuilt MVC after it brush with bankruptcy in 2009. Its new strategy of focusing on mineral exploration is a huge departure from its previous focus on health and wellbeing which was less than successful.
The Deli Jovan Gold Project in Eastern Serbia offers plenty of potential but production is not likely until 2014 at the earliest. With £1.5 million in the bank, the company has enough funds for the 1st phase of the mine development during 2011 and early 2012.
It is a shame that the board decided not to proceed with the share consolidation since at 0.8p, the bid/offer spread is large relative to the share price. AIM stocks are high risk but at the sub penny level, volatility can be huge.
The share capital will enlarge by 23.2% when the additional shares are listed to complete the acquisition of Orogen on March 7th. I would anticipate that the share price is depressed by this additional listing (even with the additional assets added to the company) until further news emerges from the Deli Jovan project. The placings in 2010 were completed at 0.2p and 0.4p, so the current 0.8p level is a significant premium. No doubt the publicity of the new companies listing on AIM may bring in some new private investors. I am interested to hear any counter views why the share price should increase in the short term.
The lack of major institutional support and also the make up of the board gives me some cause for concern. There are no "heavy hitters", no one under 40 and some board members have associations with some less than successful entities, it smacks some what of an "old boys" club with lots of mutual directorships and connections. Rather in bringing the team from Orogen who are on the verge of retirement, some high calibre, fresh blood would have been welcome.
There are also a lot of extra shares hitting the market in the next few years - director share options, Xcap warrants and the board is able to issue a significant amount of extra shares (up to 1.25 billion) without shareholder approval.
It would make an amazing story for Orogen Gold to be a 10 or even 100 bagger in 3 years time, but with the current market cap at c. £11 million, it would be prudent to wait for the 1st phase of development of the Deli Jovan mine to be completed during 2011 before diving into the shares, in order to verify the size of the prize. A sub-penny share is always going to be high risk!
So unfortunately another share which Contrarian Investor UK will not be adding to the portfolio for now. I will be watching the acquisition and name change in March with interest and also for the mine development to progress.
