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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

Comments are welcomed!

Saturday, May 17, 2008

MDN Inc. Posts Profit for the First Time in History in Q1 2008!

MDN Inc announced net earnings of $1.8 Million or $0.02 per share this week. This is a major milestone for MDN Inc. as are the following facts from the press release.

The Tulawaka Gold Mine in Tanzania produced a record 62,085 ounces of gold with an average grade of 23.3 g/t at a recovery rate of 94.48%. The 30% participation of MDN in the Tulawaka project results in its share being equivalent to 18,625 ounces of gold.

Total cash costs to produce an ounce of gold were US$181.


Tulwaka is, well for lack of a better term, a “gold mine” of a gold mine and that is why I once owned MDN Inc.

I like MDN Inc. but sold my MDN Inc. shares at a loss several months ago for four reasons.

First, Barrick is the operator of the Tulawaka mine with MDN Inc. getting 30% of the revenue from gold sales. I like to own companies that can control their own destiny. It was difficult to get information on the company because Barrick was the operator. Information on ore grades, exploration milestones, production plans were not forthcoming from MDN Inc. because they were not the operator.

Second, the share price dwindled down on no news—good or bad. Even in the face of this week’s good news, someone was selling large blocks totaling 1 million shares right around a dollar. It seems to me a large shareholder would have been smarter and been kinder to MDN Inc. had they arranged these sales over time working with MDN Inc. management rather than dumping them on the open market.

Third, Tanzania has been a relatively politically safe country for mining. But with the increasing willingness of many developing nations to increase their share of resources, even mining friendly developing nations will be tempted to raise taxes on resource extraction, reducing the value of the resource to the companies and shareholders mining the resource. This concern was validated with Mineweb's recent article outlining that Tanzania was about to raise taxes on miners.

Fourth, MDN has significant long-term debt and royalty payments on the first 500,000 ounces of gold sold. These facts, combined with the opacity on ore grades, etc. created too much uncertainty going forward.

Despite these concerns, I am reconsidering my decision to get out of MDN Inc.. I am especially intrigued with MDN Inc.’s exploration programs on the Isambara and Viyonza properties. These projects are controlled by MDN Inc.'s control and according to the release, “are progressing according to schedule,” despite the Tanzanian rainy season through Q12008.

Moreover, MDN Inc. has accelerated its repayment of long-term debt to 39 months rather than the original 54 months and the royalty payments are almost or completely finished.

MDN INc. is ranked 4th in 2009 and 6th in 2010 of the 15 companies identified in my projected cash flow valuation post.

Whoever was selling into the good news this week may have done a favor for potential shareholders and existing shareholders who want to add to their position. Let’s hope they are finished.

I will wait to see how burdensome the new Tanzanian tax regime will be on miners before entering this one again. Good luck to shareholders on this play.

Best,

Gold Stock Strategist

====================

Full disclosure: A member of my family owns shares in MDN Inc.. The information provided in this post is believed to be correct, but not guaranteed. Investing in junior gold miners entails risks. Readers are responsible for their own investment decisions. Do your own due diligence.

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