Understanding Santo Tomas’ Legal Circumstances

by | Apr 7, 2019 | General | 0 comments

(The following is a very short analysis of the legals. I wrote a very detailed 14-page analysis that pretty much shows how Aztec Copper has ZERO chance of getting anywhere. It includes links to legals documents from Bahamas and ALL the legals documents that I purchased from Arizona Courts. If you want to receive the full analysis free of charge, email me).

Oroco has an option to purchase the company Altamura Copper. Altamura Copper owns 50% of the Bahamian company that owns 100% of Santo Tomas, through the ownership of the Mexican company Compania Minera Ruero (“CMR”). CMR has been the registered owner of the core Santo Tomas concessions (orange on the map) continuously since 2001.  Altamura took control of the Bahamia company that owns CMR in 2015 when it was victorious in a lawsuit brought against Aztec Copper and its affiliates in a Bahamian court.

Altamura also has an ownership interest – ~57%, with a right to earn up to 81% –  in Xochipala Gold, a Mexican company which has entered into and agreement with CMR to acquire the Santo Tomas concessions, and this acquisition is awaiting approval and registration by the Mexican Public Registry of Mining (the “PRM”).

So, Altamura currently has an indirect 50% interest in Santo Tomas, and upon acceptance by the PRM, it will have ~57% with an ability to increase that to 81% with property related expenditures ($10 million gets it 74%, an additional $20 million takes that to 81%).

The transfer of the concessions to Xochipala Gold is pending approval by the Mexican Public Registry of Mining (the “PRM”). That transfer is being denied by the PRM due to the existence of a judgement in favour of a Mexican company that is a subsidiary of Aztec Copper, a company incorporated in Arizona. That judgment, rendered in early 2016, was the result of fraud, collusion and misrepresentation on the part of the Plaintiff and Defendant in the trial, facts that will lead to the voiding of the judgment. Additionally, the judgment has been determined to be unenforceable; the Court put conditions on its decision and those conditions cannot be met by Aztec, therefore it has not and will not lead to a loss of ownership of Santo Tomas by CMR.

Oroco, therefore, has an irrevocable option to acquire Santo Tomas with the acquisition of Altamura, which has ownership interest in the current registered concession holder, CMR, and the contractual holder, Xochipala. That ownership is not at risk and the Aztec judgment simply has the effect of holding up the transfer of concession titles between those two Mexican companies. For now. As I explain below, the Aztec judgment will be eliminated as an impediment.

Nevertheless, the existence of the Aztec Judgment and the perception of risk has led to uncertainty and reservations among investors and potential investors in Oroco. But, to the credit of some in the market, a better understanding of the (lack of) risk has been evolving, and Oroco’s share price has been on a slow and steady rise over the past year and are currently up 100% in the last 12 months, though they remain well below what I estimate to be a fairer value for an asset as large and high quality as Santo Tomas, between 3 and 10 times the current value, depending on stage of exploration/development.  

This perception is understandable given the lack of yardsticks to measure legal risk, but it is an example of market irrationality; an accurate and informed assessment of the risk would suggest the legal situation IS NOT a risk to Oroco’s ownership of Santo Tomas and shares of Oroco are currently undervalued.   

Oroco’s news release of March 5 details the several ways it is seeking to eliminate or neutralize the Aztec judgment, though the release may have been misread or misunderstood by many in the market.

Oroco states:

“There are several areas of current legal activity relating to protecting and enforcing the Company’s interest in the Santo Tomas Concessions.  At present, the following initiatives, amongst others, are expected to validate and maintain the status quo of the titles and eventually remove any unwarranted ownership claims to the Santo Tomas Concessions as are currently being made by Aztec Copper Inc., an Arizona company, and its Mexican subsidiary, Prime Aztec Mexicana S.A de C.V. (together, the “Aztec Companies”):”

A few things are clear in this news release:

–          Altamura currently owns Santo Tomas. That is the “Status Quo” referred to and what Oroco’s legal initiatives are seeking to “Protect.” Aztec lost any and all connection to Santo Tomas in 2009 and only through unbelievably dishonesty, fraud and criminal behavior have they been able to create any impression otherwise (as the news release states, criminal complaints are coming and those found guilty will be in for serious consequences).  

–          Aztec Copper’s (fraudulently and criminally obtained) legal status amounts to nothing, as they are not recognized by Mexican authorities as owning anything, and the judgment they are in possession of is unenforceable.

–          Altamura and Oroco have MANY ways to eliminate even this ineffective judgment Aztec and need only win one to prevail. Aztec must defend and win every one of the many initiatives. The odds of Aztec prevailing are negligible, and will only happen if legal and bureaucratic systems in both Mexico and Arizona break down and that’s not going to happen.

Therefore,  the legal situation IS NOT as much of a risk to Oroco’s ownership of Santo Tomas as the current discount to the share price would indicate, and Oroco’s shares are currently UNDERVALUED.    

Disclosure: Long OCO

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About Mariusz Skonieczny

Mariusz Skonieczny is the founder of Classic Value Investors.