Rod

If they issue 40m shares, the stock will definitely go a lot lower so that negotiating leverage still exists. Yes, that is a good point. It's interesting to try to put yourself inside the head of an E holder. It currently trades at $18.85. Given the uncertainty around this stock, for someone to hold rather than sell they would have to believe something positive is going to happen. What could that be? Being able to cash out at $25 next year would be a big positive, but it seems very unlikely to be allowed by Dundee. Getting the face value cut to say $20 with an extension would not help because the stock would likely trade at a sizeable discount to that afterwards which would place it below the current value of $18.85. The only thing that I can think of is a conversion to common shares. At $18.85 the conversion value is about $1.50, which is a better deal than buying the common in the market. The E is currently pricing in a conversion benefit, but as you say that may be ephemeral given the probability of a large decline in the common if a conversion is announced. An option for the E holder is to short the common to take out the risk of a drop, but that is hardly an option for many people. So the question remains--who is holding the E and why aren't they selling now? For myself, I would be inclined to own it as a cheaper proxy for the common that also pays a dividend. Probably I'm overthinking it and the likely answer is that the E owners are income oriented investors that are afraid to sell at a loss and are just hoping to get their money back somehow and aren't yet sure how that will happen.

The common shares have had a nice run up into the $1.70 range which ironically makes it harder for Dundee to exert pressure on the E prefs to renegotiate the terms. Being converted into common at $2 is a lot less scary than when the stock was much lower.

I think Brookfield makes a point of buying below replacement value. If they did that with Parq I suspect that there wouldn't be anything left for anyone but the banks. Brookfield would probably buy the project out of bankruptcy not before.

I also wonder how exactly they are going to refinance when the project is badly losing money on operations. Would you lend them money? I think the project needs to demonstrate it can earn money before a lender would be willing to lend. Otherwise the rate would probably be no better than what they are already paying on the construction loan. I think that the next step is likely a sale of the hotels. That could bring in enough cash to at least pay down a chunk of the debt and buy them time. But then, as you say, it may just give them more time to throw more money down the drain.

I think the danger with Parq is that all the money they have invested to date is gone and everything they add goes down the tubes as well. It's not a given that they would recognize the right time to pull the plug and allow the project to go bankrupt. I hope it works out, but there's no guarantee that an expensive complex entertainment project works out. I'm sure there is some value in the project but it may all end up in the hands of the banks that loaned the construction money.

Hopefully, Parq doesn't end up killing them first! I'm worried about that asset. It isn't just refinancing that is needed. It's also running a big operating loss. The fact that we are almost at the end of Q3 and there have been no announcements of any restructuring is ominous to me. I wonder how they are going to carry this thing through the winter season.

I know that Buffett has long stated that asset heavy companies are hurt particularly hard by inflation, but to be honest I am having a hard time understanding why. The only major way I see this happening is that they tend to pay higher tax rates because the depreciation charges they take are much smaller than the cost of replacing assets, so accounting profits overstate cash earnings and lead to higher income taxes. But my impression is that Buffett is making a claim that there are economic reasons beyond this tax effect. And yes, I have read "How Inflation Swindles the Equity Investor" by Buffett and find it rather unclear. Does anyone understand why inflation affects capital heavy businesses badly beyond the income tax effect that I mentioned above?

And too bad those shares will be held by Union Group, the company that can't provide audited financial statements. How exactly does that work? Doesn't "can't" mean "won't"? And why wouldn't they? Wouldn't the most reasonable conclusion be that Union Group has been involved in some kind of fraud?

I'm sure there would be opposition from some places. But that doesn't stop the Alberta government from championing the idea. They haven't even tried. According to this news article from 2009, the biggest opposition to the idea isn't the public, it's the unwillingness of the Alberta government to pay: "Alberta is open to the nuclear power generation business, but it will not pump one penny into any project that is brought forward, the government says. "There's no question we're living in a carbon-constrained world," said Alberta Energy Minister Mel Knight, "And as part of a diversified energy mix, nuclear energy does have a potential to contribute to reduced greenhouse gas emissions." The province, which has been studying the issue for more than two years, finally released its public consultation report Monday, which included input from almost 5,000 people. A telephone survey found that 45 per cent of respondents wanted nuclear power plants to be considered on a case-by-case basis and 27 per cent opposed such proposals. Mr. Knight said he is not in favour or opposed to any type of power, but he is against public funding or subsidies for future nuclear development. "We will not invest public dollars in any nuclear proposal," he said." https://www.theglobeandmail.com/news/national/alberta-wont-fund-nuclear-power-energy-minister-says/article4295604/

At least you were smart enough to try.

Whatever ends up happening with pipelines, I feel that Alberta really is not doing enough to deal with the growing problem of emissions from the oil sands. And I say that as an Albertan and someone who has investments that depend on the strength of the Alberta economy. The industry burns far too much natural gas to generate heat to extract oil. A viable alternative is to switch the whole thing over to nuclear power and then the industry would be if not zero emission, close to it. The claim that Alberta is doing all it can rings hollow to me.

The story has been picked up by The Globe & Mail: https://www.theglobeandmail.com/business/streetwise/article-dundee-corp-faces-investor-spat-over-preferred-share-repayment/

Any thoughts on a paired trade--long E and short Common? Right now the E is trading at par with the Common assuming conversion. This seems to assume there is zero chance of the E getting paid cash--even partially. And in Jim's "haircut" scenario the haircut would have to do less damage than a conversion or why would the E's vote in favour? The only risk I can see is that the company comes into some good luck with asset sales and maybe strong results from Delonex and the Common soars. At the same time the company has enough new liquidity to pay the E in cash. E's would get $25, but the loss on the short side of the trade would be much higher. I think the risk would be that in an extension scenario that is a haircut as suggested, the common could rally as it would avoid dilution in the near term at least and the upside on the DC.PR.E would be limited. I think you are right that there are other risks. I am still kicking myself for not shorting the E at $24 in July before the Q2 release when the Common was around $1.50. That was a "Wiley Coyote" moment--the E holders had yet to look down and see how much they would lose on conversion at $2! It was also a one-way bet since it couldn't go up, only down.

Any thoughts on a paired trade--long E and short Common? Right now the E is trading at par with the Common assuming conversion. This seems to assume there is zero chance of the E getting paid cash--even partially. And in Jim's "haircut" scenario the haircut would have to do less damage than a conversion or why would the E's vote in favour? The only risk I can see is that the company comes into some good luck with asset sales and maybe strong results from Delonex and the Common soars. At the same time the company has enough new liquidity to pay the E in cash. E's would get $25, but the loss on the short side of the trade would be much higher.

I'm not surprised. Nothing really has gone right in Dundee's restructuring efforts since they sold the oil property to Delonex. I think unless they can sell either Blue Goose or preferably Parq in the next couple of months they will have to pull the trigger on the conversion of the E to shares. They desperately need a win at this point. Conversion would strengthen the balance sheet dramatically and eliminate about $6 million per year in dividend payments.

Buffett's lifestyle is only modest by billionaire standards.

It's not the first time I've heard Charlie say something scientifically questionable. I think science is his weak spot despite his efforts to be a generalist. It’s very likely the other way around - the Chinese kids got better parents. Adopting kids from China isn’t cheap, so the parents very likely have financial resources. there are also significant background checks. There is a significant selection bias going on on the parent side. A very good point. And who was it that said to always invert? ;)

Looking at the Chou RRSP fund, I notice that even though the portfolio is very concentrated, several of his investments are down around 90%. Clearly these were bad bets. Yet the commentary mostly ignores this and blames poor performance on the market not respecting value. I would think some admission of mistakes is in order here.

It's not the first time I've heard Charlie say something scientifically questionable. I think science is his weak spot despite his efforts to be a generalist.

Charlie did make a comment about Chinese girls adopted at birth by Americans and raised in America being high achievers. I found the idea strange since it would suggest that there is something genetic involved. I have believed the success of Chinese Americans to be cultural and involve values instilled in them by family and community. So it would be very interesting to see strong evidence that there is a genetic component to the success of the Chinese. Right now I'm sceptical. I doubt any ethnic group has inbuilt genetic advantages. I could imagine that the American adoptive parents may subconsciously expect their Chinese child to be a high achiever because that is the stereotype and it would affect the way they raise the child. In any case, trying to conclude genetic superiority of some group is pretty much impossible to do scientifically because it's impossible to separate cultural and social factors.

Cool pencil! My last purchase was a used book off Amazon called "Mathematics Applied to Deterministic Problems in the Natural Sciences", which I will read entirely for fun. So I out-nerded you there by a considerable margin.

That's useful info. It's hard to believe they couldn't sell these two hotels for a high price in the current market. If they did they could pay off most of the high cost debt and that might leave them at least in a break-even position on the remainder of the project. Then they could ramp that up over time. Hopefully, they can arrange a sale or equivalent transaction in the next couple months.

Maybe it was Ned Goodman! I’m only half joking—he received a deferred share grant of 2 million shares earlier this month.

I can’t see the E’s voting to extend if the $2 conversion remains. What’s the benefit to them? And I have a hard time seeing Dundee give up the conversion option.

I suppose if the option presented to E holders is to get converted to common and lose almost half their value or get extended with some kind of sweetener then they most likely will take the extension. But I'm not sure what Dundee could do to sweeten the offer much. My question is are we sure that Dundee wouldn't rather convert? Presumably an extension would eliminate the conversion option at $2. I am not sure that Dundee won't take it now instead of losing that option forever. I am no longer an owner of the common, just the B and D, so obviously I would prefer they convert, so maybe that is influencing my judgement!