Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?

[bskptkl]

Commentary from the Intrepid Endurance Fund Q1...

 

The top detractors from Q1 performance were Dundee Corp. (ticker: DC/A CN), Syntel (ticker: SYNT), and Primero

Mining’s 5.75% Convertible Notes (CUSIP: 74164WAB2). Dundee’s performance has been abysmal, and that comment

doesn’t just apply to the stock. The company is involved in many different ventures, but almost nothing has worked

out. We attribute at least half of the unfavorable outcomes to poor decisions by management and the rest to bad luck.

Hindsight is 20/20, and our involvement in Dundee came from trying too hard to find value in an over-picked market.

Our fair value for the stock is based on asset value, in contrast to our typical discounted free cash flow valuation.

We felt comfortable with this approach because the assets were originally anchored by publicly-traded equities that

seemed reasonably valued to us on inspection. Dundee’s cash flow has been negative as the team attempted to nurture

a basket of various nascent businesses into self-sustaining enterprises. It hasn’t worked. We had chances to revisit the

investment as the situation changed and decent investments were exchanged for speculative ones. The mistake is on

me, your Portfolio Manager. We have not added to the holding in over a year and reduced our position last summer at

better prices—a small victory in an otherwise dreadful investment.

 

So where do we go from here? Dundee is a $3.50 stock with $12.25 of book value. That book value continues to

decline as the company’s portfolio is not generating cash flow but Dundee is incurring corporate overhead and financing

costs. Right now the market is implying that every single private company Dundee manages is worth nothing, plus

that the business burns cash at the current rate for another three years. We have urged management to sell Dundee’s

public investments to pay off bank debt and preferred stock, which would reduce cash burn by half. If the company

then catches a break on one of its major private investments, it could mark a turning point for the company’s fortunes.

We’re not holding our breath but aren’t yet inclined to sell Dundee at today’s prices. The Fund’s weight in Dundee is

approximately 1%, so its impact on performance going forward should be more limited.

 

http://www.intrepidcapitalfunds.com/media/pdfs/1q17-intrepid-endurance-commentary-final-approved.PDF

Surprised these knuckleheads don't own preferred like I assume rest of us do. much better risk/reward than common imo.

[sculpin]

Commentary from the Intrepid Endurance Fund Q1...

 

The top detractors from Q1 performance were Dundee Corp. (ticker: DC/A CN), Syntel (ticker: SYNT), and Primero

Mining’s 5.75% Convertible Notes (CUSIP: 74164WAB2). Dundee’s performance has been abysmal, and that comment

doesn’t just apply to the stock. The company is involved in many different ventures, but almost nothing has worked

out. We attribute at least half of the unfavorable outcomes to poor decisions by management and the rest to bad luck.

Hindsight is 20/20, and our involvement in Dundee came from trying too hard to find value in an over-picked market.

Our fair value for the stock is based on asset value, in contrast to our typical discounted free cash flow valuation.

We felt comfortable with this approach because the assets were originally anchored by publicly-traded equities that

seemed reasonably valued to us on inspection. Dundee’s cash flow has been negative as the team attempted to nurture

a basket of various nascent businesses into self-sustaining enterprises. It hasn’t worked. We had chances to revisit the

investment as the situation changed and decent investments were exchanged for speculative ones. The mistake is on

me, your Portfolio Manager. We have not added to the holding in over a year and reduced our position last summer at

better prices—a small victory in an otherwise dreadful investment.

 

So where do we go from here? Dundee is a $3.50 stock with $12.25 of book value. That book value continues to

decline as the company’s portfolio is not generating cash flow but Dundee is incurring corporate overhead and financing

costs. Right now the market is implying that every single private company Dundee manages is worth nothing, plus

that the business burns cash at the current rate for another three years. We have urged management to sell Dundee’s

public investments to pay off bank debt and preferred stock, which would reduce cash burn by half. If the company

then catches a break on one of its major private investments, it could mark a turning point for the company’s fortunes.

We’re not holding our breath but aren’t yet inclined to sell Dundee at today’s prices. The Fund’s weight in Dundee is

approximately 1%, so its impact on performance going forward should be more limited.

 

http://www.intrepidcapitalfunds.com/media/pdfs/1q17-intrepid-endurance-commentary-final-approved.PDF

Surprised these knuckleheads don't own preferred like I assume rest of us do. much better risk/reward than common imo.

Actually have bought large amount of the common between $2.85 and $4. Believe valuation here is now very compelling  with caveats of a gradual upturn in resource markets & successful completion of real estate projects over the next year.

[sculpin]

GMP on.....

 

Dundee Corporation1 BUY

DC.A-TSX

 

Last:

 

C$3.83

May 15, 2017 ▼ Target: C$8.00

 

UHIC sale provides cash, royalty potential

 

Dundee Corp. (DC.A-TSX) reported Q1/17 results on May 11

th after the

market close.

 

Prior to the quarter, DC.A also announced the sale of UHIC

assets to Delonex Energy Ltd. in exchange for US$35 million cash on closing,

US$50 million cash on first oil, and a royalty stream. DC.A owns 85% of UHIC’s

equity. Delonex is a Sub-Saharan oil and gas company focused on exploration,

development and production and is currently active in Ethiopia, Kenya and

Mozambique. The deal is subject to a number of conditions including

approval from the government of Chad. DC.A management believes the

timeline for this approval is uncertain.

 

In our view, this announcement is positive for DC.A. Although our NAV is

reduced, we believe the market may have been assigning near nil value to the

UHIC investment. We believe the cash payable on closing would help ease

any liquidity concerns for DC.A. Our UHIC NAV contribution (previously based

on management’s carrying value) is reduced by ~$2.60. We assume the deal

will close, but conservatively include only the initial US$35 million payment in

our NAV. Payment on achievement of first oil (US$50 million) would add

~$1.00 to our NAV, plus an ongoing royalty.

 

Liquidity remains tight

 

We believe DC.A continues to manage a tight liquidity situation. The existing

$80 million credit facility has been replaced by a 365-day revolving term

credit facility with a Canadian Schedule I Chartered Bank for up to $80 million,

which offers some near term certainty on the corporate debt. Corporate debt

ended Q1/17 at $61 million and currently stands at $49 million after certain

asset sales post quarter. We believe further asset sales of the liquid public

investments remain possible for annual corporate level cash needs (interest,

dividends, op. expenses) of ~$36 million.

 

Maintain BUY – Parq casino remains on track

 

Exiting the quarter, our NAV is now $9.77 (previously $12.49). There were no

material changes in our NAV other than UHIC. The Parq Casino Resort project

in Vancouver (Paragon Holdings) remains on track to be completed and

operational by the fall of 2017. Despite the decline, the discount to NAV

remains wide at ~61%. We apply a 20% discount to yield our price target of

$8.00 (previously $10.00). We maintain our BUY rating. Please see Figure 1

for our NAV sensitivity analysis.

[sculpin]

Liquidity....

 

DUNDEE CORPORATION SELLS SHARES IN DREAM UNLIMITED CORP.

 

Dundee Corp. has sold 15,536,288 Class A subordinate voting shares of Dream Unlimited Corp. at a price of $6.85 per share for aggregate proceeds, net of associated costs, of approximately $106.1-million.

 

 

[SafetyinNumbers]

Anyone still own DC.PR.B or DC.PR.D?

 

I've been adding to the floater, DC.PR.D, lately. With the recent change in BOC policy to a bias towards tightening, the 2 year bond yield is around 1.2% so this is is perhaps the best estimate of the 90-day t-bill rate over the next 2.5 years until the option to convert to DC.PR.B is available.

 

On that basis, the best estimate of average coupon on DC.PR.D is 5.3% which implies a current yield of 11% which is more than the DC.PR.B. Further, all else being equal, the $1.30 spread between the DC.PR.B and DC.PR.D should close into interconversion which would add another almost 5%/yr to the return on a relative basis.

 

I'm curious on people's thoughts? Compelling or too much of a bother to pick up 5%/yr?

[Rod]

Anyone still own DC.PR.B or DC.PR.D?

 

I've been adding to the floater, DC.PR.D, lately. With the recent change in BOC policy to a bias towards tightening, the 2 year bond yield is around 1.2% so this is is perhaps the best estimate of the 90-day t-bill rate over the next 2.5 years until the option to convert to DC.PR.B is available.

 

On that basis, the best estimate of average coupon on DC.PR.D is 5.3% which implies a current yield of 11% which is more than the DC.PR.B. Further, all else being equal, the $1.30 spread between the DC.PR.B and DC.PR.D should close into interconversion which would add another almost 5%/yr to the return on a relative basis.

 

I'm curious on people's thoughts? Compelling or too much of a bother to pick up 5%/yr?

 

I still own the D shares. I think they are quite compelling at this price, both in absolute terms and relative to the B shares. Another advantage to the D's is that they are redeemable by the company at any time, while the B's can only be redeemed on the conversion date in fall 2019. I think Dundee will be focussed on redeeming the E shares first since they mature in 2019. And second to that probably buying back common shares and/or preferred shares in the market, and third redeeming the D's. So it may not make any effective difference.

[Cardboard]

The "D"'s are more attractive than the "B"'s for the reasons you guys mentioned.

 

However, both are among the very few remaining attractive preferreds with a value bend.

 

Cardboard

[Rod]

The B's have consistently traded at a much higher premium to the D's than some simple math would suggest is rational. Perhaps the explanation for this is simply that the B's have greater liquidity.

[SafetyinNumbers]

I think it's just because the current yield is higher but that is starting to change with the 90-day t-bill rate creeping up. Retail investors focus on current yield because they usually don't know about the interconvertible option or how yields reset.

 

Look at BBD.PR.B / BBD.PR.D, investors didn't notice BBD.PR.D's yield was going up 25% last week until they announced the new coupon even though they had announced the formula a month before.

 

We have seen the less liquid insurance company floaters begins trading in line with their more liquid strong pairs recently as investors are looking for more floating product.

 

[Rod]

I think it's just because the current yield is higher but that is starting to change with the 90-day t-bill rate creeping up. Retail investors focus on current yield because they usually don't know about the interconvertible option or how yields reset.

 

Look at BBD.PR.B / BBD.PR.D, investors didn't notice BBD.PR.D's yield was going up 25% last week until they announced the new coupon even though they had announced the formula a month before.

 

We have seen the less liquid insurance company floaters begins trading in line with their more liquid strong pairs recently as investors are looking for more floating product.

 

I agree with the comment about retail investors. But there appears to be more institutional interest in the B's than the D's. I notice that EdgePoint (the old Trimark guys) own the B but not D. I thought perhaps liquidity had something to do with it.

 

I've been surprised that the floaters have not reacted very quickly to the rising interest rate environment. I thought D's would move up fast. They haven't. The gap with the B's has shrunk somewhat, but that is all. I guess these are ignored securities and it is left to the retail investor who only looks at current yield like you say.

[sculpin]

Significant selling pressure over the last year has seen DC.A recently hit a new low of $2.58 in the last week. Looks like much of the selling has come out of the outspoken Murray Stahl from Horizon Kinetics who had sold a whopping 2mm shares up until the end of January 2017. I am sure it is their continued sales from the remaining 3 million that is in part responsible to have pounded the share price down to below $3.

 

Net Increase or decrease in the number or principal amount of securities, and in the eligible institutional investor’s securityholding percentage in the class of securities, since the last report filed by the eligible institutional investor under Part 4 of the early warning requirements:

 

There has been a net decrease of 2,078,845shares or -3.75% in the security holding percentage of Horizon Kinetics LLC (“Horizon Kinetics”) with respect to the Class A shares of Dundee Corporation (“Dundee Class A Shares”) since the last report filed under Part 4 of National Instrument 62-103.

 

5. Designation and number or principal amount of securities and the eligible institutional investor’s securityholding percentage in the class of securities at the end of the month for which the report is made:

 

Horizon Kinetics, through mutual funds, pooled funds and private client managed accounts for which its subsidiary asset managers, Kinetics Asset Management LLC and Horizon Asset Management LLC (together, the “Firms”), provide portfolio management services, exercises control or direction over 3,132,703 Dundee Class A Shares (or approximately 5.64% of the outstanding Dundee Class A Shares), as of January 31, 2017.

 

[Cardboard]

If you guys want to take advantage of the current selling, there are a few imbeciles selling DC.PR.D and also DC.PR.B pretty hard today or into a vacuum of buyers right into the middle of the Summer.

 

Cardboard

[Rod]

If you guys want to take advantage of the current selling, there are a few imbeciles selling DC.PR.D and also DC.PR.B pretty hard today or into a vacuum of buyers right into the middle of the Summer.

 

Cardboard

 

Thanks for the heads up. I picked up 200 D's. Unfortunately I'm already fully loaded so can't do more. I suspect someone has been doing a computerized arb trade between the B's and D's for some time, so the original selling pressure may have come from one class only.

[gokou3]

If you guys want to take advantage of the current selling, there are a few imbeciles selling DC.PR.D and also DC.PR.B pretty hard today or into a vacuum of buyers right into the middle of the Summer.

 

Cardboard

 

Thanks, I have added to the D's.

[Artha158]

Thanks, added some.

[SafetyinNumbers]

Anyone looking at the E's? They have a YTM of over 12% and are putable but obviously don't have the same capital gain potential as the Ds and Bs.

[Rod]

Anyone looking at the E's? They have a YTM of over 12% and are putable but obviously don't have the same capital gain potential as the Ds and Bs.

 

I haven't looked at them until now. But I think, at $23, the YTM is actually about 14.7% because holders have the option to redeem 17% on Jan 31, 2018 for $25. The potential catch is that there is an embedded put option that allows the company to convert to common at the higher of $2 and 95% of trading price. So if the common was below $2 at some point over the next two years, a conversion would be negative for the holder of the E's. I think the chance of a conversion at $2 is very low, however, unless things get very desperate at Dundee.

[sculpin]

 

 

http://www.intrepidcapitalfunds.com/media/pdfs/fsb0.nschmidt.xf00.193745.endurance_fund_commentary.pdf

 

 

"In our Dundee mea culpa in last quarter’s letter, we wrote: “We have urged management to sell Dundee’s public investments to pay off bank debt and preferred stock, which would reduce cash burn by half. If the company then catches a break on one of its major private investments, it could mark a turning point for the company’s fortunes.” On May 10th, Dundee announced that Delonex Energy will acquire United Hydrocarbon (UHIC), Dundee’s Chad energy venture/money pit. Delonex offered $35 million at close, another $50 million when first oil is achieved, and ongoing royalties ranging from 5%-10% of production unless Brent prices fall below $45 per barrel. Dundee has been spending $12 million per year to maintain UHIC while seeking an investor, and this cash drain will disappear upon a sale. It’s not a done deal, as Dundee is currently in negotiations with the Government of Chad to renew its Production Sharing Contract. On May 19th, Dundee sold its entire remaining stake in DREAM Unlimited for CAD $106 million. The proceeds will likely be used to pay down bank debt.

 

The sales of UHIC and the DREAM shares were exactly the type of positive catalysts we were seeking. The market has clearly shrugged, since Dundee’s shares are back down to all-time lows. Canadian small caps have traded weak this year, which could be a factor, but we think investors will need confirmation that the Delonex transaction closes before they bid up Dundee’s shares."

 

 

[gokou3]

The Q2 report shows that the company is in a net cash position at the corporate level after its $100M+ sale in DREAM shares and repayment of some $60M in bank revolver.  Isn't this a huge plus for the preferred given a large portion of more senior claims has been wiped out?  Or is the market still waiting for 1) the deal that plug the cash drain aka UHIC to close and 2) Parq casino for a smooth opening?

 

https://web.tmxmoney.com/article.php?newsid=8504637627187082&qm_symbol=DC.A

[sculpin]

From GMP this morning....

 

Dundee Corporation1 BUY

 

DC.A-TSX

 

Last:

 

C$2.76

 

August 14, 2017 Target: C$8.00

Q2/17 - UHIC sale progressing

 

Undiscounted NAV $9.39

 

Dundee Corp. (DC.A-TSX) reported Q2/17 results on August 10th after the market close. Our NAV of $9.39 versus $9.79 previously, was slightly lower q/q largely due to a decline in the publicly traded investment portfolio. The discount to NAV remains wide at ~70%. We believe that some investors may be applying deep discounts to the private investments.

 

UHIC sale may close in Q3

 

The sale of UHIC assets continues to progress. In July, regulatory approvals for the transaction were approved from the Republic of Chad and UHIC shareholders. Certain other conditions are still required, including an extension from the Republic of Chad to the exploration period. Management now expects the transaction to close in the third quarter with an outside date by year end. GMP is advising on the UHIC transaction. In our view, this possibility of earlier closing than originally expected is positive for DC.A from a liquidity perspective. We assume the deal will close, but conservatively include only the initial US$35 million payment in our NAV (US$9.5mm to be held in escrow for three years). Payment on achievement of first oil (US$50 million) could add ~$1 to our NAV, plus an ongoing royalty.

 

Maintain BUY – liquidity position much improved

 

In our view, the DREAM sale has left the liquidity situation much improved. Net cash at the corporate level was ~$46 million exiting the quarter. With the debt paid down, annual corporate level cash needs (interest, dividends, op. expenses) are now ~$33 million. We believe this may be reduced in the coming quarters. Subsequent to the end of the quarter, DC advanced $5 million (along with $5 million from partners and $27.5 million additional debt) to fund any cost overruns and initial working capital requirements for the Parq Casino, which remains on track for a fall 2017 opening. Blue Goose also delivered a strengthened quarter of operating results.

Exiting the quarter, our NAV is now $9.39 (previously $9.79). The only material change to our NAV was the decline in public investments. The discount to NAV remains wide at ~70%. We apply a 20% discount to yield our price target of $8.00 (unchanged). We maintain our BUY rating. Please see Figure 1 for our NAV sensitivity analysis.

[Rod]

Thanks for this. I'm curious why the sale of Dream Unlimited shares is treated as some sort of wonderful catalyst creating liquidity. Haven't the Dream Unlimited shares been liquid all along given this is a publicly traded company?

[sculpin]

Blue Goose has significant land position that is most likely not fully reflected in the value of this asset. Especially now that it is growing and becoming operationally profitable....

 

Blue Goose owns over 45,000 acres of farm land in British Columbia, and is a recognized consumer brand with beef, chicken, and fish products distributed to over 640 retail locations across Canada, making Blue Goose well-positioned to capitalize on the high-growth organic food market.

 

From the conference call...

 

Well our land is appreciated nicely in value so we've been very happy with the investment. And it's used primarily to graze the cattle up and house the cattle operations in BC. We've had appraisal done of it which value at approximately $100 million. In the future, I mean we're looking actively at all of our businesses to evaluate what they're worth and what our best strategic opportunity is in accessing liquidity and maximizing the value of the underlying investments. So we would absolutely look at anything in that regard.

[sculpin]

Thanks for this. I'm curious why the sale of Dream Unlimited shares is treated as some sort of wonderful catalyst creating liquidity. Haven't the Dream Unlimited shares been liquid all along given this is a publicly traded company?

 

Any investment whether public or private is not seen as cash or fully liquid until it is sold. This was case with DC & Dream. Now its sale has allowed them to repay all bank debt, fund some needed liquidity into Parq completion and given them about $40mm cash liquidity on the balance sheet to fund operations for the next year or so.

[sculpin]

Parq articles...

 

http://vegasseven.com/2017/08/17/parq-to-the-future/

 

https://www.bloomberg.com/news/articles/2017-07-07/parq-vancouver-preview-bringing-vegas-flair-to-a-business-hotel

 

 

[sculpin]

Good to see this finally.

 

From GMP....We see this announcement as positive for

DC.A. Although our NAV was reduced, we believe the market may have been

assigning near nil value to UHIC. Closing the deal would remove monthly cash

requirements to maintain the property and add long run royalty potential.

 

 

Dundee Corporation and United Hydrocarbon International Corp. Announce Closing of Transaction With Delonex Energy Limited

 

TORONTO, ONTARIO--(Marketwired - Sept. 22, 2017) - Dundee Corporation ("Dundee") (TSX:DC.A) and its subsidiary, United Hydrocarbon International Corp. (the "Company" or "United"), are pleased to announce that United has closed its previously announced transaction (the "Transaction") with Delonex Energy Limited ("Delonex"). The Company and Delonex have satisfied or waived all the conditions precedent under the Share Purchase Agreement dated May 10, 2017, as amended (the "SPA"), including all board, shareholder and regulatory approvals.

The Transaction is for Delonex to acquire United's indirectly wholly-owned subsidiary, United Hydrocarbon Chad Ltd. ("UHCL"), which holds the Company's May 2, 2012 Production Sharing Contract, as amended (the "PSC").

 

Delonex paid US$35 million on the closing of the Transaction (subject to applicable escrow and holdback requirements), and will pay an additional US$50 million if first oil is achieved, including US$20 million for first oil at Doba and US$30 million for first oil at Block H. United will retain a royalty of 10 per cent on Doba production and a 5 per cent royalty on Block H production, payable unless the average price of Brent Crude oil is less than US$45 for a quarter.

Delonex has committed US$65 million in funding within two years of the closing date for a comprehensive exploration program for the assets in Chad, and, subject to commerciality being achieved, a further US$35 million for development in Doba. The exploration program will include 2D and 3D seismic programs and three exploration wells, representing a significant increase in activity when compared to UHCL's current obligations.

 

United estimates that following closing of the Transaction and payment of all outstanding debts, expenses and other obligations of the Company, including repayment to Dundee of CAD$5.1 million, United will retain approximately CAD$14 million for working capital purposes, not including escrow amounts.

United's President and Chief Executive Officer, Gabriel Ollivier, commented as follows: "The Transaction is very encouraging for United's shareholders as it grants us sustained material exposure to the potential of our blocks without having to raise additional capital." David Goodman, Chairman of the board of directors of the Company, added: "We are very pleased with the Transaction as it gives shareholders the opportunity to realize a significant return on their investment once commerciality is achieved."

 

GMP FirstEnergy acted as financial advisor to United.

 

ABOUT DUNDEE CORPORATION

 

Dundee Corporation is a public Canadian independent holding company, listed on the Toronto Stock Exchange under the symbol "DC.A". Through its operating subsidiaries, Dundee is engaged in diverse business activities in the areas of investment advisory, corporate finance, energy, resources, agriculture, real estate and infrastructure. Dundee also holds, directly and indirectly, a portfolio of investments mostly in these key areas, as well as other select investments in both publicly listed and private enterprises.

 

ABOUT DELONEX ENERGY LIMITED

 

Delonex Energy Limited is a Sub-Saharan oil and gas company focused on exploration, development and production. Delonex is currently active in Ethiopia, Kenya and Mozambique and the Transaction in Chad is part of the company's strategy for expanding its portfolio in Central & West Africa.

Delonex is led by a management team with a proven track record in discovering, developing and operating world-class onshore basins and building and operating pipeline infrastructure. Their core leadership team previously worked together at Cairn India, where they established a recoverable resource base of 1.2 billion barrels of oil onshore in Rajasthan, India, with plateau production of c. 200,000 barrels of oil per day. They also managed the successful financing and execution of integrated upstream and midstream development projects with a combined capital spend of over US$4 billion. The projects included development wells, processing facilities and the world's longest (c. 700 km) continuously heated and insulated oil pipeline with an export terminal. Delonex is backed by a group of global investors with extensive oil & gas experience, led by global private equity firm Warburg Pincus and the International Finance Corporation (a part of the World Bank group).