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

[bizaro86]

It 100% would tank the stock, at least in the short term. There would be a huge additional supply of shares in the hands of buyers of the prefs close to Par. Those aren't people who want Dundee common, and many of them will sell indiscriminately.  The stock is well below $2 right now, and volume would be up and price would be down post a conversion,  so a big tender then would be timely.

 

There are lots of examples of companies converting income securities to common (usually debs) in the Canadian market, I can't think of one where the stock didn't decline badly in the short term.

[doc75]

It 100% would tank the stock, at least in the short term. There would be a huge additional supply of shares in the hands of buyers of the prefs close to Par. Those aren't people who want Dundee common, and many of them will sell indiscriminately.  The stock is well below $2 right now, and volume would be up and price would be down post a conversion,  so a big tender then would be timely.

 

There are lots of examples of companies converting income securities to common (usually debs) in the Canadian market, I can't think of one where the stock didn't decline badly in the short term.

 

Absolutely agree.  I think it would kill the stock. 

 

Would it not also significantly hamper their ability to  raise additional funds, even years in the future?   

 

I think it is very unlikely that they go this route.    And I also think it's very unlikely they'd be astute enough to put out a tender if they *did* go this route!

 

 

 

 

 

[Cardboard]

Come on guys...

 

They have $100's of millions of assets that can be sold to easily cover.

They have no debt other than this maturity of $82 million. Rest are preferreds "B" and "D" with no maturity.

They had cash of $37 million at HQ on March 31.

The unused credit line of $20 million (other than $3.8 million for letters of credit) will be renewed over the next few days with the new CFO and could be used to repay a portion of it.

Someone could lend them money at 8-10% subordinated only to the bank debt, guaranteed by assets with covenants, etc.

And I am certain that this preferred could be extended once more for a good chunk of existing holders if terms are slightly improved.

 

Cardboard

[SafetyinNumbers]

Come on guys...

 

They have $100's of millions of assets that can be sold to easily cover.

They have no debt other than this maturity of $82 million. Rest are preferreds "B" and "D" with no maturity.

They had cash of $37 million at HQ on March 31.

The unused credit line of $20 million (other than $3.8 million for letters of credit) will be renewed over the next few days with the new CFO and could be used to repay a portion of it.

Someone could lend them money at 8-10% subordinated only to the bank debt, guaranteed by assets with covenants, etc.

And I am certain that this preferred could be extended once more for a good chunk of existing holders if terms are slightly improved.

 

Cardboard

 

There is an assumption that these DC.PR.E will all be put next June but it’s unlikely to happen. These same preferred holders have had chances to put their preferred twice already and have undersubscribed to that option each time. These will probably end up trading DRM.PR.A, slightly above par as everyone who wants to put does and everyone else sits and does nothing.

[petec]

They have $100's of millions of assets that can be sold to easily cover.

 

Out of interest, what should they prioritise selling in your view? The obvious assets (DPM, Parq, and the Chad royalty) aren't at a point where they could be sold for full value. And the others, well, who knows if there is much value there at all?

 

[doc75]

They have $100's of millions of assets that can be sold to easily cover.

 

Out of interest, what should they prioritise selling in your view? The obvious assets (DPM, Parq, and the Chad royalty) aren't at a point where they could be sold for full value. And the others, well, who knows if there is much value there at all?

 

I know I wasn't asked, but my 2 cents:

 

I think they'll be a bit aggressive with Parq.  I'm not basing this on anything more scientific than "reading between the lines", but I think they've realize the ramp-up will take longer than expected, the results won't be as rosy as predicted, and they can't keep putting more into it. So I expect they'll transact even if at a non-opportune time. 

 

The easiest thing for them to sell would be DPM.  But given Jon Goodman's predisposition toward mining, and his statements to the effect that DPM is a labour of love, and that it's undervalued etc., I'm guessing they'll try to hold on to that one.

 

 

 

[petec]

They have $100's of millions of assets that can be sold to easily cover.

 

Out of interest, what should they prioritise selling in your view? The obvious assets (DPM, Parq, and the Chad royalty) aren't at a point where they could be sold for full value. And the others, well, who knows if there is much value there at all?

 

I know I wasn't asked, but my 2 cents:

 

I think they'll be a bit aggressive with Parq.  I'm not basing this on anything more scientific than "reading between the lines", but I think they've realize the ramp-up will take longer than expected, the results won't be as rosy as predicted, and they can't keep putting more into it. So I expect they'll transact even if at a non-opportune time. 

 

The easiest thing for them to sell would be DPM.  But given Jon Goodman's predisposition toward mining, and his statements to the effect that DPM is a labour of love, and that it's undervalued etc., I'm guessing they'll try to hold on to that one.

 

The quickest way to raise cash would be to sell the $70m they have invested in Ecobalt and other small listed stakes, plus $30m in debt. I trust the valuations on those and I imagine a decent chunk of those will be sold as part of the portfolio review and just a few will be kept and nurtured. I'm not including the value of DST here which looks like an option worth keeping to me.

 

For me the second most obvious asset is to sell is Parq. I agree the language around Parq is only going in one direction. My guess is they'll get back something around what they put in but at least it will improve the liquidity profile.

 

I don't think it makes sense to sell DPM until the new mine is up and running.

 

Then you get into the harder stuff, where I find it very hard to know if there is meaningful realisable value: roughly $100m BV in other private equity (excluding Parq prefs) + TauRx + Android + Sarea which could be worth anything from $0 upwards. And Union - could be worth $50m or nothing (they have it on the books at the value of ICC but I don't know if they have the power to force a sale of ICC and distribution of cash so it may be meaningless). Finally Agrimarine and Dream 360. All of these could go but one has to assume it would take time and a haircut.

 

P

[petec]

I believe the Blue Goose land was valued at $100m in 2006. a) does that sound right and b) does anyone know what debt Blue goose has?

 

Thanks.

[sculpin]

I believe the Blue Goose land was valued at $100m in 2006. a) does that sound right and b) does anyone know what debt Blue goose has?

 

Thanks.

Blue Goose and its subsidiaries have entered into several borrowing arrangements, pursuant to which Blue Goose had borrowed an aggregate of $60,015,000 at December 31, 2017 (2016 – $55,130,000).

[doc75]

The Union Group investment is very strange. I've been meaning to get in touch with them to ask a few questions about this but haven't yet done so. Does anyone here know much about what's going on?

 

Last we heard, the write-down was because Union couldn't provide audited financials, and they said something to the effect that they're waiting on Union to provide them with such and will revisit the valuation later.  But there's been no word since -- no mention at all in the latest Q.  And they wrote it down to the value of ICC less a 30% discount.  Do they have any way at all of extracting value from this?

 

They were asked about Blue Goose land value on one of the recent calls.  My understanding was that the land value would be impaired significantly by the fires, but can't remember if this was said or inferred by me.

 

 

[petec]

I believe the Blue Goose land was valued at $100m in 2006. a) does that sound right and b) does anyone know what debt Blue goose has?

 

Thanks.

Blue Goose and its subsidiaries have entered into several borrowing arrangements, pursuant to which Blue Goose had borrowed an aggregate of $60,015,000 at December 31, 2017 (2016 – $55,130,000).

 

Outstanding. Thanks. I should have spotted that.

[petec]

The Union Group investment is very strange. I've been meaning to get in touch with them to ask a few questions about this but haven't yet done so. Does anyone here know much about what's going on?

 

Last we heard, the write-down was because Union couldn't provide audited financials, and they said something to the effect that they're waiting on Union to provide them with such and will revisit the valuation later.  But there's been no word since -- no mention at all in the latest Q.  And they wrote it down to the value of ICC less a 30% discount.  Do they have any way at all of extracting value from this?

 

They were asked about Blue Goose land value on one of the recent calls.  My understanding was that the land value would be impaired significantly by the fires, but can't remember if this was said or inferred by me.

 

On Union, the impairment was made in the 4q and in the 1q call they simply noted that ICC's share price had risen and so they'd moved the value up marginally. Whether they have any way of extracting the value of ICC, I don't know.

 

On Blue Goose, the land was damaged in the fire but as of the 4q call they could not assess the extent due to snow cover (ironic) and this was not updated on the 1q call. My uninformed guess given that this is grazing land (not, for example, standing timber) is that the value should not be permanently impaired by a fire. Grass grows back fast and fires can be part of the regenerative process. Correct me if I am wildly wrong (which is quite possible).

 

Does anyone know what's happened to Canadian grazing land and rights prices since 2006?

[Rod]

The Union Group investment is very strange. I've been meaning to get in touch with them to ask a few questions about this but haven't yet done so. Does anyone here know much about what's going on?

 

Last we heard, the write-down was because Union couldn't provide audited financials, and they said something to the effect that they're waiting on Union to provide them with such and will revisit the valuation later.  But there's been no word since -- no mention at all in the latest Q.  And they wrote it down to the value of ICC less a 30% discount.  Do they have any way at all of extracting value from this?

 

They were asked about Blue Goose land value on one of the recent calls.  My understanding was that the land value would be impaired significantly by the fires, but can't remember if this was said or inferred by me.

 

On Union, the impairment was made in the 4q and in the 1q call they simply noted that ICC's share price had risen and so they'd moved the value up marginally. Whether they have any way of extracting the value of ICC, I don't know.

 

On Blue Goose, the land was damaged in the fire but as of the 4q call they could not assess the extent due to snow cover (ironic) and this was not updated on the 1q call. My uninformed guess given that this is grazing land (not, for example, standing timber) is that the value should not be permanently impaired by a fire. Grass grows back fast and fires can be part of the regenerative process. Correct me if I am wildly wrong (which is quite possible).

 

Does anyone know what's happened to Canadian grazing land and rights prices since 2006?

 

I don't think that the land is damaged. The biggest cost issue was that Blue Goose would need to pay for supplemental feed in the interim, which is a major expense, hence the decision to reduce the herd size.

 

Farmland in the Caribou region of BC averages $2,500 per acre.

 

https://www.fcc-fac.ca/fcc/about-fcc/reports/2017-farmland-values-report-e.pdf

 

Blue Goose owns about 45,000 acres.

 

"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."

 

So a $100 million value would seem likely.

[doc75]

I don't think that the land is damaged. The biggest cost issue was that Blue Goose would need to pay for supplemental feed in the interim, which is a major expense, hence the decision to reduce the herd size.

 

Farmland in the Caribou region of BC averages $2,500 per acre.

 

https://www.fcc-fac.ca/fcc/about-fcc/reports/2017-farmland-values-report-e.pdf

 

Blue Goose owns about 45,000 acres.

 

"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."

 

So a $100 million value would seem likely.

 

Thanks for the insight.

[wachtwoord]

I opened a small position in this as well today. The margin of safety is so huge that I reckon the monkeys at the helm won't mess up enough to make this a bad investment. Time will tell I guess ...

[Cevian]

I opened a small position in this as well today. The margin of safety is so huge that I reckon the monkeys at the helm won't mess up enough to make this a bad investment. Time will tell I guess ...

 

Same here

[gokou3]

Common or prefs?

[wachtwoord]

Common or prefs?

 

Commons. Not sure whether that's the best risk-reward investment but I find it easier to get a sense for value with common stocks versus preferreds.

 

How do you compare the two asset classes to determine best value in this case? Or did you buy both to not have to?

[gokou3]

Common or prefs?

 

Commons. Not sure whether that's the best risk-reward investment but I find it easier to get a sense for value with common stocks versus preferreds.

 

How do you compare the two asset classes to determine best value in this case? Or did you buy both to not have to?

 

For Dundee, I simply do not trust the competency or integrity of the management so from a risk perspective I don't have enough confidence in the commons.  The preferred OTOH offers a nice 12% dividend return (on cost) and I think it's very safe given the large discount to NAV at the moment.  However, if management continues to screw around and has more writedown, even the preferred may become uninvestable.  If they are able to turn around, then yes the common could provide a much greater return than the pref.

[wachtwoord]

Sounds reasonable. I generally prefer to not cap my upside (by buying prefs) and take the extra risk with the commons. I control my risk by keeping the position small (since I agree with you management is simply terrible).

 

Of course at some price point the capped return with the prefs is preferable over the (potentially uncapped) returns of the common. I find it hard to determine what that price point is (even roughly).

[doc75]

I see that eCobalt is down more than 10% today and has been falling steadily to a new 52-week low (0.97 now, compared to $1.47 at end of last Q).  Dundee holds 16m shares, which is just over a 10% position, so any selling on their part should have triggered a notice.  They also had 400,000 warrants to purchase shares at $0.40. These expired June 1, so I would imagine they exercised them this Q.

 

Osisko has continued in free-fall since Dundee's exit in Q1.  I was hoping they'd also sell out of ECS but like they have not.

[Lakesider]

I've jumped on the band wagon and taken a position. The valuation is so low that it should only take a bit of good news for the stock to go higher.

 

If they stop buying shit we should be fine. I'm not keen on their forward strategy with junior miners. Sounds like it would be quite easy to buy some worthless assets.

 

Fingers crossed Parq doesn't catch fire.

[wisowis]

David Eby (Attorney General of BC) is putting a lot of effort into investigating the role of BC casinos in money laundering. Maybe a bit of (indirect) political risk to Parq (?)

 

https://www.cbc.ca/news/canada/british-columbia/bc-money-laundering-report-1.4723958

[doc75]

David Eby (Attorney General of BC) is putting a lot of effort into investigating the role of BC casinos in money laundering. Maybe a bit of (indirect) political risk to Parq (?)

 

https://www.cbc.ca/news/canada/british-columbia/bc-money-laundering-report-1.4723958

 

Found this interesting twitter stream while searching for more on money laundering at Parq.  Haven't dug deeper but... lots of smoke:

 

[Lakesider]

New Parq Casino is an outrageous land deal—public assets leased way below market to a 2-bit US casino player, then millions in construction subsidies.

 

I don't think is is uncommon practice for big city redevelopments. Thats the way it happens across the globe.