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

[bizaro86]

The risk with Parq is ironically that they succumb to gamblers ruin and keep putting in a little more money to try and salvage the investment, and end up losing everything on it.

[Rod]

The risk with Parq is ironically that they succumb to gamblers ruin and keep putting in a little more money to try and salvage the investment, and end up losing everything on it.

 

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.

[sculpin]

The risk with Parq is ironically that they succumb to gamblers ruin and keep putting in a little more money to try and salvage the investment, and end up losing everything on it.

 

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.

 

Or they could attempt to sell the entire Parq entertainment complex to someone large enough (global entertainment group/hotel conglomerate) with a cost of debt in the lower single digits.

[gokou3]

Brookfield? They have:

 

Hotel operation experience

Casino operation experience

Vancouver commercial property experience

Low cost of capital

 

 

Of course they won't pay high prices for it...

[Rod]

Brookfield? They have:

 

Hotel operation experience

Casino operation experience

Vancouver commercial property experience

Low cost of capital

 

 

Of course they won't pay high prices for it...

 

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.

[Rod]

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.

[SafetyinNumbers]

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.

 

If they issue 40m shares, the stock will definitely go a lot lower so that negotiating leverage still exists.

[Rod]

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.

 

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.

[sculpin]

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.

 

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.

 

Or they could use the proceeds of a sale of ICC & a few other investments to make an offer of $20 cash per pref share to all the E preferred share holders in the next few months. Would cost around $66mm. No dilution and the E prefs get all cash above the current trading price.

[gokou3]

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 guess when Dundee reports Q3 the common price may turn south again... more losses at Parq, no update on asset disposals, something catches fire, etc.  ::)

[Rod]

 

I guess when Dundee reports Q3 the common price may turn south again... more losses at Parq, no update on asset disposals, something catches fire, etc.  ::)

 

I think everything flammable has already burned, so we are probably safe on that score.

[petec]

 

I guess when Dundee reports Q3 the common price may turn south again... more losses at Parq, no update on asset disposals, something catches fire, etc.  ::)

 

I think everything flammable has already burned, so we are probably safe on that score.

 

Gah. Why did you have to go and say that?! ;)

 

On a separate topic, the run in the common on no news is bizarre.

[SafetyinNumbers]

There has been a decent amount of news on the holdings, it’s just not coming directly from the company.

[petec]

ICC? Yes-but with no visibility on the cash to Dundee.

[SafetyinNumbers]

The up valuation of CNSX at Urbana, ECS and DPM have stopped going down for now at least and bounced a little.

 

Also, your comment implies when the common were in freefall to $1.09, it was for good reasons and the bounce is not justified.

[Cardboard]

Is there leakage?

 

"United  Hydrocarbon  International  Corp.  (“UHIC”)  continues  to  advance  its  assets  in  Chad  and  it  is expected  that  the  first  oil  wells  will  be  drilled  in  the  third  quarter  of  2018."

 

Quarter is ending in 6 days and oil there at over $80 Brent is highly significant to Dundee. I would think that someone knows what is going on in Africa right now. Is there any way to find out?

 

Cardboard

[sculpin]

 

Dundee Corporation (1.7%)

 

The most instructive investment I made over the last years. Dundee looked always cheap. Therefore, I added three times to my position. I ignored the continuing adverse news flow. The very definition of a value trap. Finally, the new management in charge seems to have a plan. The underlying assets have vast potential to surprise on the upside.

 

http://wertartcapital.com/2018/09/28/a-recap-of-my-existing-investments/

 

[sculpin]

Paradigm on Dundee Precious Metals....

 

 

 We think that DPM is positioned for a rerating among the Junior producers. It is now finally able to offer more

predictable performance and free cash flow from its existing operations, the smelter in particular, followed by strong

growth starting in Q4 from the new Krumovgrad mine.

 

 DPM is trading at 0.48x NAV@5% at US$1,196/oz gold with zero value for the smelter. Our Junior and Intermediate

averages are 0.50x and 0.91x, respectively. We mention both tiers because with 2019–2021e production of 263–

305Koz/year, plus copper, DPM will be on the 250–300Koz/year threshold of our Intermediate category.

 

Don MacLean

 

[Cardboard]

Not much details but, I take it as a positive:

 

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aDC-2665869&symbol=DC&region=C

 

Cardboard

[Rod]

Not much details but, I take it as a positive:

 

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aDC-2665869&symbol=DC&region=C

 

Cardboard

 

It's good to have someone else contributing capital and shouldering part of the risk. But we don't know the terms of the loan. It could be quite extortionate. But I agree it's a modest positive.

[Maximu]

I see it as negative.  Clearly, the cash calls continue at Parq even after the summer tourist months wind down.  Dilution of equity is now occurring (convertible option) as none of the original partners are putting up any more money and instead are bringing in outside capital at what is surely punitive terms.

[Rod]

I see it as negative.  Clearly, the cash calls continue at Parq even after the summer tourist months wind down.  Dilution of equity is now occurring (convertible option) as none of the original partners are putting up any more money and instead are bringing in outside capital at what is surely punitive terms.

 

Your right, it's a negative development for those who thought Parq might produce significant value to Dundee. It's a positive for those like me who had already given up on that and just want to see them contribute less cash and get out of it.

[Maximu]

I share your view - this is a company that has a (closing) window of time to tactically retreat, rethink its strategy, and restructure so as to preserve its existing capital and still have the opportunity to prospectively grow that capital.  A mix of less aggressive, cash flowing assets and more aggressive, modestly cash burning assets would be ideal, in my opinion.  Parq could have been one of those less aggressive, cash flowing assets; however, that is not materializing and with rising interest rates and bubblish asset prices worldwide, now would be the time to sell to preserve the equity already invested. 

[petec]

I see this as a positive. It’s not the refi we were hoping for but it signals an end to the cash drain and reduces risk. It’s fairly small though. I wonder if that’s because the need is diminishing, or the appetite is lacking.

[Sportgamma]

At this point, anything that stops the cash drain is good news for shareholders. This, as well as the Delonex deal,  are very positive indicators in my opinion.