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

[petec]

I wonder who the new partner is. My guesses would be either Brookfield or Morguard, but could be someone private.

 

I can't remember the wording but it seemed to me that their language on the call made it pretty certain the new Parq partner is private.

 

I feel pretty strongly now that the series 2 & 3 dividends should not be taken for granted.  They've cut G&A, but they're still burning through plenty of cash and there's no signs they'll be generating any in the next few years.  They're not going to sell DPM to pay dividends.  After they sell off the crap assets,  I think it would be an easy decision for them to preserve liquidity (and their salaries) by turning off the divvies.

 

After listening to the call, I'm also very skeptical of any type of meaningful issuer bid materializing.  They're very noncommittal and it sounds like they won't even make a decision until after getting a decision on their outstanding CRA issue.

 

The partner is definitely private.

 

On the issuer bid - I am inclined to agree but why on earth talk about it if there isn't some intent?

[petec]

Just updated my NAV and although some big things are yet to be delivered (sale of BG), a lot has been done and if the pref conversion drives real selling pressure the upside/downside on the common could become very compelling.

 

Here's what I learned from Q1, FWIW:

 

- holdco cost including pref divs heading to $20-22.5m, which is a transformation but still isn't covered by any regular incomes. Could begin to change with a DPM dividend or Chad oil.

- D360 is roughly half sold (Sotheby's and some RE assets in Croatia) with more to go.

- eCobalt is to be part of a bigger (but still tiny) player with more shots on goal.

- Parq is looking intriguing again. We obviously don't have a lot of data but it shouldn't need more cash, so the downside is limited, and the rate on the new debt actually allows for a surprising amount of equity upside in some scenarios. Only on the books for $10m.

- Android and Sarea values seem to have stabilised and Android may have potential.

 

The negative for me was the guide to up to $40m of sales in the next six months - previously they were discussing $100m+, IIRC.

 

My personal preference is for them to start buying in the prefs at market. Continues to derisk the common and a cheap way to add to NAVPS.

[sculpin]

 

Speculates new partner at Parq is Westmont Group. Deep pockets...

 

There has been speculation within the industry that the new partner is Westmont Hospitality Group.

 

Westmont, which manages or operates over 500 hotels in North America, Europe and Asia, has Canadian offices in Mississauga, as well as in London, England and Tokyo, Singapore and New York. It is headquartered in Houston, Texas. The president and founder is former Vancouver executive Majid Mangali, who started the company in 1975. Its related companies have owned stakes in Vancouver properties such as the Pan Pacific Vancouver and the Fairmont Waterfront.

 

Westmont has been associated with owning, running and selling Canadian chains such as Journey’s End, which became UniHost, and managed Quality Inn and Comfort Inn hotels. Mangali also founded and was the first chairman of InnVest REIT, which owned some 109 Canadian hotels when it was sold in 2016 for $2.1 billion to a Hong Kong-company reportedly related to Beijing-based Anbang Insurance Group Co.

 

https://vancouversun.com/business/local-business/parq-casino-refinances-debt-and-secures-new-equity-partner

[Nelson]

Anybody plan to go to the annual meeting in June?

[gokou3]

DUNDEE CORPORATION ANNOUNCES COMPLETION OF CONVERSION OF

FIRST PREFERENCE SHARES, SERIES 5 (May 15, 2019)

http://dundee.financial/dc/-/media/DGC/DC/2019-05-15-Series-5-Conv-Final.pdf

 

 

So is Friday May 17th (T+2) "D-day" in terms of the avalanche of new shares hitting the Pref E holders' broker accounts and onto the market?

[bizaro86]

DUNDEE CORPORATION ANNOUNCES COMPLETION OF CONVERSION OF

FIRST PREFERENCE SHARES, SERIES 5 (May 15, 2019)

http://dundee.financial/dc/-/media/DGC/DC/2019-05-15-Series-5-Conv-Final.pdf

 

 

So is Friday May 17th (T+2) "D-day" in terms of the avalanche of new shares hitting the Pref E holders' broker accounts and onto the market?

 

Down 7.5% on a multiple of the usual volume. I'd expect Monday to be down as well as retail holders notice the new shares on the weekend.

[Foreign Tuffett]

Anyone willing to help me get up to speed on this? Is there a bull case at the current price? If so, what is it?

[doc75]

 

The negative for me was the guide to up to $40m of sales in the next six months - previously they were discussing $100m+, IIRC.

 

I noticed that, too.  At some point they were treating Android Industries as a non-core asset, and now it's not, so things like this might explain some of the difference, but certainly not all.  As expected, they're not getting much for their assets.  I have no idea how they came up with a $100m+ figure in the first place.  That always seemed pie-in-the-sky.  To be frank they really don't seem to know much about many of their holdings.  It's pretty clear they have no visibility into TauRx, Red Leaf, or UHIC, for instance, or Union Group before that.  They're just crossing their fingers like the rest of us.

 

 

 

 

[doc75]

DUNDEE CORPORATION ANNOUNCES COMPLETION OF CONVERSION OF

FIRST PREFERENCE SHARES, SERIES 5 (May 15, 2019)

http://dundee.financial/dc/-/media/DGC/DC/2019-05-15-Series-5-Conv-Final.pdf

 

 

So is Friday May 17th (T+2) "D-day" in terms of the avalanche of new shares hitting the Pref E holders' broker accounts and onto the market?

 

Down 7.5% on a multiple of the usual volume. I'd expect Monday to be down as well as retail holders notice the new shares on the weekend.

 

With all the unwanted shares now on the market, I think this will just keep drifting down unless/until there is some truly catalytic positive news (UHIC success being the most likely in the near-to-mid term).  A sale of BG or any other remaining noncore assets won't do it, IMO. 

 

[gokou3]

Only 184k shares traded today and it's down 7.5%.  Another 41.8M to go (ok, I have dramatized this somewhat as some of these new shareholders will hold onto theire shares, and some pre-selling in the form of short sales prior to the conversion date have also taken place... still).

 

Management is making it clear that it will sit on the sideline and let the share price collapse before doing any buybacks when it stated in their press release that "The Corporation also announced that it continues to consider and evaluate the possible implementation of a normal course issuer bid and/or a substantial issuer bid in respect of its Subordinate Voting Shares."

 

Disclosure: None, but may buy into the common if it drops much more.

[Rod]

Only 184k shares traded today and it's down 7.5%.  Another 41.8M to go (ok, I have dramatized this somewhat as some of these new shareholders will hold onto theire shares, and some pre-selling in the form of short sales prior to the conversion date have also taken place... still).

 

Management is making it clear that it will sit on the sideline and let the share price collapse before doing any buybacks when it stated in their press release that "The Corporation also announced that it continues to consider and evaluate the possible implementation of a normal course issuer bid and/or a substantial issuer bid in respect of its Subordinate Voting Shares."

 

Disclosure: None, but may buy into the common if it drops much more.

 

I agree. I don't think they have enough cash right now to safely put much into a stock buyback. Buying back preferreds would make more sense to me anyway. At least with that they get an immediate large reduction in dividends they have to pay out. I think 70 cents would be a good price to buy the common. Just using the public investments, Android, the loan to Eight Capital, and cash, you get about $1.40 in equity (after subtracting 130M for pref debt). I think I'd be comfortable buying at half this equity number, given the upside optionality on the remaining assets.

[petec]

Anyone willing to help me get up to speed on this? Is there a bull case at the current price? If so, what is it?

 

The bull case is that the NAVPS is slowly hardening at a number above the current share price. This is happening because they're selling assets and giving a little more info on why one should trust the BV in some of the others. It's also helped by their largest equity position, Dundee Precious, seeing its share price rise after a well-executed expansion.

 

There is also optionality on the Chad oil royalty paying out. If Delonex discover oil there you'll make a multiple of your money regardless of what happens to the other assets.

 

The issue is there are many assets and not much information on each, but it's relatively easy to go through the FS and MD&A and piece together what they own. Once you've done that you can calculate a range for NAVPS.

 

My NAVPS ranges between $0.43 (listed equities plus half their cash, with prefs at par) and $7.24 (most but not all of assets are worth BV, with prefs at market). I regard the bear case as unrealistically bearish but I could be wrong.

 

My base case is around $2.

 

I think the selling pressure from the pref conversion could create a really good opportunity here.

 

 

[bizaro86]

I have as big of a short as I am comfortable with right now, but if it gets down to $0.43 I'll definitely use some of those profits to take a long position.

[petec]

Anyone watching DPM closely? Any reason for the recent collapse? I haven't seen anything negative and was hoping the stock would start reflecting something closer to fair value.

[Cardboard]

Price of gold is down, all precious metals stocks are down.

 

Cardboard

[petec]

Price of gold is down, all precious metals stocks are down.

 

Cardboard

 

Noted, thanks.

 

Mind you, the price of gold has traded in a $60 range since the start of the year and is well above DPM's cost base. Seems a bit overdramatic for DPM to have run from $3.50 to $4.80 and back to $3.90 on the back of that. I wonder if there's also some overhang from the parent - concerns over a forced sale etc.

[SafetyinNumbers]

Price of gold is down, all precious metals stocks are down.

 

Cardboard

 

Noted, thanks.

 

Mind you, the price of gold has traded in a $60 range since the start of the year and is well above DPM's cost base. Seems a bit overdramatic for DPM to have run from $3.50 to $4.80 and back to $3.90 on the back of that. I wonder if there's also some overhang from the parent - concerns over a forced sale etc.

 

It also has one of the higher copper exposures of the precious metals stocks if you want another reason. I think the overhang has always been priced in but just my opinion.

[bizaro86]

Did anyone have the prefs in a Canadian big bank brokerage? Have they converted you to tradeable shares? While the price action has been down (as I would expect) I haven't seen the volume increase I would have expected from such a huge slug of new shares coming available. I'm getting antsy to close the rest of my short (I bought some in at $0.94) but don't want to buy this aggressively, especially as it seems volume has been weak.

[sculpin]

http://www.ncfunds.com/dl/semiannual/813semiannual.pdf

 

Dundee, DDEJF/DC’A-T. (All figures reported in Canadian dollars)

 

Dundee reported a fourth quarter loss of $46.4 million, or $0.79 per share, due primarily to losses on

legacy investments. While disappointing, we are not surprised as our own analysis had

projected additional write-downs on certain legacy investments. As we have previously

written, Dundee made several poor investments prior to 2018. In early 2018, a new

CEO, Jonathan Goodman came on board to manage the portfolio and to divest non-core

investments. The company reported that the number of total investments has gone from

100 to 40, and reduced its headcount from 90 to 45, over the past year.

Reported Net Asset Value per share (NAV) as of December 31, 2018 was $6.87, a

decline of about 9% during to quarter.

 

On March 29, 2019, in conjunction with its

earnings release, Dundee announced a transaction that will significantly change the

reported NAV. It announced that it will be converting its $83.2 million of Series 5

Preferred Stock to Class A common shares. Under the terms of the Series 5 Preferred

Stock, Dundee had the option to repay in cash or convert to Class A common at a

conversion ratio of approximately $2.00 per common share. The retirement of the Series

5 Preferred stock will occur in May 2019 and will result in the issuance of approximately

42 million Class A common shares.

 

While this conversion is dilutive to Dundee’s NAV,

it is actually accretive in relation to the current trading price of the stock. Dundee is

essentially issuing common stock at $2.00 per share when the stock actually trades well

below that level. We support Management’s decision to exercise the conversion option

rather than use cash resources to repay the Preferred Stock. The company also

indicated it is reviewing a potential buy-back plan which if implemented would result in

purchasing shares at a significant discount to the newly issued $2 shares and would be

accretive to NAV.

 

Factoring in the additional common shares and the elimination of the preferred stock

liability, we estimate that the reported NAV will approximate $4.58. The shares currently

trade at only $1.15 giving us an attractive 75% discount to reported NAV. Even under

our most conservative scenario assumption, where we take certain significant haircuts

to Management’s valuations and factor in future cash expenses, we believe the shares

trade at about a 50% discount to NAV.

 

We expect to see at least one meaningful asset sale in 2019 along with other modest

sales and restructurings. These sales along with the elimination of the Series 5 Preferred

Stock and the current $38 million cash balance will further buttress its liquidity and capital

structure. There is no holding company debt and, post the May 2019 conversion, there

is no preferred stock outstanding with defined maturities. In other words, the company

is financed with permanent capital. This enhanced financial position should free up

resources for potential repurchases of Class A common stock. Additionally, the

considerable financial flexibility the company now has allows Management to prudently

monetize its investments, which should close the NAV discount over time.

 

As of February 28, 2019, the Fund held 5.2% in Dundee.

[sculpin]

Dundee Precious Metals - DC owns 36,381,552 shares @ $4.30 = $156.4 million or about $1.55 per DC.A share

 

Paradigm Capital...

 

"Many years of major investment are now behind DPM. It is positioned to generate

$110–$150M/year in operating FCF in 2020–2024, net of sustaining capital, G&A,

exploration and taxes (Krumovgrad’s FCF varies significantly year to year)."

 

The Past and Promising Future in a Page

 

Investment Thesis. DPM has the potential to achieve a substantial rerating, based on strong

growth starting 2019, but first it must prove it can operate its Tsumeb smelter profitably, start up

the new Krumovgrad mine and invest the $125-$150M/year of free cash flow wisely. We believe it

can.

 

Event

 

Investors have often said to us that DPM is too complicated and its path to profitability

too bumpy. We distill the past, 2003–2018, and its promising 2020–2024 outlook.

Highlights

 

 Chelopech I In 2003, DPM purchased Chelopech for $1, investing $220M through

2018, boosting ore production to 2.2Mtpy from 0.6Mtpy in 2004, generating

$1,085M EBITDA net of sustaining capital, but before exploration and investment

capital.

 

 The Smelter – Tsumeb I One can’t look at Chelopech in isolation — it needed

Tsumeb to process its 5%+ arsenic copper-gold concentrate. The original plan,

nixed by the Bulgarian government, was to build a $300M autoclave at Chelopech.

Tsumeb was Plan B. Purchased for $50M in 2010, an eight-year series of

investments totaling $360M transformed Tsumeb into a modern, emissionscompliant smelter capable of processing 240Ktpy of concentrates, twice Chelopech's needs. From 2010 to 2018, Tsumeb's cumulative EBITDA, net of

sustaining capital but before investment capital, was -$15M. Investors mostly

remember the years of cash drain and bumpy performance; however, Chelopech

would not have achieved what it has without Tsumeb.

 

 Chelopech & Tsumeb Combined I Thus, from the initial $1 investment in 2003,

Chelopech-Tsumeb have had total investment of $630M and generated

cumulative EBITDA of $1,070M, net of sustaining capital and exploration. Not bad.

 

 The Best Is Ahead I Years of investment are now behind DPM. Chelopech runs

like a well-oiled machine. Maintenance quarters aside, Tsumeb has seen

improving quarterly performance since early 2017. FCF projection for Chelopech

and Tsumeb, based on DPM’s latest life-of-mine (LoM) (2019–2026), is $70–

$80M/year, split ~80:20, respectively. Chelopech will be around for another

decade, probably longer. Tsumeb could improve substantially with a low-cost

expansion to >300Ktpy, once new high-arsenic-copper mines are built around the

world, a foreseeable trend. The original Chelopech autoclave would never have

offered this upside.

 

 Krumovgrad Kicker I Add to this the 2020–2024 $70M/year FCF for Krumovgrad.

Our sole reservation is short term – we think Krumovgrad’s start-up will take a few

quarters, not just the one quarter predicted and expected by the market.

 

Valuation & Conclusion

 

Many years of major investment are now behind DPM. It is positioned to generate

$110–$150M/year in operating FCF in 2020–2024, net of sustaining capital, G&A,

exploration and taxes (Krumovgrad’s FCF varies significantly year to year). The FCF

yield is compelling at over 18%, basis the $601M enterprise value. If DPM delivers on

this potential, invests the cash flow wisely and returns some to investors, we believe it

will be both a technological leader (a well-known fact in the mining industry, but not to

investors) and positioned to earn a premium valuation multiple — a 180 from today’s

discount valuation. We maintain our Buy recommendation and C$5.00 target.

 

[bizaro86]

Putting money into a uranium junior.

 

https://www.globenewswire.com/news-release/2019/06/03/1863599/0/en/Acquisition-of-Shares-of-ALX-Uranium-Corp.html

[sculpin]

DPM keeps marching higher. When is the substantial issuer bid coming? If Canaccord can do it...

 

 

Canaccord to buy back up to $40M of shares

 

2019-06-28 12:36 ET - News Release

Shares issued 117,827,294

CF Close 2019-06-27 C$ 5.19

 

Ms. Christina Marinoff reports

 

CANACCORD GENUITY GROUP INC. ANNOUNCES SUBSTANTIAL ISSUER BID FOR UP TO $40.0 MILLION OF ITS COMMON SHARES

 

Canaccord Genuity Group Inc. has authorized the initiation of a substantial issuer bid, pursuant to which the company will offer to repurchase for cancellation up to $40-million of its common shares.

 

The Company expects to announce the terms of the Offer and commence the Offer on July 3, 2019 and that the bid will be completed by August 9, 2019, unless extended or withdrawn.

 

"We are pleased to provide this opportunity for our shareholders, which reflects increased confidence in the sustainability and direction of our earnings," said Dan Daviau, President & CEO of Canaccord Genuity Group Inc. "In addition to our recently revised dividend policy, this initiative allows us to provide enhanced returns for our shareholders, while maintaining sufficient excess capital for disciplined investment in our ongoing strategic priorities."

 

The Offer is expected to proceed by way of a modified Dutch auction, which will allow shareholders who choose to participate in the Offer to select the price, within a price range of not less than $5.50 and not more than $6.30 per Common Share (in increments of $0.10 per Common Share). Upon expiry of the Offer, the Company will determine the lowest purchase price (which will not be more than $6.30 per Common Share and not less than $5.50 per Common Share) that will allow the Company to purchase the maximum number of Common Shares properly tendered to the Offer, having an aggregate purchase price not exceeding $40.0 million.

 

The directors and officers of the Company have advised that they will not tender any of their shares pursuant to the Offer.

 

The Offer will not be conditional upon any minimum number of Common Shares being tendered. The Offer will, however, be subject to other conditions and the Company will reserve the right, subject to applicable laws, to withdraw or amend the Offer, if, at any time prior to the payment of deposited Common Shares, certain events occur.

 

[Rod]

DPM keeps marching higher. When is the substantial issuer bid coming? If Canaccord can do it...

 

I think it would make more sense for them to buy back preferred shares. That would be immediately cash flow positive in a way that a common stock buyback would not be. Reducing cash outflow and maintaining a strong balance sheet are likely higher priorities than a stock buyback for management IMO. Their strategy of investing in junior mining companies is long term and won't produce cash in the short or medium term, so they will have to be particularly careful with their cash.

[doc75]

DPM keeps marching higher. When is the substantial issuer bid coming? If Canaccord can do it...

 

I think it would make more sense for them to buy back preferred shares. That would be immediately cash flow positive in a way that a common stock buyback would not be. Reducing cash outflow and maintaining a strong balance sheet are likely higher priorities than a stock buyback for management IMO. Their strategy of investing in junior mining companies is long term and won't produce cash in the short or medium term, so they will have to be particularly careful with their cash.

 

I'm fairly convinced there was never any strong intention of a buyback program.  Those were likely just words to placate substantial series E holders prior to the deal,  perhaps also with the thought of establishing some type of floor for the common post-conversion (i.e. brokers wouldn't want to advise new equity holders to dump into an illiquid market and miss the supposed buyback).

 

The company bleeds cash and will continue to do so for quite some time.  The more capital they retain, the greater the margin of safety for their salaries. 

 

 

[ADcure]

To safety in numbers, Anyone else involved?

Yes