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

[bizaro86]

 

All true, but they also have a ton of expenses to run the business annually so if you shrink the assets to much, the management expenses get too big as a percentage. I’m not saying it’s a good reason but it’s why they don’t buy back stock now when they did when the stock was 10x higher.

 

Heaven forbid they trim down management expenses a bit as the business shrinks.

 

 

[EricSchleien]

You guys can always call their CFO. She responds very promptly to shareholders.

[doc75]

All true, but they also have a ton of expenses to run the business annually so if you shrink the assets to much, the management expenses get too big as a percentage. I’m not saying it’s a good reason but it’s why they don’t buy back stock now when they did when the stock was 10x higher.

 

There's probably too much margin of safety for them to invest in their own stock right now.  Makes them uncomfortable. 

 

In all seriousness:  I understand the need to maintain liquidity, but I'd like to see them put money into their own stock (or buying back prefs or whatever) rather than make new speculative investments.  Pare the operations back to focus only on rationalizing the existing portfolio.  Once the market starts giving them some credit, they can try to grow the company again.

 

But the liquidity is to redeem the E class preferred isn’t it which is like buying back preferred.

 

I understand why they want to maintain liquidity.  But occasionally they're deciding to throw money at new investments (or put more money into old investments).  This is also a draw on their liquidity. I'd rather see them put that money into buybacks.

 

In some cases they may be putting more money into things to keep them afloat.  Sometimes this is necessary and prudent but history has shown that they often throw good money after bad. 

 

At the very least I'd like to see them stop with new speculative investments. Surely they cannot expect better returns than investing in their own shares and proceeding rationally.

 

 

[Rod]

Through it's holding in Union Group, Dundee indirectly owns 16M shares of ICC Labs (ICC-X), a Cannabis producer in Uruguay. I think it's worth watching because ICC has recently moved up from $1 to $1.70 as it seems to be catching the cannabis wave. At the current price it's worth about 50 cents per Dundee share, or roughly 20% of the market cap. I guess a best case scenario would be that ICC shoots up to $5 or so on a take over or continuation of the bubble, and Union Group sells. Dundee's share of that value would be about $1.40 per share, more than half the current market cap, a not inconsiderable amount.

[colinwalt]

Through it's holding in Union Group, Dundee indirectly owns 16M shares of ICC Labs (ICC-X), a Cannabis producer in Uruguay. I think it's worth watching because ICC has recently moved up from $1 to $1.70 as it seems to be catching the cannabis wave. At the current price it's worth about 50 cents per Dundee share, or roughly 20% of the market cap. I guess a best case scenario would be that ICC shoots up to $5 or so on a take over or continuation of the bubble, and Union Group sells. Dundee's share of that value would be about $1.40 per share, more than half the current market cap, a not inconsiderable amount.

 

Thanks for noticing that and letting us know

[Cardboard]

It is a good catch Rod. So, it has added around $0.18/share to NAV since Sep 30.

 

Moreover, they also own 228 million shares of DST which has doubled or another $0.17/share to NAV.

 

Unfortunately, none of that gets recognized or discussed. All we hear is about Blue Goose and the CEO who has been replaced by his brother due to a concussion...

 

And nothing being done to make value surface. No share buyback, no preferreds buyback which are trading at $12-13 or half of par. No wonder that we see no insider buying!

 

Cardboard

[sculpin]

Excerpt from the Intrepid Endurance fund latest quarterly letter. Might be a good idea to sell the 2 Parq hotels once they have some favourable financial & operating history. They agree on continued stupid decisions & poor capital allocation in the Blue Goose acquisition of Tender Choice...

 

 

Dundee achieved two important milestones in the third quarter, including closing the sale of United Hydrocarbon

(UHIC) to Delonex Energy and opening the Parq Vancouver casino and resort. The UHIC deal eliminates a $12 million

annual cash drag to Dundee and offers the potential for a future royalty tied to Delonex’s Chadian oil production several

years from now. Parq Vancouver is Dundee’s main opportunity for near-term cash flows, although this is dependent on

refinancing the project’s prohibitively expensive construction debt. We believe Dundee should capitalize on the strong

market for Vancouver hotel transactions and sell the two hotels attached to Parq Vancouver, with proceeds applied to

reducing borrowings.

 

Just when Dundee’s situation seemed to be incrementally brightening, the company reported in November that it

suspended activities at Blue Goose’s Tender Choice chicken processing facility to address repairs required by the

Canadian Food Inspection Agency. Weeks later, the facility burned down. While destructive fires are unpredictable

(usually, and hopefully in this case), Dundee’s original rationale for purchasing Tender Choice wasn’t strong.

Management claimed Tender Choice would help Blue Goose expand its organic brand into conventional chicken, and

they also suggested vertical integration synergies, but the main purpose was to acquire EBITDA to dilute losses at

the Blue Goose subsidiary. This is another disappointing example of capital allocation by Dundee’s leadership. With

that said, Dundee’s stock already reflects nothing favorable, as it’s trading at less than 25% of tangible book value. If

management can begin extracting cash flow from Parq Vancouver in 2018, Dundee could partially stem its ongoing

bleed in book value. Dundee is not a material position for the Fund.

 

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

 

[Cardboard]

To see the share price where it is at, along with the preferreds, and these guys doing squat is sickening.

 

On the DC.PR.B and DC.PR.D, they are now at or below $12. The current dividend yield is respectively 11.8% and 10.6% with once again favorable tax treatment for Canadians.

 

There is nothing close to that out there. Please chime in if you know of others. Even the Aimia preferreds trade around that price, no longer pay any dividend (accumulates and who knows if will ever be paid?) and the company is on very shaky ground.

 

What is a bit crazy is that the DC.PR.E trade at $24.30 or pretty close to par of $25 and offer a yield of 7.7%. They did redeem about 10% of them recently and the rest are due for redemption on June 30, 2019.

 

However, why do investors believe that they will redeem them instead of trying once again to exchange them for another serie as they did for Serie 4? And even if they have the intention to redeem them, why are investors perceiving the financial risk of that happening to be very low with them trading near par, while they discount the "B" and "D" by over half of par???

 

Considering that Dundee has no longer any bank debt since a little while, still resolved some issues over the past 2 years along with reduction in corporate costs and has enough assets to redeem all these preferreds, the current price definitely looks like an opportunity once again.

 

Cardboard

[SafetyinNumbers]

To see the share price where it is at, along with the preferreds, and these guys doing squat is sickening.

 

On the DC.PR.B and DC.PR.D, they are now at or below $12. The current dividend yield is respectively 11.8% and 10.6% with once again favorable tax treatment for Canadians.

 

There is nothing close to that out there. Please chime in if you know of others. Even the Aimia preferreds trade around that price, no longer pay any dividend (accumulates and who knows if will ever be paid?) and the company is on very shaky ground.

 

What is a bit crazy is that the DC.PR.E trade at $24.30 or pretty close to par of $25 and offer a yield of 7.7%. They did redeem about 10% of them recently and the rest are due for redemption on June 30, 2019.

 

However, why do investors believe that they will redeem them instead of trying once again to exchange them for another serie as they did for Serie 4? And even if they have the intention to redeem them, why are investors perceiving the financial risk of that happening to be very low with them trading near par, while they discount the "B" and "D" by over half of par???

 

Considering that Dundee has no longer any bank debt since a little while, still resolved some issues over the past 2 years along with reduction in corporate costs and has enough assets to redeem all these preferreds, the current price definitely looks like an opportunity once again.

 

Cardboard

 

I'm surprised less than half of those that were allowed to redeem at par did so! They could have redeemed at par and bought their position back below par.

 

The yield on the D's prospectively is closer to 11.3%. It lags the move in 3 month t-bills and changes every 3 months as I'm sure you are aware.

 

The BIR.PR.C has a YTM close to 11% (as they are puttable) that are close to that yield. There are some listed bonds with similar YTMs as well.

[doc75]

I've been holding my nose and buying some common.  I may also top up a bit on the prefs.  They seem much safer to me than the yield would imply. 

[Cardboard]

"The BIR.PR.C has a YTM close to 11% (as they are puttable) that are close to that yield. There are some listed bonds with similar YTMs as well."

 

Sure but, YTM's and/or interest yielding securities are different beasts IMO. Here you have around 11% immediate eligible dividend yield. Around 80% upside potential if these preferreds were trading at a yield of 6.5% (more in line to other preferreds based on risk, liquidity). How you translate that into a YTM is a good question but, certainly needs to be considered.

 

These preferreds are essentially the only debt of Dundee Corp. All other debt is non-recourse except a $10 million loan by Blue Goose guaranteed by Dundee Agriculture. So if you consider them as bonds, the equivalent taxable yield puts them closer to 14%.

 

And again, there are more than enough assets within Dundee Corp. to redeem them all at par. It is a holding company after all which is not dependent on any of its holdings to keep going. I consider this differently that say a ZAR.DB.A where your only "backing" is one operating business.

 

Very mispriced IMO and I have been buying.

 

Cardboard

[SafetyinNumbers]

"The BIR.PR.C has a YTM close to 11% (as they are puttable) that are close to that yield. There are some listed bonds with similar YTMs as well."

 

Sure but, YTM's and/or interest yielding securities are different beasts IMO. Here you have around 11% immediate eligible dividend yield. Around 80% upside potential if these preferreds were trading at a yield of 6.5% (more in line to other preferreds based on risk, liquidity). How you translate that into a YTM is a good question but, certainly needs to be considered.

 

These preferreds are essentially the only debt of Dundee Corp. All other debt is non-recourse except a $10 million loan by Blue Goose guaranteed by Dundee Agriculture. So if you consider them as bonds, the equivalent taxable yield puts them closer to 14%.

 

And again, there are more than enough assets within Dundee Corp. to redeem them all at par. It is a holding company after all which is not dependent on any of its holdings to keep going. I consider this differently that say a ZAR.DB.A where your only "backing" is one operating business.

 

Very mispriced IMO and I have been buying.

 

Cardboard

 

I am long as well. Didn’t want to give the impression I didn’t agree they were cheap but was trying to answer the question.

[Rod]

 

On the DC.PR.B and DC.PR.D, they are now at or below $12. The current dividend yield is respectively 11.8% and 10.6% with once again favorable tax treatment for Canadians.

 

Cardboard

 

It's worth noting that the B shares will reset next year and given the 5-year bond is at 2.15%, that would produce a 13% yield on the B's at $12.00. And would anyone be that surprised if the 5-year was 3% by next year? If we reset at 3% then the yield on the B's will be very close to 15%!

[sculpin]

Hopefully this is a sign of continuing clean up of the mess that is the DC portfolio. Unfortunately being done at the 52 week low of ADK shares....

 

Dundee Corporation Sells Shares in Diagnos Inc.

 

TORONTO, Feb. 08, 2018 (GLOBE NEWSWIRE) -- In accordance with regulatory requirements, Dundee Corporation (TSX:DC.A) announces that, through its wholly owned subsidiary, Dundee Resources Limited, it has sold 2,026,000 common shares (“Shares”) of Diagnos Inc. (the “Issuer”).

Immediately prior to the disposition of securities described in this news release, Dundee owned 18,487,764 Shares representing an approximate 10.72% interest in the Issuer on an undiluted basis.  Immediately following the transaction that triggered the requirement to file this news release, Dundee owns 16,461,764 Shares, representing an approximate 9.55% interest in the Issuer on an undiluted basis.

 

Dundee acquired the Shares of the Issuer for investment purposes only. Dundee intends to review, on a continuous basis, various factors related to its investment, including (but not limited to) the price and availability of the securities of the Issuer, subsequent developments affecting the Issuer or its business, and the general market and economic conditions.  Based upon these and other factors, Dundee may decide to purchase or sell securities of the Issuer.

[SafetyinNumbers]

 

On the DC.PR.B and DC.PR.D, they are now at or below $12. The current dividend yield is respectively 11.8% and 10.6% with once again favorable tax treatment for Canadians.

 

Cardboard

 

It's worth noting that the B shares will reset next year and given the 5-year bond is at 2.15%, that would produce a 13% yield on the B's at $12.00. And would anyone be that surprised if the 5-year was 3% by next year? If we reset at 3% then the yield on the B's will be very close to 15%!

 

Also if you own the Ds at that point you can ask to convert to the Bs if you want to lock in for 5 years.

[Cardboard]

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aPMA-2568009&symbol=PMA&region=C

 

$12,000 worth of securites sold which triggers the need for a press release or a cost of around $3,000. Smart!

 

Cardboard

[Maximu]

I am long the B and C rate reset preferreds.  Given that the rate reset feature provides significant protection from interest rate risk, I assume the large discount from par value primarily reflects the poor quality of the Dundee assets.  Out of (morbid) curiosity, when I see a NR like the one you just referred to I investigate the company to see if it is a hidden gem or a dog.  Petromaroc traded as high as $0.25 over the last 5 years and has fallen to $0.06 as of today.  The company currently has a NBV of $.02, with the assets by my figuring being approx. 5M shares of sound energy and $500K in cash (see Feb '18 news release re payment of debentures).  Petromarcoc is now effectively a shell ready for the re-birth of some equally speculative venture as the one they just exited.  My question after reviewing several of DC.A's holding is ... What is DC.A doing wasting its time on holdings like these?  And, why would I let Dundee manage my money in their new, fledgling investment management business when this is what they themselves invest in.  I think a serious re-focusing and re-branding is required.  Don't get me wrong ... I love investing in mining and speculative companies; however, these should be part of a balanced portfolio of other, more solid businesses providing consistent and growing cash flows.  Am I missing something with DC.A?

 

 

[doc75]

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aPMA-2568009&symbol=PMA&region=C

 

$12,000 worth of securites sold which triggers the need for a press release or a cost of around $3,000. Smart!

 

Cardboard

 

They sold the remaining 13.2 million shares today for approx $800k (0.06 per share).

 

As usual with Dundee, I'm curious what triggered the sale, and even more curious what triggered the investment in the first place. 

[gokou3]

Wondering if anyone knows what are their cost basis for Diagnos and PETROMAROC?  If I had to guess, they probably bought high and sold low.  Of course, the main worry is that they need the cash due to a liquidity crunch.  I think they sold DREAM last year for this reason.

 

Discl: long DC.B, DC.D

[Rod]

Wondering if anyone knows what are their cost basis for Diagnos and PETROMAROC?  If I had to guess, they probably bought high and sold low.  Of course, the main worry is that they need the cash due to a liquidity crunch.  I think they sold DREAM last year for this reason.

 

Discl: long DC.B, DC.D

 

I think it's just part of a plan to reduce their holdings generally. I don't think there's more to it than that.

[doc75]

Wondering if anyone knows what are their cost basis for Diagnos and PETROMAROC?  If I had to guess, they probably bought high and sold low.  Of course, the main worry is that they need the cash due to a liquidity crunch.  I think they sold DREAM last year for this reason.

 

Discl: long DC.B, DC.D

 

After a little digging I came up with the following narrative, but I did it on the quick so take it for what it's worth:

 

- In Feb 2012, Dundee buys 10 million shares of APIC Petroleum at $0.20 per (a 13% interest)

 

- In Fall 2012, APIC agrees to  merge with Longreach Oil & Gas, which has a focus in Morocco.  APIC does a private placement prior to the merger to raise cash for the soon-to-be-combined entity's drill program.  They raise $30 million through subscription receipts.

 

- Dundee participates in the private placement, buying another 56 million shares at 0.13 per (now a 21.4% interest)

 

- The merger goes ahead. Shareholders of APIC are entitled to one share of Longreach for every 5.3846 APIC shares.

 

- In April 2014, Dundee purchases $2.8 million in units of Longreach, each unit priced at $1000 and consisting of $1000 face in convertible debentures + 1000 warrants with $0.30 strike.

 

- In July 2014, Longreach changes its name to PetroMaroc.  At this point Dundee has nearly 13 million shares of PetroMaroc.

 

- In November 2014, Dundee Capital Markets is appointed financial advisor to evaluate "financial alternatives".  PetroMaroc does another PP, the first tranche raises $3 million at $0.15 a share.

 

- In January 2015, PetroMaroc announces second tranche of the PP was unsuccessful, and debenture interest due Dec 2014 would be paid in shares, valued at $0.06 each.  Dundee should have received about 1 million shares through their debenture holdings.

 

So altogether, Dundee's Petromaroc shares cost them roughly $9.25 million.  Sold today for less than a tenth of that.

 

There's also the $2.8 million in debentures+warrants, which I presume are still outstanding.  And possibly some more sunk money through affiliates. (e.g. in July 2017, PetroMaroc announces a debt-for-shares settlement with a Dundee subsidiary, where $325k of debt is exchanged for 1 million shares at a deemed price of $0.325 (US) per share -- a curiously huge premium to market)

 

 

[petec]

What is a bit crazy is that the DC.PR.E trade at $24.30 or pretty close to par of $25 and offer a yield of 7.7%. They did redeem about 10% of them recently and the rest are due for redemption on June 30, 2019.

 

However, why do investors believe that they will redeem them instead of trying once again to exchange them for another serie as they did for Serie 4? And even if they have the intention to redeem them, why are investors perceiving the financial risk of that happening to be very low with them trading near par, while they discount the "B" and "D" by over half of par???

 

 

I'm fairly new to Dundee but FWIW Series 5 shareholders would get to vote on any exchange, as the Series 4 holders did; they would presumably only vote for it if they liked it, and dissidents would presumably be paid in cash as they were for the Series 4 exchange. So I think the put, which is valid any time from June 2019, has real value compared to the Series 2 and 3 prefs (for which par is only really relevant in a bankruptcy) so I am not surprised the 5s trade where they do.

 

What's more interesting to me is that a) the 4s were exchanged for mix of a smaller amount of 5s and subordinate share warrants, meaning the 4s were partially converted into equity (although I don't know if the warrants converted). If they keep doing that, in effect, the 2's and 3's get promoted up the capital structure. The 5's are also convertible to sub shares at the company's call. It's hard to see any rationale for doing that at the moment but if things got really tight at Dundee it presumably could happen, which only accelerates the promotion of the 2's and 3's. Putting it another way, the 5's are accounted for as debt, depressing the equity coverage of the 2's and 3's. That might be too conservative.

 

[petec]

Wondering if anyone knows what are their cost basis for Diagnos and PETROMAROC?  If I had to guess, they probably bought high and sold low.  Of course, the main worry is that they need the cash due to a liquidity crunch.  I think they sold DREAM last year for this reason.

 

Discl: long DC.B, DC.D

 

DREAM solves the liquidity crunch. They are now very net cash at the holdco and have virtually no recourse debt. There's no liquidity crunch - just a question mark over whether you really want these guys allocating that cash. Judging by the carrying value vs. cost of the investment and equity-accounted portfolios as of q3 they are very good at buying high.

[bizaro86]

Wondering if anyone knows what are their cost basis for Diagnos and PETROMAROC?  If I had to guess, they probably bought high and sold low.  Of course, the main worry is that they need the cash due to a liquidity crunch.  I think they sold DREAM last year for this reason.

 

Discl: long DC.B, DC.D

 

DREAM solves the liquidity crunch. They are now very net cash at the holdco and have virtually no recourse debt. There's no liquidity crunch - just a question mark over whether you really want these guys allocating that cash. Judging by the carrying value vs. cost of the investment and equity-accounted portfolios as of q3 they are very good at buying high.

 

I would value a stack of hundreds in my safe deposit box at face value.

 

I would value a stack of hundreds a crazy guy had lit on fire at zero, even if they theoretically belonged to me.

 

I'm not totally sure where Dundee fits on the scale, but their record is pretty bad on some of this stuff.

 

That being said, they do have $2 in retained earnings for every $1 in capital raised. If they would stick to building and selling financial services businesses instead of investing in speculative nonsense this would probably be a great investment.

[no_free_lunch]

I'm not totally sure where Dundee fits on the scale, but their record is pretty bad on some of this stuff.

 

That being said, they do have $2 in retained earnings for every $1 in capital raised. If they would stick to building and selling financial services businesses instead of investing in speculative nonsense this would probably be a great investment.

 

You really nailed it.  What seems to have changed is their diversification efforts, the sale of some of their financial service businesses and the former CEO retiring/passing control to his kids.  I am not sure this is the same company it once was.