Author Topic: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?  (Read 138267 times)

sculpin

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #500 on: February 14, 2019, 08:05:29 AM »
Dundee Precious Metals Inc. (DPM-T)

12 Month Target: $6.65 (was $6.35) | Buy (unch)

Weaker Q4 EPS due to timing of shipments, but a great 2018 with a brighter future ahead

First and foremost, we would note that DPM met or exceeded every piece of guidance it provided for 2018 and that is to be commended.  Its Q4 financial results were negatively impacted mainly  due to only had two shipments of concentrate (as opposed to three in the previous and year ago quarters), slightly lower gold grades and recoveries and loses due to commodity and currency hedges. 

Its Q4 and 2018 financial results as follows; a loss of $0.01 in Q4  Fully diluted EPS for 2018 was $0.21 whereas we had forecast 22 cents for the year.  Had the company been able to make three shipments in Q4, it would have beaten our estimates by at least 10%.  The lower shipments negatively affected the AISC, which were $864/oz. for Q4 and $659/oz. for 2018.  This annual AISC of $659/oz. was $70/oz. lower than in 2017 and well below the industry average.  This was due to continued optimization at Chelopech and is great to see for a mine that has been in production for over 50 years. 

Free cash flow was $53.9m (or $0.30 per fully diluted share).  Of note, the company’s Tsumeb smelter outperformed our estimates and actually generated a small amount of positive cash flow for the first time, which supports our thesis that this unit is improving and represents a growth opportunity for the company.

Guidance For 2019

For 2019, the company provided production guidance of: total gold production of 210k to 262k oz. at AISC of $675 to $829 per oz. while our estimates are now at 253k oz. at AISC $735 per oz.  For 2020, we are modelling total production of 297k oz. at AISC of $655 as the grade at Krumovgrad is expected to be over 5.5 g/t.


sculpin

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #501 on: February 21, 2019, 08:00:57 AM »
Couple of updates on holdings while we await more material news...

https://www.b-tv.com/dundee-precious-metals-company-feature-ep-336/

eCobalt Solutions Inc.
Specialty Minerals and Metals

Eric Zaunscherb, CFA | Analyst |  Canaccord Genuity Corp. (Canada) |  ezaunscherb@cgf.com |  1.416.869.7299
Allison Carson | Associate |  Canaccord Genuity Corp. (Canada) |  acarson@cgf.com |  1.416.869.7285

Company Update

Waiting for the tide to change

We maintain our SPECULATIVE BUY rating and C$0.90 target price for eCobalt Solutions
following the announcement that project development at its wholly-owned ICP cobalt
project in Idaho paused for the winter, will remain paused.

The company is working on an optimized feasibility study and looking to secure an
offtake, which will define the final concentrate specifications and allow the company
to complete the new feasibility study. As it moves into cash preservation mode, it will
continue activities that are required to maintain the site and comply with the approved
Plan of Operations until the company can secure project financing.

eCobalt, like most cobalt equities, saw a large sell-off in 2018, declining by over 70%
in what we view as an over-correction. We believe the theme has been overwhelmed
by concerns surrounding the Chinese economy while oversupply fears have hammered
metal prices and equity valuations. As destocking in China winds down, so comes news
that supply out of the DRC could be slowing down. Kazakh miner ERG has placed one
of its key copper and cobalt mines on care and maintenance. In addition, Glencore is
expecting to cut 2,000 contractors at its Mutanda copper and cobalt mine in the DRC.
The combination of diminished destocking and the slowing of cobalt supply out of the
DRC bodes well for a turnaround in cobalt pricing. We believe that the cobalt macro
theme remains supportive and we remain confident that this project, with primary cobalt
production, will attract financing when positive sentiment returns to the market.

As noted in our Top Picks for 2019 piece, we continue to view Cobalt 27 (KBLT-TSXV:
$3.86 | SPECULATIVE BUY, C$15.50 TP) as the premier investment vehicle for exposure
to battery materials in the burgeoning electric vehicle theme for its physical metal
holdings, streams, minority direct mine interest and cash position. In addition, on our
deck, physical cobalt holdings plus working capital almost make Cobalt 27's mine, royalty
and stream exposure “a gift with purchase”.

eCobalt trades at a 0.30x normalized P/NAV (5%), a premium to covered peers. Although
we see financing of quality projects such as ICP possible in the long term, we believe this
latest development could cause a near-term re-rating to the downside.

doc75

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #502 on: February 26, 2019, 06:22:18 PM »
That DPM stake has been getting pretty valuable, currently at $173M compared to $109M at end of Q3 and $131M at end of Q4. 

They're certainly in no rush to deal with the Series 5 maturity.  Hopefully they're just waiting to close some more monetizing transactions... though I've learned not to expect good news with this company!


sculpin

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #503 on: March 13, 2019, 06:48:07 PM »
https://www.gurufocus.com/news/764799/value-idea-contest-dundee-corp

Value Idea Contest: Dundee Corp

Dundee Corp has rebuilt its balance sheet and trades at a deep discount to liquidation value. Fears that the company will be unable to redeem debt coming due in June 2019 are unfounded

This article has taken me four years to write. Back in 2014 I promised a fellow GuruFocus contributor I would share my views on Dundee Corp. (TSX:DC.A)(OTCPK:DPMLF). The stock traded at 0.5x book and management had been compounding book value at double-digit rates for decades. Yet after reading some annual reports, I found that neither the assets nor the liabilities of the company were simple enough for me to understand. That meant the stock was (to me at least) unsafe.

Thankfully, management has since rationalized the balance sheet. What’s more, the stock dropped from $13 to $1.50 per share. I guess now is as good a time as any to deliver on my promise. In sum, it is my view that at current prices, an investment in the stock of Dundee Corp. offers a fair chance of doubling within 12 months and a very low probability of a permanent loss of capital.

Dundee Corp. trades on the Toronto Stock exchange in Canada as well as over-the-counter market in the U.S. Unless indicated otherwise, all amounts are in Canadian dollars.

Business and history

Dundee is a holding company with activities in the areas of investment advisory, corporate finance, energy, resources/commodities, agriculture, real estate and infrastructure. The corporation also holds a portfolio of investments in both publicly listed and private companies.

Dundee traces its roots to 1957 when Ned Goodman and business partner Austin Beutel started an investment club. Goodman and Beutel capitalized on the club’s success by creating an investment counsel firm. By the 1990s, Goodman & Company Investment Counsel Ltd. was publicly traded as Dundee Wealth Inc. and managing $5 billion in assets. Assets under management at the Dynamic mutual funds division eventually grew to $50 billion. The company also had significant real estate operations.

In 2011 the division managing the mutual funds was sold for over $2 billion to Scotiabank, and in 2014 the real estate operation (DREAM) was spun out to shareholders. This left a holding with hodge-podge assets including stakes in publicly traded and private companies. In his last years as CEO, Goodman held a strong conviction that the world would face hyperinflation and the U.S. dollar would devalue. This led him to invest heavily in commodity businesses (oil and gas, gold, mining and so forth). After decades of heading the company, the founder stepped down as CEO in 2014, handing over to his son, David.

David Goodman restructured the organization into two divisions: wealth management and merchant capital. The wealth management division was an attempt to rebuild the wealth-management operation that had brought the company so much success in the past. The company was once again free to do this after the non-compete agreements with Scotiabank had ended. On the merchant capital side, Dundee continued providing capital to and supporting companies from incubation through to development, operation and monetization. The attempt at rebuilding the wealth management division did not sit well with Jonathan Goodman, Ned’s other son who worked at the company. Jonathan Goodman resigned.

Rebuilding the wealth management business proved difficult. Many of the investments Ned Goodman made in his last years as CEO had to be written down, and the stock dropped 90%. Investors became increasingly concerned about Dundee’s ability to redeem its preferred series-five notes coming due in June 2019.

With the company reporting massive losses and the stock trading at a steep discount to net asset value (NAV), David Goodman decided to reduce costs by scaling down the wealth management division and simplifying the balance sheet by culling the investment portfolio and paying down debt.

This year, David Goodman took medical leave. His brother, Jonathan, returned to head the company. Jonathan is even more focused than David on simplifying the balance sheet. The company is aggressively selling non-core assets. Jonathan Goodman has been very clear that in his view Dundee is first and foremost an investment holding company.

Financial strength

For a holding, the balance sheet as reported under Generally Accepted Accounting Principles (GAAP) can be a poor indicator of the financial strength of the company. That is especially the case at Dundee. Dundee’s most recent financials show that the company has cash and investments of $415 million. At the holding level, liabilities stand at $110 million. The holding has excess liquid assets of more than $300 million! That is as strong a balance sheet as you’ll ever see.

The highly leveraged subsidiary, Dundee Securities, has been eliminated in all but name. That was by far the largest and most problematic subsidiary. Now that the other highly leveraged subsidiary, Dundee Energy, has been sold, the balance sheet is much simpler and stronger. In 2014, total liabilities exceeded cash and investments by $200 million. Today, cash and investments exceed total liabilities by almost $ 200 million.

Total liabilities (including the liabilities of the subsidiaries) are reported under GAAP at $341 million. That's including $83 million worth of series-five preferred notes. Unlike the other series of preferreds the series 5 are accounted for as debt. The sale of Dundee Energy eliminates another $115 million worth of debt at that subsidiary.

Even if one assigns zero value to the assets of the remaining subsidiaries and elevates all liabilities to the holding level, Dundee has roughly $190 million worth of excess cash and investments.

Profitability

A balance sheet, with hundreds of millions worth of excess assets, is of no use if the company continues losing tens of millions of dollars per annum. This is exactly what has been going on at Dundee. Management made some dumb investments and one by one the mistakes within the investment portfolio are realised and become reported losses. The company has lost tens of millions each year since 2014 which is probably why the company trades at such a steep discount to liquidation value.

The fact that shares trade at a clear discount to liquidation value is however irrational in light of the fact that the company is, for all intents and purposes, in liquidation. It has been for a number of years, selling hundreds of millions of non-core assets to pay down debt.

The key is figuring out how much cash, if any, remains for shareholders after taking care of all liabilities. In his latest conference call, Jon Goodman indicated that he expects to generate $100 million to $200 million from the sale of non-core investments in the second half of 2018. That's excluding DPM. By Christmas, the company would then be left with:

$110 million worth of debt at the corporate level (including the series-five preferreds).
$130 million worth of cash at the corporate level.
A 20% stake in publicly traded Dundee Precious Metals (DPM), worth $120 million.
United Hydrocarbon, a royalty stream from oil produced in Chad by Delonex.
A 40% stake in Parq Vancouver, two hotels and casino in Vancouver.
Various subsidiaries, including Blue Goose, Agrimarine and Sustainable technologies.
The first three items together result in $140 million worth of excess liquid assets after assigning no value whatsoever to the remaining investments, United Hydrocarbon, Parq Vancouver or Agrimarine. That's a lot of excess liquidity for a company with a market cap of $90 million.

It is worth noting that United Hydrocarbon expects to collect $20 million to $50 million from Delonex if the wells that company is currently drilling in Chad actually produce some oil this year. What’s more, Dundee extended a $15.5 million loan to Parq Vancouver at 20%. That loan was due Oct. 1. Parq Vancouver recently announced an investment by a third party. There is a chance that the loan has been repaid, leaving Dundee Corp. with even more cash.

Management

Earlier this year, Jonathan Goodman left his job as CEO of DPM to fix the family business he previously left. Jonathan founded DPM in 1993. That company is publicly traded and worth $600 million (seven times more than Dundee Corp.). As its CEO he was earning $600,000 per annum, slightly more than the $550,000 he currently earns as CEO of Dundee Corp.

Jonathan’s father Ned Goodman still owns roughly 10% of Dundee Corp. and his four sons -- Jonathan, David, Mark and Daniel -- through a company called Jodamada, jointly own another 10%. Taken together, the Goodman family owns roughly 20% of the company. Because they own almost all the super-voting “B“ shares, they control 85% of the votes.

Jonathan Goodman has roughly four times his annual salary tied up in stock, and of course he has to answer to his siblings who are unable to easily bail out of their holdings. They look to him to salvage what’s left of the family fortune.

All in all, this is not the best management team imaginable. Having said that, the current CEO is obviously capable and his interests are reasonably well aligned with the interests of minority shareholders. At current valuations management has to be both incapable and unlucky for investors to lose money. Jonathan Goodman is obviously not incapable. He is the inverse prodigal son who has returned to help out the family after leaving to create a fortune (hat tip to James Roumell).

Value and Price
At the holding level, Dundee has cash and investments of about $415 million, $120 million of which is in Dundee Precious Metals (DPM) stock. Jon Goodman has indicated he intends to generate $100 million to $200 million from the sale of some of the other investments in H2 2018. One core holding (DPM) has a mine producing 200,000 ounces of gold and is ramping up a second mine (expected to be in production by year-end) for an extra 100,000 ounces. These mines produce gold at an estimated all-in cost of roughly $500 per ounce. At current gold prices that’s $200 million to $300 million worth of cash flow for a company trading at $600 million. This single investment is worth more than the market cap of the entire holding.

After closing the sale of Dundee Energy Limited Partnership (DELP), the company is left with $225 million worth of debt. That includes $115 million worth of debt that remains at the subsidiaries.

A very conservative estimate of the excess cash of the holding is 415m-225m = 190m.

per share that's 190/59 = $3.22.

Excluding debt at the subsidiaries, the excess cash of the holding is 415m-110m = 305m.

per share that's 305/59 = $7.17

It is important to note that the series-two and series-three preferred shares rank ahead of the A shares in liquidation. These preferreds are carried at par (roughly $120m) but never come due. One way to value this liability is at market value. The preferreds are publicly traded and currently trade at 0.5x par. The company could theoretically buy back the series-two and series-three preferred in the open market at a cost of $60 million.

It is more conservative and realistic to value the preferreds as an annual expense of roughly 6% of $120 million. That's $7 million worth of future annual earnings that are perpetually siphoned off before the owners of A shares get paid.

Of course, these preferreds have not stopped Dundee's management spinning out hunderds of millions worth of value to shareholders in the past. That is exactly what happened when the comany spun out Dundee Realty (now DREAM office REIT) in 2012. Spinning out the DPM stake in a similar fashion today would unlock $2 of per-share value in an instant.

In short, management would have to be both incapable and unlucky to destroy this much value. Again, the current CEO is clearly quite capable.

Catalysts

One way or the other, by this time next year, the uncertainty surrounding the series-five preferred shares will be removed.

DPM reports good progress on its new mine.

Delonex starts producing some oil in Chad.

The company announces share buybacks and/or buybacks of the series 5 preferred.

Specific risk

Cash diversion. Management may use excess cash to shore-up struggling subsidiaries that subsequently fail.

Family affairs. The Goodman family quarrel, leaving the company with a leadership vacuum.

Why is this cheap?

The company was cheap before, but a lot of assets ultimately proved worthless. This is now percieved to be a value trap. Though the current assets are much more liquid and easier to value, the “usual” value vultures have lost confidence, leaving very few investors interested in the name.

Disclosure

This is not a recommendation to buy or sell anything. This is an expression of my views about Dundee Corp. with the intent of engaging in intelligent discussion about the company and its stock. At the time of writing, I owned shares of Dundee Corp.

Any and all questions welcome as usual.

About the author:

batbeer2

I define intrinsic value as the price I would gladly pay to own the business outright. With current management in place. For most stocks, that value is 0. I can be reached at batbeer AT hotmail DOT com.

lessthaniv

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #504 on: March 13, 2019, 08:47:24 PM »
Good article and worth it to note the change in value of DPM since the article was written.

<IV

petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #505 on: March 14, 2019, 02:23:14 AM »
The issue with that article is it assumes Jon Goodman delivered on the sale of up to $200m of assets in 2H18.

Since they seem to announce major sales when they happen, and all they've announced is the sale of Dundee Securities, I am assuming that didn't happen.

I hadn't thought of spinning out DPM though. That's useful.

sculpin

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #506 on: March 14, 2019, 07:53:26 AM »
Dundee Precious Metals   BUY

DPM-TSX   

Last:   C$4.60
Target:   C$6.50
 
FLASH: Krumovgrad now set for ramp-up after the new mine produces its first gold concentrate
 
This morning, DPM announced a major milestone at its new Krumovgrad mine which produced its first gold concentrate. Commissioning is going well and with this recent milestone, the mine is now ramping up towards commercial production (still expected in Q2).

At the end of February, construction was 97% complete with US$147mm incurred. Current budget to completion is US$164mm-$166mm, slightly lower than previously improved budget of US$164mm-$168mm. Original capex estimate was US$178mm.

2019 production guidance at Krumovgrad is between approx. 55k and 75k oz of gold in concentrate. It is a wide range, but there’s reasonable operational flexibility (mainly grade driven) in a ramp-up year to aim for the mid-to-top end of the range. At the end of 2018, the mine had built a stockpile of ~156kt, comprised of four stockpiles at different average grades (the highest-grade stockpile was averaging +10 g/t).

The Krumovgrad is expected to add ~100k oz of annual production in the first five years. LOM annual production is expected to average ~85k oz at total cash cost of $404/oz.

Impact: Positive
Today’s news is a significant milestone that keeps the new mine on-track to achieve commercial production in Q2. Krumovgrad adds ~100k oz of annual production once fully ramped up (or ~50% increase to DPM’s current gold production run-rate).

Despite a minor setback in the construction schedule last year, DPM is delivering well on its newest mine. We are encouraged with the different grade stockpiles built ahead of commissioning, which will provide operational flexibility as the mine ramps up. Krumovgrad currently contributes $2.08/sh to our US NAV (5%/$1,300 gold) of $7.12/sh.

Recommendation: Maintain BUY rating and C$6.50 target

Rod

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #507 on: March 14, 2019, 09:09:35 AM »
So... it's mid-March and there has still been no proposal put forward for renegotiating and extending the E prefs. I think this adds to the probability that management intends to convert them to common. The only other option is to allow them to go into run-off mode in July, which I seriously doubt they would allow. There's no way to know how much of the E's will get redeemed but it could be so much that it overwhelms Dundee's liquidity.

If the conversion happens, it would likely put heavy downward pressure on the common given the new 40 million shares outstanding in the hands of people who clearly don't want them.

petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #508 on: March 14, 2019, 09:34:19 AM »
So... it's mid-March and there has still been no proposal put forward for renegotiating and extending the E prefs. I think this adds to the probability that management intends to convert them to common. The only other option is to allow them to go into run-off mode in July, which I seriously doubt they would allow. There's no way to know how much of the E's will get redeemed but it could be so much that it overwhelms Dundee's liquidity.

If the conversion happens, it would likely put heavy downward pressure on the common given the new 40 million shares outstanding in the hands of people who clearly don't want them.

Part of me does hope so. Conversion caps the upside but it reduces downside and if you're aggressive about haircutting the assets it's actually accretive to BVPS. I'm sure the stock would drop but it would be a heck of an opportunity.

I increasingly think aggressive haircuts are needed. The failure to make major sales worries me (unless of course they've just failed to announce them, in which case q4 will be a pleasant surprise).

petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #509 on: March 14, 2019, 09:52:52 AM »
Any idea why Dundee Sustainable Technologies has collapsed over the last few months? I don't follow it closely but newsflow seems broadly positive.

One reasonably smart alternative might be to swap two-thirds of the DPM shares for all outstanding prefs using current market prices to set the conversion ratio. Accretive to my base case BVPS, massively reduces risk and cash bleed, and gives both pref and common continued exposure to the continued rerating of DPM.