Author Topic: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?  (Read 142547 times)

petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #590 on: May 23, 2019, 05:49:56 AM »
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

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #591 on: May 23, 2019, 06:04:23 AM »
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.
Top 5 positions: ELF IAM GCM.NT/GCM PIF EFR.DB

bizaro86

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #592 on: May 27, 2019, 10:36:51 AM »
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

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #593 on: May 29, 2019, 11:59:58 AM »
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

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #594 on: June 06, 2019, 11:03:22 AM »
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.