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

[doc75]

The current price of DC.A really speaks to their reputation and perceived quality of other assets.

That - and the fact that DPM is highly volatile. It's been on 3 tears this year and gave back most (but not all) of the first two. Given Dundee seems to have no intention of selling or spinning DPM, it's reasonable that the DC.A share price doesn't immediately reflect what may be a temporary revaluation of DPM*.

*I happen to think it will end up being a permanent revaluation, I'm just trying to explain why it might actually be perfectly rational for the market not to immediately reflect DPM's bounce in DC.A's share price.

Yes, I'm sure you're correct to a large extent.  I wouldn't expect DC.A to go by 0.55 due to a 0.55 addition to NAV from a volatile holding.  But  there has been essentially no movement in DC.A even as DPM advances on good operating news (as opposed to a bump in commodity price).   Interesting times.   Or course there's also the large overhang from the preferred conversion.

[sculpin]

Couple of things pushing DPM value up to the current $6 level. Canaccord initiation with $8.50 target. RBC comes out with 2020 outlook & $7.75 price. Peter Imhof, one of the better small cap guys in Canada, recommended it. It is dirt cheap at 3 times EBITDA.

DPM Top Pick by AGF

Dundee Precious Metals listed as a BNN top pick by Peter Imhof at AGF... nice to see generalist investment managers starting to see good value here. 

He added to it after meeting managers. Strong cash flow in recent quarters. They will reach middle or top of their production guidance. Trades at a really cheap valuation (and other metrics) vs. peers--trading at 6x next year's earnings. Expect a strong Q4 with super-strong cash flow, and given their mines are ramping up with good metal grades.


Canaccord initiates on DPM with $8.50 target

Dundee Precious Metals (DPM) – Initiating Coverage with Buy. TP $8.50 (curr. $5.07)   
 

DPM is a multi-mine precious metals producer with two operating mines in Bulgaria, a promising gold project in Serbia, and a smelter in Namibia
With Ada Tepe now built and ramped up, DPM is expected to generate substantial FCF from 2020 onward given ~50% overall AISC margins
We forecast a 20% FCF yield for 2020 based on the current share price, with similar yields for 2021 and 2022, and we note that DPM offers the highest FCF yield in our mid-cap precious metals coverage universe
We discuss the company's capital allocation criteria in the body of the report, but note here that we believe management is likely to initiate some form of shareholder return program in 2020 (or earlier)
DPM has substantially de-risked itself in 2019 with Ada Tepe entering commercial production, and we believe the stock will re-rate over 2020 as the market begins to realize this
At the current share price, the company trades at just 2.4x our 2020 EBITDA estimate 0.51x NAV, vs. the peer group averages of 5.1x and 1.21x, respectively

RBC Dominion Securities Inc.

Mark Mihaljevic, CFA (Analyst) (416) 842-3804 mark.mihaljevic@rbccm.com Wayne Lam, CFA (Analyst) (416) 842-7840 wayne.lam@rbccm.com Cole Chessell, CA, CPA (Associate) (416) 842-4126 cole.chessell@rbccm.com

Sector: Precious Minerals & Diamonds - small/ mid capD

December 2, 2019
 
Dundee Precious Metals Inc.
 
Reiterate Outperform: Positioned for a strong
2020 following a transition year
 
Our view: We expect DPM shares to outpace peers in 2020 given our
outlook for stronger operational results, improving financials, and an
attractive valuation. We expect investors to focus on operational updates
at Ada Tepe, stronger free cash flow, and the company's capital allocation
strategy. Reiterate Outperform and C$7.50 price target.
 
Key points:
 
Ada Tepe expected to drive a strong 2020
 
We expect DPM to deliver a stronger 2020 given a full year contribution
from Ada Tepe with the operation having reached design throughput
and recoveries in Sep/19, steady output from Chelopech, and no major
shutdowns planned at Tsumeb. This is expected to see ~20% growth in
gold production (265 Koz from 224 Koz) with AISC declining by ~10%
($730/oz from $811/oz). As a result, we forecast the company adding
$180M in net cash to the balance sheet in 2020, up from $37M in 2019
(negative $3M YTD). We believe demonstrating the company's underlying
free cash flow potential can help drive further upside in the shares.
 
Capital allocation to become a focus as free cash flow grows
 
Looking to 2020, we believe the primary focus for investors will transition
from execution at Ada Tepe to its capital allocation strategy. Beyond
reinvesting in brownfields exploration/optimization opportunities, we
expect Dundee to initially focus on de-levering its balance sheet ($14M
repaid on the credit facility in Q3 with $27M outstanding) and building
a strong cash balance (targeting ~$50M). By mid-2020, we believe
DPM could be in a position to begin returning capital to shareholders
(buyback or modest dividend). Note, we do not expect a significant
capital commitment to the Timok gold project in Serbia given the longerdated nature of the asset and focus on optimizing its economics. While
the company recently invested C$10M in INV Metals, we do not expect
strategic investments in the juniors to become a key tenet of its strategy.
 
Constructive outlook supported by attractive valuation
 
We estimate Dundee currently trades at a 2% discount to Junior producer
peers (36% vs. Intermediates) on long-term NAV, relative to an average
discount of 2% over the past year and 21% since the start of 2016
(33% and 37% vs. Intermediates). While the company has closed some
of its historical discount to peers, we believe shares can continue to
re-rate higher over the coming quarters as operational consistency is
demonstrated at Ada Tepe, free cash flow builds, and balance sheet
becomes more robust with potential for return of capital.
 
Reiterate Outperform and C$7.50 price target
 
We reiterate our positive outlook on DPM shares given the company's
improving operational/financial results and attractive valuation. Maintain
C$7.50 target as we have made only modest changes to our forecasts.

[sculpin]

Dundee's DPM Stake Equals Company's Total Enterprise Value - Free Option On Everything Else

https://seekingalpha.com/article/4310589-dundees-dpm-stake-equals-companys-total-enterprise-value-free-option-on-everything-else

[EricSchleien]

I'm getting antsy to buy this again at these levels.

Who read this seeking alpha article and thinks this is still a BAD investment?

Would love to hear the bear case here at these levels/valuation/management. The employee stock purchase plan being putting back into place as well as the CFO taking 50% of his bonus in stock, while not necessarily that meaningful on its own, is something that had me perk up here which also led to me reading this article.

https://seekingalpha.com/article/4310589-dundees-dpm-stake-equals-companys-total-enterprise-value-free-option-on-everything-else

Would love for someone who genuinely thinks this is a bad investment to share with me their bearish view at these levels.. thanks!

[no_free_lunch]

They have been trading at huge discounts to book for years.  Their stock price and book just keeps dropping. Part of it is the economy but it is also due to horrible capital allocation.  The founder is out and you are investing with his kids who just aren't their father.

[bizaro86]

I'm getting antsy to buy this again at these levels.

Who read this seeking alpha article and thinks this is still a BAD investment?

Would love to hear the bear case here at these levels/valuation/management. The employee stock purchase plan being putting back into place as well as the CFO taking 50% of his bonus in stock, while not necessarily that meaningful on its own, is something that had me perk up here which also led to me reading this article.

https://seekingalpha.com/article/4310589-dundees-dpm-stake-equals-companys-total-enterprise-value-free-option-on-everything-else

Would love for someone who genuinely thinks this is a bad investment to share with me their bearish view at these levels.. thanks!

If you put $1 MM in cash in a box and then lit the box on fire, I think you'd have a hard time getting someone to pay you NAV of $1 MM for the box.

This has been cheap on a nav basis for years, and management keeps incinerating money. Implicit in any thesis that this is cheap seems to be the assumption that "this time it's different." Maybe it is different this time, but that's not a bet I would make.

[no_free_lunch]

I agree bizarro.

Eric, go back to the first post of the thread:

According to GMP (see below) Dundee Capital has a net asset value of $16.02 as of last quarter yet trades on the TSX currently for a meager $4.90 heavily discounted Canuck bucks. This is about 30% of its calculated NAV.

So at $5 it was a steal.  Now it's $1 and it's still a steal.  Eric, why are you ignoring the history on this?

[petec]

Management are no longer incinerating money. They’re actually doing a very good job of clearing up the mess the father left.

Whether they will be able to make money in future is another question.

[EricSchleien]

I agree bizarro.

Eric, go back to the first post of the thread:

According to GMP (see below) Dundee Capital has a net asset value of $16.02 as of last quarter yet trades on the TSX currently for a meager $4.90 heavily discounted Canuck bucks. This is about 30% of its calculated NAV.

So at $5 it was a steal.  Now it's $1 and it's still a steal.  Eric, why are you ignoring the history on this?

I have. I owned this. One of my worst investments of all time. Basically getting the itch again to invest and looking to have others talk me out of it

[Lakesider]

The safety here is the value of DPM. The value of DPM is tied to gold prices..