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

[gfp]

Dundee PM now firmly above $ 8, the money from the exercised warrants probably coming in soon, market still not realizing they'll then have $ 2.4 per share in cash

Why wouldn't warrant holders wait until near expiration in May 2021 to exercise warrants?

[sculpin]

Top Insider Buys and Sells Past Week

Filing
Date   Transaction
Date   Insider Name   Ownership
Type   Securities   Nature of transaction   Volume or Value   Price
Jun 23/20   Jun 23/20   Sinclair, Alistair Murray   Indirect Ownership   Subordinate Voting Shares Class A   10 - Acquisition in the public market   47,600   $1.31
Jun 22/20   Jun 22/20   Sinclair, Alistair Murray   Control or Direction   Subordinate Voting Shares Class A   10 - Acquisition in the public market   46,400   $1.30
Jun 19/20   Jun 19/20   Sinclair, Alistair Murray   Control or Direction   Subordinate Voting Shares Class A   10 - Acquisition in the public market   50,800   $1.29
Jun 17/20   Jun 17/20   Sinclair, Alistair Murray   Control or Direction   Subordinate Voting Shares Class A   10 - Acquisition in the public market   3,700   $1.25
Jun 15/20   Jun 15/20   Sinclair, Alistair Murray   Control or Direction   Preferred Shares Cumulative Floating Rate First Preference Shares, Series 3   10 - Acquisition in the public market   1,000   $15.50
Jun 15/20   Jun 15/20   Sinclair, Alistair Murray   Control or Direction   Subordinate Voting Shares Class A   10 - Acquisition in the public market   13,000   $1.21
Jun 12/20   Jun 12/20   Sinclair, Alistair Murray   Control or Direction   Subordinate Voting Shares Class A   10 - Acquisition in the public market   16,000   $1.23
Jun 11/20   Jun 11/20   Sinclair, Alistair Murray   Control or Direction   Preferred Shares 5-Year Rate Reset First Pref. Shares, Series 2   10 - Acquisition in the public market   2,200   $15.70
Jun 11/20   Jun 11/20   Sinclair, Alistair Murray   Control or Direction   Subordinate Voting Shares Class A   10 - Acquisition in the public market   20,400   $1.23
Jun 10/20   Jun 10/20   Sinclair, Alistair Murray   Control or Direction   Preferred Shares 5-Year Rate Reset First Pref. Shares, Series 2   10 - Acquisition in the public market   17,800   $15.82

[sculpin]

Research Note - Dundee Precious Metals Inc. (DPM:TSX,$9.09|BUY $13.00 TRGT) FROM STRENGTH TO STRENGTH


We have revised our model and target price following our conversation with DPM on Friday, July 03. DPM is a stable and solid performing mid-tier producer. It generates cashflow from stable, low risk jurisdictions. And with its recent additions to the TSX composite index it has the requisite liquidity that represents a company having a significant re-rating potential. Moreover, its return of cash to shareholders, through a quarterly dividend of US$0.02/share and share repurchase program, is attractive to investors. DPM is backed by solid low-cost production which is growing and a cost structure that is declining. Q1 saw stellar production of 73 Koz Au and 9.4 Mlbs copper at a low AISC of $593/oz. Free cash flow is expected to be around $140 M to $180 M per year in the next three years. DPM remains on track to meet it production and cost guidance for 2020 at all of its operations. We maintain our BUY rating and have revised our 12-month target price to C$13.00/share (from C$9.50/share).

 

We spoke with the Company to gauge its general working conditions during COVID-19, the Company’s full year guidance and its Q2/19 expectations. DPM’s production is progressing well and is largely uninterrupted. Chelopech and Ada Tepe mines in Bulgaria continue to operate fully and in line with guidance. Tsumeb, the smelter in Namibia, is also operating in line with guidance albeit with reduced staff in certain areas, as government mandated.

 

Q1 Result Review: In Q1 DPM reported a record revenue of $152M (+9% Q/Q from $140M) and generated $77.5M in EBITDA (+41% Q/Q from $55M). Free cash flow came in at $49.2M (+315% Q/Q from $11.8M). In Q1/20 DPM’s consolidated gold production of 73.0 Koz and copper production of 9.4 Mlbs were achieved at an impressive cash cost of $511/oz and an AISC of $593/oz net of byproduct. Lower production costs, higher realized metal prices and lower sustaining and growth capital, as well as a solid production profile, contributed to an impressive AISC. Tsumeb processed 65 Kt also beat our estimate (MPI est. 55 Kt), at a cost of $357/t. The Company ended first quarter debt free, with $13.6M cash in hand and an undrawn portion of RCF of $175M. It expects to fully settle its prepaid forward gold sale of 20.97 Koz in 2020.

 

Valuation: We maintain our BUY rating and have revised our 12-month target price to C$13.00/share (from C$9.50/share). Our valuation is now based on a 1.3x NAV (from a 1.0x NA) and is based on a long-term gold and copper price of $1,550/oz and $2.75/lbs. DPM is currently trading at 0.9x our NAV estimate. Our NAV multiple is based on DPM’s strong track record of delivering on expectations since it declared commercial at Ada Tepe and completed ramping up in Q2/19 and transitioned from a single asset to multi asset gold producer.

 

DPM is trading at a valuation below to inline with other mid to large-cap producers. Its 2020E P/CFPS of 4.5x and 2021E P/CFPS of 3.7x reflects a significant discount to peers that are trading at 2020E P/CFPS of 7.2x and 2021E P/CFPS of 5.2x. For the rest of the year we expect DPM to continue to close that gap. With large capital investment ending, focus has turned to production optimization and cash flow generation. Its recently instituted quarterly dividend of US$0.02/share reflects its cash flow generating potential. 

 

We are modeling an annual production of 272 Koz of gold and 37Mlbs of copper at an AISC of $717/oz, net of byproduct. For Q2/20 we expect a consolidated gold production of 67.75 Koz (40.67 Koz for Chelopech and 27.07 Koz for Ada Tepe) and 9.35Mlbs of copper, at an AISC of ~US$700/oz Au produced.

 

2020 Production Guidance: For FY20 consolidated gold production is expected to be between 257 Koz and 299 Koz. Copper production guidance is between 35 Mlbs to 40 Mlbs. The guidance for the Tsumeb smelter processed concentrate is 230 Kt to 265 Kt. DPM is guiding for 2020 AISC to be between US$700 and US$780/oz sold, net of byproduct.

E: research@mpartners.ca

www.mpartners.ca

70 York Street Suite 1500

Toronto, ON Canada M5J 1S9

[sbalsam]

Bskptkl - I have the going-forward yield for the Ds as 6.8% (at a $15.75 price) based on the current t-bill rate. Does that match your assessment?
Steve

[SafetyinNumbers]

If anyone is looking for another pref to get into, I think the GMP.PR.B is interesting. It resets at 289bp over and yields 9.7% at the current payout but that will drop to 8.7% in April 2021, if the 5 yr yield stays down here. Can also choose to convert to floater (GMP.PR.C) if one thinks inflation may come sooner rather than later.

I think it's just mispriced because no one has taken a look since they sold their investment bank to Stifel. Now it's just a bag of cash with a clearing business that breaks even and a one third stake in Richardson GMP, which is an independent wealth manager that should have less volatile earnings stream than the old investment bank. Also, they are supposed to buy the rest of the Richardson GMP business for stock. That will triple the equity backing the preferred so it seems like the credit will just get better.

If I were them I would do an SIB on the preferred like Dundee did but I'm sure they think of the preferred as cheap capital.

[SafetyinNumbers]

If anyone is looking for another pref to get into, I think the GMP.PR.B is interesting. It resets at 289bp over and yields 9.7% at the current payout but that will drop to 8.7% in April 2021, if the 5 yr yield stays down here. Can also choose to convert to floater (GMP.PR.C) if one thinks inflation may come sooner rather than later.

I think it's just mispriced because no one has taken a look since they sold their investment bank to Stifel. Now it's just a bag of cash with a clearing business that breaks even and a one third stake in Richardson GMP, which is an independent wealth manager that should have less volatile earnings stream than the old investment bank. Also, they are supposed to buy the rest of the Richardson GMP business for stock. That will triple the equity backing the preferred so it seems like the credit will just get better.

If I were them I would do an SIB on the preferred like Dundee did but I'm sure they think of the preferred as cheap capital.

GMP just suspended their preferred dividend for what looks like a technical reason / incompetence but I don’t know for sure. Essentially, they need to have a shareholder meeting to reduce the stated capital and from what I can tell they haven’t had their 2019 AGM yet so it should be by year end.

Anyway, another bad idea in a string of bad ideas from me. Apologies.

[sculpin]

If anyone is looking for another pref to get into, I think the GMP.PR.B is interesting. It resets at 289bp over and yields 9.7% at the current payout but that will drop to 8.7% in April 2021, if the 5 yr yield stays down here. Can also choose to convert to floater (GMP.PR.C) if one thinks inflation may come sooner rather than later.

I think it's just mispriced because no one has taken a look since they sold their investment bank to Stifel. Now it's just a bag of cash with a clearing business that breaks even and a one third stake in Richardson GMP, which is an independent wealth manager that should have less volatile earnings stream than the old investment bank. Also, they are supposed to buy the rest of the Richardson GMP business for stock. That will triple the equity backing the preferred so it seems like the credit will just get better.

If I were them I would do an SIB on the preferred like Dundee did but I'm sure they think of the preferred as cheap capital.

GMP just suspended their preferred dividend for what looks like a technical reason / incompetence but I don’t know for sure. Essentially, they need to have a shareholder meeting to reduce the stated capital and from what I can tell they haven’t had their 2019 AGM yet so it should be by year end.

Anyway, another bad idea in a string of bad ideas from me. Apologies.

Most likely only a bad idea in the short term. If one can use price weakness to add to the GMP prefs at lower levels on this news, when the dividend is restored later this year, will turn out to be an even better idea.

[SafetyinNumbers]

If anyone is looking for another pref to get into, I think the GMP.PR.B is interesting. It resets at 289bp over and yields 9.7% at the current payout but that will drop to 8.7% in April 2021, if the 5 yr yield stays down here. Can also choose to convert to floater (GMP.PR.C) if one thinks inflation may come sooner rather than later.

I think it's just mispriced because no one has taken a look since they sold their investment bank to Stifel. Now it's just a bag of cash with a clearing business that breaks even and a one third stake in Richardson GMP, which is an independent wealth manager that should have less volatile earnings stream than the old investment bank. Also, they are supposed to buy the rest of the Richardson GMP business for stock. That will triple the equity backing the preferred so it seems like the credit will just get better.

If I were them I would do an SIB on the preferred like Dundee did but I'm sure they think of the preferred as cheap capital.

GMP just suspended their preferred dividend for what looks like a technical reason / incompetence but I don’t know for sure. Essentially, they need to have a shareholder meeting to reduce the stated capital and from what I can tell they haven’t had their 2019 AGM yet so it should be by year end.

Anyway, another bad idea in a string of bad ideas from me. Apologies.

Most likely only a bad idea in the short term. If one can use price weakness to add to the GMP prefs at lower levels on this news, when the dividend is restored later this year, will turn out to be an even better idea.

I didn’t expect holders to react rationally.

[sculpin]

http://prefblog.com/

GMP To Suspend Preferred Share Dividends

July 31st, 2020

GMP Capital Inc. has announced:

DIVIDENDS

The Company’s net working capital as at June 30, 2020 was $122.8 million. While this level of liquidity is sufficient to pay dividends, under Section 38(3) of the Business Corporations Act (Ontario), the Company’s governing corporate statute, the Company cannot pay a dividend if there are reasonable grounds for believing that the net realizable value of the Company’s assets would be less than the aggregate of its liabilities and its legal stated capital of all classes of shares (common and preferred).

Due to the current level of stated capital of the Company’s outstanding common and preferred shares, the Board of Directors has reasonable grounds to believe that this test would not be satisfied as at September 30, 2020, the date on which its quarterly preferred share dividend would normally be paid. As such the Company is suspending the dividends on its preferred shares. At its next meeting of common shareholders, the Company intends to seek the approval of its common shareholders to reduce the stated capital of the common shares to allow the Company to resume paying dividends, including accrued, unpaid dividends on the preferred shares.

Dividends on the outstanding preferred shares are cumulative and will continue to accrue in accordance with the rights, privileges, restrictions and conditions associated with each series of preferred shares.

Affected issues are GMP.PR.B and GMP.PR.C.

These issues have been on Review-Developing at DBRS for a long time, due to uncertainty regarding the proposed deal with Richardson GMP. It looks like the uncertainty became a lot more uncertain!

Of particular interest is the following quote (emphasis added):

At its next meeting of common shareholders, the Company intends to seek the approval of its common shareholders to reduce the stated capital of the common shares to allow the Company to resume paying dividends, including accrued, unpaid dividends on the preferred shares.
So there’s no indication as to how much of a reduction in stated capital the company will seek. A sharp reduction in stated capital at Aimia allowed the company to resume dividends on the common and to execute a Substantial Issuer Bid for that common, neither of which was good for the preferred shareholders.

Thanks to Assiduous Reader DR for bring this to my attention!

[SharperDingaan]

Good catch.

SD