Dundee Corp

TSX:DC.A

Earnings Call Transcript

[Operator]

Good morning, everyone. Welcome to the Dundee Corporation Second Quarter 2021 Results Conference Call. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements, that are subject to risks and uncertainties related to Dundee Corporation's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in Dundee Corporation's Second Quarter 2021 Management's Discussion and Analysis and other periodic filings and registration statements. You can access these documents under the company's profile at sedar.com. I'd like to remind everyone that this conference call is being recorded today, Thursday, August 12, 2021.On this call, management of Dundee Corporation will be quoting dollar figures. All figures are in Canadian dollars unless otherwise noted.Participating on this call will be Jonathan Goodman, President and CEO of Dundee Corporation; and Lila Manassa Murphy, Executive Vice President and CFO of Dundee Corporation. At this time, I would like to introduce Mr. Jonathan Goodman to provide an update on the quarter. Please go ahead, Mr. Goodman.

[Jonathan Carter Goodman, CEO, President & Director]

Thank you, operator. Good morning, everyone, and thank you for joining us today. With me on the call is Lila Manassa Murphy, Dundee's Executive Vice President and Chief Financial Officer, who will go over our financial performance. Dundee Corporation released its second quarter 2021 financial results at market close yesterday. You can find our consolidated financial statements and MD&A on the Dundee Corporation website and under our profile on sedar.com.Turning to Slide 4. Dundee Corporation continued to execute on its strategy of accelerating our transformation, bringing the company back to its roots as a mining-focused active investors, delivering long-term sustainable value for shareholders and partners. The second quarter of 2021 was characterized by further progress and momentum across all 3 of our strategic objectives, which are doing more mining deals, rationalizing our legacy investment portfolio of noncore assets and reducing our run rate corporate G&A and cash overheads and streamlining our capital structure. Moving to slide 2. In Q2, our mining group through Dundee Goodman Merchant Partners was active in identifying, derisking and investing in mining companies with significant value proposition. We grew our position in several high-quality mining companies. We exercised warrants to increase our stake in Maritime Resources to 19.96%. Maritime is developing the Hammerdown Gold deposit in Newfoundland, which we believe will have a low start-up capital cost and a quick payback. We believe the project has significant exploration upside as was further evidenced by the high-grade intercepts announced last month. We also feel that they have a great management team in place. We increased our holding in Reunion Gold. Additionally, DGMP participated in a syndicate for a brokered private placement to raise an additional $3 million for Union Gold. We see solid potential for Reunion Gold. Reunion Gold is an exploration and development company working in the Guyana Shield, which is among the most prospective yet most underexplored gold districts in the world. As mentioned in our last quarterly call, we increased our stake in Western Australian gold producer -- gold explorer Ausgold from 7% to 9.9% in a placement participated in by DGMP.In April, Ausgold updated their gold resource by 28% to 1.54 million ounces. We believe that they continue to unlock significant value to further exploration.We also added 2 new investee companies to our portfolio. In May, we acquired approximately 10.5% of Magna Mining, a base metals exploration and development company in the world-class Sudbury mining district. For a large unexplored land package that is highly prospective for nickel, copper and PGMs.Subsequent to quarter end, we acquired a 6% stake in Australia-listed Mako Gold mines. Mako is focusing on discovering high-grade gold deposits in West Africa. Mako are currently accelerating their exploration and drilling program to extend already identified high-grade gold mineralization at the Napié Gold Project in Cote d'Ivoire.Overall, our portfolio of high-quality, well-run investee companies continues to advance their impressive deposits towards the construction phase and closer to cash flow generation. We remain committed to working with our investee companies throughout this process as trusted long-term advisers and partners. We will share our team's demonstrated knowledge and expertise across all aspects of the mining business to ensure that we can maximize value of these assets and eliminate as much risk as possible. Looking at slide 6. Our mining investment portfolio was down quarter-over-quarter, which is attributed to the volatility of the valuations of gold-based metals and mining stocks due to growing concerns of inflation and rising number of COVID-19 variant cases. Despite the volatility we saw this quarter, it is important to keep in mind that we are disciplined investors for investing for the long term in well-run companies with solid upside potential. The decrease in asset under management is due to the market depreciation of $4.8 million and redemptions of $2 million.During Q2, Goodman & Company, Investment Counsel recognized financial services revenue of $900,000 from the services provided by Dundee Goodman Merchant Partners, a division of GCIC, consisting of finders and advisory fees compared to $200,000 in the year-ago period.Looking ahead, our mining team will continue to be active in identifying and evaluating attractive investment opportunities and ways to generate cash flow. As mentioned on the last call, we want to be generating more fee business by attracting third-party capital to deals. The ability to do this at scale will give us the opportunity to increase our participation in deals we like and grow our positions in these companies.Turning now to slide 7. The strategic objective of rationalizing our noncore legacy portfolio of operating companies is a major priority, and we continue to demonstrate progress on the strategic objectives in Q2 of 2021. We advanced the divestitures of several noncore assets in Q2. But as I've said before, communicating our progress on these deals is challenging, since you cannot announce anything until it's complete.Multiple discussions for the sale of the beef division of Blue Goose remain ongoing. The wildfires in British Columbia present challenges to ongoing on site due diligence of the Blue Goose business division. While none of the Blue Goose branches have been directly impacted by the wildfires, these challenges have slowed the process more than anticipated. That said, we continue to work towards the deal. Subsequent to quarter end, on August 10, the Corporation entered into a lending agreement to monetize its loan with a capital of $15 million. The payments are to come in 3, $5 million installments, 1 expected next week, 1 before the end of the year and the final payment in early 2022.The amending agreement is subject to IIROC approval, which, as I have mentioned on past calls, rationalizing our legacy portfolio is something that is critical to our transformation as a company and something we have resolved to accelerate in 2021. To this end, in late June, we appointed Steven Sharpe as an Executive Vice Chair of the company with a mandate to facilitate the rationalization of our legacy portfolio, while minimizing the operating company's cash drain on the business wherever possible. Mr. Sharpe is a seasoned executive with a wide breadth of public company experience, as experiences range from legal practice to corporate strategy to restructuring to investment banking to C-suite leadership. His skill set fits extremely well with this mandate. We look forward to updating the market with more details as these deals materialize. Welcome, Steven.Moving to slide 8. We continue to work towards driving down our run rate G&A in the second quarter of 2021. We are strongly committed to reducing our cash overheads in 2021 to a level that is more sustainable and more closely aligned with the interest of management, with -- closing line -- the interest of management with our shareholders. As Lila will mention in more detail, later in the call, we reduced corporate G&A costs in Q2 2021. We conducted detailed cost reduction planning and evaluate our existing cost centers in Q2 to look at opportunities for bringing our over -- bringing our run rate down further. We have identified a number of areas where we can reduce our run rate G&A costs, in areas such as real estate, IT and insurance. We intend to be more aggressive on this through the remainder of the year.With regards to streamlining our capital structure, our normal course issuer bid, to purchase for cancellation up to 10% of the public float on the company's class 8 subordinate voting shares as well as our cumulative 5-year rate reset first preference Series 2 and Series 3, remains in place. Streamlining our capital structure aligns with our goal of returning cash to shareholders when appropriate. At the current share price, we consider these transactions through prudent uses of capital and good investments.Before I hand the call over to Lila Manassa Murphy, to provide an overview of our financial results, I would like to welcome Lila, who was appointed to the role of Executive Vice President and CFO midway through the quarter and hit the ground running. We believe Lila's skill set and asset management experience will be invaluable in helping us realize our transformation, especially in terms of optimizing our G&A run rate and streamlining our capital structure.And with that, I'd like to turn the call over to Lila.

[Lila A. Manassa Murphy, Executive VP & CFO]

Thank you, Jonathan. Before I get started, I'd like to just provide our stakeholders with a bit of background. I met Jonathan in 2008 when I was managing money, and he was CEO of Dundee Precious Metals. I witnessed the transformation and success of that company through significant operational, technical and social challenges. After many years of conversations with John about prudent capital allocation, I joined the Dundee Corp Board in August of 2018 and have watched this company evolved over the last 2.5 years-plus. While there is some very heavy lifting to do in terms of recycling capital from noncore businesses into the core strategy, I see an exciting opportunity here. I want to thank John and thank the Board for this opportunity. I would also like to say a very special thank you to every single one of the Dundee Corp. employees who have stepped up and functioned exceedingly well in an environment of unprecedented change and uncertainty.I speak on behalf of management and the Board when I say that we appreciate your hard work and diligence in this time of transition. When we are successful, it will be because of your efforts.Turning now to Slide 10. Dundee Corporation incurred a pretax loss of $11.5 million in the second quarter of 2021 compared to earnings of $52.2 million in the second quarter of 2020, driven largely by the decline in fair value in UHIC. The company generated consolidated revenues of $4.9 million compared to $3.9 million in the second quarter of 2020. The market value of our publicly traded securities decreased to $100 million, as of June 30, 2021 from $121 million at March 31, 2021, reflecting a pullback in several key commodity markets. Our portfolio's investments carried at fair value through profit or loss, had a valuation decrease of $25.1 million from $234.3 million at the end of the first quarter of 2021 to $209.2 million at the end of the second quarter of 2021, primarily from the aforementioned market factors and the proceeds from the completion of the Dundee Precious Metals warrant exercise programs of $32.9 million.Moving to slide 11. Operating results during Q2 of 2021 reflect an $800,000 market appreciation as compared to $92.1 million in Q2 2020. The 2020 market appreciation is net of a $5.2 million transaction cost for the disposition of the DPM units. Net income from investments during the second quarter of 2021 includes $500,000 in dividend and interest income distributed from our portfolio investments compared to $700,000 in the year-ago period. Looking at our operating subsidiaries performance for the quarter. As Jonathan mentioned, Goodman Company, Investment Counsel assets under management decreased from $80.6 million in Q2 2021 to $73 million in Q2 2021. Again, this was attributable to market depreciation of $4.8 million and redemptions of $2 million.During the second quarter of 2021, this segment recognized a pretax loss of $200,000 compared to $700,000 in the year ago period. UHIC reported a pretax loss of $12.4 million in second quarter of 2021 compared to $17.1 million loss in Q2 2020. This is due, almost entirely, to the noncash fair value change in the royalty interest and associated contingent bonus payments of $12.1 million. This fair value change was driven by the COVID-19 pandemic, the political conditions in Africa and the material operational and financial developments at Delonex Energy Limited. The company's carrying value of its 84% interest in UHIC is approximately $20 million at June 30, 2021. As Jonathan mentioned earlier, multiple discussions for the sale of Blue Goose's beef division remain ongoing. And as a result, the associated assets and liabilities of the beef division were reclassified as assets and liabilities held for sale in the consolidated statements of financial position.The operating results of the beef division are now classified as discontinued operations in the consolidated statements of operations. Blue Goose generated pretax earnings in the second quarter of 2021 at $600,000, of which $1.3 million was generated by discontinued operations, offset by a pretax loss of $700,000 incurred by the continuing operations. This compares with the $3.3 million pretax loss incurred in the year-ago period, of which $1.7 million and $1.6 million were incurred by discontinued operations -- discontinued and continuing operations, respectively. Dundee Sustainable Technologies incurred a pretax loss of $800,000 in the second quarter of 2021 compared to $100,000 in the second quarter of 2020. Second quarter 2021 revenue was $1.4 million, up from $1 million in the year-ago period. AgriMarine reported a pretax net loss of $900,000 in the second quarter of 2021, with sales revenues of $1.7 million compared with $800,000 and $1.9 million, respectively, in Q2 2020.Subsequent to quarter end, late last week, there was a temporary loss of power related to swapping out a gen set at the AgriMarine facility, which resulted in a subsequent lack of circulation in oxygen in the tanks. While it is too early to know the precise impact, we do know that there has been inventory losses, which will result in lower levels of operating cash flow in future quarters from this division.During the second quarter of 2021, Dundee 360 generated pretax earnings of $200,000 compared with a loss of $200,000 in the year-ago period. And the equity accounted losses were $200,000 in Q2 of 2021, primarily driven by a write-down of Dundee acquisition compared to a $4.7 million loss in the prior-year period. The 2020 loss included a $2.8 million loss on Dundee 360.Turning to slide 12. The second quarter of 2021's consolidated G&A, inclusive of stock-based compensation, was $4.7 million compared to prior year of $7.4 million from continuing operations. Excluding stock-based compensation, consolidated G&A was $4.7 million in the second quarter of 2021 compared to $7.3 million in the prior-year period.Head office G&A, excluding stock-based compensations for the second quarter, was $900,000 compared to $4.3 million in 2020, a 79% decrease. At quarter end, we had $90.9 million in consolidated cash, up from $72.5 million at the end of Q1 2021. This is reflective of the proceeds from the DPM warrant exercise, offset by ongoing investment in the mining portfolio. We have had no further significant developments with the CRA and continue to have $13.8 million on deposit regarding the 2014 to 2016 tax years. This amount is separately disclosed on the balance sheet, as deposited with taxation authority. That concludes my comments. Back to you, Jonathan.

[Jonathan Carter Goodman, CEO, President & Director]

Thank you very much, Lila. Turning now to Slide 14. Dundee Corporation's progress in Q2 2021 continues to set the stage for our transformation. I'm pleased with our team's execution against all of our strategic objectives, and the momentum we are building. In Q2 2021, we took steps to accelerate our transformation by appointing dedicated key senior executives with the right skills to make impactful progress on each pillar of our strategy. There is more work to be done, and we have the best team in place to do it.Looking ahead, we remain committed to structuring and focusing our business to support continued growth and profitability. Before we open up the Q&A, I'd like to reiterate Dundee's main long-term corporate priorities for the remainder of the year. They are: identifying and derisking attractive mining investment opportunities and doing more private equity style mining deals; reorganizing DGMP into a dealer group and private equity style group to position the dealer group for profitability; accelerating the rationalization of our non-mining legacy investment portfolio; and reducing our corporate G&A and expenses and bringing down cash overhead to align the interest of management more closely to shareholders; and streamlining our capital structure to return cash to shareholders when appropriate.These initiatives will allow us to more efficiently allocate our capital, focus the business on where we are strongest and can achieve the best returns, putting us in the best position possible to deliver and maximize value for all of our shareholders, stakeholders and partners.To close, I'd like to thank our shareholders and partners for their continued support and confidence in our team. I would also like to thank the entire Dundee team for the extra work they continue to put in, operating in this pandemic environment. I look forward to updating the market on our progress next quarter. Have a great day. And now operator, I'd like to open the line for questions.

[Operator]

[Operator Instructions] First question comes from Brandon Moyse with Stornoway.

[Brandon Moyse]

So first, I just want to understand the Eight Capital loan and amendment a bit better. So just with the existing loan, the $12.4 million that's currently outstanding. What was the maturity of that? Is that December 31, 2023? Or is that a different date?

[Jonathan Carter Goodman, CEO, President & Director]

Yes.

[Lila A. Manassa Murphy, Executive VP & CFO]

Yes.

[Brandon Moyse]

And so it sounds like you've -- the balance of the loans increased and the repayment schedule has accelerated. So what were the circumstances leading to that amendment?

[Jonathan Carter Goodman, CEO, President & Director]

Well, I mean, from our perspective, I mean, we're trying to monetize all of our noncore assets. From Eight Capital's perspective, you'll have to ask them. But the reality of it is, for them, I think it's a very high-cost piece of paper. And because it had a 10% coupon, plus a royalty on the business that they did and I think biggest they want to replace it with a lower cost of capital to these paper. And for us, it's a chance to turn it to cash.

[Brandon Moyse]

Got it. And then that might play a bit on the next question, but I want to also understand why Steven Sharpe is playing that role, call it, what necessitated his appointment? Who does he report to? And you touched on his mandate, but to the extent you can go into a bit more detail on what that entails, that would be great.

[Jonathan Carter Goodman, CEO, President & Director]

First of all, I mean, Steven is a very skilled and talented individual, and he's a -- first of all, he reports to me, the CEO of the company. And a lot of his skills are around the areas that we need them for, which is taking some of these residual assets, helping work with the management teams of these assets and ourselves to put in a proper plan, either to dispose them immediately or create a longer-term plan which will eventually lead to us getting our value out of them. And that will give me more time to focus on the core business of the mining investment portfolio. I mean there was no -- the necessity to do it was that's really his skill sets. And as an ex-member of our Board, we could see that he had some of other good skills there, and we took the opportunity.

[Brandon Moyse]

And just last, if you can clarify something for me. If you're able to look at Page 19 of the MD&A, I'll give you -- I can give you a second.

[Lila A. Manassa Murphy, Executive VP & CFO]

Okay.

[Jonathan Carter Goodman, CEO, President & Director]

Yes?

[Brandon Moyse]

So you list the publicly traded securities, and the total there says $100,253. But when I add them all together, the individual names, I get $114,556. Do you know why that is? Or would you be able to look into that?

[Lila A. Manassa Murphy, Executive VP & CFO]

We can certainly look into that for you.

[Jonathan Carter Goodman, CEO, President & Director]

I suspect the answer is because one of our publicly traded securities is Dundee Sustainable, and we consolidate it. So my guess is that, it doesn't count on that because it's a consolidated entity in our financial statement. So we're going to look into it and get you better than an off the cuts remark.

[Brandon Moyse]

Okay. It seems like the difference is actually the Maritime Resources position, but that could be a coincidence. But yes, please look into it.

[Jonathan Carter Goodman, CEO, President & Director]

I don't think so. But we'll look into it.

[Operator]

Your next question comes from Brett Reiss with Janney Montgomery Scott.

[Brett Reiss]

Welcome aboard, Lila. The -- if mother nature bears the lands that are part of the assets of Blue Goose, does that make it more of a scarce asset which would result in maybe a better price when ultimately you monetize the Blue Goose assets?

[Jonathan Carter Goodman, CEO, President & Director]

It could. I mean, I don't expect mother nature to bear all of the assets and there are currently no fires on any of the assets right now. But forest fires are a reality in that part of the world, pretty much every year to some extent. It's really just the fact that this year has been especially hot and dry and it just made it harder, that, and combined with COVID, to get people out there and get a tour because so much of the resources in that area is working on fighting the fire. But yes, when land gets burnt, it actually comes back stronger down the road.

[Brett Reiss]

And Jonathan, I'll stipulate your skill set in making mining investments is very high. But are you open to looking to things as investments that will generate an immediate cash flow to just take some of the pressure off you to cover for corporate overhead?

[Jonathan Carter Goodman, CEO, President & Director]

The answer is yes.

[Operator]

[Operator Instructions]Your next question comes from Rob Lino, he's a private investor.

[Unknown Shareholder]

Jonathan, I'm a personal investor, and if I look at it, you spent, for the company, it has a fair amount of time on share buybacks in the last couple of years.

[Jonathan Carter Goodman, CEO, President & Director]

Yes.

[Unknown Shareholder]

If I understand the assets held for resale at $69 million, and the liabilities at $19 million associated with that. If you sold it for book value and got cash, you would add $50 million of cash. So you've taken $90 million and the $50 million, you're $140 million. With a value investor like myself look at you and say, okay, you want to invest that as opposed to a longer, slower course of just buying back shares. Like I'm not asking you to commit obviously, but are you kind of through that stage of the company of buying back shares and now taking $150 million or whatever it is, $3 per share and now investing that?

[Jonathan Carter Goodman, CEO, President & Director]

I think that the answer is we look at -- capital allocation is a dynamic process. And so you're never through that process. We're always looking at buying back shares. We're looking at buying back prefs and looking at reinvestment opportunities and weighing the balance. I mean everyone in our team is very much motivated by share price, myself, in particular, I'm a very large shareholder in the company. And we spend a lot of time discussing all of that. So I would never say we're through that stage. It's still -- we still consider it a part of our capital allocation strategy.

[Operator]

Thank you. There are no further questions at this time, Mr. Goodman, you may proceed.

[Jonathan Carter Goodman, CEO, President & Director]

Well, if there are no further questions, I'd like to say thank you very much to everyone and look forward to doing this again next quarter. Thank you.

[Lila A. Manassa Murphy, Executive VP & CFO]

Thank you.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.