Dundee Corporation

Good morning, everyone, and welcome to the Dundee Corporation third 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 could ask constitute forward-looking statements that are subject to risk and uncertainties relating to Dundee Corporation's future financial or business performance. Actual results could differ materially from those anticipated in those forward-looking statements, The risk factors that may result are detailed in Dundee's Corporation's third quarter 2021 management discussion and analysts and periodic filings and registration statements. You can access these documents under the company's profile at CDAR.com. I'd like to remind everybody that this conference call is being recorded today, Monday, November 15, 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 Mr. Jonathan Goodman, President and CEO of Dundee Corporation, and Ms. Lila Manassa-Murphy, Executive Vice President and CFO of Dundee Corporation. At this time, I would now like to introduce Mr. Jonathan Goodman to provide an update on the quarter. Please go ahead, Mr. Goodman.

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 third quarter 2021 financial results after the market closed on Friday, November 12th. You can find our consolidated financial statements and MD&A on the Dundee Corporation website and under our profile on CDAR.com. Turning to slide four, I'm pleased to report that Dundee Corporation made significant progress across all three of our strategic objectives during the third quarter of 2021. These objectives are doing more mining deals, rationalizing our legacy investment portfolio of non-core assets, which was highlighted by the recent completion of the sale of the Blue Goose Beef Division, and reducing our run rate corporate G&A and cash overheads and streamlining our capital structure. Dundee's continued execution against these pillars is critical to bringing the company back to its roots as a mining-focused active investor and setting us up to deliver long-term sustainable value for our shareholders, stakeholders, and partners. Moving to slide five. In Q3, our mining group, through Dundee Goodman Merchant Partners, remained active in identifying de-risking and investing in mining companies with significant value propositions. Our DGMP group was involved in several mining deals and acted as finders in a number of financings during the quarter. We also continue to increase our positions in high-quality, well-run mining companies. Two examples are Mako Gold and Magna Mining. We initially took a 6% stake in Australia-listed late Mako Gold in July and increased our position to 9.9% later in the quarter. Mako is focused on discovering gold deposits in West Africa. Mako are currently accelerating their exploration and drilling program at the Napier Gold Project in Cote d'Ivoire, to extend already identified high-grade gold mineralization. Lately, Mako's exploration efforts have yielded encouraging results as the company reported multiple gold intercepts, which illustrates the potential for delineating multiple deposits along the 30-kilometer Napier Fault as they work towards targeting a multimillion-ounce gold resource. Subsequent to quarter-ends, We also increased our ownership position in battery metals exploration development company Magna Mining from 11.8% to 19.4%. While we accumulated these shares in October, much of the work being behind this investment was done by our team in Q3. Magna has a significant deposit and a large unexplored land package in the world-class Sudbury Mining District that is highly prospective for nickel, copper, and PGMs, with many anomalies already identified. Magna has had some recent exploration success at their Shakespeare project, including a new nickel-copper PGM discovery in September, which speaks to the potential for the project to host multiple deposits within the property. We remain committed to working with all our investee companies as trusted long-term advisors and partners as they advance their projects. We will continue to share our team's demonstrated knowledge and expertise across all aspects of the mining business to ensure we maximize the value of these assets and help them realize their full potential while eliminating as much risk as possible. I want to commend the entire Dundee investment team for staying as active as they were in Q3. Deal flow across the whole mining sector was significantly slower in the summer months compared to prior quarters. This was largely a result of cooler metal markets relative to Q3 2020 and many people in the sector taking time off due to the lifting of some COVID restrictions. We are seeing more normalized deal flow in September and into the early part of Q4. Our team's progress is a testament to their agility, their industry connections, and the pipeline of deals that they have worked to cultivate. Looking at slide six, Our mining investment portfolio was down quarter over quarter because it attributed to the volatility of the valuations for gold, base metals, and mining stocks due to the slower deal flow across the sector, which we have seen a reverse love in the fourth quarter so far. The decrease in assets under management is due to the market depreciation of $14.4 million, which was largely in line with the performance of the GDX during this period. During Q3 2021, Goodman & Company Investment Council recognized financial services revenue of half a million dollars from the services provided by DGMP, a division of Goodman & Company Investment Council, consisting of finders and advisory fees, compared to one million in the year-ago period. Despite the short-term market softness, we believe the investment fundamentals for mining are as strong as ever, and we remain committed to being disciplined investors who are investing for the long term. We have a well-developed investment thesis for our portfolio companies and invest heavily in management teams that we believe can execute and deliver results. Turning now to slide seven, we achieved a significant milestone in rationalizing our legacy portfolio by completing the sale of Blue Goose's beef division for aggregate gross proceeds of $71 million. There were two pieces to this deal. the sale of Lambert Creek Organic Meats, which was completed in September for approximately $8.1 million, and the sale of Blue Goose Cattle for proceeds of approximately $63 million, which was completed in October. Completing the sale of Blue Goose is a major step in the company's transformation and represents clear execution on our strategic plan. Lila will speak a bit more on the use of proceeds, but the sale of Blue Goose provides several benefits to Dundee. The cash proceeds of the DLC not only significantly deleverage our balance sheet, this divestiture also substantially eliminates further quarterly cash expenditures on Blue Goose and frees up management time, attention, and resources to focus on our core mining investment business. We made additional progress in simplifying our non-core legacy portfolio by exiting our position in EuroGas International in late September. And as mentioned on the last call, In August, Dundee entered into an amending agreement to monetize its loan with aid capital for $15 million. The payments are to come in three $5 million installments, one which we received during August of Q3, one before the end of the year, and the final payment due in early 2022. Moving to slide eight, we took further steps to drive down our run rate tax G&A in the third quarter of 2021. But Lila will provide more detail later in the call. We reduced total corporate G&A during the period, and we see a clear path to additional G&A improvements in leasehold costs, IT costs, insurance costs, and other items. We remain strongly committed to reducing our cash overheads in the final quarter of 2021 to a level that is more sustainable and more closely aligns the interests of management with our shareholders. With regards to streamlining our capital structure, our normal course issuer bid to purchase for cancellation up to 10% of the public flow of the company's Class A subordinate boni shares, as well as our cumulative five-year reset first preferred share Series 2 and Series 3 remains in place. I would like to now hand the call over to Lila Manassa-Murphy to provide an overview of our financial results. Lila?

Thank you, Jonathan, and good morning, everyone. First, I'd like to take a brief moment to thank the entire Dundee team, but in particular, I would like to thank the Blue Goose Deal team for their work in getting that transaction over the goal line. Turning now to slide 10, Dundee Corporation incurred a pre-tax loss of $48.7 million in the third quarter of 2021, compared to earnings of $16.5 million in the third quarter of 2020. The company generated consolidated revenues of $4.8 million compared to $5.1 million in the third quarter of 2020. The market value of our publicly traded securities decreased to $94.4 million as of September 30, 2021, from $100 million at June 30, 2021, reflecting a pullback in several key commodity markets. Our portfolio of investments carried at fair value through profit or loss had a valuation decrease of $42.5 million from $209 million at the end of the second quarter of 2021 to $167.2 million at the end of the third quarter of 2021. This is primarily from the aforementioned market factors as well as from the non-cash loss from a fair value adjustment for TauRx, which was determined using pricing from the latest fully subscribed rights offerings. Moving now to slide 11, operating results during Q3 of 2021 reflect a $48.7 million market depreciation as compared to an appreciation of $16.5 million in Q3 of 2020. Net loss from investments during the third quarter of 2021 includes $1.6 million 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 earlier, GCIC's assets under management decreased from $73 million in Q2 of 2021 to $58.6 million in Q3 of 2021. Again, this was attributable to market depreciation of $14.4 million. During the third quarter of 2021, this segment recognized the net pre-tax loss of $700,000 compared to earnings of $100,000 in the year-ago period. Blue Goose generated a pre-tax loss of $800,000 in the third quarter of 2021, of which $200,000 was incurred by the discontinued operations of the Blue Goose Beef Division. This compares with $2.7 million in pre-tax earnings generated in the same quarter of the prior year, of which $4.3 million was generated by discontinued operations in the beef division. During Q3 of 2021, Blue Goose recognized a $5 million impairment loss as a result of reassessing the fair value of certain real properties and reducing their carrying value to their estimated realizable amount. As Jonathan mentioned earlier on the call, Blue Goose's beef division was sold for aggregate proceeds of $71.1 million, with the final piece of the deal closing subsequent to quarter end. After using the proceeds to pay indebtedness owed to Dundee, bank indebtedness, and $5.3 million in transaction costs, the company recognized a loss of approximately $100,000 on the divestiture. The proceeds from this transaction have allowed us to significantly deliver our balance sheet by paying down approximately 32.3 million in corporate debt subsequent to quarter end. The result is a dramatically reduced corporate debt position going from 37.1 million at quarter end to now having only the 4.9 million in corporate debt from Dundee Sustainable Technologies. For TowerX in the third quarter of 2021, the fair value of the corporation's investment in TAL was adjusted to $35.8 million, generating a non-cash investment loss of $33.4 million in Q3. UHIC reported a pre-tax loss of $2.3 million in Q3 of 2021, compared to a $1.7 million gain in Q3 of 2020. This fair value change was due to the increased uncertainty surrounding the Delinex trip. strategic alternatives process as well as heightened geopolitical risks in the Republic of Chad. The company's carrying value of its 84% interest in UHIC is approximately $18.7 million as of September 30th of 2021. Dundee Sustainable Technologies incurred a pre-tax loss of $800,000 in the third quarter of 2021 compared to a loss of $1.7 million in in Q3 of 2020. Third quarter 2021 revenue for DST was $1.2 million, up from $900,000 in the prior year. Ag Marine reported a pre-tax net loss of $900,000 in the third quarter of 2021 with sales revenues of $1.9 million, compared to a loss of $500,000 and $1.5 million respectively in Q3 of 2020. As mentioned on the last call, in August, there was a temporary loss of power related to swapping out a generator at the agri-marine facility, which resulted in a subsequent lack of circulation and oxygen in the tanks. The resulting impact is an inventory loss of $326,000, which will translate to lower levels of cash inflow in future quarters. During the third quarter of 2021, Dundee 360 generated pre-tax earnings of $600,000 compared to $400,000 in the year-ago period. Now looking at slide 12. The third quarter of 2021 consolidated G&A inclusive of stock-based compensation with $5.9 million compared to prior year of $6.6 million from continuing operations. Excluding stock-based compensation, consolidated G&A was $5 million in Q3 of 2021 compared to $5.3 million in the prior year period. Head office G&A, excluding stock-based compensation for Q3 of 2021 was $2.3 million compared to $2 million in 2020, a 12% decrease. At quarter end, we had $84.1 million in consolidated cash, down from $90.9 million at the end of Q2 of 2021. Finally, 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 deposit is separately disclosed on the balance sheet as deposit with taxation authority. That concludes my comments. Back to you, Jonathan.

Thank you very much, Laila. Turning now to slide 14, Dundee Corporation's progress in Q3 2021 clearly demonstrates an acceleration of the company's transformation. We have built up considerable momentum, and in Q3 2021, I'm pleased to say we executed against all of our strategic objectives. Looking ahead, we remain committed to structuring and focusing our business support 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 2021. They are identifying and de-risking attractive mining investment opportunities and doing more private equity-style mining deals, continuing to accelerate the rationalization of our non-mining legacy investment portfolio, and reducing corporate G&A expenses and bringing down cash overhead to align the interests of management more closely with shareholders. These initiatives are critical to our transformation and will put us in the best position to deliver long-term, sustainable value to 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'd also like to thank our entire team for the extra work they continue to put in operating in this pandemic environment. I look forward to updating the market on our privacy. And now, operator, I'd like to open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order that they are received. Should you wish to decline from the polling process, please press star followed by the two. And if you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Brett Rees from Jannie Montgomery Scott. Please go ahead.

Morning, Jonathan. Good morning, Lila. How are you?

Very well. How are you, Brett?

Good morning. Good morning. You know, just an observation, and I don't mean it as criticism. You know, it is, this is basically, you know, it's a hedge fund of, you know, these mining selections, which, you know, I'm happy with because, you know, Jonathan, you have a tremendous skill set in this area. But what would you say... Base case scenario, you're looking for this package of investments you've made to return over the next two to five years.

What would you be happy with? That's a good question. I guess, obviously, our expectations on the investments we're making on the mining side, our return expectations, are very significant because we recognize that we're making these investments and the alternative would be buying back our own shares, which are very cheap. So our return expectations are in the order of three to five times on most of them.

Okay. And, you know, I know some of them will turn out extremely well. There'll be some that won't work out. But, you know, so overall, I mean, you've invested, I think, $127 million. You'd like to say, you know, like to see, you know, three to three and a half times that, you know, over, you know, over time.

Certainly. Okay. You have $84 million in cash.

How much more of that, if opportunities present itself, will you deploy into more of these type of investments? And, you know, what level of cash, you know, won't you go below?

You know, I think the question of capital allocation is a very dynamic process, and we are ongoing reviewing that pretty much on a daily basis. You know, obviously, as we look at our investment portfolio, you know, we don't just look at continuing to buy things. At some point, we're going to look at potentially selling things to reinvest in other items in the portfolio as they advance. I don't really have a proper answer to your question. I would say that, you know, we wouldn't be – we'd want to keep our cash position a probably north of $20 million. Lila may have a higher number than that. But the reality of it is it's a very dynamic process. Most of the things we invest in, they're not yet in production, and we're working hard to get to the point where we can see these things getting towards production. And obviously, in many of these, we're going to invest more in. Right. in a calculated way. Are you looking?

Yeah, I'm sorry.

I said some of these we will sell. And there's also, we also look at all forms of asset allocation. As you saw last year, we bought some of the press back. We bought some common shares back. It's a very dynamic process.

Right, right. Are you looking at anything in the rare earths?

We've seen a few over time, but I don't think there's anything on our plate right now in the railroad area.

Okay. And, you know, for the time being, you have about 78 million outstanding on the preference shares. Are you going to kind of, you know, just live with that amount in the... capital structure?

Well, I mean, when I came back in 2018, we had over $210 million in preferred shares, and we've taken it down to 78. And, you know, our guess is that over time we'll continue to evaluate the cost of those as well as alongside the opportunities we see. And we're likely at some point we will take them down. But, you know, we're not rushing into anything.

Okay, one last one. You know, with the good work you've done on reducing corporate overhead, in terms of what that run rate number is, plus what you have to finance the preference shares, what's kind of the annual number from those two cash outlays that you have to cover going forward?

Lella, do you want to tackle that one? Sure. In 2022, we would expect a base run rate of $9 million and then factor the cost of financing the preps on top of that. So I think that $13.5 for 2022 is a good number. Okay. And there's some... And there will be some one-time charges into the end of 2021, as well as some in 2022. Along the lines of we're moving, we're taking substantially less office space than we have today. There will be the one-time cost of white-boxing our existing lease space. And there are some other one-time restructuring charges we might expect as well.

Okay. So SG&A is basically $9 million plus $4.5 million, you know, ballpark on the preference preferred. So it's a little over $1 million a month, you know, to keep the lights on.

I think that's a good way to think about it.

Great. I'm going to drop back in queue. Thank you. for answering my questions.

Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. And your next question does come from Chuck Burns from CIBC. Please go ahead.

Good morning. It seems like programs... Good morning, Chuck. Good morning. It seems like progress has been steadily made. I guess what I'm looking at is the gradual kind of narrowing between the trading price and shareholders' equity.

I'm glad you noticed.

Yeah, the unfortunate part, though, is the shareholders' equity keeps dropping. So, you know, the share price could remain constant and we can narrow that gap, but I really don't want to kind of go that direction. I mean, I'd rather the share price kind of gravitate towards the shareholders' equity as opposed to the reverse, right? But I'm just looking at the... The current shareholders' equity, and I know investments fluctuate in the marketplace. Net corporate balance, that is kind of a fixed number. The equity account investments and operating subsidiaries, what is the – is that value kind of a pretty conservative value? going forward, or is there, you know, subject to kind of reductions as well? Because obviously the investments, that fluctuates in the marketplace. Nothing can be done. I'm just wondering if the remaining assets, how solid are they in terms of valuation?

Well, I mean, I think if you start with – The publicly traded investments we have, we would argue that they're very solid because... Oh, yeah, no, that's fine.

No, I'm talking about the other one.

You know, we work very hard to try and get these estimates of value and recognize that the management team in place here inherited most of these legacy investments. And for the most part, most of them are for sale. And we're working extremely hard to try and get a good valuation on them. And, you know, sometimes that gets away from you. We did not anticipate TauRx coming up with a rights offering at the price that they did. And that took a write-down. Ultimately, the only thing we know about the value of Tower X is that the value is wrong. At some point next year, they're going to come up with their final study on their Alzheimer's drug, and if it works, the value is going to be many multiples of what we're carrying it at, and if it doesn't work, it's going to be much lower. So recognize that some of the investments in Tower X being one of them the ultimate value is going to be significantly different.

Okay.

So, yeah, I guess there's one of two outcomes with that. So I guess if you look at, you know, if you kind of X out the operating subsidiaries and equity accounting and take away the preference shares, I guess you get kind of a very low, worst case, I guess. I don't even know if I think it's a very worst case. What time frame do you see dealing with the assets you do have for sale? Are you hopeful to get that done over the next year?

We are working very hard to get it done. obviously taken us a lot longer to get stuff sold than we had thought when we started this process. So it's very hard for me to give estimates of timing, but I think TauRx, we're going to know the results of that by the middle of next year. Android Industries is a solid company. That valuation is probably... much more solid. The only other one that probably has a binary outcome is the United Hydrocarbons, which owns a royalty on some oil and gas projects in Chad. Other than that, most of the other ones, I think the valuation that we're carrying them at is much more solid.

So are you still in the marketplace to buy some of the preps back? Is there a standing bid for that? I can't recall now.

Well, we do have an issuer bid outstanding on the preps and on the common, but recognize that while we were undergoing the Blue Goose sale for the better part of the last three months, ending only a few weeks ago, We were under blackout, so we weren't actually using the issuer bid, but we do have an issuer bid in place.

Okay.

Okay. Thanks very much. There are no further questions at this time. You may please proceed. Okay. I'm off schedule.

With that, I'd like to thank everyone for participating in this conference call and look forward to speaking again next quarter. Thank you very much.

Thanks, everyone.

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