Start Time: 10:00 January 1, 0000 10:23 AM ET
Dundee Corporation (OTCPK:DDEJF)
Q4 2021 Earnings Conference Call
March 29, 2022, 10:00 AM ET
Company Participants
Jonathan Goodman – President and CEO
Lila Manassa Murphy – EVP and CFO
Conference Call Participants
Brandon Moyse – Stornoway
Operator
Good morning, everyone. Welcome to the Dundee Corporation Fourth 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 relating 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 2021 Annual Information Form and other periodic filings and registration statements. You can access these documents under the company’s profile at www.sedar.com. I’d like to remind everybody that this conference call is being recorded today, Tuesday, March 29, 2022.
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 now to introduce Mr. Jonathan Goodman to provide an update on the quarter. Please go ahead, Mr. Goodman.
Jonathan 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 fourth quarter and year end 2021 financial results after the market closed on Monday, March 28. You can find our consolidated financial statements and MD&A on the Dundee Corporation Web site and under our profile on sedar.com.
Turning to Slide 4. I’m pleased to report that Dundee Corporation made significant progress across all three of our strategic objectives in the fourth quarter of 2021. These objectives are doing more mining deals; rationalizing our legacy investment portfolio of non-core assets, which was highlighted by the completion of the sale of Blue Goose beef division and the subsequent monetization of the Eight Capital loan; 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 stakeholders, shareholders and partners.
Moving to Slide 5. In Q4, our mining group, Dundee Goodman Merchant Partners remained active in identifying, derisking 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 continued to increase our positions in high-quality, well-run mining companies. Three examples are Reunion Gold, Moneta Gold, Magna Mining and we put some money into the Rambler Mining debt deal. We added to our position in Reunion Gold by exercising more [indiscernible] and receiving more incentive warrants in return. We currently own about 17% of Reunion Gold.
We have made what appears to be a very significant gold discovery on our Oko West Gold Project in Guyana. The project is shaping up to look like one of the most significant gold discoveries of this cycle. With Moneta Gold, we originally have taken around a 7% position in Moneta last year, and we’ll continue to add to our position and increase our position slightly from time to time.
Moneta is focused on developing a bulk mining, low grade gold deposit in the [indiscernible]. Moneta currently is accelerating their exploration and drilling program at the Tower Gold Project to extend already identified gold mineralization. They will have the resource update in the first half of this year. The current resource at Moneta is around 8 million ounces of gold and we expect them to significantly outdo the 10 million ounces that the market is expecting.
During the quarter, we also increased our position in base metals, primarily nickel, exploration and development company Magna Mining from 11.8% to 19.4%. Magna has a large unexplored land package in the world-class Sudbury mining district that is highly prospective for nickel, copper and platinum group metals.
Magna had some recent exploration success at the Shakespeare project, including a new nickel, copper, PGM discovery in September which speaks to the potential for the project to have multiple deposits within the property. The company has completed a feasibility study which has very acceptable results at $8.50 a nickel. Current nickel prices are in excess of $15 a pound.
Rambler is an underground medium grade copper, gold mine [indiscernible]. Our initial position is part of their debt package, which is fully secured and yields around 10.75%. Plus, the company is using the proceeds to get caught up under development which will allow them to ramp up their production.
We remain committed to working with all of our investee companies as trusted long-term advisers 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 that 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 Q4. Deal flow across the whole mining sector remained slow during the fourth quarter. We are seeing more normalized deal flow so far in 2022. 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 6, our mining investment portfolio was up 12.1 million quarter-over-quarter. In Q4, Goodman & Company, Investment Counsel recognized financial services revenue of $400,000 from the services provided by Dundee Goodman Merchant Partners, a division of GCIC, consisting of finders fees and advisory fees compared to $900,000 a year ago period.
We believe the investment fundamentals for mining are 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 to Slide 7. We achieved a significant milestone in rationalizing our legacy portfolio by completing the sale of Blue Goose’s beef division in the third quarter of last year for gross proceeds of $70.6 million. 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 use of proceeds, but the sale of Blue Goose provides several benefits to Dundee.
The cash proceeds of the deal 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 late in September. And, as mentioned on the last call, in August, Dundee entered into an amending agreement to monetize its loan with Eight Capital for 15 million, which has now been completed. The last one has been received during the first quarter of 2022.
Moving to Slide 8. We took further steps to drive down our run rate G&A in the fourth quarter of 2021. We reduced total corporate G&A during this period by 33% 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 with the interest of management and our shareholders.
With regards to streamlining our capital structure, our normal course issuer bid to purchase and cancellation of 10% of the public float on the company’s Class A subordinate shares as well as our cumulative five-year rate reset first preference shares, Series 2 and Series 3 has been renewed until March 2023. Streamlining our capital structure aligns with our goal of returning cash to shareholders, when appropriate.
I will now turn over the call to Lila Murphy, our CFO. Lila?
Lila Manassa Murphy
Thank you, Jonathan, and good morning, everyone. And thank you very much for your time and interest in the company. I would like to now give you a financial review of the company. But before I do that, I would like to just take a minute to thank the entire Dundee team for their tireless work and efforts during this year of evolution.
Everyone at the company deserves a great deal of credit for rolling up their sleeves and taking on new responsibilities as we’ve endeavored to right size this company. It has been a massive undertaking, and we know that change can be really tough and we’ve certainly had a lot of it. It has not been an easy restructuring. You need to know that we are grateful of all that you do, and I am really excited by the journey that lies ahead for us.
Turning now to Slide 10. Dundee Corporation incurred a pre-tax loss of $15.6 million in the fourth quarter of 2021 compared to earnings of 33.1 million in the fourth quarter of 2020. Key drivers in the quarter were a 17.9 million reduction in the carrying value of the royalty and contingency payments at our UHIC entity and a $3 million impairment at our AgriMarine subsidiary given the ongoing challenges of that entity.
For the full year, the company incurred a loss of 97.1 million versus 89.7 million a year ago. Key drivers were adjustments in the carrying value in our interest in UHIC by 41.7 million and a fair value adjustment of 35.2 million to 35.6 million in our investment in TauRx.
The company generated consolidated revenues of 3.5 million compared to 5.9 million in the fourth quarter of 2020. For the full year, the company generated consolidated revenues of 18.4 million versus 18 million a year ago. The market value of our publicly traded securities increased to 113.2 million as of December 31 of 2021 from 94.4 million at September 30, 2021, reflecting a 20% increase quarter-over-quarter.
Net income from our portfolio investments decreased from 22.2 million at the end of Q4 2020 to 12.1 million at the end of Q4 2021. Notable positive performance, as Jonathan mentioned, came from gains in Reunion Gold of 3.5 million, Centaurus Metals of 2.5 million, Moneta Gold of 1.7 million and Ausgold of 1.7 million. During the full year of 2021, the company invested $61.3 million in new and existing positions in its corporate portfolio.
Turning now to Slide 11. Operating results during Q4 2021 reflect $16.8 million net loss as compared to net earnings of 33.2 million in Q4 of 2020. Net loss from investments during the fourth quarter of 2021 include $0.5 million in dividend and interest income distributed from our portfolio investments compared to $900,000 in the year ago period.
Looking now at our operating subsidiary performance for the quarter, GCIC’s assets under management decreased from 58.6 million in Q3 2021 to 57.9 million in Q4 2021. Again, this was attributable to market depreciation of 1.3 million. Redemptions of $2 million were offset by additions of $100,000.
During the fourth quarter of 2021, this segment recognized a net pre-tax loss of $400,000 compared to $300,000 in the year ago period. Blue Goose generated a pre-tax income from continuing operations of $100,000 in the fourth quarter. This compares with 1 million in pre-tax income generated in the same quarter of the prior year.
The Blue Goose’s beef division, as Jon mentioned, was sold for aggregate proceeds over two transactions for over $70 million, $2 million of which was received in Q3 and around $63 million was received in Q4. The proceeds from this transaction have allowed us to significantly delever our balance sheet by paying down approximately 32.2 million in corporate debt in Q4 of this year. The result is a dramatically reduced corporate debt position going from 37.1 million prior to the sale to now only having 5 million in corporate debt from our Dundee Sustainable Technologies subsidiary.
UHIC reported a pre-tax loss of 18 million in Q4 of 2021 compared with a $2.3 million gain in Q4 of 2020. This fair value change was due to the increased uncertainty around the Delonex strategic alternatives process and heightened geopolitical risks in the Republic of Chad. The company’s carrying value of 84% interest in UHIC is approximately $3.5 million as of December 31, 2021.
Dundee Sustainable Technologies incurred a pre-tax loss of $600,000 in the fourth quarter of 2021 compared to a loss of $400,000 in Q4 of 2020. Fourth quarter 2021 revenue for DST was 1.1 million, down from $800,000 in the prior year.
AgriMarine reported a pre-tax net loss of $3.6 million in Q4 of 2021, with sales revenues of 1.5 million compared to a loss of $200,000 and 1.7 million, respectively, in Q4 of 2020. During the fourth quarter of 2021, Dundee 360 generated pre-tax earnings of 1.1 million compared to $200,000 in the year ago period.
Now, I’ll provide an update on head office. And if you turn to Slide 12, the fourth quarter of 2021 consolidated G&A, which includes all of our subsidiary G&A, inclusive of stock-based compensation, was $7.7 million compared to the prior year of $12 million from continuing operations, down 36% year-over-year.
While we know we have more work to do here, we are making progress. Excluding stock-based compensation, G&A was down 40% to $7 million in Q4 of 2021 compared to 11.6 million in the prior period. Turning now to Slide 12. Head office G&A, including stock-based compensation for Q4 2021, was 4.9 million compared to 7.7 million in Q4 of 2020, a 37% decrease year-over-year.
Finally, we ended the year in an excellent liquidity position. At quarter end, we had 93.8 million in consolidated cash, up from 84.4 million at the end of Q3 of 2021. We received correspondence from the CRA which maintains their audit reassessment and we were preparing a response to the appeals division. We continue to have 13.8 million on deposits regarding the 2014 to 2016 tax years. This amount is separately disclosed on our balance sheet as deposits with taxation authority.
That concludes my comments. Back to you, Jonathan.
Jonathan Goodman
Thank you very much, Lila. Turning now to Slide 14. Dundee Corporation’s progress in Q4 of 2021 clearly demonstrates an acceleration of the company transformation. We built up considerable momentum over the last several years. And in the fourth quarter of 2021, I’m pleased to say we have executed against all of our strategic objectives. Looking ahead, we remain committed to structuring and focusing our businesses for continued growth and profitability.
Before we open up for Q&A, I’d like to reiterate Dundee’s main long-term corporate priorities for the remainder of 2022. We are identifying and derisking attractive mining investment opportunities and doing more private equity-style mining deals; continuing to accelerate the rationalization of our non-mining legacy investment portfolio; reducing corporate G&A expenses and bringing down cash overhead to align the interest of management more closely with shareholders; and streamlining our capital structure to return cash to shareholders when appropriate. 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 would also like to thank our entire team for the extra work that they continue to put in operating in what is still a pandemic and now a pandemic and I guess a war-like environment. I look forward to updating the market on our progress next quarter.
And now operator, I’d like to open the line for questions.
Question-and-Answer Session
Operator
Thank you, sir. Ladies and gentlemen, we will now conduct a question-and-answer session. [Operator Instructions]. Your first question comes from Brandon Moyse with Stornoway. Please go ahead.
Brandon Moyse
Hi, Jonathan. Hi, Lila. How are you?
Jonathan Goodman
Good. How are you, Brandon?
Lila Manassa Murphy
Good morning.
Brandon Moyse
Good. So I see you invested $12.4 million in the other investments bucket. And I saw that the Magna Mining press release was 2 million. And you mentioned Rambler on this call. How much was Rambler?
Jonathan Goodman
I’m just looking for it. Rambler was about 3.7 million.
Brandon Moyse
Okay. So what would be the balance of that, call it 6.5 million, because I didn’t see any other — anything else out there? So can you give us some more disclosure on what you invested in?
Jonathan Goodman
I don’t have the full breakdown in front of me. I think Reunion was a bit of that. I don’t know if you’ve already factored that in. And I think there was a little bit of Moneta. I don’t know the numbers off the top of my head to break down each one.
Brandon Moyse
Okay. Were they — so Moneta you said, Reunion. Were the rest publics, privates? Can you characterize them a bit more like that?
Jonathan Goodman
I don’t recall doing any private. So most of what we did would have been public.
Brandon Moyse
Okay. And would they have been other than Moneta and Reunion that you mentioned in new investments or investments you already owned?
Jonathan Goodman
Mostly what we’ve been doing is investments we already own, putting a little more capital towards existing companies.
Brandon Moyse
Okay. Thank you.
Operator
Thank you. [Operator Instructions]. There are no further questions at this time. Mr. Goodman, you may proceed.
Jonathan Goodman
On that note, I just like to once again thank everybody for dialing in and their patience in these very challenging times. And I look forward to talking to you next quarter. Thank you very much. Take care.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
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