Q3 2011 MFC Industrial Ltd Earnings Conference Call

Nov 15, 2011 AM EST
Thomson Reuters StreetEvents Event Transcript
E D I T E D   V E R S I O N

MFCB - MFC Bancorp Ltd
Q3 2011 MFC Industrial Ltd Earnings Conference Call
Nov 15, 2011 / 03:00PM GMT 

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Corporate Participants
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   *  Michael Mason
      Allen & Caron Inc. - IR
   *  Michael Smith
      MFC Industrial Ltd - Chairman of the Board, CEO

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Conference Call Participants
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   *  Joe Pratt
      Wells Fargo Securities - Analyst
   *  Graham Tanaka
      Tanaka Capital Management - Analyst
   *  Tony Kerbs
      IAT Reinsurance - Analyst
   *  Unidentified Participant
      - Analyst
   *  George Berman
      JP Turner & Company - Analyst
   *  Peter Kellogg
      IAT Reinsurance - Analyst
   *  Jeff Geygan
      Milwaukee Private Management - Analyst
   *  Sven Karlen
      Wells Fargo Advisors - Analyst

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Presentation
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Operator   [1]
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 Good morning. Welcome to the MFC Industrial third quarter 2011 results conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the call over to Michael Mason of Allen and Caron Investor Relations.

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 Michael Mason,  Allen & Caron Inc. - IR   [2]
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 Good morning, and welcome to the MFC Industrial Ltd. investor conference call to discuss financial results for the third quarter 2011. I'm Mike Mason of Allen and Caron Investor Relations. Before we start the call, there are a couple of items I need to cover. Many of you received a copy of the press release. It was released this morning, November 15, at 7.30 AM Eastern. If you didn't receive a copy of the release, it is posted on the MFC Industrial website and in the Clients section of our website. You may call our office in New York at 212-691-8087 and we will e-mail it to you. It's also posted on Yahoo Finance and numerous other Internet sites. This call is being broadcast live over the Internet and may be accessed on the Company's website at www.MFCindustrial.com. A replay of this call will be available through November 22 and may be accessed from North America by calling 877-344-7529 and entering conference number 1000-5814. International callers should dial 412-317-0088. A replay of the webcast will be available immediately following this call and it will continue for seven days.

 Certain statements in this conference call will be forward-looking statements which reflect management's expectations regarding future growth, results of operations, performance, and business prospects and opportunities. For detailed information about risks and uncertainties that could cause actual results to differ materially from those expressed or implied, please refer to the disclaimer for forward-looking information contained in today's press release. Additional information about these and other assumptions, risks and uncertainties are set out with the MDA filed with Canadian securities regulators and filed under Form 6-K with the SEC. It is the Company's intention to make a brief presentation on their results announced this morning and then open the call to questions. I would now like to turn the call over to Mr. Michael Smith, CEO of MFC Industrial.

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [3]
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 Good morning. My name is Michael Smith and I'm the Chairman of MFC. Let me review with you some highlights of the results of the quarter and of the nine months year-to-date. The revenues for the first six months versus the third quarter was down primarily because of the seasonality. We have no revenues from India in this particular period of time, and also we have the summer slow-down in Europe. This can always -- could be better in the future, but it's in the range which we have predicted. For the nine months, we did receive $24.5 million revenues from our royalty interest in Wabush. This is before taxes. The two taxes we have being a royalty tax and an escalation tax before expenses. But that was quite good, and it has been increasing at this particular period of time. What is interesting is the production we have received so far this year. Royalties on 2.7 million tons for the 9 months, and the royalty rate for the third quarter was $0.0959 per ton. And if we go back to the third quarter of 2010, which I think is interesting, it was $0.0657 per ton. So we have seen some nice increases, and it's increased over the period of time.

 The volume of course is the driver for the actual payment. In this quarter, there was 1.172 million tons produced, and in the prior quarter it was 795,000 tons produced. Of course, this is seasonal business as well, and the prices of iron ore have come down, and I'll touch on that and the effect of that in a little bit. In effect, I'll go on to the revenues for the period of being $391 million, giving us a benefit of $0.35 a share. If you wanted to, you could take the one-time charge we had in the first quarter of $0.14, add that to the $0.35 to get a run rate, possible run rate of $0.49. You should note that historically the fourth quarter is stronger, and we'll see how that goes, but we can't be sure of that future.

 In reference to iron ore pricing, it is very interesting to see the iron ore pricing now is at $137 a ton, and in the beginning of the year, it was $167, and at June 30 it was $166. So it has come down recently, but also recently rebounded. Iron ore is important to us very, very much because it's a driver in three areas. Number one, we produce iron ore in a substandard way in India, and this of course has a very good profit margin, and we receive iron ore, which is a calculation for our royalty, which is also very important, and also we use it as a product just in our normal supply business. So you can see that we are conscious of iron ore and do hedge iron ore from a commercial point of view to lock in profits, not to speculate, and that is very important for us going forward.

 Going to the balance sheet, you'll see that in the press release on page four, we have $393 million in cash, down a little bit from the June 30, numbers, but we are in the middle of making some acquisitions and making some investments, but I can't say I'm pleased, but I'm happy to see that. Also I should talk about the book value of the Company. The book value per share I think is relevant. You'll see it is $8.75 at September 30. December 31, 2010, was also $8.75. Really the difference there is we have paid out a $0.20 dividend, and we also have had ForEx expense in the June quarter of about $0.10 change in valuation. So that is why you're not seeing a specific change there.

 From a liquidity point of view, the Company is in pretty good shape. We have lines of credit of $382 million -- $381 million. Of that, $190 million is on what we call [blanco] lines, the lines of credit which have no security and you could use for any proper business purpose, which of course is very, very helpful. That with the cash on hand, we're well-positioned to do some major projects in the future. We have seated and appointed new auditors of the Company, Deloitte & Touche. The reason for the appointment of the new auditors simplistically is economics, number one; but two we've got a broader reach with Deloitte & Touche. As we are now going into more markets, it was deemed to be more sensible to have somebody who has a greater international reach. Our proper taxation for the period was reasonable, and our cash which we actually paid in tax was quite small, $354,000.

 One of the questions I keep getting is to what is our annual dividend policy going to be in the future? We established a dividend policy and this year we have paid out in accordance with that, and we will recommend to our Board to continue that in the month of January. And I looked at some numbers just recently and I think what was really interesting is that New York Stock Exchange composite dividend index now is at 2.44%, S&P 500, 2.16%, and the highest one was the DOW Jones industrial average at 2.56%. So, it will be our recommendation to continue with the New York Stock Exchange dividend, and also putting, say, 25 basis points over and above that. I think that starts to make some sense.

 In our last press conference and our last press release, we discussed the divestiture of certain assets. That has not happened, and we are looking still to make that happen. We still believe that it makes sense to reduce our capital by about 25%. The problem with it is that the levels of taxation, different levels in our structure, and some other corporate issues have stopped us from achieving that to date. We are not negative on achieving it, we're still working towards it, but it may have to be done in parts. Before the idea was to do it in whole, now, it looks like it could be done in parts. Probably over a period of 2012 instead of just trying to achieve it at one time. But just to let you know, that is still going on and the direction has not changed at all. We aim to continue with our growth plan, and eventually the goal of course is to try and get a price-to-book value here. We are seeing the New York Stock Exchange price-to-book value to be 3. We are seeing Glencore, the famous Glencore, at 2.1 and of course that is our end goal, and I think we're moving towards that. We certainly are putting some things into place.

 On the acquisition front, we are seeing abilities to do strategic alliances with others, but on the pure acquisition front, we are finding that pricing now is not the issue. I would say three months ago, pricing was stopping most of what we were up to and the acquisitions. But now it is just doing more thorough due diligence, and I think we just must be more careful now. That is something I think we can achieve and we're well capitalized to do that and I think as the world goes through these great gyrations we're going to find more opportunities. As pricing is not becoming relevant, it just requires us to do much more homework so we can be comfortable inside of protecting our profits, our capital.

 We are having quite a bit of interest and are working with several Chinese companies on outward-bound transactions, and I think this is a major move for us especially in this area and also in some of the areas for us to develop jointly with them. The Chinese as you know have sufficient capital. All the technologies that they already have, so really what they're looking for is partners overseas and we have relationships with them. We did that joint venture with them where they vetted a strong interest in the old KHD Company, and that has worked out quite well. So based on that, we have a major emphasis going forward with the Chinese.

 Some shareholders have asked me, why don't we do a buy-back, and the Company has looked at this several times. And a buyback to us, if you go through it mathematically, is a short-term gain and the gain goes away after a relatively short period of time. What we do believe is reducing the capital like we had proposed earlier by a substantial sum, and that's really where we think it makes some sense. Many of our employees have asked to buy shares, and that is always very encouraging. Some of them will buy shares, and we're through our black-out period as of end the day tomorrow, and I know there's some interest from them and also from ourselves to acquire shares. We think that is much more sane than just to buy some shares in the market, see a short-term reaction and then see the shares fall off later. So the attitude there is to encourage participation, but also to do a major buy-back or major restructuring, such we have suggested under our divestment program, which equals about 25% of the Company's capital. Michael, I have no more statements. Maybe we could ask for questions now.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) Joe Pratt, Wells Fargo.

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 Joe Pratt,  Wells Fargo Securities - Analyst   [2]
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 When you speak about 25%, could you translate that to per share for me? I just want to make sure I'm dealing with the right capital number.

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [3]
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 Right. $546 million, I think, is the capital number, and 25% of that. If you remember what we had said, we were going to do $102 million in restructuring. That restructuring on a spin-out basis won't work, so we need to reduce the capital, and that will be the goal now is to do that in the most efficient way.

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 Joe Pratt,  Wells Fargo Securities - Analyst   [4]
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 So, you have raised it from $102 million to $136 million.

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [5]
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 Right.

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 Joe Pratt,  Wells Fargo Securities - Analyst   [6]
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 Okay, thank you.

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Operator   [7]
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 Graham Tanaka, Tanaka Capital Management.

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 Graham Tanaka,  Tanaka Capital Management - Analyst   [8]
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 On some of your acquisition targets, you'd mentioned you had a few potentially large ones, and then one of them that you went public and said that it wasn't happening. Could you just discuss a little bit about how these projects aren't lining up? Why, for example, that one didn't happen, and how many [that] you have now?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [9]
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 Graham, I think that the real difference of what has happened in a really relatively short period of time is for pricing, pricing, pricing, versus the risk. And it's easy to buy, as we all know, and several major projects we stopped because we couldn't handle the pricing. It just didn't make sense. So, let's say we were in the midst of around probably five projects at that particular period of time. Now, the three projects that we have, I don't have a pricing issue, because to be frank, we're probably the only person in town with any capital of size or credibility with the banking groups to do the projects. So, I think that is what has happened in the last, say, 60 days. And I think that's what makes us much more encouraged to see us do a substantial acquisition.

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 Graham Tanaka,  Tanaka Capital Management - Analyst   [10]
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 In terms of pricing, maybe you can help us out, just so we can understand the parameters of your book-ending the minimum/maximum that you'll pay. What kind of a range are you looking for?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [11]
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 We just have an internal policy that we want to buy for 70% of liquidation value. If you buy it for 70% of liquidation value, you shouldn't lose on the acquisition. You might not make anything, but we shouldn't lose. And I think when we, finally you do your sums, you say -- that is where you have to be at, right? Because it's easy to buy.

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 Graham Tanaka,  Tanaka Capital Management - Analyst   [12]
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 And so, these candidates, in terms of maybe timing, now that pricing doesn't seem to be as much an issue, and if it really is mostly due diligence, which is a process that you know, can you give us an indication of when you think you might be making a decision on one or two?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [13]
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 Very difficult to say, Graham, but I can tell you one thing -- when there are banks involved now, and of course, always on these companies there is syndicates or bilateral type loans or whatever, they are rushing to complete something so they can at least have their loan in a better-performing basis before year end. So, there is an element of rush, and that also helps me to become more optimistic because I need people to make decisions. Some people think they just sit back, and it will cure itself. Well, it won't. Now with the banks being under more and more pressure, it's good.

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 Graham Tanaka,  Tanaka Capital Management - Analyst   [14]
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 And I'm a little, I don't know if I should say concerned, but just wondering about the foreign currency exposure on some of these acquisitions. How will that be arbitraged, or how would you protect the Company on that?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [15]
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 Currencies are very hard. What we say on the commodity side is we stay in euro because it's a functional currency, and with the Parent Company, we're staying in dollars. We found when we tried to hedge one to the other, we lost. We are saying stay away, stay constant, and don't let anybody deviate. If we are doing a transaction, though, in dollars, like maybe we're buying some PET or some plastics or something, we'll hedge that, but we can't hedge our capital base.

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 Graham Tanaka,  Tanaka Capital Management - Analyst   [16]
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 So, on these acquisitions, for example, I'm not sure which continent then, and I know you are looking all over the globe. How would you protect, for example, you take a position and be based essentially long assets in another currency or a few currencies, you will just leave it in those currencies, operate on a local currency basis, and then you translate it over whatever the exchange rate is?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [17]
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 Right. And I think you just have to say -- this company's functional currency is this, and am I willing to take the risk of that functional currency on my balance sheet consolidated as we go quarter by quarter. I think that is one of the decisions you have to make.

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 Graham Tanaka,  Tanaka Capital Management - Analyst   [18]
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 And as we want to get a feel for cash flow or earnings capability on an acquisition, is there a way you can give us a typical example? For example, if you buy -- you've suggested sizes could be pretty large. So, say you spend $200 million, what would that buy in revenues and at cash flow and earnings?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [19]
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 So difficult, Graham, because we're focusing on assets first and risk first, and the rest of it is irrelevant. Because you have to get past that, and once you're past that, then you can get into what part of it do I keep and what part of it do I throw away. And I think the best thing that we can do and are realistic is that with all troubled companies or problematic companies, you're better off throwing things away quickly. And of course, that might be your biggest revenue producer, might be ending up looking for what we call just a diamond that is laying on the ground, and that is really what you're looking for. You're not looking for --.

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 Graham Tanaka,  Tanaka Capital Management - Analyst   [20]
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 Well, we know that you are very focused not only on the risk side, which is terrific, but on the cash flow, positive cash flow, and on having a strong return on equity on book. You are buying something at 70% of value, but then that would suggest you would have (inaudible) -- that starts to give us parameters on that. Are you looking at that? Certainly I would expect that you'd be looking at ROE.

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [21]
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 Graham, we're looking at companies which we feel we're buying liquidation value times 25%. There is some very problematic areas out there that banks are just not supporting. The opportunity now is -- people are saying we have a banking crisis. In some areas, I don't think we have any banks, so I think that is quite positive when you have a track record credibility [cash], so that allows us to take advantage of situations.

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 Graham Tanaka,  Tanaka Capital Management - Analyst   [22]
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 Well, one of the things, of course, and you're on the other side of the Atlantic, is that you're closer to where some of these banks are having problems, and they're not going to be able to give support. They're concerned about their own asset qualities. Are you looking at this in terms of, and of course, you have the time, the clock of the end of the year, they need to true-up their balance sheets a little bit. Do you foresee next year as getting significantly worse, and we are wondering if maybe you wait until things really fall apart and they really have to just dump them.

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [23]
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 Who can say if it's going to get significantly worse. I guess you have to say -- put it in the asset. We're not really big on fixed assets. So, if I stay away from fixed assets, I should be able to not have so much exposure going forward. If a bank is stuck with a plant, the bank is stuck with a plant and we should be partners, but I certainly don't want the plant on my books. The plant on his, and maybe we'll provide the working capital of our current assets, that kind of scenario.

 That is what we're seeing. And in many cases, the bank is very happy because now the plant is working again or the plant will work again or will work more efficiently. So, every bank, the restructuring departments and the write-downs are going to be quite serious. I think it's got a long way to go.

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 Graham Tanaka,  Tanaka Capital Management - Analyst   [24]
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 So, the answer to the question is -- it has a long way to go, so you're not in any rush to acquire, and I was trying to figure out, are you biased towards waiting to pick up maybe even better deals next year?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [25]
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 Graham, I am in a rush to acquire the problem loans that they have to get off the books by December 31, because that is still going to be a major catalyst for value, how much they clean themselves up. And of course, we'll leave ourselves for the future. But there is a rush for year-end balance sheet correction by these banks, and also by others as well. There's some suppliers who are stuck, and it's quite interesting, they are all running to clean up as much as they can.

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 Graham Tanaka,  Tanaka Capital Management - Analyst   [26]
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 Well, you're going to be very busy for the next couple of months.

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [27]
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 It's fun, Graham, it's really a good time. Because before, it's difficult when it's pricing, because you do some work and you walk away on the price. Now, pricing is not the object, and you do it because there's very few people out there who have the capability of doing it now. So, it's good, it's a good time.

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 Graham Tanaka,  Tanaka Capital Management - Analyst   [28]
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 Can't wait. Good luck.

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Operator   [29]
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 (Operator Instructions) Tony Kerbs, IAT Reinsurance.

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 Tony Kerbs,  IAT Reinsurance - Analyst   [30]
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 Michael, two questions. One, you mentioned your unused sources of liquidity, your lines. Do you have any concern about the impact of what's going on in Europe in the banking system, both as not just the ability of your banks to honor all their commitments, but also their real appetite for it?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [31]
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 Yes. But I think that, Tony, we have handled it. I think that we are conscious of whether a bank will meet their commitments, or try and renegotiate their commitments, and that, of course, is a concern, but I think it's all handled at this particular period of time.

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 Tony Kerbs,  IAT Reinsurance - Analyst   [32]
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 And then, are you able to comment at all on matters concerning Kenora and the [Ambigouri] Fields?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [33]
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 Not really because it's not part of our group on a consolidation basis, and those issues are still before the courts.

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 Tony Kerbs,  IAT Reinsurance - Analyst   [34]
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 Okay, thank you.

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Operator   [35]
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 [Raymond Howl], Comprehensive Financial.

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 Unidentified Participant,  - Analyst   [36]
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 You may have already touched this; I'm sorry, I was a little late. Can you reconcile for me going from second-quarter book of $8.90 to this quarter $8.75, taking into account the $0.11 earnings and the $0.05 dividend.

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [37]
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 Right. If it's all right with you, I think it's easier if we go from December 31 book of $8.75 to September 30 book of $8.75. And so, in that period of time, there was some retained earnings. And so, that should -- you would normally would assume that would go to book, but the adjustments during that period of time were $0.20 paid out for the dividend. And they were approximately in the June period $0.10, $0.12 for ForEx, for foreign exchange, and that does affect the book, and the rest is change of valuation allowance, which has gone through the balance sheet.

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 Unidentified Participant,  - Analyst   [38]
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 I'm sorry. The last thing you said, the change of valuation of --?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [39]
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 The change of valuation allowance. That adds up to $0.35, which is the profit for the period.

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 Unidentified Participant,  - Analyst   [40]
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 Okay, thank you very much.

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Operator   [41]
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 Joe Pratt, Wells Fargo.

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 Joe Pratt,  Wells Fargo Securities - Analyst   [42]
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 Michael, you spoke in the June conference call about three possible acquisitions that relate to your supply chain business, and then you have had some conversation here with Graham about banks wanting to clean up some loans by the end of the year. Do those three acquisitions relate to the cleaning up of loans?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [43]
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 Yes.

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 Joe Pratt,  Wells Fargo Securities - Analyst   [44]
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 Okay, that's all I wanted to know. Thank you.

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Operator   [45]
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 (Operator Instructions) George Berman, JP Turner & Company.

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 George Berman,  JP Turner & Company - Analyst   [46]
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 I am new to the Company somewhat. I've been an investor for the last 6, 7 months. Where do you see the Company essentially mainly headquartered? My understanding is that you are a Canadian Company with vast operations in Europe, and some operations in India and China. I understand, Mr. Smith, that you reside primarily in Hong Kong. There is an address in Vancouver, and I recently visited with your public relations company in New York. Is there such thing as a corporate headquarters, or anything you could say -- okay, this is where we are?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [47]
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 Let's not talk from a legal perspective, let's talk from a practical point of view, if that would be all right. So, the majority of the business comes out of Vienna, Austria, and the treasury is done in Vienna, Austria. We have operations, which have autonomy in India and also in China. And in Canada, for historical reasons, we do the consolidation of the Group, all the Groups' accounts are consolidated in Canada, and we are a Canadian Corporation.

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 George Berman,  JP Turner & Company - Analyst   [48]
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 And your official corporate headquarters are in Vancouver, Canada?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [49]
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 Correct, and we have an office in Hong Kong, a very small office. I live in Hong Kong. It's the most wonderful place. Taxation prices are reasonable.

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 George Berman,  JP Turner & Company - Analyst   [50]
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 So I hear.

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [51]
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 And it's a good place to commute from. But we don't have an infrastructure there as far as 100 people or something like that.

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 George Berman,  JP Turner & Company - Analyst   [52]
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 And the operations in Vienna are also supported by a sizable staff that you have, operations, et cetera?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [53]
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 Yes.

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 George Berman,  JP Turner & Company - Analyst   [54]
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 And you primarily provide commodities trading in the European area, with a specific emphasis on Eastern Block?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [55]
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 No. They had the emphasis on the Eastern Block, but the commodities or the clients they have are -- an example would be a chemical plant in Romania to a PVC supplier in Korea or other chemicals coming out of China. So, it's more global. And they have some specific manufacturing facilities, which we do every day out of Germany. There's probably $50 million a year there, which is for normal everyday business and the processing [valuement].

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 George Berman,  JP Turner & Company - Analyst   [56]
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 And these operations in Austria have been around for a number of years, correct?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [57]
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 Yes. We actually acquired that company in September of 2001.

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 George Berman,  JP Turner & Company - Analyst   [58]
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 Of when?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [59]
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 2001.

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 George Berman,  JP Turner & Company - Analyst   [60]
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 Okay. And you were alluding last quarterly conference call on a possible additional distribution to shareholders. I was lucky enough to be part of the KHD Humboldt distribution. The way this was structured was a little hard. Would you more lean towards a cash distribution now, or distribute additional assets? And if so, what kind of assets would you think to distribute to shareholders?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [61]
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 I think to answer this fairly, we're open to do a distribution that is fiscally responsible to the Company and to the shareholders. But it's all driven really by taxation. So, yes, I was a little optimistic, and believed I could solve the tax problems, the tax questions. I was unable to do that at this time. So, we are now, not back at the drawing board, but we are trying to refine that approach. I'm afraid I just can't answer you specifically at this point.

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 George Berman,  JP Turner & Company - Analyst   [62]
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 Is the distribution situation off the table for now, or are you still planning on doing something down those lines?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [63]
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 We're still planning to do something down those lines.

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 George Berman,  JP Turner & Company - Analyst   [64]
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 And the acquisitions that you have been talking about, three possible opportunities here, hopefully before the end of the year, they would also fall into the commodities trading arena rather than buying manufacturing plants?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [65]
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 Right. They're not heavy on fixed assets, so they are more in what I would call current assets, or assets which we can turn to current, as that's a major problem for us is believing that fixed assets are going to be helpful.

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 George Berman,  JP Turner & Company - Analyst   [66]
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 So, essentially looking to enter a situation where you would be providing much-needed liquidity?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [67]
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 Correct.

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 George Berman,  JP Turner & Company - Analyst   [68]
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 Okay, great, thank you.

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Operator   [69]
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 Peter Kellogg, IAT.

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 Peter Kellogg,  IAT Reinsurance - Analyst   [70]
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 I'm curious whether the dividend yield you're talking about is on the book value of our shares or on the market value?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [71]
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 It would be on the market value, Peter; it would be on the market value. That is the way it was calculated last year at $7.90, I think, or wherever it was at that time. But that is how the calculation is made.

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 Peter Kellogg,  IAT Reinsurance - Analyst   [72]
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 But your prior comments talking about our goal to get to book value -- one way to get there better might be to calculate your dividend on book, if that is the worth of our Company.

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [73]
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 I think that's a good idea. We would seriously recommend something like that. It's more logical to do it book value because our whole life here is book value. And so your point is well appreciated.

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 Peter Kellogg,  IAT Reinsurance - Analyst   [74]
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 Thank you.

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Operator   [75]
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 Jeff Geygan, Milwaukee Private Management.

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 Jeff Geygan,  Milwaukee Private Management - Analyst   [76]
------------------------------
 I appreciate your comments today. Just a couple of items. In note four on your release today, you talk about your August 2011 reorganized indirect royalty interest in the Wabash mine. Can you describe that, and the rationale for making the change?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [77]
------------------------------
 Yes. The Wabash mine, as you know, is a taxable entity for us in Canada. We have taken some other mining assets and put them into a special entity, and of course, we took the Wabash mine at the same time and put that into that same entity, so they could all operate, number one, as one; two, they can take advantage of profits and losses, which may occur with that entity.

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 Jeff Geygan,  Milwaukee Private Management - Analyst   [78]
------------------------------
 Second question -- in your comments earlier, you mentioned iron ore as an important commodity. When you think about your business, or I think about your business, what type of risk should I think about in addition to any commodity risk, if that is even a correct way to try and quantify risk of your business?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [79]
------------------------------
 I think the risk of our businesses are always currency, and I think documentation risk is a big part of our business where we could make mistakes. Normally this is an area which we have [all] six eyes of the [WorldCon] on the paper risks. Commodity risks, we are hedging on a commercial basis whenever we can. Iron ore, we are now allowed to do iron ore swaps. There's a natural active market for iron ore in Singapore. So, we are -- as we see the need, we hedge that, which of course, limits your profit, but limits your downsides and locks in your profit. So, yes, if iron ore is up higher, it is better for all of us, as it covers a little bit of every part of the business. So, our fees will be bigger, the royalty will be bigger, and also our production also will be. And potential projects which we are working on to develop other iron ore projects will become more economic.

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 Jeff Geygan,  Milwaukee Private Management - Analyst   [80]
------------------------------
 Is iron ore the principle commodity that you have exposure to?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [81]
------------------------------
 Yes.

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 Jeff Geygan,  Milwaukee Private Management - Analyst   [82]
------------------------------
 And last question, which is more of a comment. When, I believe you used the December 31 price of your stock when calculating the dividend for the year, and it's an interesting idea to use book value, and on the one hand I agree with Peter Kellogg. On the other hand, if your shares trade at a multiple instead of a fraction of book, that has different implications. As a shareholder, it's less of a liability if you're using the book in the future, given our expectation that your shares trade at a premium to book value.

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [83]
------------------------------
 I completely agree. It's against our goal. Our goal here is to get a premium to book. But when we face the markets we're facing today, I think what Peter is saying is -- why did you use book when everything you do, you are focused on the word book? And we are, we're focused on what the Company is worth. And so I think that when we go to the Board in January, this will be [debated] interestingly, and if the market is below book, we should look at the word book for the base.

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 Jeff Geygan,  Milwaukee Private Management - Analyst   [84]
------------------------------
 Am I proposed that you have a flexible strategy where you use the greater of book or market?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [85]
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 Absolutely. Got to have that flexibility.

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 Jeff Geygan,  Milwaukee Private Management - Analyst   [86]
------------------------------
 Thank you, and I appreciate your time today.

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Operator   [87]
------------------------------
 Sven Karlen, Wells Fargo Advisors.

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 Sven Karlen,  Wells Fargo Advisors - Analyst   [88]
------------------------------
 Can you give us some idea of what percentage of your commodity revenues comes out of the plastics area? Because I have been under the impression that was a significant piece; how significant?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [89]
------------------------------
 Sven, if we could just go in the area of, say, 45% to 50%.

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 Sven Karlen,  Wells Fargo Advisors - Analyst   [90]
------------------------------
 And then Goa iron ore operations, I know it's very seasonal, and the trucks can't move to the coastline during the monsoon, which lasts four months or something. It's going to be seasonal, and obviously in the third quarter that was monsoon time, so nothing shipped and therefore was booked, as I understand it.

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [91]
------------------------------
 That's correct.

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 Sven Karlen,  Wells Fargo Advisors - Analyst   [92]
------------------------------
 So, then I would assume that all your shipments would be in the fourth quarter, the first quarter, and part of the second quarter until the monsoon starts. Is that correct?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [93]
------------------------------
 Yes.

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 Sven Karlen,  Wells Fargo Advisors - Analyst   [94]
------------------------------
 And can you quantify for us what you think the likely annual production from the two Goa strip mines is likely to be going forward?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [95]
------------------------------
 It's difficult, Sven, I'd sooner not.

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 Sven Karlen,  Wells Fargo Advisors - Analyst   [96]
------------------------------
 Okay, thank you.

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Operator   [97]
------------------------------
 (Operator Instructions) Graham Tanaka, Tanaka Capital Management.

------------------------------
 Unidentified Participant,  - Analyst   [98]
------------------------------
 This is Sam. I was wondering, can you talk a little bit about the growth in the supply chain, ex acquisitions. Maybe just anecdotally say how you guys have been doing there, and the opportunities that you are seeing?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [99]
------------------------------
 I think the growth in the supply chain is driven by one word, and that is credit. And logistics to a degree, but definitely credit is the driver. And we are very lucky that we are in a position where we can grant credit, and then lay that credit off to third parties, so it's not on our books. The only part that is on our books is the contractual stake or risk that we may have done. This is the focus which we feel is the value-added that we have, where we can be the, I could say the word banker, I prefer not to, but we are the financing supplier or we are the true customer for them while -- and then we'll set it off. So, the growth is getting better, but it all has to do also with the products which we are focusing on. Part of it, as you heard Sven comment, where plastics is becoming a major part of the business.

------------------------------
 Unidentified Participant,  - Analyst   [100]
------------------------------
 Are there any other products that you can talk about that you are moving into, that you weren't in, say, 12 months ago?

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 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [101]
------------------------------
 I think our biggest focus is plastics. I think you will see that has probably gone from 40% to 50% range, definitely has gone up substantially at this particular point.

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 Unidentified Participant,  - Analyst   [102]
------------------------------
 One thing, I'm not sure if I heard you. Can you talk about what the royalty rate might be for the fourth quarter?

------------------------------
 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [103]
------------------------------
 We don't know, Sam. Because it's based upon a basket still, we haven't negotiated that down to a fixed rate, and so actually we can't calculate it even.

------------------------------
 Unidentified Participant,  - Analyst   [104]
------------------------------
 And just the last thing I have, Michael. So, it sounds like the fourth quarter is going to be a pretty big rebound. How much sequentially up do you think that could be? Could you do $200 million in revenues?

------------------------------
 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [105]
------------------------------
 I should not go there.

------------------------------
 Unidentified Participant,  - Analyst   [106]
------------------------------
 And one final thing. It looks like you booked a few losses on securities this quarter. Was that anything in particular, or just --?

------------------------------
 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [107]
------------------------------
 No, and I think to us, losses on securities are not positions which we are looking to accumulate. So, we have a saying here -- the happiest day is when the stock, the bind goes down, so you can buy more.

------------------------------
 Unidentified Participant,  - Analyst   [108]
------------------------------
 All right, thanks so much, and good luck.

------------------------------
Operator   [109]
------------------------------
 Sven Karlen, Wells Fargo Advisors.

------------------------------
 Sven Karlen,  Wells Fargo Advisors - Analyst   [110]
------------------------------
 Michael, in your last conference call, you talked about a commodity trading firm, Nobles, I believe, out of Hong Kong.

------------------------------
 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [111]
------------------------------
 Yes.

------------------------------
 Sven Karlen,  Wells Fargo Advisors - Analyst   [112]
------------------------------
 And I noticed that yesterday in the Wall Street Journal, Nobles was cited for a very difficult quarter, losing money in the third quarter, and for the replacement of their CEO with potentially a Goldman Sachs partner who has just left Goldman, and although I don't think it's been concluded that he is going to become the new CEO, it was alluded to that he might become the new CEO. Do you have any comment about Noble's principle risk in the commodities businesses, as opposed to your principle risk, which you have always said is minimal.

------------------------------
 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [113]
------------------------------
 What I feel our biggest risk is a documentation risk, and Noble was always taking very large positions in cotton. And they and Glencore got caught on those positions, and this was one of the first losses that Noble had taken in a quarter, and it was a huge bust for the quarter -- sorry, the amount is not huge, I think it was under like $17 million net loss for the period. But the stock reacted terribly, and the stock went down 29%. Richard Elman, the Chairman, has come back in, and he's come back in, in the past. I still feel they are a very fine company. I don't say they had a rogue trader. I think Glencore and Noble were playing the cotton market, and the cotton market went the wrong way.

 We don't do that. We are not sophisticated enough or want to be sophisticated enough to go along those positions. We'd sooner hedge some iron ore when we know worse case is we have X in production. It's not us.

------------------------------
 Sven Karlen,  Wells Fargo Advisors - Analyst   [114]
------------------------------
 Thank you.

------------------------------
Operator   [115]
------------------------------
 This concludes our question-and-answer session. I would like to turn the conference back over to Michael Smith for any closing remarks.

------------------------------
 Michael Smith,  MFC Industrial Ltd - Chairman of the Board, CEO   [116]
------------------------------
 We thank you very much for your interest today, and please do not hesitate to call Rene Randall or myself with any further questions in the future. Thank you very much.




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