Q1 2012 MFC Industrial Ltd Earnings Conference Call

May 15, 2012 AM EDT
Thomson Reuters StreetEvents Event Transcript
E D I T E D   V E R S I O N

MFCB - MFC Bancorp Ltd
Q1 2012 MFC Industrial Ltd Earnings Conference Call
May 15, 2012 / 02:00PM GMT 

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Corporate Participants
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   *  Michael Mason
      Allen & Caron - IR 
   *  Michael Smith
      MFC Industrial Ltd - CEO 

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Conference Call Participants
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   *  Graham Tanaka
      Tanaka Capital Management, Inc. - Analyst
   *  Jeff Geygan
      Milwaukee Private Wealth Management - Analyst
   *  Bill Horn
      First Angel Capital - Analyst
   *  George Burmann
      J.P. Turner & Company - Analyst
   *  Mark Phelan
      M22 Capital - Analyst
   *  Unidentified Participant
      - Analyst
   *  David Errub
      Merion Investment Management - Analyst

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Presentation
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Operator   [1]
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 Good morning, and welcome to the MFC Industrial first-quarter 2012 results conference call. All participants will be in a listen-only mode.

 (Operator Instructions).

 After today's presentation, there will be an opportunity to ask questions.

 (Operator Instructions).

 Please note this event is being recorded. Now I'd like to turn the conference over to Michael Mason of Allen & Caron Investor Relations. Please go ahead.

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 Michael Mason,  Allen & Caron - IR    [2]
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 Thanks, Emily. Good morning and welcome to the MFC Industrial Limited investor conference call to discuss the results for the first quarter 2012. I'm Mike Mason of Allen & Caron Investor Relations. Many of you received a copy of the press release. It was released this morning, May 15 at 7.30 AM Eastern. If you did not receive a copy of the press release, it is posted on the MFC website and in our client section of our website at www.allencaron.com.

 You may call our office in New York at 212-691-8087, and we can e-mail it to you right away. It is also posted on Yahoo Finance and other internet sites. A replay of the call will be available through May 23 and may be accessed from North America by calling 877-344-7529 and entering conference number 10013875. International callers should dial 412-317-0088. This call is also being broadcast live over the internet and may be accessed on the Company's website at mfcindustrial.com. A replay of the webcast will be available immediately following the call, and will continue for seven days.

 Certain statements in this 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 and filed with the SEC and Canadian securities regulators. The Company will make a brief presentation on the 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 - CEO    [3]
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 Thank you, Mike.

 First of all I would like to review the results of first quarter, and then maybe talk a little bit about the balance sheet, the effect of what has happened in the first quarter, touch on the major projects, and how I see that outlook for 2012. And then talk a little bit about the share market.

 Let me first of all address the profit and loss for the first quarter. Revenues were up nicely. Profit was up; G&A costs were down. I think the two disappointments in that particular quarter was plastics. That industry margins have dropped substantially and that industry is going through a more difficult time. So, there wasn't a major contribution from plastics in our particular business for this particular quarter.

 The one that was really a disappointment, a substantial disappointment, was the Wabush royalty. This is the second quarter where we have not achieved what we believed we would. First, in the fourth quarter of '11, Wabush had a lot of mechanical breakdowns and in the first quarter of this year they also had inability to deliver on time through the weather and other reasons. To us, that's disappointing. Cliffs is a very good operator. But we certainly have not achieved what we believed we would have in a normal circumstance.

 This is a major long-life asset for us; it has 19 years worth of life left. So it is something that we are concerned and [churrish] about. On the positive side the royalty rate which we received from Cliffs was up a little bit, but it did not offset the lack of production, and we are still hoping we will now see a pickup in the second quarter as they are showing no major problems that they have identified to us at this time. In reference to the balance sheet, I think the most important thing is accounts receivable are up a bit, but that is just seasonally adjusted. Inventory is up a little bit, but that is because of -- the acquisition of Kasese Cobalt is about 40% of the increase. Plant property and equipment is up by $29 million of that is directly attributable to Kasese Cobalt.

 Bank debt is down by $23 million, and also our cash at hand is down by $58 million. If you take payment down off the bank debt and the acquisition of Kasese Cobalt that brings us back to where we were before. Working capital is $343 million. Ratios are still good or satisfactory and we have a book value of $8.92 a share. The Company is still quite healthy.

 Let me touch now on the projects. The Pea Ridge project which is a major project, which is still just really getting underway, is on schedule. And we have completed the historical reserve report which you have all the ability to access. We're in the process now of doing a current historical reserve report of the INR property, and we anticipate that to come out in September, hopefully sooner. In the meantime, we have proceeded with rehabilitation of the site. We have done 3D site [seismatic] on the site. And we have been doing some new drilling on the tailings, which is really a separate business as far as we are concerned, and we are analyzing those results now.

 We are also reanalyzing the old core samples which will also assist us with this current reserve report. And we have ordered the pumps for the dewatering and that will start later in this year. And the most important thing, I think what you want to see and what you have to see and understand is the economics of the mine and I think that is what we all need is to understand the effect -- and I stress the word effect -- the effect of what happens with this mine on MFC when we go into production.

 The next project which I think we should talk about is Kasese Cobalt. Kasese is a company which we have been involved with because we've traded the cobalt. Kasese's life is limited. Its management now has to change from a management of operating management to a management where they proceed with the ability to liquidate or to rationalize the assets which are left.

 That takes a different type of management, a management who is not so much involved with people and can be a little more discreet as far as how we handle different political situations. You must remember this, Kasese is the only major employer in this town. It is 45 miles from the Congo border, a difficult place. So it is best that the MFC people have a lot of experience with this type of company handle the final days and do this on budget on time.

 What MFC is looking to achieve out of this from the MFC side is a long-life asset. There is one long-life asset which is a hydroelectric power plant, which, if we are successful and if done right, that will give MFC a continuous source of income in the future. But we have a long way to go to get there and it will take time. But it is 17 months worth of production while the phase-out occurs, and then with proper negotiations, the power plant should survive the Company and give it a future.

 In India we are very pleased that we have signed an agreement down to proceed to extract iron ore again from a brand-new site. This is not an existing site where mining has occurred in the past. This is a site where we know there is iron ore there we know the quality we have seen the drills and have drilled the property ourselves. But we have to get the normal brand-new permits, which we will do. We have done that in the past on the two existing facilities we have. That will take about, they say 18 months, but I think it will take about two years to be realistic.

 We are also operating and working on some other projects which I cannot go into with you now. But we are working towards our goal, and our goal is to get captive sources of business to fulfil global supply business is to have 40%, 50%, 60% of everything we do is from a captive source, and that is where we see the value added to the margins. And that we're working on very, very hard.

 Taxes for the period were in line. Our odd-lot buyback program is still underway with the registered shareholders responses being good. We don't know how the Street shareholders will react, but they've got to the 21st of this month for us to make a decision whether we wish to extend or not.

 I will say one thing, my attitude towards the outlook for 2012 is better. 2011, I don't think -- I know I didn't have a good year. I don't think many people enjoyed that year. 2012, we seem to have a greater amount of positiveness, and we are seeing most of our businesses, even a small zinc refinery which we have is making a positive contribution. So we are seeing orders; so we're seeing people doing things. And if this positive attitude continues we should have a good year without pursuing other major, major projects.

 I think the share market itself will at some point appreciate us more, when we can demonstrate the effect of these new projects mathematically. The most important thing for us to do is to have certified reports that will demonstrate what Pea Ridge will do and also what the other projects will do. And then people can see the effect on the Company.

 That is all I have as far as my review. I would like to now turn over to questions that anybody might have.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions)

 Graham Tanaka, Tanaka Capital Management.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [2]
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 Nice report. Just right off the bat, just wanted to get a feel for the cost of Blue Earth was all-in. I guess shareholders effectively are getting $52 million out. What was the cost, all-in?

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 Michael Smith,  MFC Industrial Ltd - CEO    [3]
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 Zero.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [4]
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 Zero. Okay great. No complaints.

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 Michael Smith,  MFC Industrial Ltd - CEO    [5]
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 Right. It is a nice way to end that movie, Graham.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [6]
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 On the new property in Goa, what is the size of that property? Maybe you can compare it to the existing property, and what kind of capital requirements might it need? And what would revenue flow will be eventually?

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 Michael Smith,  MFC Industrial Ltd - CEO    [7]
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 I can't go into revenue but I can give you some general outline. It will be about 70% of our existing property. And, it will take say, two years, I think realistically, two years, to bring online. And really it's an extraction facility, so the capital costs are very minimal. It is more mechanical equipment, than organization of the mine. And those costs -- I think our original cost for the Goa operation was $2 million, only. It is a very low-risk, high-reward, but low-quality, low, low, low quality iron ore.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [8]
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 And the revenue flow off of the current Goa is roughly what?

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 Michael Smith,  MFC Industrial Ltd - CEO    [9]
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 We don't segment it out, Graham, so I cannot comment. March 31 is like we are halfway through the season on Goa. We have had four ships. And we are trying to do another I think four to five ships before season's end, before the monsoons or the winds finish us.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [10]
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 That's shipped to where? To Australia, China?

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 Michael Smith,  MFC Industrial Ltd - CEO    [11]
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 It all goes to the China. China takes everything today, I'm afraid. I shouldn't say I'm afraid; I'm happy actually.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [12]
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 So on Pea Ridge, which is of course the big acquisition. Maybe you can help us out a little bit with what your current estimates are on the value, how the results are coming in on the asset evaluation, and what you might have to do in terms of an opportunity to revalue the assets upwards?

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 Michael Smith,  MFC Industrial Ltd - CEO    [13]
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 As you know, under the Canadian securities rules, I am limited to what we can say. Where we're at on Pea Ridge, we have created a developed program with that partner and we are online with that development program. The end part of the development program, and during this period of the development program, lots of things are happening from core samplers to drilling to rehabilitation, actually, of just the site. It is amazing what is going on there now.

 What we must end up with is what we call an economic report which is in compliance with the rules in Canada. Off that report, that really backs up all of the material that we believe the economics are and allows us then to use that for, if we want, to banks, if we need to do that, or we can give it also to you. Every month we are working towards that but we can't give it to you until it is done. So I'm sorry, it's a very difficult one, but I can say to you is that we're on schedule and our goal will be to give that to you by the end of the year.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [14]
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 Just a general curiosity about what is going on in the trading operations, which is also pretty large and sometimes you don't talk about it. How is that going, what's the outlook for the rest of the year?

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 Michael Smith,  MFC Industrial Ltd - CEO    [15]
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 Is quite good at this stage. And I don't know why, Graham. If you were sitting here November of last year, you would be saying it is not going good, and what is going out there, there is nobody doing anything. But as of January things -- people are doing things. Business isn't bad; revenues are up; and things are happening. Financings are occurring, which is really interesting. They are occurring in different ways but money is in the system.

 It is quite positive from that point of view. Even the smallest of our companies, Graham, I'm surprised, did okay. I had no complaints in the first quarter. I don't see any change for the second. Usually of all of the companies we have in different parts, you usually have a loser somewhere, or one has a hiccup, one falls down a bit. It is like everybody went to work, and they didn't bother in the fourth quarter of the last year.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [16]
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 You did mention that things are stabilizing, improving, the markets -- I just was wondering, you were saying that's good for MFC, but at times I know that you have talked about how dislocations and capital markets under duress or maybe actually in an environment which creates more opportunities for MFC. So I'm wondering if what's happened is the opportunities are now maybe coming closer to fruition, because we have had duress, it's shaken up the trees and now you can maybe pluck some of the food. Is that what's going on now, in terms of timing?

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 Michael Smith,  MFC Industrial Ltd - CEO    [17]
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 Yes. You are perfectly right. Nothing we are doing is a normal transaction, right. We are having to create value added for it, but we have always done that. We are seeing banks now becoming more realistic also with their credit. They are, I shouldn't say telling the truth, but they are facing reality that they have problems. I think that is a good opportunity for us. And I see more of that.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [18]
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 How many projects are you working on in total and how many of them are large projects?

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 Michael Smith,  MFC Industrial Ltd - CEO    [19]
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 Of substantial size, which would be very, very large, would be two.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [20]
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 And are any of these new? Or are these the ones you have been working on?

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 Michael Smith,  MFC Industrial Ltd - CEO    [21]
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 One I have been working on for a year and a half, so it should be getting close, Graham. We've been through life and death many times, and we've say you must go through death 10 times until you join the family.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [22]
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 The other one is that a relatively new one or is that, you've been working on --

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 Michael Smith,  MFC Industrial Ltd - CEO    [23]
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 For a while. For a while.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [24]
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 I know we can't really get specifics on it, but in terms of just your pipeline or backlog of deals. Is that a point now where you're happy you have plenty of deals? Are you adding to it, or are you telling the guys, hey, we've got so much, let's just kick it.

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 Michael Smith,  MFC Industrial Ltd - CEO    [25]
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 We certainly are not facing capacity in any way, Graham. We could always do with more projects.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [26]
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 I'll let other people ask questions and come back later. Thank you.

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 Michael Smith,  MFC Industrial Ltd - CEO    [27]
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 Thanks, Graham.

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Operator   [28]
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 (Operator Instructions)

 Jeff Geygan, Milwaukee Private Wealth Management.

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 Jeff Geygan,  Milwaukee Private Wealth Management - Analyst   [29]
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 You indicated that on your P&L revenues were somewhat impacted by the plastics business, specifically a contraction in the margins on that. Can you tell us what percentage the plastics are of that business and when you expect margins to return to something that might be more normal?

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 Michael Smith,  MFC Industrial Ltd - CEO    [30]
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 Unfortunately I cannot. We do have a habit of when the margins disappear, to walk away from the industry and just monitor it. I do know that the plastics has not come back as of this month of May. So we are doing some things in plastics which we are contracted to do where our margins are all right. But we are certainly not going out and looking for new business as our margins have just disappeared completely. I think you just have to react in our business just like you do another business. And probably it is a little easier for us to react.

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 Jeff Geygan,  Milwaukee Private Wealth Management - Analyst   [31]
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 All right. With respect to your near-concluding comment about your goal to have captive sources -- I thought you said in the range of 40% to 60% maybe 40% to 50%?

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 Michael Smith,  MFC Industrial Ltd - CEO    [32]
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 Yes.

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 Jeff Geygan,  Milwaukee Private Wealth Management - Analyst   [33]
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 To understand how close you are to that goal, could you give us an indication of where you believe you stand today?

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 Michael Smith,  MFC Industrial Ltd - CEO    [34]
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 Yes. I think today -- of course, that is a variable depending upon what is happening. But we are at 30% today, for sure.

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 Jeff Geygan,  Milwaukee Private Wealth Management - Analyst   [35]
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 All right. Moving to Pea Ridge for a moment, you had indicated that there are some new drillings related to tailings, and that you view that as a separate business. What is the potential of that business for MFC and how did you come to identify that with respect to Pea Ridge where the previous owner did not?

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 Michael Smith,  MFC Industrial Ltd - CEO    [36]
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 I think the previous owner always identified it. But we always agreed with him that it is a separate business. Iron ore is a primary product for the mine. For the tailings it's probably a different combination of minerals. That is why the drilling has taken place there, for us to determine that.

 It is easier and less capital to get to the tailings and it probably will be quicker. So, that is why we are treating it entirely different. The process also will be different depending upon what minerals which we know are there, we want to harvest, the cost will be different. So, it's interesting to treat it as a priority. Should you treat it as the highest priority or as a sideshow? I don't think we're there yet to determine that.

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 Jeff Geygan,  Milwaukee Private Wealth Management - Analyst   [37]
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 All right. I am eager to learn more about that. Jumping to Wabush for a minute, I have to believe that from time to time there is ice on the St. Lawrence seaway. So, it would come as somewhat of a surprise if that was the only contributing factor to the change in volume or expected volume. Was there anything else affecting output there?

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 Michael Smith,  MFC Industrial Ltd - CEO    [38]
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 There was. There was one order that they had got postponed from March to May.

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 Jeff Geygan,  Milwaukee Private Wealth Management - Analyst   [39]
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 So if we look at it on a more of a trailing 12-month basis, will things normalize or kind of settle down?

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 Michael Smith,  MFC Industrial Ltd - CEO    [40]
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 They should, yes. Because they're still estimating around the 3.7 million tons shipped for the year. You should understand, with Wabush we are asking them for more royalty rate, higher royalty rate. There is some, with Cliffs itself, at the highest level there is some animosity, or you could say, disagreement. But the local managers at the property in Wabush are very cooperative and tell us everything. They are really good. So, these are the answers that they have given us when we complain about the shipment side. And so it's like -- not a lot we can do about it as we go ahead and continue to press for a higher royalty rates.

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 Jeff Geygan,  Milwaukee Private Wealth Management - Analyst   [41]
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 All right and last question. And this may be obvious to others on the call, but I'm not that familiar with Uganda. However there has been some trend on a global basis for nationalization of assets. Is there any risk with a hydropower plant there?

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 Michael Smith,  MFC Industrial Ltd - CEO    [42]
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 We don't see it. We don't see that as a risk.

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 Jeff Geygan,  Milwaukee Private Wealth Management - Analyst   [43]
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 Thank you.

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Operator   [44]
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 Bill Horn, First Angel Capital.

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 Bill Horn,  First Angel Capital - Analyst   [45]
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 I just wanted to ask a follow-up question on Blue Earth. Can you go into a little more detail on the accounting of that transaction? You had mentioned to Graham that the cost to MFC was zero. He said something about shareholders getting, I thought he said $52 million. I'm not sure where that number comes from, but can you detail for us the accounting of this transaction? I mean you value the transaction at $28 million. Shareholders seem to be getting $0.44; there's 15 million shares outstanding. Just work through the accounting for us if you could.

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 Michael Smith,  MFC Industrial Ltd - CEO    [46]
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 Yes Bill, shareholders of Blue Earth were given shares and spun out of MFC back in 2006, I think the year was, at a no-cost basis. No withholding tax, no cost. Then Blue Earth, over those years between 2006 through today paid out $52 million in dividends. So, the individual shareholder which is what I was talking to Graham about would receive the dividend with a no-cost base, I think he's received $3.69 a share. So if I was a Blue Earth shareholder, I would look at it as a fairly decent return. And now, MFC buys the property and now goes into the next part of the Blue Earth life, which is really recovery and the power station, and looks for it to be really a long-life asset with the cobalt going away.

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 Bill Horn,  First Angel Capital - Analyst   [47]
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 The Blue Earth shareholders are flying a little blind here, seeing how Blue Earth hasn't filed financials since 2007. Where is the $28 million going? Was there debt on the balance sheet?

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 Michael Smith,  MFC Industrial Ltd - CEO    [48]
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 There is a financial statement available. If you remember Blue Earth is not a reporting company in the US and it only reports in its home jurisdiction. If you want a financial statement, just e-mail them and they will send you one.

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 Bill Horn,  First Angel Capital - Analyst   [49]
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 Oh, okay. Thank you.

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 Michael Smith,  MFC Industrial Ltd - CEO    [50]
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 Great.

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 Bill Horn,  First Angel Capital - Analyst   [51]
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 Looking at Pea Ridge for a second and the technical report that came out on March 30. It described how the joint venture right now is focusing on the settling pond and that you have contracted with a company that is referred to as SalvageCo in the report. Is SalvageCo a joint venture between MFC and Alberici or is that an independent company?

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 Michael Smith,  MFC Industrial Ltd - CEO    [52]
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 Bill, we are not focusing at all on the settling pond. The settling pond is very, very small. It is a spillage. In the spillage, there is some value for higher iron content.

 So Alberici and us own a company that is mining that, but we don't even view that to be anything. I don't expect that to be -- maybe it will teach us a little bit, maybe it makes us a little bit of money. But it is not a priority in any way. The iron ore mind is the number one priority as that's where the big return is. Short time, there might be in the tailings and that's why we've spent the time and energy and that is part of the development plan too, but not the spillage.

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 Bill Horn,  First Angel Capital - Analyst   [53]
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 So. This joint venture, is this a 50-50 split between the two of you or is -- what is the ownership of this SalvageCo?

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 Michael Smith,  MFC Industrial Ltd - CEO    [54]
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 Of the spillage company that is salvaging that, I think we owned 1/8 and they own 7/8.

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 Bill Horn,  First Angel Capital - Analyst   [55]
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 Okay.

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 Michael Smith,  MFC Industrial Ltd - CEO    [56]
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 I could be wrong there by a couple of points, Bill. It is interesting. But not --

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 Bill Horn,  First Angel Capital - Analyst   [57]
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 Fair enough. Looking at Goa for a second. We are into May now, has the mining season been suspended due to weather yet? Or are you still producing there?

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 Michael Smith,  MFC Industrial Ltd - CEO    [58]
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 Definitely producing. The problem with the weather is not so much on the production side, it is on the shipping side with the winds and the harbor.

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 Bill Horn,  First Angel Capital - Analyst   [59]
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 So, shipping has been suspended?

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 Michael Smith,  MFC Industrial Ltd - CEO    [60]
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 I don't believe so.

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 Bill Horn,  First Angel Capital - Analyst   [61]
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 Not yet?

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 Michael Smith,  MFC Industrial Ltd - CEO    [62]
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 No.

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 Bill Horn,  First Angel Capital - Analyst   [63]
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 You indicated I believe on the last call that you expected to be shipping, I think you said, 700,000 to 800,000 tons this year. Are we still on track for that? Can you give us an idea of what we have done in the first quarter in the way of tonnage?

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 Michael Smith,  MFC Industrial Ltd - CEO    [64]
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 All I can tell you is we did four ships, Bill. I cannot tell you the tonnage. But I will be with Mr. [Suttle] later this week in Hong Kong. I will see how he has done as far as this. I know what his budgets are but he's exceeded his budgets; but he always exceeds his budgets. The Indians like to make me happy.

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 Bill Horn,  First Angel Capital - Analyst   [65]
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 On the buyback, can you give any indication as to what has been committed so far in shares?

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 Michael Smith,  MFC Industrial Ltd - CEO    [66]
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 Yes. I can't do it on the speed form shares because they are coming the last second the way they set it up, the system.

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 Bill Horn,  First Angel Capital - Analyst   [67]
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 Certainly.

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 Michael Smith,  MFC Industrial Ltd - CEO    [68]
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 We had good response, I think over 40%, on the registereds, and that really was a good number, too. I'm pleased with that. We'll let you know soon as, if we extend, if it's worthwhile to extend, we'll come out and give you some numbers.

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 Bill Horn,  First Angel Capital - Analyst   [69]
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 When you say 40%, 40% of what?

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 Michael Smith,  MFC Industrial Ltd - CEO    [70]
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 Of the registered.

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 Bill Horn,  First Angel Capital - Analyst   [71]
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 Okay.

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 Michael Smith,  MFC Industrial Ltd - CEO    [72]
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 There's two sets, right -- registered and Street form.

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 Bill Horn,  First Angel Capital - Analyst   [73]
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 Yes, exactly.

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 Michael Smith,  MFC Industrial Ltd - CEO    [74]
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 We want to get rid of both, but definitely want to get rid of the registered.

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 Bill Horn,  First Angel Capital - Analyst   [75]
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 What is the share count on the odd-lot registered shares that you have?

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 Michael Smith,  MFC Industrial Ltd - CEO    [76]
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 I don't know the numbers, all I know is the percentage to date.

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 Bill Horn,  First Angel Capital - Analyst   [77]
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 Okay, thank you. I'll get back into queue. Thank you Michael.

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 Michael Smith,  MFC Industrial Ltd - CEO    [78]
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 Thanks, Bill.

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Operator   [79]
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 (Operator Instructions)

 George Burmann, J.P. Turner & Company.

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 George Burmann,  J.P. Turner & Company - Analyst   [80]
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 Good quarter, I guess. I've got a couple of questions. What is your exact ownership in the Pea Ridge project, are you a 50-50 partner with Alberici or more?

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 Michael Smith,  MFC Industrial Ltd - CEO    [81]
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 50-50.

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 George Burmann,  J.P. Turner & Company - Analyst   [82]
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 50-50. Okay, so that means you take part of the costs and they take part of the costs.

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 Michael Smith,  MFC Industrial Ltd - CEO    [83]
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 Yes, it is very good.

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 George Burmann,  J.P. Turner & Company - Analyst   [84]
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 Speaking in global terms, since you have large operations in Vienna, Austria, which is right in the center of Europe, can you comment and give us your view on what the European situation might look like three and six months down the road, and how you feel this would open up opportunities for MFC?

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 Michael Smith,  MFC Industrial Ltd - CEO    [85]
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 It is very difficult to be a macro guy in these changing times. All I can say to you is that as there is more problems in the market that is where we will accelerate and do accelerate our growth. I shouldn't be so negative, but the worse it gets, the better it gets for us.

 Right now, we are seeing ECAs for government-sponsored, like your US import-export bank that have been very aggressive with their guarantees. We are seeing everybody doing things which are correct to making sure their credit flows, and credit is flowing at this particular point in time. But we're fairly optimistic, and the worse it gets, the more we will be available.

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 George Burmann,  J.P. Turner & Company - Analyst   [86]
------------------------------
 Okay. Then, a general question. The availability of information on your Company in general seems to be very sort of noncommittal. There is very little that you let go in terms of where people could make an assessment of, well this is what the Company is worth. Do you plan on anything in terms of making the information flow more transparent for investors?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [87]
------------------------------
 I think that criticism is there because of projects which were involved in. And we are involved in projects, and sometimes major ones -- I might give you an example. Last year, we tried to do a major project which was a $2 billion project. We had some banks who were willing to help us, and those banks were willing to give us around $130 million to take over this group of companies. We put a lot of work, energy, and effort into that.

 Suddenly, somebody leaked it to the press. And other people came out of the woodwork and says, no, no, we will do it for $100 million, and another person came out and says, we will do it for $50 million. It's a situation where you, yes we only want to say things when they are done. And definitely, yes, we are paranoid on when we are in the middle of a project, and we always are in some project. That this causes huge competition. And it has been a big problem for us all over for years and years.

------------------------------
 George Burmann,  J.P. Turner & Company - Analyst   [88]
------------------------------
 Okay. Last question I have on the Wabush situation. If you are not, say friends on friends with the Cliffs situation, have you ever considered to cash out of the royalty agreement and sell it back to Cliffs?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [89]
------------------------------
 We have looked at every opportunity for Wabush and the biggest problem in the Wabush is that we have zero tax basis.

------------------------------
 George Burmann,  J.P. Turner & Company - Analyst   [90]
------------------------------
 Okay.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [91]
------------------------------
 It is deemed to be resource property, so whatever we would sell it for today, we would have to pay full income tax rate in Canada, which wouldn't be pleasant. So, I think there are other buyers who will buy it other than Cliffs, but I don't think this is the time until two things have happened. Really the most important thing on the value of Wabush is, we need to get one method to determine the royalty rates. Before it has been a basket of rates, and then you take the average of the basket. Well, the baskets move, as well as the iron ore price.

 So, now that basket has actually dissipated so there is only one number or one method in the basket. But we have to -- one of the things we are trying to do with Cliffs is to get them to agree on a flat percentage of Wabush to be our royalty. That will, in our minds, create a big greater value, as it takes the uncertainty for somebody who is trying to value Wabush, of what they will actually receive. That I think is a major key. If we were there, then I think my mind would look at Wabush entirely differently. I could look at it as a discounted revenue stream.

------------------------------
 George Burmann,  J.P. Turner & Company - Analyst   [92]
------------------------------
 Okay. One last quick question if I may. Being often in the Asian markets, Hong Kong, China, how would you speak about China at this point in time and their overall growth rate? Public reports talk about a crash and burn scenario there. And you folks mentioned that they buy every shipment of Iron ore they can. What do we, as MFC Industrial have over there? How is the outlook for operations within China?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [93]
------------------------------
 I think China is great. I think we are in the medical business there, and it's doing there and it continues to grow. And we are building up local currency and not bringing the currency home. We would like to do more in China, but it is very competitive. You've got to be very careful, the Chinese businessmen are very, very astute today.

 I don't see any slowdown. I see that China is going through ups and downs, but they seem to manage it always. I am very much a bull on China. I live in Hong Kong and I enjoy it. I pay 16% tax on money I earn on the island. What a wonderful incentive I have. If we could all have that kind of incentive, I'm sure we would all work harder.

------------------------------
 George Burmann,  J.P. Turner & Company - Analyst   [94]
------------------------------
 Okay. Thanks very much for your time today.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [95]
------------------------------
 Great.

------------------------------
Operator   [96]
------------------------------
 Mark Phelan, M22 Capital.

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [97]
------------------------------
 Can you give me a sense of your trading customers, or partners, however you want to call it, what percent of Europe -- if you could break it down to country or region within Europe. Obviously, it seems like Southern Europe, Italy, Spain, they seem to have very significant credit problems where credit doesn't seem to be flowing at all. It seems there is some discontinuity gap with how you guys do your business I'm curious what your thoughts are on that.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [98]
------------------------------
 You've got perfect countries like Germany, right, where the credit is the most unbelievable we could ever ask for in anywhere. Then you have some problem countries like Bosnia. We like Bosnia because we have a relationship there with the government where we can get some government guarantees.

 Other countries as well. You look for anomalies. We cannot go to countries which have no problems. So we're looking there, and we have to say, how do we minimize this credit risk. And how do we get down to just the documentation risk, as we say? I think 10% of our Business is in North America only. And the rest is in more problematic markets.

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [99]
------------------------------
 (multiple speakers) I think one of your earlier calls you mentioned you don't really trade with Southern Europe. Is that fair to say? Is that -- do you go there because it's having problems? There is opportunity there.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [100]
------------------------------
 We'll go there for opportunities. But when you say Southern Europe, you are referring to Italy?

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [101]
------------------------------
 Yes, Spain and Italy, primarily.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [102]
------------------------------
 I think Italy, there is too much fraud there for me. Spain, I think -- it is just a sad place which is okay. That place can be an opportunity.

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [103]
------------------------------
 Got it. In terms of headline risks, in terms of credit not flowing, you, a, don't see that really in your markets, and, b, if you did it would be more of an opportunity. Is that fair to say how you look at things?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [104]
------------------------------
 Yes. What would really -- if they just froze, right? If the interbank markets froze, then, it is beyond serious, right. But if credit just becomes tighter, then it is an opportunity for us. And there is credit available, but it is tight, but it's available. So it's good.

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [105]
------------------------------
 Okay when you say it's available, it's mainly because you guys are relatively -- you are an Austrian-based Company and the flow of credit there seems to be just more robust than a lot of other parts of Europe? Is that fair to say or is that not?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [106]
------------------------------
 I would say that is fair.

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [107]
------------------------------
 Good. You guys seem to, at least Mass Financial, seem to have done very well relative to other people in '08 and '09 when credit was very tight. Do you see that re-emerging in Europe or even in the global economy or do you think it will go some other way?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [108]
------------------------------
 It is so difficult to say. The greater the credit problem the more opportunity. But I think everything is okay at this particular point. People are doing things. Business is happening. It is not as if we are -- everybody is creating something.

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [109]
------------------------------
 It doesn't remind you of what happened in '08 and '09?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [110]
------------------------------
 It does not. Not at all. Not at all.

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [111]
------------------------------
 Okay. One last question, more specifically on the Kasese Cobalt, did MFC pay them an outflow of $28 million in cash, or was this noncash accounting --?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [112]
------------------------------
 No, it is cash. It is cash.

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [113]
------------------------------
 (multiple speakers) So we paid $28 million for the -- we own 75% of the equity, as well as all the debt?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [114]
------------------------------
 In reality we have 100% of the economic interests, because we have the debt, as well as shares. That is so important in this transaction as it is a method for us to get preferential payment.

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [115]
------------------------------
 Understood. Obviously, within the next 17 months you think you'll get all of that cash back plus a reasonable return?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [116]
------------------------------
 I think that we will be in good shape with this asset.

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [117]
------------------------------
 Got it. One thing I would say Michael, this is my last point. The other caller asked about more transparency. You have a very interesting Company and obviously a great record, it would be nice to have -- I understand your concern on deals that are being negotiated. But once you own the asset it would be nice to see a little more transparency on what those assets earn, just because I think more people then would find your stock attractive, and obviously that would have a positive affect. Anyway, thank you very much for taking my --

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [118]
------------------------------
 I very much respect your words and I understand your point.

------------------------------
 Mark Phelan,  M22 Capital - Analyst   [119]
------------------------------
 Understood. Thank you.

------------------------------
Operator   [120]
------------------------------
 Graham Tanaka, Tanaka Capital Management.

------------------------------
 Unidentified Participant,  - Analyst   [121]
------------------------------
 Can you remind me, does MFC own any Blue Earth shares?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [122]
------------------------------
 Yes they do.

------------------------------
 Unidentified Participant,  - Analyst   [123]
------------------------------
 Can you say how many you own?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [124]
------------------------------
 9.9%.

------------------------------
 Unidentified Participant,  - Analyst   [125]
------------------------------
 9.9%?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [126]
------------------------------
 Yes.

------------------------------
 Unidentified Participant,  - Analyst   [127]
------------------------------
 Okay. Switching to Pea Ridge quickly. Can you say, do you expect any revenues in 2012 from tailings?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [128]
------------------------------
 Sam, I shouldn't answer that.

------------------------------
 Unidentified Participant,  - Analyst   [129]
------------------------------
 That's fair. In the technical report, I think it said that SalvageCo had entered into a commitment to two customers for some amount of short tons. Can you talk about that a little bit. I guess that isn't even MFC.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [130]
------------------------------
 SalvageCo is doing okay. But it is a spillage, right. I'm not going to get into earnings per share on SalvageCo or an element of cash flow where I should worry. I can get those two should I make that an investment? Maybe, maybe not. If it's part of an overall Pea Ridge, maybe it gets integrated into it. But to be frank with you, it hasn't been a priority.

------------------------------
 Unidentified Participant,  - Analyst   [131]
------------------------------
 It sounds like -- I think the last time we spoke you said that you were going to proportionally consolidate Pea Ridge at some point. That won't happen until Q3 at the earliest maybe Q4?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [132]
------------------------------
 January of next year.

------------------------------
 Unidentified Participant,  - Analyst   [133]
------------------------------
 Can you can you talk a little bit more about the Blue Earth assets? What is this hydroelectric electric plant, what is it earning now and is there anything there, current revenues?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [134]
------------------------------
 Right now it is part of the refinery even though it is a standalone. From a P&L point of view you can't really treat it separately. I can tell you that it is a 9.9 megawatt per hour power plant, and it should generate in reality 6.5 megawatts per hour. The reason for the difference is because of the lack of the water sometimes on the river. It's a series of three and this is one of them.

 It is long-life and to us it is energy, electricity and this is the type of business which we like. But we have a lot of work to get there. We must make sure that Kasese finishes its life in a proper way, and on budget, and politically well. This is not an area of the world where you -- it's not like Manhattan. It's a little different. Where 45 miles from the Congo border here.

------------------------------
 Unidentified Participant,  - Analyst   [135]
------------------------------
 Have you entered into forwards for the tailings, 17 months worth?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [136]
------------------------------
 No. Not yet.

------------------------------
 Unidentified Participant,  - Analyst   [137]
------------------------------
 But you will plan on that at some point?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [138]
------------------------------
 I think we will look at that or we'll see the risk. A lot of it's got to do with demand from what other people have.

------------------------------
 Unidentified Participant,  - Analyst   [139]
------------------------------
 Last quarter you mentioned that there was an African asset you were looking at. I'm assuming that that was KCCL or is there another one?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [140]
------------------------------
 No. This is it.

------------------------------
 Unidentified Participant,  - Analyst   [141]
------------------------------
 There is a lot of concern on Europe; there have been a few questions already. Are you reducing your exposure anywhere else, or at this point are you actively going into any new markets? Or is it just still a wait-and-see what opportunities come your way?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [142]
------------------------------
 It is still a wait-and-see. I don't have the problem with Europe like most people seem to have this week.

------------------------------
 Unidentified Participant,  - Analyst   [143]
------------------------------
 Great thanks so much Michael I appreciate it congratulations and best of luck.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [144]
------------------------------
 Thanks Sam.

------------------------------
Operator   [145]
------------------------------
 David Errub, Merion Investment Management.

------------------------------
 David Errub,  Merion Investment Management - Analyst   [146]
------------------------------
 I had three or four but most have been answered; I have one left on Wabush. You've mentioned in the past that the price mechanism within your contract has become obsolete. When you say you're in discussions about that do you mean that you are in litigation? And is there not a requirement within your agreement to resolve that through some arbitration or something?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [147]
------------------------------
 Sorry when I refer to litigation, I really mean arbitration. We are in arbitration with Cliffs on that matter. Not on that matter but on several matters for us to get additional royalties. It just so happens one of the issues we should address with Cliffs, which they understand too, is that we need to have now a constant method to value royalty than just have a variable that comes and goes. It's not good for them and it's not good for us.

------------------------------
 David Errub,  Merion Investment Management - Analyst   [148]
------------------------------
 Is it fairly obvious to you what that solution should be?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [149]
------------------------------
 Yes, a straight percentage of revenues like they do at other iron ore mines on which they pay out royalties. And the question of course is what is the percentage?

------------------------------
 David Errub,  Merion Investment Management - Analyst   [150]
------------------------------
 Right.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [151]
------------------------------
 That's where we are.

------------------------------
 David Errub,  Merion Investment Management - Analyst   [152]
------------------------------
 Is there any particular schedule that is dictated on the arbitration?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [153]
------------------------------
 For sure we will start this year. The last arbitration we had with Cliffs, I think, took 2.5 years. They always seem to have it in the winter where it is really cold there. I told them this time we are going to have it in the summer.

------------------------------
 David Errub,  Merion Investment Management - Analyst   [154]
------------------------------
 All right, thank you very much.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [155]
------------------------------
 Great.

------------------------------
Operator   [156]
------------------------------
 Jeff Geygan, Milwaukee Private Wealth Management.

------------------------------
 Jeff Geygan,  Milwaukee Private Wealth Management - Analyst   [157]
------------------------------
 Just to clarify the number of registered holders that were tendering in your odd-lot, is that 40% of those holding 99 or fewer shares?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [158]
------------------------------
 Yes.

------------------------------
 Jeff Geygan,  Milwaukee Private Wealth Management - Analyst   [159]
------------------------------
 Okay thank you. More generally, how would you characterize or judge your performance in the last say 3 to 12 months in employing the capital that you are holding for us?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [160]
------------------------------
 I think it can be better. Definitely could be better. I think we are getting better. But we have room for improvement.

------------------------------
 Jeff Geygan,  Milwaukee Private Wealth Management - Analyst   [161]
------------------------------
 All right, thank you.

------------------------------
Operator   [162]
------------------------------
 Bill Horn, First Angel Capital.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [163]
------------------------------
 Just a follow-up on Blue Earth. There's been reports recently that a Chinese company, Gingko, is looking to invest in the Kilembe copper mine and try to reopen that. That mine is where Kasese got their tailings feedstock from. Is there opportunities or is their potential here to keep Blue Earth open beyond the 17-month timeframe that you provided?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [164]
------------------------------
 We don't believe it. We have looked at all of those numbers. Bill, what it comes down to is that the copper cobalt content is 0.17 and we need 0.22 to break even, and really need to get into 0.13 to make some money. Also, the Chinese hasn't showed any bona fide as well. It's really -- we're so way off.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [165]
------------------------------
 Very premature?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [166]
------------------------------
 Yes.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [167]
------------------------------
 Okay. On the Wabush. You made a comment to another caller about the potential, or excuse me, the capital gains tax implications of selling the Wabush royalties, say back to Cliffs. MFC moved that asset into a numbered Canadian company last year for tax purposes, specifically for the operating tax losses to be able to offset the royalty income. But isn't it true that that company has $450 million worth of capital losses. Couldn't that be used to offset any capital gains tax implications?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [168]
------------------------------
 Bill. If you remember I said, the Wabush property has no tax basis, and is treated as not capital. It is treated as ordinary. So whatever we do we will be paying. If we disposed of the property today through any direct or indirect subsidiary we would have to be ordinary income, which is the highest rate as we could ask for, we get no break.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [169]
------------------------------
 Okay.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [170]
------------------------------
 So it is a sad story. This is a resource property and they don't give you the breaks in Canada on it.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [171]
------------------------------
 That helps clarify it. Also within that numbered Canadian company there was an announcement that the Company had just been issued a mineral exploration license in Uganda. Can you comment on that?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [172]
------------------------------
 Yes. I know that they acquired another mineral property down there to do some exploration work which they felt they had some merit to.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [173]
------------------------------
 What was the resource, do you have any idea?

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [174]
------------------------------
 I think it is copper, gold.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [175]
------------------------------
 Okay. You sound very hesitant. But MFC owns 99.4% economic interest in this. I would think it would be something very much aligned to MFC's interest here.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [176]
------------------------------
 Unfortunately, Bill, the total capital expenditure, costs and budget was $27,000. So I leave that to the people on the ground. When they get something back that's exciting, they should call but I let them go on the $27,000.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [177]
------------------------------
 Okay. Great. Thank you very much.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [178]
------------------------------
 Thank you Bill.

------------------------------
Operator   [179]
------------------------------
 Having no further questions, this concludes our question-and-answer session. I would like to turn the conference over to Michael Smith for any closing remarks.

------------------------------
 Michael Smith,  MFC Industrial Ltd - CEO    [180]
------------------------------
 I thank everybody for attending today and look forward to talking to you in the future.

------------------------------
Operator   [181]
------------------------------
 The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.




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