Q2 2012 MFC Industrial Ltd Earnings Conference Call
Aug 14, 2012 AM EDT
MFCB - MFC Bancorp Ltd
Q2 2012 MFC Industrial Ltd Earnings Conference Call
Aug 14, 2012 / 02:00PM GMT
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Corporate Participants
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* Michael Mason
Allen & Caron IR - IR
* Michael Smith
MFC Industrial Ltd - Chairman & CEO
* Rene Randall
MFC Industrial Ltd - VP
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Conference Call Participants
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* Graham Tanaka
Tanaka Capital Management, Inc. - Analyst
* Bill Horn
First Angel Capital - Analyst
* Rich Rogers
Abbey Capital - Analyst
* James Andrew
Cordero Funds - Analyst
* George Berman
JP Turner & Company - Analyst
* Mark Phelan
M22 Capital - Analyst
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Presentation
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Operator [1]
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Good morning, and welcome to the MFC Industrial Limited Q2 earnings call. All participants will be in listen-only mode.
(Operator Instructions)
Please note, this event is being recorded.
I would now 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 - IR [2]
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Thank you.
Good morning, and welcome to the MFC Industrial Limited investor conference call to discuss the results for second quarter of 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 at 7.30 AM. If you did not receive a copy of the release, it is posted on the MFC website and in the client section of our website, at allencaron.com. You may call our office in New York, at 212-691-8087, and we will e-mail it to you right away. It is also posted on Yahoo Finance and numerous other internet sites. A replay of the call will be available through August 22, and may be accessed from North America by calling 877-344-7529 and entering conference number 10017028. 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 Canadian Securities regulators and on Form 6-K with the SEC. 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, Chairman and CEO of MFC Industrial. Hello, Michael.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [3]
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Good morning, Michael. Thank you very much.
First of all, I would like to just walk you through our financial results, and then maybe make some comments and reference some projects which we're involved with.
So let me start with the balance sheet of the Company. At June 30, we had cash and near cash equivalents of about $364 million. Major changes on the balance sheet, is our inventories went up to $114 million from $81 million. Predominantly, the increase was because of additional products which we have taken on, predominantly steel coils and also some iron ore left over from the season. Receivables are up to $33 million from $21 million, but that's constant and there's nothing abnormal. It was just a timing issue. Deposits and prepays went from $9 million to $16 million, and that was because of the refinery we acquired in the last quarter. If I take you down now to non-current assets, and if you look at plant, property and equipment, you'll see it went up from $3 million to $30 million, and that is strictly because of the acquisition of the refinery, which we acquired in the last quarter.
If I could draw your attention now to the liability section, and if you look under long-term debt, you'll see our long-term debt went from $20 million to $45 million. What we did in this particular quarter, we borrowed $28 million long-term over 8 years at a very good rate, 3.9%, and we did that really -- it's our policy, if we buy a long-life asset, we have to finance it on a long period of time. And this is what we did to pay for the refinery and also to make sure our balance sheet is being properly looked after.
Our working capital was $380 million. Our ratios, okay, 3.20; asset test, 2.38. Long-term debt to equity did increase to 0.08. That's because of the debt that I mentioned. Equity is $561 million and book value per share, just under $9 a share. Revenues for the first six months was $253 million. Net profit was $0.41 a share.
Some things that happened during the six months, and especially the last three months, we had the Euro drop by about 12%, over 12%. That affected our sales. We managed on the bottom line, though, we did pick up a little bit more income, and this is probably net income from royalty and also from our merchant banking operation. But I'll give you an example of what has happened in the industry during this quarter, especially in the area of plastics. There's one very basic plastic called PET, which is something you all know about, which is used in bottling. It's really a summertime project, and you see a lot of orders come through in the summer for that particular product. But the price of that product this summer dropped, and it dropped in April to July by 17%. So suddenly, there was no orders for the basic plastic product PET.
It's interesting to see why that occurred. We have seen that price of that product being picked up a little bit now, but we believe it's only being picked up because people have to reorder and it was caused, we think, predominantly by maintenance and production shutdowns. All the products which you think are stable and should be available are not. I think the industries around the world are going through interesting times, and we don't expect that not to change. And so we have to live with it and we have to be prepared for it. So we are looking at ways to possibly drop a product, to come back to it later, or increase with other new products, which we managed to do, to a degree, in this quarter.
We have credit facilities of $412 million. Of the $412 million, $156 million are what we call blanco, or unsecured lines of credit. And we have a special line of credit of $56 million, say, for foreign exchange, which is needed to hedge our positions when we are doing a transaction.
Now let me touch a little bit about a couple of the projects we're involved in. And one of them, I think, which has achieved some publicity, called Compton Petroleum. We're interested in a tender offer for Compton. I can't say too much about it. The tender offer hasn't closed. But I can give you a small overview of why we did it, but I can't go into depth as to all the details of it.
But what attracted us to this company was really four things. One, it had a substantial land bank, and all this is public information; 350,000 acres. And that land bank, to us, was a land bank which really was for developed-type properties, not exploration. Two, it has tax pools. Tax pool, to us, is not a company that has tax losses. This is a pool where you can offset, like a swimming pool. You jump in there and you offset all your taxes on a one-to-one basis of $330 million. That is attractive to us, as it allows us to do greater planning in Canada, become more fiscally responsible.
Its reserves are long-life. And the price of the commodity has swung substantially, I think you all know, over the years. To give an example I just pulled the other day, the price of gas has gone from $1.84 a thousand cubic feet and I saw the high was four years ago at $8.77 per thousand cubic feet. It is now $2.78 in the forward price. It's actually hedged up, so it's just under $4 now for a two-year put. And so we're not in this business to get rich. We're in this business, do we see enough ability how we can minimize our risk and enjoy some upside.
Compton is a company that we've been working on for a few years. We have several like this, and what they did is what most of these companies do. They board short-term for long-life assets, and they also had huge G&A expenses. And they were unable, or unwilling to reduce those G&A expenses. And that's what put them into trouble. And so that's why there's an opportunity for us. But we'll bring you up to date as the situation comes to a head, and we'll let you know in the future.
The next one I would like to talk about is Pea Ridge. Pea Ridge is a project which we're doing with the Alberici family and that project is going along okay. We're a little bit behind schedule, but not much. We have today filed our current historic report in compliance with the rules and regulations in Canada. That will be available for all of you to read next couple of days on SEDAR, on our Company website. This report, which you'll get, as summarized in the press release, shows that we now know what we have on a current basis on the property.
One of the things which I think is positive for us is we see the iron content has gone up higher than before. This is positive for us, as one of our plans for this particular property was to look, not just to sell the iron ore here, but also to sell it into the filtration business and other industries for a premium, and not just to sell it to the automotive or the steel industry. And that was encouraging. But we have a way to go. I mean, this project needs more work and the next is for us to finish feasibility report, which will give us what is the confirmation that our planning is right, and allow us then to come back to you and say how many tons we can produce, this is what we're going to produce and when. But until then, until that report is finished, we're not in that position to do that.
I will say one thing. Iron ore prices, they are hanging in there at $118 a ton for 63FE iron ore, which is okay. Many of the commodities, which we have all been seeing, have gone down a substantial amount. But this is still fine. We are seeing that all iron ore we produce from a demand basis out of India is immediately sold. There is more buyers than we can see. So we feel the demand is there and the project is fine, and we're spending a lot of time and energy in that, making that happen.
The last thing I just want to tell you is that our corporate taxes are always an issue for our company, and we strive to be fiscally responsible. And the tax that we paid during the year -- or for the first six months, was $1.4 million.
And I think that's all I have to say. I now very much welcome and encourage you with any questions you might have.
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Questions and Answers
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Operator [1]
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We will now begin the question-and-answer session.
(Operator Instructions)
Graham Tanaka, Tanaka Capital.
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Michael Mason, Allen & Caron IR - IR [2]
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Graham?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [3]
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Good morning, Graham.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [4]
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Yes, I'm sorry. I didn't realize I was the first caller here.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [5]
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You're the most important.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [6]
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Yes, I'm sorry. Just first off, on Compton, what is the time frame on that? What kind of schedule do you see on Compton?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [7]
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The tender is due to expire, unless extended, on the 16 of August, a couple of days from now. And so it's pretty close.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [8]
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And subject to what happens there, what would be the timing on what you -- ?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [9]
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If we managed to do everything we wanted to do, it would be a few days thereafter.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [10]
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Okay. So a few days you could close, subject to getting approvals?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [11]
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No, approvals -- there's several areas of approvals, you know, normal regulatory approvals, Investment Canada. We have some negotiations with some of the lenders, and of course, getting the shares in. But as you know, we did have 54% of the shares locked up before we started and we did arrange for a private placement, subject to us closing, of another 20%.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [12]
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You would have basically 74% in your tendering for the remaining?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [13]
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Correct. Outside of regulatory and business issues with people, it was pretty much assured going in that we could, if we wanted to, complete the project. So I was happy about that. You know, I hate spending soft costs and then you get nothing.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [14]
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You own, at a minimum, 74%. Then you have to negotiate for -- with the lenders, and I guess that's a pretty important negotiation in terms of remaining debt on the balance sheet. What kind of price is that debt at now, if there is a market price? And how much debt is on the books now and what could that go to if the market settles at the market price?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [15]
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I would sooner not go into that, Graham, I'm afraid. Negotiating with banks is always interesting, challenging, and we best not to discuss it until it happens. Sorry about that.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [16]
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Understood, understood. The other thing I was curious, did I hear that you said that the current gas contracts are hedged to, was it, April did I hear? Or did I mishear you on that?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [17]
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No. I mean, this company, Compton, has no hedging at all.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [18]
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Oh, okay. I'm sorry. I misheard it.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [19]
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We would -- we're a great believer in hedging. We're not trying to get rich on Compton. What we're trying to do is preserve our capital first and then enjoy the overage. But we will be hedging -- if we had closed today, we will be extensively hedging. That's just as a matter of policy.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [20]
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I didn't know what their extraction and production costs are. Are you -- at today's prices, hedge prices, would it be a break-even operation or positive cash flow? Or where would it be? Just roughly, just very roughly.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [21]
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Unfortunately, I cannot go into it. All I can say is, it's attractive enough for us to do it.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [22]
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Okay. And then on Pea Ridge, what's the time schedule on that?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [23]
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Well, what we want to do is -- we have to finish, under the rules, the 4101-type rules, an economic assessment report. And that report, we think, will be done in a reasonable period of time, in the early fourth quarter. We have said in our press release fourth quarter, but we're pushing, we're pushing that. And what these reports are really doing are really taking the work that we have done internally with our own geologists and own professionals and extrapolated that, and this is when the engineers come in, the independent outside engineers come in and validate the work and make sure that we have done is right. It's a great system, because it checks what we've found out. And we're looking forward to that. And of course, that's the key report going forward. Then we can tell what we're going to produce.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [24]
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And just to help everybody on this, if you give us a perspective on what the old reports had suggested and kind of -- if you can comment, on what the potential range is for revisions, just potentially.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [25]
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I can't comment at all on that, Graham, I'm afraid.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [26]
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Well, you did mention that the ore grade is higher.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [27]
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Oh, I can give you the ore grades and I can give you the historical reserves and the current reserves, yes. But not the potential for how many tons we're going to produce.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [28]
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Right.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [29]
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-- or what kind of products. But an example would be, on the measured and indicated, the iron ore content, when we did it on an historical basis, was 58%. Now we did it on a current basis, where they've taken the cores and done a lot more work. It's 61.14%. So that's quite encouraging. The overall iron ore shows us that we have a chance to look not just to the steel industry as a market. We can look elsewhere for that market, which is what this property was always famous for.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [30]
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It's a fairly pure grade and therefore it increases the end market?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [31]
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Yes. So it's a smaller market, but it's a higher priced market. Filtration, coal washing, that kind of thing.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [32]
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So the yields in terms of price per ton might be in what area in the higher grade versus the big end, to help everybody out on this. The higher grades versus what's seen as commodity prices?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [33]
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It's hard to say what percentage. Let's say you produced 100 tons. What percentage of those tons would you then focus and produce for the filtration industry, and what percentage would you go to the steel industry for? This is all what has to come out with the study.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [34]
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And the other thing of interest, of course, there is the tailings pond.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [35]
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Yes. Yes. And that's a separate business. In my mind, they are two separate businesses. Tailings will come online much quicker, of course, and those studies are still going on, right? And we've said in our report to you now for this quarter, we have drilled now all the tailings, and we are waiting for the reports back, so we can now properly plan how to strip the tailings.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [36]
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What are the expectations in terms of when that could start? How much capital is needed for that?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [37]
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I can't say. But the capital is not -- I can say to you the capital is well within our budgets.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [38]
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And are the grades consistent with what you thought?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [39]
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We have to wait until we get the reports back from the lab, Graham.
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Graham Tanaka, Tanaka Capital Management, Inc. - Analyst [40]
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I'll let you go to others. Thank you very much.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [41]
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Thanks, Graham.
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Operator [42]
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Bill Horn, First Angel Capital.
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Bill Horn, First Angel Capital - Analyst [43]
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Good morning, Michael.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [44]
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Good morning, Bill.
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Bill Horn, First Angel Capital - Analyst [45]
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Just expanding on the Compton transaction, you were indicating that you've got 54% locked up. You purchased your special warrants, another 20%. Can you give us any indication as to how the rest of the tender offer is going?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [46]
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No. We won't know until we're -- on tender offers, Bill, it's the last 24 hours when people send in the shares, right.
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Bill Horn, First Angel Capital - Analyst [47]
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Okay. Looking at the Compton financials that just came out the other day, they are showing about $231 million in equity. Is it safe to assume that MFC will be adding about $3.70 or so to book value when the deal closes?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [48]
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I would sooner not get involved today in discussing purchase accounting. I'd sooner get the project finished, and then have a separate discussion with all the shareholders of how it would look.
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Bill Horn, First Angel Capital - Analyst [49]
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Fair enough. Compton's oil and gas seems to be a new resource that MFC is entering into. Will your commodity trading operation begin to include oil and gas trading?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [50]
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Not--
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Bill Horn, First Angel Capital - Analyst [51]
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How will you integrate Compton's resources into your commodity trading operations?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [52]
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We will not integrate -- we really have very little interest in the oil, even though it's money, right? But what we're interested in really is the natural gas. And, yes, we will integrate it. Our people will now become -- obtain more knowledge and they will also be able to give knowledge on the gas, especially from the inside of Europe. It's a natural in many ways.
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Bill Horn, First Angel Capital - Analyst [53]
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Okay. I did notice on Wabush that it looks like the second quarter royalty was up to about $8.2 million. Can you give us an idea of what the tonnage was that was delivered out of Wabush for the quarter?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [54]
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Rene is here and he'll give that to you now.
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Rene Randall, MFC Industrial Ltd - VP [55]
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It's about 911 million tons.
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Bill Horn, First Angel Capital - Analyst [56]
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911,000 tons?
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Rene Randall, MFC Industrial Ltd - VP [57]
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Thousand tons, sorry.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [58]
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Million would be okay, Rene.
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Rene Randall, MFC Industrial Ltd - VP [59]
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Billion would be even better.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [60]
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We'll go out there and get the check.
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Rene Randall, MFC Industrial Ltd - VP [61]
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And the good thing is, the price continued to hold around the 950 level, which is very positive for us.
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Bill Horn, First Angel Capital - Analyst [62]
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That's certainly a good price.
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Rene Randall, MFC Industrial Ltd - VP [63]
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It's a very good price. And what Cliffs has basically been saying is that they still think they are going to get to the 3.9, between 3.7 to 3.9 in shipped pellets this year. So hopefully we'll see a strong third quarter.
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Bill Horn, First Angel Capital - Analyst [64]
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Good. No more, or have the operational issues up at Wabush--
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Rene Randall, MFC Industrial Ltd - VP [65]
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They have basically -- yes, they have basically have settled those. I mean, part of it was, in the first quarter, was the river freezing and they had some problem with some machinery. But they have resolved all those problems. So keeping our fingers crossed, we should have a good third quarter.
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Bill Horn, First Angel Capital - Analyst [66]
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Great. Michael, moving on to Goa. I believe in the past that you have indicated that the low grade ore coming out of Goa has been getting a price of about $100 a ton. In your comments, you had mentioned that the demand for that ore is pretty high. Are you still seeing pricing in that range, about $100 a ton?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [67]
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No, I think it's less now, Bill. First of all, Goa is shut because of monsoons.
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Bill Horn, First Angel Capital - Analyst [68]
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Oh, yes, yes, of course.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [69]
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So, you know, iron ore has come down from $130, say, to $118, in a very short period of time, like three weeks.
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Bill Horn, First Angel Capital - Analyst [70]
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But that's not the low grade coming out of Goa?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [71]
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No, but they use that as the benchmark, right? This price I'm giving you of $118 is for 63 FE. And so they then trade up and down based upon that as the benchmark price. That's how most traders do it. Price wise, we can't tell yet until we get back into the season. But I don't expect it. Right now, I don't expect, unless we get some great, more reductions in the price, I would assume that we should be able to get in the $90 range, for sure.
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Bill Horn, First Angel Capital - Analyst [72]
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Okay. On the previous call, you had indicated that the weather had held up, and the monsoon season had sort of started late. How many shipments did you get out in the second quarter?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [73]
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I don't know. I don't know. I'll have to get back to you on that. You know, we're using bigger ships. So he's managed to use Panamax 140,000-ton ships,. So that's a lot different. But I do know we have inventory on ground now that we did not get out. So that's part of our inventory. As you can see, our inventory is up in June, and that's part of it.
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Bill Horn, First Angel Capital - Analyst [74]
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Yes, quite a bit. How much of that would you reference to the Goa inventory that's sitting, waiting for the shipments to resume?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [75]
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10%. 10%.
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Bill Horn, First Angel Capital - Analyst [76]
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I'm sorry. Oh, about 10%?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [77]
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Yes.
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Bill Horn, First Angel Capital - Analyst [78]
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Okay.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [79]
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Actually, it's not. It's like 8%. You know, we encourage them to produce very much, regardless if they can't ship. We still like them to produce, right, so they can ship when the season starts.
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Bill Horn, First Angel Capital - Analyst [80]
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Of course, yes. I mean, when I was over there, I think you had 325,000 tons just waiting for shipment, waiting for shipments to begin again.
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Rene Randall, MFC Industrial Ltd - VP [81]
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And then even during the monsoons, what they do is just really cover the piles and wait until they could start shipping again.
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Bill Horn, First Angel Capital - Analyst [82]
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Okay. Michael, over the course of the first six months of 2012, you certainly have acquired or are about to acquire some very interesting assets, certainly in Pea Ridge and what we're seeing coming down the pike in Compton. To me, it seems like there's a lot of unlocked potential in both of these assets. And MFC has historically based its performance on book value or return on equity. You've just come out this quarter and stated your book value per share is $8.98. But when we look at these assets, Pea Ridge is on the books for about $12 million. But if we look at the true value of that underlying asset, and just doing sort of a quick discounted cash flow at 4 million tons of annual production, and that number I get from the previous owners' estimates on what he believed could be producing. You're looking at a value of this asset potentially in the $350 million to $500 million range, which could add anywhere from $5.50 to almost $8 a share to book value.
And then I guess if we look at Compton, their net present value that independent estimators have reported at fiscal year end put their reserve values and their undeveloped land values at about $360 million. And that would equate to about $5.75 a share for MFC. So, here we are with a book value of $8.98, yet when you really adjust book value for these very interesting assets that you've picked up, I could safely assume that book value is north of $20. Is this a fair assessment looking at more of a true value of these assets that you have acquired over the recent past?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [83]
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Bill, you know, I have to dance. I can't comment on that. You know, we're going to develop these assets and those assets have got to get developed. And Compton is not finished yet, right. So it would not be prudent and fair for me to endorse your words. So if you could respect me and just let me dance away from that question, I would appreciate it.
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Bill Horn, First Angel Capital - Analyst [84]
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I'll let you dance, for a little while.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [85]
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Thank you. I understand. I understand. For a short time.
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Bill Horn, First Angel Capital - Analyst [86]
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When the music ends, I'll come back to you.
In your release, you had indicated that you have been trading some new products. I think in your comments, you had mentioned steel coils. Is that primarily what you were referencing? Are there any other new products that you see coming online in your commodities trading business?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [87]
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We're seeing some better margins in products like coils. And that's really driven, Bill, through credit. And some of these smaller plants, bank gets credit. So it's easy for us to do it. So coils, wood pellets, again, the same, and we expect a very good year for wood pellets, as well. And that's all green, and we're able to finance it and we're able to trade it and we sell those pellets onto major utilities, Eon, companies like that.
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Bill Horn, First Angel Capital - Analyst [88]
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Okay. Great. Super. I'll certainly get back in the queue and let others ask questions, but congratulations. It's exciting to see some of these new assets that you're bringing into the fold. Thanks, Michael.
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [89]
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Thanks, Bill.
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Operator [90]
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(Operator Instructions)
Rich Rogers, Abbey Capital.
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Rich Rogers, Abbey Capital - Analyst [91]
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Hello, Michael. How are you?
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Michael Smith, MFC Industrial Ltd - Chairman & CEO [92]
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Good, thank you. Good.
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Rich Rogers, Abbey Capital - Analyst [93]
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Very good. One question I picked up on one of your comments regarding -- if Compton does go through, you mentioned there might be upwards of a tax pool of $300 million. Would that -- I mean, the way I was thinking when you said that, that might give a little bit more flexibility with the Wabush, maybe potentially down the road, paying the taxes on the capital gains, if you are ever to do something with that, it would be something very painful to you. So would I be thinking along those lines, right? It would just maybe give some more options to that asset?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [94]
------------------------------
It definitely gives a lot more options. Buying these NOLs, companies with losses, it's really difficult to utilize them correctly. Having a pool, the pool is 100% deductible and it's like a swimming pool. You can use it and everybody can jump in the water. So you are right. It does give us a very strong other tool to use in the future, as we look at Wabush to rationalize that more, you're right.
------------------------------
Rich Rogers, Abbey Capital - Analyst [95]
------------------------------
And you said it would be a dollar to dollar type equation?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [96]
------------------------------
Yes, one dollar to dollar, which is much more valuable.
------------------------------
Rich Rogers, Abbey Capital - Analyst [97]
------------------------------
Okay. Excellent. One thing that always concerns me is that, you and the Board, have you ever given thought to separating the CFO position from the CEO position?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [98]
------------------------------
Yes.
------------------------------
Rich Rogers, Abbey Capital - Analyst [99]
------------------------------
Okay, you have. Is that anything in the next year or so that there might be some headway on?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [100]
------------------------------
I assume it would be before a year or so.
------------------------------
Rich Rogers, Abbey Capital - Analyst [101]
------------------------------
Before year, okay. And then as far as anything -- you've done a great job, but if anything were, God forbid, to happen to you, could you enlighten us as far as what the business continuity plan -- what would happen the next day or the next weeks, so we have an understanding of how the business continues?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [102]
------------------------------
We work with the Board and we've agreed to a successor plan for myself, and that would go into effect. So that planning has already been done and is ready to go if something happens to me. But nothing's ever going to happen to me.
------------------------------
Rich Rogers, Abbey Capital - Analyst [103]
------------------------------
I understand. Do we know who the next CEO may or may not be?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [104]
------------------------------
No, it hasn't been announced, but it's been agreed.
------------------------------
Rich Rogers, Abbey Capital - Analyst [105]
------------------------------
Okay. There is a person that's there?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [106]
------------------------------
Yes, somebody who is there -- somebody who is here and who is very familiar with the business.
------------------------------
Rich Rogers, Abbey Capital - Analyst [107]
------------------------------
Okay. And then the last thing is, one thing I had at the end of the quarter, I saw -- because I follow the Euro pretty well against the dollar, and I saw that fall about 10%, I thought it was. Was there hedging in there? Or was there not hedging? And how much actually did that cost as far as earnings for the quarter? I didn't quite see that. I didn't have a chance to really go in depth and do the numbers there.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [108]
------------------------------
12% was the drop in the quarter.
------------------------------
Rich Rogers, Abbey Capital - Analyst [109]
------------------------------
Okay.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [110]
------------------------------
That's a substantial drop. It was over $12. You know, we only hedge -- like if we have US dollar to Euro, in a transaction. We don't hedge otherwise. We have just a policy for each company on currencies. And the commodities policy is everything they do is in Euros. And everything we do in Canada is in Canadian dollars. And so in China, the same.
We found when we tried to hedge the balance sheet items, we would get killed. In '98 -- not '98, 2008, when we had the crisis, just before that, the currencies went absolutely crazy. And we got killed on a couple of them, especially the Australian dollar. And so we said, okay, let's just everybody take their own business unit and stay with it. And it seems to have worked until today. And it's still working. And I think they are allowed flexibility, but they are not going to speculate. I think really, by hedging the balance sheet, you're more going into speculation.
------------------------------
Rich Rogers, Abbey Capital - Analyst [111]
------------------------------
Okay. Do we have any idea what it cost us last quarter? 12%, I know on a dollar figure, do we have any -- just a ball park, what that cost?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [112]
------------------------------
No, I'm afraid we do not.
------------------------------
Rich Rogers, Abbey Capital - Analyst [113]
------------------------------
Okay. And then last thing, when you back out the cash from the company, you look at actually, if you take out the cash, what the stock is based on potentially $0.75-plus maybe in earnings per share in 2012, probably trading at a $2 stock with almost $1 worth of earnings. Have you guys ever had a discussion with the Board or other people of simply taking this company private? It's a tough question.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [114]
------------------------------
For 20 years, those discussions have been brought up. And each year, I also go through a phase in my mind of what could we liquidate for, which I think is a very interesting question. You know, liquidate in an orderly manner. And of course, that's another value that we have to look at.
So right now, I say we shouldn't even have those thoughts, because we have a couple of projects, which you've seen now, Pea Ridge and Compton, but there are some other ones that are changing the company. Compton is a project which we have been working on for over two and a half years. They take -- you've got to be very patient, right, and you take your time. And Pea Ridge was a project which was -- which we had it, we got paid off on it and then we went out after it again. And that was for several years. So we are, we are not changing that matter.
And if we get a couple of more projects, then there will be a utilization or need for cash, or for additional funding at some point. And we are going to, any time we buy a business, like a Compton, for instance, we will long-term debt those long-life assets. We will not sit there and be foolish, borrow short of those type of assets.
------------------------------
Rich Rogers, Abbey Capital - Analyst [115]
------------------------------
Sure. And just one -- probably as you said for 20 years had that conversation among the people at the Company. Maybe a year ago, when you did that calculation in your head, did you come up with $16 a share we probably could liquidate this thing reasonably, or just maybe a ball park figure? Not current numbers, but a year ago.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [116]
------------------------------
I can say to you it was in excess of what we were trading at. So --
------------------------------
Rich Rogers, Abbey Capital - Analyst [117]
------------------------------
Is it in excess of book value or excess of the market share price?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [118]
------------------------------
Excess of book value is how I look at it. And I think that's the most important. I would sooner not share with you that number without sharing it with everybody.
------------------------------
Rich Rogers, Abbey Capital - Analyst [119]
------------------------------
I see what you're saying. Okay. Great. That was the only questions I had.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [120]
------------------------------
Thank you very much.
------------------------------
Rich Rogers, Abbey Capital - Analyst [121]
------------------------------
Okay. Thank you.
------------------------------
Operator [122]
------------------------------
James Andrew, Cordero Funds.
------------------------------
James Andrew, Cordero Funds - Analyst [123]
------------------------------
Hello, Michael. How are you?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [124]
------------------------------
Good, good, thank you.
------------------------------
James Andrew, Cordero Funds - Analyst [125]
------------------------------
So just a few questions about Compton here. Everybody seems to be very interested in that. We do substantial metal, oil and gas investing. You'd mentioned a land bank of 350,000 acres. What's the character of the holdings there? Are those primarily concessions granted by the government, or are they pools of lease holds?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [126]
------------------------------
Generally, they are with farmers.
------------------------------
James Andrew, Cordero Funds - Analyst [127]
------------------------------
Okay.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [128]
------------------------------
Lease holds, except there is a few by the government, very few of them.
------------------------------
James Andrew, Cordero Funds - Analyst [129]
------------------------------
Okay. You know, of course in most lease holds and in concessions both, there are production requirements. And if you have uneconomic gas today, I'm curious if you're anticipating a burn rate until you have economics on gas that allow you to continue fulfilling whatever production requirements may exist under those contracts. Has that been part of your analysis?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [130]
------------------------------
Yes, it has. And we view that number to be very minor in the overall planning.
------------------------------
James Andrew, Cordero Funds - Analyst [131]
------------------------------
So there isn't a large drilling requirement in any of that acreage?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [132]
------------------------------
No.
------------------------------
James Andrew, Cordero Funds - Analyst [133]
------------------------------
Okay. Thank you.
And then, when you had mentioned why you had been interested in doing a Compton deal, and maybe I just missed this, but you said there were four key points. I picked up on two of them. One was land bank. Number two was tax pools. What were your third and fourth points, if you don't mind recanting them for me?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [134]
------------------------------
The long-life assets.
------------------------------
James Andrew, Cordero Funds - Analyst [135]
------------------------------
I see.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [136]
------------------------------
I like an asset that has long life. And if I finance that asset correctly, worst case is the molecules in the ground don't go away, and can I turn those molecules off for minimal cost? And can I maintain it? I think I can. And so I think that's the most important.
And the last item on natural gas, I think there's a need for natural gas. If I don't get greedy and try to become somebody trying to make a fortune in gas. All I'm looking to do is to make a return. And that's why we will look at closing to hedge a substantial sum of our costs. And we feel if you couple the hedge, maybe you've eliminated some of your downside. You have certainly eliminated your upside, as well. But I would sooner do that and then still have some profit potential.
------------------------------
James Andrew, Cordero Funds - Analyst [137]
------------------------------
Okay. Thank you.
With regard to prior investors in Compton, it seems to me we've got some very sophisticated folks, some of them here local to where I am, who have just invested in Compton within, say, the last 12 to 18 months at much, much higher valuations. Seems extraordinary, the price that you're able to buy the company for here, or at least anticipating buying the company. Can you shed any light on what those other major investors' perspective is on selling so shortly after having just made their acquisition, or do you not have any visibility to that? Have you had conversations with those folks? You probably have.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [138]
------------------------------
Yes, we've had many, many, many to get down to this price.
What really happened is those sophisticated investors who own the 54%, outside of one, were all note holders of the company and had financing in the company. The company -- that's when we originally saw the company. And we have proposed several ideas to the company, and part of that was doing a rights issue and things like that. But the note holders, at that time, decided they would do it themselves. And so they didn't need us. So they went ahead and did it themselves and became shareholders. Once they became shareholders, they realized it's very difficult, when there's many of you, to create change in a company. And the SG&A of this company has just been horrendous. They've paid out more in fees and compensation to senior management than I've seen for a long, long time.
And this group suddenly started to deteriorate and the group felt frustrated, and I think that you had note holder's mentality holding a common share. And that's when we managed to eventually agree with them on a bargain where we would take them out completely. And it was a -- I think we would say, they got tired.
------------------------------
James Andrew, Cordero Funds - Analyst [139]
------------------------------
Okay. Investor fatigue?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [140]
------------------------------
Investor fatigue. And I think that was great. When somebody gets tired, you want to have still a lot of energy left, right?
------------------------------
James Andrew, Cordero Funds - Analyst [141]
------------------------------
Right, right. Now in terms of the shares tendered, does it include the special warrants that you folks have purchased, that MFC has purchased?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [142]
------------------------------
Right. We purchased one special warrant, which entitles us at our option, strictly at our option, to buy 20% of the issued shares of the company. And we locked up 55% of the tired shareholders, so they have to tender.
------------------------------
James Andrew, Cordero Funds - Analyst [143]
------------------------------
Okay.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [144]
------------------------------
So we did that before we started the tender.
------------------------------
James Andrew, Cordero Funds - Analyst [145]
------------------------------
Got it. Okay. Let me -- I've got a question here about Pea Ridge, if I can shift gears just a little bit. And maybe I misunderstood this. Do you have the 43101 report already, that you folks have had a chance to review it and then you intend to release it in the next few days? Did I understand that correctly?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [146]
------------------------------
I think it will be released today.
------------------------------
Michael Mason, Allen & Caron IR - IR [147]
------------------------------
It will be.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [148]
------------------------------
And we have it, and it's signed and ready. We'll have it on the website?
------------------------------
Michael Mason, Allen & Caron IR - IR [149]
------------------------------
Yes.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [150]
------------------------------
So it is available.
------------------------------
James Andrew, Cordero Funds - Analyst [151]
------------------------------
Okay. And then--
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [152]
------------------------------
If you can't find it, please just contact us here. We'll send you one.
------------------------------
James Andrew, Cordero Funds - Analyst [153]
------------------------------
Okay. And then deco metals, still something you're thinking about doing, or is that off the table?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [154]
------------------------------
You know, you've got to keep talking to all the girls, we say, right, before you get married. And deco metals is something that I'll be talking about again, all the time. I'll be talking next month. But the price has got to be right. That's the most important thing. That's one of the many, many, many projects which we have. There are some interesting things in deco metal, but they have to understand us on the pricing.
------------------------------
James Andrew, Cordero Funds - Analyst [155]
------------------------------
Okay. All right. Very informative. Thank you.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [156]
------------------------------
Thanks.
------------------------------
Operator [157]
------------------------------
(Operator Instructions)
George Berman, JP Turner & Company.
------------------------------
George Berman, JP Turner & Company - Analyst [158]
------------------------------
Good morning, gentlemen. Thank you for taking my call.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [159]
------------------------------
Good morning. Good morning.
------------------------------
George Berman, JP Turner & Company - Analyst [160]
------------------------------
Your dissertation on the oil and gas acquisition, I sense that you may be looking at this as a stepping stone for further investments in the area. And I happen to agree with you, that natural gas at the current price offers tremendous potential, particularly in light of the price differences in Europe and Asia versus the US. Do any of your plans include looking at gaining the advantage on those price differences?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [161]
------------------------------
I think that from a trading perspective, there is some ability to do that. But what we look -- we think that the catalyst to do more projects in oil and gas is the banks really have been lending money short-term for long-life assets. And that's great until the commodity price drops, and that puts the company in great turmoil.
------------------------------
George Berman, JP Turner & Company - Analyst [162]
------------------------------
Right.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [163]
------------------------------
We're seeing lots of that. And if we can do it correctly, we can increase that portfolio of gas. And I think gas is really where they are suffering the most, which is interesting.
------------------------------
George Berman, JP Turner & Company - Analyst [164]
------------------------------
Right. You would not be opposed to doing deals in the United States, right?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [165]
------------------------------
Oh, no, not at all.
------------------------------
George Berman, JP Turner & Company - Analyst [166]
------------------------------
There's a number of companies in the US that are upside down in the same fashion.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [167]
------------------------------
Yes. If they are upside down, we want to look. If they are not upside down, we can't afford to buy.
------------------------------
George Berman, JP Turner & Company - Analyst [168]
------------------------------
Yes. Then I had a question. You mentioned in your Press Release that you now took over completely the power station in Africa.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [169]
------------------------------
Yes.
------------------------------
George Berman, JP Turner & Company - Analyst [170]
------------------------------
Could you describe that project to us a little bit?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [171]
------------------------------
So that's a long-life asset, and it will go on for many, many, many years. And once the refinery stops, it will then be able to produce electricity and sell it into the national grid. And then of course, we are looking to reprice that electricity that is produced. So I can't give you pricing or production at this time until that refinery stops, which would be just over a year.
------------------------------
George Berman, JP Turner & Company - Analyst [172]
------------------------------
Okay. And then I understand congratulations are in order for you, you recently became the Chairman of KHD Humboldt again in Germany.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [173]
------------------------------
No, I did not. There is a proposal outside, and that's pending at this particular point.
------------------------------
George Berman, JP Turner & Company - Analyst [174]
------------------------------
Should we look for maybe a rejoining of the group?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [175]
------------------------------
I would not, no. I would not.
------------------------------
George Berman, JP Turner & Company - Analyst [176]
------------------------------
Okay. Thank you very much for your time. And good luck.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [177]
------------------------------
Great. Thanks.
------------------------------
Operator [178]
------------------------------
Mark Phelan, M22 Capital.
------------------------------
Mark Phelan, M22 Capital - Analyst [179]
------------------------------
Hello, Michael. Thanks for taking the call.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [180]
------------------------------
Good morning.
------------------------------
Mark Phelan, M22 Capital - Analyst [181]
------------------------------
Can you break down, if you can, the decline in revenue from trading commodities? How much of that is general lack of demand and/or lower commodity price versus the change in Euro versus dollar?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [182]
------------------------------
Let's just say on the plastics side, that's where the major decline is. But plastics has picked up now in this month. But it was substantial. If you looked at our budget, you would see plastics would drop by 40%. The currency also in that particular quarter hurt us. But we managed to pick up steel coils. So if it wasn't for the coils, we would have not had -- we would have had less sales.
But you've always got -- in this business, you've got to be able to be flexible. When I talk about plastics, I'm not just talking PET. I'm talking an array of other type of plastics. Those plastics are back now, to a degree. And so we have to be flexible as we go forward.
------------------------------
Mark Phelan, M22 Capital - Analyst [183]
------------------------------
Okay. And when you -- specifically in plastics, you guys own underlying assets that I guess contribute to some part of the supply chain within plastics, or are you just brokering that? Could you explain that for me?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [184]
------------------------------
Yes, on plastics, we just buy under a, usually an unpriced long-term contract with a supplier, usually from China or from Korea, and break it down and sell into many pieces, usually in the Turkey area or that kind of markets, Bulgaria, more difficult markets where they don't want to sell into.
------------------------------
Mark Phelan, M22 Capital - Analyst [185]
------------------------------
Is it fair to say then, in terms of your exposure, your overall revenue will decline, depending on whether the commodity's volume or price is increasing or decreasing. But in terms of your actual exposure to your balance sheet, because you have an underlying asset, is it mainly iron ore through your mines? Is that pretty much your exposure to commodities, in terms of actually what you own?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [186]
------------------------------
Yes. We might have some inventory in transit. We may have some inventory from another party, but the party will be insured. So the risks are quite low. And we don't buy the inventory for speculation or to try and make a return there. That's generally not our way of doing it.
------------------------------
Mark Phelan, M22 Capital - Analyst [187]
------------------------------
Okay. Can you just give me your thoughts, with the Euro potentially being controversial or at least being disputed, whether it's going to be a long-term currency. First of all, is most of your cash in -- it's mostly in Vienna banks, as I understand it, right? And if there was some problem with the Euro in terms of -- if something happened where Germany decided to leave or something, how do you plan for that? Or do you not, because you think it's so unrealistic? Can you just give me your thoughts on that?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [188]
------------------------------
Well, first of all, we have guarantees from the government in Austria for funds in the bank. But we also do keep funds not just there. We also use Royal Bank of Canada. But you're right. We have Euros. We have all currencies, including UN -- the money we make in China, I leave in China. I don't want to take it out. And that's -- it's pretty much where the business is located. The only money I take out immediately is money in India, as fast as I can.
------------------------------
Mark Phelan, M22 Capital - Analyst [189]
------------------------------
Right. Okay.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [190]
------------------------------
That's for control reasons.
------------------------------
Mark Phelan, M22 Capital - Analyst [191]
------------------------------
And how about, you're a fairly experienced and informed guy about Euro issues. Can you give me your sense as to -- so your natural hedge against any sort of disruption in the Euro, your currencies are spread out, or your cash is spread out through many currencies. That's your hedge, basically?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [192]
------------------------------
That's the hedge.
------------------------------
Mark Phelan, M22 Capital - Analyst [193]
------------------------------
Okay. And then just going forward, your general trading business, it is exposed significantly in Europe. Do you see any bright spots within that economy, general European economy? Do you want to diversify away from that? Do you want new assets? But how do you do that going forward?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [194]
------------------------------
I think we have to increase our platform business in other markets, which we are trying to do in the commodity side. And really spend a lot more time on the China side with sourcing and going to other markets. There's other markets which we could be doing business in, which we are not. But it requires talent. And we're looking to do some acquisitions in that particular area, very much.
------------------------------
Mark Phelan, M22 Capital - Analyst [195]
------------------------------
Okay. And then just kind of last question, more specific question, in terms of your accounting. You have over $200 million in temporary differences, and I think that's a bit different than United States accounting. Were you worried about whether you could use those to apply to your profits, and shield income from income tax? Is that partly why you're interested in buying this natural gas asset, or is that not an issue? Do you feel like it's--
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [196]
------------------------------
You know, the tax pools can be used in Canada for acquisitions in Canada. Yes, that is an extra with the Compton project, but not a driver, not a sole driver.
------------------------------
Mark Phelan, M22 Capital - Analyst [197]
------------------------------
Right. Okay. All right. Thanks, Michael. Appreciate your time.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [198]
------------------------------
Thank you.
------------------------------
Operator [199]
------------------------------
Bill Horn, First Angel Capital.
------------------------------
Michael Mason, Allen & Caron IR - IR [200]
------------------------------
Bill? Bill?
------------------------------
Bill Horn, First Angel Capital - Analyst [201]
------------------------------
Hello?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [202]
------------------------------
Hello, Bill.
------------------------------
Bill Horn, First Angel Capital - Analyst [203]
------------------------------
Can you hear me, Michael?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [204]
------------------------------
Yes, I can.
------------------------------
Bill Horn, First Angel Capital - Analyst [205]
------------------------------
Okay. Thank you.
I think it may have been partially answered. In your comments, you had indicated that the $28 million of long-term debt that was put on the books is related to an eight-year loan for buying the Kasese Cobalt refinery. And indicated that you were trying to match long-term assets with long-term debt. The Kasese Refinery is about to run out of tailings in about a year. There, you're referring to the long-term asset as being the power plant, or has something else changed with the refinery that might lengthen its life span?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [206]
------------------------------
No, the power plant itself, Bill. You've got it right.
------------------------------
Bill Horn, First Angel Capital - Analyst [207]
------------------------------
Okay. Do you have -- the tailings that the refinery has been using over the, I don't know how many years, have all come from the Colombia copper mine. If that mine is ever reopened, do you have rights to additional tailings, or is that something that would have to be negotiated with the new owners?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [208]
------------------------------
It would have to be negotiated with the new owners.
------------------------------
Bill Horn, First Angel Capital - Analyst [209]
------------------------------
Okay.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [210]
------------------------------
We don't see that happening.
------------------------------
Bill Horn, First Angel Capital - Analyst [211]
------------------------------
You don't see that as being a possibility?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [212]
------------------------------
No, we do not.
------------------------------
Bill Horn, First Angel Capital - Analyst [213]
------------------------------
Okay. And I guess just one further clarification. There's been a lot of talk about the Pea Ridge and issuing of this NI-43101. You've come out, I guess last quarter, and reaffirmed the historical resources. You just brought the historical up to current. What other reports can we as shareholders anticipate coming out of MFC related to fulfilling this NI 43101. I know there's the feasibility study, but are there other reports that we can anticipate over time, and what would that timeframe be?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [214]
------------------------------
The feasibility study is really the main report that you need to see. But there is some preliminary economic studies that we will look to see if we can release to you, which are being prepared as we speak. And they are important.
------------------------------
Bill Horn, First Angel Capital - Analyst [215]
------------------------------
And is it the preliminary economic analysis what you referred to that would be -- that you hope to get out in early fourth quarter?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [216]
------------------------------
Right. And the tailings, of course, are entirely different, Bill. But it's the same routine, right? But it's an entirely different.
------------------------------
Bill Horn, First Angel Capital - Analyst [217]
------------------------------
Okay. So the overall feasibility study, what is the time frame for that being issued?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [218]
------------------------------
I don't think we have a time frame for a final feasibility, but a pre-feasibility. I don't think we actually have a date for pre feasibility, do we, Rene? Maybe fourth quarter? Rene's mind is the fourth quarter. But I'm more interested in making -- what I'm trying to do is, the assumptions that we've made and what our professionals on the ground have made, has to be now endorsed by an outside engineering firm. And what I'm more interested in, do they agree and endorse our economic assessment. And based upon that, you know what you have got, and you really know what you can plan and foresee in the reasonable future. That's the key in my mind, from a business point of view, Bill.
------------------------------
Bill Horn, First Angel Capital - Analyst [219]
------------------------------
Okay. And that's--
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [220]
------------------------------
And from a shareholder's point of view, that's I think what you want to see, for sure.
------------------------------
Bill Horn, First Angel Capital - Analyst [221]
------------------------------
Okay. And do you have a timeframe on when the information on the tailings will come back from the lab?
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [222]
------------------------------
I think that we would have everything in the beginning of the fourth quarter.
------------------------------
Bill Horn, First Angel Capital - Analyst [223]
------------------------------
Fourth quarter is going to be busy.
------------------------------
Rene Randall, MFC Industrial Ltd - VP [224]
------------------------------
It is.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [225]
------------------------------
All quarters are busy, Bill. (Laughter)
------------------------------
Bill Horn, First Angel Capital - Analyst [226]
------------------------------
Okay. Great. Thank you very much, Michael.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [227]
------------------------------
Great. Thanks, Bill.
------------------------------
Operator [228]
------------------------------
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Michael Smith for any closing remarks.
------------------------------
Michael Smith, MFC Industrial Ltd - Chairman & CEO [229]
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We sincerely thank you very much for the questions, and please do not hesitate to contact Rene Randall or myself with anything else that you would like to talk about in reference to the Company. Thank you for your interest. Bye-bye.
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Operator [230]
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This conference has concluded. Thank you for attending today's presentation. You may now disconnect.
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