Q3 2012 MFC Industrial Ltd Earnings Conference Call

Nov 14, 2012 AM EST
MFCB - Mfc Bancorp Ltd
Q3 2012 MFC Industrial Ltd Earnings Conference Call
Nov 14, 2012 / 03:00PM GMT 

==============================
Corporate Participants
==============================
   *  Mike Mason
      Allen & Caron - IR
   *  Michael Smith
      MFC Industrial Ltd. - Chairman and CEO

==============================
Conference Call Participants
==============================
   *  Joe Pratt
      Wells Fargo Securities, LLC - Analyst
   *  Sven Karlen
      Wells Fargo Securities - Analyst
   *  Bill Horn
      First Angel Capital - Analyst
   *  George Burmann
      JP Turner & Company - Analyst

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

 (Operator Instructions)

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

 (Operator Instructions)

 Please note that this event is being recorded. I would now like to turn the conference over to Michael Mason. Please go ahead, sir.

------------------------------
 Mike Mason,  Allen & Caron - IR   [2]
------------------------------
 Thanks, Denise. Good morning and welcome to the MFC Industrial Ltd. investor conference call to discuss the results for the third quarter of 2012. I'm Mike Mason of Allen & Caron Investor Relations. Before we start the call, there are a couple of items I need to cover.

 Many of you received a copy of the press release, it was released this morning 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 November 22 and may be accessed from North America by calling 877-344-7529 and entering conference number 10020544. 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 www.mfcindustrial.com. A replay of the webcast will be available immediately following the call and will continue for seven days.

 Certain statements in this conference call will be forward-looking statements which reflect Management's expectations regarding future growth, results of operations, performance and business prospects and opportunities. For detailed information about risks and uncertainties that could cause our actual results to differ materially from those expressed or implied, please refer to 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. Hi, Michael.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [3]
------------------------------
 Good morning, and good morning, everybody. First of all this morning I would like to touch very much on the results for the nine months and the balance sheet I'll review next. I think that's very important, the balance sheet has changed substantially and plus we have some plans for that balance sheet to change even some more, so I think we should discuss that a little bit. I'd like to also touch on the businesses going forward, how we've seen the year to date, but also discuss some of the opportunities, which we see with the change of business or the entering ourselves into the what I call the energy area of the commodity business.

 But first of all on the results for the first nine months, the most major item really is the gain on the negative goodwill, which arose as the fair value of the net assets we acquired exceeded the consideration we pay under the transaction for Compton and which we have booked under IFRS 3. Our cost on the Compton acquisition was $32 million and our gain was $230 million for the period. The operating results are irrelevant as we did not consolidate them into our accounts until the 6th of September, sorry, the 7th of September. And of course that $230 million had no tax effect so that went right to the bottom line as far as book value is concerned. Earnings for the nine months were just about the same this period as they were for the same period in 2011, $0.46 a share, revenues slightly less at $373 million.

 Decrease in the revenues is really just a matter of the commodity prices and our change of not emphasizing so much in your plastics, which is a commodity which hasn't been very stable for us for all of this year. And I think we're still trying to rationalize how we handle that commodity going forward. For the three months it was basically about the same. Revenues were actually up in the three months, earnings were pretty much the same. But now I think the difference here is that we are switching in this period of time out of plastics substantially. But we're not completely out and we don't aim to leave that area of the business at this particular point, but it is not giving us any growth and the margins are not treating us very well.

 Going on now to the balance sheet, if you have the balance sheet as part of the press release or you have it there, I think the relevant things first is if we go to the asset section, look at the current assets, we had $400 million in cash at December 31, '11, now we have approximately $280 million. The difference there really is the acquisition of Compton or the energy business, and also that we have utilized that cash to restructure some of the debt, which I'll get into in a minute, of this energy business of Compton. Inventories are up a bit, that is seasonally adjusted and I don't see that to be any major change there except it should be down substantially by December 31. You are seeing one asset that is being added to the current assets, which is an asset held for sale, which is for $127 million. That $127 million in some of the assets which we'll be disposing of in this-- with the acquisition of Compton, which assets we refer to as redundant.

 It might be relevant when you look at this assets held for sale just to quickly look at the current liabilities. You'll see there's a liability relating to the asset held for sale of about $15.5 million. It just has to be grossed up and shown as a current liability, we comply with IFRS. Deposits are up, actually double for the period, but a lot of that has to do with the acquisition now of Compton.

 The most interesting thing I think when you look at the balance sheet of the asset side is if you come down to this area exploration evaluation assets, this is a whole new area which you've seen developed on our balance sheet. You'll see that the land, which is really the exploration and evaluation is at $70 million, we had nothing before. This really is the land bank, which we refer to and which is really a major part of our future. As really it's really designed for infill drilling and development drilling, but also gives us a sense of long-term appreciation of gas prices with no big carry costs, which I think is really the key.

 The next one we should talk about is plant property and equipment has gone from $3 million to $394 million, huge jump. Let me give you the breakdown of that. Part of that is a change when we did the power plant in Uganda, so that now is in there during this period and also the refinery there. So let's just say that's $20 million of the $394 million. We then have plants in the Compton Group, which are processing plants, which we aim to utilize very much in our future of around $48 million. And then there's about $220 million worth of reserves, P1, P2 reserves which are discounted at 10%. So that's the asset side of the balance sheet that's changed.

 And the liabilities side, and this is where I'd like to explain to you where some of the work we have to do or are doing. You show short-term borrowings now of $190 million and they've increased from $114 million during the same period. The increase is solely us restructuring the Compton balance sheet to make it more palatable with the acquisition. Accounts payable have gone up by $25 million and that is the same effect there. And as we dropped down as I discussed before, the $50.3 million assets held for sale liability is really just an offset. On the long-term liabilities, you'll see an entry called MMP term financing. That's nonrecourse financing that we've inherited with Compton and we'll leave that there for a while. And you have a very large decommissioning obligation of $116 million. This is really eventual reclamation costs on wells and other items required and its subordinate and it's long, long term.

 The short-term borrowing, if I take you back to there, is with a group of banks also nonrecourse to MFC but it is of course recourse to Compton. It is our intention now to refinance $100 million of the Compton debt and put that over time and maybe we'll touch a little bit on the ratios to see how that we see that affecting the Company going forward. Our ratios are okay as they are now, but we can make them better by property financing this $100 million and we believe we can do that over term. And that would change our working capital from $290 million to $390 million, and change our current ratio from 1.92 to about 2.25, asset ratio would go from 1.05 to 1.40. And the debt to equity go from 0.04 to 0.016. So if that makes the balance sheet very healthy again, I shouldn't say healthy, I mean, it makes it the way it was before and puts us in good shape for other projects, which we want to achieve. That to us is a major item for the balance sheet, and that is under that program to term that credit is underway now and we think we have some people who will finance that at reasonable prices, if we can say financing today is reasonable. But we would say fair prices, I guess.

 We have credit lines of $400 million. Corporate tax paid for the period was $2.6 million in cash. Going forward, maybe I can just touch a little bit, iron ore is the major contributor to us and of course of a concern for us. Our operations in Goa, we are unable to mine there at this point. Nobody is allowed to mine in Goa. To us, this is an emerging market problem. We do anticipate that we will be allowed to in the near future. It doesn't cost us any money, but we don't make any money while we're waiting. All I can say is that we're optimistic but we are not operating today.

 In reference to Wabush, Wabush royalty was reduced in this period because of iron ore prices being down, but production was really what we expected after we were told again that they had more maintenance problems. It turns out the concentrator at Wabush mine has had lots of mechanical problems and they are spending a lot of money to fix it. We're not happy with this. We're monitoring the situation at Wabush very carefully. It's very difficult to communicate with Cleveland Cliffs as they take an attitude -- usually they like to talk through their lawyers only and we are in arbitration with them and that's probably one of the reasons since we are asking them for additional payments or royalties, and we're pressing ahead with that. So we'll keep you advised as we go forward.

 Not happy, not unexpected. And I think also our prices are not bad. I mean they're-- if you go from January through now, they're down 10% for the year. High was $190 a ton in 2011. And so I think things aren't -- the industry is not going out of business. The industry be with us for a long, long time.

 Our general commodities business is affected by the economy, but also as the economy goes down more people come to us for-- because they want opportunities and I think we're seeing quite an upbeat there in what I will call finance of commodities, which is really merchant banking, and that's where I see us spending more and more time. And I see some good growth there. the banks themselves, they're interesting. They're operating more on an inward looking basis now and they have to. They have to look after their own balance sheets, and most of them are operating on a no new account basis. So that allows us some good flexibility as people still need to do business and they can come to us and we have the strength in our balance sheet and know how to make that work.

 Touch on the energy prices and what we're doing with this -- with the energy business. We saw Compton to be a very good opportunity, and we have been working on trying to obtain a substantial stake in Compton for years. And we managed after great element of frustration by share holders to allow us to tender for it. And to us, Compton, the price of acquisition was right. And we see this to be something which we can grow, not just through sitting back and hoping the price of gas, natural gas goes up, but through redevelopment of especially the processing plants of turning them into energy. And I think this is where we'll spend most of our time on now.

 And at the same time, if we get lucky, natural gas will go up, hence, we've acquired the stake in Compton. Actually when we started the acquisition of Compton, til now, I see that the actual price of natural gas has gone up 32%, which is great for us, great for our cash flow, but we call that luck. And so it's nice to get lucky once in a while. But we want to also get some regular business through cutting down the cost and creating energy at Compton, at the same time, maybe we'll be lucky. And please remember in Compton we have several things. We have the land bank, the tax pools, facilities, and of course we will be creating a little bit of an energy fund with some of our foreign and Asian partners, who have expressed a strong interest in that. And we'll be doing that in the first quarter of next year or after closing out the Chinese New Year. I think I have no other statements I want to say, and maybe Michael we could open up for questions?

==============================
Questions and Answers
------------------------------
Operator   [1]
------------------------------
 We will now begin the question-and-answer session. (Operator Instructions) Joe Pratt from Wells Fargo.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [2]
------------------------------
 Related to Compton, a couple of questions. Number one, I see this sentence here execute our plans to drive more than just a basic commodity value from natural gas. I think you hinted at that, but could you embellish come how much -- what business might that be? How much would it cost? And would all the capital for that come from you or might you have joint venture partners on that?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [3]
------------------------------
 Joe, as we come out and we're going to on the road soon, we want to go further into the planning here, but the general concept is on the planning that we have done today is take natural gas and turn it into alternative energy, other energy to cut down the cost of transportation and other costs and using some of the facilities like the (inaudible) facility which we have.

 The capital from that can come from several sources, from offshore fund, which we will establish, or it will come from us internally or it will come from conventional term financing. As you know, it's not that difficult to finance if you're going to sell into the grid, if you're making electricity or other energy products. And we're quite excited about that. And I think this industry has not been an industry where people have been conscious of cash flow. They have been conscience of the price of the commodity and hoping to drill their success and we want to make it so you have a balance of regular income and at the same time we have some upside with the price of natural gas.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [4]
------------------------------
 There's a well-known paper company in Canada that's used -- that makes electricity from pulp and--

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [5]
------------------------------
 I've heard of that company.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [6]
------------------------------
 I believe you have. And they derive enormous tax benefits from selling green kilowatt hours. Is there anything analogous to that for making electricity in Canada from natural gas?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [7]
------------------------------
 Not really. Except that it's the same concept, right? What they're doing is they're taking some of their assets, being their energy and finding ways to maximize that back. And we'll be doing the same here. I mean Joe, on April 20 of 2012, gas was selling at $1.82 per thousand cubic feet, right?

 I mean who in the world would be selling at that time? Why wouldn't you shut it in or why wouldn't you be looking for alternative service-- alternative ways to create value? And I think that's what that pulp company has found ways to take an asset and create additional value and they've done great with it. And that's what we want to do. I mean we've got lucky right now but luck on the price of gas doesn't stay there.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [8]
------------------------------
 But Michael, is-- are there tax favorable tax incentives in place already passed by the Legislature in Canada that would give you tax incentives to do this or -- I believe the green kilowatt hours in Canada from that pulp plant enjoy a higher kilowatt hour price than kilowatt hours produced from conventional sources.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [9]
------------------------------
 Yes, we will not be green, Joe.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [10]
------------------------------
 Okay.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [11]
------------------------------
 We will not have it.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [12]
------------------------------
 Thank you. And I just wanted to-- and then on the infill drilling, 500 wells of opportunity. Do you really consider that to be development drilling or does it have an exploration component to it?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [13]
------------------------------
 I don't see an exploration component to it at all.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [14]
------------------------------
 Okay and how much total capital would it take and over what period of time to drill that up? And what would the sourcing of the capital on that be?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [15]
------------------------------
 There are several sources, right? But predominantly I'm not an exploration man, I will do development drilling but I want it for a source that it makes value, right, that is predicted. And right now we-- before-- two years ago when we first looked at Compton or three years ago we had established a fund to do drilling for them.

 And we will probably go back that same route with our Chinese colleagues now. And so to answer you, Joe, we don't know for sure but there's several areas but I will not hurt my balance sheet. It's cheaper to buy today existing natural gas companies and energy companies than it is to drill.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [16]
------------------------------
 Could you have financing as favorable as let's say it was $100 million drilling fund and $70 million came from bank financing through one of your contacts, maybe in Europe, and then $30 million might come from the joint venture partner and you split it 50/50 and therefore you didn't put up too much capital.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [17]
------------------------------
 Joe, we won't be putting up too much capital.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [18]
------------------------------
 Thank you very much.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [19]
------------------------------
 Okay.

------------------------------
Operator   [20]
------------------------------
 Sven Karlen from Wells Fargo.

------------------------------
 Sven Karlen,  Wells Fargo Securities - Analyst   [21]
------------------------------
 My question relates to Pea Ridge. Where do we stand on the ultimate completion of the 44-- excuse me, 43-101 document? And how much money have you spent since you acquired that asset in December? I remember you're booking the asset for about $13 million of costs, mostly fees, legal fees, et cetera, for your 50% interest.

 How much money have you spent since then in trying to get at the asset engineers, consultants, preparing this 43-101, et cetera? And where are we on the 43-101 and how close are you to being able to talk about the tailings pond and your feasibility plans for that, as well as the mine?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [22]
------------------------------
 This year, we have spent a total of $16.6 million since December of last year.

------------------------------
 Sven Karlen,  Wells Fargo Securities - Analyst   [23]
------------------------------
 That includes the $13 million original cost?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [24]
------------------------------
 Correct, correct.

------------------------------
 Sven Karlen,  Wells Fargo Securities - Analyst   [25]
------------------------------
 Okay.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [26]
------------------------------
 And we have done drilling of the property this year, which was so important for us trying to determine exactly what is the right thing to do especially in tailing. And we also done some seismic work and other work. And I think we're trying to get the professionals and the legal fees are over now with this project so we haven't spent legal fees since January, February. That is finished, so now it's up to the professionals to finish. I'm anticipating we'll have a much clearer picture of what we should be doing by the end of the year.

------------------------------
 Sven Karlen,  Wells Fargo Securities - Analyst   [27]
------------------------------
 I appreciate that. Is there anything new that you can talk about with regard to your relationship with Alberici? How is that going, do you feel good about that, et cetera?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [28]
------------------------------
 I think it's great. I'm with them again at the end of this month. I feel very lucky in some ways. They bring the local content and I think it's so important in these projects to have somebody on the ground who knows what they're doing. They're quite a successful family, EPC contracting business. So it's a good relationship and I feel lucky.

------------------------------
 Sven Karlen,  Wells Fargo Securities - Analyst   [29]
------------------------------
 And then my last thought is, why is it taking so long to begin the process of dewatering this mine? Are we to assume that that means that you may not come up with a green light at the end of all your research and feasibility? Or if we're going to get a green light to go ahead with the project, why aren't we dewatering now?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [30]
------------------------------
 Because I don't think we're assured of what is the right way to go. There's no sense dewatering until you have your process clearly defined and I think that's where we're at. I think the drilling helped us, but we still have to get the process done.

------------------------------
 Sven Karlen,  Wells Fargo Securities - Analyst   [31]
------------------------------
 Thank you.

------------------------------
Operator   [32]
------------------------------
 (Operator Instructions) Bill Horn from First Angel Capital.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [33]
------------------------------
 Actually, a number of my questions regarding Pea Ridge were answered or asked by Sven, but can we touch on Wabush here? I mean in your announcements, you had indicated that there were maintenance issues but also that Cliff had reduced its' production forecasts for the remainder of 2012. Can you give us a sense as to what Cliff's production forecasts are for 2012 and do you have any insight as to what they're thinking for 2013?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [34]
------------------------------
 It is very difficult for us to predict. Cleveland Cliffs has come out clearly and said that they had a concentrated problem at Wabush. They also said that they must spend their energy and effort and time on Bloom Lake. This is where they have a huge, huge investment, right?

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [35]
------------------------------
 Certainly.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [36]
------------------------------
 And the tonnage was 902,000 tons for the quarter. For the second quarter this year, it was 911,000. We don't know what it will be for the fourth quarter and -- but we're-- they have said that it will be down. We don't know how much it will be down.

 We do know that there's a point where they have to produce so much because they have commitments for clients. And Carrabba has said that he will meet his commitment for clients, so you would think it would still be in the area of the 900,000 ton range if you are basing it upon his statement that I will meet my commitments to clients. You just don't order a ton of iron ore, it has long lead time and shipping time, right?

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [37]
------------------------------
 That it does.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [38]
------------------------------
 I'm concerned, Bill, but I'm not panicking. But we are monitoring it very carefully. And of course we're in arbitration there, so I want some more money from them.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [39]
------------------------------
 What were the royalty rates that MFC received from Wabush this quarter?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [40]
------------------------------
 $7.82.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [41]
------------------------------
 Okay. Thank you.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [42]
------------------------------
 And I'm not happy with that, Bill.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [43]
------------------------------
 No, it's certainly down from last quarter.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [44]
------------------------------
 Yes, so we're having discussions now.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [45]
------------------------------
 Okay. Going back to Pea Ridge for a moment, when we look back at the conference call that we had on -- for the second quarter, you had spoken specifically about the next portion of the 43-101 to be the economic analysis and then also a findings report coming back from your lab on tailings. You had indicated that those would be out early in the fourth quarter. Can you give us an update as to when we might be expecting these reports?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [46]
------------------------------
 The economic one, I can't give you but I can tell you that I think we'll be in a position in the first quarter or the early first quarter to disclose what is going to happen with the tailings. I think that's what we're working on now because that's a source of cash flow, right? That's really what-- that's my initial interest right now.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [47]
------------------------------
 The tailings?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [48]
------------------------------
 Yes.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [49]
------------------------------
 Okay. Is there something specific that's holding up the economic analysis?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [50]
------------------------------
 No. No, I think we've done it several times internally, and this is not just a one-time work, it is a process that has many, many variables, but it's in process at this time.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [51]
------------------------------
 Okay, thank you. I think we've all been following at a distance what's been happening in Goa with the whole mining and transportation ban. In your announcements, you had indicated that you had hoped that mining would commence again prior to the end of the mining season. The mining season ends March/April time frame. Is that to indicate that you have no expectation for doing any mining in the fourth quarter? Can you give us a little more insight as to what you see happening over there and what your expectations are in the next quarter or two?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [52]
------------------------------
 I was just with our Goa management in Mexico, recently. And they are all optimistic. We haven't laid off any staff. And most people haven't-- I don't think actually none of the big people have laid off any staff. We will get the go-ahead fairly soon.

 If you have clean environmental permits, clean operating permits, and we've submitted them all to the government and asked them, where's their deficiencies? And I think most of the miners have done the same. But it is emerging markets. It is an interesting time, but it's a terrible thing for the people of Goa, it just crucifies them.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [53]
------------------------------
 It's a huge part of their economy, absolutely.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [54]
------------------------------
 So all I can say is that our people are optimistic and if there's something drastic happens, we'll keep you apprised but we think we're going to get going before the season's over. And as the season to them as you know ends at April, but we're not mining today. There's no sense putting the money into the mining. There's no sense stockpiling any more at this point.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [55]
------------------------------
 Okay, great. Thank you very much. I'm sorry, Michael?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [56]
------------------------------
 The fuzzy part, Bill, is that we're still-- our application for the -- another mine in Goa is going along quite well.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [57]
------------------------------
 Good. Now in regards to this ban, do you see this as something that each mine or lessee has to reapply to the government to renew their license or is this a blanket ban and the ban will be lifted for everyone at a certain point in time, or is it more of an application process?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [58]
------------------------------
 I think it's an application process because some people have violated the rules, right? They've overmined, right?

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [59]
------------------------------
 Yes.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [60]
------------------------------
 And we have not overmined. So I'm sure that they could treat us a little differently, we hope, than somebody who has overmined, and that's the problem with it.

------------------------------
 Bill Horn,  First Angel Capital - Analyst   [61]
------------------------------
 Okay, great. Thank you very much, Michael. I'll get back in the queue.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [62]
------------------------------
 Thanks, Bill.

------------------------------
Operator   [63]
------------------------------
 George Burmann from J.p. Turner & Company.

------------------------------
 George Burmann,  JP Turner & Company - Analyst   [64]
------------------------------
 First, let me say that there's no such thing as luck. Luck is usually defined as the intersection between hard work and opportunity. And I think the opportunity was there in Compton and you took advantage of it. On the Compton situation, could you pass on to us or let us know from your initial comments a while back when you made the call on the acquisition you mentioned that they had already running production of oil and gas. What kind of revenues of the company's falls off at this point in time and how you plan on scaling that up?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [65]
------------------------------
 So, George, I can't give you our reserves. Our lawyers won't let us do that at this time, but I can push people to look at the old Compton reserves and they'll see that there's about 10,000 barrels of equivalent production per day produced at Compton which you would assume would be the same that we're producing now. So, I think that's the best way to focus on what is happening today.

 We want to scale it up into more profitable areas where we're not just selling the liquids or the oily oil. There's a small amount of oil or the gas at these prices and we want to have an effective hedging program, which we've started, in place. And so, it's a little too soon, right, we only became part of our family on the 7th of September. So, we're not available for great disclosure yet, but we hope we will be.

------------------------------
 George Burmann,  JP Turner & Company - Analyst   [66]
------------------------------
 Okay. Next question, you mentioned briefly in your initial comments, the situation of the European banks trying to divorce themselves from lending asset-based lending and what have you, overall merchant banking scaling this down due to the Basel III requirements and various other economic situations there. Which-- in which way would the MFC be able to step into some of those processes?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [67]
------------------------------
 Where the opportunity for us is clear that is that the banks have got to protect themselves and think of their own balance sheets now more than ever. And so, that allows us, as being established clients of banks and we're not a new client, and to utilize our abilities to finance with them. And so when their clients, some of their clients they can't finance anymore, or when there's other clients who desperately need working capital, they can come to us. And that allows us really to do what we like to do best, which is really a commodity trade coupled with a financing because the financing in essence keeps the client with us. And that's where we see our opportunities as we go forward now.

------------------------------
 George Burmann,  JP Turner & Company - Analyst   [68]
------------------------------
 Okay. When the upcoming possible merger between Glencore and Xstrata really narrows the field of commodity trading firms and gives us one huge behemoth here, do you think that you as a smaller player have a certain advantage where people say I rather deal with Michael than with Glencore monster?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [69]
------------------------------
 The monster is such a big monster, right? It is -- I don't think that it'll have any effect. We do business, we're a counterparty with Glencore, have a great relationship visa versa with Glencore. But they're so big, I mean you just can't see them.

------------------------------
 George Burmann,  JP Turner & Company - Analyst   [70]
------------------------------
 Okay. Well good luck for the future. We look forward to hearing your next quarterly conference call.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [71]
------------------------------
 Thanks very much.

------------------------------
Operator   [72]
------------------------------
 (Operator Instructions) Joe Pratt from Wells Fargo.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [73]
------------------------------
 Michael, I apologize for multiple questions, I just-- today's quarterly report is unusually exciting. Let's just go to the balance sheet on assets held for sale, I'm flipping pages, $127 million. Let's assume you sold it for that exact amount and not above or below $126 million. What would be the offsetting debt which would result in a net cash number?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [74]
------------------------------
 First of all, Joe, you should take the current liability of $15.5 million and the liabilities held for sale. That's really the net current value of that asset. Do you see that?

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [75]
------------------------------
 Well, I see debt current portion, $16.9 million. Oh, I get it, you've labeled it here, liabilities related to assets held for sale.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [76]
------------------------------
 Right.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [77]
------------------------------
 So, if you sold it for $127 million minus $15 million, that's your net cash?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [78]
------------------------------
 Right so I would use that net cash onto my balance sheet to reduce my borrowings.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [79]
------------------------------
 Okay and can you tell us what about what you've put up for sale so quickly?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [80]
------------------------------
 I don't want to describe the assets that we have.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [81]
------------------------------
 But these are Compton assets?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [82]
------------------------------
 Yes, these are assets which we're rationalizing with the acquisition, non-core assets which we feel that should be rationalized.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [83]
------------------------------
 Okay and when would you expect to close on that asset sale?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [84]
------------------------------
 Within 12 months.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [85]
------------------------------
 Within 12 months?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [86]
------------------------------
 Yes.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [87]
------------------------------
 Okay, thank you.

------------------------------
Operator   [88]
------------------------------
 This concludes our question-and-answer session for today. I would like to turn the conference back over to Management for any closing remarks.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman and CEO   [89]
------------------------------
 Thank you very much. We appreciate very much your time today. And if you have any further questions, please do not hesitate to call or contact Rene Randall. Thank you very much.

------------------------------
Operator   [90]
------------------------------
 The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.




------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the 
Transcript has been published in near real-time by an experienced 
professional transcriber.  While the Preliminary Transcript is highly 
accurate, it has not been edited to ensure the entire transcription 
represents a verbatim report of the call.

EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional 
editors have listened to the event a second time to confirm that the 
content of the call has been transcribed accurately and in full.

------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other 
information on this web site without obligation to notify any person of 
such changes.

In the conference calls upon which Event Transcripts are based, companies 
may make projections or other forward-looking statements regarding a variety 
of items. Such forward-looking statements are based upon current 
expectations and involve risks and uncertainties. Actual results may differ 
materially from those stated in any forward-looking statement based on a 
number of important factors and risks, which are more specifically 
identified in the companies' most recent SEC filings. Although the companies 
may indicate and believe that the assumptions underlying the forward-looking 
statements are reasonable, any of the assumptions could prove inaccurate or 
incorrect and, therefore, there can be no assurance that the results 
contemplated in the forward-looking statements will be realized.

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2017 Thomson Reuters. All Rights Reserved.
------------------------------