Q4 2012 MFC Industrial Ltd Earnings Conference Call

Apr 01, 2013 AM EDT
MFCB - Mfc Bancorp Ltd
Q4 2012 MFC Industrial Ltd Earnings Conference Call
Apr 01, 2013 / 02:00PM GMT 

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Corporate Participants
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   *  Kevin McGrath
      Cameron Associates, Inc. - IR
   *  Michael Smith
      MFC Industrial Ltd. - Chairman, President, CEO
   *  Rene Randall
      MFC Industrial Ltd. - VP

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Conference Call Participants
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   *  Joe Pratt
      Wells Fargo Securities, LLC - Analyst
   *  Bill Horn
      First Angel Capital - Analyst
   *  Graham Tanaka
      Tanaka Capital Management, Inc. - Analyst
   *  David Erb
      Marion Investment Management - Analyst

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Presentation
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Operator   [1]
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 Good day, ladies and gentlemen, and welcome to the fourth-quarter year-end 2012 MFC Industrial Ltd. earnings conference call. My name is Gwen and I will be your operator for today. (Operator Instructions). I would now like to turn the call over to your host today, Mr. Kevin McGrath of Cameron Associates.

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 Kevin McGrath,  Cameron Associates, Inc. - IR   [2]
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 Thank you and good morning. We appreciate your interest in joining us on MFC's conference call and webcast to discuss financial results for the 12-month period ended December 31, 2012.

 On the call with me today are Michael Smith, Chairman and CEO, and Rene Randall, Vice President. The Company will make a brief presentation on the results announced this morning and then open the call to questions.

 Today's call is being webcast on our website at MFCIndustrial.com. Simply click on the tab in the webcast section to access the webcast. The webcast will be posted at MFCIndustrial.com for a replay approximately two hours following the end of this call. The replay will stay on the site for on-demand review for the next seven days.

 Certain statements in this conference call will be forward-looking statements which reflect management's expectations regarding future growth, results of operation, 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 the disclaimer for forward-looking information contained in today's press release on file with the Canadian securities regulators and on Form 6-K with the SEC.

 I would now like to turn the call over to Michael to begin the discussion.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [3]
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 Thank you, everybody. My name is Michael Smith, the Chairman of MFC.

 First of all, I would like to just go through a process where we will go through our operations and also review our balance sheet, and, of course, material and major items which we see now and into the future.

 The first item we should really talk about is the impairment which we took today on our Indian assets. This is -- cost us $0.68 a share and it is something that we had to do as we cannot foresee in the future operations reoccurring there.

 It is with great disappointment. We were hoping that we would see some semblance of order, but India is India, and our lawyers and based upon our review of the situation felt that we cannot predict, if ever, under all the litigation that is now pending -- there's over eight cases -- that those mines will ever reopen, so it was wise and prudent. And now is the time to do it.

 On the positive side, we have a very nice gain on the natural gas side. But regardless of that, it's time to face the music and just be conservative, and unfortunately we've lost $0.68 a share for all of our shareholders there.

 On the positive side, we've -- the book value has risen from $8.74 to $12.11 and we have a gain there of $3.30 a share. So from the net value perspective, it's good, but it's still bad because of what happened with the unexpectedness of Goa being [finalized].

 But let's go on and look and talk about new opportunities and new projects. Looking at the P&L of the profit and loss for the year, the profit and loss, you know, ended up with a profit of $3.62 a share. Our revenues were down. Our revenues were down through a series of reasons, and those reasons are everything from currency, but also the product. We had very little, if any, assistance from the new acquisitions last year. We did have an assistance from natural gas to help our revenue, and that was a positive. And I'll get into that later as you can see how that is being developed, and I think that's coming along quite well.

 Depletion in this period was substantial. It was approximately $20 million, which, let's just say, is double what it normally is, but depletion is really coming from the natural gas side, but still allowing us a positive view of that.

 We are a bit of a topline company. Can we do better? I think we can, and I think that we need to finish the integration of the new trading businesses we have bought, and that is under way and not going so bad. So we're quite optimistic from that point of view for 2013.

 Now let me go a little bit into the balance sheet, and I think there's been some huge changes on the balance sheet. If you could look at the current asset section of our balance sheet for December 31, I guess I'd like to point out two things, one being trading receivables and the other one being inventories.

 Well, if you take the September 30 period, and this is before we acquired the other commodity firms, you'll see a natural increase in receivables and inventories of $70 million. This is a substantial number, but it all relates to the acquisition of the trading companies and a little bit to do with the natural gas. It's our job now, because of you're seeing these inventories jump up to $142 million, for us to get the profit margins out of that. So that's a positive to have so much inventory, but also a negative at the same time. We've got to make sure, monitor, and control and get those margins. I think that is being worked appropriately and is a good inventory for us to use for the future.

 What's on the current assets? You see an item down there called assets held for sale of $128 million. That's actually $100 million net. We have a liability on the other side, but we're in the process still of rationalizing that asset and I think that's coming along quite well at this particular point. And I will discuss that as we get into the plans which we have for that particular group of assets.

 If we go down to the noncurrent section, I think it will be good if I just walk through the major changes. And if I could take you down to property, plant, and equipment, you'll see that that has changed from $3.7 million to $80 million. The other two items that are bringing out that is one is a refinery we bought earlier in the year, and also the processing plant, which is a major part of our future in the gas business. This is a processing plant which we aim to utilize to do greater midstream-type businesses, which we'll chat some more about. But that's where that processing plant is located.

 Then, our resource properties has gone from $219 million to $383 million. And the $383 million comprises of our reserves, P-1 or proven reserves, at Compton for a natural gas of $216 million and our royalty of $168 million. The next item, which is really relevant, is we have gone from zero to $99 million, which is called proven -- well, probable reserves. And those probable reserves are really what we would call P-2 in the business or reserves, which we aim to develop and have knowledge of what the hydrocarbons are.

 And then, the third item is an item which has gone from zero to $48 million, and that $48 million is what we call the land bank, properties which have commercial interest and commercial value which we will look to utilize in the future, but basically not in a hurry to do that. We would do it hopefully when the price of gas goes higher, and we are a little optimistic this morning, but not tremendously.

 But there is obviously very little cost for us to hold that and we don't see it depreciating, and the molecules are in the ground so we're quite happy with that, still.

 If I could take you to the liability section, under liabilities we have -- I think the most important one to look there is the liabilities relating to the assets held for sale, which is $30 million, which is the offsetting number which I talked to you about on the current asset side.

 The short-term bank borrowings have increased from $1.4 million at December 13 -- December 31, 2011, to now -- and that's just normal with the business as it relates to the current assets.

 One that is interesting, which I think is important for you to look at, under long-term liabilities, is this deferred tax liability. At December 31, it was $61 million. This was December 31, 2011. And now, it's $3.3 million. It's important you understand what has happened with these tax assets from liabilities. In 2011, we had a liability of approximately $61 million relating primarily to the value of the Wabush royalty that was recognized on the adoption of IFRS. Following the Compton transaction and the recognition of its tax pools, we have enough new benefits to essentially set off $50 million and now have net assets of $18.6 million going forward. So that is a substantial change on the balance sheet.

 We have credit facilities of about $440 million, cash and equivalents of $274 million, and working capital at $345 million. So from the financial point of view, we have a very sound foundation, still. The ratios are acceptable, and I think that gives us a good base for going forward. Cash flow used in the period primarily went for inventories, and of course, now it's our job to make sure those inventories pay off the way they are booked -- they are planned in the new operations for commodities and from our existing.

 Talking about the new operations for the commodities, we now have operations in Mexico, America, Argentina, Venezuela, and, of course, China and Austria. They are being integrated. The integration is not over yet. Some of it is over, but I feel that it's coming. I feel that we've got to get all these people working together, exchanging products and ideas and systems. But it doesn't happen overnight, but I see positive things there. I don't see negative issues with the integration, which quite often could come about. So I think that's fine.

 Let me touch on the Wabush mine, which is always of interest to me. Wabush mine -- my friends at Cliffs have decided to close a pelletizing plant. They've also given guidance now that they will produce 3 million tons of iron ore concentrate out of the Wabush mine, which is very good for us. It gives us the same revenue base as we had before.

 Unfortunately, we're in arbitrations again with Cliffs, and the arbitration is really on underpayment, but that's a normal way it goes with Cliffs. And we're also asking the arbitrators to determine a method, a firm method going forward, of how much they should pay us per ton, and I'm hoping that we'll be heard before there is too much snow in Newfoundland and to have a decision. I always think it will be four or five months, but at the beginning of next year.

 Wabush to us is something we're going to monitor. In the past, we have already told Cliffs that we're very interested in that property, and they know that. And so, we are going to become very aggressive, if we have to, as we go forward, but right now there is no need for that concern.

 Pea Ridge mine is being developed and is going ahead. You know, we've been at this now for 14 months with Pea Ridge. Some of our shareholders I know would like us to have it brought to a head sooner. Unfortunately, this is a very serious project. This project will cost over $100 million however we look at it, and that $100 million will have to be spent by us, Alberici, or possibly an Asian partner. So we have to do it right and we must have patience and we're not there yet.

 We have our internal numbers and we're continuing with it, so we're not concerned with the project. We're actively in the project, but we've got to get the chemistry down. We've got to get the proper economic reports done in a certified manner before we can share them with you. Or we can consummate who should be the partners here and how should we go going forward.

 But it is still the same. There is a tailings area here, which is very attractive, and then there is a mine. So we want to do the tailings first, but we want to integrate the cost for those two operations, or see those costs before we go just with the tailings and wait for the mine. So all I can say to you, it's underway and we are not finished with it in any way.

 Let me go to the natural gas. The natural gas operation is really through the acquisition of Compton. We are very pleased with this. The complete Compton plan has been approved and is now being executed in different ways. And it's gone on quite rapidly, considering we only acquired Compton in September, the beginning of September.

 And we have relocated its office, which you may not think is much, but it was a huge expense that they were paying before. We have refinanced its debt. We did refinance and borrow $105 million, approximately, at December 31 because we wanted to really match the long-term assets of Compton with long-term debt, and that $105 million was borrowed at good terms, 2.54%, unsecured, and seven years.

 So our balance sheet is okay. We've got now sufficient long-term debt and we're quite comfortable with this Compton acquisition. The sale of the assets is underway and the business plans to develop the midstream asset is also going forward. And the midstream assets for us really revolves around one major plant and some smaller plants, but the major plant is for the Mazeppa plant, and we have agreed and are in the process now of building a cogeneration plant there, and we will go into complete consolidation of sour gas in the area and we're going to invest in the infrastructure to make that happen.

 And also, we're going to build a deep cut or a straddle plant for the recovery of ethanes and butane and propane.

 In addition, and I think the key to this plant is that we have rail, and rail is -- without rail, this wouldn't work. And the rail is so important. We have an active rail system to that particular plant and we're going to build a 10,000-barrel per day natural gas liquid fractionation facility.

 And all these are in a different phase, but they're all proceeding. It will cost just over $300 million to do.

 We have several people who've approached us to be partners in this project. We're interested, but to bring a partner in for money is one thing. To bring a partner in for economic benefit is really where the added value is, and of course, that's really, really what we're interested in.

 It is our intention to try and take natural gas from the ground, which has a quoted price, and create value added for it and create regular income in a proper tax-sheltered environment for these particular midstream operations. And that's the goal we're going for at this point.

 It is not our intention to do any drilling. We believe it's still cheaper to buy natural gas in the ground, developed, than to take the risks on the drilling side.

 But let me share with you a few of our costs on the gas production. Our lifting cost is $1.32 a share. Royalty and transportation costs brings it up to $1.92 a share. Our average selling price from the period of September 7 to December 31 was $3.12 a share. So that's quite good compared to when we first made a tender offer announcement for Compton, the gas prices was $2.88 a share. And after we completed Compton, it was $3.02 per share. So we got a little lucky here.

 I don't know if you know that the five-year high for gas is $13.31 and the five-year low, being in April of 2012, was $1.82. Gas closed on Friday at $4.02 a share -- I mean, per thousand MCF.

 So Compton on its own is quite good and quite positive for us at this particular point, and we do look forward to these developments as we think those developments are conservative. And we also think these developments are value added to our product, but also value added to the group, and properly and efficiently taxed in a fiscal, responsible way.

 So let me also touch on, before I go to question and answers, personnel. We've increased our personnel and are continuing to over the next year, not just at the senior level, but also at what I would call the junior level, and I think we're trying very much to look at that as a weakness for ourselves and trying to accelerate the development of people in the executive area. We're still in negotiations with one person for it. We'd very much like to be the CEO of the Company. And I think that will come to a head hopefully in this next quarter.

 If you said, where are we going? We're really going to the execution of the midstream, short term, and we're going to the execution and integration of the commodity business and doing this in a financial, sound way. And that is our short-term goals.

 Kevin, if I could turn it over to question and answers, I think that will be good.



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

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [2]
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 Hi, Michael. Good morning. Thank you for taking my call.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [3]
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 Good morning, Joe.

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [4]
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 I found on the Internet that Sayer Associates, an independent firm, was auctioning one of your Compton properties. Could you tell us a little bit about how that process -- what it's carried on the books for? I believe you've done that, so that's a repeat, but could you just repeat it again and tell us how that process is going, please?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [5]
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 Yes. The assets which are in question are P-1, P-2, and liquids, predominantly for gas, and net on the books is $100 million.

 Sayer has gone out and contacted many buyers. They're more like an investment bank, if you want to call that, specializing in this area, in the gas business. We have many, many inquiries back of different people proposing different things to do with it. And we're in the middle of negotiations and trying to understand what is the best for us to do.

 So it's great. What we've done is we've stirred up a hornet's nest. Now we've got to figure which hornet would be the one that won't sting and which one is the one I can put in the bank in the fastest way. So I'm quite comfortable with that.

 There was also one, Joe, midstream facility there, which we would like to keep out of any sale. And of course, that is something that is causing some people heartburn.

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [6]
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 But you carry it for $100 million. Let's just say, are you pleased with what the bids -- the amount of the bids? Not the quantity of the bids, but what they're bidding because I know you don't want to take a write-down from $100 million.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [7]
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 We will not take a write-down on it, Joe, for sure. I'm comfortable no write-down will occur on that.

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [8]
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 Comfortable no write-down will occur, assuming there's a transaction.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [9]
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 Yes. Assuming there was a transaction, there will be no write-down, and I'm comfortable with the carrying value.

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [10]
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 Okay, good. Thank you, Michael.

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Operator   [11]
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 Bill Horn, First Angel Capital.

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 Bill Horn,  First Angel Capital - Analyst   [12]
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 Good morning, Michael.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [13]
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 Good morning, Bill.

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 Bill Horn,  First Angel Capital - Analyst   [14]
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 I just wanted to touch on Goa a little bit. We certainly -- you certainly gave us an overview as to what's transpiring there, but in your release this morning, you indicated that that interest had been sold for nominal consideration. Who did you sell it to?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [15]
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 It was sold to a group who will -- and I cannot disclose the group, but it's not inside the house, of course. It is a group who, if the mine ever comes back, and they will be ones responsible for protecting any assets or working any assets, they will give us part of the cash flow.

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 Bill Horn,  First Angel Capital - Analyst   [16]
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 Is this group Indian based?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [17]
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 I cannot go further than that.

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 Bill Horn,  First Angel Capital - Analyst   [18]
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 You can't. Can you give us an indication as to what that consideration might be, that if these assets do come back on line that MFC might be attributable to -- or attributable to MFC?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [19]
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 I think I can. You know, there's approximately $18 million market-to-market inventory on the ground. That is on the ground and cannot be moved. It is frozen. And it is, in certain ways, in decay.

 So if you said, what's the first asset that you would hope for recovery on, it would be someday they would allow that $18 million worth of inventory to be moved and sold. Nobody can move anything at this particular point. Then, of course, you have the actual reserves in the ground. But you have a tremendous amount of confusion to get there and you have years of litigation. But that would be the quantity you'll be looking for. Your focus -- you always focus on the cash, and the $18 million, Bill, is the cash.

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 Bill Horn,  First Angel Capital - Analyst   [20]
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 Okay. I think in the past, the tack that you were taking with Goa was you had anticipated that it would come back online at some point, not necessarily knowing when. It seems like you've changed your impression of the whole Goa environment at the moment. Was there something specific that changed your feeling and assessment on what's transpiring over there?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [21]
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 Yes, I think two things. One, we're driven by accounting. If you can't develop -- if you can't determine that you can ever get this asset and it is frozen and it will be frozen by -- our lawyers say it will be frozen for years until this litigation can be adjudicated, you could say. That's a driver because you can't defend it as an asset.

 And the second driver, of course, is that, you know, I think there's eight plaintiffs now in these cases and there is some strong arguments going the other way. Before, the arguments in Goa was everybody is suffering. This was 25% of the economy. Now the arguments are going the other way, and until those arguments are clarified, and those arguments are going, let's keep Goa green. Let's have more agricultural. Let's have more tourism. And this is a way for us, now, to develop that without being harmed with all this mining that has been going on and these 2,000 trucks going down these small roads every day.

 And so, there is a counterargument, but when you come back and you say to the lawyers and you spend the money and investigate, in reality this is into a legal system which is not your legal system or mine. It is in a legal system in India, which will take forever and ever and ever.

 You know, Joe, I have one -- I mean, Bill, I have one lawsuit going on in France that's been going on for 13 years. And I'm still in that lawsuit. The lawyers are very happy, but I could see Goa still being here seven, eight, nine, 10 years ago -- years from now in that litigation. That's how it stands. So with that facing, you should take the write-offs and move.

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 Bill Horn,  First Angel Capital - Analyst   [22]
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 Okay. No, thank you. Touching on your recent acquisition of ACC Resources and Possehl, it's certainly -- you're providing the impression that that's certainly the focus going forward, executing in the commodity business. Can you give us a sense as to what we can anticipate ACC and Possehl contributing to the top line in 2013?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [23]
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 On the top line, you know, I think we've made some disclosure that the least we're looking for is $300 million.

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 Bill Horn,  First Angel Capital - Analyst   [24]
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 Okay. Fabulous. (Multiple speakers). And these are higher-margin, value-added transactions, or higher margins than what we've seen in the -- in MFC's traditional commodity trading business, correct?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [25]
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 Absolutely.

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 Bill Horn,  First Angel Capital - Analyst   [26]
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 Okay, great. Just one more quick question, then I'll get back in the queue. Can you give us some color on the Compton's revenues for the fourth quarter, what they contributed to MFC, seeing that the fourth quarter was their first full quarter having been consolidated?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [27]
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 Actually, Joe, if you take the press release, I think you can figure it out. You've got production from September 7 through, and you've got the costs. The only thing you don't have is GA. I could say to you -- I don't want to give you the numbers, but I can say to you it's positive. I mean, I'm pleased that Compton -- and Bill, you know, what has happened is the price of natural gas has helped us, right?

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 Bill Horn,  First Angel Capital - Analyst   [28]
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 Oh, certainly. Okay, thank you, Michael. I'll get back in the queue.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [29]
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 Great.

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Operator   [30]
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 (Operator Instructions). There are no more questions at this time. We'll now turn the call back over to Rene Randall to finish up.

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 Rene Randall,  MFC Industrial Ltd. - VP   [31]
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 Actually, we'll take a call from -- a question from Joe Pratt, please.

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Operator   [32]
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 Okay. Mr. Pratt, Wells Fargo Advisors.

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [33]
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 Michael, just coming back around to what we can look forward to in terms of the top line and the earnings for 2013, do you feel free to give any guidance?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [34]
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 No, we're not giving guidance, Joe. We're not giving guidance.

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [35]
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 Okay. Okay. All right. Thank you.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [36]
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 Good.

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Operator   [37]
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 Graham Tanaka, Tanaka.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [38]
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 Hi, Michael. I'm sorry. I couldn't get on until the Q&A just started. I couldn't get on the website, either. So I just was wondering if you could comment on what your expectations are for the cash position over the next 12 months, assuming you make some sales, et cetera, given the increase in the leverage in the balance sheet in the fourth quarter. I know you have assets that will be liquefied, so if you could help us out there, it would be great. Thanks.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [39]
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 Graham, it is our intention for every asset which is long life to also finance it on a long life basis. Yes, we will be using -- for the midstream operation for the natural gas, we will be using some equity, but it will not be substantial as we'll also have equity already in the existing processing plant. So I don't anticipate much major change at all over what we have at this time.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [40]
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 Well, you're going to be selling assets, right? So what could the cash position go towards the end of this year, assuming no additional (multiple speakers)

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [41]
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 I think conservatively you say the same, but our goal would be to increase it and I think we have a good chance of that.

 The major commitment you have going forward is this midstream assets, right? And the midstream assets is -- we do. We have many people who want to be our partners. We have built-in equity of the plant of -- let's just say that's worth $50 million. And we have the ability to long term finance that through assistance through our governments, which we have done successfully many times in the past. So I don't see any erosion of cash. We see some building of cash through either disposition of the assets and earnings for the period.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [42]
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 Okay. So one of the reasons I wanted to get a feel for your cash expectations this year is to understand what ability you have to make additional acquisitions.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [43]
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 I'm comfortable and we're looking and we're negotiating. And that's -- we're actively -- we haven't stopped, Graham, if that's your question. We are just as going as fast as we ever did in the past, but cautiously.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [44]
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 I just was wondering if you -- if your recent acquisitions have used up enough of your cash cushion that you're going to be moving more cautiously because of that, or are you just moving cautiously because of the economy or something else?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [45]
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 Cautiously because I'm a cautious guy, only.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [46]
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 Okay.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [47]
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 I want to keep the money in the pocket.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [48]
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 Yes, right. In response to Joe's question, you didn't want to give guidance, I guess, on earnings. How about on revenue? You've indicated you might be doing $300 million from the new --

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 Rene Randall,  MFC Industrial Ltd. - VP   [49]
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 Graham, our goal really is -- it is a topline business. So our goal has been to try to get to this $1 billion mark. I think with maybe one more acquisition, we can be there in 2013.

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 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [50]
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 Great. Thank you.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [51]
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 All right.

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Operator   [52]
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 (Operator Instructions). Joe Pratt, Wells Fargo Advisors.

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [53]
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 Michael, regarding Mazeppa --

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [54]
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 Mazeppa.

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [55]
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 Mazeppa. Would that require you investing cash --

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [56]
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 Yes.

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [57]
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 -- if you were to do a deal with a partner?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [58]
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 It depends, Joe, how we do it. The trouble is our partners, if he's an American, he usually likes to leverage. If he's foreign, offshore, he doesn't leverage directly. He leverages through foreign, offshore banking. It just depends.

 Their tolerance for leverage is entirely different, and I think we don't have to use cash so much as we also have the ability through offshore banking to leverage at much more attractive rates than we can do domestically.

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [59]
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 Okay. So with regard to Mr. Tanaka's question about cash building up, if you sell Niton for the value that's on the balance sheet, that adds $100 million, I presume. Is it tax -- if you sold it for $100 million, would it be tax protected or not?

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [60]
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 We would keep all the $100 million in our pocket.

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 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [61]
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 Okay.

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 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [62]
------------------------------
 So we're in good shape to be ahead, under Graham's question.

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [63]
------------------------------
 Okay. And are there any other big outflows where you could send cash out the door? Oh, I guess, on an acquisition.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [64]
------------------------------
 Yes. And we're working on some, but less cash going out the door is always best, right?

------------------------------
 Joe Pratt,  Wells Fargo Securities, LLC - Analyst   [65]
------------------------------
 Yes. Okay. All right. Thank you.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [66]
------------------------------
 Good. Thanks, Joe.

------------------------------
Operator   [67]
------------------------------
 (Operator Instructions). Graham Tanaka.

------------------------------
 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [68]
------------------------------
 Yes, I just was wondering if you could talk a little bit about the St. Louis mine and where you are in terms of valuations and the joint venture? Thank you.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [69]
------------------------------
 The joint venture, Graham, is going on well. We have a wonderful partner in Alberici. We are both working with the same goal and determination to make this property a success.

 We've hired the best. We have two mining engineering firms, plus we have our in-house consultant at MFC. And what we're trying to do and finish is an economic study that is acceptable under the regulatory environment. The economic study is driven, in some ways, by the different processes required for the tailings and for the mine.

 This is a very professional approach. We've been at this now 13, 14 months, but this project is going to cost over $100 million, for sure. And we want to get it right, and I think that we're now spending the time to hopefully finish in a few more months a true economic study so we can determine who should be our partners going forward, whether we should be inviting anybody from Asia to join us, or what we should be really doing and what do we expect from the tailings, individually, from the mine itself. So the project is full steam ahead, but it's not there yet. We're not finished. We're not finished.

------------------------------
 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [70]
------------------------------
 And what is your expectation for timing, looking forward? Are we talking about tailings -- production and tailings being next year and possibly later this year? And what about the mine itself? How long is it going to take to develop the mine?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [71]
------------------------------
 Graham, let's just go ahead and update you on each quarter as when we have our calls. I think that is safest. We do have a lot of rules and regulations which we have to abide by on this mining. And I think it's probably easier for me to be able to give you a timeline of how close we're getting, especially after the next call, in the next couple of months.

------------------------------
 Graham Tanaka,  Tanaka Capital Management, Inc. - Analyst   [72]
------------------------------
 Perfect. Thank you.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [73]
------------------------------
 Thanks, Graham.

------------------------------
Operator   [74]
------------------------------
 [David Erb], [Marion Investment Management].

------------------------------
 David Erb,  Marion Investment Management - Analyst   [75]
------------------------------
 Michael, thank you for taking the question. I wonder if you could provide an update regarding the Kasese Cobalt situation and the hydro station, and just if you could illuminate a little bit on what your net investment is, what cash impacts you see to or from that in the near term, and really where you're going with that in terms of end game? Do you expect to wind up with a repurposed hydro station on your books on a long-term basis or would you exit?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [76]
------------------------------
 I guess a couple of things. As the refinery now goes down and stops producing, one of the things that happens is that the inventories which have been built out there reduce the cost of the product. So we do get a build-up as we come to the end of the refinery.

 We then, of course, face what we call the old great reclamation costs. And I think we know how to do that. And it's our intention to abide by all the rules, of course, and meet those reclamation costs. But we have a tremendous amount of assets there to be disposed of and we have a plan to do that, and that's on time and to go ahead.

 We see no cash requirement. We see just cash positiveness as you get closer to the end than we enjoyed with the operation. And what happens is the hydroelectric plant will have no debt, and so we should be positive on one side and hydroelectric plant will produce and sell now into the grid under a different tariff.

 Then the decision is, what do you do with it? Do you sell it? Do you keep it? But either way, what is very nice is that company or a group of companies owes us money under an old shareholder loan which we purchased for $1.00. And that money will come out of that country free of taxation -- no withholding tax, and it will flow to us on a positive basis.

 So if we sold it, there is a certain element of tax to be used. If we kept it, we have to look at the cash flow to see, as that will all be pretax to us. So it's easy to -- it's not easy to answer, but it's an interesting one to study. We're a little bit too soon, probably November.

------------------------------
 David Erb,  Marion Investment Management - Analyst   [77]
------------------------------
 November before you finally see the end game, is what you're saying?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [78]
------------------------------
 Yes. Yes. Yes.

------------------------------
 David Erb,  Marion Investment Management - Analyst   [79]
------------------------------
 And so, it's your hope and expectation that the intervening process will, in fact, help to somewhat net down your investment in the remaining hydro plant?

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [80]
------------------------------
 Absolutely. Absolutely.

------------------------------
 David Erb,  Marion Investment Management - Analyst   [81]
------------------------------
 Right. Okay. Thank you.

------------------------------
 Michael Smith,  MFC Industrial Ltd. - Chairman, President, CEO   [82]
------------------------------
 Good.

------------------------------
Operator   [83]
------------------------------
 (Operator Instructions). There are no questions at this time. I'll now turn your call back over to Mr. Randall for closing remarks.

------------------------------
 Rene Randall,  MFC Industrial Ltd. - VP   [84]
------------------------------
 I wanted to thank everybody for being on the call today, and have a good evening.

------------------------------
Operator   [85]
------------------------------
 Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.






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