Q1 2013 MFC Industrial Ltd Earnings Conference Call
May 15, 2013 AM EDT
MFCB - Mfc Bancorp Ltd
Q1 2013 MFC Industrial Ltd Earnings Conference Call
May 15, 2013 / 02:00PM GMT
==============================
Corporate Participants
==============================
* Kevin McGrath
Cameron Associates - Partner
* Michael Smith
MFC Industrial Ltd. - Chairman and CEO
* Rene Randall
MFC Industrial Ltd. - VP
==============================
Conference Call Participants
==============================
* Joe Pratt
Wells Fargo Securities, LLC - Analyst
* Frank Rango
Purchase Capital Management - Analyst
* Eric Shanahan
Tamarack Partners - Analyst
* Bill Horn
First Angel Capital - Analyst
* Bernie Harris
B.J. Harris - Analyst
* Joe Betti
Princeton Financial Partners - Analyst
* George Berman
J.P. Turner & Company - Analyst
==============================
Presentation
------------------------------
Operator [1]
------------------------------
Good day ladies and gentlemen and welcome to the first-quarter 2013 MFC Industrial Limited earnings conference call. My name is Gwen and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.
(Operator Instructions)
As a reminder, this call is being recorded for replay purposes.
I would now like to turn the call over to Mr. Kevin McGrath, Partner with Cameron Associates. Please proceed, sir.
------------------------------
Kevin McGrath, Cameron Associates - Partner [2]
------------------------------
Thank you, Gwen, and good morning. We appreciate your interest in joining us on MFC's conference call and webcast to discuss financial results for the three-month period ended March 31, 2013. 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 this webcast. The webcast will be posted at mfcindustrial.com for 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 reflects 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'd now like to turn the call over to Michael to begin the discussion.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [3]
------------------------------
Thank you very much. It's Michael Smith from MFC. Let me first say to you that the strategy which we started two years ago, we haven't changed or have any intention not just to continue with the same forthright in the commodity business and also at the same time, looking for captive sources of production to help us grow. I think that's important and everything we do is really to create value added, somewhere along that commodity chain.
In the first quarter this year, we had very good sales growth. We actually had a 40% sales growth year-on-year. But if you actually look at the fourth quarter of 2012, our growth went from $112 million turnover to $207 million turnover. So, the growth was much more in reality. The reality of that is, that we did four acquisitions in the fourth quarter of 2012. The revenue growth is fine and actually we can see greater growth in revenues coming shortly from what we can see, as far as orders are concerned.
The issue, of course, during this quarter, was the profits. The profits were substantially down. We were profitable and we did make $0.08 a share. And when I look back and say what happened, I could say to you it's integration costs, it's really a combination of lots of things. Mostly, as we put these companies together, we did not pay attention as well as we should have to margins. We had some one-off expenses, which are really everything from pension expense, which wasn't foreseen, to our normal depletion, which was a little higher than we believed, that was $7.7 million for the quarter. We certainly can do better. There's no reason why we can't. I think that we now, as we go forward, must focus on the bottom line, and finish the integration, but get the integration expenses in line. But, obviously, the margins is really where the true value is. We will continue to do that.
So, in the future, I feel that we have a nice projectile as far as going forward. $207 million was a nice number for the quarter in revenues. Terrible for the earnings. Now we just must go and capitalize on that basis. Balance sheet is fine. We had $349 million in cash and equivalents in the bank at March 31 versus $280 million at December. Inventories were down a little bit, down by about 11%. So, that was quite good.
Let me give you a little feeling for our fixed assets, which I think is important. We have under property, plant and equipment, we have two items. One item is the midstream assets, which we are in the process of developing, which is a major part of our future and our future revenues. And, power assets, which is the changing over now of our refinery in Uganda to a power producer, which equals $78 million.
The other major item in our fixed assets, is our interest in our resource properties, which comprise two things. One is the royalty which we have at Wabush Mine was $168 million is our carrying value, and $203 million which is the carrying value of our producing, not probable, just producing oil properties and gas properties. We then have probable reserves of $97 million and we have a land bank of around $46 million. That's, of course, all leaning toward natural gas pricing.
On the liability side, short-term bank debt is up a little bit, $181 million, accounts payable are down a little bit. So, and that's just in normal course of business. But what is relevant, when you go to the liability section, you will see under long-term debt, our long-term debt now is $155 million. And that $155 million is approximately a 7-year term. It's all-in costs are 2.53% and is unsecured.
When we did all these acquisitions, we also realized that it would create a topsy-turvy situation to our working capital and really we needed to have term debt to finance it correctly. When we have completed that now. I think the most important thing with acquisitions are we do not create any dilution to our shareholders' value. I think that's the most important part of an acquisition. None of these four acquisitions which we have done in the fourth quarter did. At the same time, we maintain our balance sheet and our financial ratios. And with this final financing, which we completed in the first quarter of this year, our ratios and the financings, now, to put those acquisitions long-term are in place.
Our working capital was $393 million. The current ratio is 2.25. Our asset test was 1.45. Our shareholders' equity was $754 million. The book value per share of $12.06. We did have credit -- we had credit facilities at March 31 of $405 million. In addition to that, we also have what we call hedge facilities, which are a different series of credit facilities. Those hedge facilities are the hedge items which we are going to take some of the risk out in the future. In our particular case, they would be iron ore and also be natural gas and we have taken hedge positions on both those products outside of the $405 million credit line.
Maybe we could talk a little bit about Pea Ridge. In the last month, or a little less, we've now got greater insight to Pea Ridge. Pea Ridge is an iron ore development which we are doing with a partner in St. Louis, Missouri. It involves tailings and an underground facility. We have been working for months, now, getting the process of how to process the product or the tailings especially, economic. I think we are now to the point where we can say we have sight. We don't have reality, but we have sight. So, I'm hoping by the time we next speak to each other, we can give you some more clear definition, but I am pleased now, at least at Pea Ridge I can see. Before, it was all to the technical people and we from a Management point of view, we can get ready to understand it and hopefully we will have a positive outcome.
The Wabush Mine itself, we are still projecting 3 million tons for the year. In the first quarter, we received a price per ton of $9.35. We do have arbitration still pending with Cleveland Cliffs on two different issues and we anticipate that to go on. I think we have arbitration hearings actually set for the latter part of the year when the snow flies in Newfoundland.
We have recently engaged a COO, which I think is important and I will introduce you to him at our next conference call. We are still working on a CEO. We have identified two and are in those negotiations. I think it's important that we fulfill these positions. Especially with the growth we are now having. We need to bolster our senior people. We have been hiring quite a bit on the, what I would call the up and comers, the true hard workers. We've been doing that here, Hong Kong and Europe. So, that's working out quite well. It's important with the senior people, in my mind, that they have a wealth package but also they must have passion to do this job. I've got to make sure that that is combined to make a success -- make a true success out of them.
With the natural gas project, natural gas, we enjoyed a price for the end of the third -- first quarter of $3.41 per 1,000 cubic feet. That is up substantially from when we bought it and the price is actually higher now, just over $4 per 1,000 cubic feet. But we didn't buy this just to say, okay, let's be a gas developer and let's parlay on gas prices. We want to create some more value added to this -- value added to our buyer and land bank, value added by creating midstream facilities.
We have entered into agreement on a non exclusive basis with one potential partner. While his engineers do their work, our engineers are doing our work and in the meantime we are proceeding with the development of one of the midstream operations at a place called Mazzeppa. We may bring that party in. We don't need to, financially. But, it might be interesting, because there's other midstream operations which we could also do and they also involve the assets which we are currently negotiating, put some sale on at a place called Niton in the northern part of British Columbia.
I think the most important thing, when you look at the Company today, is that our balance sheet is intact. We are okay. Our sales are going to go up. We just must make sure that we now focus on the bottom line and get the profits. I think we have a chance for an exciting year.
I think that's all my statements this morning. I very much welcome all of your questions.
==============================
Questions and Answers
------------------------------
Operator [1]
------------------------------
(Operator Instructions)
Joe Pratt with Wells Fargo.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [2]
------------------------------
Good morning, Michael. First question would be, I have an oil friend who basically said, well, he knows natural gas processing facilities, they said, well, if they spend $300 million at Mazzeppa, that he would expect, assuming you owned 100% of that, he would expect a return on that -- the existing facility combined with that expenditure would throw off somewhere between 10% and 15% cash flow. Is that an approximate return to expect from that facility?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [3]
------------------------------
Our numbers say 20%, Joe, but I think we should defer to your friend and not be so optimistic. But, our numbers are saying 20%. I think the one thing we have at Mazzeppa, which gives us a large leg up, to be frank with you, is the rail. We have a rail siting approved and in use. You just cannot get rail in Alberta. So, that's one of the reasons why I think our people are more optimistic on the return, especially on the fractioning of the liquids.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [4]
------------------------------
Okay. So, that would be -- you'd consider -- would you consider the proper number to be $300 million, as an investment in that unit?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [5]
------------------------------
I think a little bit more, Joe. Because, right now, we started out saying, okay, what's the power generation capabilities that we could use ourselves? What's the power generation capabilities we could sell into the grid this year and next year? We started out and said, okay, let's start out with 10 and we're going to end up with 25 megawatts. Now, we are planning is pretty firm at 17 megawatts, round one, going to 60. So, that's quite encouraging. That is underway now.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [6]
------------------------------
That would required an investment of how many dollars to get all that?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [7]
------------------------------
I can't give you a precise number on the 60, Joe, because we will also working with Austrian suppliers, right, who have been so good to us in the past. A lot of that will become the negotiation on the different products which were --
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [8]
------------------------------
The 20% is approximately return on roughly a $300 million number?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [9]
------------------------------
Absolutely.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [10]
------------------------------
Okay. Number two, Michael, and cut me off if I'm taking up too much time here. On Niton, once you get that joint venture in the place you want it to be, what would you expect a cash flow off that?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [11]
------------------------------
Niton is valued on our books at 125 net now. Niton is doing very well. Liquids are -- it's fine. It just depends how we do it. Do we do it on a joint venture basis? Niton is also another midstream opportunity for us. It's just too soon to say. It's producing around 3,000 barrels of oil equivalent a day in other parts. So, it's a nice cash asset and it wouldn't be right for me to try to create a return until the actual model is finalized and the venture partner, or the sale is consummated, all or part of it.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [12]
------------------------------
Okay. And then, with regard to you moving onto Pea Ridge, a $100 million investment has been mentioned in the past. If you were ever to get to that point, would you estimate a return from that $100 million investment? Or could you?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [13]
------------------------------
If we spent $100 million on Pea Ridge, we would expect a return, a substantial return, for sure. The products that Pea Ridge would make are in demand. The question is, how do we make it economic and we just want to make sure we do it right. I will say, Joe, if you spoke to me a week ago, I wouldn't smile. But, now at least I can smile on Pea Ridge. We are getting some breakthroughs. But the breakthroughs are not enough for me to become out to you and say, we know we are going to do this now. So, if we could go on the basis of Pea Ridge -- let's wait and see. Now, it's worthwhile seeing.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [14]
------------------------------
Okay. Are you smiling more because of engineering information about what's possible? Or, what a partner says he could do? Or--
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [15]
------------------------------
No, from the process. We have more information on the process. Joe, having a partner for Pea Ridge is not an issue. Having the right partner is always an issue. I've got a partner in Alberici. I have lots of connections in the China side that we could bring in partners. We don't want to. We want to know what we've got first and at what price. Then I've got something to beat my chest about, right? I've got something to say come and join or not. Before-- I think I've got a chance to see now.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [16]
------------------------------
Okay. Last comment here, I was kind of surprised by the $207 million. I thought it was more than I expected. I plugged it into my model and it said that in some quarter this year, you could be hitting $250 million. Is that approximate?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [17]
------------------------------
Joe, I think that we can see greater sales than what we are seeing now. I'd just sooner leave it at that. It's just that I wish we had the earnings to go with those sales and that's what we have to work on, as well. And growth through the projects which we are involved in are there.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [18]
------------------------------
Okay. When would you expect the efficiencies to be achieved from the integration of the acquisition plus what you had before? When would that be up and running at the margin you want to see it running at?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [19]
------------------------------
All I can say, Joe, is as soon as possible. We've got a COO now and that will help. So, direction is being more focused than ever before.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [20]
------------------------------
Did the COO come internally or externally?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [21]
------------------------------
Internally.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [22]
------------------------------
Okay. Thank you, Michael.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [23]
------------------------------
Good, Joe. Thanks.
------------------------------
Operator [24]
------------------------------
Frank Rango with Purchase Capital Management.
------------------------------
Frank Rango, Purchase Capital Management - Analyst [25]
------------------------------
Hi, Michael. How are you? I was struck by the NGL price that you are realizing, like over $90 a barrel. In the lower 48, most midstream companies are rejecting ethane and they're not getting anywhere near those kinds of realizations. I'm just wondering how you get such a great number?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [26]
------------------------------
The marketing people should be complimented. Is that what you're saying, Frank?
------------------------------
Frank Rango, Purchase Capital Management - Analyst [27]
------------------------------
It's multiples of what anybody else in the lower 48 seems to be realizing for NGLs. I see that there is a superscript there that says sulfur. But, it's hard for me to figure out how sulfur could cause such a high number, relative to what other people seem to be realizing. My compliments, I'm just curious how you're doing it.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [28]
------------------------------
I would have to get back to you as I don't handle that, directly. But Rene or myself can come back to you on that.
------------------------------
Frank Rango, Purchase Capital Management - Analyst [29]
------------------------------
Great. Thank you.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [30]
------------------------------
Are there any more questions?
------------------------------
Operator [31]
------------------------------
Eric Shanahan with Tamarack Partners.
------------------------------
Eric Shanahan, Tamarack Partners - Analyst [32]
------------------------------
Hi, a lot of my questions were answered. I had one. There were a few press releases that came out in Romania just discussing your relationship with Oltchim and mentioned about a $40 million receivable that you have outstanding with them and your potential involvement in the privatization. I was wondering if you could comment on that, i.e, how are you marketing it and your thoughts on potentially what could happen in terms of your involvement?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [33]
------------------------------
A couple of things with that. That's an old client that we have done business with for years and years and years. Always, we would call subprime, but a profitable client for us. We did many financings with governments' assistance for them. It worked out quite well. Eventually, the plant becomes too tired and cannot be run effectively and efficiently. Oltchim is now in a reorganization. We have some supply arrangements with them where we would sell product and we might do that in the future. From an exposure point of view, the only exposure we have is that we would agree to sell some of their products if they produce them in the future as a client. We hope they succeed as it's a major employer in this one town in Romania.
------------------------------
Eric Shanahan, Tamarack Partners - Analyst [34]
------------------------------
Okay --
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [35]
------------------------------
5,000 employees, I think.
------------------------------
Eric Shanahan, Tamarack Partners - Analyst [36]
------------------------------
Okay, so the headline number in terms of -- that they have outstanding to you, that's not accurate?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [37]
------------------------------
Correct.
------------------------------
Eric Shanahan, Tamarack Partners - Analyst [38]
------------------------------
Okay. Thanks.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [39]
------------------------------
You're welcome.
------------------------------
Operator [40]
------------------------------
(Operator Instructions)
Bill Horn with First Angel Capital.
------------------------------
Bill Horn, First Angel Capital - Analyst [41]
------------------------------
Good morning, Michael. Congratulations on your forward progress on integrating these new acquisitions.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [42]
------------------------------
I thought you were going to tell me to work harder.
------------------------------
Bill Horn, First Angel Capital - Analyst [43]
------------------------------
You know I always do that.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [44]
------------------------------
I understand.
------------------------------
Bill Horn, First Angel Capital - Analyst [45]
------------------------------
Just one housekeeping item here. I don't know if I heard you correctly. When you were talking about the one-time charge hits that you took to earnings, I thought you mentioned a $7 million number. Was that the one time charges -- charge-offs to earnings? Or, can you just clarify what that number was that you mentioned?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [46]
------------------------------
It's not really fair for me to say they are one-time charges -- we were kind of then back them out and try to reconstruct that P&L. It's the type of thing like pension costs, which we did not accrue correctly. Because there's been adjustments an change in legislation. Such things as -- the normal thing, of course, is depletion which was $7.1 million for the quarter, which is okay. But, then you have some other amortization, we had some lease expenses for another $3 million, it's like a whole bunch of items which we -- which are expensed, which certainly are cost of goods. But, nothing that we should -- we should have seen or understood those expenses ahead of time.
------------------------------
Bill Horn, First Angel Capital - Analyst [47]
------------------------------
Okay. But that $7 million, was that the net effect that you were referring to?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [48]
------------------------------
No. The $7 million was the actual depletion.
------------------------------
Bill Horn, First Angel Capital - Analyst [49]
------------------------------
Okay. Depletion. I'm sorry.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [50]
------------------------------
There was a whole bunch. Bill, I don't want to defend the P&L on the basis of, oh we had some terrible one-time charges, that's what hit us. I've got to tell you, people didn't do as good a job as they should have in reference to those expenses.
------------------------------
Bill Horn, First Angel Capital - Analyst [51]
------------------------------
Okay. Thank you for the clarification. A couple times in your discussion, you referenced the four acquisitions that you made in the fourth quarter. Certainly, you had the ACC Resources and the Possehl. What are the other two acquisitions in the fourth quarter? Compton was certainly third-quarter acquisition. Can you just clarify what the other two are?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [52]
------------------------------
Last year we really did these acquisitions. We did KCCL, which was in March and then we did ACCR Argentina, which was a separate stand-alone, and also a separate risk and revenue opportunity. Then, we did ACCR New Jersey and, of course, Possehl and Compton. I call Compton fourth quarter, even though you could say, technically you are right, it's second quarter -- third quarter.
------------------------------
Bill Horn, First Angel Capital - Analyst [53]
------------------------------
Okay. So, it's the three ACC entities plus the Compton that you are referring to as the four acquisitions in Q4?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [54]
------------------------------
Right.
------------------------------
Bill Horn, First Angel Capital - Analyst [55]
------------------------------
Okay. That helps to clarify it. On Mazzeppa, you have stated in your filings that it has a capacity of 90 million cubic feet per day in sour gas, 45 million cubic feet per day in sweet gas. As their stated capacities. What is that plant operating at right now?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [56]
------------------------------
Bill, it's best that I -- to give you an accurate answer and get a technical guy to talk to you or to get the guy who runs that business to talk to. I will have Bob give you a call, Bob Chenery.
------------------------------
Bill Horn, First Angel Capital - Analyst [57]
------------------------------
Okay. I appreciate that. Sort of in the same vein, you had indicated on a previous call that Mazzeppa was cash flowing at about $4 million a month, is that still an accurate figure?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [58]
------------------------------
Please, let me defer that to Bob.
------------------------------
Bill Horn, First Angel Capital - Analyst [59]
------------------------------
Okay.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [60]
------------------------------
Let me defer that to Bob.
------------------------------
Bill Horn, First Angel Capital - Analyst [61]
------------------------------
Okay. I was also trying to reconcile the Wabush royalty. You had stated production coming out of Wabush at just over 392,000 tons. Yet, Cliffs, on their quarterly report, had indicated Q1 production from Wabush at 700,000 tons. Can you help me reconcile those numbers?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [62]
------------------------------
I hope they didn't short us again on payment.
------------------------------
Bill Horn, First Angel Capital - Analyst [63]
------------------------------
I hope not either. That's what they publicly stated.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [64]
------------------------------
So, Rene, they send us a report. So, Rene, give us --
------------------------------
Rene Randall, MFC Industrial Ltd. - VP [65]
------------------------------
We get paid up on shipments versus production. So, I'm not sure if they were stockpiling on their production? But, on the actual shipments, we were getting -- we got paid on the shipments.
------------------------------
Bill Horn, First Angel Capital - Analyst [66]
------------------------------
Okay.
------------------------------
Rene Randall, MFC Industrial Ltd. - VP [67]
------------------------------
So, that's -- I mean, I will talk to their people. But, because, I get a full report on what they actually shipped. Of course, the good news is, it's only from fourth quarter until first-quarter, it's only dropped $0.02 a ton which is very good, still, considering the overall pricing out there.
------------------------------
Bill Horn, First Angel Capital - Analyst [68]
------------------------------
Exactly.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [69]
------------------------------
You should know also, Bill, we did audit them again last year. As we find it's best when you are in litigation to audit the other side regularly.
------------------------------
Bill Horn, First Angel Capital - Analyst [70]
------------------------------
Well, hopefully we will see an uptick of an additional 300,000 tons for Q2.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [71]
------------------------------
Wouldn't that be wonderful.
------------------------------
Bill Horn, First Angel Capital - Analyst [72]
------------------------------
It certainly would. Just one other quick question, here. Ravin Prakash was the CEO of Magnum Minerals. You stated that that operation had been written off and sold -- subsequently sold. Is Ravin still employed by MFC?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [73]
------------------------------
He's a director, but not employed.
------------------------------
Bill Horn, First Angel Capital - Analyst [74]
------------------------------
Okay, he is no longer in employment, okay. Thank you very much. He's a very nice gentleman and I know he'd been with the firm for quite some time.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [75]
------------------------------
He's a nice man, no question.
------------------------------
Rene Randall, MFC Industrial Ltd. - VP [76]
------------------------------
Thank you.
------------------------------
Bill Horn, First Angel Capital - Analyst [77]
------------------------------
I will get back in the queue, thank you very much, Michael.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [78]
------------------------------
Thanks.
------------------------------
Operator [79]
------------------------------
Bernie Harris with BJ Harris.
------------------------------
Bernie Harris, B.J. Harris - Analyst [80]
------------------------------
Good morning, gentlemen. I'm new to following you, thanks to Kevin. I'm a broker. Basically, I have a large client. The one thing that he's very disappointed in is that none of the directors own stock. A lot of companies are now requiring directors to do that. Have you got this in any consideration? I know, you yourself, Michael, own a ton of it. But I know people, including mutual funds that want to see more than one person buying the stock.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [81]
------------------------------
No. I think that's a good question. Rene, we have a plan for directors to buy the stock.
------------------------------
Rene Randall, MFC Industrial Ltd. - VP [82]
------------------------------
We do. We've just implemented it at the last board meeting.
------------------------------
Bernie Harris, B.J. Harris - Analyst [83]
------------------------------
Has that not gone into effect?
------------------------------
Rene Randall, MFC Industrial Ltd. - VP [84]
------------------------------
It has just gone into effect.
------------------------------
Bernie Harris, B.J. Harris - Analyst [85]
------------------------------
You couldn't probably do it until you had this report.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [86]
------------------------------
But, Bernie, we've done something in this regard. I'm sorry to be evasive.
------------------------------
Bernie Harris, B.J. Harris - Analyst [87]
------------------------------
Well, why don't you get back to Kevin and he will let me know.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [88]
------------------------------
Yes, we will.
------------------------------
Bernie Harris, B.J. Harris - Analyst [89]
------------------------------
All right. Thank you.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [90]
------------------------------
I think it's a very good point.
------------------------------
Bernie Harris, B.J. Harris - Analyst [91]
------------------------------
Thank you, that was my only comment because I'm not (multiple speakers).
------------------------------
Rene Randall, MFC Industrial Ltd. - VP [92]
------------------------------
All right, thank you.
------------------------------
Bernie Harris, B.J. Harris - Analyst [93]
------------------------------
Thank you very much.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [94]
------------------------------
Thanks.
------------------------------
Operator [95]
------------------------------
Joe Betti with Princeton Financial Partners.
------------------------------
Joe Betti, Princeton Financial Partners - Analyst [96]
------------------------------
Hey, Michael. In the past, we've talked about buybacks. I guess last year, you kind of looked at it saying, I guess we are only about a 15% discount to book. So you didn't have an interest then. Now, we're at a 30% discount, and when you look at other companies having success as far as stock price for doing buybacks, would you now consider doing one, given the huge discount?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [97]
------------------------------
Not yet. I respect your -- I respect your statements, Joe, and I think you and I have discussed this before. One of the problems is, there's several problems, but we have a 43% of the amount of shares are held by insiders. We lack a float, right? Some people are not so happy with us because we don't have so much of a float. But, two, we have a pretty aggressive growth program right now. Yes, we've managed to give our balance sheet intact. We've managed to not create any dilution pressure with our acquisitions. We want to continue with that. I just want to keep our balance sheet good looking and ratios excellent for the next while.
------------------------------
Joe Betti, Princeton Financial Partners - Analyst [98]
------------------------------
Sure. Obviously having a strong balance sheet, especially when there's cheap assets out there to buy, makes a lot of sense. But, in the case of our stock, since it can be very accretive to book value, I think it would just make sense. I mean, actually there's a new ETF they're rolling out is going to contain S&P 500 companies that are doing buybacks. They went back and said that these companies have done 11.5% per year for the last five years compared to 5%. So, I think there's more and more interest. There's a new ETF. We have enough cash on the balance sheet to do a buyback. I think it's something that you guys really should consider.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [99]
------------------------------
I will look at that. What's that ETF called? Do you know?
------------------------------
Joe Betti, Princeton Financial Partners - Analyst [100]
------------------------------
I will send you, an article just came out yesterday, I will e-mail it over to you.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [101]
------------------------------
If you could. I would appreciate that.
------------------------------
Joe Betti, Princeton Financial Partners - Analyst [102]
------------------------------
Great.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [103]
------------------------------
Then, let's you and I chat about that.
------------------------------
Joe Betti, Princeton Financial Partners - Analyst [104]
------------------------------
Sure.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [105]
------------------------------
Thanks very much, Joe.
------------------------------
Joe Betti, Princeton Financial Partners - Analyst [106]
------------------------------
Yes, thanks. Bye.
------------------------------
Operator [107]
------------------------------
(Operator Instructions)
Joe Pratt with Wells Fargo Advisory.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [108]
------------------------------
Michael, on my screen I see natural gas probably at a near-term forward month at $4.10. What would your realized price be relative to that $4.10?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [109]
------------------------------
So, let's just say through the month of March it was $3.41. That was realized. Of course, we are realizing more as the price has gone up. We also have done some hedging, Joe. So, obviously at this particular stage, our realized price is higher. So, we got lucky. But, we are cautiously hedging some of it.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [110]
------------------------------
Okay.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [111]
------------------------------
So, from a price perspective, Joe, when we did this project initially, I think it was how much? Here it is. When we announce the tender it was $2.83 per 1,000 cubic feet. When we completed the acquisition it was $3.02.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [112]
------------------------------
Okay.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [113]
------------------------------
Pricing is in our favor we can say at this point.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [114]
------------------------------
Okay, but I'm just trying -- at what discount sort of, if the spot price is $4.10, let's say -- let's just say for the September quarter, if the spot price remained at $4.10 for the September quarter, what do you think your realized price would be? I'm trying to figure out what the Canadian discount is.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [115]
------------------------------
I'm sorry, we translate everything into 1,000 cubic feet for discussion. So, there is a Canadian different pricing mechanism. But, we exchange that. Is that your question, Joe?
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [116]
------------------------------
No. It's just the price I'm seeing on my screen might be some Cushing or West Texas price, $4.10 per MCF. If that held in the September quarter and the spot was $4.10 all during the September quarter what do you think your realized price would be?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [117]
------------------------------
Realized price or realized cash flow?
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [118]
------------------------------
Realized price per MCF. You wouldn't be getting $4.10, I don't think because, A, you have got some hedging there, and B, maybe the Canadian price, spot price, is lower than the $4.10.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [119]
------------------------------
Sometimes in the year it could be higher, sometimes in the year it could be lower. It is not something you can -- you can -- we've hedged at above $4.10, Joe.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [120]
------------------------------
Yes. Oh, you've hedged above $4.10? Okay, Michael. Thank you.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [121]
------------------------------
Good, thanks, Joe.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [122]
------------------------------
Thank you.
------------------------------
Operator [123]
------------------------------
Bill Horn with First Angel Capital.
------------------------------
Bill Horn, First Angel Capital - Analyst [124]
------------------------------
Michael, just one quick question. You announced this letter of intent with a partner for a joint venture related to your midstream facilities. Is that in reference solely to the Mazzeppa facility or is it a broader joint venture that may include the Niton midstream facilities, as well?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [125]
------------------------------
It is non-exclusive and solely for Mazzeppa. We want to do other ones, as well.
------------------------------
Bill Horn, First Angel Capital - Analyst [126]
------------------------------
You may look at other joint ventures with the Niton midstream facilities as well?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [127]
------------------------------
Yes. Or do it on our own. We think that's -- that can be a good, steady cash flow, long-term business.
------------------------------
Bill Horn, First Angel Capital - Analyst [128]
------------------------------
What's the size of the Niton midstream facility?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [129]
------------------------------
I don't know. Rene has that information. He can provide that to you.
------------------------------
Bill Horn, First Angel Capital - Analyst [130]
------------------------------
Okay. Great. Thank you very much, Michael.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [131]
------------------------------
Thanks, Bill.
------------------------------
Operator [132]
------------------------------
George Berman with JP Turner and Company.
------------------------------
George Berman, J.P. Turner & Company - Analyst [133]
------------------------------
Good morning, gentlemen. Thank you for taking my call. First, I wanted to second the opinion of one of the callers. I think trading at such a low value over net asset value, buyback program would really help us all in our cause here. Secondly, I came a little bit late to the call. Could you sort of flesh out a little bit the opportunities and possibilities you see with the two acquisitions that you made in the commodities trading activity area?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [134]
------------------------------
I think the integration of those businesses into our existing business allows us to go into different areas. And also, then, exposes us to different industries. To some degree, gives us better margins. So, if you take our balance sheet and our ability to finance and our ability to then put in different systems, it should be a win-win-win overall. That's what we are working at every day.
------------------------------
George Berman, J.P. Turner & Company - Analyst [135]
------------------------------
And those cost synergies, essentially, have not come through in this quarter yet?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [136]
------------------------------
The economic benefit is not there in this quarter. The revenues are there, but the margins were elusive.
------------------------------
George Berman, J.P. Turner & Company - Analyst [137]
------------------------------
Got it. Next question. Describe for me what opportunities are you seeing in the European market? There's been numerous articles written about European banks needing to offload some credit to private enterprises in a variety of industries. I know that one of your big operations is in, I think, Vienna, Austria, right?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [138]
------------------------------
Yes.
------------------------------
George Berman, J.P. Turner & Company - Analyst [139]
------------------------------
Do you -- are you still looking at possible scenarios, opportunities there, to step in where a bank wants to be removed from, say, chip financing or various other things?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [140]
------------------------------
We have discussions going on with banks like that, today. But, to be very frank with you, we are not giving up on our discipline. We must be patient and we must make sure that we don't inherit their problem. We have one that's been going on for a few years and many of the projects which we have do go on for years. Yes, Europe has -- seems to have more problems than elsewhere. So, I'm encouraged that we can do more there in Europe. But, we've just got to keep our patience.
------------------------------
George Berman, J.P. Turner & Company - Analyst [141]
------------------------------
Okay. And any update on the developments that you have in the African continent with the power plant and the mining?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [142]
------------------------------
Yes. That's going on okay. We are on schedule, on time. As a matter of fact, one of my guys just left for there this morning. We have -- it's -- we want to be in the power business before the end of the year and that's our goal. We see -- it's going along very smoothly. When things go smoothly in Africa, you mustn't sleep with both eyes closed.
------------------------------
George Berman, J.P. Turner & Company - Analyst [143]
------------------------------
Right.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [144]
------------------------------
So, I will meet him when I'm in Jersey this weekend. He'll be back and I will see if he's had a good night's sleep or not.
------------------------------
George Berman, J.P. Turner & Company - Analyst [145]
------------------------------
Okay. Good luck for the future.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [146]
------------------------------
Thanks very much.
------------------------------
Operator [147]
------------------------------
Joe Pratt with Wells Fargo Advisory.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [148]
------------------------------
Michael, I'm looking at the liquidity section. It seems to say to me, net debt went from -- well, in effect, a net cash position of $111 million at the end of December to $140 million at the end of March. How did you get net cash to go up by $30 million without the operating profit doing that?
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [149]
------------------------------
Two things, Joe. One, is we borrowed long-term. If you look at our long-term debt it went up to 152. So we borrowed that over seven years at a low rate with the government assistance in Austria. And also, cash profits.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [150]
------------------------------
Okay. But the debt is taken care of in the transaction. So, it's netted out. I don't understand the -- if your debt went up, your net cash position is going to reflect that.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [151]
------------------------------
So they both went up, what page are you looking at, Joe?
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [152]
------------------------------
I'm looking at page 3 of 8 under the liquidity section. It says that net debt at the end of December 31, 2012 was negative -- net debt was a negative $110 million, which means that's a cash figure, a net cash figure, cash net of debt, all debt, I assume. At the end of March it was $140 million.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [153]
------------------------------
So, Joe, that's just long-term debt.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [154]
------------------------------
Okay. Got it, Michael.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [155]
------------------------------
You will see the words at the beginning.
------------------------------
Joe Pratt, Wells Fargo Securities, LLC - Analyst [156]
------------------------------
Yes. Got it.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [157]
------------------------------
Okay. Good.
------------------------------
Operator [158]
------------------------------
I will now turn the call back over to Mr. Michael Smith for closing remarks.
------------------------------
Michael Smith, MFC Industrial Ltd. - Chairman and CEO [159]
------------------------------
We thank you very much and we encourage you to call with any questions. And we sincerely appreciate your interest in the Company. Thanks very much.
------------------------------
Operator [160]
------------------------------
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.
------------------------------
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.
------------------------------