Scully Royalty Ltd. (SRL) Q2 2012 Earnings Report, Transcript and Summary

Good morning and welcome to the MFC Industrial Ltd Q2 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Michael Mason of Allen & Caron Investor Relations. Please go ahead.

Thank you. Good morning and welcome to the MFC Industrial Ltd investor conference call to discuss the results for the second quarter of 2012. I'm Mike Mason of Allen & Caron Investor Relations. Many of you received a copy of the press release, it was released this morning at 7:30 a.m. If you did not receive a copy of the release, it is posted on the MFC website and in the Clients section of our website at allencaron.com. You may call our office in New York at (212) 691-8087 and we will e-mail it to you right away. It is also posted on Yahoo! Finance and numerous other Internet sites. A replay of the call will be available through August 22 and may be accessed from North America by calling (877) 344-7529 and entering conference number 10017028. International callers should dial (412) 317-0088. This call is also being broadcast live over the Internet and may be accessed on the company's website at mfcindustrial.com. A replay of the webcast will be available immediately following the call and will continue for 7 days. Certain statements in this call will be forward-looking statements, which reflect management's expectations regarding future growth, results of operations, performance and business prospects and opportunities. For detailed information about risks and uncertainties that could cause actual results to differ materially from those expressed or implied, please refer to the disclaimer for forward-looking information contained in today's press release and filed with the Canadian securities regulators and on Form 6-K with the SEC. The company will make a brief presentation on the results announced this morning and then open the call to questions. I would now like to turn the call over to Mr. Michael Smith, Chairman and CEO of MFC Industrial. Hi, Michael.

Good morning, Michael. Thank you very much. First of all, I would like to just walk you through our financial results, and then maybe make some comments and reference some projects which we're involved with. So if I -- let me start with the balance sheet of the company. At June 30, we had cash and near cash equivalents of about $364 million. Major changes on the balance sheet is our inventories went up to $114 million from $81 million. Predominantly, the increase was because of additional products which we have taken on, predominantly steel coils, and also some iron ore left over from this season. Receivables are up to $33 million from $21 million but that's constant and there's nothing abnormal, it's just the timing issue. Deposits and prepays went from $9 million to $16 million and that was because of the refinery we acquired in the last quarter. If I take you down now to noncurrent assets, and if you look at plant, property and equipment, you'll see it went up from $3 million to $30 million, and that is strictly because of the acquisition of the refinery which we acquired in the last quarter. If I could draw your attention now to the liabilities section, and if you look under long-term debt, you'll see our long-term debt went from $20 million to $45 million. What we did in this particular quarter, we borrowed $28 million long-term over 8 years at a pretty good rate, 3.9%. And we did that really -- it's our policy if we buy a long-life asset, we have to finance it on a long period of time. And this is what we did to pay for the refinery and also to make sure our balance sheet is being properly looked after. Our working capital was $380 million. Our ratio is okay, 3.20, asset test 2.38. Long-term debt to equity did increase to 0.08, that's because of the debt that I mentioned. Equity is $561 and book value per share just under $9 a share. Revenues for the first 6 months was $253 million. Net profit was $0.41 a share. Some things that happened during these 6 months and especially the last 3 months, we had the euro drop by about 12%, over 12% -- that affected our sales. We managed on the bottom line, though, we did pick up a little bit more income and this is primarily net income from royalty and also from our merchant banking operation. But I'll give an example of what has happened in the industry during this quarter, especially in the area of plastics. There's one very basic plastic called PET, which is something you all know about, which is used in bottling, and this really a summer-type project, and you see a lot of orders come through in the summer for that particular order. But the price of that product this summer dropped, and it dropped in April to July by 17%. So suddenly, there was no orders for the basic plastic product, PET. It's interesting to see why that occurred. We'll be -- we have seen that price, that product being picked up a little bit now. But we believe it is only being picked up because people have to reorder and it was caused we think predominantly by maintenance and production shutdowns. So all the products which you think are stable and should be available, are not, particularly the industries around the world are going through interesting times and we don't expect that not to change. And so we have to live with it and we have to be prepared for it, so we are looking always to possibly drop a product, come back to it later or increase with other new products, which we managed to do to a degree in this quarter. We have credit facilities of $412 million. Of the $412 million, $156 million are what we call Blanco or unsecured lines of credit. And we have a special line of credit of $56 million, say, for foreign exchange, which is needed to hedge our positions when we are doing a transaction. Now let me touch a little bit about a couple of the projects we're involved in and one of them I think is -- which has achieved some publicity called Compton Petroleum. We are interested and we have got a tender offer for Compton. I can't say too much about it, the tender offer hasn't closed. But I can give you a small overview of why we did it, but I can't go into depth as to all the details of it. But what attracted us to this company was really 4 things. One, it had a substantial land bank -- and all of this is public information -- of 350,000 acres. And that land bank to us was a land bank which really was for developed-type properties, not exploration. Two, it has tax pools. Tax pools to us is not a company that has tax losses. This is a pool where you can offset -- it's like a swimming pool. You jump in there and you offset all your taxes on a one-to-one basis of $330 million. That is attractive to us as it allows us to do greater planning in Canada and become more fiscally responsible. Its reserves are long-life and the price of the commodity has swung substantially I think you will know over the years. I'd give an example I just pulled the other day -- the price of gas has gone from $1.84 per thousand cubic feet but I saw the high was 4 years ago at $8.77 per thousand cubic feet. It is now $2.78 and the forward price has actually hedged up. So it's just under $4 now for a 2-year put. And so we're not in this business to get rich, we're in this business -- do we see enough ability how we can minimize our risk and enjoy some upside. Compton is a company that we've been working on for a few years. We have several like this. And what they did is what most of these companies do. They borrowed [ph] short term for long-life assets and they also had huge G&A expenses and they were unable -- were unwilling to reduce those G&A expenses, and that's what put them into trouble. And so that's why there's an opportunity for us. But we'll bring you up to date as the situation comes to a head, and we'll let you know in the future. The next one I'd like to talk about is Pea Ridge. Pea Ridge is a project which we're doing with the Alberici family and they -- that project is going along okay. We are a little bit behind schedule but not much. We have, to date, filed our current historic report in compliance with the rules and regulations in Canada. That will be available for all of you to read in the next couple of days on SEDAR or on our sheet on our company website. This report, which you'll get and is summarized in the press release, shows that we now know what we have on a current basis on the property. One of the things which I think is positive for us is we see the iron content has gone up higher than before. This is positive for us as one of our plans for this particular property was to look not just to sell the iron ore here but also to sell it into the filtration business and other industries for a premium and not just to sell it to the automotive or the steel industry. And that's -- was encouraging. But we have a way to go, I mean this project is -- needs more work and the next is for us to finish the feasibility report which will give us -- what is the confirmation that our planning is right and allow us then to come back to you and say how many tons we can produce, this is what we're going to produce and when. But until that report is finished, we're not in that position to do that. I will say one thing, iron ore prices, they're hanging in there at $118 a ton, the 63 point Fe iron ore, which is okay. So many of the commodities which we've all been seeing have gone down a substantial amount. But this is still fine. We are seeing the -- all iron ore we produce from a demand basis out of India is immediately sold -- there is more buyers than we can see [ph]. So we feel the demand is there and the project is fine and we're spending a lot of time and energy in after that making that happen. The last thing I just want to tell you is that our corporate taxes are always an issue for our company, and we strive to be fiscally responsible. And the tax that we paid during the year or for the first 6 months was $1.4 million. And I think that's all I have to say, and I now very much welcome and encourage you with any questions you might have.

[Operator Instructions] And it looks like our first question comes from Graham Tanaka from Tanaka Capital.

Yes. I just -- first off on Compton, what is the timeframe on that? What kind of schedule do you see on Compton?

The tender is due to expire, unless extended, on the 16th of August, a couple of days from now. And -- so it is pretty close.

And subject to what happens there, what would be the timing on what [Audio Gap]

If we managed to do everything we wanted to do, it will be a few days thereafter [ph] .

So a few days, you could close subject to the getting approvals?

No. Approvals -- there's several areas of approvals. Normal regulatory approvals, Investment Canada, we have some negotiations with some of the lenders. And of course, getting the shares in. But as you know we did have 54% of the shares locked up before we started and we did arrange for a private placement subject to us closing of another 20%.

You would have basically 74% and you are tendering for the remaining?

Correct. Outside of regulatory and business issues with people, it was pretty much assured going in that we could, if we wanted to, complete the project. So I was happy about that. I hate spending soft costs and then you get nothing.

You own, at a minimum, 74%? Then you have to negotiate for -- with the lenders and I guess that's a pretty important negotiation in terms of remaining debt on the balance sheet. What kind of price is that debt at now if there is a market price? And how much debt is on the books now and what could that go to if the market settles at the market price?

I'd soon enough go into that Graham, I'm afraid. Negotiating with banks is always interesting, challenging and we -- best not to discuss it until it happens, all right? Sorry about that.

Understood. The other thing that I was curious -- did I hear that you said that the current gas contracts are hedged to -- was it April, did I hear? Or did I mishear you on that?

No. I mean this company -- Compton has no hedging at all. We're a big believer in hedging. We're not trying to get rich on Compton. What we're trying to do is preserve our capital first and then enjoy the overage. But we will be hedging -- if we had closed today, we will be extensively hedging. That's just as a matter of policy.

I didn't know what their extraction and production costs are. Are you -- if you -- if at today's prices, hedge prices, would it be a break-even operation or positive cash flow or where would it be? Just roughly, just very roughly.

Unfortunately, I cannot go into it. All I can say is it's attractive enough for us to do it.

Okay. And then on Pea Ridge, what's the time schedule on that?

Well, what we want to do is if we have to finish under the rules, the 40-101 [ph] type rules, a Preliminary Economic Assessment report. And that report, we think, will be done in a reasonable period of time in the early fourth quarter. We had said in our press release fourth quarter. But we're pushing, we're pushing that. What these reports are really doing are really taking the work that we have done internally with our own geologists and own professionals and extrapolate that. And this is when the engineers come in, the independent outside engineers come in and verify the work and make sure that what we have done is right. So it's a great, great system because it's -- it checks what we've found out and we're looking forward to that. And of course, that's the key report going forward. And then we can tell what we're going to produce.

And then just to help everybody on this, if you can give us a perspective on what the old reports had suggested and kind of if you can comment on what the potential ranges are for revisions, just potentially.

I can't comment at all on that, Graham, I'm afraid.

Well, you did mention that the ore grade is higher.

Well, I can give you the ore grades and I can give you the historical reserves and the current reserves, yes, but not the potential for how many tons we're going to produce or what kind of ore products. But an example would be on the measure I'd indicated, the iron ore content when we did it on a historical basis was 58%. Now we did it on a current basis, they've taken the cores [ph] and they've done a lot more work, it's 61.4%. So that's quite encouraging. The overall iron ore shows us that we have a chance to look not just to the steel industry as a market. We can look elsewhere for that market -- which is what this property was always famous for.

Well it's a fairly pure grade and therefore it increases end market.

Yes. So it's a smaller market but it's a higher-priced market. Filtration, coal washing, that kind of thing.

So the yields in terms of price per ton might be in what area in the higher grade versus -- again to help everybody out on this, the higher grades versus what's seen as commodity prices?

It's hard to say what percentage -- let's say you produced 100 tons, what percentage of those tons would you then focus and produce for the filtration industry and what percentage would you go to the steel industry for? This is all what has to come out with the study.

And the other thing of interest of course there is the tailings pond.

Yes. But that's a separate business. In my mind, they are 2 separate businesses. Tailings will become online much quicker of course, and those studies are still going on, right? And we did -- we've said in our report to you now for this quarter, we have drilled now all the tailings and we're waiting for the reports back. So we can now properly plan how to strip the tailings.

What are the expectations in terms of when that could start? How much is -- how much capital is needed for that?

I can't say. But the capital is not -- I can say to you the capital is well within our budgets.

And is the -- are the grades consistent with what you thought?

We have to wait until we get the reports back from the lab, Graham.

Okay. Our next question comes from Bill Horn from First Angel Capital.

Just expanding on the Compton transaction, you are indicating that you've got 54% locked up. You purchased your special warrants, another 20%. Can you give us any indications as to how the rest of the tender offer is going?

No. We won't know until we're -- on tender offers, Bill, it's the last 24 hours when people send in the shares, right?

Okay. Looking at the Compton financials that just came out the other day, they're showing about $231 million in equity. Is it safe to assume that MFC will be adding about $3.70 or so to book value when the deal closes?

I'd sooner not get involved today in discussing purchase accounting. I'd sooner get the project finished and then have a separate discussion with all the shareholders of how it would look.

Fair enough. Compton's oil and gas seems to be a new resource that MFC is entering into. Will your commodity trading operation begin to include oil and gas trading? How will you integrate Compton's resources into your commodity trading operations?

We will not integrate it. We really have very little interest in the oil even though it's money, right? So what we're interested really is in the natural gas. And yes, we will integrate it. Our people will now become -- obtain more knowledge and they will also be able to give knowledge on the gas, especially from the inside of Europe. It's a natural in many ways.

Okay. I did notice on Wabush that it looks like the second quarter royalty was up to about $8.2 million. Can you give us an idea of what the tonnage was that was delivered out of Wabush for the quarter?

Rene is here and he'll give that to you now.

Yes, it's about 911 million tons.

911,000 tons?

Yes, thousand tons. And the good thing is the price continued to hold around the $9.50 level, which is very positive for us. It's a very good price. And what Cliffs has basically been saying that they still think they're going to get to the 3.9, between 3.7 to 3.9 in shipped pellets [ph] this year. So hopefully, we'll see a strong third quarter.

Good. No more -- or have the operational issues up at Wabush subsided?

Yes. They basically have settled those. I mean part of it was -- in the first quarter -- was the river freezing and they had some problems with some machinery. But they've resolved all those problems. So we're keeping our fingers crossed, we should have a good third quarter.

Right. Michael, moving on to Goa, I believe in the past that you have indicated that the low grade ore coming out of Goa has been getting a price of about $100 a ton. In your comments, you had mentioned that the demand for that ore is pretty high. Are you still seeing pricing in that range, about $100 a ton?

No, I think it's less now, Bill. First of all, Goa is shut because of monsoons. So iron ore has come down from $130, say, to $118 in a very short period of time, like 3 weeks. So...

That's not the low grade coming out of Goa?

No, but they use that as the benchmark, right? This price I'm giving you of $118 is for 63 Fe. So they then trade up and down based upon that as the benchmark price. That's how most traders do it. Pricewise, we can't tell you go until we get back into the season. But I don't expect that -- right now, I don't expect -- unless we get some great more reductions in the price, I would assume that we should be able to get in the $90 range for sure.

Okay. On the previous calls, you had indicated that the weather had held up into the -- in the monsoon season had sort of started late. How many ships -- or shipments did you get out in the second quarter?

I don't know. I'll have to get back to you for that. We're using bigger ships. So he has managed to use Panamax 120,000-ton ships -- 140,000-ton ships, so that's a lot different. But I do know we have inventory on ground now that we did not get out, so that's part of our inventory. As you can see, our inventory is up in June and that's part of it.

Yes. Quite a bit, yes. How much of that would you reference to the Goa inventory that's sitting, waiting for the shipments to resume?

10%.

I'm sorry, about 10%?

Yes. Actually, it's not, it's like 8%. We encourage them to produce very much, regardless of -- if they can't ship, we still like them to produce, right? So they can ship when the season starts.

Oh, of course, yes. I mean, when I was over there, you -- I think you had 325,000 tons just waiting for shipments to begin again.

And then even during the monsoons, what they do is just really cover the piles and wait until they could start shipping again.

Okay. Michael, over this -- over the course of the first 6 months of 2012, I mean you certainly have acquired, or were about to acquire, some very interesting assets in certainly in Pea Ridge and what we're seeing coming down the pike in Compton. To me it seems like there's a lot of unlocked potential in both of these assets, and MFC has historically based its performance on book value or return on equity. You have just come out this quarter and stated your book value per share is $8.98. But when we look at these assets, I mean Pea Ridge is on the books for about $12 million. But if we look at the true value of that underlying asset and just doing sort of a quick discount, in cash flow at 4 million tons of annual production -- and that number I get from the previous owner's estimates and what he believed could be producing. I mean you're looking at a value of this asset potentially in the $350 million to $500 million range, which could add anywhere from $5.50 to almost $8 a share to book value. And then I guess when we look at Compton, their net present value that independent estimators have reported at fiscal year-end put their reserve values and their undeveloped land values at about $360 million, and that would equate to about $5.75 a share for MFC. So here we are with a book value of $8.98, yet when you really adjust book value for these very interesting assets that you've picked up, I could safely assume that book value is north of $20. I mean, is this a fair assessment looking at more of a true value of these assets that you've acquired over the recent past?

Bill, I have to dance. I can't comment on that, right? We're going to develop these assets and those assets have got to get developed. And Compton is not finished yet, right? So it would not be prudent and fair for me to endorse your words or -- so if you could respect me and just let me dance away from that question, I'd appreciate it.

I'll let you dance, for a little while.

Thanks, again. I understand. I understand, for a short time. In your release, you had indicated that you've been trading some new products. I think in your comments, you had mentioned steel coils. Is that primarily what you are referencing? Or are there any other new products that are -- that you see coming online in your commodities trading business?

We're seeing some better margins in products like coils. And that's really driven, Bill, through credit. And some of these smaller plants gets credit so it's easy for us to do it. And so coils, wood pellets again -- the same and we expect a very good year for wood pellets as well. And that's all green and -- but we're able to finance it and we're able to trade it and we sell those pellets on to major utilities, E.ON, companies like that. And so [indiscernible] new products.

[Operator Instructions] Our next question comes from Rich Rogers from Abbey Capital.

One question. I did -- I just picked up on one of your comments regarding the -- if Compton does go through, you mentioned it might be upwards of a tax pool of $300 million. Would that -- I mean in the way I was thinking when you said that, that might give a little bit more flexibility with the Wabush, maybe potentially down the road. Because paying the taxes on the capital gains -- if you were ever to do something with that -- is something very painful to you. So would I be thinking along those lines right? Or just maybe give some more options for that asset?

It definitely gives us a lot more options. These -- buying these NOLs, companies [indiscernible] Losses, it's really difficult to utilize them correctly. But having a pool, the pool is 100% deductible and it's -- just like a swimming pool, you can use it and everybody can jump on the water. So you're right, it does give us a very strong other tool to use in the future as we look at Wabush to rationalize that more. You're right.

And then you said it'd be a dollar-to-dollar type equation?

Yes, $1 to $1. So that -- which is much more valuable.

Okay, excellent. One thing that always concerns me is that have you -- you and the Board, have you ever given thought to separating the CFO position from the CEO position?

Yes.

Okay, you have. Is that anything in the next year or so that there might be some headway on?

I assume it'd be before a year or so.

Before a year, okay, good. And then as far as anything, you've done a great job, but if anything were, God forbid, to happen to you, could you just maybe enlighten us as far as what the business continuity plan that -- what would happen the next day or the next week so we kind of have an understanding of how the company continues?

We work with the Board and we've agreed to a successor plan for myself, and that would go into effect. So that planning has already been done and is ready to go if something happens to me. But nothing's ever going to happen to me.

I understand. Do we know who the next CEO may or may not be? Or...

No, it hasn't been announced but it's been agreed.

Okay. And there's a person that's there?

Yes. Somebody who is there -- somebody who is here and who is very familiar with the business.

Okay. And then the last thing is, one thing I had -- at the end of the quarter, I saw the euro -- because I followed euro pretty well against the dollar, and I saw that fall about 12% -- 10% I thought it was. And was there hedging in there? Or was there not hedging? And how much actually did that cost as far as earnings for the quarter? I didn't quite see that, I didn't have a chance to really go in depth into the numbers there.

12% was the drop in the quarter, and that's a substantial drop. It was over 12%. We only hedge like if we have U.S. dollar to euro in a transaction. We don't hedge otherwise. We have just a policy for each company on currencies. And the commodities current policy is everything they do is in euros and everything we do in Canada is in Canadian dollars, and so -- and China is the same. We found when we try to hedge the balance sheet items, we would get killed. In '98 -- not '98 -- 2008 when we had the crisis, just before that, the currencies went absolutely crazy. And we got killed on a couple of them, especially the Australian dollar. And so we said, "Okay, let's just everybody take their own business unit and stay with it." And it seems to have worked until today and it's still working. And I think they are allowed flexibility but they're not going to speculate. I mean I think really by hedging the balance sheet, you're more going into speculation.

Okay. Do we have any idea what it cost us last quarter, though? I'm just trying to -- it's 12%, I know in the -- so we're on a dollar figure, do we have any -- just a ballpark what that cost?

No, I'm afraid we do not.

Okay. And then last thing, when you back out the cash from the company, you look at actually -- if you take out the cash, will it -- the stock is -- based on potentially $0.75 plus maybe in earnings per share in 2012 -- these probably were trading at a $2 stock with almost $1 worth of earnings. Have you guys ever had a discussion with the Board or other people, of simply taking this company private? It's a tough question but...

For 20 years, those discussions have been brought up. And each year, I also go through a phase in my mind of what could we liquidate for? Which I think is a very interesting question. Liquidate in an orderly manner. And of course, that's another value that we have to look at. So right now, I say we shouldn't even have those thoughts because we have a couple of projects which you see now, Pea Ridge and Compton. But there's some other ones that are changing the company. Compton is a project we've been working on for over 2.5 years. They take -- you've got to be very patient, right, and you take your time. And Pea Ridge was a project which was -- we had it, we got paid off on it and then we went up after it again, that was for several years. So we're not changing that matter. And if we get a couple of more projects, then there will be a utilization or a need for cash or for additional funding at some point. And we are going to -- anytime we buy a business, like a Compton for instance, we will long-term debt those long-life assets. We will not sit there and be foolish, borrow short on those types of assets.

Sure. And just one, since you've probably -- as you said for 20 years had that conversation among the people at the company. Maybe a year ago, when you kind of do that calculation you had, did you come up with like $16 a share we probably could liquidate this thing reasonably? Or just maybe a ballpark figure? Not current numbers but a year ago.

I can say to you is in excess of what we were trading at. So...

In excess of book value or excess of the market share price?

Excess of book value is how I look at it, right? So -- and I think that's the most important. I would sooner not share with you that number without sharing it with everybody.

Next question comes from James Andrew [ph] from Cordero Funds.[ph]

So just a few questions about Compton here, and everybody seems to be very interested in that. We do substantial nat oil and gas investing and you'd mentioned a land bank of 350,000 acres. What's the character of the holdings there? Are those primarily concessions granted by the government or are they pools of leaseholds?

Generally, they're with farmers [indiscernible] set of leaseholds, except there's a few by the government, very few though.

Okay. Of course, in most leaseholds and in concessions both there are production requirements. And if you have uneconomic gas today, I'm curious if you're anticipating a burn rate until you have economics on gas that allow you to continue fulfilling whatever production requirements may exist under those contracts. Has that been part of your analysis?

Yes, it has. And we view that number to be very minor in the overall planning.

So there isn't a large drilling requirement in any of that acreage?

No.

Okay. And then when you had mentioned that why you had been interested in doing the Compton deal, and maybe I just missed this, but you said there were 4 key points and I picked up on 2. One was land bank, #2 was tax pools. What were your third and fourth points, if you don't mind recounting them for me?

It's the long life assets. I like an asset that has long life and if I finance that asset correctly, worst case is the molecules in the ground don't go away. And can I turn those molecules off for minimal cost? And can I maintain it? I think I can. And so I think that's the most important. And the last item on natural gas, I think there's a need for natural gas, if I don't get greedy and try to become somebody trying to make a fortune in gas -- all I'm looking to do is to make a return. And that's why we will look at closing to hedge a substantial sum of our cost. And we feel if you couple the hedge, maybe you've eliminated some of your downside, you've certainly eliminated your upside as well. But I'd sooner do that and then still have some profit potential.

Okay. With regard to prior investors in Compton, I've looked in -- it seems to me you got some very sophisticated folks. Some of them here, local to where I am, who've just invested in Compton within say the last 12 to 18 months in much, much higher valuations. It seems extraordinary the price that you're able to buy the company for here, or at least anticipating buying the company. Can you shed any light on what those other major investors' perspective is on selling so shortly after having just made their acquisition? Or do you not have any visibility to that? Have you had conversations with those folks? You probably have.

Oh, yes. We've had many, many, many -- to get just down to this price. What really happened is those sophisticated investors who own the 54% -- outside of one -- were all noteholders of the company and had a financing [ph] in the company. The company, when we -- that's when we originally saw the company. And we have proposed several ideas to the company, and part of that was doing a rights issue and things like that. But the noteholders at that time decided they would do it themselves, and so they didn't need us. So they went ahead and did it themselves and became shareholders. Once they became shareholders, they realized it's very difficult when there's many of you to create change in a company, and the SG&A of this company has just been horrendous. It's -- they paid out more in fees and compensation to senior management than I've seen for a long, long time. And this group suddenly started to deteriorate and the group felt frustrated and I think that you had noteholders' mentality holding a common share -- and that's when we managed to eventually agree with them on a bargain where we would take them out completely. And it was -- I think we would say they got tired.

Okay. Investor fatigue?

Investor fatigue. And I think that was great, when somebody gets tired you want to have still a lot of energy left, right?

Right, right. Now in terms of the shares tendered, does it include the special warrants that you folks have purchased, that MFC has purchased?

Right, so we purchased one special warrant which entitles us at our option -- strictly at our option -- to buy 20% of the issued shares of the company. And we'd locked up 55% of the tired shareholders who -- so they have to tender. So we did that before we started the tender.

Got it, okay. Well let me -- I have got a question here about Pea Ridge, if I can shift gears just a little bit -- and maybe I misunderstood this, do you have the 43-101 report already, that you folks have had a chance to review it and then you intend to release it in the next few days? Did I understand it correctly?

I think it will be released today.

It will be.

And we have it. And it's signed and ready -- Rene, we'll have it on the website?

Yes.

So it is available. If you can't find it, please just contact us here. We'll send you one.

Okay. And then Deco [ph] Metals, still something you're thinking about doing or is that off the table?

"You got to keep talking to all the girls," we say, right, before you ever get married. And Deco [ph] Metals is something that I'm -- I'll be talking about again all the time, I'll be talking next month. But the price has got to be right. It's the most important item. But that's one of the many, many, many projects which we have. There's some interesting things in Deco [ph] Metals, but they have to understand us on the pricing.

[Operator Instructions] Our next question comes from George Berman from JP Turner & Company.

Your dissertation on the oil and gas acquisition, I sensed that you may be looking at this as a stepping stone for further investments in the area. And I happen to agree with you that natural gas at the current prices offers tremendous potential, particularly in light of the price differences in Europe and Asia versus the U.S. Do any of your plans include looking at gaining the advantage on those price differences?

I think that from a trading perspective, there is some ability to do that. But what we -- look, we think that the catalyst to do more projects in oil and gas is the banks really have been lending money short term for long-life assets. And that's great until the commodity price drops and that puts the company in great turmoil. We're seeing lots of that. And if we can do it correctly, we can increase our portfolio of gas. And I think gas is really where they're suffering the most, which is interesting.

Right. You would not be opposed to doing deals in the United States, right?

Oh, no, not at all.

Because there's a number of companies in the U.S. that are upside down in the same fashion.

Yes. If they're upside down, we want to look. If they're not upside down, we can't afford to buy.

Yes. Then I had a question, you mentioned in your press release that you now took over completely the power station in Africa. Could you describe that project to us a little bit?

Yes. So that's a long-life asset and it will go on for many, many, many years. And once the refinery stops, it will then be able to produce electricity and sell it into the National Grid. And then of course, we are looking to reprice that electricity that is produced. So I can't give you pricing or production at this time until that refinery stops, which will be just over 1 year.

Okay. And then I understand, congratulations are in order for you. You recently became the Chairman of KHD Humboldt again in Germany?

No, I did not. That's still -- there is a proposal outside and that's pending at this particular point.

Should we look for maybe a rejoining of the group?

I would not. No, I would not.

Our next question comes from Mark Phelan from M22 Capital.

Can you just kind of break down if you can the decline in revenue from trading commodities? How much of that is just general lack of demand and/or lower commodity price versus the change in euro versus dollars?

Let's just say, on the plastics side, that's where the major decline is. But plastics has picked up now in this month. So -- but it was substantial. If you looked at our budget, you would see plastics would drop by 40%. The currency also in that particular quarter hurt us. But we managed to pick up steel coils, right? So if it wasn't for the coils, we would have not had -- we would have less sales. So -- but you've always got -- I mean in this business, you've got to be able to be flexible. And when I talk about plastics, I'm not just talking PET, I'm talking an array of PP, other type of plastics. But those plastics are back now to a degree, and so we have to be flexible as we go forward.

Okay. And when you -- specifically in plastics, you guys own underlying assets that I guess contribute to some part of the supply chain within plastics or are you just brokering that? Or does the -- can you explain that for me?

Yes. On plastics, we just buy under a -- usually an unpriced long-term contract with a supplier usually from China or from Korea, and break it down and sell into many pieces usually in the Turkey area or that kind of markets -- Bulgaria, more difficult markets where they don't want to sell into.

Is it fair to say then that in terms of your exposure, your overall revenue will decline depending on whether the commodities volume, or prices increasing or decreasing. But in terms of your actual exposure to the balance sheet because you have an underlying asset, is it mainly iron ore through your mines? I mean is that pretty much your exposure to commodities in terms of actually what you own?

Yes. We might have some inventory in transit. We may have some inventory from another party. But the party will be insured, so the risks are quite low. And we don't buy the inventory for speculation or to try and make a return there. That's generally not our way of doing it.

Okay. Can you just give your thoughts -- with the euro potentially being controversial, or at least being disputed as to whether it's going to be a long-term currency? If -- first of all, are most -- is most of your cash in -- it's mostly in Vienna banks, if I understand it right. If there is some problem with the euro in terms of -- if something happened where Germany decided to leave or something -- how do you plan for that? Or do you not because you think it's so unrealistic that -- can you just give me your thoughts on that?

Well first of all, we have guarantees from the government in Austria for funds in the banks. But we also do keep funds not just there, we also use Royal Bank of Canada. But you're right, we have euros but we have all currencies including yuan, or the money we make in China, I leave in China. I don't want to take it out. And that's -- so it's pretty much where the business is located. The only money I take out immediately is money in India -- as fast as I can. That's for control reasons.

And where -- can you -- how about -- you're a fairly experienced and informed guy about sort of euro issues. Can you give me your sense as to -- so you're natural hedge against any sort of disruption in euro is just your currencies are spread out. So are your -- your cash is spread in many currencies, that's your hedge, basically?

That's the hedge.

Okay. And then just going forward, your general trading business, it is exposed significantly to Europe. Do you think this is -- do you see any bright spots within that economy, the general European economy? You want to diversify away from that? I guess you are with these new assets spread? How do you view that going forward?

I think we have to increase our platform business in other markets, which we're trying to do in the commodity side. And really spend a lot more time on the China side with sourcing and going to other markets. There's other markets which we could be doing business in, which we are not. But it requires talent and we're looking to do some acquisitions in that particular area, very much.

Okay. And just kind of last question, it's more a specific question in terms of your accounting. You have an over $200 million in temporary differences and I think that's a bit different than United States accounting. Were you worried about whether you could use those to apply to your profits and shield income from income tax? Is that partly why you're interested in buying this natural gas asset? Or is it not an issue, do you feel [indiscernible]?

The tax pools can be used in Canada for acquisitions in Canada. And yes, that is an extra with the Compton project but not a driver, not a sole driver.

We have another question from Bill Horn from First Angel Capital.

I think it may have been partially answered. In your comments, you had indicated that the $28 million of long-term debt that was put on the books is related to an 8-year loan for buying the Kasese Cobalt refinery and indicated that you were trying to match your long-term assets with long-term debt. The Kasese refinery is about to run out of tailings in about 1 year. There, you're referring to the long-term asset as being the power plant? Or has something else changed with the refinery that might lengthen its lifespan?

No. The power plant itself, Bill, you got it right.

Okay. Do you have -- the tailings that the refinery has been using over the -- I don't know how many years, have all come from the Kilembe copper mine. If that mine is ever reopened, do you have rights to additional tailings? Or is that something that would have to be negotiated with the new owners?

It would have to be negotiated with the new owners. We don't see that to be happening.

You don't see that as being a possibility?

No.

Okay. I guess just one further clarification. There's been a lot of talk about the Pea Ridge and issuing of this NI 43-101. You've come out of, I guess, last quarter and reaffirmed the historical resources. You just brought the historical up to current. What other reports can we as shareholders anticipate coming out of MFC related to fulfilling this NI 43-101? I mean I know there's the feasibility study, but are there other reports that we can anticipate over time? And what would that timeframe be?

The feasibility study is really the main report, which -- what you need to see. But there is some preliminary economic studies that we will look to see if we can release to you, which are being prepared as we speak, and they are important.

And is it -- the preliminary economic analysis, what you referred to, that would be -- that you hope to get out in early fourth quarter?

Right. And the tailings of course are entirely different, Bill, but it's the same routine, right, but it's entirely different.

Okay. So the overall feasibility study, what is the timeframe for that being issued?

Well I don't think we have a timeframe for a final feasibility, but a pre-feasibility -- I don't think we actually have a date for pre-feasibility. Do we, Rene?

Fourth quarter.

Fourth quarter?

Yes.

So what -- Rene's mind is the fourth quarter, but I'm more interested of making -- what I'm trying to do is the assumptions that we've made and what our professionals on the ground have made has to be now endorsed by an outside engineering firm. And what I'm more interested in is do they agree and endorse our economic assessments? And based upon that, you know what you've got and you really know what you can plan and foresee it in the reasonable future. That's the key, in my mind, from a business point of view, Bill. And for the shareholders' point of view, that's I think what you want to see, for sure.

Okay. And do you have a timeframe on when the information on the tailings will come back from the lab?

I think that we would have everything in the beginning of the fourth quarter.

Fourth quarters can be busy.

Yes. All quarters are busy, Bill.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Michael Smith for any closing remarks.

We sincerely thank you very much for the questions, and please do not hesitate to contact Rene Randall or myself on anything else that you would like to talk about in reference to the company. Thank you for your interest. Bye-bye.

This conference has concluded. Thank you for attending today's presentation. You may now disconnect.