Scully Royalty Ltd. (SRL) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Third Quarter 2013 MFC Industrial Ltd. Earnings Conference Call. My name is Lacey, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Kevin McGrath of Cameron Associates. Please proceed.

Thank you, Lacey, and good morning, everyone. We appreciate your interest in joining us in MFC's conference call and webcast to discuss financial results for the 3- and 9-month period ended September 30, 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 website -- Webcasts section to access the webcast. The webcast will be posted on mfcindustrial.com for replay approximately 2 hours following the end of this call. The replay will stay on the site for on-demand review for the next 7 days. Certain statements in this conference call will be forward-looking statements, which reflects management's expectations regarding future growth, results of operations, performance and business prospects and opportunities. For detailed information about risks and uncertainties that could cause our actual results to differ materially from those expressed or implied, please refer to the disclaimer for forward-looking information contained in today's press release on file with the Canadian securities regulators and on our Form 6-K with the SEC. With that said, I'd now like turn the call over to Michael to begin the discussion.

Thank you very much. This is Michael Smith, the Chairman of the company. I would like to thank all shareholders and stakeholders for listening to our report today. In addition, I will summarize the pertinent information, which I think you're not so clearly seeing in the press release and point out items which I think are relevant for further discussion. And I encourage everybody who has some questions to ask them at the end. I think one of the most important things to start out with is that we -- we've made some positive strides, but still, we have lots of work to do in the commodity business. The appointment of our COO for commodity business, Ernest Alders, he has integrated it, and that's working, but we still have more to do there. And definitely, we have more to do there on working on the margins. Earnings before interest taxes depreciation for the period was $54.6 million. If you add a onetime cost for the flood in Alberta, which I'll discuss later, it would've been $62 million. And it also would have, to a degree, helped our net earnings, but not substantially, as a lot of that is depletion. And I will get into some of the final numbers a little later. Net income for the period was $22.2 million or $0.35. The actual depletion and amortization and depreciation was $18.4 million for the 9 months or $0.29. And if you do add back the Alberta issue, it would've been up to $26 million and $0.41 a share in the depletion, depreciation and amortization area. I think one of the things you should look at carefully and always look when you look at our company, especially as we're going forward looking to increase our revenues and increase our margins, is our SG&A costs. SG&A cost for this particular 9-month period was $46.3 million versus the same period in 2012 of $32.4 million. This number will increase, and I think it's important that it does. If it goes down, I believe we're doing something very, very wrong. One of the things we have tried to do in the press release but also in our reports in the 6-K and our letter to you is to devise some tables, and these tables, maybe we strive to provide the stakeholders and shareholders with details which we believe is helpful. We invite you -- your comments and suggestions and what other ones we could put in there. We are more than happy to try -- I think transparency is a very major and important thing. But please, when you make those suggestions, bear in mind that we are a competitive business and sometimes we are unable to do that. At the period ending September 30, our balance sheet is okay. Our ratios were acceptable. Book value is $735 million and book value per share, $11.76. We have about $300 million in cash. So I'm not dissatisfied there. I feel that we -- our integrity of our balance sheet is still very, very good. A major issue for us going forward is always liquidity, and utilizing our balance sheet is important to grow without diluting our shareholders' equity. So liquidity factor is important, and I'm on the understanding that we cannot dilute, but we can grow and also not hurt our ratios. And I'll go into that a little bit later. But that is our major goal and has been for a long time. Our long-term debt-to-equity is also very important. It's probably the key ratio to that concept right now is at 0.20. We have credit facilities of just under $0.5 billion plus a hedging line of approximately $100 million. Off the $0.5 billion in credit facilities, $220 million approximately what we will call blank facilities or unsecured facilities which we can use without posting any collateral. At the same time, we have some term debt, and we have the ability we feel to take on some more term debt if the situation was correct in the future. Let me touch on what has happened in Alberta, Canada, in June with their dramatic flood which occurred and how it affected our company. We produce sour gas and one of our sour gas lines became exposed with this tremendous flood. This tremendous flood was I think the largest one in Canada -- in Canada's memory. And it was a disaster for the people of Calgary but also for the surrounding areas. With our gas lines going into our main processing plant in Mazeppa, one of them was exposed under a river by erosion of a -- the depth of the river. This of course caused our Incident Management Team to go into active -- to solve this problem immediately and to advise the people in the area and to put in a plan which they have developed and has been approved by the government because we're talking about here very serious environmental but also a serious hazard as we are talking about explosive potential. And so I congratulate our team. I mean, they managed to curtail and shut in the lines without the lines being a major problem. And we didn't have enough gas after that to continue our operation of the plants, so we had to shut down. But we now came back on stream at the end of September. We've quantified our damages, and we've made our claims with our insurance companies. Our claim is in the area of $9 million. $7.5 million is for the loss of net revenues. The net revenues will be interesting because, obviously, that will occur in the future when we can quantify and see acceptance of the insurance companies. In the meantime, the other operations with our midstream is now back on -- back in operation and is proceeding. During this period, we also entered into agreement with a very good operator in what we call the Niton area of Alberta in Canada. We agreed with them where they would drill $50 million worth of wells, at least that, projected at 12 wells. These will be horizontal wells, and they'll pay 100% of the cost of the drilling and the completion of each well at their sole risk. They're very experienced at this business, and I would sooner have them, what we would say derisk our property. And I wish them great success with that. And the economics of this, after each well is drilled, we can look back and see what they've done for a period of 90 days. And if we like it and encourage it, we can then purchase at their cost 30% of each well. And we purchase at 25% of the actual cost, so we get a discount to the financial cost. Or if we feel uncomfortable or we feel that the price of the commodity will not be what it should be over a period of time, we can elect to take the gross royalty on the product instead. Gross royalties is something I understand quite well and as the certainty factor is very high but also, owning part of a well with a good operator might also be encouraging, but here's a case where we can just look at it and see and then decide. And so the risk is passed on. One thing very nice, they've agreed with us where we can process in our processing plant all the gas found in this field. To us, that's a very important thing. The utilization of our midstream assets is something we want to develop very much in the future. I think we touched on very briefly last time we spoke about our marginal wells. We have around 800 marginal wells and we are now implementing a plan. And so we've separated those marginal wells legally from our present operation and when the present -- the staffing of our group in Canada to go into the marginal well business, entirely different mentality operation from our existing business in Canada. And I'm quite encouraged of this because I see that we can obtain other business from other companies. And I think we can see some good growth there in a different area of the industry. And as we go forward with that, we'll keep you informed. If you need you a feel of the results of the gas business, the natural gas pricing up until September 30 averaged $3.34 per thousand Mcf of gas. That was down from the period of June 30 where we were averaging $3.57 per 1,000 cubic feet of gas. Of course, this is the summer period when gas sits at the low. We find that gas prices usually go up in the winter if it's a cold winter, and we are very much hoping that, especially the northeast of the United States has a freezingly cold winter. This will help us substantially. But when I look at the $3.34, this is substantially above our cost -- our cash cost and slightly below our cost -- or book cost. And so depletion with our cash cost, we're not covering at $3.34, but it's not so bad. We have to see what we average for the year. If we get lucky and we do see some prices spike, as I've said to you before, we have $100 million credit facility hedging line available to us so we can take advantage and lock in prices for the next couple of years. I could just go back now and just touch a little bit on the commodity business. We see further growth here, but we see growth in 2 areas: In the product line but also through our acquisitions. And integration with our new CEO has pretty much occurred satisfactorily at this point but our margins have not. So we have a lot of work to do on margins, and I see greater topline number, and we must have greater topline number to get those margins. So I see that occurring through products, and but I also see that occurring through acquisitions. Changing the subject to the Wabush mine and the royalty we have in Canada, recently I met with the operators of the Wabush mine. We haven't met for approximately, I think, 11 or 12 years. Management of -- is Cliffs Resources, and they have a management change. It's very good to -- that after 11 or 12 years to meet and go through different stakeholders' positions. And it was very refreshing, and we aim to work hard with Cliffs to make this mine as productive as possible for all the stakeholders, and we're committed to that. And I believe with this new management group, they're also committed. For the last 11 or 12 years, we've just been a litigation with them and the only people who have been happy with that, of course, has been the lawyers. Wabush mine itself has changed over from producing pellets and selling them in the market to producing concentrate. That has successfully occurred. And in addition, if you can see from the table on Page 8 of the press release or in the President's letter, you'll see that the production also has come up. The last 3 or 4 quarters, I discussed with you, I've been disappointed always with Wabush. And this is the first time, in so long time, that -- I'm not happy, but I am much more relaxed and look forward to creating something much better here with them. And we'll work very hard going forward. In reference to the Pea Ridge property of ours, it is progressing. I was also down there last week. And we will bring you up-to-date when something is material. We are limited, as you know, under SEC and Canadian regulations to say something to you unless we can solidify it with some specific reports which they govern. But it's continuing, and we'll let you know if there's anything material. A couple of accounting notes which I think are relevant. So pursuant to IFRS 3, we thought it was prudent to revisit it, the bargain purchase, which we must do after 1 year. And we've adjusted that through a series of transactions where we thought the timing was incorrect on some of the assets. I've adjusted that down to retained earnings revised at 300 -- $406 million. In addition, we have reviewed and restructured our decommissioning obligations. Decommissioning obligations are long-term obligations for the reclamation and mediation of specific natural gas properties. And we have reduced that from $136 million at December 31, '12, to $106 million, which is approximately a $30 million change. None of this has an effect. Neither of these issues have an effect on the profit/loss statement. They all have an effect just on the balance sheet, and the liabilities fall off [ph], the decommissioning gets reduced, and subsequently, the corresponding entry is to the asset. Next item I just like to touch on is the search for a permanent CEO is underway still. We have interviewed several candidates. We're not stopping. We're committed to that. But we have not finished that at this particular period of time. The other thing we recently put in a shareholder rights plan. We feel the shareholder rights plan is fair at this point to allow each shareholder to have the same rights while we go through a period of -- having our shareholders assess where we're going for the future and making sure that we're on the same level playing field. I think the most 2 important things I'd like to address to you today, is -- the first thing is we need to get our top line up in the commodity side, which I feel we're doing, and we need to improve our margins, as they are not at an acceptable level. So that's number one. And I think that's the most important direction that we have for our people, and for us, of course, for myself. The other is that we do have some foresight on growing. And so we inter-growth with the expansion and our acquisition, and the policy, which we have clearly identified, is that we wish to grow without issuing shares. We wish to grow without dilution to our shareholders. And we also insist that we keep our balance sheet and our ratios in very good form. If we don't do that, our future will be very limited, and we'll have to issue shares in the future. So it's important that any project we do going forward, we create a situation know upfront that we're not going to be hurt ratio wise, and we will not create any dilution at that time or in the future. And we're committed to that policy. And the projects we did last year, I think, we did -- in the fourth quarter last year, 3 projects. We will continue with that in the future. So I thank you. That's all I have to say from a business point of view. And I very much welcome your questions.

[Operator Instructions] And our first question will come from the line of Sean Sweeney with Milwaukee Private Wealth Management.

Can you quantify the key ratio long-term debt-to-equity and what the acceptable high and low range on that would be?

Well, right now, it's at 0.20, right? So the high and low range, we have some internal projections, and I'd sooner just not go into that. One thing we do have, we do have the ability to leverage with more long-term debt. And we've looked at that, discussed it, but it is a competitive situation, and I'd sooner just not, in the public arena, go through where we would plan to go as far as the amount.

All right. And second, final question. With respect to your natural gas gathering strategy in the marginal wells that you indicated, approximately 800 in total, your release suggested that you may be interested in improving that business by acquiring other marginal wells from local producers. I'm curious why you elected to separate that legally and what that might imply going forward, and how this becomes a good or additive/accretive business to you in the event that you are successful with your strategy, and again, with some special emphasis on the legal separation.

We just see it in Canada, the stripper well business is really not a developed business. So really, that's what takes us or draws us first of all to it. We think mentally, there is a huge difference as far as the operator is concerned. Your operations are done more in a cash flow basis and done without the big company mentality of drilling wells. It's really here -- it's recovery and costs. And we see several operators and several companies who have surrounding properties to us and other places who would like us to be part of what they're doing. And they know that if we take this philosophy forward, we can reduce costs. And I think that we can see where we can do that. And the legal separation of this has occurred, and should it be an independent company? Well, for sure, it's going to be independently managed and independently run and nothing to do with our own operations. And I see some good growth because I see need in Canada for people to be looking at what I call shallow wells or not very attractive wells to the average person. Always in our lives, we have looked at the negative things, and I find that the stripper wells or the low-volume wells are quite negatively reviewed and quite often come with a lot of reclamation liability. And I think that's also an area which we have high level of interest.

Does this then tangentially improve your midstream business, or are there -- is there economic merit alone to this marginal well business that would make you want to commit additional capital there?

There is economic benefit alone to -- what makes it quite attractive.

Our next question will come from the line of Graham Tanaka with Tanaka Capital.

Just on the -- first of all, on just Mazeppa, what are your plans there? Where are you relative to where you want to be, and more importantly, what will that look like next year in terms of maybe revenue top line and profitability?

Next year is too soon, Graham. It's about a 2-year buildout, maybe 2.5 years. Depends upon what particular part of it. We have ordered equipment. We're waiting for some tie-ins from proper people. So it's in progress, but it's not a situation where you get revenues immediately. You've got to say it's at least 2 years. And I find, when my people say 2 years it's really 2.5 years, and that's even in reality when you're pushing them. And I think they're all motivated, but delays and permits never come on time. But it's an interesting business, and it just complements what we're doing. But it's just another one of the pieces of rationalizing the natural gas business.

And what -- eventually, what size will that become, whether it's 2.5 or 2 or 3 years out? How large is that entity going to be in terms of its operations?

If you set what will be the total footings? Let's just say net of current assets, you're talking around $220 million.

$220 million topline revenues.

$220 million in total assets.

Total assets?

Right.

And then -- so they will commission revenues at -- processing revenues of about how much?

Well, let's just say our projections for EBITDA will be 20%.

And our next question will come from the line of Bill Horn with First Angel Capital.

Just on your loss of gas production out of the Calgary region, you indicate that it was $7.5 million in income. Can you tell us what the production loss was?

Yes, but I don't have it here, Bill. But that's not income, Bill. That's gross revenues that we have paid...

No, I realize that, Mike. I'm asking for the production amount in Mcf.

I don't have that.

Or barrel equivalent.

I can send that to you.

Okay, that would be great.

Yes.

On your balance sheet, you've reclassified about $34 million worth of investment property to real estate held for sale. Is that the SWA Investment Properties, the German commercial real estate properties? Can you comment on that?

We have some properties which we are now in the process of selling. And as we're in the process of selling, we have reassigned them to current assets. And it is some of those properties but not all of those properties.

Some of the properties that were related to the SWA REIT acquisition?

Yes, but that was -- some of those properties don't exist anymore.

Okay. Can we look at the income -- or excuse me, the equity side of the balance sheet for a second? You have a line item there for noncontrolling interests that has decreased by about 60% in the 9 months this year. Can you comment on what those interests are, why they're being written down, or what's happening to those interests?

We have just been eliminating some of the noncontrolling interests as we have been going forward, and that's a continuous plan which we will be doing on various companies which we don't own 100% on.

Eliminate meaning selling or just writing off?

No, I mean purchasing. Eliminating is purchasing.

Understood. The other component on the equity side is your other comprehensive income which is fluctuated substantially in the 9 months this year. Can you comment on what are the main drivers of the adjustments there?

Predominantly currency, Bill.

Okay. Just sort of, I guess, following up on Graham's comments about Mazeppa. In your release, you talk about investigating an opportunity of developing a warehouse facility on the property. Is that part of a fractionation facility or is -- are we talking something different there? What -- can you comment on what your strategy is there?

What we're looking to do is to create more value added on the commodity side. And with Mazeppa, it is uniquely located and it's -- the most important thing is not the location, but that it has rail. And with the rail, we can then use that as a distribution center, and that's what we're asking and looking to permit properly now. We have lots of excess property in this particular main processing plant just outside of Calgary.

Okay. You've mentioned on the call that you're still not satisfied with margins. On the previous call, you mentioned that margins were adversely impacted by ACC's integration efforts. How has that integration with the ACC operations -- how is it coming along? And are the margins improving in that end of the business?

So margins, Bill, will never be satisfied. It's just, we're not allowed to. But ACC and the companies we've acquired to date, integration has occurred, and it's proceeding. And I feel margins are getting better. But still not good enough, right? And so it is a main focus, as I said. It's one of the main focuses we have going forward.

Okay. Also on the last call, you had indicated that the power plant that you had acquired in Uganda was to come online in October. Is that online, and is it producing?

It's online and producing but not up to scale until January.

So it's ramping now till January?

We -- there's several legal issues that we have to wait for licenses for this, but I can tell you, we are receiving cash, which is the most important thing. I'm quite happy -- everything is -- everything in Africa is working, which is a good thing to say but doesn't normally happen so easily.

Okay. You indicated earlier on the call that you are still searching for a CEO. But when you're describing the commodity business, you referenced Ernest Alders as the COO of the Commodities business. On previous calls, you had indicated that you had hired a COO for MFC. Is Ernest the COO for the company or were you referencing just his position within the Commodities business?

Ernest is the COO of MFC Commodities. I think the confusion may lie in the word MFC. We call the Commodities business, MFC Commodities.

Okay. On the previous call, you did indicate that you had hired a COO for the company. Can you provide us details on who that hire is?

No, Bill. I just said to you, the COO is Ernest Alders of the Commodity business called MFC.

I realize that, Michael, I did hear you. But on previous calls, you've also mentioned that you've hired a COO for MFC Industrial.

Sorry, that's not the case. I'm sorry if there's some confusion there. That's not the case.

[Operator Instructions] And our next question will come from the line of Sven Karlen with Wells Fargo.

The shareholders rights offering or shareholder rights that you've put in place, my historical experience is, generally speaking, those plans are put in place for a reason. And I look at -- I read it carefully, and it seems to me, the way the shareholder base at MIL is set up, there is only 1 shareholder that is disadvantaged with regard to that shareholder rights plan. So it seems to me that all of the shareholders are not being treated equally. And I'm -- generally, those plans are put in place to deal with an activist dissident shareholder. And my observation of this very large shareholder has been much more of a partner than an adversary. So I don't understand the rationale behind the shareholder rights plan.

I think that our Board of Directors have made it clear that to be a public company, you need to have a float. And the float is now less than 50% of our company, and I think that we need to address that issue. And we will. We're going to have a shareholders meeting in about 2 months, and we look forward at that time to address those issues. But for us to attract an institution to come in, to be a shareholder is very difficult now. So I think that in a couple of months, we'll address all those issues, and we'll have clarity for you and for all the shareholders.

And our next question will come from the line of David Minkoff [ph] with BCM [ph] Asset Management.

So as you indicated earlier, we have about $300 million in cash. I know you like sitting with large cash levels. It gives you options, and it's probably comfortable for you. But -- and our stock right now yields about 3%. You could -- it seems to me, you could take a small portion of that $300 million, say $15 million, using an arbitrary number, and that would double the dividend to an excellent dividend of 6%. And what would happen probably is that the stock would go to $10 in short order. Why would -- and I'm thinking $15 million wouldn't hamper your plans or your acquisition thoughts or your comfort level, I would think. Why wouldn't you take $15 million, double the dividend and pay some of that, pour it out to shareholders without harming the company?

David, I don't know if I have an objection at all to what you're saying. It's important that we keep our debt-to-equity low and reasonable if we're going to take this attitude of expansion without dilution. And that is really the most important thing. I think what you're saying about the dividend, if it's increased from 3% to 5% to 6% to whatever is something that we should look at, and we will. And I think that as the year ends here, we'll be setting down a new dividend policy in the month of January. And I will seriously discuss that.

Well, just 1 further add on to that. You're probably looking at the dividend as it relates to cash flow and earnings currently. But with the huge hoard that you have, if you peeled a little off for 1 year or 2 and paid a little more than your earnings or cash flow, it wouldn't upset the apple cart, and you'd be looking at a better stock. If the stock went from $8 to $10, and that's about where it would probably go. The $0.60 dividend, is my guess. You could argue with that. For $15 million, you raised the value of the company by $120 million, 2 points on 60 million shares, roughly. So to me, it seems like a no-brainer.

David, I think your words are very wise, and we will definitely think about that and address it with the Board.

And our next question will come from the line of George Berman with JP Turner.

It looks to me, having been on a number of these calls, that you are very a careful and shrewd operator that always looks for the long-term possibilities of assets that you purchase at usually very depressed prices. And looking at your balance sheet and your finances, I think that no one can argue that you're very well funded and have a lot of cash balances on hand. I think you would agree that today's interest rate environment is what some call a generational low, and I'm wondering why at a time like this you would not evaluate possibly going in and locking in a very low interest rate for capital for a longer period of time with the assets that you have. You could, for example, take the Cliffs royalty stream and make that as a security against, say, a bond offering. And with cash on hand that you have, the EBITDA generation, I think you would be able to lock in for, say, 10, 15 years a nice yield on a corporate bond offering then use the funds locked in at today's say, 2%, 3%, 4% yield to go what you do best and is find undervalued assets where you know your cost of capital right away. It would look to me that, that is more adequate than having lots of unused credit lines laying around that you know when rates go up, and they will go up, your cost of capital goes up. And I'm wondering if that has been sort of floated around as an idea possibly in this time and place because I don't think rates will stay this low for long, and thereby, lock in a capital flow that would be very well used. You could, as I said, buy assets, or you might even pay a special dividend like some companies do when they buy back their stock against a fixed loan. Your thoughts.

Yes, I appreciate your words, George. So a couple of things. December 31, '12, we did borrow on a term basis of 7 years, about 1[indiscernible]. So your words are, yes, term debt is important and when it's available at low rates, you could take advantage of it as long as you can prudently have some purpose of it in a reasonable period of time. And of course, get a return in excess of your cost. And the costs for that term debt, which we did December 31 of '12, was 2.54%. So it was reasonable. And we have looked at doing additional term debt. And we did the ones at December on an unsecured basis. And we have [Audio Gap] We are looking at that seriously. But the second part on Wabush, one of the problems on Wabush and the securitization of that cash flow is that we haven't got a firm pricing mechanism with Wabush as far as how much per ton is based upon a variable price. But now the variable has changed to only having 1 price. And it's not something which you should use or could use. Maybe it will be available to us after we've now finished our discussions with Wabush of how to increase the value of that asset for both the operator, the owner and for us, being the royalty holder for the stakeholders. And I'm open to that. And we could look at that, but it'll take -- at least on Wabush, it'll take 6, 7 months for us to have a firm understanding. Even though their attitude is just excellent, and I'm looking forward to working with them as we -- in the very near future.

Then one more question. Do you have any further updates on your Pea Ridge mine? A year ago, it was welcomed with lots of potential, and it seems like ever quarter the feasibility study is in the works, in the works, in the works, and now you've changed the general manager there, I guess. Is this something that you still feel has tremendous potential as you did a year ago to maybe open up as becoming either a royalty receiver for this mine, or when will we see some revenues come out of this project?

There's 2 parts to the mine. There's the actual mine itself, and then there's the tailings. So we are spending our time working on the tailings at this particular point. The new general manager there is the man who used to run our operation in Uganda. So he has many, many years of experience in tailing operations. He is general-ing the project. What I can say to you now is what the reserves are, the economic life is. I'm limited in what we can discuss on the project. All I can say is, I was there last week, and the project is going ahead. I have a great partner. I mean, the partner is perfect -- a local, successful company, and -- but we're not finished. And so I can't -- we're working on it, but I can't give you -- I can't say anything optimistically, and I can't say anything negatively because there isn't anything negatively. If there was, we would've made that disclosure right ahead. So we're not there, but it's not black in any way. Sorry I can't answer for you.

And then, if I could, 1 last question. You -- about 6 months ago, you acquired 2 other companies here. I believe one was in Mexico and one was up in New York to augment your commodities trading operations. How is that working out?

So, George, that's totally integrated now into our group, and it's going along fine. I think it's -- with Earnest Alders running that, being responsible for it, he has created communications, and everybody's working as a team. And as a team, we should get better margins. We're getting better topline growth, and we can see greater topline growth. And I think I'm quite happy with that at this point.

Is that still hampered by high shipping costs, or have you gotten that under control?

There's always high shipping costs when you don't ship enough in 1 ship. So it's still -- the key to that business, George, is still the integration in getting products into 1 ship so you become the dominant freighter supplier. And I think that we're getting better at that and...

Do you need to increase your volumes?

Yes. We need to increase -- top line, top line. I hate to say we need more top line, but we're getting there.

[Operator Instructions] And our next question will come from the line of Bernie Harris [ph] with B.J. Harris [ph].

Gentleman just answered a few minutes ago about -- with the bonds and all, I have just a question I'm not that familiar with. I know -- hear a lot of people looking in the United States to extend their loans because they know that things are going to go up. Or is the Canadian loans' rate very similar to American?

I think identical. It's -- set pricing, I think, is a little different. We're talking about -- not the high-yield market, right?

Well, yes, the bond market, yes.

Yes, so I don't think Canada is any different. We are able to borrow cheaper, more reasonable in Europe, and if we have to borrow in euro into a swap, we can do that. So it's more competitive. Maybe it's more underbanked but more competitive in Europe for us. It seems to always be that way.

You mentioned last year, you borrowed, I think at 2.7% or something like that. If you want to do it today, how much higher is it? The price?

I don't have that pricing. We borrowed in December 2.54% for 7 years unsecured but just $100 million in our currency here. I can't say to you what it would be if the pricing is -- but I don't think it's so much different at this particular point.

Because I tend to agree with the man. I can remember way back when utilities when they saw rates were so cheap although they didn't need the money, they were doing it because they figured within 2 or 3 years it's going to be a lot more expensive.

It's not that I disagree with George at all. I think that when money is available at reasonable prices and you don't take it, that's wrong. And we just want to make sure that we're comfortable with that. Because we do have capacity to borrow term debt, that's for sure.

I have a second question. Last year, you talked about getting more -- that you -- I know your cell phones are a huge chunk of the stock, but a lot of investors want to see other people, like the directors and all -- has any program been started for that? It was talked about last year.

No, the directors jus have stock options and have no ownership, though there is no plan in that regard.

And our next question is a followup question from the line of Sean Sweeney with Milwaukee Private Wealth Management.

Michael, I'm a little curious about after an 11- to 12-year hiatus in speaking to the management team at Wabush, what prompted that conversation, and what were you hoping to expect versus what you did? What did you expect to achieve versus what was actually achieved?

Two things. One, I think what prompted it was this change of management -- senior management at Cliffs. And the management of -- I believe has come out and said, "Let's talk to all stakeholders. Let's not just arbitrate any financial dispute, right?" And so we've been in arbitration for years. And we used to every year meet with them and discuss positives, negatives for the property, and then it stopped, and it became adversarial. I think it's wonderful we have a management change. At least that management change is creating talk. And they came to us on one of the arbitrations, which was just on -- there's been several -- and just on some costs, and they made an offer for settlement. I was just about shocked to see an offer of settlement because usually they go the whole route right to the end. And I think there's a major change underway at Cliffs. And I'm encouraging it, and I want to participate in it, as I think it's going to be good for MFC, and it will be good for them.

Yes, great. Second question. You were very judicious in your execution of your Mazeppa strategy and had referenced you're looking for the right JV partner, which apparently, you found in Niton. I've been mindful that Niton or a representative may be listening to this call, can you describe a little bit about how you arrived at the term surrounding the E&P development, which strikes me as being rather favorable to us as shareholders in terms of offloading some of the known or unknown risks associated with the development? And any other comments you might make related to the selection of Niton as your partner there?

So we started having discussions with them in November of last year. And in this year -- this month, we then consummated the transaction. So it does take about a year to do something which is worthwhile. So these operators are great, and they're good, but it's not a situation where we have both haven't bargained very hard, and -- but I think we bargained hard and fair. As there is a lot of natural gas liquids in this area and they have an expertise which we don't have, and we have the property which -- and the processing plant which is a major part of our bargain here. And so the selection really came because of knowledge of our people in Calgary, and then the negotiations took their normal course. And if it doesn't take 1 year, it's probably not a good deal, we say. And so you've got to be realistic on the time. And I'm very pleased with this particular project.

All right, and just a concluding comment, really. I would agree with George with respect to leveraging your balance sheet. I would respectfully disagree with the gentleman who requested you to raise your dividend. I'd rather see you frankly retain all of your earnings, reinvest it at rates that -- I have an expectation you can achieve long term. So from your shareholder population, you're receiving at least a contra request to retain your capital, please, and invest it wisely.

I appreciate your words, and we thank you very much for them.

Our next question is a followup question from the line of Sven Karlen with Wells Fargo.

Michael, the Uganda project, has that been favorably impacted, in your mind, long term by the recent peace settlement between the Condoleezza and the Ugandans?

I didn't know there was one, Sven. To be frankly [indiscernible]. Maybe there is, but they always seem to have conflicts.

I thought there was a press announcement on that last week. I don't know how long that's been going for. I don't know whether that affects that border and where your location is. But I think in the past, I recall there have been military skirmishes and part of your cost structure has been the security of that plant. Is that not true?

Absolutely. And you add security cost -- we had 200 -- when we were running the refinery, we had 220 security guards, right? And now that's reduced substantially and we're now in the transition over and that's going quite well. But when I say everything is going good in Africa, they have a crisis every day in the morning. At the end of the day, they solve their crisis, and I just hand it to the management, and I'm very pleased. And we just believe that we're going to create an economic benefit for the people of Uganda with the electricity, and maybe we can do some other things, and as long as we're good corporate citizens and keep a low profile, I think it'll be a win-win for everybody...

You said that this power plant is unlikely to be up and running at full capacity until January, but the cash is starting to come in. Can you give us some idea of what the potential cash flow from that plant could be on an annual basis once it's up and running 100%?

Actually I cannot, but we can get that information for you soon.

Ladies and gentlemen, we have no further questions at this time. I would like to turn the conference back over to Mr. Michael Smith, CEO, for closing comments.

We thank you very much for joining our call today, and we invite you to come to myself or Rene Randall with any other questions which you may have. And I look forward to talking to you at the end of next quarter. Thank you very much.

Thank you for your participation in today's conference. As this concludes your presentation, you may all disconnect. Good day, everyone.