Scully Royalty Ltd. (SRL) Q3 2014 Earnings Report, Transcript and Summary

Good morning and welcome to the MFC Industrial Ltd. Third Quarter Financial Results Conference Call. All participants will be listen-only mode. [Operator Instructions] Please note that 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 the company’s actual results to differ materially from those expressed or implied, please refer to the disclaimer for forward-looking statements contained in today's press release on file with the Canadian Securities Regulators and on Form 6-K with the SEC. Please note this event is being recorded. I would now like to turn the conference over to Mr. Gerardo Cortina, President and CEO of MFC Industrial. Mr. Cortina, please go ahead.

Thank you, operator. Good morning everybody, and thank you for being in our call this morning. First of all I am pleased to report that for the first six months since we concluded our two most recent acquisitions, we have reported a substantial increase in revenue. Revenues for the third quarter 2014 reached 392 million versus 260 million for the third quarter 2013. This represented an increase of 81%. For the first nine months of 2014 revenues reached 1020 million, so just over the billion-dollar mark compared to 592 million over the same period 2013, representing an increase of 72%. This increase in revenue is certainly rewarding. On the other side, as an important part of our traditional business as well as a business of our two most recent acquisitions operate in competitive markets primarily Western Europe, our income from operations, even though it had a substantial increase it did not increase at the same rate as our revenues. Some of this was due to certain one-time expenses, a higher non-cash tax expense and the reduction in royalty payments. Income from operations for the third quarter of 2014 reached $13.1 million compared to $4.2 million over the same period 2013, representing an increase of 211%. Income from operations for the nine months of the year reached $33.8 million, compared to $25.5 million over the same period of 2013, representing an increase of 34%. EBITDA for the quarter ended September 30 reached $22.8 million versus $15 million over the same quarter 2013. This represents 52%. EBITDA for the first nine months ended September 30 was $62.3 million compared to $54.6 million over the same period of 2013. This represents 13.7% increase. Net income for the third quarter 2014 was $6.4 million, versus $7 million over the same quarter 2013. This is a decrease of 5.4%. For the first nine months of the year net income reached $19.3 million versus $22.2 million in the same period 2013. We continue to work specially with our most recent acquisitions on expense reductions, synergies and efficiencies. We are pursuing opportunities to increase our value proposition by geographical diversification, product cross selling, supply chain structured solutions and increasing logistics and warehousing capabilities. During the nine months ended September 31, 2014 revenue from commodity and resources represented 97% of our total revenue. Our primary focus continues to be our global commodity supply chain business and structured financing solutions in metals, alloys, chemicals and minerals, steel, natural gas and wood products. We are actively evaluating investment opportunities in captive sources, off-take agreements and other sourcing agreements from third parties to further diversify our core business both geographically and by product with strong focus on increasing profitability. At MFC Energy, the construction of our power plant is on schedule and on budget. We continue to pursue a variety of potential investments in our midstream assets [Indiscernible] participation in additional drilling and exploitation of other assets. Now let me talk briefly about Wabush. The mining lease, which MFC granted to Cliffs is still in effect until officially terminated. MFC will now receive a minimum annual lease payment of Canadian 3.25 million, while we wait for the official termination notice. Upon termination of the lease, MFC will exercise its rights to take back its property, and meets our intention to continue evaluating opportunities to restart operations and undertake a capital expenditure program to both reduce costs and increase production. We believe the Wabush mine presents a relatively commercial advantage versus other mines in the region. Wabush has existing infrastructure, large proven reserves and high-grade iron ore well known by the market. Wabush has been an important asset to MFC for decades. It continues to be so today and we are working to ensure that MFC will continue to be an important asset for MFC in the future. With all these said, I would like to now ask Sam to continue with this call, and he has some additional comments for you. Thank you.

Thank you Gerardo and good morning everybody. Greetings from Mexico. The revenues for the third quarter increased to $391.8 million from $215.6 million in the same period of 2013, primarily as a result of an overall increase in more lease revenues coming from the consolidation of our recent acquisition. SG&A increased to $18.9 million for the third quarter from $13 million for the same period last year as a result of the consolidation of our recent acquisitions, as well as certain restructuring expenses. We won’t provide pro forma numbers. Our goal is to grow book value on a per share basis and these are real costs which impact our financial condition. But going forward we are committed to leveraging and reducing [Indiscernible] our structural expense profile. Income from operations in the third quarter was $13.1 million versus $4.2 million in the third quarter of 2013. We recognized an income tax expense of $3.7 million during the quarter compared to a recovery of income taxes of $2.7 million during the same period last year. The majority of this expense was non-cash utilization of our deferred tax assets and the income tax paid in cash during the quarter is approximately $300,000. We strive to be fiscally responsible, and more continually work to improve this. In the third-quarter of 2014, our income attributable to shareholders was $6.4 million or $0.10 per share on a basic and diluted basis, compared to $7 million or $0.11 per share on a basic and diluted basis for the same period in 2013. On to the balance sheet, we started to make some progress with our working capital, but we still have a lot of work to do, especially on the payables side. We have a plan in place to address this and it will continue to be a major area of focus going forward. So with that Gerardo, I will pass it back to you.

Thank you, Sam. Operator, we are ready for questions.

(Operator instructions) And the first question comes from Douglas Weiss from ESW Investments. Douglas Weiss – ESW Investments: Hi, good morning.

Good morning Doug. Douglas Weiss – ESW Investments: Good morning. On the – a few questions, on the NOLs related to Compton, are those usable in your supply chain business? And the reason I ask is, given the pressure on energy prices, if earnings decline there, I’m just curious, if you are able to use those for the rest of the corporation?

I’m not going to discuss our individual tax strategies or our NOLs at specific subsidiaries, but what I will say Doug is that we are very conscious of our tax assets across the company and in the past we have shown resilience in our ability to be fiscally responsible and we will continue to do so. Douglas Weiss – ESW Investments: Okay. I guess my next question is trying to kind of parse out the oil and gas from the supply chain business it actually looks to me like it was a pretty good quarter on the supply chain side that your operating margins might have been somewhat ahead of that sort of low single-digit number you have described as an industry standard, am I right in that?

We don’t break out our segments in that way and that is not something that we intend on doing going forward, and we continue to believe that commodities and resources is a segment in and of itself and we prefer to keep it that way. Douglas Weiss – ESW Investments: Right.

Doug, we still see a lot of room for improvement in our supply chain business, and as we continue to leverage our expenses going forward and as we continue to grow our revenue base that will drop to the bottom line. Douglas Weiss – ESW Investments: Right. I mean is that supply chain business, do you see that as a fairly stable – a business that is fairly stable from an earnings standpoint quarter-to-quarter that will continue to improve sequentially?

We are active in the supply chain business in Western Europe and very active in the Americas, both in US, Mexico, and Latin America. So that will give us stability. The markets are moving as I said a few moments ago, Western Europe is a very competitive market, stable market. When we see Mexico, [Indiscernible] Argentina, it is a difficult market. So across the board this will give us stability. Douglas Weiss – ESW Investments: Do you see sequential improvement in the fourth quarter versus the third quarter?

We are working on that. As I said, we are working on improving our synergies. We have done a lot of progress with our acquisitions, but we still have room to grow. Douglas Weiss – ESW Investments: Okay. There is some seasonality as a result of the heating season time for the [Indiscernible] business?

Yes. All right. I mean the fourth quarter it is usually stronger than the second and third quarter in the wood chips business. Douglas Weiss – ESW Investments: Okay. And are you seeing any effect from the German industrial production numbers were weak during the summer, are you seeing a direct impact of that?

No, no we are not. Douglas Weiss – ESW Investments: Okay. And what about the increasing strength in the US dollar, does that have an effect on your earnings?

No. I mean, we have in our ferrosilicon production might have some effect, but overall no.

We are hedging the margin for all of our commodity transactions that are in different currencies. So if we have a US dollar transaction that we are sourcing from Europe we will hedge that out. So from a margin profile it shouldn’t have an impact. Douglas Weiss – ESW Investments: Okay, and then I know this has been the case for quite a while, but I don’t know that I have ever heard you explain, why is the merchant banking income higher than the merchant banking revenue? Hello.

Yes, hold on a second please.

I don’t have an answer for you off hand Doug. If you can let me take that off. Douglas Weiss – ESW Investments: Okay, all right. That is all I got. Thank you.

Doug, the reason for that is we were able to dispose some subsidiaries, mainly holding companies in the last six months and there was a gain on the subsidiaries. Douglas Weiss – ESW Investments: So there is a gain in the income line?

Yes. Douglas Weiss – ESW Investments: Okay, and that is a non-recurring gain? I assume it is, yes. Can you say how much that was for the quarter?

Yes, correct.

For the quarter I think it was around $350,000. Douglas Weiss – ESW Investments: Okay, I mean because on a full-year basis – so, I guess there are gains throughout the year that are flow into that merchant banking line?

It is a fairly wide differential on a full year basis.

So in the second quarter we realized a larger gain, it was a little bit more than $4 million. It was a gain on sale of subsidiary. Douglas Weiss – ESW Investments: Okay. Okay, all right. That is all I got. Thank you.

Thank you.

Thank you. And the next question comes from [Indiscernible].

Hi, you guys, overall net-net I think the quarter was better than I expected, which is good. The first question I had is the plans on the dividend going forward, you didn’t quite mention that, you kind of left that, it was a different statement that you have made in the past quarters, do you believe that you are continuing to pay the dividend in ’15?

Our board of directors declares a dividend on an annual basis. The only dividend that they have declared to date is for 2014 and at our board meeting in March of 2015 this will be on the agenda.

Okay, but you – okay, so you are not going to comment on that. The inventory is around 185 million and the receivable is about 175 million, you expect those to get better as we go forward or would they kind of still – would they continue to grow?

So, we expect improvement across the working capital line. What I will say most of our focus right now is on the payable side, but we have made some improvements with both inventory and receivables and we expect that that will continue.

Okay, and net debt got a little bit better, but the gross margins seem to be still little rough, what do you think over that gross margins going forward, someone had mentioned in the past the industry is around 1% to 2% or 2% to 3%, we’re not even anywhere close to that, would you say over the coming quarters that that will improve or is that going to be something that we will have to wait and see?

Yes, I mean, there was a decline in our margins about the third quarter and [Indiscernible] mentioned before was due to recent acquisitions that they operate with lower margins. We are working on improving our margin with different strategies. So yes, I would say that the tendency is to improve our operating margins.

[Indiscernible] I know Wabush is worth about $160 million on the books, but the ability for them to produce [Indiscernible] and some of the others seems to be a substantial margin, may be over $30, how would you justify buying that because I think no matter what concessions are made by them, it is difficult to have that production actually turn to profit over the next [Indiscernible] prices stay the same, or go lower over the next 3 to 5 years, I am just trying to get the thought on the trying to make that capital come in when our net debt is actually negative right now, net debt to cash, it makes that type of capital commitment to Wabush might be difficult and I’m just trying to figure out how you guys are justifying now?

So Rich, just to clarify Wabush is on our books right now for $161 million gross and there is a deferred tax liability of about $40 million as well.

Okay.

There is a difference between the gross and the net number there.

Okay.

We are not going to comment on our plans for Wabush any further than what we have said in the past except for really to say this asset is a very long-term asset for us. As we already mentioned, Wabush has been important for us in the past and it is important for us today, and we expect this to be important for us for decades to come. We are very committed to this and in the past too we have shown responsibility with capital allocation and we will continue to adhere to those policies.

I think just two more questions, I know there was a restriction when you settled with the chairman of the board and other people involved in the company when there was back and forth on – getting people on the board of directors. There was a restriction on them buying stock, did that come to an end that restriction of the chairman able to buy the stock, or did that just continue indefinitely?

It is continuing.

If it does come to an end when will that be?

The current date is August of 2016.

Yes. [Indiscernible]

So August 16 of 2015, that is when that restriction ends?

16.

No. Sorry, August of 2016, 16.

Okay. So August, so they cannot buy the stock until August – after August 2016, is that correct?

Correct.

Okay, and then also the one thing is the – it seems the company somewhat has always been run as a private company in the past. We are trading at supposedly half of book value. Is there any discussions as far as taking the company private or at these levels you think that might be a decent place to put capital – the cash flow of the company is to buy back the stock, have you had discussions on any of those?

No Rich, we really haven’t. We’re really concentrating right now on growing the company with the assets we have, and I think that has really been the focus of the board and management.

Because it seems over the last two or three years the insiders haven’t bought a share and that has been an extremely bright decision unlike myself and some other people out there that have been buying stock, so the way I’m going to go look at this going forward is that I’m going to follow the people that have a little more information on myself, which is the people that run the company. So when they start buying stock I can perceive that as good value because they have been a very good predictor in the past. So that is the way I’m going to start to judge it going forward.

You are right. Take in mind there was a transaction this year in which Gerardo acquired 509,000 shares of MFC.

That was an open market purchase with cash or was that an option to buy the stock in the future?

It was a transaction just closed. So we acquired his minority interest in our Mexican subsidiary or common shares of MFC.

Okay. This had not seen any open market purchases other than the chairman of the board and some other large shareholders. So those are the people that they have really been in there supporting the company and the stock and shareholders. So that is what everyone who has been in this business for decades look for is to see that at certain levels, [Indiscernible] half a price of book value that the people that run the show, they know most about the company. They get the good value. So that is what I will be looking for. Last quick question, the 3000 square foot in New York City, I’m just trying to figure out the rationale behind that because downtown New York City is not cheap on lease payment. So just if you could maybe comment on that?

We have opened up an office. It is actually midtown. It is in Columbus Circle. That report was – it is actually incorrect.

Okay. So you didn’t do 3000 square feet [Indiscernible].

Sorry. We have opened up an office at one of our subsidiaries, which is also acting as an executive office base.

Okay. Okay and how large of a square foot was that?

I don’t remember of the top of my head. We can get back to you.

Sure, and that is where you guys are, right, is that correct?

Yes.

All right. Great. I will let someone else ask a question.

All right. Thank you.

Thank you. And the next question comes from Joe Pratt from Stifel Nicolaus. Joe Pratt – Stifel Nicolaus: Okay. Hi, Joe Pratt. Just can you give a sense of the timing on the maybe getting a leash on Wabush?

We are – we are not going to discuss any timing right now because there is a lot of moving parts here Joe. It is really better that we don’t say anything right now until we really assess what is going on. Joe Pratt – Stifel Nicolaus: Okay. So if Cliffs officially terminated the lease, what would be the next steps that the company would go pursue?

Again right now Joe, we would really prefer to leave our comments to the statements that we made in the press release and the 6-K. Joe Pratt – Stifel Nicolaus: Okay, got it. Thank you very much for question and answer.

Thank you Joe. Joe Pratt – Stifel Nicolaus: Yes.

Thank you. And the next question comes from Mr. Van Carlin with Wells Fargo Advisers. Van Carlin – Wells Fargo Advisers: Hello Gerardo, Sam and Reni, question has to do with Pea Ridge, there was no mention in the press release obviously I don't know prices are very depressed and contemplating a major capital expenditure to get that mind reopened. It's difficult in the current environment. Can you comment on any progress or any steps or any decisions made in regard with that Pea Ridge asset?

Really no updates. We continue to spend a little bit of money to explore that project but quite a small project. No major decisions even in the near future. We really wanted to de-emphasize that in our 6K in going forward, it's a long term project we have a great partner but again not necessarily part of our core business going forward. Van Carlin – Wells Fargo Advisers: Thank you.

Thank you and the next question is from [indiscernible]

Hi! thank you. I guess as an extension to the Robert’s question, could you walk us through how that would work it if they were determined to release what rights do you have in terms of selling the assets as oppose to buying it. It was somewhat unclear from some of the third party press releases whether there is the potential here for this to be sold to another party and whether MFC can get involved in that process. I am curious if you could comment on how that could potentially work out?

Eric, I wish that we could say more but really today we prefer to keep our comments to what was said in the press release in the 6K.

Got you. Okay. I guess my next comment would just be I think that you guys should very strongly consider buyback book value at all reliable I think it makes a lot of sense to be buying back stocks given the capacity how to do so at almost half of booked value and it's quite along that you guys have not thought about that and I would really encourage you guys to sit down and really concern that I think would be very, very wise thing to do. Or potentially revise booked value but I think the opportunity to buy that half of the book values should be pretty compelling so I would just encourage you guys to please concern that?

We definitely will consider, thank you.

Thanks.

Thank you and your next question comes from George Berman _. George Burmann – J.P. Turner & Company: Good morning gentleman. Thanks for taking my call.

Good morning. George Burmann – J.P. Turner & Company: I have got a quick question on your resource operations up in Canada in your table you point out the natural gas wells cost and production. And it looks on the far right that you we see no overall price of $40.34 you then subtract the royalties, transportation cost and operating costs that leaves me with about $16 in what you would call net backs to your company is that about correct?

We don't quite look at it that way. We look at this as part of our commodities and resources business. So what I will say to you is SG&A wouldn't be allocated in those numbers as well and other cost. George Burmann – J.P. Turner & Company: Okay. When you acquire the assets it was apparently done in a very, very favorable price, I think we had a wide up in asset value the following quarter. The joint party that does the drilling revenues we remember that we had a choice of either collecting royalties or paying some of that development costs and taking part of the profits. Have we made a decision on any of those yet?

Yes, so of the participation agreement that we have for northern property, where our partner would be willing to drill up to 12 net wells or $15 million minimum over the course of three year period, so what we said in the K is so far six gross wells have been drilled. Four of them have been brought on line and we have elected to take a royalty on all four. George Burmann – J.P. Turner & Company: Okay. The power facility, the power plant that you mentioned mid stream updates, what kind of revenue generation would that represent to us once this operation goes online and sells electricity to the Alberta system?

It really depends on how we utilize this plant. So one of the nice things about the Alberta electricity market is that it's – it allows for picking so it's a deregulated market so depending on how we utilize the gen sets that's going forward maybe we will only produce 10% of the time when prices are favorable or maybe we will produce all out. So from a revenue side, it's not something that we can easily break down. George Burmann – J.P. Turner & Company: You can’t even give me a ballpark of what it would look like? We are talking millions or couple hundred thousand dollar?

We are talking millions. If we were to run all out it would be north of $15 million of revenue on an annual basis, again that's there is a lot of optionality that we have at this plant. George Burmann – J.P. Turner & Company: Alright. Okay. Now I know you don't comment on Wabush as you said several times today on the call, but I assume that you were in the conference call the first conference call that your management team had with the investment community?

Yes. George Burmann – J.P. Turner & Company: Okay. There was mentioned that on their other significant asset in Bloom Lake they were contacting a number of partners for possible joint venturing. I want to throw this out to you just as a thought since you are dealing commodities and from there dissertations that mine is not all as bad as it's made out to be, would it be a consideration for MFC to go in next to new course steel and another steel company and invest in these phase two Bloom Lake operation, I think the number mentioned was $100 million and own a I would call commodity stream for 15/20 years that you could then through your operation market worldwide?

We haven’t really given that any thought to be honest.

And we believe Wabush offers advantages as we have already mentioned so we have not considered at all investing in Bloom Lake. George Burmann – J.P. Turner & Company: Okay. Now a couple of housekeeping questions. I utilized often times the menu on the yahoo finance and I have bought this a couple of times to the attention of Mr. Smith the information given on the financial website from Yahoo Finance, is in many respect completely wrong to have you as a medical company, the insight of transactions of a company that apparently has symbol from way, way back and I am wondering if there is anything that you can do to sort of correct this because I know a lot of brokers, investors analysts are using the Yahoo Finance as part of their due diligence process?

Thank you for your comment we will look at that. I don't think -- working hard enough. George Burmann – J.P. Turner & Company: And then last conference call you had mentioned that you will go into one of the areas you are looking at is sort of the IR investor relations or publicity on your company I think part of the reason why you are trading at such as a low evaluation is because you are not really well known in the market place and your operations has such commodities trading it's hard for people to get them their mind around. Is there anything on in the works to maybe get some more IRPR done?

There is George, I think in the New Year we will go into come out a little bit better. We are going to try to focus the company’s story little bit better I know we could definitely do that and we will come out on a rollout to. We will try to finish this year in getting the company up and going the way the new management wants to do it and then I think in the New Year we will definitely come out and start to more active PR program. George Burmann – J.P. Turner & Company: Okay. And last question –

I want to break myself so the power plant if we are running 24 hours a day would that be between 10 million and 15 million of revenue apologizes to that. George Burmann – J.P. Turner & Company: Well that’s okay. That's okay. And then you show revenues for the nine months on commodity resources, $987 million. Can you quantify what is done in Western Europe, what is done here in North and South America?

Western Europe represents about 60% of our business, 30% is the Americas and 10% between Asia, Africa, and Far East. George Burmann – J.P. Turner & Company: Okay. And what type of commodities it is said you named the top five, what do you primarily deal in?

Alloys, minerals, and fertilizers, wood products. George Burmann – J.P. Turner & Company: Okay. Alright. Thanks very much.

Okay. Thank you George.

Thank you and the next question comes from Bob Sales with LMK Capital Management. Bob Sales – LMK Capital Management: Couple of questions. You mentioned that there were certain onetime charges in the quarter that you haven’t pulled out and offered a kind of pro-forma P&L I agree with the fact of the real charges but would you willing to share the approximately level of what the onetime charges were again in the quarter.

We would really prefer not to quantify those. Bob Sales – LMK Capital Management: Can I ask why?

So there is definition of what's onetime, what could be potentially recurring for example we settled a couple of legal cases this quarter that had a small impact on our P&L we settled them for slightly larger amounts than we had agreed. But even though what you would consider to be part of the pro-forma I don't know it's just to do this exercise it's not something that we are interested in. Bob Sales – LMK Capital Management: Understood. Also with respect to Wabush, you mentioned in your initial monolog that there was certain advantages that you feel the mine has, can you just highlight those one more time.

Mainly structure in place and that the iron ore from Wab which is very well known in the market and logistics, those would be the three main advantages. Bob Sales – LMK Capital Management: And the mine to-date has been primarily sold to customers in North America and more specifically within Canada?

No. I think it's oversee most of the sales is overseas for Wabush. Bob Sales – LMK Capital Management: Okay. Given your core business deals with resources and commodities can you highlight a bit any concerns you have with specific commodity prices and weaknesses within the business today?

No. as we already mentioned that our business in Western Europe is very competitive the third quarter in Europe was exceptionally a bit lower but we don't see, we don't see any down turn in the market in the Americas market is doing quite well for our commodities both the US, Mexico and Latin America. So we feel comfortable that we will continue growing in this business. Bob Sales – LMK Capital Management: Okay. And within Western Europe, when you say it's competitive, which commodity areas specifically are you seeing the most pressure?

Steel and steel raw materials. Bob Sales – LMK Capital Management: So it deals with your alloy businesses?

Well we trade with steel and then on the steel raw material, yes there are low in major part. Bob Sales – LMK Capital Management: Okay. Got you.

This is held up quite well and remember much of our production is high priority or granule material which gets a premium to standard grade. Bob Sales – LMK Capital Management: Right. And then I noticed in your energy production segmentation that you realizing some pretty attractive prices the natural gas side of things, can you talk a little bit about that realization and the hedges involved and any concerns you have about the longevity of the hedges?

So firstly we don't have a segment that’s energy. Our energy business is part of our commodities and resources segment. The prices that you are seeing in the chart in presence that are in the 6K or nine months which include the first quarter which are very attractive natural gas prices. So, during the third quarter our realized prices were slightly lower than that but still adequate. Our hedging program we closed down all of our hedges in the third quarter and now we are looking for an appropriate time to go back in and once again hedge out our production. Bob Sales – LMK Capital Management: Is the nature of the gas that you are selling advantage in terms of realizing some sort of positive differential to Henry Hub?

So we are based on Eco. So Alberta gas Canadian dollar denominated. Bob Sales – LMK Capital Management: Yes. The common – I will just offer one comment and that is there is from an outside investor perspective there is an obvious attraction to the book value and the success you guys have had over time, I think it's a bit challenging if the management team truly has a, endeavors to become viable, a more viable investment on asset for those that invest in public securities, it makes a little difficult when you don't break out certain onetime charges whether or not you deem them to be onetime or not onetime, but the aggregate or specifics of what happened in the quarter would be extremely helpful. And then with respect to the Wabush mine, same goes but I also respect that you guys need to play your cards pretty close from negotiating standpoint so that's probably a little less mute but I am only saying because as you turn the calendar, and think about these things, the new management team, it is awful tough to get a sense of the solidness of the booked value or kind of what the bottom line means in the quarter when there is opaqueness with respect to some of the one time or non occurring things that happened. So I am just provided that feedback I am not necessarily --

I think we will consider to review how – so we will continue to review how we present our financial results and we want to be as transparent as we can. So we appreciate the comment. Bob Sales – LMK Capital Management: Yes, but I would say it's not – it is very – it is as opaque as I have seen in the stocks I am looking at in the publicly treated markets. I am just giving you a point of reference but I also respect the fact that from a competitive standpoint there are certain things you don't want to disclose. But the results, I would just say as independent investor, they are very opaque. So again just feedback. Just one there.

To be clear if we ever have to choose between economics and disclosure we are going to choose economics right. That being said, from the cost standpoint and I do have an opinion that our restructuring cost are real and they should be reflected but if it would help the investment community really see what our ongoing earnings power is and that's something that we will consider and we appreciate the comment. Bob Sales – LMK Capital Management: Yes, I think I have said enough. Thanks for listening.

Thank you.

Thank you. And the next question comes from Bernie Harris with B.J. Harris. Bernie Harris – B.J. Harris: Good afternoon. Or good morning rather. You talked about the earlier maybe diversifying some assets there is still some plants of some that you might think of still getting rid of.

Well, we are looking at the different opportunities to further increase our commodity supply chain business and we are evaluating constantly all our assets to see any non-core assets that we have what’s the best alternative for us. Bernie Harris – B.J. Harris: Are there still some that you are looking at without naming them?

We are looking at constantly that our portfolio but there is nothing that we can say to date at the we have decided so far. Bernie Harris – B.J. Harris: Okay. Thank you.

Welcome.

Thank you. The next question comes from [indiscernible] Asset management.

Good morning gentleman. I too would like to chime in on the differential between the stock price and the book value. So you put it in the statements so I guess you think or believe that the stock is worth in the quarter or more which is the book value so there is 100% less in the value with the stock. Why would you invest in any other company where you are not making 100% as oppose to buying back the stock where you have the potential to make it 100% if you believe the book value is real?

Capital allocation is a constant discussion among our management and board of directors and we appreciate the comment. We will continue to evaluate that.

Well sure. It's almost mind boggling to let it sit like this and not pay attention to it. You should be wearing two hats, one making the proper investments in other companies and also paying mine to your shareholders and where the stock price sits. Second, and alternative way to narrow that differential between the stock price and the booked value since you have a lot of cash, is to double or even triple the dividend right now we are paying a dividend that amounts to 4%. If you use the little or just some of that cash, some of the cash was sitting with and double the dividend it would be yielding 8%, if you tripled it, it would be yielding 12% that would take care of some of that differential. I guarantee you but the stock will be closer to book value if you paid attention to that dividend. How much cash are we sitting with right now?

More than $200 million.

So that's 3000 share in cash?

On a gross basis.

On a gross basis. So if you took another and yes 60 some odd million shares outstanding, so we took another $60 million of that that would double the dividend to 8% how long do you think it would take before people realize that there is an 8% dividend and they are getting very little in bonds or in bank or anywhere else that there would be more demand for the stock and the stock price would go up. If you triple it, it would be even better. So you talk about buying other companies and doing this, you are not making anywhere near which you can make if you just focus on your own stock right at home.

We appreciate the comment but again capital allocation is a very important discussion that we have all the time. But we are focused on long term shareholder value and this is we don't have any specific answers for you today. We will consider all of these options and we appreciate the comments.

Okay. Thank you.

Thank you and the next question comes from [indiscernible]

Hi! This is Graham, how are you?

Good morning Graham.

How are you Sam and George I am sorry I missed first 10 minutes.

How are you?

Good. Hey just a few things to maybe give the little big picture perspective of long term. We agree with you folks on the long term growth of the company value but if you can give us a little help in terms of what the balance sheet might look at on net debt cash monies debt whatever what's your goal for the end of the year or longer term. I believe there is modest net debt position today and within that context, also if you can give us a little help on the timing for how long would it take to restructure particularly the last two quarter assets. Thank you.

So from a net debt perspective Graham, the most important thing near term is our working capital management. That's something that we have very specific goals in place for the end of the year reducing our receivables inventory and increase in our payable as well. So, we don't want to specifically give any forecast going to next year even longer term but we are making material progress from a cash position and net debt position standpoint.

I guess I was trying to understand is the company has always had pretty large net cash positions and with the recent acquisitions of course you have made some big debt and as intention to pay off that debt first for example ahead of buyback stocks or what other acquisitions or does the company plan to operate in a net debt position for the intermediate term. Thank you.

We are quite comfortable with the net debt position but again the most important thing right now is to focus on working capital and increase our cash position. We had great relationships with our financial institutions and we feel quite comfortable about the capital structure of our debt environment.

The other is, how long do you think it will take, I understand it might be difficult to put a time frame but how long would it take to get step on the other operations to the point where the returns, the margins, and returns and capital where you would like them to be? We are talking about five years, two years, one year what are we talking about?

I think we’ve made progress over the last six months since we acquired this these two companies. We have lot of plans and actions in place and I would say that we will see a benefit during next year. I cannot quantify how much but definitely we are in the right track and we will see benefits.

The other is to what extend do you see net commodity inflation or deflation in other words, are revenues going up or down because of what's going on with commodity prices and is that something we might continue in the next year. Thank you because as you run off on your contracts. Thank you.

Well, I think as Sam mentioned before there is a slight increase in prices for silicon but I would say that most of our commodities prices have been stable this year and we look at the same for next year. We don't see any major increases or decreases in the main commodities that we are active.

Maybe I could be more specific. There has been a major decline in the oil price features and transaction prices and forcing net gases has gone up the other way recently but just wondering how much exposure the company has in terms of either barrels per share or what exposure for example if oil is down $10 how much would that effect?

We are not active in oil at all, the only thing that will affect is our plastics business and prices have come down but not much and we think that it will stabilize during the next year.

The large majority of our production in Alberta is natural gas. 98% or 99%.

Okay. That's great actually. So the, I think I was wondering, you do show there is I think 90 something million of assets held for sale, I know there is always asset sale for sale but that seems like a fairly large number and I am just wondering what timing there might be in terms of a monetizing those assets. Thank you.

So our asset sale for sale really for property in Northern Alberta, we are very active and marketing those properties and we hope – you can never give a specific timing on the transaction but we are hopeful that in the near future certainly within 12 months or within six months we can do something.

And are they being conservatively valued in the balance sheet, I would assume they are.

We are comfortable with the evaluation around you.

The other thing is that Michael Smith has been pretty specific in many really last ten years on ROE sort of goal over 20% and I am just wondering if you have a established new management long term financial goals whether it's return on equity, margins, cash flow goals that kind of thing. Have you established that yet or is that under development?

We are working on that but we cannot disclose right now our goals. But we will consider that disclosing sometimes in the future.

But it's apparent to us Graham, our return on equity, our return on capital is unacceptable and these are some proof. So we don't want to give any long term goals for any numbers out there quite yet. We will be prepared to do that at some point soon but not today.

Maybe I could help slice and dice it a bit to reach whatever the long terms goals are going to be just a big picture sort of magnitude how much of it has to be the synergies or the acquisitions and how much of it is others, in other words if you get to the goals whatever they are whether it's 20% or 15% or whatever and whatever timeframe in a year, or two or three, how much of it is really going to rely on getting the two recent acquisitions in the place you wanted to be or is it relate to something else?

Well, I think it's definitely related to recent acquisitions but we are working all across the board to increase our margins based on synergies within the different group companies geographical distribution cross selling I mean we are working on all the different alternatives options that we have in our hand to increase our margins.

Thank you very much. Good luck.

Thank you Graham.

Thank you. And the next question comes from [indiscernible] a private investor.

Good morning. I didn’t hear the whole call so I apologize maybe some of that is questioned. Is there any, when I read through your annual reporting, not the feed up the Wabush, the books value are carrying out $160 something million on opaque notes do you have a starting or anything is in report to shareholders as far as what exactly is there like the mind or body that's out Wabush or what the expect to life is or how many terms are left there in the mine?

So to be clear that $160 million that gross there is $40 million to liability associated with that. We have not publicly disclosed any reserve estimates. The operator at the mine has disclosed reserve estimates of that property in the past.

You said [indiscernible] has told the world what the reserves are?

We have, yes.

Okay. What it that amount?

I don't have the final list with me right now to be honest.

This is an assets that your management team is talking about possibly buying or restructuring or possibly having other investors in and you’re on a call and you can’t tell us what a third party [indiscernible] stated what the reserve like there is how much is less in the mine ore?

What we said that today we prefer to keep all of our disclosures to what we said in that present letter in the 6K beyond that we really we can't refer you to Cliff’s most recent financial findings but beyond that we are not going to disclose?

You can just talk to the problem here everybody on this call has been talking about the discount and lack of transparency but you also disclosed you think the lights have been more -- mine ore or what the total tonnage is left there would go a great deal to and that's just confidence then knowing whether this was worth enough?

Sorry, Greg, to be clear. We have not done the studies necessary to be able to tell you what we believe the reserves would be.

As you’re an independent board member, I would want to know if you – something that $120 million or $160 million or $10 million. and I want to know what is the reserve likes of this streams that works, that we told our shareholders have the value not based upon Cleeve and Cliffs giving your royalty payment which we now know may not happen again and that you are planning this other business about possibly – I think as shareholder we have right to know that?

We appreciate that comment.

Thank you.

Thank you. And the next question is a follow-up from [indiscernible] your line is live.

Hi Sure. Just a quick follow-up. One thing I wanted just to clarify is there any situation that this is more stock say under $9 or $10 a share because I did look in the discussions on funding PG expansion. It may be done with the issuance of stocks. So the worst thing could happen is wake up in morning and MFC is issuing 15 million shares at $6 a share and diluting us a little bit here. So could you maybe comment on that?

In the past we have had a policy not to dilute our shareholders with any acquisition -- is to continue with that. We’ve no current plan to issue any stocks.

Would you see any situations where you would issue shares substantially under booked value, could there be any situations that that could happen?

I would prefer not to get into what is scenarios.

Alright. Okay. Thank you.

Thank you.

Thank you. And also we have follow-up from Douglas Weiss from ESW Investments. Douglas Weiss – ESW Investments: Hi! Just quick follow-up on the natural gas hedges, when you sold those in presumably recognize again on those, do you include that gains separate from the presentation of the oil and gas results in the release or is it incorporated into the realized price of natural gas?

Sorry. That’s in other income. Douglas Weiss – ESW Investments: So when you show the $5.10 for net gas -

It doesn’t include any hedges. Douglas Weiss – ESW Investments: Okay. Okay. Got it. Is it possible to say what the gain was?

We didn’t break that out in our 6K except to say that during the three months ended September 30, our total gain on derivatives which included commodity derivatives current derivative was $9.7 million. Douglas Weiss – ESW Investments: It was $9.7 million for what period?

That was three months ended September 30. Douglas Weiss – ESW Investments: Okay. Got it. Alright. Thank you.

Thank you. And we have a follow-up as well from George Burmann from J.P. Turner & Company. George Burmann – J.P. Turner & Company: Yes. Thank you again. I have one last question. We have a I think a very large shareholder by the name of Kellogg, who owns about I guess about 20 million shares. Are we in communication with him, does he have any infos on your decisions and if you were to buy back stock, it would obviously increase his position indirectly. Would that have any with you not buy back stock?

We have communications with him on regular basis. We just had a board of meeting which he attended and he is the chairman of the board of the company. So yes we have a lot of communications with him. And the buyback really is -- he is being the chairman, affect the company if the company did the buy back. George Burmann – J.P. Turner & Company: Okay. Great. Thanks.

Thank you.

Thank you. And there are no more questions at present time so I would like to turn the call back over to management for any closing comments.

Well, thank you very much all of you for being in our call today. I think we covered a lot of ground. Thank you for hearing to the MFC Industrial. All the best, bye.

Thank you. The conference is now concluded, thank you for the in-stage presentation. You may all disconnect. Have a nice day.