Scully Royalty Ltd. (SRL) Q2 2015 Earnings Report, Transcript and Summary

Good morning and welcome to the MFC Industrial Ltd. Second Quarter 2015 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note that certain statements in this conference call will be forward-looking statements, which reflect management’s expectations regarding future growth, results of operation, performance and business prospects and opportunities. For detailed information about risks and uncertainties that could cause the company’s actual results to differ materially from those expressed or implied, please refer to the disclaimer for forward-looking information contained in today’s press release on file with the Canadian Securities Regulators and on Form 6-K with the SEC. Please note this event is being recorded. I would now like to turn the conference over to Mr. Cortina, President and Chief Executive Officer of MFC Industrial. Please go ahead.

Thank you. Welcome to the MFC Industrial investors call. We thank you for joining our call. With me today are Sam Morrow our CFO, and Rene Randall, VP of Investor Relations we are all in our Vienna office. For the first six months 2015 revenue increased to 710 million compare to 629 million for the same period 2014. This represents 13% increase. Net income for the first six months 2015 was 13.3 million compare to 12.9 million for the same period 2014, a 3% increase. Even though we had an increase in revenue and the slight increase in net income, we are not satisfied with this results. We continue to work to execute our strategy which we believe will be the driver to improve our profit margins. We will talk more about this during our call today. We are disclosing in our 6-K our revenue breakdown by products and geography. For the first six months 2015 compared to the same period 2014. This breakdown has been requested by some of you in previously calls. Minerals, Chemicals and Alloys represented for the first six months 2015 40% of our revenue followed by 21% in wood product, 17% steel product, 14% metals and 9% others. In revenue by geography for the same six month period the EU represented 67%, the Americas 19%, Asia 9% and other 5%. Our balance sheet continues to be strong, cash as of June 30, 2015 was 250 million, total assets 1.3 billion, long term debt 270 million and equity of 662 million. With our recent acquisitions we had an important increase in receivables and inventories, and we have been working on alternative ways to manage them in more effective way. On receivables, we were able to reduce them from a 162 million as of December 31, 2014 to 131 million as of June 30, 2015 a decrease of 31 million. On inventories we have 213 million as of December 31, 2014 and as of June 30, 2015, 194 million, a decrease of 19 million. Our objective in inventory is to have on average 45 days of sales, data at the current sales level represents between 165 million to 175 million. This includes transit times and at this level we will be -- this will allow us to maintain just-in-time deliveries that is an important service that we provide to our customers. Now Sam will discuss with you in more detail our financial results.

Thanks Gerardo and good morning everybody. Gross revenues for the first half of 2015 increased 12.9% to $709.6 million from $628.7 in the same period of 2014 primarily as a result of the consolidation of two acquisitions in the second quarter of last year, partially offset by a decrease in average natural gas prices and the impact of the stronger U.S. dollar against the Euro and Canadian dollar. Cost of sales and services increased to $649.8 million during the six months ended June 30, 2015 from $554.8 million for the same period of 2014. Our gross margin declined to 7.7% compared to 11% in the prior year period. Our recent acquisitions have margin profiles below our historical corporate average, but our margins were also negatively impacted by lower average natural gas prices and less income from our iron ore interest. SG&A decreased to $36.5 million for the six months ended June 30 from $44 million for the same period in 2014 primarily due to the strong United States dollars versus the Euro and Canadian dollar, partially offset by investments into new markets and geographies. The majority of our SG&A is incurred in Euro and Canadian dollar and a weakening of this currencies results in the decline when denominated into U.S. dollar. As a percentage of gross revenues SG&A was 5.1% in the first six months of 2015 compared to 7% in the same period of 2014. For the first half of 2015 our operating EBITDA decreased by 16% to $33.2 million from $39.5 million for the same period of 2014. Our income attributable to shareholders increased by 3% to $13.3 million or $0.21 per share on a basic and diluted basis, compared to $12.9 million or $0.21 per share on basic and diluted basis in the same period of 2014. Cash and cash equivalents were $250.1 million on June 30, 2015, compared to $297.3 million as of December 31. The decrease in cash was primarily the result of a reduction of short-term borrowings and repayments of debt. Short term bank borrowings decreased to a $133.4 million on June 30 from $161.3 million on December 31, 2014. Total long term debt decreased to $270.2 million on June 30, from 313.1 million on December 31, 2014. On June 30 our trade receivables were $131 million and our inventories were $194 million, compared to trade receivables of $161.7 million and inventories of $212.6 million as of December 31, 2014. More than 50% of our inventories have been contracted at fixed prices, while the remainder is comprised of the raw materials, work-in-progress and finished goods at our production facilities, strategic inventories such as consignment positions and goods in transit. As Gerardo mentioned we are focused on reducing our inventory levels further as we execute our plan. And now Gerardo back to you.

Thank you, Sam. I would like to discuss now three important topics on our business going forward. First, I will give an update on Wabush and MFC Energy. Secondly, I will talk about the bank. On June 15 we announced that we have entered into an agreement to acquire licensed bank in Western Europe, this is a very important part of our plans going forward and we would like to update you on this, and finally I will talk about our share price. Wabush, these mines have been in operations since 1966 and as you all know we have a mining lease with Cliffs Natural Resources from which we get a royalty revenue. In the first half of 2015 Cliffs announce that they have closed the mine and they had commenced restructuring proceedings on their Canadian CCAA. When we are able to terminate the lease with the intent to retake the mine and exercise our contractual rights to acquire the mine infrastructure and related products. While iron ore prices have decline, we'll take long term view on these assets. We don’t have any related debt and we will continue to be responsible in allocating of capital. MFC Energy, in late March we announced the plans to rationalize our MFC assets over an estimated 18 months period and return certain proceeds to shareholders and re-deploy the balance to our trade finance business after paying our debt related to these assets. In our 6-K you have full details. While this plan is still going and at this time we have evaluated several proposals and current are evaluating others, due to current market conditions we are not in a rush and we will wait to make a responsible long term decision. On the Bank, in June 2015 we announced that we have entered into an agreement to acquire licensed bank in Western Europe. This transaction is subject to other conditions to National European Central Bank regulatory approvals. We currently expect such regulatory approvals process to take several months. So before these event, this acquisition should be concluded. At this stage as we are going through the regulatory process approval we cannot disclosed any additional information. In our global supply chain we source and supply a wide range of products such as metal, alloys, mineral, chemicals and wood products to different industries around the world. Our in-house bank will enable us to grow the supply chain and structure finance solution business by providing alternative trade financial solutions such as factoring, inventory financing, forfeiting [ph], and other types of risk management and financing solutions to our established value chain of customers and suppliers. We have to date a substantial customer's supplier base, our plan ambition is to grow our trade finance business and improve profit margins by offering new and complete trade finance services and solutions to this established value chain. And finally, I would like to talk about our share price. On August 7, MFC industrial share closed at $3.41, down 52% since the beginning of the year. Not only have the industries in which we participate underperformed the market, but MIL shares have underperformed those industries. While our focus is on long term value creation we are clearly disappointed with these recent performance on both a comparative and absolute basis. At $3.41 per share MIL is trading at 0.33 times tangible book value. To put these in another perspective MFC shareholders equity is 662 million or $10.49 per share and excluding our interest in an iron ore mine and our natural gas subsidiaries, MFC shareholder equity is approximately 360 million or $5.70 per share. So before considering our two most recent -- most significant assets our common shares at 0.60 times book value which consists mainly of working capital. We remain confident in our strategy to rationalize certain assets and leverage our global supply chain platform with the addition of regulated trade finance product and services. We believe this will benefit all our stakeholders overtime and overtime our common share price will converge with its intrinsic value. Our cash position as I mentioned before remains strong at 250 million and taking into account that this acquisition of the European bank that we have announced, we want to be very prudent on how we manage our cash as there will be commitments to this project. So for the time being we would not enter into a share buyback, but after this process is completed we will review again this strategy. To finalize I just want to thank you all and our shareholders for your support. Operator we are ready to start the Q&A.

We will now begin the question and answer session. [Operator Instruction] The first question comes from Michael Epstein from Northeast Securities. Please go ahead.

During the six months your Chairman and one of the Board members have resigned. Could you give us some color and what is going on as far as replacement or what the management's thoughts are on this matter and does that restrict Mr. Kellogg from buying more stock because he is significant shareholders?

Mr. Kellogg joined the MFC board and he was appointed Chairman in December 2013. In July 20, 2015 Mr. Kellogg announced that he and Will Horn had decided to step aside as Directors in connection with the new direction of the company and the focus on trade finance, especially in Europe. And as he mentioned it is time for a change and to move forward into other activities. I want to say at this time that Mr. Kellogg made important contribution to the company during his time as Chairman. All of the members of the MFC board, we appreciate very much the time that Mr. Kellogg and Mr. Horn serving the board and their guidance and contribution. We are actively conducting a search for candidates with experience and expertise with ex-corporate tangencies, great finance and banking particularly in Europe, in order to [indiscernible] our board. In reference to Mr. Kellogg there is an agreement in place that he cannot trade in our shares until August 2016.

That is still in force?

Yes it is.

Okay another question thank for the answer. Your company has two distinct areas the banking areas and natural resource assets, what is the possibility of splitting it into two and -- so the banking could adhere to all the requirements and natural resources so that we don’t have a mess with lower commodity prices, that stock is been unduly trounced because of the natural resource aspect and you seem to be doing so well in your bank financing operations which I think in my opinion has a lot of growth. What are your thoughts on that?

Thank you Michael. Would you like to take that Sam?

So MFC has a history of innovative transactions such as spin-outs and we're always looking to see what the best way to maximize value for our shareholders might be. At the current time we truly believed that having vertically integrated assets is integral to our future plans to build out this structured finance local supply chain platform. But we have said that our natural gas assets are to be rationalized and that’s a process that’s ongoing. So that was a process we said would take 18 months and we look forward to competing that in the near future.

I'm hearing a negative as far as splitting the company, or having like a stub, that if you sell the natural resource -- the natural gas, you will pay us the proceed, is that correct?

That’s correct. So with our natural gas assets we are going to rationalize certain of those assets and redeploy the proceeds back into our trade finance business. And certain of those assets after the repayment of the long term debt incurred in conjunction with the acquisition of that company we will return those proceeds to our shareholders. And we said that was going to be an 18 month process in March, so I would expect that 12 months to 15 months from now, or within the next 12 to 15 months.

You seem to have a strong balance sheet, any chance of making some accretive acquisitions? There are a lot of repressed assets in the natural resource areas. And I believe you can buy them on the cheap you had a Chairman prior Michael Smith who seems to have an excellent record of acquiring assets at steep discounts. What are your thoughts on that?

I agree in today's market there are many opportunities. But as we have said our main focus today is in our structured finance business and for that the appreciation of the bank is very important and we are focused on that acquisition for the time being. Of course we will look at any opportunities that comes our way, but our focus is on the bank.

The next question comes from John Chen from Brereton Value Capital. Please go ahead.

I just have two quick questions for you guys. You guys mentioned that you didn’t want buyback stock right now and believe that acquiring the bank is a better idea, adds more value. Can you talk about the analysis you did to acquire the bank, because if you believe the resource properties are worth what you have them listed as return on capital, the buyback would be pretty big, so I'm sure you guys did your analysis on why the bank would be a better use of capital and could you share your analysis and your thinking with us?

Well even though we have a strong cash position on our share buyback, in the short term we'll definitely help stock price. We're looking at these on the medium and long term. We definitely think that the company has increased its revenue base over the last two years in a very important way. We are now concentrating in improving our margins and with the bank being able to provide additional trade finance solutions to our customers that will be the way to improve our margins. So for this reason and the bank is a major project for MFC, so even though we have a strong position we believe that it’s prudent to not to do a share buyback today, to concentrate on the bank and after this project has been completed we will definitely look again at the share buyback.

Just to add to that quickly, there are a number of considerations that go into this. And one consideration is liquidity of our common shares, the fact that we simply can't allocate that much capital to a share buyback in the open market without significantly moving the price of the stock. So I will say we've looked at this in through detail, we've done the economics up, down, left and right and for the time being we think that our capital is best allocated to the bank. And once we close that acquisition we're going to review that again in through detail.

My second question is in some of your filings you say that cash flow isn’t a good representation of with the company is earning. So could you provide a better way for us to think or look at what the company is actually earning? Because I'm actually looking at some of your condensed statement and even though net income is positive, I see some exchange differences which I can understand. But I also see this line that says, other comprehensive loss will not be classified subsequently to profit or loss. So that actually swings the income to negative for these six months and for the three months. So could you talk about how to better think about the company earning power?

So the other comprehensive loss is almost solely dedicated to the translation of our subsidiaries that have functional currencies of Euro or Canadian dollar. So with the strengthening of the U.S dollar those subsidiary will show a loss into OCI. For the most part those are permanent subsidiary, so those will never will realized and as exchange rates change that will fluctuate. One of the reasons that we say cash flow isn’t necessarily indicative for economic earnings is simply because our short term borrowings will fluctuate on a quarterly basis. So this quarter we had a good amount of pay down of our short term borrowings and our cash flow decreased and then that’s all operating cash flow right. So that’s why we’re really focused on net income, book value and return on equity which in our view is the most important metric.

So final question, I see that you have some equity method investment/other on your balance sheet. Can you talk about what those are?

So we have two method investments -- sorry three equity method investments on our balance sheet. We have about $20 million allocated to the Pea Ridge mine, that’s a 50-50 joint venture with company called Alberici, who is a wonderful company. That mine is based in -- just out of Saint Louis. We have about 10 million allocated to medical joint ventures in China eye care clinics and then we have a small interest in a Quartz quarries in Spain, the Quartz is utilizes as a raw material in our Ferrosilicon [ph] plants in Norway.

The next question comes from Graham Tanaka from Tanaka Capital Management. Please go ahead.

Just wondering, I didn’t see or didn’t notice, is Michael Smith taking a more active role again now or I didn’t see a promotion or if you could just explain -- if Michael's on the phone I'd love to hear from him.

Michael is not here Graham and Michael is continuing what he has been doing. He is like at a 100% right now on this bank purchase, that’s always been his strong suit, as the acquisition side. And he is as active as ever with the company.

I would also say he is a 100% on Wabush, so 200% in total. He is very dedicated to the company.

Okay then segway into Wabush, just didn’t know what the timing would be on that. I know that there is various agreement that you have and we’re not privy to it, but what are your expectations on some sort of resolution and is that going to result in just owning assets that would hold until the cycle improves or that improve the result in capital expenditures and then revenues and incomes. Thanks.

So we look at CCAA as a very good thing. Now the mine is in the hand of the monitor, we're looking to exercise our stepping right and that’s the most important next step to rationalize these assets. And that’s what our focus is at the time. So hopefully we get lucky. But most importantly Graham we don’t have any debt on this asset. Historically most -- many of MFCs best projects have been those in which we've been able to take a very long term view and an unencumbered view in markets that were gloomy. So we're quite fortunate in that regard, but right now the next step is re-taking the mine and that’s where our focus will remain.

How long will that take one year, two year, three year?

It’s going to be -- Our contractual rights will be delayed because of the CCAA filings. Right now there is a stay for the CCAA filing until November, so that’s the near term timing. But that doesn’t necessarily mean that’s the date that we would be able to retake the mine. So this is certainly a complicated story and we’re very actively involved and we’re looking forward to the date in which we can move forward to the next step with this project.

And then what is happening -- this is some large assets the Pea Ridge what's going over that? What's happening in the assets in India and then the China operations? Thanks.

On Pea Ridge nothing is really happening right now. Like all these commodities the prices is extremely low on not only iron ore but also on the chemicals and minerals that are in the tailings, we are still doing research and getting advise on when it comes time to process the tailings, what would be the most economical way. And on your other question about what was?

He was asking about India. We don’t have any assets in India, Graham, and in China our medical business continues doing very well.

What is your view on your debt, I know debt cost are low and MFC has wonderfully low interest rate on it. But I'm wondering if your view is to reduce debt further or is that something you’re just going to hold and use the cash balances to grow the business? Thanks.

So we’re quite comfortable with our leverage today and I always like to say our most valuable intangible relationship -- sorry, our most valuable intangible asset is our relationship with the Austrian Banks. Austria is a wonderful country and our banking partners here have been incredibly supportive over the years and they are really quite wonderful. So right now, Graham, I think we will repay debt as it’s come due and reinvest every last dollar we can in to our trade finance business and the bank.

And moving on to the trade finances business and the bank, what can we expect as a range of cost of acquiring the bank, assimilating the bank and any capital you need to infuse in the bank to get it to the position where you can grow the trade finance business, et cetera? How much are we talking about in terms of total cost? Thanks.

Well right now we cannot disclose that information, Graham. I mean certainly once we have concluded these acquisitions we will be able to present to you our plans and give you some dictate information on how we plan to operative the bank and how much it costs, and we’ll give you a very -- all the plans that you are asking for.

Let me ask in this way and if we get a feeling for -- what kinds of return on capital do you expect from that operation as opposed to --.

We were looking at -- the way we make sure our objectives is on return on equity. Right now 50% of our assets are not giving us any return. That’s why we have implemented these plans. On long-term, medium-term we are looking at the 15% return on equity. This is our objective and we believe that together with the bank we will be able to get to that in the future.

The next question comes from David Erb from Merrion Investment Management. Please go ahead.

Thank you for putting some balance sheet analysis in the presentation, I think that was very helpful but just to drill in on that little bit you see 20 million of Kerrich mine investment included in the adjustment [ph] that you show for iron ore assets?

No. So we put that in other long term assets. So the only things included in that subsection where our energy subsidiaries in Calgary and the Wabush mines.

So for a clean exacta [ph] of all iron ore, the interests you’d have to add the 20 million?

Yes.

Okay. Still on the subject of iron ore than, you've mentioned the potential of stepping in at Wabush, is implied in your statement that Cliffs has missed a payment and your rights have now come into play or could you just kind of tell me what the schedule of the minimum lease payments has been -- minimum payments under the royalty arrangement have been? When was the last one, when is the next one or have they stopped paying?

So Cliffs did not pay the second quarter minimum royalty payments, but they might pay it today, there is a cure period involved and because of the CCAA some of our rights may be extended. So for right now, I think the most important thing is this mines is in CCAA and we are looking forward to the day that we can retake the mine.

Do you plan to disclosed between reports, whether if they have in fact stepped up and made that cure payments?

Yes.

Okay. Thank you gentlemen.

Our next question comes from Gregg Abella from Investment Partners Asset Management. Please go ahead.

So I'm happy to hear that you’ve reconsidered and you may think about doing share buybacks in the future and with the stock trading at basically working capital per share it's -- the evaluation is sort of obscene at this level, I think you'd agree. Along those line -- I'm not suggesting that -- I just want to get an idea from you as to what your thoughts are. This company has never done a secondary to my knowledge, has roughly the same numbers of share as when it went public, is that about right?

Since the company went public, no, we've split the stock on one or two occasions.

But there have been no -- I don’t believe there are never any -- you’ve ever needed to raise capital from --.

There have been some right issues in the past, but that was seven or eight years ago.

And with respect to acquisitions, I'm assuming that if you made them, you likely wouldn’t need to use equity that do them?

That is correct.

So without really much of a need for -- what I’ll call the capital markets or investment banking solutions. Does it make sense to stay public?

It does at this time we've been a public company for a long time and we plan to stay a public company unless something really changes.

I also add, I mentioned earlier the most valuable intangible assets that we have in MFC is our relationship with the Austrian bank and for our banking relationships it's important to be public. So we are very happy as a public company today and that’s the way we intend to stay.

Why does require you to be public or why is a benefit to be public, to be in the banking business there?

Sorry not to be in the banking business?

Just give me a comment --.

Our relationships and our disclosures in being listed on the New York Stock Exchange and having the flexibility of -- when I say flexibility, public companies have earlier access to capital than private companies. So there would be a benefit from the debt standpoint to being a public company and that’s something that we're always taking in consideration.

Just a follow up on question an earlier caller had with respect to Mr. Kellogg leaving the board. And you made a comment I guess that he can't trade the stock until the August of 2016.

Correct.

Generally, you have those sorts of agreement not because you’re worried about somebody buying more, but because you're worried about them selling and in his case it's a pretty dramatic overhang. In between now and then according to the agreement are you allow to find a buyer for his shares?

So I just want to clarify, that agreement was entered into December of 2013, concurrent with Peter Kellogg joining the board of MFC.

Okay so it's not something as a result of his departure?

No, it's not.

Well the question still remains, are you allow to find a buyer for his shares to remove that overhang?

Well what makes you think Mr. Kellogg is selling?

I don’t know, but it’s -- when you have a large holder, that’s suddenly no longer an affiliate of the company, the worry always is that you're going to see a large percentage of the company for sale over a long period of time and I think that a pretty reasonable question.

Mr. Kellogg is always been a buyer and not a sellers.

And at this stage we don’t have any indication that he’s interested in selling after this period.

The other thing I'll add there, so Peter Kellogg, he’s a wonderful man and very smart businessmen. So he reiterated in the press release that we put out with the announcement of the bank that he is very supportive of our strategy going forward. So we thank him for his contributions to the board and I think everyone at MFC intends that he would be a significant stakeholder in our company going forward.

The next question comes from George Burmann from JP Turner and Company. Please go ahead.

Couple of question on the financial institution you're buying, it's an existing licensed financial institution in the Europe on the Isle of Malta, I believe. Their existing customer relationships, will they be all curtailed and it'll be just -- as you saying an in-house bank for MFC alone? Would that cut your current relationships with the Austrian banks that you have or do you plan on running that bank like a regular financial institution, being part of or being captive to MFC as part of other operations?

We are not getting into commercial bank -- banking we're not getting into retail banking. As we have expressed this bank will become our linked in-house bank. We will not only maintain our relationships with our banks, but this will increase our relationships with our bank. The main objective of owning a bank is being able to offer our customer base and supplier base all the structure finance solutions that we are not able to offer today. So this we view as I have already expressed, a way to improve our margin profile and offer additional services to our customers. So we are not competing with our bank, in fact as I said this will improve and increase our business with our bank.

Okay. So you will take deposits from customer to fund the bank are you use MFC's cash?

So I think it's important to mention, we are not going into commercial baking, we are not going into retail banking, we don’t want to be a universal bank, our plan here is to provide trade finance banking services. So I think we would take very select corporate deposits, but for the most part this is going be internally funded and funded through corresponding banks.

Okay. And you’re current banking relationship you mentioned numerous times in Austria. They provide those services at the moment for you and your customer for a fee, correct?

So most of the service that we would be able to offer with the addition of a regulated trade finance bank, we are not able to offer today, this is business but is not being completed today. So one of the benefits here is that we will be able to expand the service offerings to our customers that simply aren't being offered. It's good for our customers, it's good for our suppliers, it's good for our banks and it's good for MFC.

Okay. Now next question, the Canadian oil and gas assets that we acquired for I guess a very, very good price, there was a goodwill adjustments for the positives made in the financials. Wouldn’t it be at the moment a non-advisory time to sell assets where many-many companies are trying to sell -- especially Canadian assets, but rather be a buyer in this market to add to your current assets there?

Apparently we’re looking at our global supply chain and structure finance business to be the core business of the company and we don’t really see ourselves in the energy business. That’s why we had announced in back in March that we wanted to rationalize these assets. We clearly understand that under the present market condition it’s difficult, that's why we put in waiting times period and like I've said we have evaluated several proposal and currently evaluating others. But we will not rush in to make a prompt decision and we will also be looking at these as making a very responsible long-term decision.

The next question comes from Rob Strugo [ph] from RAF Investments. Please go ahead.

Along the lines of the distribution that you intend to make, I think in about 13 months, are we still on for that? And what does that come to per share? I thought it was over -- well over $1 a share and it's also tax free distribution. Where do we stand on that now?

We're still in the process of looking to sell it. We're talking to different parties and as the last call I said, it is a tough time out there in the market. But we've been able to do creative deals and we'll look -- we're going to continue to look to the sell this and return it to shareholders.

Do you have any idea about approximately how much -- in what range the shareholders would have in the way of return?

We really don’t get this time.

So you have no range whether it's $0.40 or $1.50, you have no idea whether the numbers could be in that range?

It's approximately a $100 million that we’ll be returning to our shareholders. So that would be a $1.60-some per share.

That’s with the present scenario with the deterioration in prices?

That’s our current book value.

Okay. Thank you.

[Operator Instructions] The next question comes from Gregg Venit from -- he is a private investor. Please go ahead.

Good morning. Thank you for the great call and thanks for what appears to be a big improvement in trying to explain your businesses.

In the Wabush mine asset, if you -- your objective is to have it returned back to you. Do you just get the mine or do you also get other assets that were associated with the mines such as like, I think there was a pelletization plant or something that were near the Harbor?

So when we are able to exercise our stepping rights we will able to retake the mine and then we have the right to purchase certain infrastructure and equipment on the mine site at its then fair market value. So there is nearby pelletization plant, but that’s not included, that a separate item in the CCAA filing.

Okay so basically if you get the mine back you'd be taking back a mine that would produce concentrate I guess?

That is correct.

My understanding is there is need in North America, concentrate that can be converted into pellets has a higher value than is happening on the world market, that North Americas is need of pellets. Second question, I think you all mentioned in your comments you said 50% of the company's assets have no return on equity at this time. When I look at your assets it looks like, am I correct, iron ores at 120 million and energy is about 80 million? What also is in that bucket of assets of no return on equity right now?

Energy is actually about 180 million. So there is 80 million approximately that’s held for sales and there is a 100 million which is included in our long term assets. On top of that there is our interest in iron ore mine in Canada that’s a 120 million. So that's about 300 million with those assets and really that’s what we're focusing on. Those are the assets that we're looking at and we're saying right now they're not generating net income and we really need to execute rationalizing those assets.

In reference to your question about the iron ore market. Yes, definitely we were looking at the U.S. the same way that we are looking at China and a lot of things have changed, prices have come down. Operating cost has come down, transportation costs have come down and there is a pelletization plant that even though is not included in the Wabush mine. There is always possibility that we can choose this pelletization plant to supply the U.S. So we are open at this stage at all different possibilities on this.

When I listen to Cliffs Natural they're basically sounds like this strategy is just to concentrate North America with producing pellets.

Yes.

Okay so the bank acquisition, it sounds to me like one of the discounts in the prices your stocked today, besides the assets that aren’t returning any is -- the bank acquisition sounds like a good idea. But let me ask you this, do you say does this bank today currently operate in offering the services that you intend to offer to your clients in the trades and trade receivable finance business today?

When it comes to the banks acquisition what’s not important is what we buying, what's important is, what we built. So going forward the services that we're going to offer and the platform that we're going to build out is really going to be integral to our company.

I guess you anticipated my second question. So you basically getting, I guess like a charter or Greenfield to build a bank that will provide this services to your clients, it's not that they currently do that today?

That’s what we plan to do, we plan to use these bank to provide all the services to our customers and suppliers. And these are services which we are unable to provide today because we're not a licensed and regulated institution.

So how complicated -- are there other banks today that provide these services out there where you can attract people, personal that may have relationships?

Certainly, trade financing is a very important business but it's very important I would say is that MFC has a very wide range of customers and suppliers. Going back a few years our plan was to first increase our revenue in the global supply chain business, to be able to have a substantial amount of business. We believe that today close to 1.5 billion, we have reach that size and we are in a very good position to offer our customer base, all this trade finance business as we have mentioned already several times will enable us to improve our profit margins.

Okay, this is going to be -- you're going be building a bank essentially, you're not buying a bank that’s going be immediately accretive to your earnings. You’re going to need to build?

No, we are buying a bank and we would use this bank to provide all the service to our customers. Definitely we will have to grow the bank and we will need expertise and that’s something that we are looking very closely at.

Okay the bank doesn’t currently offer the services that you intend to offer in the future?

So just to be clear we are limited with what we can say currently about the bank. So any reference to what the bank currently is, I'm going [indiscernible], but what's important here is that there are certain services which our customer and our suppliers had asked for which we cannot provide and they are not receiving elsewhere. So by having this in-house banks we will all of a sudden be able to supply this services to our customers and to our supplier base. These are long-term relationships that we have with our global supply chain platform. But once we have the bank, what's most important there is that we built out this trade finance platform as an overlay to what we’re already offering and that should be accretive quickly.

Okay. And Austrian Banks only offer some of the components that are needed by your clients, this bank will offer -- will fill in the gaps, so therefore you are not competing into your Austrian Banks?

So many of our current plans and sorry -- customers and suppliers do not have relationships with MFC's banking partners. Either because they are unable to or for whatever reason. So these are companies that we are currently doing business with. So what I mentioned earlier is the entire pool increases.

So it's a win for everybody, Austrian Banks it's a win, it's a win for you and it's a win for your clients?

Correct. That’s a way we look at, yes.

Okay. Well good luck with that.

Thank you.

Our next question comes from Sam Schaefer, Milwaukee Private Wealth Management. Please go ahead.

My first question is for Sam. You stated for the returns of -- that the shareholders are going to have over a 150 million on book, by not being able to state exactly what you expect shareholders to receive as a distribution, is it fair to assume that the 151 is not the amount that we are going to receive for these assets?

So what we said with the rationalization of MFC Energy there is about 80 million that we are going reallocate to our trade finance business in the bank and there is about 100 million, I think it's a 103 million that we will distribute to our shareholders. So right now in the current market place if you want to do a cash transaction, that’s difficult, but luckily we are innovative guys, right. This is going to be an innovative transaction and if we didn’t have full confidence that we would see these values, than we would adjust our balance sheet accordingly.

And you stated on an earlier question that you still believe that these assets will be sold within the next 12 to 15 months, is that correct?

Yes. I think like I said this is likely to be an innovative transaction. This isn’t going be vanilla deal, so it's -- we gave ourselves when we first announced this 18 months because we thought that it was going be complicated. And it certainly has proven that in the first six months since we announced. So we’re still confident in the timeline. We are working very diligently and we hope to have some updates for you soon.

Can you provide a little bit of color on what you mean by innovative?

So I think if a vanilla transactions as being assets for cash. Maybe this could be a share deal, maybe this could be shares in a royalty, maybe this could be shares in a new company, maybe this could be a contribution into a much larger entity. I mean there is all sorts of fun things that we can do to make sure that we're maximizing the value for our shareholders and our stakeholders. So I don’t want to put myself into a box by just listing a few things off, but I'll say if there was ever a box for this type of transaction, we're looking well beyond the borders.

Okay. Thank to you then second question you made the statement that your return on equity that you are looking to get for the company is 15% and that acquiring the bank will help you return to that 15%. Can you explain how or if the bank is going return the company to 15% or as the bank itself is going to have 15% return on equity?

So the way that we look at that is that, if you’re not returning 15% then we would better off liquidating the company and distributing the proceeds to our shareholders, where they could earn an adequate returns somewhere else. So we look at 15% as an adequate return. So right now we have a significant portion of our assets that are tied up in areas that aren’t generating that type of income, but even in the other businesses we expect to generate 15% ROE and we really view that as a minimum threshold for what our goal should be and it's going take some time. But we are working very, very diligently to get there.

So the bank is -- we’re looking for return on equity of 15% for the bank, not to help return the company to a 15%?

No we are looking at the return on equity of 15% for MFC Industrial.

Okay. Thank you.

The next question comes from Raymond Hal [ph] from CFP Incorporated. Please go ahead.

Question, let me rehash the bank thing real quick. The day after we close on the bank, are what we really left with is the bank charter or we also just have assets that we need to dispose of?

So again just because of the regulatory process we can't disclose much more about the bank itself. But what I can say is that having a banking license is very important for our business going forward and it's going to be key to getting us to a more adequate return profile.

Assuming that it comes with assets that you need to dispose of, I take it those are assets that are barely easy to sell off?

I appreciate your trying Raymond, but I'm going to have to repeat what I just said.

One other question on your little table, where you have other long term assets of $2.50 share that you had in the press release. Can you sort of a go over a little bit of that, I know we got Pea Ridge at 20 million, we got China [indiscernible] at 10, is guess is SWE [ph] assets in that, is the Blue Earth power facility in that? Can you just give a little more color on what all those included in that 250.

Sure so that would be our equity method investments.

Right.

Then if there would be a property, plant and equipment, it’s the power plant in Uganda as well as our processing facility in Norway and then there is also deferred tax assets and a couple of other long term assets including in there as well.

And so the Uganda facility, that’s roughly 27 million there about?

About that yes.

Alright and what's the Norway facility on the books?

Say about 20.

And the PPNA is that -- I guess some of that real estate is for sale?

No, all of the real estate's that for sale is actually current. So some of it is allocated as real estate held for sale and then a larger portion is allocated in assets held for sale.

Okay, very good thanks.

We have a follow question from Rob Strugo [ph] from RAF Investments. Please go ahead.

We've been long term investors in your company and for the most part we think you guys have done a tremendous job over the years. I know we're going through a very difficult period right now and you guys, just on this conference call and other times that we've been involved with your company. We're very impress with what you guys are attempting to do, the fact that Peter Kellogg was on the board was certainly reassuring and I was wondering the fact that you’re taking over a bank, is that any possible reason that he left the Board? And I am also concerned about the fact that you're selling these assets at a time when Peter Kellogg is -- somebody thought he’d be a seller, I think he is a buyer, would be possibly free to buy the stock. So if we sell those assets then certainly we'll be able to remain independent of Peter Kellogg because I think he is more with acquirer than a seller. Could you comment on that?

As I have mentioned before, Peter Kellogg joined the board in December 2015. We have discussions in the board about our strategies and he was very supportive of our plan and ambition to acquire a bank and grow our margins. So I don’t think that this decisions had anything to do with his decision to step aside. As I said he has been very supportive. The only thing he said that, it was time for a change and to move forward into other activities.

And just to clarify, so the announcement of the rationalizing of our assets was March 31.

Anything else Robert.

Thank you I appreciate that, but the rationalization it will be in 18 months and when is the standstill agreement end?

August, 2016.

The 18 months, isn’t that around August 2016?

Well it start March, those two dates were completely different [ph], not meaningfully connected. Certainly not intentionally.

This concludes our question and answer session. I would now like to turn the conference back over to Mr. Cortina for closing remarks.

Thank you very much for being in our conference call today. We are very confident in our plans and strategies. We have made some progress and we'll continue to do so. Thank you again and wish you all the best.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.