SRL - Scully Royalty

[bilo]

Has anyone looked at Scully Royalty?  Two excellent articles were written about it as Seeking Alpha over the last few months, and a well timed writeup at VIC under old name MFC BANCORP LTD last April 2019 - while the subsequent announcements generated a quick and satisfying pop, the security has now pulled back  in spite of what appears to be continued good news.  Tacora has made good progress (first seaborne shipment announced 8/1).  A comprehensive update was provided by Tacora in September:

 

https://www.tacoraresources.com/wp-content/uploads/2019/09/Scully-Mine-update-18-Sept-2019.pdf

 

Given their 15 yr off take agreements with Cargill it seems likely to be on *reasonably* solid footing if execution is good. 

 

There have been a number of developments with the other assets as well, particularly a non-recourse financing of the German real estate properties for 25M EUR as well as sale of two other minor businesses.  It appears they are cleaning up the very messy-distressed asset balance sheet.  3 investors - Peter Kellogg, Estate of  Lloyd Miller, and Nantahala Capital Management, LLC own about 55% of shares outstanding.  I am told a 4th investor (who I spoke with) owns enough to push that "shareholder friendly" group close to 60%,  while still under reporting levels.  I believe these 4 investors all want this to wrap this up and for the "value gap" too close - and are willing to push to make it happen if (for example) Smith starts going off course. 

 

As to valuation, with a 7% royalty on high quality 65% iron ore concentrate on mine rated at up to 6.5M tons production capacity, it is easy to see how the royalty asset alone could be worth more than the current market cap  even if one ignores all the other balance sheet assets.  I recommend Lee Farnam's articles to anyone who has further interest. 

 

 

[bilo]

One more note, I spoke with IR last week, who stated that we will be getting further reporting "some time in mid December" that will provide a status update, etc.

[Foreign Tuffett]

Probably worth noting that this is one of the scuzziest companies in existence outside of Greater China.

 

2016: Incorporated in British Columbia, Canada. HQ in British Columbia, Canada

 

2017: Incorporated in Cayman Islands. HQ in Dublin, Ireland

 

2018:  Incorporated in Cayman Islands. HQ in Hong Kong

 

 

Why did the company leave Canada? Perhaps fleeing from liabilities related to the Lexin Resources bankruptcy?

 

https://calgaryherald.com/business/energy/inside-months-of-chaos-at-a-shuttered-oil-and-gas-company

 

Clemens Scholl (no affiliation), probably knows as much as anyone in the world about the extremely complex history of this company and its CEO Michael J Smith.

 

https://seekingalpha.com/author/clemens-scholl/comments

[Gregmal]

If you like this you should just look at Mesabi Trust. Straight forward and no shenanigans.

[bilo]

Mesabi doesn't have the same type of situation at the moment.  This is more like Mesabi during the period where the distribution was canceled and about to restart.  If there wasn't a bit of crap on Michael Smith's shoes the stock price would be double what it is, that is significantly why it is a value stock with upside (and also why risks, etc). 

[valueinvestor]

+1

 

Anyone betting that Scully Royalty will logging their royalty payments on the iron ore mine with their December 2020 Semi Annual Report? Not a huge position but thought this deserves a bump, as it hasn’t moved like the other natural resources plays. Probably thank Michael Smith for that, but the recent moves suggests their trying to move in the right direction for once.

 

Initiated a position after the last semi-annual report and looking up the progress of Tacora resources through their Facebook page. They are hiring aggressively considering the economic backdrop, and iron ore prices haven’t dropped significantly. I don’t think anyone is pricing this in, unless they know for a fact that Scully is not receiving their royalty payments.

[shamelesscloner]

The market has priced SRL below net cash value, perhaps for good reason... https://seekingalpha.com/article/4377344-scully-royalty-worldwide-asset-freeze-in-anticipation-of-claims-against-key-assets

[bilo]

I dumped my position after the last 20-F.  The supposed "increased disclosure" was a bad joke, particularly after they talked it up, which was a huge red flag IMO.  I'd take another spec position if I had clarity on IF a real liquidation or royalty spin would take place. 

[valueinvestor]

https://www.prnewswire.com/news-releases/scully-royalty-ltd-corporate-update-301145648.html

 

@  these prices I think it’s a cigar butt investment.

 

Correct me if I’m wrong but these types of judgement, even if won still increases share price. The judgement is only 43M against 37M in cash. They received about 10M already in royalty for the first six months of 2020 and probably will receive another 10M.

 

Even if they won, it still cheap. In the most likely scenario that there’s a settlement, where fines will be laid and paid over a period of time, share prices will rocket.

 

Unknowns that makes it hard to have a port alloc is why management hasn’t bought more and why did one of three major shareholders dumped their shares. Surely they could’ve ask management before dumping it. I hope they don’t know more than me in this particular instance, as I doubled my very very tiny position.

[gfp]

New developments at this blast from the past.  Michael Smith moving on to Executive Chairman.  Morrow running the place now (remember the Tanaka guys from the conference calls a decade ago?  The junior guy is now the CEO of this company...)

Most of the biz now classified as "discontinued ops" LOL - and plans for a cash dividend after some stock dividend hocus pocus that is supposed to magically increase liquidity.  Stock up big, presumably on the new plan for Royalty Dividend story.

https://www.sec.gov/Archives/edgar/data/16859/000110465921059097/tm214086d1_20f.htm

[valueinvestor]

This is probably the most suspicious security I ever purchased... IIRC. 

Although there maybe a valid argument for a stock dividend for a float where 55% is owned by majors and the rest by the public for all intensive purposes.

It's been more than a year and been reviewing my holdings. Although I wished that I did not purchase in light of other opportunities- even with the 20%+ move today. I maybe selling soon, I found the SG&A + SBC almost 75% of revenues to be ludicrous at first glance - ROH (return on headache) is not worth the hassle.