Dundee Corporation: Investors Are Waking Up, But It's Still Incredibly Undervalued

Let’s imagine that in three to five years, we are in a commodities bull market and generalist investors start flooding in. What will they want to buy?

In the mining sector, I believe the financing businesses will be the “go-to” stocks, as they have some of the smartest minds in the industry, a lower risk profile, and low capital requirements. That’s a very attractive way to invest in mining for someone who doesn’t know the business well enough to invest directly in individual mining companies.

For me, however, it’s tricky to invest in these companies because everyone knows they are the best businesses in mining and, therefore, they usually fetch high valuations, even in a bear market.

But the market sometimes provides an opportunity to buy such a business at a low price if investors don’t fully understand or believe in the company. I think one such opportunity now is Dundee Corporation (TSX: DC-A).

Dundee has the potential to become a fantastic mine finance business, but investors are currently undervaluing it. To illustrate, this week, they announced that they sold 11 million of their ~14 million shares in G Mining Ventures (TSX: GMIN) for $95.9 million, without a discount to the market price.

As the company stated in their Q2 results:

“The combined value of Dundee’s remaining holding in G Mining Ventures Corp. and proceeds from today’s sale transaction exceeds our current market capitalization, presenting a compelling investment opportunity in our stock.”

Yes, that’s right. Just their shares in G Mining Ventures—which they acquired by backing Reunion Gold early on, before G Mining Ventures bought the company out—are equivalent to their current market cap.

If you knew nothing about this company and were reading these results, you might think this is a holding company that is liquidating itself. That’s not the case at all. After this week’s events, the company is in great shape, with a simple capital structure and reduced burn rate. This sets them up well for the next phase of building this mine finance business

In addition to their shares in G Mining Ventures, Dundee has a strong portfolio of exploration and development companies, along with a royalty on the Borborema mine, which is expected to begin production in the first half of 2025. The image below is part of a slide from their corporate presentation illustrating the value of their portfolio:

I'm not sure about the “Non-Mining Investments” line, as I don't know how to accurately value it. While I'm confident there is considerable value there, I want to be conservative, so I've essentially assigned it zero value. This is likely far too pessimistic, given their past success in unlocking value or selling non-core investments. However, even if we exclude those, we still arrive at a net cash and portfolio value per share of $2.26 (as of the presentation published in June), which contrasts sharply with the current share price of $1.43.

But that’s not all. I am incredibly bullish on their portfolio of explorers and developers, a sector that is currently extremely depressed. Dundee conducts thorough due diligence on these investments, and having looked into all of them, I can say these are not over-promoted, fly-by-night juniors. These are serious companies that are either exploring for a potential mine or developing a mine into production.

I think there is clearly value there, so why is the company trading at such a wide discount? To understand this, we need to look into the recent history of the company.

When I first bought a small stake in the company in 2021, it was not pretty. The capital structure was a mess, they had a lot of legacy non-mining investments in their portfolio that were of questionable value, and the company was burning a lot of money.

The CEO, Jonathan Goodman, had been turning the company around for a couple of years, and you could see that he was doing great things, but it was still too hard for most investors to see the potential value.

Fast forward to this year, and they have made incredible progress on all fronts, including simplifying their capital structure and selling some of their legacy non-mining investments.

The company announced today that it has used some of the proceeds from their G Mining Ventures share sale to redeem their preferred shares and pay back the loan they had. This is a key part of re-rating the shares, as now the company has an easily understandable, low-risk capital structure, along with a significantly reduced burn rate.

The big challenge that still needs to be overcome before investors will give the company the full credit it deserves is turning it into a lean, cash-flowing business. The company is still bleeding around $4 million in cash per quarter in G&A, with revenues only around $1 million. This is where you have to believe in the current management team and their ability to build this business further.

I believe they will be successful, as the current management team has been incredibly effective in allocating capital and delivering on their vision thus far. In my experience, turnarounds are really challenging, but this management team has done an amazing job turning around Dundee Corp.

Jonathan Goodman has a history of success, having previously built Dundee Precious Metals into a great mining company. I really like his approach, and while it’s a total cliché to say so, I think he is actually a bit of an “Outsider CEO,” akin to one of the CEOs highlighted in William Thorndike’s book.

He is an independent thinker and is willing to do things that are unpopular now in order to reap big rewards later. He could very well have pursued something easier than what he has been doing with Dundee Corporation, but I believe he is determined to turn around the family business.

The company has many avenues to become cash flow positive, especially now with the considerable cash pile they can use to invest in the business. They could engage in mine lending, joint ventures, buy more bonds or royalties, or continue building up their funds or investment business.

The company has been gaining more credibility in this space, and this is likely to attract other investors and funds to participate in their financing deals, funds, or whatever else they pursue. I recently heard the famous investor Rick Rule speak very favorably about the company and its team on a BNN Market Call episode.

He said that he recently became a shareholder of Dundee Corporation and intends to increase his stake substantially, as well as co-invest with them in the future because of their great due diligence. I wouldn’t be surprised if more investors start seeing Dundee in a similar light, which could help create opportunities to generate higher revenues.

At this point, we don’t really know how things will unfold. It’s all about belief in the management team and their ability to build this business into a high-quality mine finance business. They have earned my trust, so I am more than willing to wait and see. In the end, I think this needs to be a cash-flowing business to earn investors' full respect.

If they manage to do so, this is a business that I don’t think will be selling at a discount as it is now but rather at a premium valuation, similar to other financiers in this space. If they are not successful in turning this into a cash-flowing business, you effectively have an expensive hedge fund focused on high-quality developers and explorers, selling at a discount to NAV.

As I mentioned above, I first invested a small portion of my portfolio in this company in 2021, but I added considerably more during the lows earlier this year. I think it’s still an amazing value, and I am likely to buy on any weakness in the share price.

Thanks for reading!

Update: I received great feedback on the previous wording regarding the value of the company’s non-mining investments. I have since updated it to better reflect my thinking around it.

Also, I accidentally wrote that Borborema is starting construction in the first half of 2025, which of course should have been production.

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Disclaimer: This article is for informational purposes only and does not constitute investing advice. Please consult with a qualified financial advisor before making any investment decisions.