Large Discount To NAV / Liquidation – 30%+ Upside
A quick upfront note: this company has nothing to do with Mongolia anymore – it’s an investment holdco with a portfolio of publicly listed US and Canadian securities. The situation exists in part because Mongolia Growth Group is an “orphaned” security with limited trading liquidity. Building a position might require a bit of time.
Unless you are new to the investment world, you’ve likely heard of Harris Kupperman, a.k.a. “Kuppy”. He’s a prominent hedge fund manager who runs Praetorian Capital Fund and is known for making pretty bold inflection plays, Uranium being one of the last ones. Some consider his investment style to be controversial, especially when it comes to his large follower base on social media (at least that’s the impression I got after reading certain VIC comments and some other materials). But Kuppy’s track record over the last few years has been very impressive:
Aside from his core venture (Praetorian Capital Fund), Kuppy also runs this tiny and obscure public company – Mongolian Growth Group. The company has listings on the TSX Venture (YAK:V) and on US pink sheets (MNGGF). Further in the write-up, I’ll refer to it as YAK.
YAK has recently been transformed into a lean investment holdco, which basically mirrors Kuppy’s Praetorian Capital Fund. The investment portfolio is comprised mostly of public equities and cash. The company is trading at a 28% discount to it’s NAV, including the YTD gains on the portfolio of public securities. Kuppy, who is the CEO/Chairman, owns 26% of YAK. The other directors own additional 6%. Interests of management and minority shareholders seem to be well aligned.
YAK also runs a tiny newsletter subscription business called KEDM. The service was launched and grew fast during COVID, however, subscription receipts have been contracting over the last year. The service is still profitable and helps off-set a large part of YAK’s corporate overheads.
Thus YAK offers a twofold opportunity:
- Investing alongside Kuppy at a substantial discount to NAV and minimal leak from corporate overheads.
- Bet on the discount to NAV to get eliminated.
When it comes to the second point – YAK has been ramping up share buybacks. In 2022-2023, YAK repurchased over 3% of its market cap. And in a single quarter of this year acquired a further 3% of its shares at C$1.51/share (vs current price C$1.44).
But there’s more. It appears YAK could be on the brink of a liquidation. The company has been on the hunt for an attractive acquisition target since 2017, but with no success so far. The annual report clearly outlines, that due to regulatory limitations YAK is unable to maintain its public status as an investment holding company indefinitely. Without the acquisition of an operating business, YAK may have no choice but to liquidate. From Kuppy’s letter to YAK shareholders:
I have on many occasions noted that there are tax and regulatory reasons why we cannot be a publicly traded business where the primary assets are marketable securities. Therefore, we MUST purchase over 25% of an operating business in the very near future. Unfortunately, we have not been able to identify any attractive opportunities and have started to lose confidence that we will be able to identify a sufficiently attractive opportunity. If we cannot find a suitable acquisition in the near future, we will likely choose to liquidate this Company, so as not to burden shareholders with the costs of a public company.
In the meantime, we hope that future gains from our existing marketable securities portfolio can utilize our tax assets, maximizing the after-tax return to shareholders.
Kuppy should be incentivised to liquidate the company. YAK’s portfolio duplicates that of Praetorian Capital Fund. There are incremental costs of public company reporting. The only benefit from YAK seems to be the permanent capital from minority investors (i.e. 68% of market cap). However, over the last few years, this has become an insignificant portion of Kuppy’s overall AUM. In Feb 2022, Praetorian Capital’s AUM was “on track to surpass $100m”. Two years later, by Q1’24, the AUM stood at $343m. Liquidating YAK and returning cash to minority shareholders would cut Kuppy’s AUM by only 7%. Kuppy was in fact mulling to close his Praetorian Capital Fund to new investments when it hits $250m in AUM (sidenote: his appetite might have grown since). This figure has already been surpassed, but mostly due to very successful performance of fund’s investments.
Given the success of Praetorian Capital Fund, it seems to make sense for Kuppy to liquidate the tiny/obscure YAK in order to fully focus on solely on the hedge fund. Foregoing a bit of permanent capital might be a cost worth paying.
Kuppy’s earlier track record
Despite the recent success, Kuppy had some large investing blunders as well.
YAK was setup more than decade ago as Kuppy’s bet on Mongolian real estate. The bet failed terribly due to multiple reasons including Mongolia’s prolonged economic crisis, huge devaluation of the national currency, strained relationship with the Mongolian government and failure to reach substantial scale. Exiting Mongolia took a lot of time, but last year YAK finally sold down the remaining RE assets and fully closed all operations in the country.
Besides the unsuccessful bet in Mongolia, one of his bigger recent failures was an investment into Russian GDRs and ETF securities just after Ukraine war broke out in 2022. These securities were quickly frozen under sanctions and remain inaccessible. Fortunately, the exposure to Russian markets was pretty small.
In the investor letters Kuppy is straightforward and open about all his failures. I think it’s pretty unlikely something similar to the Mongolian/Russian bets will happen again in the short-term timeframe. But one never knows. So that’s a risk investors need to take when holding a position in YAK.
YAK’s portfolio
Pro-forma YAK is now a lean investment vehicle with a tiny subscription business. While the company was exiting the Mongolian RE operations, the marketable securities portfolio has seen a massive growth. Over the last 5 years, the portfolio size went from C$4m in 2019 to C$10m in 2020 to C$37m in 2021 and to around C$50m now. Part of the growth was funded by the RE asset sales, but a large part was also due to the outstanding performance of the underlying investments. There might be some taxable unrealized gains in the securities portfolio, but I guess the taxes on capital gains would amount to C$3m – C$4m at most, and the company still has some tax assets which might potential be used to offset these gains.
The table below shows composition of YAK’s marketable securities portfolio:
“very near future”
Do we know if this means 2024 or within 2 years? I’m sure the IRR changes quite a bit holding this waiting around for a 20% bump if its 2 months or 20 months.
Hi DT,
Thanks for this idea.
Given the dual listing and potential liquidation would it be worthwhile commenting on the different treatment for tax purposes between Canada and the US of a ‘liquidating distribution’? (FWIW I had to wait 4 months for Interactive Brokers to refund withholding taxes incorrectly applied to a liquidating distribution from a Canadian company taking into account their rules around paid-in capital).
Kuppy’s portfolio looks potentially very volatile, what are your thoughts, if any, on attempting to hedge the trade by shorting the holdings proportionately, as best as possible?
Hi DT, did you use the price on the close of 29-Dec-23 to determine the value of the portfolio of marketable securities? What was the price you used for Sprott Physical Uranium Trust Fund (U-UN.TO) for example? Per Yahoo I have it as CAD 28.26, but your implied price is CAD 20.82 (8,680,691/416,940).
I am not in a position to comment on tax matters in a liquidation scenario and also it is not yet clear if the liquidation scenario is really in the cards. But my guess is that any distributions would be in a form similar to return of capital (Kuppy is incentivised to find tax efficient way to do this) and it would be the same for YAK and for MNGGF shareholders, as irrelevant of the listing, it’s still a Canadian company.
I do not think that hedging would work as you will have no idea what changes in portfolio have been made. This has to be a bet alongside Kuppy with potential liquidation only coming as a cherry on top.
Regarding U-UN.TO you are correct, a big typo on my side (wanted to enter 28.2). This reduces YTD gain on marketable securities by $3m.
Thanks DT.
Okay, well I’m not certain, but I picked up on the whole issue based on learning from you taking about odd lots, Canadian investors and the relationship to paid up capital etc.
My understanding is that usually the listing country has an impact; for example, Exxon is listed on the NYSE and a German exchange. If it pays out dividends and you’re based in say, Singapore, the withholding tax on the dividends if you owned the shares listed on the NYSE would be 30%, whereas if you owned via the German listing with withholding tax would be 15%. Therefore, same company, but different amounts of withholding tax depending on the listing country.
In the case of the Canadian listing, my thought was if the entity liquidated, only the portion below the amount of paid-up capital would be considered a ‘return of capital’ and therefore tax free; any amount in excess of paid-up capital would be considered a dividend for tax purposes, with tax withheld at the prevailing rates.
For the US listing, if the company liquidated and declared the liquidating proceeds a ‘return of capital’, then I think it is a tax free distribution (with CGT a sperate issue).
Yes, good point. It is the very reason some 13F filings are more useful than others.
Thanks for confirming, I’m almost always the one making mistakes so assumed I didn’t understand something correctly.
Is anyone able to access MNGGF via IB? It doesn’t appear as though they provide coverage of it.
They usually don’t have these 5 letter ADRs, because they almost always have the foreign stocks: YAK-Venture.
DT, how were you able to verify that “YAK’s portfolio duplicates that of Praetorian Capital Fund”?
Maybe ‘duplicates’ is not the correct word here, but most of the securities/bets seem to be the same. Have a browse through Praetorian investor letters – the latest one here:
https://go.pracap.com/hubfs/Quarterly%20Letters/2024/2024%20Q1%20Investor%20Letter%20-%20Approved.pdf
YAK Stock price peaked in April 2022, but Praetorian Capital Fund’s gross returns remained very good during the last two years ( 16.4% in 2022, 34.7% in 2023, 11.9% in 2024Q1). So price didn’t seem to track NAV very well.
Was the stock price underperformance since April 2022 driven mostly by discount widening? or also by negative surprises from legacy RE assets?
thanks for a great writeup. i agree. one way to think about this bet is a tax-efficient way to ride Kuppy’s performance – since there is (in my view) at least $13mm net of capital losses available still from the Mongolian asset sales that can be offset against gains in the investment portfolio. if you are bullish Uranium or some of these other offshore drillers, that is a pretty decent chunk of change not captured in current NAV (which is around $2, adjusted for 1Q performance).
putting aside the argument of whether making a bet on Kuppy’s (admittedly volatile) performance is right or not, given how easy it is to hedge the underliers, i am surprised this is trading at such a massive discount to NAV. i would have thought some of Kuppy’s sharp-eyed followers (or investors) would have rotated into this vehicle, and closed the spread to NAV – especially now given there is no residual mongolian risk, and that the vehicle is not only owned by Kuppy mostly but also is buying back shares.
it seems to me there is a decent probability scenario where the portfolio gains a further 30% ($15mm, give or take), lets say if the Uranium trade really plays out and one or two of these drillers work; the entire excess tax losses are consumed; there is very little residual tax/wind-down cost left; and final NAV here is something like $2.5.
i do not have a big position, and am half hedging the underliers on the investment portfolio. but given Kuppy’s track, and the tax advantages, i would think this trades at a much smaller discount to NAV (or near NAV) in the next six months once those following work out there is no more Mongolian risk in this thing.
I think an NAV discount of 30% is large but not unusual for a listed closed-end fund holding public securities.
Pershing Square (PSH) regularly traded at larger discounts. On average 27% this year, 35% in 2023, 32% in 2022, 26% in 2021, 31% in 2020, 27% in 2019.
And note that PSH is far more liquid a stock and Bill Ackman far more established a manager than YAK/Kuppy, with far bigger buyback program (relative to market cap) to actively close the NAV discount.
As to the tax advantage, I think YAK’s capital loss offset is an asset for a corporation, but remember that other closed-end listed vehicles set up with different legal structures (e.g. investment company like PSH) don’t need to worry about this in the first place.
whilst you are right re the general discount, this entity has basically stated they will liquidate as soon as the NOLs are consumed. also you have the huge kicker of the NOLs shielding gains on the investment portfolio. whilst liquidity is of course superior at PSH, it is not going to be liquidated – so you have no ‘exit’ to your investment. Kuppy has been laser-clear that is the end game here and it could happen in <6mos if a couple of these trades work.
hence i view it as far more favorable than simply buying a closed end fund at a similar discount but with no exit strategy.
Does anyone know the specific regulations (and timelines) he refers to here? “I have on many occasions noted that there are tax and regulatory reasons why we cannot be a publicly traded business where the primary assets are marketable securities. Therefore, we MUST purchase over 25% of an operating business in the very near future. Unfortunately, we have not been able to identify any attractive opportunities and have started to lose confidence that we will be able to identify a sufficiently attractive opportunity. If we cannot find a suitable acquisition in the near future, we will likely choose to liquidate this Company, so as not to burden shareholders with the costs of a public company.”
The issue is the PFIC designation.
looks like NAV is now bang on $1.95 (as at 1Q reporting)..with nothing baked in for the tax benefits (which i believe are as much as 50c a share, gross). they bought back some more stock too in 1Q…and KEDM is generating enough EBIT (admittedly low) to basically cover all the corp cost of the entity…
a couple more decent days in the commodities space and this could get liquidated real quick!
I believe dt’s way of calculating NAV is already the upper bound for liquidation value.
Tax asset can OFFSET potentially additional tax liabilities, but it can never add to the NAV. The best it can do is offsetting.
So I think $1.95 (without considering the tax benefits) is the right reference point for 2024Q1.
you are of course right as of right now – the NAV is $1.95. but my point re the extra 50c is if (or hopefully when) uranium and a couple of these driller trades work out, and if NAV can organically grow another 20% in the next 6-12mos (i know, i know, wishful thinking) – we get to keep all those gains given the tax shield. that was all i was trying to say (as per my previous comment)
Dammit.
I assume, like me, you did the work, set your order and watched the stock move far away from a price at which you’re willing to be a buyer :-s
It is interesting to note the absence of any mention of “liquidation” or “returning capital” in the MD&A of Q1 2024; I’m not sure what to make of that, if anything.
As for taxation, is it clear what fraction of NAV are embedded capital gains? Is it possible that those exceed the NOLs?
I took a run through their annual reports since 2020 (portfolio was only $3.6M in 2019, all numbers in CAD) and added up all their unrealized gains and came up with $16.3M. They had a $13.2M loss last year, so on the surface if all of those unrealized gains still existed they’d only owe roughly $1M.
But its extremely unlikely that they have that amount of unrealized gains in portfolio because most of their big gains were in bitcoin during 2020-2021, and that’s been liquidated long ago. Since 2021 total gains is only roughly $10M, so I’m discounting risk of significant taxes being owed. Take all of this with a grain of salt as I’m not expert on corporate taxation, esp. in Canada.
Is Kuppy a blowup artist? Someone pointed this post out to me when I mentioned I was buying YAK.
https://www.elitetrader.com/et/threads/kuppy-comments-about-spacs.357294/
“FYI:
Kuppy is a blow up artist. I posted this a few months ago, regarding my own personal meeting with Harris Kupperman:
“Wow, a name from the past. I have been a professional trader, since 1998, and was lucky to ride the dot-com mania, in NYC. In 2005-2006, I happened to be in Miami Beach, and visited a day trading office on Lincoln Road. I had set up an offshore private interest foundation, with $5M, and I was looking to diversify by investing in hedge funds. I was told of this amazing young guy, named Harris Kupperman (we were both in our twenties), so I visited his office, and had a face to face meeting. He had an extensive bookshelf, mostly history books, and economics (I have a Bsc. in Economics from Duke University, and also a BA in Art History). I believe he was mostly involved in mining companies in Africa, at that time. What struck me, was a Marquis Jet Card, conveniently placed on his desk. I asked him about it, and he said that it enabled him to fly to remote locations. My other observation was that his office was pretty huge, and empty, as he only had one assistant, visible. I questioned why such a big space, and he answered that he was looking to expand, and he might as well lock in the price on the lease.
I then asked about his fund. He said he was managing around $100M, and his minimum was $2M, but just for me, he would lower it to $1M. I passed.
Within a year the fund imploded (as in ZERO). Investors were given “share certificates”, as IOUs. The office was gone. I was still on his email list, and I clearly remember the last email from him, saying that he was humbled, and writing it from his living room. I do not know what happened to the original investors.
I googled his name, but this “part” of his life has been fully deleted. I wonder why?
TRUE Story!!!”
https://www.elitetrader.com/et/threads/es-journal-2019-2020.328086/page-2701#post-5159689
Then Mongolia! And by 2015, it was not doing so well. I did a quick search in the Wayback Machine for http://www.pracap.com, and although it was started in 2003, the oldest screenshot is from 2019. Something is off…
Entangling thousands of investors, and “losing” hundreds of millions. Hopefully, “Real Vision” does some financial forensics into the $100M lost in mining in Africa around 2006, or the 50M+ lost in Mongolia. I wonder why Kuppy chooses far out destinations. Harder to do due diligence!!!”
I found and read all those threads too. By the time I did my due diligence the stock moved too much.
I went and listened to a back catalogue of his podcasts too. He makes sense in what he says but my overall impression was that he seems over confident, and like many over confident people is likely to miscalibrate the probabilities of the outcomes he expects.
Of course, the idea here is to get securities at a discount to market value and hope they work out and get liquidated, else, hope the discount is large enough to avoid a permanent loss of capital.
That said, he did say in his shareholders letters something along the lines of not being a forced seller and instead waiting for his investments to mature – now, it is fine line between waiting for maturing vs accepting you may be wrong and moving on. I hope for the former because even if wrong I’m not confident he will necessarily acknowledge a potential error in a timely enough manner to ensure capital is preserved….
” he did say in his shareholders letters something along the lines of not being a forced seller and instead waiting for his investments to mature.”
I think this is negative for the liquidation thesis, because keeping a permanent capital vehicle such as YAK is actually very valuable to him if he would not want to be a forced seller.
Bill Ackman’s listed PSH vehicle used to be just a feeder and side project for his then much larger private fund, but now PSH accounts for most of his AUM.
Although Kuppy’s private fund is currently doing very well in fundraising, a person with so much rollercoaster experiences in the past must have appreciated very much the value of keeping YAK as the fallback just in case.
Agree. Thanks for the additional insight. I’m extremely weary of extreme returns, both good and bad so I’m not actually impressed with that track record. It is the record of someone prone to enormous drawdowns.
There are 2 sides to every market but I’m quite comfortable with my view that they will use up their NOLs then liquidate.
The stock is up by 10% since the write-up. Meanwhile, the portfolio value of MNNGF/YAK has declined. NAV has dropped to from C$2/share to C$1.8/share (based on Dec position figures, so these might have changed since). The remaining discount to NAV is just 12%.
Kuppy taking the summer/2-3mo off as well, doesn’t seem like anything gives for YAK in the meantime?
https://x.com/hkuppy/status/1803581697155592642
https://pracap.com/the-culling/
I have no position but I’m not sure this says much. Kuppy lives in PR, if at all possible, you basically have to leave during hurricane season
We’ll see by Aug 15 (13F disclosure deadline)whether he’s indeed eliminated his non-core positions.
When does he usually release his quarter investor letters?
I couldn’t verify the specific dates for MNGGF, but here are the historical dates for the investor letters from Praetorian Capital.
2023:
Q1: Released April 19
Q2: Released July 30
Q3: Released October 25
Q4: Released January 19
2022:
Q1: Released April 24
Q2: Released July 14
Q3: Released October 23
Q4: Released April 12 (looks like a one-off)
2021:
Q1: Released May 10
Q2: Released July 27
Q3: Released October 25
Q4: Released January 30
Feels like dead money now, anything worth updating?
Yup, nothing seems to happen. Management mentioned that they’re going to invest in equities (as a better alternative to holding cash) until they find good opportunities to launch/acquire a business. So still far far away from liquidation.
Q4 results came out. Shares continue trading at a ~25% discount to NAV. No meaningful updates on the catalyst. Management reiterated the liquidation scenario, noting it’s unlikely they’ll find a suitable acquisition unless asset prices pull back significantly. NCIB was renewed (up to 6.5% of shares outstanding or 10% of float); previous NCIB resulted in <5% share repurchases.
"I have on many occasions noted that there are tax and regulatory reasons why we cannot be a publicly traded business where the primary assets are marketable securities. Therefore, we MUST purchase over 25% of an operating business in the very near future. Unfortunately, we have not been able to identify any attractive opportunities, and believe it is unlikely that we will be able to identify a sufficiently attractive opportunity, unless there is a pullback in global asset values. If we cannot find a suitable acquisition in the near future, we will likely choose to liquidate this Company, so as not to burden shareholders with the costs of a public company."
It's interesting to compare this commentary with previous letters. Maybe I'm reading too much into this but seems like management is getting less and less optimistic that they will finally find something to acquire:
From Q4 (newest):
"Unfortunately, we have not been able to identify any attractive opportunities, and believe it is unlikely that we will be able to identify a sufficiently attractive opportunity, unless there is a pullback in global asset values."
https://www.mongoliagrowthgroup.com/wp-content/uploads/Shareholder-letter-2024q4.pdf
From Q4 2023 (same as Q3):
“Unfortunately, we have not been able to identify any attractive opportunities and have started to lose confidence that we will be able to identify a sufficiently attractive opportunity.”
https://www.mongoliagrowthgroup.com/wp-content/uploads/Shareholder-letter.pdf
From Q4 2022:
“Unfortunately, we have something of a ticking clock on our business as we have to eventually own more private business assets or large stakes (25% or more) in public companies. Unfortunately, during 2023, hard decisions must be made. I refuse to make a bad investment decision simply to check a regulatory or tax box. As a result, if we cannot find anything intelligent to do, we’ll be forced by legal and tax statutes to begin returning capital to shareholders.”
https://www.mongoliagrowthgroup.com/wp-content/uploads/Shareholders-letter-Q4-2022.pdf
Do they have a hard deadline for this?
None that I’ve seen. They haven’t mentioned any deadlines, so it’s unclear what exactly they mean by “near future.” I had expected this to move towards a liquidation more quickly.
The “tax and regulatory reasons” and “ticking clock” he referred to must have deadlines of some sort.
It may have something to do with:
YAK being deemed by TSX as a passive investment vehicle/ investment fund/shell company (I am not sure what the actual name is for this);
Kuppy having to register as an advisor in Canada;
YAK being deemed a PFIC;
Investment profits being taxed as ordinary incomes (Annual reports mentioned that YAK has now refrained from trading its core positions because of this).
There is this from their 2023 report:
“Between July 2021 and March 31, 2023, the Corporation traded several securities in addition to
holding several core positions. As a result, during this time, securities gains were treated as income and not capital gains under Canadian tax statutes. As of April 1, 2023, the Corporation has no longer been purchasing and selling securities outside of its core portfolio and intends to treat future gains as capital gains for tax purposes”
But I don’t understand it. And I notice from each quarterly report that Kuppy is indeed trading
They have been saying it for over 2 years and I talked to one of the board members a year ago saying the same thing. Who really knows.
To liquidate. Anyone on NAV estimate? Price up 10% to US$~95c in otc market MNGGF at 9:40am after news. (C$1.27 YAK.V)
https://finance.yahoo.com/news/mongolia-growth-group-announces-plan-111500653.html
Correct me if I’m wrong but at current prices, this looks like a free call option on the KEDM and russian assets sale. Potential upside is probably not that big, however.
They mentioned having around C$31-33m of cash + marketable securities + NWC. They also have at least C$2m from the Puerto Rico RE (Kuppy said he will buy it at a premium). So let’s say it’s C$35m or C$1.37/share based on 25.5m shares outstanding. If we assume roughly C$3m-C$5m for misc wind down costs/cash burn, the liquidation value would be C$30m-32m or C$1.18-1.26/share.
So the market is pricing in KEDM + remaining Russian assets at more or less nothing.
– KEDM is profitable on a segment basis and has an interested third-party bidder. KEDM’s revenue has declined from C$3.2m in 2022/2023 to C$2.6m in 2024. Annualized Q1 2025 figures suggest a further decline to a C$2.3m run-rate. However, it remains profitable, generating C$1.4m in segment profit for 2024 and an annualized profit of C$1.1m based on Q1 2025. It’s probably worth a couple of millions. Maybe C$0.10-C$0.15/share?
– The Russian assets are “various Russian GDRs and ETF securities” that are currently frozen. Not clear how much was invested into these, but the current sale value is probably not very material.
The value of marketable securities will continue to fluctuate, and 10% further loss can easily wipe out any potential proceeds from KEDM sales.
And it’s difficult to hedge because we don’t know in real time the securities holdings or the progress of their disposition.
It’s interesting that Kuppy wants to bid for the Puerto Rico office property but not for KEDM. He is a more natural buyer for the latter.
It looks like that to me as well, a free call option on KEDM and Russian assets.
Of course there is risk with the marketable securities, but these might as well go up as down.
The C$31-33m is as of June 30.
Regarding JOE, which they might still be holding, is up from $47.7 to $50.4/share since then.
They may have exited VAL before June 30 – at least it is not listed anymore as a top holding in the latest Praetorian Capital shareholder letter – but in case not, then it is up from $42.11 to $47.08/share since then, and all trading days in between June 30 and today the price has been higher than $42.11
They had 41M in current assets as of the end of Q1, pretty confused how that went to 31-33M today
IR got back to me saying the portfolio performed poorly during Q2 and to check the 10Q in the next few weeks for more clarity. Considering 35% of their portfolio was JOE and VAL which are at least flat to up QoQ a 20-25% drawdown is pretty remarkable.
Read on X that Kuppy apparently exited VAL, not sure if it is true and don’t want to spread rumours.
They had a brokerage loan of $1.5m, adjusting for that NWC was probably coser to C$39m. Also, I’m assuming they hold most of their assets in USD. Exchange rate moved from 1.44 to 1.37 QoQ, that maybe explains another ~$2m. I don’t think it’s a 25% drawdown. Probably closer to 10%.
I also find this surprising
IR told me they have the following Russian securities:
LKOH (2,362 shares)
PHOR (2,050 shares)
SBER (426,240 shares)
PHOR.NEW1 (2 shares)
TCS.USD (4,824 shares)
PHOR.MR2 (39 shares)
RSX (75,689 shares)
Looking up the latest prices on the Moscow exchange I calculate the following:
LKOH = C$0.258m
PHOR = C$0.248m
SBER = C$2.338m
TCS.USD = C$0.28m
I haven’t figured out what PHOR.NEW1 and PHOR.MR2 are, but I’m suspecting the value is negligible, so I’m setting those to zero.
RSX (VanEck Russia ETF) has stopped trading so we don’t have a current price, but if it starts trading again the percentage change in price from before the war till now will like be quite similar to how the MOEX Russia Index has performed. I estimate the value of the RSX shares to be C$0.967m.
Summing it all up, the Russian securities are worth C$4.09m
However, I don’t have a clue if they are somehow able to get them sold at the moment.
IR wrote me this: “If you or someone you know has experience with transacting in Russian securities, or would be interested in exploring a potential purchase, we would be happy to speak further.”
Worst case, I would expect they can just delist a company that only holds the Russian securities, and then maybe one day in the future they will become tradable and there will be a final dividend
PHOR is probably PhosAgro PAO. Likely from the LSE GDR.
Ignore, read that wrong.
Q2 results are out. Seems like they sold a lot of marketable securities (down to basically C$2.4m) while cash increased to C$30m. Exposure to investments volatility should be minimal going forward.
“At quarter-end, we held approximately 92.7% of our assets in cash, with our only significant investment being in a capital markets company representing roughly 4.7% of our portfolio.”
The Russian securities are a gamble – management clearly suggests they have no idea if/and at what prices these could be sold:
“As part of this process, we are actively seeking buyers for our Puerto Rican real estate, the KEDM business, and, if feasible, our Russian securities.”
At current prices, the stock trades at roughly 8% discount to Q2 NAV before any wind down costs. Still think this is pretty much fairly valued at these prices.
The office was bought by Kuppy, slightly above appraisal value (US$1.45m vs appraised at US$1.3m).
The KEDM sale is a bit weird. Do I understand it correctly that it was sold for no cash consideration, but only for assumption of deferred revenue obligations? The buyer is also referred to as “KEDM Inc.”, but is apparently a third-party purchaser.
Any thoughts on this?
https://www.mongoliagrowthgroup.com/wp-content/uploads/MGG-press-release-transations-final.pdf
The transaction will in effect reduce liability by C$600-900k from MNGGF’s balance sheet. Sounds very low a consideration for the KEDM business, which has a run-run annualized profit of C$1.1m based on @Shawn’s estimate.
However, I also don’t understand what they mean by “…KEDM business (which will be retained by the Company) ). What business will the Company retain?
My read is that the phrase refers to the deferred revenue being retained by the company, while the KEDM business itself is being sold.
Who are generating ideas and editing at KEDM? I guess Kuppy is not involved anymore.
But I will be surprised if KEDM employees are not behind the buyer.
Interesting they haven’t announced anything on the changes in the KEDM chat for the community. Unless I somehow missed it.
Just noticed that the proxy is out.
– The buyer of KEDM is a Delaware-based entity, “KEDM Inc.”, with Roderick van Zuylen signing the purchase agreement as a director.
– The shareholder meeting to approve both asset sales is officially scheduled for October 7.
– The KEDM agreement is explicit that “no cash shall change hands at Closing.” As for Kuppy’s involvement, the deal removes his obligations but leaves the door open for discretionary contributions during a 60-day transition period, with the possibility of negotiating a future role after that.
https://www.sedarplus.ca/csa-party/records/document.html?id=cad3ee5e226441ca8fa8a8f3bfced9d4fe9bda7aa8b81eb3c40403fe5f318b9e
So if I understand correctly, the buyer will not have to pay anything for KEDM aside for agreeing to provide full services (i.e. issue the datasheet on weekly basis) at least till Oct 2026, when any deferred revenue obligations will be fully eliminated. I am quite surprised by this low price tag.
Maybe the implicit condition/cost is that the buyer will retain and pay the current employees of KEDM well.
Not sure what Zuylen wants from the KEDM subscriber list. I guess this is the same person as the Roderick van Zuylen at Night Watch Investment Management. He runs a value based strategy, and not doing even-driven stuff as far as I know.