There's no way to sugar coat it: Dundee Corp.'s latest earnings are tough to swallow, with the holding company losing $149.9-million last quarter.
Dig through the financials and it's clear the current trouble stems from a single writedown: Dundee Corp. owns 25 per cent of Dundee Precious Metals, and the holding company incurred a $121.4-million loss on this investment.
Understanding why the writedown was incurred, however, isn't so simple. Dundee Corp. says it used to have people on Dundee Precious Metals' board of directors and that allowed it to exert some control of the company. For this reason, it used the equity method of accounting, through which Precious Metal's net income or loss was added to its income statement in a single line.
Now that Dundee Corp. no longer exerts this control, it changed the accounting style in favour of the fair value method. That means Dundee Precious Metals' market value will now be reflected in the holding company's financials. Because Precious Metals' shares have plummeted 60 per cent in the past year, there was a big discrepancy between their current value and where Dundee Corp. originally marked them on its books. The new $121-million charge closes this gap.
As for the departures from Dundee Precious Metals' board that allowed for this accounting change, Dundee Corp. said it doesn't relate to Jonathan Goodman's exit from its own board in 2014, "rather to other executives in our firm that have since retired."
Dundee Corp. also stressed in an e-mail that the writedown "did not have a material impact on our reported [net asset value] because we have always been reflecting the trading value (and not the accounting value) of Dundee Precious Metals in our NAV calculations."
The question now is what Dundee Corp. wants to do with the Precious Metals holding. Because the accounting method has changed and the writedown is already on its books, the holding company now has more flexibility to sell the stake should it so choose.
Keep in mind that when David Goodman took over as Dundee Corp.'s chief executive officer last year, he got to work early and sold Dundee Corp.'s stakes in its former real-estate investment trusts. Maybe more portfolio pruning is in order.
He'll also have to keep an eye on other holdings, which dragged down performance in the first six months of 2015. Blue Goose Capital Corp. lost $10.8-million, partly because of a loss on the sale of some assets, and AgriMarine Holdings posted a $15.8-million net loss over the same period, mostly because some intangible assets were written off.
United Hydrocarbon International Corp., in which Dundee Corp. holds a 35 per cent stake, suspended drilling operations during the first quarter of 2015. The oil company also needs to raise $250-million (U.S.) for its exploration programs but hasn't been able to do so because market volatility has scared potential investors away thus far.