iolite Partners Ltd. Issues Letter to Fellow Shareholders Urging them to WITHHOLD their votes in the election of Mr. Pierre Lépine (Chairman) at Dynacor's Annual General Meeting

iolite Capital Management, a 10% shareholder of Dynacor Group Inc. (TSX:DNG), is urging fellow shareholders to withhold votes for Chairman Pierre Lépine at the June 17, 2025, AGM, citing significant underperformance, persistent undervaluation, and erratic capital management. Despite an 18% YoY increase in Q1 sales, Dynacor's cash margin declined from 17.2% to 14.0%, with April sales down 8.8% YoY despite a 38.8% increase in the gold price; iolite also criticizes the company's simultaneous international expansion efforts and the board's rejection of their independent director nominee.

Analysis

iolite Capital Management AG, a beneficial owner of approximately 10% of Dynacor Group Inc.'s (TSX:DNG) common shares, has launched a public campaign urging shareholders to withhold votes for Chairman Pierre Lépine at the upcoming Annual General Meeting on June 17, 2025. This action stems from significant concerns regarding Dynacor's performance and governance. Despite a 26% increase in the gold price and a 43% rise in the junior gold miner index, Dynacor's share price has declined 21% since its January capital raise. The company trades at a substantial discount to its peers, with an EV/EBITDA multiple of 2.9x (compared to a 5-year average of 3.4x and a sector average of 8-10x) and a cash-adjusted P/E below 5x (versus 10-15x for comparable businesses). iolite highlights eroding margins despite record Q1 sales, which grew 18% year-over-year; specifically, the cash margin fell from 17.2% to 14.0%, gross margin from 13.5% to 11.2%, and EBITDA margin from 12.0% to 8.8%, with EBITDA declining from US$8 million to US$7 million. Operational momentum also appears to be deteriorating, evidenced by an 8.8% year-over-year decline in April 2025 sales, even as the gold price rose 38.8% and the plant operated at full utilization, implying an effective sales decline of 44% on a like-for-like basis. Capital management has been described as erratic, involving a sequence of suspending share buybacks, increasing dividends, conducting a discounted capital raise to friendly parties, signaling further dilution, and then resuming buybacks, all within six months, while the company holds US$59 million in cash (42% of market capitalization). iolite also criticizes the company's abrupt and ambitious international expansion plans across multiple African and South American countries, given a lack of proven international execution track record, and points to governance failures, including the rejection of a credentialed independent director nominee proposed by iolite despite prior indications of support from Dynacor.

Key Decisions for Investors

• Investors should closely monitor the outcome of the June 17, 2025, Annual General Meeting, particularly the vote concerning Chairman Pierre Lépine, as it could significantly influence Dynacor's board composition and strategic direction.
• A thorough reassessment of Dynacor's intrinsic value is warranted, considering the stark contrast between its current trading multiples (e.g., 2.9x EV/EBITDA) and peer valuations, alongside the activist's claims of operational underperformance and eroding margins despite favorable gold prices.
• Investors should scrutinize management's explanations for declining margins and sales momentum, and carefully evaluate the feasibility and potential risks associated with the company's multi-jurisdictional international expansion strategy given the concerns raised about execution capabilities and capital allocation.
• Consider the potential for continued share price volatility and the implications of sustained activist pressure on Dynacor's governance, capital management policies, and overall market perception.