Dundee Precious Metals Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 6, 2024

There are 9 speakers on the call.

Operator

Welcome to the Dundee Precious Metals Third Quarter 20 24 Earnings Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Jennifer Cameron.

Operator

Please go ahead.

Speaker 1

Thank you, and good morning. I'm Jennifer Cameron, Director, Investor Relations, and I'd like to welcome you to our Q3 conference call. Joining us today are members of our senior management team, including David Ray, President and CEO and Navin Dyle, Chief Financial Officer. Before we begin, I'd like to remind you that all forward looking information provided during this call is subject to the forward looking qualification, which is detailed in our news release and incorporated in full for purposes of today's call. Certain financial measures referred to during this call are not measures recognized under IFRS and are referred to as non GAAP measures or ratios.

Speaker 1

These measures have no standardized meaning under IFRS and may not be comparable to similar measures presented by other companies. The definitions established and calculations performed by DPM are based on management's reasonable judgment and are consistently applied. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. Please refer to the non GAAP financial measures section of our most recent MD and A for reconciliations of these non GAAP measures. Please note that unless otherwise stated, operational and financial information communicated during this call are related to continuing operations and have generally been rounded.

Speaker 1

References to 2023 pertain to the comparable periods in 2023, and references to averages are based on midpoints of our outlook or guidance. I'll now turn the call over to David Ray.

Speaker 2

Good morning, and thank you all for joining us. This morning, Naved and I will briefly review our Q3 results and discuss why we believe DPM continues to be well positioned to deliver value now and over the long term. Highlights from our Q3 include progress at our Choka Riquita project as we completed the infill drilling to the PFS and announced 2 new high grade discoveries solid production of approximately 60,000 ounces of gold and £7,000,000 of copper very strong margins, which increased 53% quarter over quarter, reflecting an all in sustaining cost of $1,005 per ounce and an average gold price of $2,548 per ounce. Also, we had robust free cash flow with generation of $71,000,000 and continued financial strength as we ended the quarter with a consolidated cash balance of $658,000,000 and no debt. I'm pleased to say that we are on track to achieve our 2024 guidance target, which will mark the 10th consecutive year we've achieved or outperformed our gold production and all in sustaining cost guidance, a testament to the strength of our operating team and the quality of our mines.

Speaker 2

Taking a look at our operations in more detail, Chelopech continued its consistent track record in the 3rd quarter, producing 44,000 ounces of gold and £7,000,000 of copper at an impressive all in sustaining cost of $6.38 per ounce of gold sold. Over the balance of the year, we expect improved copper grades at Chelopech, and the operation is on track to achieve its production guidance for the year. With all in sustaining costs of $6.59 per ounce year to date, Chelopech is also expected to be well within its cost guidance for the year. At Adatepe, some temporary challenges impacted performance during the quarter, including lower than expected head grades, recoveries and fleet availability. This resulted in 3rd quarter production of approximately 16,000 ounces of gold and an all in sustaining cost of $11.71 per ounce of gold sold.

Speaker 2

The issues that impacted fleet availability have been resolved with performance tracking to plan, and we expect higher production in the Q4 than Adatepe remains on track to achieve its guidance for the year. Turning to our development projects. We continue to progress the pre feasibility study for our high quality Choka Riquita project, which is on track for completion in the Q1 of 2025. At the end of the Q3, the PFS design and engineering was approximately 80% complete. During the quarter, we completed the PFS infill drilling program, the results of which continue to confirm the continuity of the high grade mineralization and an updated mineral resource estimate is underway.

Speaker 2

The geotechnical and hydrogeological drilling program, which will support PFS design and cost estimates, is nearing completion. We're also advancing project permitting activities in support of this timeline with good support and engagement from key regional and national authorities. This includes preparations for the EIA, which we expect to submit in the Q1 of 2026. What makes Choka Riquita particularly exciting is that it's an attractive project on a standalone basis, operating offering very robust economic returns, production growth and strong margins. And also there's a significant exploration potential across our 4 licenses as demonstrated by our recent SCOUT drilling results.

Speaker 2

In September, we announced 2 new discoveries at the Dimitry Potok and Frazin prospect, which are both located only a kilometer north of Chokerequita. It is still early days for these discoveries with additional work to do in order to understand the footprint, continuity and overall size potential as well as the metallurgy. However, the exploration upside remains evident from our ongoing drilling success as new high grade copper gold mineralization keeps expanding its footprint at Dimitropotok and Frasen. It also demonstrates that our targeting model is working and that there is significant potential for additional mineralization along strike to Choka Riquita, Dimitropotok and Frazen. Overall, we're very excited by Choka Riquita's potential in a region where we've had a presence for many years that has a long history of exploration and mining development and where we've developed strong relationships with local stakeholders.

Speaker 2

Turning to the Loma Lager project, we continue to progress activities related to permitting and stakeholder relations. The baseline ecosystem and water studies were complete during the Q3 and submitted to the court by the Ministry of Environment. At the end of October, the environmental consultation process with local communities overall voting favorably for the development of the project. We would expect the environmental license to be issued once the free, prior and informed consultation process is concluded. We continue to take a disciplined approach with respect to future investments in activities in Ecuador, which will be based on the project achieving key milestones, the overall operating environment in the country and of course other capital allocation priorities.

Speaker 2

Overall, we continue to deliver strong financial results and with both mines on track to achieve our 24 guidance targets, we're well positioned to continue our strong operating track record.

Speaker 3

I'll now turn the call over to Navin for a review of our financial results. Thanks, Dave. I'll be touching briefly on the financial highlights for the quarter and conclude with some commentary on our balance sheet and return of capital program. All of my remarks will focus on results from continuing operations unless otherwise noted. Looking at our financial highlights.

Speaker 3

3rd quarter highlights include revenue of $147,000,000 adjusted net earnings of $46,000,000 or $0.26 per share, cash flow provided from operating activities of $52,000,000 and free cash flow of 71,000,000 dollars Overall results during the quarter reflect our strong operating performance, the low cost nature of our operations and a favorable commodity price environment. Looking at our earnings and cash flow in more detail, revenue of $147,000,000 in the quarter was 21% higher than 2023 due to higher realized metal prices and lower treatment charges at Chelopech, partially offset by lower volumes of gold sold at Atatepe. Adjusted net earnings for the in the quarter of $46,000,000 or $0.26 per share increased compared to the prior year due to higher revenue and interest income, partially offset by higher plant exploration and evaluation expenses, higher share based compensation expenses reflecting DPN's strong share price performance and higher income tax. Cash flow provided from operating activities of $52,000,000 for the quarter was lower than the prior year due to the timing of collection from sales, partially offset by higher earnings generated in the quarter. Free cash flow, which is calculated before changes in working capital, was $71,000,000 for the quarter, an increase of $25,000,000 compared to 2023, due to higher earnings generated in the quarter.

Speaker 3

Taking a look at our cost metrics for the quarter, all in sustaining cost of $1,005 per ounce was 10% higher than the prior year due primarily to lower volumes of gold sold and higher share based compensation expenses, partially offset by lower treatment charges at Chelopech and higher byproduct credits as a result of higher realized copper prices. In terms of our capital spending, sustaining capital expenditures were $11,000,000 for the quarter and were comparable to 2023, while growth capital expenditures of $3,000,000 for the quarter were lower compared to 2023 due primarily to lower expenditures related to the Loma Largo project as expected. On August 30, 2024, we closed the sale of the Sumit smelter for net cash consideration of $15,900,000 During the quarter, the company agreed to step into IXM's position and entered into a tolling agreement with Sinomine for a period ending 4 months following closing of the sale, where the company will purchase new metal bearing material and sell the copper blister produced by Tsumeb until the end of the agreement. Sinomine is contractually obligated to pay the company for all DPM owned inventories at the MBB agreement, which terminates effective December 31, 2024. As a result, as of September 30, the company had a total net cash outflow of $94,800,000 related to this totaling risk.

Speaker 3

We continue to maintain a strong balance sheet and cash position with a consolidated cash balance of $658,000,000 no debt and $150,000,000 undrawn revolving credit facility. Given the strength of our balance sheet and our outlook for continued strong free cash flow generation, we are in a unique position with the financial flexibility to fund growth opportunities, while continuing to return a portion of our free cash flow to our shareholders in line with our commitment to capital discipline. During the 1st 9 months of 2024, the company repurchased 3,400,000 shares at a total cost of $28,300,000 under the share buyback program and paid $21,700,000 of dividends, representing an aggregate return of 23% of our free cash flow to shareholders. I'll now turn the call back to Dave for his concluding remarks.

Speaker 2

Thanks, Navin. In closing, we're in a unique position in the industry considering our strong operating track record, the low cost nature of our operating mines, generating significant free cash flow, our attractive organic projects and the financial spend and flexibility to internally fund growth while continuing to return capital to shareholders. I'd now like to open the call for any questions.

Operator

Thank you. At this time, we will conduct the question and answer session. Our first question comes from Raj Ray of BMO. Your line is now open.

Speaker 4

Thank you, operator, and good morning, Dave and team. Couple of questions. First up on the working capital changes at Tsumeb. Do you anticipate any more working capital buildup over the next 4 months or this is kind of a one off and it reverses at the end of 4 months? And second is a broader question on capital allocation.

Speaker 4

I mean, I understand that the company is looking at growth opportunities both within the portfolio as well as potentially outside, But gold prices are significantly higher this year compared to last year. Yet if I look at the share buybacks for this year, it's hovering around $27,000,000 versus $53,000,000 last year as of Q3. And then if I look at the payout ratios, now there's 2 things. One is, if you look at the average payout ratio for the last 4 years for the gold industry, it's been around 65%. Dundee is at the low end of that around 23%.

Speaker 4

Now this one, obviously, the free cash flow is much larger for Dundee given your cost structure. But secondly, like do you anticipate keeping the same capital returns? I mean, the one risk you there's 2 questions that I that we get from investors. 1, does the company believe that it's fairly valued at this point? And second is, is there imminent M and A potential that the company sees in the market?

Speaker 4

I'll leave it at that.

Speaker 3

Hi, Raj, it's Navin. Yes, I'll answer the first question and touch upon the capital allocation question in the second and then I'll probably turn it back to Dave. So in terms of the working capital buildup, yes, we do what we will see over the course of the 4 months is puts and takes in terms of buildup of purchases that we've made as well as the timing of blister returns as well. So within the quarter, you'll see increases in inventory, but decreasing by the end of decreases as a result of blister returns. So by the end of the year though, again, we fully anticipate that this agreement and as contractually obligated, this agreement terminates at the end of December.

Speaker 3

So we would expect that all that working capital come back once this agreement is terminated and Sinomine purchases that inventory. Maybe turning to your second question on capital allocation. So in terms of conversations that we might otherwise have around increasing share buybacks, that type of conversation, we have that regularly as a management team and then obviously with the Board. We've always taken, as you know, a very balanced approach to capital allocation that focuses on the balance sheet strength and capital returns to shareholders and also reinvestment in the business, considering we have a significant organic growth pipeline up and coming that would return a lot of value to shareholders. We're one of the few producers of our size that actually pay a dividend and we also as you know, we supplement that with the NCIB.

Speaker 3

And as you pointed out, we definitely consider our cash balance to be a strategic advantage. We have the strength financial strength to fund our growth opportunities, but also have the ability to continue to pay a dividend and also to pursue accretive M and A opportunities. And perhaps with that, maybe I'll turn it back to Dave on perhaps discussing more about considerations around broke.

Speaker 2

Yes. So Raj, I mean, we obviously maintain a set of targets that we review on a regular basis and consider for M and A opportunities. We also just to make sure that we have the right context, we have 2 different organic growth projects in our portfolio, one of which, Choco Raquita, is very exciting and imminent and the other of which continues to progress slowly and quietly in the background, which producing 200,000 ounces a year at its low all in sustaining costs is exciting as well. So there's the potential for use of funds, either returning capital and we have a healthy conversation on what we do in terms of dividends and buybacks, opportunities to invest, where we have some accretive results from M and A. And then also looking at what's happening in terms of the picture investments and the outlook sort of year by year for both Choka Raquita and also for our secondary project at Loma Lager.

Speaker 2

And I think more than that, I don't know if that answers your question, if you have anything else that you'd like to clarify, but that I think is a reasonable indication of our position.

Speaker 4

Okay, that's great. Thanks, Dave. That's it from me.

Speaker 2

Thanks, Raj.

Operator

Thank you. One moment for our next question. The next question comes from Don DeMarco of National Bank Financial. Your line is now open.

Speaker 5

Thank you, operator. And Navin, I'd just like to continue follow-up on the response to your question to Rob. You mentioned that you expect working capital to come back after the agreement is terminated. So with the agreement terminating at the end of December, should we expect the repayments to be reflected on the Q4 financials or in Q1?

Speaker 3

Yes. Hi, Don. Yes. So the agreement terminates on December 31, and the mechanics of the way that works with respect to the buyback of that inventory is that that buyback occurs on December 31. However, given the fact that it's also we're in the holiday season and it's scheduled to occur right on New Year's Day and we receive, this could slip into the 1st week of January in terms of the payment.

Speaker 3

Okay. Also just to note as well, what they're buying essentially is both the raw materials that is on-site and on ship as well as the contractual metal in circuit, which is obviously in the circuit. And we'll have a final adjustment of what that figure is only post December 31. But I would expect the majority of the value of that working capital would be recovered by the end of the year.

Speaker 5

Okay, fair enough. And just in general, are the outlays that you incurred over the last few months consistent with what you expected? Or are they a little bit higher or lower?

Speaker 3

Sorry, I just get to the first part of your question on the delays? Yes.

Speaker 5

Are the outlays or the cash outlays that you incurred to purchase the concentrate? Is it in line with your expectations? Or is it a bit higher or lower?

Speaker 3

Yes. It certainly is a little bit higher with it is it does fluctuate with metal prices. So certainly, there will be with higher metal prices, copper prices, the value of that metal is definitely going to be higher. But in terms of the expected timing of those purchases, they're in line. I think what the other piece of this is really the performance of the counter and the how quickly they return the filter.

Speaker 3

And that's where it's subject to obviously operating performance and any downtime that may be associated with the smelter that would potentially extend the timing of the delivery of the oyster at any point.

Speaker 5

Okay. Thanks for that. Now just over to David, Chelopech has posted a

Speaker 3

couple of quarters of ASIC

Speaker 5

in the $500 to $600 range. Is this the new norm? We're looking ahead to 2025 and guidance. How should we kind of frame our expectations on cost looking ahead?

Speaker 2

So Don, of course, we will be updating our guidance when we come up with our Q4 numbers. What do you see coming through, though? Primarily 2 things. So the one is the copper price influence on the cost. The other one is also the change in concentrates and where they're going.

Speaker 2

So that's had a very material impact for 2 reasons. One is the direct charge for TC. But the other piece, which is perhaps not as evident, is it also allows us to target a higher recovery with a greater mass force. So we've increased the tons, decreased the grade, which increases the overall recovery. So there's those two things, the copper in pipe plus also the change in the way we're operating the facility, which is with the recovery way outweighing the increased cost associated with additional tonnage of concentrate.

Speaker 5

Okay. So clearly, those are the drivers that are supporting these low costs. But would you say that Q2 and Q3 then might be the new norm in terms of the cost that we're seeing there?

Speaker 2

So Q3 includes a number of different things, which are important for the start of the annual cycle, which recognizes pay increases for annivers. So that's a more representative number than would be Q2. Okay. And things like inflationary pressures and such, we started to see unwinding of some of our previous pressure. So we've seen benefit in light reagents, steel costs and things like that.

Speaker 2

We're starting to see that come down. So I would say if you look at it, GT is a good start, but we will update you on that early in the New Year.

Speaker 5

Okay. Thank you. And then final question. So we're continuing to hear progress at Loma Largo. It'd be nice to get an impression of your overall strategy for this asset.

Speaker 5

I mean, you made this investment at a lower gold price. No doubt it's increased in value. Two things then. When would we expect an update on the economics, including development CapEx? And second, are you sort of squarely focused on developing this asset?

Speaker 5

Or would it even potentially be a divestment candidate for a profit?

Speaker 2

I'm going to start with that in reverse. We're not wedded to any particular asset. So the decision in terms of the strategy on any asset is something that we consider at any given time. So we have Tierra's Colorados and we have Loma Largo in that. I think we've been very pleasantly surprised by the progress that's been made recently despite many of the things happening in country.

Speaker 2

And that's led us to the point where we've had the 2 technical reports required by the constitutional court submitted just at the end of the quarter, actually in October. And then of course, we just had a consultation to some communities looking at that particular information that's coming out of those two studies. All of these things are good progress and we're now just waiting to see the prior informed consultation being completed. So let's just have a look at the project and the rest of your question, Laurent. We still have to do some additional work here, which will update the economics of this project.

Speaker 2

So first thing that would happen with clearance to progress the project is we're going to commence some drilling and that will be focused on geotech hydrogeology and some minor amounts of resource clarification, particularly at depth below the deposit. So that work is expected to happen and will then feed into going through our current status with our internal technical view of how we develop this project, and that's going to lead to an updated feasibility study. So that's going to take us some but don't expect that to be overnight, just the idea of looking at what the individual costs are, the supply, earthworks and other contracting and things like that. This takes a little bit of time.

Speaker 5

Okay. Would that be a 2025 item?

Speaker 2

It depends on when we got the clearance to move forward, to be quite honest. You're not talking about something that's going to be done, let's say, in 6 months. It's going to take a little bit longer than that once we get to move on. And at the moment, we can't do drilling on the assets. That's primarily the main thing that we need to do.

Speaker 2

But just to come back, Don, to you've seen the movements of Choker, Riquita as we've identified the opportunity. They're really excited about what we see. That's really gone into prime position and is our main focus of the organization.

Speaker 5

Okay. Thank you, David. That's all for me.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from Jeremy Hoi of Canaccord Genuity. Your line is now open.

Speaker 6

Hi, everyone. Thanks for taking my question. Really appreciate that color on Loma Larga. It answered a lot of the questions I did have. But I did want to ask on Chelopech.

Speaker 6

There was a mention of the China VAT tax applicability potentially changing.

Speaker 7

I was wondering if

Speaker 6

you could provide a little bit more color on that. And there was also a mention of potential alternative buyers. But my understanding was there are limited buyers for this concentrate. And so just kind of want to understand exactly how you're thinking about that?

Speaker 3

Sure, Jeremy. It's Hammond here. So just a bit of background. So we have been sending about 70% to 75% of our concentrate to China. This is both the copper gold concentrate and the pyrite.

Speaker 3

And again, we produce 2 types of concentrate there. The pyrite concentrates that we send from Chelopech have always attracted BAT at 13% and additional duty of 1%. Our copper gold concentrate that we would send there would not attract that VAT or that duty because it was a high graded metathreshold that was required in China to be considered a precious metal or gold concentrate that was not subject to this. So what China's tax authority is proposing, and these are only proposed changes at this point, is to apply VAT and duty on gold concentrate that otherwise has a high component of iron and sulfur, which they would consider a pyrite concentrate and hence would be captured or attract VAT in duty. So that's the background of this.

Speaker 3

So at this point, this is really just this is really fairly new. What we saw in September and this is being have been reported in October was that the imports of this concentrate purchased by the buyers in China to smelters has been significantly down. What I'll also point out in terms of the impact to us is that our contracts clearly state that any additional taxes that are incurred are at the buyer's expense. However, we do recognize that ultimately, this will have if this were to be enacted, that this would definitely have an impact on future deliveries of concentrate to China considering the additional cost that would be required. Now in our case, look, we've been producing this concentrate for about over 20 years now.

Speaker 3

We are very familiar with the market, the broader market. And we do have alternatives to that. But as you point out though, given the nature of our concentrate, those additional areas or potential areas that we could deliver concentrate might incur additional costs. But at this point, it's really too early for us to really comment on that. Hopefully, that helps.

Speaker 6

That's very helpful. Thank you, David. I appreciate it.

Operator

Thank you. Our next question comes from Eric Windmill of Bank of Nova Scotia. Your line is now open.

Speaker 7

Great. Thank you very much. Hi, David and team. I appreciate you taking my question. Just on the inventory payment at Tumab, just trying to understand here, I know you said there's no major financial gain or loss associated with that.

Speaker 7

But just wondering if we should be modeling margins obviously on these inventory sales. Also do you anticipate any counterparty risk on this? And I guess is there any potential here that this agreement could get extended beyond the December 31 deadline? Thanks. All right.

Speaker 3

Thanks, Eric. So I'll just address a few of those here. So in terms of the margin, it's a back to back contract essentially. So we purchased the materials essentially from our the previous tolling agent, which is the IXM, and then we delivered the blister back to them as well. So because of that back to back nature, there's no price risk because essentially they're hedging on both sides of that transaction.

Speaker 3

And essentially, we don't collect essentially any type of commission on that as well. So that's what I would suggest with that. In terms of counterparty risk, iXm has been a purchase of this material. They want the blister and hence, I don't think that there's an issue here. And then when it comes to margin or additional costs, we are charging an interest on this to Dynamite for the working capital.

Speaker 3

This interest cost this interest is north of 7.5%. And given where interest rates have been falling, this cash would have been essentially sitting in our account at less than that. So we are making a small amount on this on interest income, but it's enough to cover our internal costs, which we're managing all of these transactions internally. So hopefully that helps.

Speaker 7

And just last part in terms of extending this beyond December 31?

Speaker 3

Yes, of course. Yes, as I mentioned before, the contract ends on December 31. And thus far, we've enjoyed a really good relationship with both, Sinomine IXM and everything's been working in accordance with our agreement.

Speaker 7

Okay. Thank you. I really appreciate that. Just quickly on Choquequita. So obviously, new resource estimate is underway there.

Speaker 7

Do you anticipate releasing that I guess in advance of the PFS?

Speaker 2

So what will happen is that primary activity here in the work done was to convert INFERD to indicated. So that's the main thing that you're going to see. Yes, hopefully that answers your question.

Speaker 7

Okay, perfect. I appreciate that. Just one more for me. There was a mention in the disclosures here about the Brevine license, Chelopech. Just wondering, I guess, what's planned there?

Speaker 7

And what do you see for that particular part of the deposit or of the land package?

Speaker 2

Yes, sure. I think there's 2 different things that we typically talk about here. The one has been Sverdrupetka historically, and that's what we're now referring to as Chelopech North. So that's advanced from where we now are with within So an exploration license to a geological discovery, which is where we are now with Breveni, and we've subsequently advanced beyond that to a commercial discovery. And by the end of next year, we're anticipating having a new concession for that.

Speaker 2

So Breveni is part of that same thing. So we've now got the geological discovery. What we're now doing is we're justifying with the authorities that plan for this next phase of work, which we would be at a 1 year period of drilling, which would then be used to justify a commercial discovery. Now the impact of this is it opens up a real estate on which we can do work to discover additional potential feed to Chelopech. So that's the primary impact of all of this work is just to open that up.

Speaker 2

At the same time, as you know, we continue to drill in areas within the concession. And from underground, we continue to do some, let's say, 70% extensional and 30% infill for around 40,000 meters per year. So all of those things are looking to our view of extending the life of mine at Chelopech. And obviously the more real estate we've got in that area and our prospect is the more we're able to look to really extend that life of Chelopech. So that's our primary goal.

Speaker 2

So just, Eric, the one thing I'm not too sure was quite clear. Of course, we'll be releasing the PFS. We've said that's going to be in the Q1 of next year, and that will include consideration of what additional benefit we've got from the drilling that we've done, where we've taken it down to 30 by 30 meter spacing with 15 by 15 in the high grade area. So just making sure that I've got that point across in terms of choke of the queue.

Speaker 7

Okay, fantastic. I really appreciate the added color. Actually maybe just one more if you don't mind, but Eta Tepe, so obviously expecting stronger production there. I know you kind of touched on that, but maybe anything specific you can point to in terms of what's changed there or reasons why production is down and why you see it ticking up here in Q4?

Speaker 2

Yes. So we had a combination of an underperformance in an area in terms of grade combined with some issues with our flexibility related to truck availability. So both of those are resolved in terms of Q4. So we're not anticipating any impact carried through from early Q3 into Q4.

Speaker 7

Okay, fantastic. Thank you very much. I really appreciate the extra color. I'll hop back in the queue. Cheers.

Operator

Thank you.

Speaker 2

Thanks, Eric.

Operator

Next question comes from Ingrid Rico of Stifel. Your line is now open.

Speaker 8

Great. Thank you. Good morning, David and team. I just wanted to follow-up on a question previously asked. I think Don asked about the Telepich cost.

Speaker 8

So understanding the benefits from the lower TCRCs and freight charges, but I did notice that the unit cost per ton did increase quarter over quarter. Just if we can get a bit of color on what are the drivers there? Is it just purely labor wages coming up to inflation? Or is there any other sort of inflationary pressures on consumables that are coming through?

Speaker 3

Hi, Ingrid. Yes, sure. I'll answer that. So yes, the main factors there was labor, wages and also a little bit of share based because we saw an increase in our mark to market for the quarter on the unit cost at Chelopech. So and the labor, as Dave pointed out, is that we typically have wage increases in the middle of the year.

Speaker 3

In fact, they're fact dated to July in Bulgaria. So that's going to be a bit of a factor here in terms of the increase that you're seeing there. But also, I think what also should be mentioned is that we did have slightly lower tons in the quarter relative to the prior year. It's about 6% down. Hence, why on a per unit basis, we're seeing a little bit of an increase there.

Speaker 3

But when it comes to other consumables, we're actually seeing relative to our budget, either flat to slightly improving costs in some of those areas, particularly with respect to things like steel and grinding media. We just renewed a contract there recently in which we saw some savings from the prior contract as well. So when it comes to other major consumables, we're not seeing any inflationary pressures happening there. So hopefully that answers your question.

Speaker 8

Yes, that's great, Navin. Just in terms of the labor increase and the labor wage increase, just remind me, the contract, it's set every year? Or are you now locked in on the wages for a longer term period?

Speaker 3

Yes. It's every 2 years that we have these negotiations.

Speaker 8

Perfect. Excellent. And if I can, just also a follow-up on the concentrate being sent to China. As I understand, these are already contracts for 2025 to 2027. What is your ability in those contracts to maybe divert some of those sales to other regions and whether that's possible under the contracts?

Speaker 3

Sure. Yes, I mean, clearly, if we so a couple of things to mention here. One is the any of the bad increases or duties that would be applied or the buyer's account. So we would be happy to continue to deliver into China if so long as the customer is willing to take it. Now the issue for perhaps then for the customer in this case or the smelters is that if they take this concentrate and if this proposal by the Chinese tax authorities were to remain in place, they would be operating likely at a loss for much of this contract.

Speaker 3

Hence, why we've seen such a decline in imports. They have been very vocal. The smelters themselves have been very vocal against these proposals. So if they are operating at a loss, they certainly would be looking to potentially exit these contracts and not take the material in one instance, in which case, we would be looking for alternatives and for this concentrate. But ourselves, we would be happy to continue to deliver again.

Speaker 3

We're not this VAT and this duty does not essentially get passed on to us. If we continue to deliver into China, it would have to be absorbed.

Speaker 8

Understood. That's great color. And just to finish up on sort of the concentrate sales, maybe just if you can share how you're seeing those commercial terms in the global market? Have we sort of peaked on those sort of good terms? Or how do you look at those into 2025?

Speaker 3

Yes. We have seen a significant improvement in our TCs over the course of the year. And I think I've mentioned this before, it's about $100 a tonne in terms of benefit there that we've seen in the global market. We don't think it's hit necessarily bottom just yet. We continue to see improvements there.

Speaker 3

But certainly, it's at record lows in terms of these charges.

Speaker 8

Great. Thank you for that. That's it for me.

Operator

Thank you. This concludes the question and answer session. I would now like to turn it back to Jennifer Cameron for closing remarks.

Speaker 1

Well, thank you all for joining us. We look forward to keeping you updated over the course of the next few months, and we'll catch up on the next quarter. Please feel free to reach out with any additional questions. Thank you.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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Earnings Conference Call
Dundee Precious Metals Q3 2024
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