Dundee Precious Metals Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 2, 2024

There are 7 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Dundee Precision Metals Second Quarter 2024 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.

Operator

I would now like to hand the conference over to your speaker today, Jennifer Cameron. 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 the Dundee Precious Metals 2nd quarter 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 the 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. These definitions 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 a reconciliation of these measures. Please note that unless otherwise stated, operational and financial information communicated during this call are related to continuing operations and have been generally rounded.

Speaker 1

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

Speaker 2

Thanks, Jennifer. Good morning and thank you all for joining us. I'm pleased to provide you with an overview of our Q2 results and to provide some insights into our achievements during this period. This morning, David and I will briefly review our results and discuss why we believe DPM continues to be well positioned to deliver value now and over the long term. As you would have seen from our news release circulated last night, we've delivered a very strong quarter, which included record financial results and excellent cost performance.

Speaker 2

Highlights from our Q2 include production of approximately 68,000 ounces of gold and £8,000,000 of copper and all in sustaining cost of $7.10 an ounce, in line with our guidance for the year record free cash flow generation of $82,000,000 dollars and continued financial strength as we ended the quarter with a consolidated cash balance of $707,000,000 and no debt. I'm pleased to say that we're on track to achieve our 2024 guidance targets, which will mark the 10th consecutive year we have 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. During the quarter, we also advanced our growth pipeline, completing the PEA for Choka Raquita and initiated the pre feasibility study, which is on track for completion in the Q1 of 2025. Taking a look at our operations in more detail. Chelopech continued its consistent track record in the Q2, producing 44,000 ounces of gold and £8,000,000 of copper at an impressive all in sustaining cost of $5.31 per gold ounce sold.

Speaker 2

Of 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 cost of $6.70 per ounce in the first half, Chelopech is also expected to be well within its cost guidance for the year. We continue to focus on extending Chalapetsch's mine life through our successful in mine exploration program and an aggressive brownfield exploration program. With increased in mine and brownfield exploration drilling, we believe there's strong potential to continue our track record of extending mine life at Chelopech, which currently extends to 2,032. We commenced in the quarter drilling at Charlotte Birie during ended evaluating extensions and confirming several high grade intercepts from previous work.

Speaker 2

We also continue to advance the activities to support moving to the commercial discovery phase for Brevinae, and this includes a 1 year extension of the exploration rights, which we expect to receive in the Q4. Adatepe produced approximately 24,000 ounces of gold in the 2nd quarter, in line with our expectations. All in sustaining cost was $6.99 per ounce of gold sold, which is below the low end of Adatepe's guidance range for the year. ADATEPE has consistently outperformed our expectations since commissioning in 2019, and we are confident that ADATEPE will continue to deliver strong results. We're also continuing our exploration efforts around Adatepe with activities focused on delineation of Primovitsa.

Speaker 2

Drilling, which commenced at the end of March, is ongoing and permitting for the next phase of drill sites is in progress. Turning to our development projects and starting with our high quality Choka Regula project. We completed and showed the results of the PEA in the second quarter, which outlined a high margin, low cost underground mine, robust economics with first production targeted for 2028. Based on the positive results, we initiated a PFS, which is advancing well and is on track for completion in the Q1 of 2025. We're also advancing project permitting activities in support of this time line with good support and engagement from key regional and national authorities.

Speaker 2

This includes preparation for the EIA, which we expect to submit in the Q1 of 2026. What makes Choco Miquita particularly exciting is that it's not only an attractive project on a standalone basis with an IRR of 33 percent at a $1700 gold price, but it also has significant exploration potential across our four licenses. We are continuing our SCOUT drilling program, which is focused on aggressively pursuing additional targets and following up on the positive results we published earlier in the year. Overall, we're very excited by Choca Riquita's potential in a region where we've had a presence for many years and where we've developed strong relationships with local stakeholders. Turning to the Loma Lager project, we continue to progress activities related to permitting and stakeholder relations.

Speaker 2

The informational phase of the environmental consultation process was successfully completed in April, and we are working with the Ministry of Energy and Mines to studies are also currently in progress. And 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 our other capital allocation priorities. In our release last night, we provided an update on the Tsumeb sale. As we progress towards closing, all Chinese regulatory approvals have now been received with the Namibian Competition Act being the only remaining approval required. Due to DPM's sale of the smelter, the smelter's tolling agent has elected to end the existing agreement it had with Tsumeb.

Speaker 2

And DPM will therefore be required to purchase all unprocessed concentrates and secondary materials owed by CIMET, which amounts to approximately $80,000,000 net of the cash settlements of the outstanding metal recoverable. As a result of this development, we are in discussions with Sinamine regarding amendments to the agreements, including an expected reduction in the cash consideration for the smelter from $49,000,000 to $20,000,000 We're also discussing an arrangement whereby DPM would step into the position of a tolling agent on a temporary basis, commencing when the current agreement with IXM ends and terminating 4 months following closing. We view this as a necessary step to facilitate the transaction, one that we are comfortable in making given DPM's experience and knowledge of smelter counter parties. The sale of the smelter is consistent with our strategic objective of focusing on our gold mining assets and simplifying our portfolio going forward, and we continue to target closing the transaction in the Q3. Overall, we delivered record financial results for the Q2 and first half of the year.

Speaker 2

And with both mines on track to achieve our 2024 guidance, we are well positioned to continue our strong operating track record. I'll now turn the call over to Navin for a review of our financial results.

Speaker 3

Thanks, Dave. I'll be touching briefly on the financial highlights for the quarter, provide an update on how we are tracking in terms of our guidance for the year 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 and unless otherwise noted will not include results from discontinued operations. Looking at our financial results, 2nd quarter highlights include revenue of $157,000,000 record adjusted net earnings of $71,000,000 or $0.39 per share, cash flow from operating activities of $126,000,000 and record free cash flow of $82,000,000 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 $157,000,000 in the 2nd quarter was 18% higher than 2023, due primarily to higher realized prices of metals sold, partially offset by lower volumes of gold sold at Adatepe as planned.

Speaker 3

Adjusted net earnings in the Q2 of $71,000,000 or $0.39 per share increased compared to the prior year due primarily to higher revenue and higher interest income partially offset by higher planned exploration and evaluation expenses from Choca Ratita and higher income tax. Cash flow from operating activities of $126,000,000 for the quarter was higher than the prior year due primarily to higher earnings generated in the quarter as well as the timing of deliveries and the collection of outstanding receivables. Free cash flow in the quarter was $82,000,000 an increase of $16,000,000 compared to 20 $23 due primarily to higher earnings generated in the quarter and lower cash outlays for sustaining capital expenditures. Taking a look at our cost metrics for the quarter, all in sustaining cost of $7.10 per ounce of gold sold was slightly lower than the prior year, due primarily to higher byproduct credits, lower treatment charges and lower cash outlays for sustaining capital, partially offset by lower gold sold and higher costs related to share based compensation, labor and freight. In terms of our capital spending, sustaining capital expenditures were $8,000,000 for the quarter compared to $6,000,000 in 2023 due primarily to the timing of expenditures.

Speaker 3

Growth capital expenditures of $4,000,000 for the quarter were lower compared to 2023 due primarily to lower expenditures related to the Loma Largo gold project as expected. As Dave mentioned, with strong results in the first half of the year, we are on track to achieve our annual guidance metrics for the year. We continue to maintain a strong balance sheet and cash position with a consolidated cash balance of $707,000,000 which includes the cash held at Tsumeb, no debt and a $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 first half of twenty twenty four, the company repurchased 2,300,000 shares at a total cost of $18,400,000 under the share buyback program and paid $14,500,000 of dividends, representing an aggregate return of 23% of our free cash flow to shareholders.

Speaker 3

With that, I will turn the call back to Dave for his concluding remarks.

Speaker 2

Thanks, Navin. In closing, we believe that our strong Q2 results demonstrate that DPM is in a unique position in the industry, considering our strong operating track record, our all in sustaining costs, which are among the lowest in the gold industry, our significant free cash flow generation attractive organic projects and the financial strength and flexibility to internally fund our growth pipeline while continuing to return capital to shareholders. And with that, I'd like now to open the call to any questions.

Operator

And our first question comes from Wayne Lam with RBC. Your line is open.

Speaker 4

Yes, thanks guys. Good morning everyone. I guess just at Tsumeb, I mean, just wanted to understand a little bit on sale and the reduction in the purchase price. Is the $29,000,000 cash reduction mostly driven by Sidomine having to go out and find a new tolling agent? Just curious why such a large concession of the overall price had to be made?

Speaker 4

And then in the event that they cannot find someone to assume that role, Is there a scenario where DKIM would have to take that on for an extended period? Or could there be a further amendment to the currently proposed terms?

Speaker 2

Yes. Hi, Wayne. So first of all, there were 2 different elements to the change in valuation. The trigger was the position with the tolling agent. And of course, at that point, we reviewed the current situation in terms of the market.

Speaker 2

So those were the sort of 2 elements. Coming to your second point about finding someone, we don't think it's an issue with the ability to find someone in the market in order to perform that function. But this does create opportunity for sign of mine in terms of how they might do that. Do we see that we might extend? Do we see further amendments at this point?

Speaker 2

No. It's pretty clear that that's 4 months.

Speaker 4

Okay, great. Thanks. And then do you foresee any credit risk on the $80,000,000 that you guys are effectively lending? Just wondering if this could be perhaps interpreted as lending $80,000,000 to help close a $20,000,000 sale, which seems like quite a bit of risk?

Speaker 3

Hi, Wayne, it's Navin. No, we're actually not lending the funds. We're buying the concentrate ourselves. So it's essentially a working capital facility. It's no different than what IXM had been providing to us over the many years.

Speaker 3

So we're just stepping into IXM's position as essentially the financier for this inventory. And under IXM's purview as being the tolling agent, they own the material. As we step into it as DPM, we will own the material.

Speaker 4

Okay, understood. Thanks for the color. And then just lastly at Adatepe, with the $5,000,000 to $70,000,000 exploration spend guide this year, You guys have written pretty upfront about the mine life being depleted at mid-twenty 6. As you look out to next year, is the plan to continue to spend on drilling there to try to extend out a few more quarters beyond that? Or just wondering if there becomes a point where you don't feel the return there justifies the capital outlay?

Speaker 2

I think the simple answer to that is that we've identified a very exciting prospect, which has demonstrated some incredible value for the company. As long as we feel that there are opportunities in exploration in and around that area, we will continue.

Speaker 4

Okay. Good to hear there's still some prospectivity. Okay. Yes, that's all for me. Thanks for taking my questions.

Operator

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

Speaker 5

Great. Good morning, David and team. Thanks for taking my question and really nice to see the cash build here in Q2. Maybe just continuing on the questions about Tsumeb. If you're acting as tolling agent, do you see a situation where maybe you end up sending more Chelopech or to Tsumeb for processing in the future?

Speaker 2

Definitely, no.

Speaker 5

Okay, that's helpful. Thank you. And so obviously, TCRC is coming down this quarter. Do you sort of see that as a sustainable level going forward or any thoughts here on TCRCs throughout the balance of this year?

Speaker 3

Yes. I can answer that. Yes. So we have seen definitely a decrease in the TCRC that's been beneficial for Chelopech certainly and not so much for the smelter. It appears as if based on what we're seeing that we might be coming off the bottom, but it probably still will take some time for that to come back to normal levels, at least for the smelter, but we are enjoying it in terms of reduced PCs and also better payable terms actually mostly for Chelopech.

Speaker 5

Okay, that's helpful. Thank you very much. Just turning to Terrace Coloradas, I think you had some pretty good results there. I know you drilled almost 12,000 meters in Q2. I assume we'll see those results soon and now applying for advanced exploration permits.

Speaker 5

What does that involve here? I mean, and should we read through positively here that you like what you're seeing and that's why you want to move to the advanced exploration?

Speaker 2

So we do like what we're seeing at Tierras, Colorado. You're correct in saying that we've completed an amount of work and we're currently waiting to see the outcome from that. But our view on TIRIS Colorados is more than just the area that we've looked at. There remains opportunity there beyond what we currently targeted, which was the veins. There's also what we expect is a porphyry there plus some high sulfidation at the thermal potential.

Speaker 2

So what we're also doing at the same time is we're looking at other targeting opportunities and doing some surface work, the leg work basically to prepare for future targeting. In terms of the exploration permitting, that's not preventing us from drilling. That's just something that we are going through at the moment with the intent of changing to a different phase of the exploration process.

Speaker 5

Okay, great. Thank you very much. And maybe if you can indulge me one more question. Just on sustaining CapEx, looks like maybe you're running a little bit low relative to the full year guidance. So should we expect that the sustaining CapEx is going to pick up in the back half

Speaker 3

of the year? Yes. Eric, that's probably a good assumption picking up in the back half. Typically back end weighted or sustaining capital spend. So yes.

Operator

Thank Our next question comes from Frederic Poulton with BMO Capital Markets. Your line is now open.

Speaker 6

Hi, good morning. Thank you for taking my call. So I just have a couple of questions. So I haven't seen them being asked and then answered. So given the strong free cash flow and low cost at Trello Perch, have any thoughts on increasing shareholder returns?

Speaker 3

Sure. I'll take that. Hi, Frederic. We typically revisit this topic quite regularly as a management team and the Board. We're focused on taking a balanced approach to capital allocation, which focuses on our balance sheet strength, capital return to shareholders and reinvestment.

Speaker 3

Just a reminder, we're one of the very few producers of our size that pay a dividend. We continue to use our NCIB as a tool for the capital allocation program. And we also view our cash balance as a strategic advantage. So we want to make sure that we maintain the financial strength of fund our growth pipeline as well as continuing to pay a sustainable dividend as well as pursue other opportunities.

Speaker 6

Okay. Thank you. And so I noticed that you'd be deferring the initial resource at Charlotte Adir near Chelopech. How should we interpret this? Is this a case of the geology being more complicated than expected?

Speaker 6

Or can you give us a bit more color on that, please?

Speaker 2

Really just a question of prioritization and looking at whether we drill from surface or underground. So we've moved to having more drills access to strong underground. So you've got to get into position to make that happen. You've got to get the bigger drill rigs to make that happen and so on. So if anything, we're still excited about what's happening in Charlotte Deary.

Speaker 2

We want to do that work. We're just reconfiguring the way we're going to approach it. So we'll have 2 drills from underground, 2 drills from the surface. Just the timing at which that's starting is not going to allow us to bring that into the next update of the reserves and resources.

Speaker 6

Okay, great. Thank you. Sorry, I just have one last question, just a follow-up on the previous quarter. Can you with regards to the TCRC charges for the rest of the year, I know you mentioned that you're happy with these levels. Can you just give us a little bit of guidance how we should look at it for the rest of the year?

Speaker 6

Could we continue to model at these levels?

Speaker 3

Yes, Frederic, it's a bit challenging because there are TCs and RCs are one component of the way we kind of sell our concentrate. The other component obviously is the factor or the payable metal factor that gets applied. What we are seeing, I guess, in terms of guidance, what we're seeing relative to our budget for the year, we're seeing about a $4,000,000 to $5,000,000 benefit on the whole, taking into account higher payable terms and perhaps flat to lower TCRC that are that's hitting the bottom line essentially. But it's hard to give a specific guidance on what the TC rates would be for the balance of the year. It's actually a combination of TCs and better payables from.

Speaker 6

Thank you. Understood. Thank you. That's it for me.

Operator

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Jennifer Cameron for closing remarks.

Speaker 1

Thank you all for joining us today. If you have any further questions, please feel free to reach out. And for those of you in Ontario, please enjoy the long weekend. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Dundee Precious Metals Q2 2024
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