Dundee Precious Metals Inc . (TSX:DPM), a Canadian-based international mining company, reported robust financial outcomes for the second quarter of 2024. The company highlighted a production of approximately 68,000 ounces of gold and 8 million pounds of copper, with a notable all-in sustaining cost of $710 per ounce. Dundee Precious Metals generated a record free cash flow of $82 million and reported a consolidated cash balance of $707 million. The performance of the Chelopech and Ada Tepe mines met production expectations and contributed to the company's strong financial position. Dundee Precious Metals also emphasized their commitment to returning capital to shareholders, having repurchased 2.3 million shares and paid dividends totaling $14.5 million during the first half of 2024.
Key Takeaways
- Dundee Precious Metals reported production of 68,000 ounces of gold and 8 million pounds of copper in Q2 2024.
- The company achieved an all-in sustaining cost of $710 per ounce, with a record free cash flow of $82 million.
- The Chelopech and Ada Tepe mines delivered strong results, with production in line with guidance.
- Exploration programs are underway to extend the mine life at Chelopech.
- Dundee Precious Metals is advancing its Coka Rakita and Loma Larga projects.
- The Tsumeb sale is progressing, with all required Chinese regulatory approvals received.
- The company returned 23% of their free cash flow to shareholders through share buybacks and dividends.
Company Outlook
- Dundee Precious Metals plans to internally fund growth projects while continuing to return capital to shareholders.
- The company's strong balance sheet and cash flow generation position it favorably for future investments and shareholder returns.
Bearish Highlights
- The Tsumeb sale discussions include a reduction in the purchase price and financing arrangements for Tierras Coloradas.
- Initial results at Chelopech are deferred due to a reconfiguration in the drilling approach, with a focus on underground drilling.
Bullish Highlights
- Dundee Precious Metals has a strong operating track record and low all-in sustaining costs.
- The company has attractive organic growth projects and financial strength.
- Significant free cash flow generation supports the company's strategy for shareholder value creation.
Misses
- Specific guidance for TCRC (treatment and refining charges) rates for the remainder of the year was not provided.
Q&A Highlights
- Management is considering increasing shareholder returns due to strong free cash flow and low costs at Chelopech.
- The company views its cash balance as a strategic advantage, supporting a balanced approach to capital allocation.
- Due to reconfiguration of drilling at Chelopech, the next update on reserves and resources will be delayed.
- Dundee Precious Metals anticipates a $4-5 million benefit from higher payable terms and potentially flat to lower TCRC rates.
InvestingPro Insights
Dundee Precious Metals Inc. (DPMLF) has demonstrated a commendable financial performance in the second quarter of 2024. Let's delve into some key metrics and insights from InvestingPro that could provide investors with a deeper understanding of the company's current standing and future prospects.
InvestingPro Data:
- The company boasts a market capitalization of $1.52 billion, reflecting its significant presence in the mining sector.
- With an attractive P/E ratio of 8.15, Dundee Precious Metals appears to be valued reasonably in comparison to its earnings.
- The revenue growth over the last twelve months as of Q2 2024 stands at 15.43%, indicating a robust expansion in its financial performance.
InvestingPro Tips:
- Dundee Precious Metals has a perfect Piotroski Score of 9, suggesting strong financial health and operational efficiency.
- The company's management has been actively engaging in share buybacks, signifying confidence in the company's value and a shareholder-friendly approach.
For investors seeking further insights, InvestingPro offers additional tips on Dundee Precious Metals. These include the company's strong free cash flow yield, low price volatility, and the fact that analysts predict profitability for the current year. To explore these tips in detail, visit https://www.investing.com/pro/DPMLF, where numerous other tips are available to help inform investment decisions.
Full transcript - Dundee Precious Metl (DPMLF) Q2 2024:
Operator: Good day, and thank you for standing by. Welcome to the Dundee Precious Metals Second Quarter 2024 Earnings Results Conference Call. at this time, all participants are in a listen-only mode. After the speaker's presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand over to our first speaker for today, Jennifer Cameron. Please go ahead.
Jennifer Cameron: Thank you, and good morning. I'm Jennifer Cameron, Director, Investor Relations, and I'd like to welcome you to the Dundee Precious Metals second quarter conference call. Joining us today are members of our senior management team, including David Rae, President and CEO; and Navindra Dyal, 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. These measures have no standardized meanings 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&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 that have generally been rounded, references to 2023 pertain to the comparable periods in 2023 and references to averages are based on midpoint of our outlook as guided. I'll now turn the call over to David Rae.
David Rae: Thanks Jennifer. Good morning, and thank you all for joining us. I'm pleased to provide you with an update on our second quarter 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. Highlights from our second quarter include: production of approximately 68,000 ounces of gold and eight million pounds of copper, an all-in sustaining cost of $710 an ounce, in-line with our guidance for the year, record free cash flow generation of $82 million and continued financial strength as we ended the quarter with a consolidated cash balance of $707 million. First quarter of -- taking a look at our operations in more detail, Chelopech continued its consistent track record in the second quarter, producing 44,000 ounces of gold and 8 million pounds of copper. That's an impressive all-in sustaining cost of $531 per gold ounce sold. 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 costs of $670 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 Chelopech's mine life through our successful in-mine exploration program and an aggressive brownfield exploration program. With increase 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 2032. We commenced in the quarter drilling at Sharlo Dere during end of evaluating extensions and confirming several high-grade intercepts from previous work. We also continue to advance the activities to support moving to the commercial discovery phase for Brevene and this includes a one-year extension of the exploration rights, which we expect to receive in the fourth quarter. Ada Tepe produced approximately 24,000 ounces of gold in the second quarter, in-line with our expectations. All-in sustaining cost was $699 per ounce of gold sold, which is below the low end of Ada Tepe's guidance range for the year. Ada Tepe has consistently outperformed our expectations since commissioning in 2019, and we are confident that Ada Tepe will continue to deliver strong results. We're also continuing our exploration efforts around Ada Tepe with activities focused on delineation of Krumovitsa. A 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 Coka Rakita 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 first quarter 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. This includes preparation for the EIA, which we expect to submit in the first quarter of 2026. What makes Coka Rakita particularly exciting is that it's not only an attractive project on a stand-alone basis with an IRR of 33% at a $1,700 gold price, but it also has significant exploration potential across our four licenses. We are continuing our scalp 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 Coka Rakita'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 Larga project. We continue to progress activities related to permitting and stakeholder relations. 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 outline an interim procedure for the free prior and informed consultation process. The baseline ecosystem and water 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 smelters tolling agent has elected to end the existing agreement it had with Tsumeb. And DPM will therefore be required to purchase all unprocessed concentrates and secondary materials owed by Tsumeb, which amounts to approximately $80 million net of the cash settlement of the outstanding metal recoverable. As a result of this development, we are in discussions with Sinomine regarding amendments to the agreement, including an expected reduction in the cash consideration for the smelter from $49 million to $20 million. We're also discussing an arrangement whereby the EPM would stand to the position of a tolling agent on a temporary basis commencing when current agreement with IXM ends and terminating four 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 counterparties. 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 third quarter. Overall, we delivered record financial results for the second quarter and first half of the year, and with both mines on track to achieve our 2024, 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.
Navindra Dyal: 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, second quarter highlights include revenue of $157 million, record adjusted net earnings of $71 million or $0.39 per share, cash flow from operating activities of $126 million and record free cash flow of $82 million. 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 million in the second quarter was 18% higher than 2023 due primarily to higher realized prices of metals sold, partially offset by lower volumes of gold sold at Ada Tepe as planned. Adjusted net earnings in the second quarter of $71 million 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 Coka Rakita and higher income tax. Cash flow from operating activities of $126 million 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 million, an increase of $16 million compared to 2023 due primarily to higher earnings generated in the quarter and lower cash outlays, sustaining capital expenditures. Taking a look at our cost metrics for the quarter. All-in sustaining cost of $710 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 million for the quarter compared to $6 million in 2023 due primarily to the timing of expenditures. Gross capital expenditures of $4 million for the quarter were lower compared to 2023 due primarily to lower expenditures related to the Loma Larga Gold project as expected. As Dave mentioned, the 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 million, which includes the cash held at Tsumeb, no debt and a $150 million 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 2024, the company repurchased 2.3 million shares at a total cost of $18.4 million under the share buyback program and paid $14.5 million of dividends, representing an aggregate return of 23% of our free cash flow to shareholders. With that, I will turn the call back to Dave for his concluding remarks.
David Rae: 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: [Operator Instructions]. And our first question comes from Wayne Lam with RBC (TSX:RY). Your line is open.
Wayne Lam: Yeah, thanks guys. Morning everyone. I guess just at Tsumeb, I just wanted to understand a little bit better on sale and the reduction in the purchase price. Is the $29 million in cash reduction mostly driven by Sinomine having to go out and find a new polling agent. Just curious why such a large concession of the overall price had to be made? And then in the event that they cannot find someone to assume that role, is there a scenario where DPM would have to take that on for an extended period? Or could there be a further amendment to the currently proposed terms?
David Rae: Yes, Wayne. So first of all, there were two 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. So those were the sort of two elements. And coming to your second point about finding somewhat, 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 Sinomine in terms of how they might do that. And do we see that we might extend? Do we see further amendments at this point? No. It's pretty clear that, that's four months.
Wayne Lam: Okay. Great. And then do you foresee any credit risk on the $80 million that you guys are effectively lending. Just wondering if this could be perhaps interpreted lending $80 million to help close a $20 million sale, which seems like quite a bit of risk.
Navindra Dyal: 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 I had been providing to us over the many years. So we were just stepping into a IXM's position as essentially the finance year for this inventory. And under IXM's purview as being the tolling agent, they own the material as we step into it at DPM, we will owe the material.
Wayne Lam: Okay. Understood. And then just lastly at Ada Tepe with the $5 million to $70 million exploration spend guidance this year. You guys have been pretty upfront about the mine life being depleted at mid '26. 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 turn there justifies the capital outlay?
David Rae: I think the sim plans 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.
Wayne Lam: Okay. Good to hear. There's still some prospectivity.
Operator: Our next question comes from Eric Winmill with Scotiabank (TSX:BNS). Your line is now open.
Eric Winmill: 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 a tolling agent, do you see a situation where maybe you end up sending more Chelopech or Tsumeb for processing in the future?
David Rae: Definitely not.
Eric Winmill: Okay. That's helpful. And so obviously, TC/RC is coming down this quarter. Do you sort of see that as a sustainable level going forward? Or any thoughts here on TC/RCs throughout the balance of this year?
Navindra Dyal: 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.
Eric Winmill: Okay. That's helpful. Just turning to Tierras Coloradas, 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, 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 advanced expiration?
David Rae: So we do like what we're seeing at Tierras Coloradas. 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 Tierras Coloradas 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 suspect is a porphyry there plus some high sulfidation epithermal potential. 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.
Eric Winmill: Okay. Great. And maybe if you can delve 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 sustaining CapEx is going to pick up in the back half of the year?
Navindra Dyal: Yes. Eric, that's probably a good assumption of picking up in the back half. It's typically back-end weighted or sustaining capital spend. So yes.
Operator: [Operator Instructions]. Our next question comes from Frederic Bolton with BMO (TSX:BMO) Capital Markets. Your line is now up.
Frederic Bolton: Hi, good morning. Thank you for taking my call. So I just have a couple of questions as I haven't [indiscernible] unanswered. So given the strong free cash flow and low cost at Chelopech, had any thoughts on increasing shareholder returns?
Navindra Dyal: Sure, I'll take that. Frederic, we typically revisit this topic quite regularly as the 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. Just a reminder, one of the very few producers of our size that pay a dividend, and 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 our financial strength to fund our growth pipeline as well as continuing to pay a sustainable dividend as well as pursue other opportunities.
Frederic Bolton: Okay. And -- so I noticed that you'll be deferring the initial results that did near Chelopech, how should we interpret this? Is this a case of the geology being more completed than expected? Or can you give us a bit more color on that, please?
David Rae: 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 in the 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 Sharlo Dere; want to do that work? We're just reconfiguring the way we're going to approach it. So we'll have two drills from underground, two drills from the surface just the timing at which that starting is not going to allow us to bring that into the next update of the reserves and resources.
Frederic Bolton: Okay. Great. Sorry, I just have one last question, just a follow-up on the previous caller. Can you -- with regards to the TCRC charges for the rest of the year, I know you mentioned you're happy but these levels. Can you just give us a little bit of guidance how we should look at it for the rest of the year to be continuing to model at these levels?
Navindra Dyal: 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, 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 million to $5 million benefit on the whole taking into account higher payable terms and perhaps flat to lower TCRC 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 payable terms.
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.
Jennifer Cameron: 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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