Q2 2024 Dundee Precious Metals Inc Earnings Call

August 2, 2024

Operator: 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. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker 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 Q2 Conference Call. Joining us today are members of our senior management team, including David Rae, President and CEO, and Navin 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 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.

Jennifer Cameron: 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 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. 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 Rae.

David Rae: 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 insight into our achievements during this period. This morning, Navin 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.

David Rae: Highlights from our Q2 include production of approximately 68,000 ounces of gold and 8 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 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.

David Rae: During the quarter, we also advanced our growth pipeline, completing the PEA for Čoka Rakita, and initiated the pre-feasibility study, which is on track for completion in Q1 2025. Taking a look at our operations in more detail, Chelopech continued its consistent track record in Q2, producing 44,000 ounces of gold and 8 million pounds of copper at an impressive all-in sustaining cost of $531 per gold ounce 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 $670 per ounce in the first half, Chelopech is also expected to be well within its cost guidance for the year.

David Rae: We continue to focus on extending Chelopech'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 2032. We commenced drilling in the quarter at Charlotte-Biri in order to evaluate 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 Q4. Ada Tepe produced approximately 24,000 ounces of gold in Q2, in line with our expectations.

David Rae: 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. Drilling, which commenced at the end of March, is ongoing and permitting for the next phase of drill sites is in progress.

David Rae: Turning to our development projects and starting with our high-quality Čoka Rakita project, we completed and showed the results of the PEA in Q2, 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 Q1 2025. 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 preparation for the EIA, which we expect to submit in Q1 2026. What makes Čoka Rakita particularly exciting is it's not only an attractive project on a standalone basis with an IRR of 33% at a $1,700 gold price, but it also has significant exploration potential across our four licenses.

David Rae: 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 Choquequiraquita'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.

David Rae: 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, 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 settlements of the outstanding metal recoverable.

David Rae: As a result of this development, we're 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 DPM would step into the position of a tolling agent on a temporary basis, commencing when the 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 Q3.

David Rae: Overall, we delivered record financial results for the Q2 and first half of the year, 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.

Navin 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, Q2 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.

Navin Dyal: Looking at our earnings and cash flow in more detail, revenue of $157 million in Q2 was 18% higher than 2023, due primarily to higher realized prices of metal sold, partially offset by lower volumes of gold sold at Ada Tepe as planned. Adjusted net earnings in Q2 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 Čoka 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.

Navin Dyal: 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 for sustaining capital expenditures. Taking a look at our cost metrics for the quarter. All-in sustaining costs of $710 per ounce of gold sold was slightly lower than the prior year, due primarily to higher by-product 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.

Navin Dyal: Growth 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 David 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 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.

Navin Dyal: 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. With that, I'd like now to open the call to any questions.

Operator: As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Wayne Lam with RBC. Your line is open.

Wayne Lam: Yeah, thanks, guys. Morning, everyone. I guess just at Tsumeb, just wanted to understand a little bit better on the sale, and the reduction in the purchase price. Is the $29 million cash reduction mostly driven by Sinomine having to go out and find a new tolling agent? Just curious why such a large concession, you know, of the overall price had to be made. Then in the event that they cannot find someone to assume that role, you know, 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: Yeah. Hi, Wayne. 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. Those were the sort of two 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. This does create opportunity for Sinomine in terms of how they might do that. Do we see that we intend to extend? Do we see further amendments at this point? No. It's pretty clear that that's four months.

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

Navin Dyal: Hi, Wayne. It's Navin. No, we're actually not lending the funds. We're buying the concentrate ourselves. You know, it's essentially a working capital facility. It's no different than what IXM had been providing to us over the many years. We're just stepping into IXM's position as essentially the financier for this inventory. 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.

Wayne Lam: Okay, understood. Thanks for the comment. Just lastly at Ada Tepe, with the $5 to 7 million exploration spend guide this year, you guys have been pretty upfront about the mine life being depleted at mid-2026. 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? Just wondering if there becomes a point where you don't feel the return there justifies the capital outlay.

David Rae: 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.

Wayne Lam: Okay, good to hear there's still some prospectivity. Okay. Yeah, that's all for me. Thanks for taking my questions.

Operator: Thank you. Our next question comes from Eric Winmill with Scotiabank. 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 tolling agent, do you see a situation where maybe you end up sending more Chelopech to Tsumeb for processing in the future?

David Rae: Definitely no.

Eric Winmill: Okay, that's helpful. Thank you. Obviously, you know, TCRCs 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?

Navin Dyal: Yeah, I can answer that. Yeah, so we have seen definitely a decrease in the TCRCs that's been beneficial for Chelopech, certainly, and not so much for the smelter. You know, 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 RCs, and also better payable terms, actually mostly for Chelopech.

Eric Winmill: Okay, that's helpful. Thank you very much. Just turning to Tierras Coloradas, I know you've had some pretty good results there. I know you drilled almost 12,000 meters in Q2. I assume we'll see those results soon. Now applying for advanced exploration permits. What does that involve here? I mean, and should we, you know, read through positively here that you like what you're seeing, and that's why you wanna move to the advanced exploration?

David Rae: 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. 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. What we're also doing at the same time is we're looking at other targeting opportunities and doing some surface work, the legwork, 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. Thank you very much. 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. Should we expect that the sustaining CapEx is gonna pick up in the back half of the year?

Navin Dyal: Yeah. Eric, yeah, that's probably a good assumption, picking up in the back half. It's typically back-end weighted or a sustaining capital spend. Yeah.

Eric Winmill: Okay, fantastic. Well, thanks a lot. Appreciate the added color, and yeah, congrats again on the nice free cash flow build. Cheers.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. Again, that is star one one to ask a question. Our next question comes from Frederic Bolton with BMO Capital Markets. Your line is now open.

Frederic Bolton: Hi, good morning. Thank you for taking my call. I just have a couple of questions, so haven't been asked and answered. Given the strong free cash flow and low costs at Chelopech, have any thoughts on increasing shareholder returns?

Frédéric Bolton: Hi, good morning. Thank you for taking my call. I just have a couple of questions, so haven't been asked and answered. Given the strong free cash flow and low costs at Chelopech, have any thoughts on increasing shareholder returns?

Navin Dyal: 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, you know, which focuses on our balance sheet strength, capital return to shareholders, and reinvestment. 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. We wanna make sure that we maintain the 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, thank you. I noticed that you'll be deferring the initial results at Sharlo Dere, near Chelopech. How should we interpret this? Is this a case of the geology being more complicated than expected or can you give us a bit more color on that, please?

Frédéric Bolton: Okay, thank you. I noticed that you'll be deferring the initial results at Sharlo Dere, near Chelopech. How should we interpret this? Is this a case of the geology being more complicated 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. We've moved to having more drills access this from underground, so you've gotta get into position to make that happen. You've gotta get the bigger drill rigs to make that happen, and so on. If anything, we're still excited about what's happening at Sharlo Dere. We want to do that work. We're just reconfiguring the way we're gonna approach it. We'll have two drills from underground, two drills from the surface. Just the timing at which that's starting is not gonna allow us to bring that into the next update of the reserves and resources.

Frederic Bolton: Okay, great. Thank you. Sorry, I just have one last question just to follow up on the previous caller. Can you, with regards to the TCRC challenges for the rest of the year, you know, 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? Could we continue to model at these levels?

Frédéric Bolton: Okay, great. Thank you. Sorry, I just have one last question just to follow up on the previous caller. Can you, with regards to the TCRC challenges for the rest of the year, you know, 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? Could we continue to model at these levels?

Navin Dyal: Yeah, Frederic, it's a bit challenging because 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. You know 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 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. 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.

Frederic Bolton: Thank you. Understood. Thank you. That's it for me. No further questions.

Frédéric Bolton: Thank you. Understood. Thank you. That's it for me. No further questions.

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. 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.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question. During this session you will need to press star one one on your telephone.

Speaker Change: You will then hear an automated message advising your hand is raised.

Speaker Change: To withdraw your question. Please press star one one again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: I would now like to hand, the conference over to your speaker today.

Speaker Change: Jennifer Cameron. Please go ahead.

Thank you and good morning, I'm, Jennifer Cameron director of Investor Relations and I'd like to welcome you to the 70%.

Speaker Change: <unk> second quarter conference call.

Speaker Change: US today are members of our senior management team, including David Ray President and CEO and <unk> 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.

Speaker Change: Paul.

Paul: Certain financial measures.

Paul: Two during this call are not measures recognized under ifr at and are referred to as non-GAAP measures are ratio. These measures have no standardized meaning under I forgot I may not.

Paul: 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 our 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 IRS. Please.

Paul: Due to the non-GAAP financial measures section of our most recent MD&A for a reconciliation of these measures.

Dave: Please note that unless otherwise stated operational and financial information communicated during this call are related to continuing operations and have been generally rounded references to 2023 pertained to the comparable periods in 2023 and references to averages are based on midpoint of our outlook for guidance I'll now turn the call over to Dave.

Paul: Right.

Dave: Thanks Joseph.

Dave: Good morning, and thank you all for joining us.

Speaker Change: I am pleased to provide you with another view of our second quarter results and to provide some insights into our achievements during this period.

Speaker Change: 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.

Speaker Change: As you would have seen from our news release circulated last night, we've delivered a very strong quarter.

Speaker Change: Which included record financial results and excellent cost performance.

Speaker Change: Highlights from our second quarter include production.

Speaker Change: Production of approximately 68000 ounces of gold and 8 million pounds of copper and.

Speaker Change: And all in sustaining cost of $710 an ounce in line with our guidance for the year.

Speaker Change: Record free cash flow generation of $82 million.

Speaker Change: And continued financial strength as we ended the quarter with a consolidated cash balance of $707 million.

Speaker Change: And no debt.

I am 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.

Speaker Change: A testament to the strength of our operating team and the quality of our minds.

Speaker Change: During the quarter, we also advanced our growth pipeline completing the PPA for choker repeater and initiated the pre feasibility study, which is on track for completion in the first quarter of 2025.

Speaker Change: Taking a look at our operations in more detail <unk> continued its consistent track record in the second quarter, producing 44000 ounces of gold and 8 million pounds of copper.

It's an impressive all in sustaining cost of $531 per gold ounce sold.

Speaker Change: Of the balance of the year, we expect to improve copper grades at <unk> and the operation is in track on track to achieve its production guidance for the year.

Speaker Change: With all in sustaining cost of $670 per ounce in the first half shell Apache is also expected to be well within its cost guidance for the year.

Speaker Change: We continue to focus on extending <unk> mine life through our successful in mine exploration program and an aggressive brownfield exploration program.

Speaker Change: With increase in mine and brownfield exploration drilling we believe there is strong potential to continue our track record of extending mine life at <unk>, which currently extends to 2032.

We commenced in the quarter drilling in Charlotte theory.

Speaker Change: <unk>.

Speaker Change: Evaluating extensions and confirming several high grade intercepts from previous work.

Speaker Change: We also continue to advance the activities to support moving to the commercial discovery phase for preventing and this includes a one year extension of the exploration rights, which we expect to receive in the fourth quarter.

<unk> produced approximately 24000 ounces of gold in the second quarter in line with our expectations.

Speaker Change: All in sustaining cost was $699 per ounce of gold sold which is below the low end about <unk> guidance range for the year.

Speaker Change: <unk> has consistently outperformed our expectations since commissioning in 2019, and we are confident that added tap it will continue to deliver strong results.

Speaker Change: We're also continuing our exploration efforts around etcetera with activities focused on delineation of <unk>.

Speaker Change: Drilling which commenced at the end of March is ongoing and permitting for the next phase of drill sites is in progress.

Speaker Change: Turning to our development projects and starting with our high quality Choker Ricky-tick project, we completed and showed the results of the pega in the second quarter, which outlined a high margin low cost underground mine robust economics with first production targeted for 2028.

Speaker Change: 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.

Speaker Change: We're also advancing project permitting activities in support of this timeline with good support and engagement from key regional and National authorities.

Speaker Change: This includes preparation for the EIA, which we expect to submit in the first quarter of 2026.

What makes choker makita, particularly exciting as it is not only an attractive project on a standalone basis with an IRR of 33% at a 17 undeveloped gold price, but it also has significant exploration potential across our four licenses.

Speaker Change: 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 are very excited by choker, Richard has potential in a region, where we've had a presence for many years and where we have developed strong relationships with local stakeholders.

Speaker Change: Turning to the Loma Lager 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.

Speaker Change: Consultation process.

Speaker Change: The baseline ecosystem and water studies are also currently in progress and.

Speaker Change: We continue to take a disciplined approach with respect to future investments and activities in Ecuador, which will be based on the project achieving key milestones.

Speaker Change: They're all operating environment in the country and our other capital allocation priorities.

Speaker Change: In our release last night, we provided an update on the <unk> sale.

Speaker Change: As we progress towards closing all Chinese regulatory approvals have now been received with the Namibian competition Act being the only remaining approval required.

Speaker Change: Due to DPM sale of the smelter smelter is telling agents has elected to end the existing agreement you had with Siemens and.

Speaker Change: <unk> will be required to purchase all unprocessed concentrates and secondary materials owed by cement, which amounts to approximately $80 million.

Speaker Change: Net of the cash settlement of the outstanding metal recoverable.

Speaker Change: As a result of this development we are in discussions with <unk> regarding amendments to the agreements, including an expected reduction in the cash consideration for the smelter.

Speaker Change: 49 million to $20 million.

Speaker Change: We're also discussing an arrangement whereby DPM would step into the position of a telling agents on a temporary basis commencing when the current agreement with IX and ends and terminating four months following closing.

Speaker Change: We view this as a necessary step to facilitate the transaction.

Speaker Change: One that we are comfortable in making given dpm's experience and knowledge of smelter counterparties.

Speaker Change: The sale of the smelter is consistent with Australia 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.

Speaker Change: Overall, we delivered record financial results for the second quarter and first half of the year and we both mines onshore on track to achieve our 2024 guidance, we are well positioned to continue our strong operating track record.

Speaker Change: I'll now turn the call over to <unk> for a review of our financial results.

Speaker Change: Thanks, Dave I'll.

Speaker Change: 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.

Speaker Change: All of my remarks will focus on our results from continuing operations unless otherwise noted we will not include results from discontinued operations.

Speaker Change: Looking at our financial results second quarter highlights include revenue of 157 million record adjusted net earnings of $71 million or <unk> 39 per share.

Speaker Change: Cash flow from operating activities of 126 million and.

And record free cash flow of $82 million.

Speaker Change: Overall results during the quarter reflect our strong operating performance the low cost nature of our operation and a favorable commodity price environment.

Speaker Change: 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 volume of gold sold at <unk> at flat.

Speaker Change: Adjusted net earnings in the second quarter of $71 million or <unk> 39 per share increase compared to the prior year due primarily to higher revenue and higher interest income, partially offset by higher planned exploration and evaluation expenses from choker, Akita and higher income tax.

Speaker Change: 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.

Speaker Change: 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 at lower cash outlays for sustaining capital expenditures.

Speaker Change: 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 at higher costs related to share based compensation labor and freight.

Speaker Change: 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.

Speaker Change: Growth capital expenditures of $4 million for the quarter were lower compared to 2023, due primarily to lower expenditures related to the local Argos gold project as expected.

Speaker Change: As Dave mentioned.

Speaker Change: Results in the first half of the year, we are on track to achieve our annual guidance metrics for the year.

Speaker Change: We continue to maintain a strong balance sheet.

Speaker Change: And cash position with a consolidated cash balance of $707 million, which includes the cash held at CNET.

Speaker Change: Debt and a $150 million undrawn revolving credit facility.

Speaker Change: Given the strength of our balance sheet at 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.

Speaker Change: During the first half of 2024, the company repurchased two 3 million shares at a total cost of $80 4 million under the share buyback program and paid $14 5 million of dividend, representing an aggregate return of 23% of our free cash flow to shareholders.

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

Thanks, Kevin.

Dave: Closing, we believe that our strong Q2 results demonstrate the DPM is in a unique position in the industry considering our strong operating track record our all in sustaining cost which are among the lowest in the gold industry.

Dave: <unk> 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.

Dave: And with that I'd like now to open the call to any questions.

Speaker Change: As a reminder to ask a question. Please press star one one on your telephone.

Speaker Change: For your name to be announced.

Speaker Change: To withdraw your question. Please press star one one again.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Okay.

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

Wayne Lam: Yes, thanks, good morning, everyone.

Wayne Lam: I guess just to assume that.

Speaker Change: Just wanted to understand a little bit better on sale.

Speaker Change: And the reduction in the purchase price.

Speaker Change: The $29 million in cash reduction.

Speaker Change: Mostly driven by satisfied having to go out and find a new toilet Mitch just curious why such a large concession.

Speaker Change: The overall price had to be made and then in the event that.

Speaker Change: They cannot find someone to assume that role.

Speaker Change: There a scenario, where <unk> would have to take that on for an extended period or.

Speaker Change: Could there be further amendment to the.

Speaker Change: Currently proposed terms.

Speaker Change: Yes, Hi, Wayne.

Speaker Change: So first of all the with two different elements to the change in valuation the trigger was the.

Speaker Change: Position with its selling agents and of course at that point, we reviewed the current situation in terms of the market.

Speaker Change: 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.

Order to perform that function.

Speaker Change: But this does create opportunity for syn <unk> in terms of how they might do that do we see that we might extend do we see further amendments at this point note, it's pretty clear that thats four months.

Okay, great. Thanks, and then.

Speaker Change: Do you foresee.

Speaker Change: Any credit risk on the $80 million.

Speaker Change: That you guys are.

Speaker Change: Effectively lending just wondering if.

Speaker Change: This could be perhaps interpret as lending $80 million to help close at $20 million sale, which seems like quite a bit of risk.

I waited for I haven't no we're actually not lending.

Speaker Change: The findings were buying the concentrate ourselves so.

Speaker Change: It's essentially a working capital facility, it's no different than what <unk> had been providing to us over the many years.

Speaker Change: So we're just stepping into position at <unk>.

Speaker Change: Essentially the financier for this.

Speaker Change: This inventory.

Speaker Change: And under our purview as being a tolling agent they own the material as we step into it at <unk>, we will have a material.

Speaker Change: Okay understood also correct.

Speaker Change: Lastly at <unk> with the.

Speaker Change: Slide $7 million exploration spend guide. This year you guys have been pretty upfront about the mine life being depleted at mid 'twenty six.

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 see the return there.

Speaker Change: Just defies the capital outlay.

Speaker Change: I think the simplest 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 Change: Okay. Good to hear there is still some prospects.

Speaker Change: Okay.

It's all for me Thanks, Chris Thanks for taking my questions.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Eric Windmill with Scotiabank. Your line is now open.

Speaker Change: Okay.

Eric Windmill: 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 zoom, Ed if you're acting as tolling agent do you see a situation, where maybe you end up sending more cello patch or to sue lab for processing in the future.

Definitely not.

Speaker Change: Okay. That's helpful. Thank you.

Speaker Change: So obviously <unk> coming down this quarter.

Speaker Change: You sort of see that as a sustainable level going forward or any thoughts here on <unk> throughout the balance of this year.

Speaker Change: Yes, I can answer that.

Speaker Change: So we have seen definitely a decrease of the Trc thats been beneficial for China, certainly and not so much for the smelter.

Speaker Change: It appears as if based on what we're seeing that we might be coming off the bottom but it.

Still will take some time for that time to come.

Speaker Change: 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, it's actually mostly for cello patch.

Speaker Change: Okay. That's helpful. Thank you very much.

Speaker Change: Just turning to tariffs Colorado's.

Speaker Change: I think you had some pretty good results. There I know you drilled almost 12000 meters in Q2, I assume we will see those results soon and now applying for advanced exploration permits what does that.

Speaker Change: Involved here I mean should we.

Speaker Change: Read through positively here that you like what Youre seeing and Thats why when you want to move to the advanced exploration.

Speaker Change: So we do like what we're seeing at Trs, Colorado, you are correct in saying that we've completed in the amount of work and we currently waiting to see the outcome from that.

Speaker Change: <unk>, Colorado is more than just theory that we've looked at.

Speaker Change: Remains opportunity beyond what we currently targeted which was the <unk>.

Speaker Change: The veins. There is also what we suspect is a pull for either plus.

Speaker Change: Some high sulfonation epithelial potential so what we're also doing at the same time as we're looking at.

Speaker Change: Other targeting opportunities and doing some surface with the legwork basically to prefer prepare for future targeting in terms of the exploration.

Speaker Change: 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 Change: Okay, great. Thank you very much and maybe if you can indulge me one more question just on sustaining capex. It looks like maybe you are 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 of the year.

Speaker Change: Eric.

Speaker Change: Probably a good assumption picking up in the back half is typically backend weighted our sustaining capital spend.

Speaker Change: Okay fantastic. Thanks, a lot I appreciate the added color and congrats.

Speaker Change: Congrats again.

Speaker Change: The nice free cash flow build.

Speaker Change: Sure.

Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced again that is star one one.

Speaker Change: To ask a question.

Speaker Change: Our next question comes from.

Speaker Change: Paul <unk> with BMO capital markets. Your line is now open.

Speaker Change: Hi, good morning.

Speaker Change: Thank you for taking my call.

Speaker Change: So I just have a couple of questions.

Speaker Change: Hum.

Speaker Change: <unk>.

Speaker Change: And announcements.

Speaker Change: So given the strong free cash flow and.

Speaker Change: Costs trying to patch.

Speaker Change: Are there any thoughts on increasing shareholder returns.

Speaker Change: Sure I'll take that.

Speaker Change: We typically revisit this topic quite regularly as a management team and the board were focused on taking a balanced approach to capital allocation, which focuses on our balance sheet strength capital return to shareholders and reinvestment.

Speaker Change: Just a reminder, one of the very few producers of our size that pay a dividend. We continue to use her in CIB as a tool for the capital allocation program and we also view our cash balance is 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.

Speaker Change: Okay. Thank you and then.

Speaker Change: So I E.

Speaker Change: We.

Speaker Change: Define the.

Nishu.

Speaker Change: And then trying to patch.

Speaker Change: How should we interpret this.

Speaker Change: Okay, So John as you're being more comprehensive than expected can you give us a bit more color on that please.

Speaker Change: Really just a question of.

Speaker Change: Prioritization and looking at whether we drilled from surface or underground. So we've moved to having more drills access was from underground so you're going to get into position to make that happen you have got to get the bigger drill rigs to make that happen and so on so.

Speaker Change: If anything we're still excited about what's happening in Charlotte do you want to do that we just reconfiguring the way we're going to approach. It. So we'll have two drills from underground to drill some 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.

Speaker Change: Okay, great. Thank you.

Speaker Change: Sorry, I just have one last question just to follow up on the previous caller.

Speaker Change: Can you.

Speaker Change: As to the Tcs charges to divest yes.

Speaker Change: I know you mentioned.

Speaker Change: Okay.

Speaker Change: But these levels.

Can you just give us a.

Speaker Change: Little bit of guidance, how we should look at it for domestic.

Speaker Change: Continuing to model at these levels.

Fredric: Yes Fredric.

Speaker Change: Challenging because their tcs and Rcs are one component of the way, we kind of sell our concentrate the other component. Obviously is the factor of the payable metal factor that gets applied.

Speaker Change: 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.

Speaker Change: Taking into account higher payable terms.

Speaker Change: And perhaps.

The flat to lower <unk>.

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 <unk> and.

Speaker Change: Better payable terms.

Speaker Change: Okay understood. Thank you.

Speaker Change: That's it for me.

Speaker Change: Great.

Speaker Change: Thank you.

Speaker Change: Im showing no further questions at this time I would now like to turn it back to Jennifer Kamran for closing remarks.

Jennifer Kamran: Thank you all for joining US today, if you have any further questions. Please feel free to reach out.

Jennifer Kamran: In Ontario, the 91 weekend. Thank you.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2024 Dundee Precious Metals Inc Earnings Call

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