Dundee Precious Metals Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Dundee Precious Metals 3rd Quarter 2021 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. To ask your question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker for today. Jennifer Cameron, please go ahead.

Thank you and good morning. I'm Jennifer Cameron, Director in Best Relations, and I'd like to welcome you to our third quarter conference call. Joining me today are David Ray, President and CEO, Hume Kyle, Chief Financial Officer, and Michael Dworkman, Executive Vice President, Corporate Development. After the close of business yesterday, we released our third quarter results, and I hope you've had an opportunity to review our materials. 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. These measures have no standardized meaning under IFRS and may not be comparable to the 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 and have generally been rounded, references to 2020 pertain to the comparable periods in 2020, and references to averages are based on midpoints of our outlook or guidance. I'll now turn the call over to David Ray.

Thanks, Jennifer. Good morning, and thank you all for joining us. As you've seen from our news release circulated last night, I'm pleased to report that DPM delivered another strong quarter, with gold production and cost performance driving our financial results. Highlights from our results include production of approximately 72,000 ounces of gold and 8.3 million pounds of copper, a continued focus on cost performance at all operations, which realized an oil and sustaining cost for the quarter of $701 per gold ounce, Strong financial results, including free cash flow of $69 million and adjusted net earnings of $53 million for the quarter. And continued growth in our financial strength, exiting the quarter with cash and short-term investments of $270 million. With the strength of our results year-to-date, I am pleased to say that we are on track to meet our guidance for metals production and all in sustaining cost. Turning now to the highlights for our operations, I'll start with Chalifetch. At Chalapetch, we continue to deliver steady results, producing 38,434 ounces of gold and 8.3 million pounds of copper at an all-in sustaining cost of $752 per ounce. We continue to focus on extending the mine life through our in-mine and brown fuels exploration programs. And just this week at Spedepetka, the contract has been signed for a one-year extension to the exploration license, allowing us to move forward with commercial discovery phase work. We anticipate commencing a drill program in the first quarter of next year with 5,000 meters of drilling planned for Q1. During the quarter, significant effort was dedicated to testing conceptual targets within the Breveni Exploration License, as well as the completion of scout drilling at several near-mine prospects, including Bosdell, Petrosden, and Charlotte Erie. With mineral resources that now extend to 2029, an updated mineral resource base and increased in-mine and brownfield exploration drilling, we believe there's strong potential to continue our track record of mine life extension at Chelefench. Adatepe has continued to deliver impressive performance, producing approximately 33,000 ounces of gold in the third quarter at an all-in sustaining cost of $648 per ounce. We are continuing our exploration efforts around Adatepe with 23,000 meters of drilling planned for the year, including 9,000 meters of additional resorts and conceptual target extension on the mine concession, as well as advancing the Chapel Caia and other prospects on regional licenses. During the quarter, exploration activities at Atatepe were focused on an extensive target delineation campaign that encompassed CERNAC, SCALAC, SINAP, and COCLITSA, as well as regional licenses, including Chirite and the newly granted Krimovica exploration license. And for those of you who don't know about Crimobitsa, it's an exploration license immediately around our concession of just over 18,000 hectares. Turning to SUMEB, this melter processed approximately 50,100 tons of complex concentrate during the third quarter, which was below our expectations as a result of a water leak in the off-gas system of the off-smelt. Despite lower than expected throughput, cash cost performance was strong with a cost of complex concentrates melted of $393 per ton. Reflecting the unplanned maintenance, we now expect complex concentrates melted to be approximately 195,000 to 200,000 tons, down from our previous guidance for the year of 200,000 to 220,000 tons. Moving to our outlook and growth, in terms of future growth, we made a significant addition to our project development pipeline this quarter with the acquisition of the high-quality Loma Laga project in Ecuador. We believe this project fits extremely well with our core strengths and our proven track record as an environmentally and socially responsible mining company. Based on the feasibility study completed by the previous owner, in its first five years of operation, Loma Laga has the potential to produce 200,000 ounces of gold, adding meaningful low-cost production growth to our portfolio. Following closing of the acquisition at the end of July, we have been focused on integration activities, stakeholder engagement, reviewing the technical studies and permitting schedule, as well as progressing discussions in respect of an investor protection agreement with the government. We are targeting completion of a revised feasibility study for Loma Laga and receipt of major environmental permits towards the end of 2022, which we expect to be followed by finalization of the exploitation agreement with the government and receipt of construction permits. We're also developing a strategy for the exploration concessions we hold in Ecuador. An exploration program consisting of geophysical surveys, prospecting, mapping, and sampling will be completed in the coming months and will be used to determine precise drilling targets and to plan further exploration activities. Turning to TMOC in Serbia, we completed the pre-feasibility study earlier this year, outlining potential production of approximately 80,000 gold ounces per year at a low-cost production over its first six years, and subsequently initiated a feasibility study As we advance the feasibility study, we have several initiatives underway that are directed at reducing the initial capital estimate, which is currently estimated to be $211 million, and to optimize overall economics. In parallel to that feasibility study, we're also evaluating the upside potential from the sulfide portion of the ore body. Completion of the feasibility study is on track at this point for the second quarter of 2022. In closing, to wrap up on the quarter, our strong gold production profile and significant free cash flow generation, combined with our operating track record and unique skills in innovation and building strong partnerships with local communities, positions us well to continue delivering value for all of our stakeholders. We are committed to deploying our capital in a disciplined manner, as we have demonstrated with the addition of a high-quality gold project to our development pipeline in the quarter. We also continue to pay a sustainable quarterly dividend and more recently used our NCIB to repurchase 1.6 million shares in the quarter. We firmly believe that DPM's strong fundamentals continue to represent the compelling value opportunity for investors. And with that, I'll turn the call over to Hume for a review of our financial results, following which we'll open the call to questions.

Thanks, David, and good morning, everybody. I'll begin by reviewing our financial results. I'll touch on financial position, capital allocation and risk management, and then I'll provide some commentary around the 2021 guidance. For the quarter, we continued to generate solid financial results with adjusted net earnings of 52 million or 28 cents per share and adjusted EBITDA of 86 million. These results were comparable to 2020, reflecting the impact of lower treatment charges at Chalopech and higher realized copper prices partially offset by lower volumes of metals sold and higher operating expenses in Bulgaria. For the first nine months, adjusted net earnings were $151 million or $0.82 per share, compared with $144 million or $0.80 in 2020. And adjusted EBITDA was $253 million, up $9 million. These increases were primarily attributable to higher realized metal prices, lower share-based compensations, and lower treatment charges at Chelapeche, which were partially offset by lower throughput at Sumab, primarily related to the 2021 maintenance shut that was taken in Q1, lower volumes of metal sold, and higher operating expenses. For the first nine months of 2021, reported net earnings attributable to common shareholders were 139 million. This included a $21 million gain in respect of our sale of MinRP, as well as mark-to-market losses on our Sabina special warrants and a deferred income tax adjustment related to unrealized losses in respect of Sabina shares recognized in other comprehensive income and loss, none of which are reflective of our underlying operating performance. We also continue to generate strong cash flow with cash flow from operations before working capital during the quarter and the first nine months of 2021. of $81 million and $229 million respectively. This was up $8 million and $31 million compared to comparable periods in 2020. Free cash flow for the quarter and first nine months was $69 million and $187 million respectively, up $7 million and $15 million compared to 2020. These year-over-year increases in cash flow reflect the same factors that impacted earnings as well as the benefit associated with the last delivery under Adatepe's prepaid forward gold sales arrangement being made in December 2020, partially offset by higher cash outlays for sustaining capital, higher income tax paid, which corresponds to the higher earnings for the period. Turning to our consolidated cost measures, we continue to focus on cost performance at all of our operations. For the quarter, we reported an all-in sustaining cost of $701, which was up 10% compared to 2020, due primarily to higher operating expenses, higher cash outlays for sustaining capital expenditures, and lower volumes of gold sold, which was partially offset by higher byproduct credits and lower treatment charges at Jell-O-Petch. Year-to-date, all-in sustaining costs were $621 per ounce. This is below the or I guess below the low end of the annual guidance that we provide, and represents a decrease of approximately 5% compared to 2020. This was due primarily to higher byproduct credits, which were partially offset by higher operating costs in Bulgaria. At SUMEB, cash cost per tonne in the quarter was $393 per tonne, down $14 compared to 2020. due primarily to lower currency operating costs, local currency operating costs, and higher asset byproduct credits, partially offset by a stronger SAR relative to the U.S. dollar. For the first nine months, costs per ton were $492, up $123 compared to 2020, reflecting the fixed cost nature of the facility and the impact of lower volumes smelted in 2021. as a result of the maintenance shutdown that was taken during the first quarter, combined with a stronger czar relative to the U.S. dollar, partially offset by lower local currency operating costs. Turning to our capital expenditures, sustaining capital expenditures incurred during the quarter in the first nine months were $11 million and $40 million, respectively. This compared to $11 million and $29 million in the corresponding periods in 2020. For the first nine months of 2021, sorry, the increase in the first nine months was due primarily to planned maintenance shutdown at SUMEB and the accelerated grade control drilling at Editepe that was initiated in September 2020. Growth capital expenditures incurred during the quarter in the first nine months of 2021 were $4 million and $10 million respectively, and this compared with $1 million and $5 million in the corresponding periods of 2020 primarily due to the costs being incurred to progress TMOC and Loma Larga. During the quarter, our financial position continued to strengthen with available liquidity of $420 million at the end of September. This was comprised of $270 million of cash and short-term investments, a liquid portfolio of securities investments, valued at approximately $49 million, together with undrawn capacity under our revolving credit facility of $150 million. As we've noted in prior quarters, we're committed to adhering to a disciplined capital allocation framework, which balances financial strength, reinvestment into our business, and returning capital to our shareholders. During the quarter, we spent approximately $12 million to buy back 1.6 million shares under our normal course issuer bid, at an average price of 765 per share, a price that compares favorably to street targets and underlying estimates of net asset value. We also continue to pay a regular sustainable quarterly dividend of 3 cents or $6 million, the most recent of which was declared yesterday in respect of our fourth quarter. From a risk management perspective, all of our key financial metrics and underlying financial exposures are well within our established tolerance levels. For 2021, we've hedged approximately 77% of SUMAB's projected operating costs, providing a weighted average exchange rate between $15.68 and $18.71, and approximately 90% of our copper byproduct price exposure has been hedged, which forms a part of our all-in sustaining cost at a weighted average fixed price of $3.84 per pound. For 2022, we've hedged approximately 50% of SUMEB's projected operating costs at a weighted average exchange rate between $15 and $16.45. These hedges are directed at managing key cost metrics with the primary objective of reducing variability and supporting the achievement of guidance. Looking forward over the balance of the year and full year guidance, metal production, all in sustaining costs are all on track. or I should say the smelter cash costs, they're all on track to meet 2021 guidance. With the recent spike in electricity prices in Bulgaria and the rest of Europe, where the price of power is more than doubled, we have increased our mine cash costs per tonne by roughly 10%. At Chilipetch, we increased guidance to be $46 to $48, up from $42 to $45, And at Atatepe, we increased their guidance to be $52 to $55, up from $46 to $50. At SUMEB, we've adjusted throughput guidance to 195,000 to 200,000 tons, down from our previous guidance of 200 to 220,000 tons, reflecting unplanned maintenance downtime during the third quarter. In terms of capital spend, we reduced our guidance slightly, principally to reflect some expenditures moving into 2022. As a result, sustaining capital expenditures are expected to be between $52 and $66 million, and growth capital expenditures between $17 and $24 million. Our longer-term operating outlook covering 2022 and 2023 remains unchanged, and together with the details or further details in respect to 2021, this can be found in our three-year outlook section of the MD&A. In closing, our operations are performing well. cash flow generation remains strong and we're continuing to build our financial strength to support our growth ambitions and commitment to deliver value to stakeholders by optimizing and realizing the potential value of existing assets as well as new assets such as Loma Largo. With a strong balance sheet, we are well positioned to fund our existing growth opportunities and to continue returning capital to shareholders through our sustainable quarterly dividend and from time to time through optimistic share repurchases under our normal course issuer bid. But that will turn the call back to the operator.

Thank you. At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. Once again, that's star one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Our first question comes from the line of Terrence Ortlund of SO and Associates. Your line is open.

Good morning. Good morning. Thank you for the review, Terry Orson. You talked about the guidance, three-year guidance that you filed this year, last year. We should be looking at it, and I have. But there are some revisions with respect to growth capital, for instance. You revised it downwards. And two, the energy issues, as you illustrated. And in that context as well, could you remind me what the energy sources are and how persistent this may be going into next spring? Thank you.

Go ahead, Hugh.

So, yeah, sure. So, I mean, power is obviously a fairly significant component to our operations. So, in the case of Bulgaria, you know, telepatch power probably represents – it probably represented somewhere in the area of – know 10 12 percent of our aggregate uh costs and for adatepe it was probably high single digits i would say currently at you know the prices that we're seeing in 2021 it's probably more in the you know 15 range for chile patch um and maybe uh 10 11 or so for ratatepe um historically power has been anywhere between you know 55 and 65 dollars per megawatt hour US. Today, the price is probably around $160 US. This is something that's being experienced not just in Bulgaria, but the rest of Europe. A host of factors, obviously, but certainly supply and demand related as well as carbon tax. In Bulgaria and the rest of Europe, they have instituted and are continuing to institute subsidies, government subsidies, both for business and personal consumption. That applies to us as well in Bulgaria. At the present time, we have a 30% subsidy. Can't say for sure how long that will be in place, but it is being proposed to go into 2022. I wouldn't expect these high rates to... uh, to persist. So, you know, I would view it to be transient, but I can't, you know, can't be sure exactly how long it's going to take to, uh, uh, to, to unwind. Uh, but yeah, like at this stage, I would say overall, you know, for 2021, we're probably looking at, um, you know, an eight to 10% increase in costs relative to what we expected coming into the year. um and you know the predominant factor for that is is power and then i'd acknowledge that there there are some increases that were seen on direct materials as well less so and it's not across the board it's just in certain uh areas um so as i say overall eight to ten percent for 2021 2022 difficult to predict at this stage but You know, we are in the process of finalizing our budget, you know, coming into the exit of the year. You know, and at this stage, probably roughly speaking, I would expect it would be reasonable to think something in the order of 5% over 2021 levels would be a reasonable number to work with at this stage with, you know, the potential for it to go lower, but also the potential for it to go higher if current prices prevail.

Thank you for that summary. Just on the three-year outlook, if you were to expect some revisions on that, not only cost, that's fine. I take that. On the capital side, will there be any revision for 2022?

Well, yeah, we'll take a good look at our three-year outlook in sort of the December, January timeframe, and I would expect that we would table any revisions at the time that we release our Q4 results in February.

Okay. Just coming back to Ecuador, how much land do you actually have now in terms of, I think the land, you clearly inherited everything, all the land that Loma Larga or the company had at INV. So where are the land costs? I think there's a payment for the land costs coming up, if I remember correctly, from IMV times. And two is I'm surprised that you're doing very basic geological work and geophysical work. I thought a lot of things were done by your predecessor on the lands that you're inheriting. Thank you.

Terry, I don't have the hectares to hand. Yes, there were a number of properties that were part of the acquisition from INV. Loma Laga is very advanced. The work that we're doing there is extensional or geotechnical for purposes and condemnation for purposes of making sure that the placement of the facilities is appropriate. The second asset that we're looking at quite closely is Tierras Coloradas, which is just close to the Peruvian border. And there has been some drilling, but insufficient in our view. And there's been, let's say there's an opportunity to do a lot more identification. We feel that that's something that we should do at the same time as we're looking at drilling. For the other properties, we're considering relinquishing those. So the question is first making sure that there's nothing there of interest before we do that. And yes, you're right, that there are payments at different points or completion of an amount of work at a certain cost for those properties by certain date. And we very much have that in mind as to whether it makes sense for us to continue with those assets and take them forward. I mean, last on that one, there are some places where it's difficult to get access to properties. So quite likely, we'll just move on and focus on the other properties. But at this point, It's Lemelaga and Tierras Coloradas are our main focuses.

Thank you for that, David. David, one of the things that you indicated in the press release is that the investor protection agreement will be underway, hopefully completed this year. Obviously, the market is very conscious about what's happening in Peru and Chile, and a lot of concerns about the changes in the policy and the strategy by the government. fiscally as well. The Ecuador obviously has taken a different slant. I mean, they are now the shining spot in the policy and the strategical fiscal environment of the mining sector. Am I correct that there will be no surprises in that, with respect to the investment protection agreement that you will have with the Ecuadorian government, plus with the permits? Thank you.

A couple of different things here. So, Hume, did you want to talk to the IPA and I'll come back on the permits?

Thank you.

Sure.

Yeah, on the IPA, I would say based on what we're seeing so far is, you know, very strong support from the government and the applicable ministries. And we have, as you know, we actually may not know, we actually did have the IPA It was approved in sort of draft form by the ministry. That kicks off a process to now negotiate final terms. We're planning to meet with the government this month to kick off that process. And I would expect that we would complete the negotiation and be in position to execute or sign the IPA probably sometime in Q1. So let's just say for planning purposes, by the end of Q1, we would expect to have the IPA in place. And I haven't seen anything to date nor heard of anything that would make me concerned that we won't be able to achieve an IPA with the government that is reasonable and in line with our expectations.

Terry, in looking at the permitting, obviously we took out of the asset on the 26th of July. There's been a lot of effort on first looking at the integration and what we need to do to assess the current strengths and weaknesses and set up the organization as part of BPM going forward. So that's been a lot of the activity. The other things that we've done is look very closely at what we're doing in terms of permitting and laying out the actual activities that are required to take us to an exploitation permit, which would commence the construction of the asset. So we actually had a number of different workshops and things which have been sort of laying out the different activities to make sure that we can do as much in parallel as possible and consolidate that timeline. Our goal at this point is that by the end of next year, what we have is we have the permitting completed. That's the permitting done federally and also locally, which would be roads and power lines, for instance. Federally would be the plants and environmental and water and this type So it's one of those sort of things that as we're going along, we'll be able to give you greater and greater insight into how we view that all going. But at this point, we are doing what we can to keep the pressure on having all of this permitting done and the exploitation permit in hand by the end of next year or early into 2022. So that's our goal. What I would say is that the government has been very good in terms of being clear about their expectations. The president issued a decree 151 just about a week after we took over the asset. And what that was intended to do was to have the different government organizations that are involved in the various elements of permitting look at what they're doing to be able to make sure that they have a streamlined process for taking applications and taking them through to a conclusion so that they can accelerate the foreign direct investment and reduce the delays that are associated with the government agencies. Because you mentioned that there's a lot of mining history in other areas, but Ecuador is sort of coming into this. There's a lot to do in terms of tidying up, disconnects on regulations, working closely with the authorities. We need to develop some of the ideas on how we can progress these things effectively. So we're working closely where we can with the government agencies, and we've had a lot of support and cooperation. to see what we can do to make sure that we streamline this process. But the ultimate goal, as I mentioned, to the end of next year is to have the different permits in place to be able to finalize the exploitation agreement.

Great summary, David. Thank you, and thank you, Hume. Much appreciated. Thank you.

Thank you. Once again, if you would like to ask a question, please press star 1. No further question at this time. I would like to turn the call over to Jennifer Cameron for closing remarks.

Thank you, everyone, for joining us today. I know it's a – oh, actually, sorry, operator, I see that there's another person that's joined the Q&A.

All right. Thank you. Our next question comes from the line of Dalton Barreto of Canaccord. Your line is open.

Thanks. Good morning, guys. I thought I'd squeeze one in because no one else is in the queue. And I apologize if you've answered this because I joined the call late. David, can you talk a little bit about what you're looking to refresh in the Loma Larga studies, specifically what aspects of the project you're looking to maybe change, resize, re-scope, that sort of thing?

Sure. So the energy supply to the site and the operating rate, for instance, at the moment is at 3,000 tons a day. There's certainly potential for us to do more than 3,000 tons a day, so that will be one. We're also looking at some of the elements of the operation, so just a very easy one. At the moment, Loma Laga has conventional flotation, where we haven't built conventional flotation at any of our facilities since 2011. We use something called a stage flotation reactor. which reduces the footprint and dramatically reduces the energy consumption, which, of course, is the type of thing that we want to pay attention to when we're looking at our ESG future and performance, particularly on greenhouse gases. So it'll be items like that that potentially move in crushing underground, mobile crushing underground, conveying to surface, electric fleet. There's a whole raft of things that I can talk to you about. But the bottom line is that we're looking at maximizing the value of the asset. Now, a last element of that, is going to be that we are actually doing some extensional drilling as part of the campaign, which is sort of set to be underway any day. So that will be, in addition to the extensional, there's also going to be geotech and condemnation, as I mentioned earlier. Those are the things. I don't know if that helps, if you had any more specific questions.

No, that's helpful. Thank you. And then, you know, as you look ahead to the project and, you know, the construction phase, And maybe throwing TMock into this question as well, it's a pretty inflationary environment out there, and a lot of your peers who are building stuff right now have reported some pretty substantial increases. How are you thinking about that? I mean, are you moving to lock anything in right now? Are you going to wait and see how this plays out? Just how are you thinking about that on both projects?

Yeah, great question. It's a little early to lock those in, given where we are with the projects. It's certainly something that we conscious on so, you know with chalopech and at a tepee at the moment We're looking at you know, what can we do in terms of our contracting for instance for current operations? That may help us to mitigate some of these pressures, but I think at the moment particularly with energy we recognize this the potential for that to be a Shorter term element and we need to be careful about what we do, but that it will translate through to everything so we see transportation costs going up we see you know a fundamental of any consumable that we have is energy, and therefore energy prices being up is going to drive through into those. So we're conscious of this for both our current operations and also for future projects, but it's just a little early at this point to be looking at mitigating steps in terms of the capital outlay for projects.

Okay, but when you put out the feasibility on Loma Larga next year, presumably that will capture quotes as of now, right?

I will capture quotes as of, you know, they've got to be within a certain timeline of the issuing of the feasibility. So, yes, they will be current.

Okay. And then maybe just one last one on the permitting side at Loma Larga. You know, in the past you've mentioned water and kind of the ecosystem being critical aspects as well as the social side of things. How much progress are you making on that side? And, you know, are there any red flags that jump out to you at this point in time or any areas of sensitivity, if you will?

So I think the question was really about permitting, but of course the other area where we've been putting in a lot of time and energy is understanding our stakeholders and doing what we can to really get a meaningful engagement with them. And that will result in a better estimation of where their concerns might be, but we're fully expecting that to be biodiversity and water. So we'll obviously be looking at our impact on any water streams. That'll be certainly something that we'll be reviewing and seeing what we can do. And likely that will initiate water treatment earlier than would have otherwise been anticipated. But at this point, it's a little earlier to get into a little bit more detail of that. But water is a big thing in the whole of South America, of course. So it's no different in Ecuador. But we're in an area which, at this point, has sensitivity to that, and quite appropriately so. And, you know, those engagements will ultimately give us a better indication of what we'll be able to do with the project to be able to satisfy those concerns.

Perfect. That's all from me, guys. Thank you.

Thank you.

Thank you. Once again, if you would like to ask a question, please press star 1. No further question at this time. Jennifer, you can proceed.

Thank you all for joining us. If there are any follow-up questions, please feel free to reach out, and we look forward to speaking to you in the coming weeks. Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.