Dundee Precious Metals Inc.

Good day, and thank you for standing by. Welcome to the Dundee Precious Metals second quarter 2022 earnings results conference call. At this time, all participants are in a listen-only mode. At the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. 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, Director of Investor Relations. Please go ahead.

Thank you and good morning. I'm Jennifer Cameron, Director of Investor Relations, and I'd like to welcome you to Dundee Precious Metals second quarter conference call. Joining us today are David Ray, President and CEO and Hume Kyle, Chief Financial Officer. After the close of business yesterday, we released our second quarter results for 2022, and I hope you've had an opportunity to review our material. 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. 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 2021 pertain to the comparable period in 2021 And references to averages are based on midpoints of our outlook or guidance. I'll now turn the call over to David Ray.

Good morning, and thank you all for joining us. I'm pleased to report that during the second quarter, we continue to deliver strong operating and cost performance at both of our lines, increase our financial strength, and advance our development projects and exploration activities. This morning, I'll briefly review our second quarter results and our operational performance before handing the call over to Hume to discuss our financial results. The highlights from our second quarter include a strong production of approximately 73,000 ounces of gold and 8.8 million pounds of copper. Excellent all-in sustaining cost performance of $792 per gold ounce, which was towards the low end of our full-year guidance. solid free cash flow generation of $41 million, and continued financial strength, exiting the quarter with a cash balance of $423 million. With strong gold and copper production and a year-to-date oil and sustaining cost of $741 per ounce of gold sold, which supports the cost at or below the low end of guidance range, we are well positioned to achieve our guidance targets for 2022. Turning now to the highlights from our operations, I'll start with Chalepetch. Chalepetch had an excellent quarter with production of approximately 49,200 ounces of gold and 8.8 million pounds of copper, benefiting from higher than expected grades relative to the mine plan, as well as recoveries above historical averages, which reflect process improvements we have implemented. For example, we continued to refine the implementation of an advanced process control solution, which has resulted in greater process efficiencies, reduced variability, and improved recoveries at our mines. And we're also implementing that at the moment. All in sustaining cost of the quarter was $838 per ounce of gold sold, which increased compared with the previous quarter, primarily due to higher treatment charges and rates. Chalipetch remains on track to achieve its 2022 production and cost guidance for the year. We continue to focus on extending Chalipetch's mine life through our successful in-mine exploration program and a growing brownfield exploration program, which for 2022 includes approximately 44,000 meters of in-mine drilling for mineral resource development, and that's typical of our spend and activity around in-mine exploration Further, we've got approximately 50,000 meters of brownfield exploration, which are primarily concentrated on near-mine exploration drilling related to the Sveta Petka commercial discovery application, as well as drilling at Charlotte Dairy and other near-mine targets in the mining concession area. We ramped up an extensive drilling campaign focused on Sveta Petka. as well as the Sholodiri and Petrovdan prospects within the mine concession, drilling over 20,000 metres during the second quarter. The drill campaign, which is planned to support an application for a commercial discovery at Speta Petka in 2023, is planned to continue for the balance of the year. With a mine life that extends to 2030, an updated mineral resource base, and increased in-mine and brownfield exploration drilling, we believe there is strong potential to continue our track record of mine life extension at Chalepetch. During the first quarter, Adatepe produced approximately 23,700 ounces of gold at an all-in sustaining cost of $714 per ounce of salt. For the mine plan, we are focused on completing pushback two in the first three quarters of the year, with grades expected to increase in the fourth quarter. With production in line with our expectations in the first half of the year, Adetepe is on track to achieve its 2022 guidance. We are continuing to assess the results of the accelerated grade control program at Adetepe. The drilling was completed in January 2022 and initial information for the 2022 mining areas was reflected in our production guidance for 2022. We are in the process of incorporating these results into an optimized mine plan, which is expected to be completed in the third quarter of 2022. We are continuing our exploration efforts around Adetete with 20,000 metres of drilling plan in 2022, which will be focused on near mine target delineation and drilling within the mine concession and surrounding Krimavitsa exploration licence. During the quarter, exploration activities were focused on an extensive target delineation campaign that encompassed the Adetete mine concession and regional licence. Work included detail mapping, rock sampling, trenching, and 3D modeling, which is now being followed up with diamond drilling. Turning to SPUMEP, Q2 performance reflects the planned Ostmult maintenance shutdown completed during the quarter, which was extended by 15 days to address cooling system, off-gas, and back-house system integrity, which is expected to improve operational performance post the shutdown. As Hume will discuss, we have revised guidance for Sumeth, reflecting its performance year-to-date and our expectations for the balance of the year. We continue to engage in a comprehensive initiative directive at optimizing the cost structure of the Sumeth smelter to enhance its ability to compete for additional third-party supply of complex concentrates and improve overall business profitability. In terms of our future growth, we continue to advance the Loma Laga project, recently of achieving a milestone with the receipt of a technical viability certificate for the salted tailings storage facility. This follows the technical approval of the EIA, which we received in April. As we previously reported, we paused our planned drilling activities near the end of February, pending the hearing of a constitutional protective action against the Ministry of Environment. Last week, we received a written decision by the Judicial Labor Unit of Cuenca, which upheld the validity of the environmental permits for exploration, confirmed that the Ministry did not violate certain rights relating to water and nature in granting DPM permits, and reaffirmed our legal rights to the mining concessions. The court also found that DPM will be required to include local indigenous populations in its consultation process prior to advancing to the exploitation phase. which we had already planned as part of our development of the project. BPM is committed to advancing the project in line with the highest standards for stakeholder engagement, which includes aligning our approach with international finance corporation practices which meet or exceed Ecuadorian standards. Our drilling activities remain paused at Loma Lago as we seek clarification from the court whether the indigenous consultation could be done in parallel with the citizens' participation process. the next step in the process to obtain the environmental license, or whether it must be completed before advancing those activities. This could potentially delay the timing of receipt of the environmental permit, which we expected to receive in the third quarter. In parallel with permitting, we have also continued our work to optimize the feasibility study for La Malaga and progress with several trade-off studies, aiming to further improve the project based on our As we advance the project, our team is proactively working with stakeholders to obtain the project's social license. We have increased our dialogue with local stakeholders to provide more visibility to certain aspects of the project that are of high interest in the local community, and we're maintaining a constructive dialogue with all government institutions involved in the development In Serbia, we continue to progress the feasibility study as a result of optimization activities focused on capital expenditures and mining activities. We now expect to complete the feasibility study in the third quarter. As we advance the work, we are seeing inflationary pressures on capital and operating budgets that are consistent with general industry trends. Following completion of the study, we plan to pursue additional exploration opportunities subject to receipts of required funds. To wrap up on the quarter, our strong production profile and significant free cash flow generation, combined with our operating track record and strong ESG performance, position 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 our investments in optimizing our assets and advancing our organic pipelines. We also continue to pay a sustainable quarterly dividend and repurchase approximately 1.6 million shares in the first six months of the year. We are confident that DPM's strong fundamentals continue to represent a compelling value opportunity for investors, particularly at current share price levels. I'll now turn the call over to Hume for a review of our financial results and outlook, following which we will open the call to questions.

Good morning, everybody. Thanks, Dave. I'll begin by reviewing our second quarter financial results, after which I'll touch on our three-year outlook, financial position, and capital allocation. For the second quarter and first six months of 2022, we generated adjusted net earnings of $33 million and $70 million, or $0.17 and $0.37 per share, respectively, compared with $67 million or $98 million, and $98 million, I apologize, or 37 cents and 54 cents per share in the corresponding periods for 2021. For the quarter, this decrease was primarily attributable to the timing of the maintenance shutdown at SUMEB, lower volumes of metals sold, and higher freight charges at Chelapeach, partially offset by higher than normal metal recoveries at SUMEB and a stronger US dollar, and higher realized metal prices and sulfuric acid prices. Our six-month results were also impacted by lower throughput at SUMEB related to issues with the bagged house and off-gas system prior to the maintenance shut and higher share-based compensation due to changes in PPM share price, which were partially offset by lower treatment charges. Net earnings tripled to common shareholders for the second quarter in the first six months of 2022, worth $34 million and $60 million respectively, down from $68 and $88 million in 2021 due primarily to the same factors that affected adjusted net earnings, as well as SUMEB's restructuring charge taken in the first quarter. In terms of our cash flow metrics, in the second quarter in the first six months of 2022, cash flow from operations before changes in working capital was 56 million and 117 million, while free cash flow was 41 million and 90 million, respectively. These results were both lower than the corresponding periods in 2021, due primarily to the same factors that were impacting earnings, partially offset by lower outlays for sustaining capital. Turning to our cost measures, overall in the second quarter and first six months of 2022, consolidated all unsustaining costs was $792 and $741, respectively, up 31% and 27% relative to 2021, due primarily to higher costs, lower volumes of gold sold, and lower byproduct credits in Q2, which were partially offset at both periods by a stronger US dollar and lower treatment charges. While our mining and our all-in sustaining costs were up over 2021 levels, reflecting the inflationary pressures that are impacting prices globally, and in particularly are impacting European power prices, as well as costs for transportation, fuel and other direct materials, They are both well within our guidance and reflect our continued focus on managing our costs, as well as the favorable impact of the Bulgarian government power subsidy and the stronger U.S. dollar. In fact, our Q2 mining and all outstanding costs came in at the low end of our 2022 guidance and, near to date, are at or below the low end of our guidance. At Sumed, Q2 cash costs per ton was $973. up $573 compared to 2021 due principally to the timing of the Osmelt furnace maintenance, which occurred in the second quarter in 2022 versus Q1 in 2021. Cash costs per ton of complex concentrate smelted in the first six months of 2022 was $632. This was $74 higher than 2021 due primarily to lower volumes of complex concentrate smelted This was related to increased maintenance activities in respect of the smelters, bag house, and off-gal gas systems that reduced billable capacity during the first six months of the year. And this was partially offset by higher asset byproduct credits and labor savings stemming from SUMEB's cost reduction initiative. From a CAPEX standpoint, sustaining CAPEX incurred during the first, sorry, second quarter and first six months were $21 million and $30 million respectively. This compared with $12 and $29 million in 2021, with Q2 increases primarily related to the timing of maintenance shutdown at Sumit. Growth capex occurred during the second quarter and first six months were $8 million and $14 million, respectively, compared with $4 million and $6 million in 2021, and this is due primarily to our development activities at Loma Larga and Timah. Looking ahead to the balance of the year, at Chilipetch and Atatepe, we are forecasting production that is expected to be at or above the level achieved in the first half of the year, putting us well on track to achieve our 2022 production, as well as our mine and all unsustaining cost guidance. For SUMED, we revised our production and cost guidance to reflect the impact of increased maintenance activities to the baghouse and off-gas systems in the first six months of the year, which have now been resolved. But with balance of the year, we expect stronger operational performance from SUMIP with 2022 production now expected to be between 185 and 200,000 tons, which is down roughly 15% from our prior guidance of 210 to 240,000 tons. Cash cost guidance has also been updated and is now expected to range between $420 and $480 per ton, up roughly 7% from the $380 to $460 per ton range previously put out. And this is reflecting lower year-to-date throughput, partially offset by a stronger U.S. dollar, and increased cost savings stemming from SUMEN's initiative to optimize its cost structure which for 2022 is expected to reach approximately $10 million. In 2022, these savings will be partially offset by additional costs being incurred to support, among other things, executing this initiative, re-optimizing work management practices, and ensuring that there's a continued strong focus on safety during this period of change. Our outlook for 2023 and 2024 remains unchanged. In closing, we delivered another strong quarter of operate performance from our mining operations and we are well on track to achieve our annual 2022 guidance and in turn add to our year-to-date free cash flow generation of $90 million. As part of our overall capital allocation framework, we continue to allocate a portion of our free cash flow to shareholders in the form of a sustainable quarterly dividend that currently provides investors a 3.3% yield and selectively to buy shares under our normal course issuer bid. For the first six months of 22, we deployed approximately $10 million towards share buybacks and $13 million towards dividends for a combined total of $23 million, or 25% of our year-to-date free cash flow. With a cash position of $423 million at June 30th, no debt, and continuous strong free cash flow generation, we are well positioned to fund future growth opportunities that generate additional value for stakeholders while returning a portion of our free cash flow to shareholders. call back to the operator for questions.

Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. Please stand by while we compile the Q&A roster.

One moment for our first question.

Our first question comes from Trevor Turnbull with Scotiabank. Your line is now open.

Hi. Thank you, David. I just had some questions on Ecuador. The feasibility study that's still expected this year was originally going to utilize that 15 kilometer drill program you talked about for optimization studies. And I just wondered the fact that that's been on hold due to some of the court challenges, how that might impact the timing of the feasibility or what it might be if you carried out the feasibility without that drilling.

Yeah, good morning, Trevor. Good question. So the budget for that drilling covered a number of different things. So the last element of that would be extensional. The main part was hydrogeology, condemnation, drilling, geotech. And primarily that's about understanding whatever we need to still learn about the foundations and the earthworks and the sort of management of the different things around the construction of the plant. That really needs to be done. It's too risky to go ahead and construct the plant without having that basic information. That's the means by which you can have runaway costs. So we do want to complete the condemnation and the geotech in particular of that work. So there is some potential that this continues to be core activity and holds on our ability to drill. It is possible that this could delay our outlook on timing for the completion of the feasibility study and then the onset of construction for the project subject to getting the exploitation license.

Okay. Yeah, it sounded like there was a lot of de-risking that could be done through this drilling, just like you said, knowing exactly what conditions would be like prior to construction and so forth. Just sticking with Ecuador, my only other question was if you could just talk a little bit about some of the headlines we've been seeing out of Ecuador. It looked like there was a draft agreement after all the unrest between the government and the confederation of indigenous groups. And from what I can tell reading some of the media stories, it sounded like there would be no development in areas deemed ancestral territories as part of the draft agreement anyway. But the problem with that seemed to be that those areas aren't really defined anywhere. And I'm just trying to understand how, as the government and these groups try to grapple with understanding where the ancestral territories are and that ambiguity, how does that bog down the ability to kind of move forward on the permitting?

I think for us we're in a situation where this particular project relative to some others which are being advanced at the moment are working on a sort of set of assumptions which are not the same as say for the current project. So what we're looking to see is how this transpires in terms of negotiations between the government and the different parties. The way we're looking at this is that we have a consultation requirement with the indigenous population which we would of course always do we have a consultation for which the processes can agree uh prior to the current conversation about um you know indigenous stakeholders and that we're actually ready to go on at the moment that um you know we get additional clarification on the on the rule Kelly, I don't know if you wanted to add anything to that?

Yeah, I'm happy to add to that. I'm Kelly Stark-Anderson. I'm Executive Vice President, Corporate Affairs and General Counsel, and have a great deal of involvement with our Ecuador project. What you're speaking to is the discussions with the government following the recent protests with the looking at Decree 151, which President Lazo put in place to promote the development of mining. and the discussions to limit some of that, as it may impact, as you've noted, ancestral lands, those discussions are continuing. And I, you know, the government obviously is very focused on ensuring proper process and respect for rights and interests. We don't, have and don't believe we would be impacted by any discussion that relates to ancestral lands. Certainly, however, we are deeply committed to the engagement process, the consultation process, and even prior to the decision of the court saying that the consultation process needed to be followed to move to exploitation. We had built that into our planning to the standard of the IFC, which is well in excess of the current Ecuadorian requirements. So we're comfortable that what the government needs to do and the discussions it's having are not a risk to the project.

Okay. Yeah, I appreciate that. I guess it's clear the government has their hands full, and it'll kind of depend, I guess, on how they're able to navigate these next few months in terms of keeping everything from getting out of hand with respect to further protests and so forth. But I appreciate the color, and that's all I had. Thank you.

Thank you. Thank you. One moment for our next question.

And our next question comes from Don DeMarco with NBF.

Your line is now open.

Thank you, operator, and good morning, everyone. While we're talking about Ecuador, maybe if I could just ask one more question on that. So, gentlemen, you've received a written decision from the court. My questions are, has there been any appeals against this decision, and when would you expect to receive clarification regarding the need to to conduct an Indigenous consultation in sequence or in parallel? And then finally, with this Indigenous consultation, how long would that process itself potentially take and what might it involve?

I can speak to the first part of that question. Various parties to the proceedings filed a clarification request this week to the court which asks for For example, from the company's side in alignment with the Ministry of the Environment, the question was about, as Dave indicated, whether or not we could continue with the permitting activities in parallel to the required Indigenous consultation and seeking clarification on the lifting of the precautionary measure that suspended our drilling activities. The judge has advised all the parties of the filed clarification request. And there's a period of a few days in order for other parties to file any additional commentary to those requests, following which the judge will respond. Now, there is no defined timeframe for the judge to respond. We do believe that he will deal with this expeditiously. However, there is beginning August 1st, a judicial annual leave period of two weeks. So we are not sure at this point whether the judge will continue with the case during that timeframe or if we will have to wait till after August 15th for it to continue. Once he has issued his responses, there is a three-day period for the ability to appeal any aspect of the ruling. Following that, the Indigenous consultation process will unfold. One of the aspects of the clarification is to get a better clarity on the exact scope of the consultation, the communities. The Indigenous consultation is not an individual right, it's a community right, so that needs to be defined a little further and from there we will have a better understanding of the scope of that consultation. The timeframe for that, will be unfolding, and as I say, it's already part of the engagement plan, so we don't see it extending beyond our current time looking for the environmental permit to be issued, as I say, we had expected in the third quarter, and should we get resolution with the clarification requests and the decision

expeditiously we don't see why that wouldn't unfold as expected okay well wonderful well thank you that's very very helpful and very clear so moving on to my other questions on a different topic so following completion of the TMOC feasibility study it was indicated that you plan to continue drilling I didn't read that you would consider developing it or there was a go-forward decision upon conclusion of the FF so is it fair to say that at this point there are no plans or the FS is not to provide the basis for making a decision whether or not to develop it?

So the completion of the feasibility study needs to meet our hurdle rates. So what we do is we complete that work. So at this point we have a number of indications of capital and operating costs which we are busy looking at. and taking into account any considerations given our experience in the region that may not always be there in terms of the way engineering companies not based in that area might consider things but the bottom line to your question is we receive that piece of information make a decision on our criteria what we think is something that we want to invest in going forward so it's obviously a key decision point we're not just going to continue it for the sake of continuing it has to meet our criteria okay thank you for that

And, well, congratulations on a strong free cash flow quarter, and that's all from me. Thank you.

Thank you. One moment for our next question. And our next question comes from Raj Ray with BMO. Your line is now open.

Thank you, Alfred. Good morning, David and team. My first question is regarding one of the comments that you made with respect to the second half. outlook for the mining operations. I think you said it's going to be better than the first half. Just wanted to get a sense of the cost inflation. Did you see the peak of the cost inflation Q2? And as you have gone into Q3, do you expect additional pressures? Or do you think cost inflation is going to decline? Just wanted to get some sense there. And my second question was on the treatment and transportation charges for Chalopeche. There's a wide variability. Now, I know you did mention the increase in the freight costs and whatnot, but it was 37 million in Q2 versus 15.5 in Q1. I just wanted to get a sense for the remainder of the year what the expectation is. Is there anything else other than just the freight and transportation costs that's affecting that? Okay.

Our forecast is based on the pricing environment that we're seeing currently. Based on the last forecast, that would have been probably about a month ago. Then I think the other thing I would say is our outlook for the balance of the year is also based on a US dollar that's weaker than the current level. To the extent that prices were to go up further, I think that where the dollar is right now would at least offset any possible further increase on direct materials or otherwise. So I think we're pretty comfortable on a mine cost basis that we're going to be at the low end of our guidance on a cost per ton basis at both operations, taking into account current market pricing and the dollar. on all unsustaining costs, I'd say similar, but there could be some upward pressure relative to our outlook if copper pricing stays at current levels. Precipitously fell like a dollar and change in the last month or so. I think our last outlook was based on something like over $4. Same thing, like a partial offset to that is the fact that the U.S. dollar has strengthened as well. So overall, probably mine costs we would expect to stay somewhere in the lower half of our guidance. And on all interstating costs, I think our expectation is taking all things into account that we should be somewhere in the middle of the range for all interstating costs. On treatment costs, I would say that one of the factors I mean, obviously it's mixed, but in our particular case with the mine plan that we have, we are shipping and therefore have lower treatment charges when we ship to China in Q1 and Q4, and we're sending material to Sumeb in Q2 and Q3. And as a result, treatment charges will be higher for those two quarters. On freight, freight is up year over year for sure. I'd say it was in line with what we forecast for transportation to China. We were kind of at and around what we had actually planned, but rates for shipping to Namibia were higher. So that would be, and it's not huge, but yeah, it was higher going to Namibia. So between the two, that's why Q2 and Q3 treatment charges would be elevated relative to Q1 and Q4.

Okay, thanks a lot for that. One last question, if I may. I did mention, I revised your guidance for the year, but looking at the second half of the year, do you see any potential risk? Are you pretty confident to be back at steady state?

So the tonnages that we're projecting for the balance of the year are tonnages that we've achieved in four consecutive quarters previously. So it's reasonable to believe that with the completion of the shutdown, but more importantly, the opportunity to correct a number of the water cooling issues, which you really can't get to while you're online. We're confident that that outlook is reasonable.

Thank you very much. That's it from me.

Thank you. I would now like to turn the conference back over to Jennifer Cameron for any closing remarks.

Well, thank you everyone for joining us. If you have any further questions, please feel free to reach out, and if not, we will talk to you next quarter. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.

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