Dundee Precious Metals Inc.

Good day. Thank you for standing by. Welcome to the Dundee Precious Metals Third Quarter 2023 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 a question during the session, you'll need to press star-1-1 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Jennifer Cameron. Please go ahead.

Thank you, and good morning, and thank everyone for your patience as we got that technical issue sorted out. I'm Jennifer Cameron, Director of Investor Relations, and I'd like to welcome you to our call. With me today are members of our senior management team, including David Ray, President and CEO, and Navin Dial, 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 meant to be recognized 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 2022 pertain to comparable periods in 2022 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 provide you with an overview of our third quarter results and some insights into our achievements during this period. This morning I'll briefly review our results and discuss why we believe DPM continues to be well positioned to deliver value to all our stakeholders now and over the long term. Highlights from our third quarter include strong production of 74,000 ounces of gold and 7.2 million pounds of copper, all in sustaining costs of $911 per ounce of gold sold, and continued strong free cash flow generation of $45 million. With strong operating performance generating over $180 million of free cash flow year to date, our mining operations are on track to achieve our 2023 guidance for production and all in sustaining cost, demonstrating the quality of our assets and the strength of our operating teams. We exited the quarter in a very strong financial position with a cash balance of $563 million, and we continue to deploy our capital in a disciplined manner. In addition to investing in our future growth and exploration prospects, we returned approximately 42% of our free cash flow to shareholders during the first nine months of the year through our sustainable quarterly dividend and enhanced share buy-by program, which Navin will touch on shortly. Looking at our operations in more detail, Chalapetch continued its track record of strong performance in the third quarter, producing approximately 40,000 ounces of gold and 7.2 million pounds of copper. Chalapetch's oil and sustaining cost of $1,120 per ounce of gold salt reflects higher treatment charges during the quarter as a result of shipping concentrate to Sumit, as opposed to using third-party smelters, as was the case in the first two quarters of the year. In the fourth quarter and going forward, we do not expect to process additional concentrate from Chalapetch at Sumit. We continue to advance the Chalapetch brownfield exploration program with eight drill rigs currently active along the Breveni exploration license and the Charlotte Dairy target within the mine concession. Later this month, we expect to provide an update on our exploration activities, along with updating the mineral reserve and resource estimates and life of mine plans at Chalapetch. With increased in-mine and brownfield exploration drilling, we believe there is strong potential to continue our track record of extending mine life at Chalapach. Turning to Atatepe, the mine continued to deliver impressive performance, achieving a new record for quarterly production. The mine produced approximately 34,000 ounces of gold, with an all-in sustaining cost of $509 per ounce of gold sold, which is at the low end of Atatepe's guidance range for copper. Adatepe has consistently outperformed our expectations since commissioning in 2019, and we are confident that Adatepe will continue to deliver strong results, supported by the updated Life of My Plan we announced in January this year. We're also continuing our exploration efforts around Adatepe. At the newly granted Krumavica exploration license, we started scout drilling in August. At Sunet, complex concentrate smelted during the quarter was approximately 22,000 tons, which reflects the planned maintenance shutdown that occurred in the quarter. During the Osmalt Reliant Focus shutdown, we also completed repairs to the off-gas system where water leaks affected operational stability in the last campaign. While we resume full operations in Sumet towards the end of September and are seeing improved performance in line with a more normalized throughput rate, we expect Sumet to be at the low end of its production guidance and towards the high end of its cash cost guidance at year end. In Serbia, exploration activities focused on the Choko Rikita deposit with 11 drill rigs currently in operation. Since we announced the high-grade discovery in January, we've been aggressively drilling the deposit with over 63,000 meters completed in the first nine months of the year. Infill drilling at a 30 by 30 meter spacing is well-advanced, covering the core of the system in order to provide additional confidence in the continuity and high-grade nature of the mineralization. We expect to complete a made-in-mineral resource estimate for Chocowikita by the end of this year, and we're also progressing activities to accelerate the advancement of the project. This includes metallurgical test work and geotech evaluation of potential surface locations for the exploration, decline, mine infrastructure, and processing facilities. Chocoriquita has several positive attributes that we look for in projects, including a very high grade core, good initial metallurgical results, strong infrastructure, and a great fit with our skill sets, resulting in significant potential within our organic growth portfolio. We also believe there's significant additional exploration potential in the surrounding land package, and we've started scout drilling to test other camp-wide targets near Choca Rikita, as well as the 10,000-meter scout drilling program we've discussed previously at UMCA. In October, we were granted new exploration license for the area hosting the T-MOK Gold Project, and this provides additional exploration potential on prospective targets immediately to the north of Chocoriquita. We are preparing an aggressive exploration program and plan to start testing for scarn targets on the new licenses to the north and west of Chocoriquita, and we expect to commence a 25,000-meter drilling program in early 2024. Turning to Loma Laga, there were two important developments for our activities in Ecuador during the quarter. First, we entered into an investment protection agreement with the government, a significant milestone that provides tax stability and incentives, as well as legal protections such as resolutions of disputes through international arbitration. Second, a decision on the appeal of the constitutional protective action was received in August. Based on our analysis, the decision reaffirmed our concessions for Loma Laga and clarified that consultation. Certain local indigenous populations is required. It also held that environmental consultation with communities in the project's area of influence and additional reports on the impact on water resources and the nearby national recreation area would need to be delivered by the Ministry of Environment to the court prior to advancing the project to the exploitation phase. We are in the process of seeking clarification on these requirements for these additional reports, the indigenous and environmental consultation, and the steps needed in order to resume the planned drilling campaign in support of the updated feasibility study and to assess the impact on the project's development timeline. At the same time, we've continued to advance the feasibility study optimization, which includes leveraging our expertise with similar deposits such as Chalapetch and to incorporate certain scope changes. These scope changes combined with inflation pressures consistent with general industry trends are expected to result in significant increases to the estimated capital and operating costs for the project. We are continuing with the optimization phase beyond our original timeline ending in 2023 in order to evaluate additional opportunities and to potentially incorporate the results from drilling once we're able to resume these activities. We continue to view Loma Laga as a high-quality advanced stage project with the potential to generate strong economic returns following the results of the ongoing optimization work. We will continue to take a disciplined approach with respect to future investments in the Loma Laga project based on key milestones and the overall operating environment in Ecuador. And as such, we anticipate our spending related to Loma Laga in 2024 to be materially lower than the 2023 levels. At Tierras Coloradas, the concession 200 kilometers to the south of Loma Lago in Ecuador's Loja province, we initiated a 10,000-meter drilling program in August, completing 2,300 meters during the quarter. This program is designed to follow up the positive results we reported at the end of February, which confirmed the presence of two high-grade vein systems that remain open in multiple directions. The primary focus will be to further assess the extension and geometry of the two vein systems and to test recently discovered high-grade vein and soil anomalies. In closing, our third quarter results continue to demonstrate BPM's strong performance and highlights within our industry. These highlights include strong consistent production from our operations and an all-in sustaining cost that ranks among the lowest in the gold mining industry, significant free cash flow generation, financial strength and flexibility, a record of disciplined capital allocation and returning capital to shareholders, attractive development projects, a proven exploration success both in extending mine life of our operations and discovering new brownfield opportunities, and a strong leadership and technical team with a history of adding real value through innovation. I'll now turn the call over to Navin for a review of our financial results and outlook, following which we'll open the call to questions.

Thanks, Dave. I'll be touching briefly on the financial highlights from the quarter. I will also provide an update on how we are tracking in terms of our guidance for the year, and I'll conclude with some commentary on our balance sheet and return of capital program. Financial highlights for the third quarter include revenue of $135 million, which was higher than the prior year, due primarily to higher volumes of gold sold, and higher realized gold and copper prices, partially offset by lower volumes of complex concentrates melted, reflecting the timing of the off-smelt furnace maintenance shutdown. Adjusted net earnings of $27 million were comparable to the prior year, due primarily to higher revenues from gold operations, partially offset by lower revenues from SUMET, and higher plant exploration and evaluation expenses. When comparing adjusted net earnings for the third quarter to the second quarter of this year, earnings were lowered due primarily to higher treatment charges at Chelapeche, as all of Chelapeche's gold and copper concentrations delivered to SUMET this quarter, combined with lower revenues from SUMET, reflecting the planned Osmalt furnace maintenance shutdown this quarter. Note that the concentrate from Chilli Patch delivered to Zuma this quarter will not be processed by the smelter until the fourth quarter. Cash flow for operations of $67 million was higher than the prior year due primarily to the timing of deliveries and subsequent receipts of cash, and also the timing of payments to suppliers. Free cash flow of $45 million was comparable to the prior year due primarily to the factors impacting adjusted earnings. Taking a closer look at our cost metrics, our all-in sustaining cost during the quarter was $911 per ounce of gold sold. This represented an increase relative to the previous two quarters this year. It's important to note that this was the only quarter this year in which we plan to deliver Chalifax's gold copper concentrate to SUMEP for processing, which resulted in higher treatment charges. Going forward, we anticipate that all of Chalifax's concentrate will be delivered to third-party smelters at lower treatment charges, and as a result, we remain on track to achieve our own sustaining cost guidance for the year. At SUMET, cash costs in the third quarter of $921 per ton reflected the planned maintenance shutdown which occurred during the quarter. In terms of our capital spend, sustaining capital expenditures were $17 million for the quarter, which included capital related to the maintenance shutdown at SUMET, which is lower than planned as a result of cost optimization initiatives. Growth capital expenditures were $6 million for the quarter and were primarily related to the Loma Larga project. As Dave noted, we are anticipating a significantly reduced level of capital expenditures at Loma Larga in 2024 relative to 2023. Looking at our guidance for the year, which is outlined in detail on slide 17 of the webcast, I'm pleased to report that given our strong year-to-date performance and forecast for fourth quarter, our mining operations are on track to achieve their 2023 guidance for gold production and deliveries. as well as all in sustaining costs. At SUMEP, as a result of the unplanned downtime we experienced earlier in the year, we are forecasting to be below guidance for complex concentrates smelted and towards the high end of guidance for cash costs per ton. Looking at unit costs, Chalapetch and Atatepe are expected to be at or below the low end of guidance range for mined cash costs per ton, reflecting lower than expected costs for direct materials and lower royalties at Atatepe. When looking at our all-in sustaining cost guidance, one thing I'd like to note is that copper prices have been trending lower than the price assumption reflected in our guidance. To illustrate how a 10% change in the price of copper can impact our costs, a reduction in copper prices from our fourth quarter guidance assumption of $4 per pound to $3.60 per pound would increase our full-year all-in sustaining costs by approximately $12 per ounce of gold sold. We anticipate all-in costs remain within our guidance range, even with this lower balance of year cost price assumption. Also note that our full year guidance for all interstating costs excludes mark-to-market adjustments for share-based compensation expense. For the nine months ended September 30th, higher share-based compensation expense for mark-to-market adjustments has added $4.6 million, or $24 per ounce, to our all interstating costs. With significant year-to-date free cash flow generation, we continue to maintain a strong balance sheet with $563 million of cash at the end of the quarter. With our strong cash position, no debt, and $150 million undrawn credit facility, we have the financial flexibility to fund future growth opportunities that generate additional value for stakeholders while continuing to return a portion of our free cash flow to our shareholders. On that front, we continue to deploy our capital in a disciplined manner that balances our desire to reinvest in growing and optimizing our business with our commitment to returning capital to our shareholders. In addition to investing in our future growth and exploration projects, we continue to pay a quarterly dividend of $0.04 per share since 2022, which currently offers an attractive 2.3% yield based on last night's closing share price, and continue to enhance our share buyback program to purchase up to 100 million of the company's shares over a 12-month period, which began on March 1st this year. To date in 2023, we've repurchased over 9.7 million shares for a total value of approximately $66 million. In closing, we continue to deliver solid performance from our mining operation, and we are in a strong position to achieve our guidance and continue our track record of generating significant free cash flow. With that, I'll now open the call for questions.

Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile our roster. Our first question comes from the line of Don DeMarco with National Bank Financial. Your line is open.

Thank you, operator, and good morning, David and team. Congratulations on a strong quarter, good free cash flows, low costs at Atepe. Looking at, you've got this upcoming maiden resource estimate for Cocoa Rikita. Do you expect this resource to all be in the inferred category, or have you done enough drilling to put them into M&I?

Hi, Don. Yes, we do expect most, if not all, will still be in the inferred category. While we're doing the 30 by 30 drill spacing now, the database is now closed, and so most of it will still be in inferred.

Okay. Okay. When we look at the magnitude of the ounces in this resource, how should we view that in the context of what you might need to support a go-forward decision in developing Cocoriquita? In other words, what would your sort of threshold be on a preliminary basis? This is a large enough endowment to build a mine.

Yeah, I think what we're going to do is focus on putting out the maiden resource, and then most likely early in 2024, we're going to be continuing with the PEA, which will define exactly, I think, what you're getting at and will define the potential economics of the deposit. I would say it's a little early to say, but based on our initial views is that we have a strong standalone project at this time that will be further supported by a PEA next year.

Okay, look forward to that. And would the PEA be based on the resource estimate that's coming out in December? And when do you expect the next resource update to follow?

We're actually still determining whether or not the PEA will be based on the December resource. As of now, yes. but we're in the process of looking at that timeline.

Okay, great. We'll look forward to that. Just shifting over to Adetepe then, we've seen from your three-year guidance that production can start at ease, costs are still very attractive, but when would you expect Adetepe to be depleted? I'm looking at the technical report. It's hard to know. There's been some changes in drillings. Is it 26, 27, 28 or later?

Hi, Don. In the January update to the Life of Mine Plan, based on the drilling that we've done to that point, we continue to say that we anticipate the final year of operation of EDITEP to be 2026. I would say at this point, Given what's going on, it's quite likely we might add months to that, but I do not at this point anticipate adding years. However, we continue to do exploration. Make the assumption that success with exploration would have some gap in operations before we have the permits and the necessary other things required to actually bring that into a continuing operation. So we would anticipate a gap in operations.

Okay. Thank you. Very helpful. Good luck with the rest of the year. That's all for me.

Thank you. One moment for our next question. This question comes from the line of Eric Windmill with Scotiabank. Your line is now open.

Great. Thanks very much for taking my question. Maybe just a quick question on the smelter. I know you've said it's non-core and just wondering, you know, are you looking to maybe sell it if there's a process in place or, you know, what's the kind of threshold you would look at to actually make a sale transaction? Are there any limiting factors, you know, in-country? I'd be interested to hear any more thoughts on that, please.

Yeah, great question. So we've said repeatedly that it's non-core, and also we've confirmed now that we are not intending to send more concentrators. So clearly this is more of a distraction than a core asset for us. I don't want to talk about what's going on with any processes in future action, but what I would say is that we continue to have conversations with different groups, and these sort of increased over time, largely focused on the critical minerals that are on the property, particularly gallium and germanium. So more than that at this point, I don't particularly want to comment. In terms of constraints within country, I think it's clearly recognized that this is not a core asset for us. I just want to make it very clear that we think Namibia is an excellent place to do business. And during our 13 years in country, I really appreciated the transparency within which Namibia goes about its business. So it's a good environment for us. It's quite simply that. The particular asset at the moment is really on the extreme of what we're doing as a business. I want to make sure that we carry on with our capital investments towards gold mining and not towards smelting.

Okay, great. Very helpful. I appreciate that. Maybe just another question on treasury management, higher interest rate environment. The interest income is becoming a lot more material for your growing cash balance. Any commentary in terms of how you're managing that What you're seeing there, I assume most of it's probably in short-term instruments. Are you looking to invest some of that longer-term?

Your comments would be appreciated. Hi, Eric. Yeah, we take a very risk-based approach when we think about our cash, and we generally invest in short-term, low-risk investments. So we're not at this point considering investing you know, to enter into any type of, you know, longer-term type of arrangements that might result in more yield. So, again, it's a very, very risk-based approach that we take for our cash management. We also look at the upcoming business and the requirements of the business in order to plan accordingly. And as you would have seen, we've been very disciplined in our capital allocation, you know, returning a portion of that to shareholders in the form of dividends and share buybacks while maintaining enough to kind of sustain the business and also with a view of the projects that are up and coming, keeping in mind of that as well.

Okay, great. No, that's helpful. Thank you. And I guess lastly on the dividends, any thoughts or discussion around possibly increasing the amount of dividends?

Not at this point, Eric. When we increased the dividend to $0.04 per share per quarter in 2022, it was with a view of the longer term. And so we wanted to make sure that we had a dividend that was sustainable for the business. And we feel at this point that that's the right level.

Okay, fantastic. Noel, thanks for the commentary. Appreciate it. Have a great day. Cheers.

Thank you. One moment for our next question. The next question comes from Wayne Lamb with RBC. Your line is now open.

Yeah, morning, guys. Just wondering on the cash cost at SUMEB, we've seen some level of improvement with the optimizations over the past year, offset by some of the maintenance items. I guess looking at the three-year outlook that had been provided, the guidance was showing a sequential decline in costs over the next few years. I'm just wondering if that is still the plan, if that's still achievable at SUMEB?

Yeah, hi Wayne. Yes, absolutely. I think, you know, if you recall, the smelter's costs, about 80 to 90% of the costs are fixed. So the natural way to reduce that cost per ton, I should say, is by increasing throughput. And as you would have seen, we just got through our annual maintenance shut to service the Osmalt Furnace this past quarter. And we expect, despite notwithstanding the fact that we believe that we're going to be below our guidance for the year, we expect that that shutdown and that maintenance work will lead to increased throughput. And the best example of that perhaps would be last year in 2022 when we serviced the first and second quarter, we saw a significant uptick in the third quarter of last year. So again, that should give you some indication as to where we think throughput will be for the smelter. And if we can sustain that level of throughput, the cost being majority fixed should come down into the level that we've outlined in our three-year outlook.

Okay, great. Thank you. And then just wondering on the continued advancement at Lona Larga, with the elections kind of wrapped up in country, is there any assistance that can be provided from a government regulatory perspective, or is this kind of purely... you know, a legal thing and something that has to move through the legal process and just gaining more clarity on the consultation.

Yeah, I think we're respecting the legal processes and clearly, you know, there's work that's got to be done there and time required. We do take advantage of a number of different sort of levels of support. within Ecuador and outside of Ecuador. Having said that, I think the primary thing at the moment is that they just had a new election, a new president in place, and putting together the ministries. And really, we need that traction with a new government, with the assembly, the new president, plus the ministers in order to engage, to be able to look at what we can do. There's some possibility we can resume different activities. Now, what I would say is, and we didn't mention it in the commentary this morning, that the items like the 69KV line, which are separate to what's currently held up by the constitutional protective action, those things have been continuing. We just completed the two-week consultation process, and at the moment that, under the auspices of the government organizations, is actually being reviewed at the moment, and we're anticipating moving to get an EIA issued for that. the roads would be similar. So really the constitutional protective action is more around what's happening directly on the property and looking to move that EIA forward. So at this point, we've seen some delay with the different machinations around the change in government. We're optimistic to see what the new government will do and looking forward to engaging with the ministry. And just to close the loop on that, we will be talking to groups internally and externally who are helping to get the right message across of our capability and country and the value that we can create.

Okay, great. Thanks. And then maybe just lastly on the increasing cost of Chalpeche, I mean, obviously part of that is due to the lower copper price, but how much pressure are you seeing on labor and consumables? And then on the lower treatment and freight charges directing concentrate to the third-party smelters, Is there a level of cost savings that you can provide on those charges going forward?

Yeah. The first question was on labor and consumables. What was the second question? Just on the treatment and freight charges. Treatment and freight charges. Okay. Got it. Okay. So I'll answer the first one, and then I'll deal with the second one. So on the labor and consumables, we have been, on labor costs specifically, we have been seeing, as we've seen with the inflationary environments across the world, increases when it comes to labor, and those are usually a bit more of a stickier cost when it comes to dealing with those types of costs. On the consumable side of things, we've actually seen improvements relative to our budget for the year on direct consumables. So for example, electricity costs have actually trended low over the past year, We've not, in the early part of the year, we didn't even need to use the subsidy, essentially, in Bulgaria. We were actually, energy costs were trading below the subsidy level. And other costs, we are seeing benefits in cement and reagents, reductions there as well. So relative to budget, we've actually enjoyed, you know, better than expected costs, you know, lower prices. Hence why, you know, from a cost per ton basis for both Atatepe and Chalapach, we are trending towards the lower end of that relative to our guidance. On the treatment charges themselves and the freight, yeah, certainly with SUMEP, there is an arrangement between Shell Pesh and SUMEP that sees the materially higher treatment charges, and there's an additional amount of freight as well in terms of the shipment there. And that's why during this particular, in this current quarter, we see significant treatment charges and freight. But as Dave mentioned, we are in Post this quarter, all of Chelapecha's material will be shipped to third-party smelters, which we enjoy much favorable treatment charges and lower freight charges, albeit at the expense of a bit of the payable production or payable ounces. But overall, that's been our strategy, has to divert more of that production and going forward all of our production from SUMEB to third-party smelters to benefit from those lower prices.

Okay. On those charges, though, is there a level of cost savings that we can kind of look towards in terms of modeling? Yeah.

I think the best way to look at that would be, you know, look at the treatment and freight charges this quarter and compare that to what you would have seen in the second quarter. And you can see that in our reconciliation of all the sustaining costs in the back of our MD&A. And the difference there is about $12 million in total. And again, I would suggest that from a payable production perspective, it's probably about 2% change in your payable gold, I would model.

Okay, perfect. Thank you. Thanks for taking my questions.

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

Well, thank you everyone for joining us today. We look forward to catching up with you in the next couple months and we'll see you next quarter. Thank you and take care.

Thank you for your participation in today's conference. This does conclude the program and you may now