Dundee Precious Metals Inc.

Good day and thank you for standing by. Welcome to Dundee Precious Metal 4th 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 will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference to Jennifer Cameron.

Thank you and good morning. I'm Jennifer Cameron, Director of Investor Relations, and I'd like to welcome you to Dundee Precious Metals' fourth quarter and year-end 2023 conference call. With me today are David Ray, President and CEO, Navin Dial, Chief Financial Officer, as well as members of our Senior Manager team who will be available to take your questions. Before we begin, I'd like to remind you that all forward-looking information provided during this call is subject to the forward-looking qualification, which is detailed in our news release and incorporated in full for the purposes of today's call. Certain financial measures referred to during this call are not measures recognized under IFRS and are referred to as non-GAAP measures or ratios. These measures have no standardized meaning under IFRS and may not be comparable to similar measures presented by other companies. 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 the call are related to continuing operations and have generally been rounded. References to 2022 pertain to the comparable periods in that year, 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. Overall, the leadership team at DPM is very proud of what our global team achieved in 2023, which was an exceptional year for the company. We delivered strong operating results and robust free cash flow generation, significantly increased our return of capital to shareholders, and further strengthened our balance sheet, providing an exceptional platform for our future growth, which we significantly transformed during the year. Today, Navin and I will provide a brief update on our Q4 and year-end results and discuss why we believe that DPM continues to be well-positioned to deliver value to all of our stakeholders now and over the long term. I will also outline why we are excited about what lies ahead for DPM in 2024. Looking back at the past year, I'm pleased to report that in 2023, we continued our strong track record consistent performance at our operations. We produced approximately 296,000 ounces of gold and 31 million pounds of copper. And despite industry-wide cost pressures and lower copper prices, our all-in sustaining cost was $849 per ounce, which was within our guidance. We generated $228 million in free cash flow and significantly increased our return of capital to shareholders, returning $96 million or 42% of our free cash flow to share buybacks and dividends. We ended the year in a strong financial position with $595 million in cash and strong liquidity, including an undrawn $150 million revolving credit facility and no debts. Importantly, we continued to deliver on our ESG priorities and scored in the 91st percentile among metals and mining companies in the S&P Global Corporate Sustainability Assessment for the third consecutive year. During the year, we also significantly transformed our growth pipeline, which the Csoka Rikita project in Serbia and the acquisition of Acino Resources, which is targeted to close in the second half of the year, subject to certain approvals. Looking at our operations in more detail and starting with Chalipetch, our largest mine continued its track record of strong performance in 2023, producing approximately 162,000 ounces of gold and 31 million pounds of copper within our guidance for the year. In November, we announced an updated mineral reserve and resource estimate, along with an updated life of mine plan with improved grades and recoveries, continuing our consistent track record of extending Chalipetch's mine line. Today, Chalapetch has a life of mine that extends to 2032 based on mineral reserves, has a strong mineral resource base, and significant opportunities to continue our track record of mine life extensions, including Chalapetch North, which used to be known as Sveta Petka, where we received our commercial discovery certificate in Q4. In 2023, we continued our in-mine exploration program, as well as aggressive brownfield explorations. We continued drilling at Charlotte Dairy West and Charlotte Dairy Prospects, which demonstrate additional resource potential, and these are within the concession and close to existing infrastructure. Turning now to Adetepe, the mine achieved a new gold production record in 2023 at 134,200 ounces. All in sustaining costs were particularly impressive at $500 per ounce of gold sold and were below the low end of guidance for the year. In the fourth quarter, we continued the target delineation campaign and scout drilling at the new Kramovica exploration license. Scout drilling of several epithermal sediment-hosted targets was advanced during the quarter and is planned to continue in the first quarter of 2024. In 2024, we plan to spend a total of $3 million to $4 million of groundfield exploration activities and approximately $2 million in greenfield exploration at Atatepa. Last night, we announced that in 2023, we decided to undertake a strategic review of our SUMET asset, including a potential sale of the smelter. To provide some context around that announcement, we acquired SUMET in 2010 as a secure processing outlet for the complex concentrate produced by Chalapeche. With developments in the global smelting market, we've been able to place Chalepetch concentrate at several other third-party facilities, providing secure and reliable processing at favorable terms without the need to own and operate the smelter. Therefore, we do not expect to process any Chalepetch concentrate at SUMEB commencing in 2024, and the smelter, therefore, is no longer seen as a strategic asset within our portfolio. In 2023, SUMA processed approximately 188,000 tons of complex concentrate, which was below 2023 guidance. This was a result of unplanned downtime in the off-gas furnace system in the first three quarters of the year, and we extended our shutdown in order to complete repairs to that off-gas system. However, in the fourth quarter, we got the benefit of that work with sumo processing approximately 68,000 tons of complex concentrate, which was a near record level of performance, a very large improvement over the prior three quarters due to the repair of those off-gas systems. Over the course of 2023, we significantly transformed our growth prospects. In December, we announced that we had entered into an agreement to acquire Acino Resources and the Advanced Stage Twin Hills project in Namibia. which has the potential to add near-term growth to our portfolio. The transaction is subject to a senior shareholder approval and Namibian competition approval. Also in December, we announced the initial mineral resource estimate for Chocoriquita, which marked a significant milestone for DPM's future growth and confirmed Chocoriquita's potential as a high-quality gold project. Since we announced the initial discovery in January of 2023, Chocoriquita has rapidly grown into a 1.8 million ounce deposit at 5.6 grams a ton, a remarkable achievement over such a short period of time. We're continuing to accelerate the project through our development pipeline, including advancing a preliminary economic assessment, which we expect to complete in the second quarter of 2024. We'll be targeting throughput rates of 850,000 tons per annum. The project is located approximately 35 kilometers from the city of Bor in Serbia, is proximal to existing roads and power lines, and is approximately 320 kilometers northwest of DPM's Chelyabinsk mine in Bulgaria, which will allow easy access to existing technical support capabilities. Choker Rakuta is a strong fit with our underground mining and processing expertise, with metallurgical test work demonstrating gold recoveries of approximately 90% by gravity concentration and conventional flotation. We're excited by Chocoraquita's potential in a region where we've had a presence for many years and where we've developed strong relationships with local stakeholders. We're also planning to continue progressive exploration at Chocoraquita and the surrounding licenses to generate new discoveries. Scout drilling near Chocoraquita continued in forked water, intercepting favorable geological indicators in the north and northwest flank of the system, where additional marble-hosted scar mineralization was encountered. In the fourth quarter of 2023, we were granted two new exploration licenses covering the area hosting the TMOK Gold Project. We are currently preparing an aggressive exploration program and plan to start testing SCARM targets on the new Potash Kuka exploration license located to the north of Choca Rikida, as well as the new Pestajur exploration license, which is to the west of Choca Rikida. This program is expected to commence in early 2024, pending approval of work programs and permitting procedures, with approximately 25,000 metres of drilling planned for the first year of exploration on these targets. 2024, we plan to spend a total of around $20 million for exploration activities in Serbia. Turning to Loma Lago in Ecuador, we continue to progress activities related to permitting and stakeholder relationships. In October, a new president was elected, and we are working with the newly formed government to fulfill the requirements of the August 2023 ruling, which found that free prior and informed consultation of certain local indigenous populations must be carried out by the state. That ruling also required 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. and these will be delivered by the ministry to the court to advance the project to the exploitation phase. In line with this ruling, the government commenced the environmental consultation process in January. DPM will continue to support the government of Ecuador and proactively engage with stakeholders to fulfill the conditions established by the court. As previously reported, DPM will continue with the optimization phase of the feasibility study beyond the previously stated timeline ending in 2023. This in order to evaluate additional opportunities and potentially incorporate the results of drilling once these activities are able to recommence. We will continue to take a disciplined approach with respect to future investments in the Loma Laga project, which will be based on the receipts of key milestones, the overall operating environment in Ecuador, and our other capital allocation priorities. At the tier of Colorado's concession, which is located 200 kilometers south of Loma Laga, In Ecuador's local province, we continued the 10,000-meter drilling program, which commenced in August. 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. In closing, we're entering 2024 in the unit position. We have strong and consistent production from our operations and an all-in sustaining cost that ranks among the lowest in the gold industry. We have significant free cash flow generation, a record of disciplined capital allocation and returning capital to shareholders. We have attractive development projects, proven exploration success, and the financial strength to internally fund our growth pipeline and exploration prospects, as well as continuing to return capital to shareholders through our quarterly dividends. We've got continuing ESG performance and an impressive track record of securing our social license and a very strong technical team with a history of adding real value through innovation. I'll now turn the call over to Navin for a view of the 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 and year. I'll also provide an overview of our 2024 guidance and updated three-year outlook. And I will conclude with some commentary on our balance sheet and return of capital program. A few considerations include the announced agreement to acquire Ocena Resources Corp. and its advanced-stage Twin Hills Coal Development Project, which offers near-term production growth to supplement the decrease in production at Atatepe as the mine comes to the end of its life, and a significant exploration package in Namibia. And the company's decision to undertake a strategic review of its sumo operation, including a potential sale, given that the smelter is no longer seen as strategic to DPM's asset portfolio. As a result of this decision, the assets and liabilities of SUMEP have been presented as held for sale in the company's balance sheet as of December 31st, 2023, and the operating results and cash flows of SUMEP have been presented as discontinued operations in the consolidated statements of earnings and loss, and cash flows for both of the years ended December 31st, 2023 and 2022. by a remarkable focus on highlights from continuing operations only. Looking at our financial highlights from the quarter and year, we achieved consolidated production and costs in line with our guidance and delivered strong financial results. We generated $139 million of revenue in the fourth quarter, a 23% increase compared to the prior year due primarily to higher volumes and realized prices of gold sold. For the year, revenue was $520 million, 20% higher than 2022, due primarily to higher volumes and realized prices of gold sold, and lower treatment and freight charges at Shell Apache, partially offset by lower volumes and realized prices of copper sold. Adjusted net earnings were $50 million for the quarter, a $28 million increase compared to the prior year, due primarily to higher revenues from gold sales. This was partially offset by higher planned exploration and evaluation expenses. In 2023, adjusted earnings were $180 million, $61 million higher than the prior year due primarily to higher revenues from gold sales, lower treatment and freight charges at Celepec, and higher interest income. This was partially offset by higher planned exploration and valuation expenses, where we increased spending following positive results from our exploration programs in Serbia and Bulgaria. Cash flows from operations of $71 million for the fourth quarter and $262 million for the year were higher than the prior year due primarily to higher adjusted EBITDA. During the fourth quarter, free cash flow was $49 million, $19 million higher than the prior year, due primarily to the same factors impacting cash flow from operations and lower cash outlays for sustaining capital. For 2023, we generated $228 million of free cash flow, a 51% increase compared to 2022. In terms of cost metrics, we achieved our all-in sustaining cost guidance for the year. In the fourth quarter, all-in sustaining costs was $876 per ounce of gold sold, 13% lower relative to 2022, with higher volumes of gold sold, lower cash outlays for sustaining capital, higher by-product credits, and lower prices for power, partially offset by a stronger euro relative to the U.S. dollar. In terms of our capital spend, we were in line with our guidance for both sustaining capital and growth capital expenditures. Looking at the fourth quarter, sustaining capital expenditures were $8 million, 38% lower than the prior year of $13 million due primarily to the planned upgrade of the tailings management facility at Shell Apache, which occurred throughout 2022 and was completed in the second quarter of 2023. Growth capital expenditures of $10 million for the quarter primarily related to the Loma Larga Gold Project, which were comparable to the prior year. Last night, we provided an updated three-year outlook, which has been outlined in detail on slide 16 of the webcast. We are forecasting strong gold production, averaging approximately 240,000 ounces annually over the next three years. Our three-year outlook forecasts a reduction in 2026 as Atatepe reaches the end of its mine life. Copper production over the next three years is expected to average approximately 33 million pounds per year. with higher production expected in 2025 in line with the Chilipetch updated life of mine plan. We are forecasting slightly higher all-intestining copper crowns and gold sold in 2024 relative to our previous three-year outlook. This is partially due to a change in our copper price assumption, which we lowered to $3.75 per pound, or $4 per pound in our previous outlook. Our revised outlook also reflects lower volumes of copper sold in 2024 and higher local currency operating expense. Our sustaining capital is trending lower over the next three years, largely reflecting the fact that Atatepe is nearing the end of its mine life. Our 2024 guidance and three-year outlook does not yet reflect the acquisition of casino resources. We continue to build our financial strength, ending the quarter with $595 million of cash on the balance sheet. During the year, we bought back 9.7 million shares through our NCIB program and paid $30 million of dividends, returning a total of 42% of our free cash flow to shareholders. We also intend to renew the NCIB, providing us with the flexibility to pursue additional share repurchases, depending on our financial position, the outlook of our business, and ongoing capital requirements as we advance our growth pipeline, as well as our share price and overall market conditions. We are currently reviewing our capital allocation strategy with a view to balancing between the capital required to fund our growth and returning capital to shareholders through dividend distribution and future share buyback. Today, with our strong cash position, no debt, and a $150 million undrawn credit facility, we are in a unique position among growing gold producers. We have the ability to fund our development pipeline internally while continuing to pay a quarterly dividend. With that, I will now turn the call back to the operator for Q&A.

Thank you. And as a reminder, to ask a question, press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. One moment for our first question, please. That is star 1-1 if you have a question. Our first question is from Wayne Lamb with RBC. Please go ahead.

Oh, hey, morning, guys. Just curious at Twin Hills, can you kind of walk us through what we might be able to expect with the results of the optimization study? And then is the majority of the work being done to normalize the capex and cost savings versus the OCINO study, or are there additional upside scenarios kind of being evaluated here in terms of higher grade or additional material outside of the main bulge in central deposits?

Hi, Wayne. Good morning. Sorry, my voice is breaking up a little bit. Excuse me. There's not really much to update at this point on twin OILs. Obviously, you know, we are cognizant of opportunities in terms of grade, you know, mine plans and sequence capital, but all of these are for future communication. I think at this point we're still in a position where we're waiting for the shareholder meeting. And while we have some contact, we're not really in a position to talk about updating anything to market.

Yeah, understood. Looking forward to the closing of that transaction. Maybe moving to SUMEB, can you give us a bit of insight around the strategic review and what the timing could look like there? And then just on the Chalapach ore, you guys have done a lot of work to divert the concentrated third parties over the past year. Can you give us kind of an idea of what those agreements might look like in terms of tenor for the place in that ore and what What kind of gives you the confidence that you can kind of do without SUMEV now?

Okay, a few different things. In terms of the process, we've been at this for a little while. We've looked broadly at the type of groups that might be interested in the smelter, and there are a broad range of different groups, including those directly focused on smelters. perhaps those who are concentrate traders, perhaps those who might be interested in some of the historical work around the site, which has left copper in entries and old tailings and things like that. So that process has been fairly broad-ranged, and we've obviously got to the point where we feel there is something that we have confidence in that we can conclude. In terms of the timing, it's not appropriate really to give you anything on that at the moment, but just to say that That was a deliberate step that we took to place this in an asset held for sale, and I think just watch this space. In terms of confidence on our placement of concentrate, all the way back to 2013-2014, we've been placing concentrates in different smelters globally. To this point, we have more than five different facilities where we can place that concentrate. and that gives us the confidence that we have the ability to do that without requiring the fallback of our own smelter in terms of the 10 at the bottom line there is that it makes sense for us to you know if you compare relative to the smelter we would consider a percentage of gross metal value payable. And the bottom line is that these models are all quite different in terms of the treatment terms that they give us between payable TCs and this type of thing. And I can't really give you a number that is a direct comparable to say that it makes a difference. If you look back at the updated life of mine plan, not the last one, but the one prior to that with Chelapec, you can see the difference that it made in terms of the outlook for Chelapec. So it's material And that has sort of led us to the point where last year we only had one quarter of production from Chelapeche going to the smelter, and this year planned nothing. So, Madison, do you want to add anything?

Sure, yeah. The tenure for the contractor is typically three years, and they continue thereafter with a one-year cancellation notice.

Okay, great. Thanks. And then maybe just the last one. I'm just curious that Tierra's Colorado, you guys had some really interesting exploration results early last year, but It seems to have been relatively quiet since then. Have the issues at Loma Larga impacted your willingness to spend more aggressively on drilling there, or is that just the function of focus being diverted a bit now, giving the emphasis at Chocoraquita and now Twin Nails?

I think the drilling was the prior year, and what happened from that drilling, we decided to do some additional work. Initially, the scope of that was less focused, than what we ultimately wanted to do. So we were talking a couple of thousand meters, I think, to 3,000 meters, and we ended up with 10,000 meters that we targeted. It took a little while to get that in place, but that's got nothing to do with what's going on at Loma Lago. You just have practicalities to go through in terms of making sure that everything is okay with permitting, making sure that the local communities are on site, and then you've got to go and get contracts in place, and it's in a different jurisdiction. There's some different groups, and you've got to hire people in order to make it work. So it was just a straight practicality. Now, this is in Lokap province, so it is different from Izwa. And there's nothing preventing us from drilling. So what we did at the end of last year is we had some of our key people that have been the drivers at Choka Rikita out to this area to have a look at what are we targeting and are there other opportunities there that that we didn't consider when we came to that initial 10,000 meters. So the bottom line is that the work is actually progressing at the rate that we can in an area which is actually quite difficult to access. It's also not a flat terrain. You have to be very careful in terms of thinking through what you have to do. We've included some of the thinking that's generated success at Choca Raquita in what we're looking at this year. But largely it's been down to just the pace at which we can deliver that work. There were some very interesting numbers early on. We're continuing to draw. We have about 6,000 meters of the 10,000 meters done, and we would anticipate completing that within the second quarter of this year.

Okay, perfect. Thanks for taking my questions.

Thank you. One moment for our next question, please. And it comes from the line of Don DeMarco with National Bank Financial.

Thank you, Operator. And good morning, Dundee team. First question for David and Navin. So with SUMEB now classified as an asset held for sale, I see in the reporting last night it said net assets of $45 million. Do you think that this magnitude is indicative of a price that the asset could garner in the event of M&A?

Hi, Don. Navin, yeah, at this point we're not going to comment on potential price that we might receive for this. This is something that obviously is you know, would be coming out at a later time.

Okay, fair enough. Well, thanks for the information last night anyway. Looking to Atatepe, two-fourth grade, 7.5 grams per ton. Now, Atatepe has really been running hot on grades for a while now. We saw from the technical report mine plan had a grade of 6.28 grams per ton in 23, which is above the reserve of 5.19. The mine plan has it coming down to 5.52, but given that it's been running above mine plan, are you just getting good reconciliation here, or do you expect the grades to maybe soften a little more than expected in 2024?

Congratulations, Don, on a level of detail here that I don't think is necessarily the norm. Actually, we had something specific that we decided to do in Q4 that had nothing to do with um you know the overall plans or any changes so don't assume that's the norm don't assume that's the reconciliation uh there were some practicalities in q4 and it was largely around what was happening with water and we made a decision it would slightly alter our mind plan for purposes of q4 and we back to where we used to be so what will happen is that the outlook now is is as per what we had in the forecast for this year. But we had something that was driving the grade in Q4, and it wasn't to achieve a record production. If you look more closely, you'll see that what we did is we balanced the tonnage with the grade for the quarter. So we've not robbed anything, but there was a specific need for us to do something in Q4. Congratulations on smoothing that.

Okay. Well, that's great. And great to hear that the outlook, the mine plan for 2024 is intact. And congratulations on converting that higher grade to free cash flow in the quarter. And then final question. Okay, so balance sheet, $600 million in cash, $150 million on your facility. Can you just remind us when we're going to get CapEx updates for the potential development of Cocoa Rikita and Twin Hills subject to closing of the deal and so on?

Yeah, Don, it's Mike here. With respect to Twin Hills, what we indicated is we'd be updating the market following closing on that. And with respect to Choker Akita, we've undertaken a PA, which is on target for release in Q2. We'll be getting a CapEx update for Choker Akita then.

Okay. Thanks, guys. Good luck with the rest of the year. Thank you.

Thank you. One moment for our next question, please. And it's from the line of Eric Windmill with Scotiabank. Please proceed.

Great. Good morning, everyone. Thanks for taking my question. A number of my questions have already been answered, but maybe just following up on Adatepe, I mean, I know you said the asset was sort of nearing the end of its life. You know, 2026, it does look like maybe a bit of a stronger profile. Any comments here specifically in terms of the mine planning and, you know, what you're seeing in 26?

The forecast for the three years that we've just provided the assay is representative of what we expect. I think, as we've said before, that we anticipate there may be a couple of months of difference in the outlook for Adatepi as we get, you know, closer to the sort of residual amounts in 2026, but we're not anticipating it being more than a couple of months, so we do anticipate closure in 2026. As I said, the outlook for the next three years, that's up to date.

Fantastic. Thank you. Maybe just one more from me in terms of the other jurisdictions. I know you touched on Ecuador a little bit. Any other comments here in terms of Serbia or maybe Namibia? what's happening there in country and how that might shape your capital allocation in the coming years?

Yeah, so in Serbia, we continue to develop that project at a pace. Very, very good support from local and federal authorities. So very happy with what's going on there and great support from the local community. So not really seeing any changes there or expecting anything. We're just driving as hard as we can to get that project permitted so that we're looking for construction dates early in 2026. If you have a look at what's happening in Namibia, I presume what you're talking about there is the change after President Geingart passed away.

That's correct, and I know they've talked a little bit about strategic priorities, and I was wondering if it might have any impact.

I think the interesting thing about it is it really demonstrates just how good a jurisdiction Libya is. Within, I think, 16 hours of the announcement of the president's passing, there'd been a formation of the government and a new leader appointed with a vice president. And there was no noise or concerns or expressions of frustrations. So the population just accepted this. It was a logical transition of government. well managed, it was the first time anybody's passed away in that position in Namibia, so it's sort of an interesting test of the transition, and obviously I think it did extremely well. In terms of the current leadership, well known, well respected, very much in line with previous thinking, and the current vice president is the person that was previously nominated as the head of SWAPO, who would then expect to become the next president, so again, a level of continuity. So, you know, we like Namibia for a reason. It's demonstrated, you know, good governance, consistency and openness in terms of many of its activities. I don't know if that covers the question, Eric.

Yeah, perfect. I appreciate the added color. That's really helpful. So, no, great to see the cash balance continue to grow. And, yeah, I look forward to the updates. I'll hop back in the queue every day.

Thank you. And with that, we conclude our Q&A session for today. I will turn it back to Jennifer Cameron for final comments.

Well, thank you, everyone, for joining us. We look forward to talking to you next quarter. Should you have any additional questions, any member of our team is happy to help you out, so feel free to give us a call. Thanks.

And thank you all for joining our call today. You may now disconnect.