DPM Metals Inc

F:DPU0

Earnings Call Transcript

[Operator]

Good day, and thank you for standing by. Welcome to the Dundee Precious Metals Second Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jennifer Cameron.

[Jennifer Cameron, executive]

Thank you, and good morning. I'm Jennifer Cameron, Director of Investor Relations, and I'd like to welcome you to the Dundee Purchase Metals Second Quarter Conference Call. Joining us today are members of our senior management team, including David Rae, President and CEO; and Navin Dyal, Chief Financial Officer.

Before we begin, I'd like to remind you that all forward-looking information provided during this call is subject to the forward-looking qualification, which is detailed in our news release and incorporated in full for the purposes of today's call.

Certain financial measures referred to during this call are not measures recognized under IFRS and are referred to as non-GAAP measures or ratios. These measures have no standardized meanings under IFRS and may not be possible to similar measures presented by other companies.

The definition of establishing 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 a 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 2024 pertain to the comparable period in 2024, and references to averages are based on midpoint of our outlook or guidance.

I'll now turn the call over to David Rae.

[David Rae, executive]

Good morning, and thank you all for joining us. I'm pleased to provide you with an overview of our second quarter results to provide insights into our achievements during this period. Proud to report that DPM delivered record financial results during the quarter, including record revenue, earnings and free cash flow; results which reflect reliable high-margin production from our portfolio and the strength of the current gold price environment.

This has been a defining quarter for DPM, not only in terms of our record results, but strategically as our proposed acquisition of Adriatic announced in June, creates a premier mining business to deliver peer-leading growth.

The response to the proposed transaction from both our investors and the broader market has been notably positive, which I believe highlights the clear strategic merits of the deal. The Vareš operation is an excellent fit with our operating expertise and financial strength, and its addition to our portfolio offers a clear and compelling value proposition for all of our shareholders. This represents a key next step in our growth strategy and consolidates our position as a mid-tier precious metals producer.

The shareholder vote to approve the transaction is scheduled for August 13, and we've submitted the documentation for the Bosnian Merger Council. We continue to anticipate closing the transaction in the fourth quarter.

Turning now to the highlights from the second quarter, which include solid production of 61,000 ounces of gold and 6.4 million pounds of copper, generating strong margins with an all-in sustaining cost of $1,011 per ounce of gold sold compared to an average realized gold price of $3,334.

And we continue to consistently deliver free cash flow, generating a record $95 million during the quarter and further strengthening our financial capacity to fund growth. We also continue to advance our organic growth pipeline, which I'll touch on in a moment.

Looking at our operations in more detail, Chelopech performance was in line with the mine plan, producing 47,000 ounces of gold and 6.4 million pounds of copper, with an all-in sustaining cost of $682 per ounce of gold sold. Cash costs of $63 per tonne of ore processed were on target for the quarter, reflecting Chelopech's track record of solid, efficient operations. And the mine is on track to meet its 2025 guidance targets for the year.

We continue to prioritize in-mine and brownfields exploration work to further extend mine life at Chelopech, targeting a 10-plus year reserve life. During the quarter, results from initial drilling at the Wedge zone, deep target discovered a new zone 150 meters downhole of contiguous pyrite-rich, high-sulfidation mineralization. The target, which remains open in multiple directions, is located within the Northern flank of Chelopech within the mine concession and 300 meters below existing mineral reserves.

We're increasing the 2025 Chelopech exploration program in part to expand the scope of this mineralization and to define the geological setting and structural context. In addition, 12,000 meters of exploration drilling has been planned to test this target vertical extent and continuation along strike, as well as continuing to test the mineral potential of the shallow levels on the [ north, eastern ] and southern flanks of the Chelopech mine concession. Drill testing of newly generated targets has already commenced and will continue to year-end 2025.

Ada Tepe produced 14,200 ounces of gold with an all-in sustaining cost of $1,166 per ounce of gold sold. As we guided at the beginning of the year, Ada Tepe production is expected to nearly double in the second half of the year compared to the first half due to self-sequencing in the IMWF. With higher production expected in the second half of the year, Ada Tepe is on track to achieve its guidance.

We continue to focus on developing quality assets, and our growth priority is advancing Coka Rakita to production, which is targeted for 2028. The feasibility study is advancing as planned and is expected to be completed by year-end. Most of the surface and underground geotechnical and hydrogeological drilling is now complete.

Activities planned for the remainder of 2025 in support of a construction decision in mid-2026 include progressing the design to the basic engineering level, advancing the project execution readiness and commencing operational readiness activities, leveraging Coka Rakita's regional proximity to Chelopech to train and develop key personnel for operating roles.

In parallel, permitting activities continue to advance. We submitted the final report on mineral reserves and mineral resources, known as the elaborative reserves, to the relevant authorities in the first quarter and continue to engage with relative stakeholders regarding the spatial plan.

In terms of cap-wide exploration, our drilling program focused on testing high-priority targets proximal to our Coka Rakita project, and that continues to yield results from a large prospective land package.

At Dumitru Potok, results are also continuing to confirm the presence of a large high-grade copper, gold, silver storm system, with mineralization concentrated along both the eastern and western side of an intrusion.

Based on drilling to date, mineralization has been detected over a 1-kilometer strike length up to 300 meters vertically and up to 500 meters away from the intrusion. The drill program continues to expand the Dumitru Potok discovery announced in February 2025, and we have yet to define its limits as it remains open in multiple directions and at depth.

We're also advancing drilling at the Rakita North and [ Bayasaka ] prospects and look forward to providing further updates on our progress, likely in the third quarter.

At the Loma Larga project in Ecuador, we achieved a significant milestone with the receipt of the environmental license in June. This follows the successful completion of the prior informed indigenous consultation process in May and is the result of a rigorous process by the government to ensure high Ecuadorian standards are applied in the development of mining projects.

Negotiations for the exploitation agreement have been initiated, and we're also planning a 23,000-meter drilling campaign for Loma Larga. This program will prioritize geotechnical and hydrogeological monitoring holes as well as metallurgical and resource infill drilling and is expected to commence in Q3.

Overall, we continue to deliver strong results and with both mines on track to achieve our 2025 guidance and execute on our strategy to deliver above-average returns for our stakeholders.

I'll now turn the call over to Navin for a review of the financial results.

[Navindra Dyal, executive]

Thanks, Dave. I'll be touching briefly on the financial highlights for the quarter, provide an update on how we are tracking to our guidance for the year as well as any changes included with some commentary on our balance sheet and return of capital program. All of my remarks will focus on results from continuing operations, unless otherwise noted.

Looking at our financial results, second quarter highlights included revenue of $186 million, adjusted net earnings of $88 million or $0.52 per share. Cash flow provided from operating activities of $100 million and free cash flow of $95 million. Overall, we saw record financial results during the quarter, which reflected our strong operating performance, the low-cost nature of our operations and a favorable commodity price environment.

Looking at our earnings and cash flow in more detail, revenue of $186 million in the quarter was 19% higher than 2024 due to higher realized metal prices, partially offset by lower volumes sold at Ada Tepe.

Adjusted net earnings in the second quarter of $88 million or $0.52 per share increased compared to the prior year, due primarily to higher revenue and lower valuation expenses as a result of costs related to the Coka Rakita project now being capitalized due to the project's advancement to the feasibility study stage. This was partially offset by higher costs, primarily related to higher mark-to-market adjustments to share-based compensation expenses, reflecting DPM's strong share price performance this year.

Cash flow provided from operating activities of $100 million for the quarter was lower than the prior year, mainly due to the timing of collections from sales and payments to suppliers. Free cash flow, which is calculated before changes in working capital, was $95 million for the quarter, an increase of $12 million compared to 2024, due primarily to higher adjusted net earnings generated in the quarter.

Taking a look at our cost metrics, all-in sustaining costs for the first half of the year of $1,118 per ounce of gold sold was 41% higher than the prior year, due primarily to lower volumes of gold sold, higher mark-to-market adjustments to share-based compensation expenses, lower by-product credits reflecting a lower volumes of copper sold and a stronger euro relative to the U.S. dollar; all partially offset by lower freight charges.

Given our strong share price performance in the first half of the year, the mark-to-market adjustments to share-based compensation expenses resulted in an increase of $138 per ounce of gold sold compared to an increase of only $26 per ounce of gold sold in 2024.

We reconfirmed our 2025 guidance for all-in sustaining costs of $780 to $900 per ounce of gold sold with lower cost per ounce expected in the second half of the year commensurate with the nearly doubling of production from Ada Tepe, keeping in mind that our all-in sustaining cost guidance remains subject to external factors such as the mark-to-market impact of DPM share prices as well as metal prices and foreign exchange movements relative to our guidance assumptions.

In terms of our capital spending, sustaining capital expenditures of $6 million for the quarter were lower than 2024 due primarily to lower expenditures on mobile equipment at Chelopech as expected, partially offset by higher deferred stripping costs as a result of higher stripping ratios at Ada Tepe in line with the mine plan.

Growth capital expenditures of $16 million for the quarter were higher than 2024 as a result of costs related to the Coka Rakita project being capitalized from the beginning of 2025. Last night, we provided an updated 3-year outlook, supporting our continued focus on funding our high-quality organic growth pipeline while maintaining our portfolio of high-margin operations, which has generated our exceptional track record of delivery.

The 3-year outlook remains unchanged, except for the following updates to the company's guidance for 2025: Growth capital expenditures related to the Loma Larga project are now expected to be between $23 million and $25 million, up $11 million due to primarily the receipt of the environmental license for exploitation, representing an important milestone, allowing the company to resume drilling at Loma Larga.

In addition, based on positive results, exploration expenses are now expected to be between $44 million and $49 million, up $8 million to support exploration activities associated with near-mine exploration on the Chelopech mine concession and drilling at the Brevene exploration license.

The company's 3-year outlook does not reflect the potential impact of the proposed acquisition of Adriatic. Upon closing of the transaction, we intend to update our production and cost guidance along with other key operational and financial metrics to incorporate the contribution of Adriatic on a gold equivalent basis. This approach ensures our guidance remains transparent, reliable and aligned with the timing of the transaction.

We continue to maintain a strong balance sheet and cash flow position with a consolidated cash balance of $332 million, restricted cash pursuant to the agreement to acquire Adriatic of $465 million, no debt and a $150 million undrawn revolving credit facility.

Given the strength of our balance sheet and our positive outlook for continued strong free cash flow generation, we are in a unique position with the financial flexibility to fund growth opportunities such as the acquisition of Adriatic and our investments in our development and exploration activities while continuing to return a portion of our free cash flow to our shareholders in line with our commitment to capital discipline.

In the first half of 2025, we repurchased 10 million shares at a total cost of $116 million under the company's normal course issuer bid, or NCIB, and paid approximately $14 million of dividends.

In closing, we continue to deliver strong performance from our mining operations. We are focused on growth, and we're in a strong cash position to achieve our guidance and continue our track record of generating significant free cash flow.

I'll now turn the call back to Dave for his concluding remarks.

[David Rae, executive]

Thanks very much, Navin. Overall, we continue to deliver -- sorry, excuse me, this is an exciting time for DPM and our shareholders, as we look to our future as a growing precious metals producer, offering a peer-leading development pipeline, a strong balance sheet and capital returns, all of which are underpinned by our exceptional operational track record.

Our portfolio is generating solid consistent results, and we are very well positioned as one of the lowest-cost and highest-growth producers. We're generating strong free cash flow and delivering peer-leading returns to shareholders. We're progressing Coka Rakita and its feasibility study for an accelerated construction decision.

We have substantial financial strength to fund growth opportunities and exploration. And we're focused on executing our strategy to deliver above-average returns for our shareholders as a mid-tier precious metals company. DPM has a clear path forward, and we're very excited about our future.

I'd now like to open up the call for any questions.

[Operator]

[Operator Instructions] Our first question comes from Wayne Lam with TD.

[Wayne Lam, analyst]

Just a question on the Adriatic deal. Obviously, you guys have done a lot of work around the due diligence process with the independent study in conjunction with the acquisition.

Just wondering if you can maybe comment on the most recent update there and the revision guidance post the announcement. And then just curious, in the month leading up to the closing, how much input or influence will you have in terms of the operations, given your reinterpretation of what's needed to get the mine to a steady state?

[David Rae, executive]

Yes. Thanks for the question, Wayne. First of all, the update in the second quarter, that changes nothing on our view on Vareš. We anticipated and made our own assessments of what we expected in this line.

In terms of your second question, which was what's going to happen just ahead of closing, it's important we recognize that we need to operate as independent companies. And while we are talking about things that we might do technically and opportunities in terms of learning for Adriatic reserve, it is their decision as to whether they do or do not take advantage of.

So we're maintaining an appropriate distance. But of course, we are talking about integration and how we might go about doing that. But as I -- just to repeat, we are separate companies, and we have to remain so until closing.

[Wayne Lam, analyst]

And then maybe at Ada Tepe, you guys have been fairly consistent in terms of guiding the wind-down in operation next year.

But just wondering, given the significant change in the gold price, particularly versus the $1,600 resource price assumption, would you see any possibility for additional material via an incremental layback? Or -- and then just maybe curious, if there might be any renewed potential to perhaps consider processing ore from other deposits within a reasonable truckable distance?

[David Rae, executive]

Yes. Wayne, in terms of -- obviously, we keep track of what's going on, and we make sure that whatever we're treating is economic at any point if the share price were to go the other way. Similarly, we understand what's going on in terms of what will happen with an increased share price. And the answer simply is no. So it's not going to change the outlook.

So we do keep track of that. We do anticipate that we will close out at the end of the second quarter of next year. And also, we're not considering the idea of using this as a custom mill treatment facility for other, let's say, potential mines.

[Wayne Lam, analyst]

Okay. Got it. And then maybe just last one. At Loma Larga, obviously, some good news here in terms of the environmental license. Just wondering with the restart drilling and the upcoming update fees, how quickly could that asset now be moved forward to a potential construction decision? And has the relationship with the community evolved where there would be fully onboard to greenlight the project if, say, you were to decide to build it tomorrow?

[David Rae, executive]

Okay. So we obviously need to go back to drilling. So starting with that. We have 22,000, 23,000 meters of drilling planned. This is going to be primarily focused on geotech and hydrogeological information as well as confirmation. So that's to support final decisions within the feasibility.

That's going to take, let's say, between the feasibility and the drilling somewhere north of 6 months for the information to be brought in. And then the reporting is looking at least another 6 months. So with some way out. So basically, watch this space in terms of what drilling is progressing and when we're actually ready to bring that into the feasibility study.

In terms of the second part, the relationship, this is an ongoing thing where you're continuing to develop the relationship with the local communities. And there are concerns that you have to address and overcome in the sense of people's perceptions of what might happen, which unfortunately are colored by other unfortunate situations with illegal and informal mining in country.

So we continue to build that. We have time until we get to a point where there is a construction decision and anticipate success in bringing forward all of our stakeholders so that we can start constructing and bring to fruition Loma Larga in good time.

[Operator]

Our next question comes from Fahad Tariq with Jefferies.

[Fahad Tariq, analyst]

Maybe just continuing on the theme of Loma Larga, now that you've derisked it with the environmental permit, you're doing some additional drilling in the second half of this year, maybe talk about how Loma Larga fits into the rest of the portfolio as a priority.

I mean it stands out a bit, I guess, geographically. And maybe think about, is that something that you think would be core to the portfolio longer term? Or is that something that you're looking maybe to monetize after it's been derisked some more?

[David Rae, executive]

Yes. Thanks, Fahad. So if we have a look at Loma Larga, so historically, we've been promoting this project at the pace that we can. There's been some necessary steps in terms of information that we needed to provide, which we've now completed and also the prior informed consultation, all of which have been completed and now successfully got the EIA in conversations with the government about the exploitation permit.

So in terms of fit, we've always identified this asset as a good fit actually with our skill set. And this -- some years back well before we acquired the asset back in 2021, clearly, in proximity of our existing operations, Coka Rakita and the other opportunities in Serbia and now in Bosnia and Herzegovina, these things obviously stand out in terms of the opportunity to realize value through proximity expertise of deployment of capital in this type of thing. But we do see Loma Larga as an asset that will bring value to the organization. So we'll continue to pursue that to a point where we're expecting to construct and operate. We will, of course, as we do with all of our assets, consider strategically what's the best thing for the organization going forward. But at this point, we anticipate construction and realizing production.

[Fahad Tariq, analyst]

Okay. That's clear. And then maybe just a housekeeping item, when is the updated feasibility study expected again for Loma Larga? I know it was the second quarter, but then it got pushed out with the Adriatic transaction. So just what's the most recent timeline?

[David Rae, executive]

So that remains the case. At this point, we'll look to release that at an appropriate time. So that information is available. Recall, it was not a complete feasibility update. It was only focused on the capital increases since the IMV study plus impacts on OpEx and metal prices, but it did not take into account updates to reserves and resources due to cutoff grade changes.

So out of the 22,000 meters, we'll do some work actually on that. So for the next feasibility update, I would anticipate cutoff grade change and resource implications and then the capital and OpEx coming to a full feasibility study. So in terms of timing, we're anticipating at this point that, that is something that will come out later, potentially at the end of the transaction when we close the transaction with [ Adriatic ].

[Operator]

Our next question comes from Eric Winmill with Scotiabank.

[Eric Winmill, analyst]

Just want to follow up quickly on Serbia. You're obviously increasing the exploration budget there. I guess, you're liking what you're seeing. And maybe on this Tulare exploration license, which we don't hear a whole lot about, any comments there? And also, I guess, seeing some forest fires in country, I'm assuming you're still not seeing any impact from those?

[David Rae, executive]

Yes. So we continue to find Serbia an attractive destination to do the work that we do. We've been there since 2004. So we have a long track record with the local communities and the authorities. It's clearly exciting in terms of exploration upside. I think the -- where we're really focusing our attention at the moment is at a kilometer depth. So it takes a little longer to be able to get information that we can share in terms of what's happened.

We have indicated that drilling does continue to on [indiscernible] with an intent to expand the view on that discovery. And at this point, we've communicated that it's a 1-kilometer strike length, 300-meter depth at a minimum 500 meter, it is very exciting. We anticipate there'll be more information coming on this in the fall.

In terms of Tulare, we have done work on this. Historically, there were 2 different companies that we brought in under one name. These were assets we've been involved in since 2004, but other people were directing that work to until 2016 when we took them both back in.

Tulare was a copper-focused asset as opposed to Avala, which was more gold focused. So we've done some work on this during the course of the year, I believe, with 3,300 meters, 6,600-meter drill program. So by the end of the year, we'll have a sense of what this is.

But it has -- we would see that if you look at prior technical reports, it will tell you the same thing. So it's a big lower-grade asset that we're trying to just fully understand with the idea being that we want to realize the value of the sort of hidden gems in our portfolio.

[Eric Winmill, analyst]

Okay. I appreciate that. And forest fires, again, no impact in country at this point or...

[David Rae, executive]

Yes, sorry, Eric, I didn't answer that. The answer is no. We obviously watch for that. But we've got forest fires in both Bulgaria and Serbia. So the answer is no. We continue to support the authorities and groups around us to do what we can as stakeholders within our communities to make sure that not only our assets are protected, but our stakeholders around us are as well.

[Operator]

[Operator Instructions] Our next question comes from Donald DeMarco with National Bank.

[Don DeMarco, analyst]

My first question is for Navin. So Navin, I see the $465 million that's been moved into restricted cash ahead of a major Adriatic closing. Can you comment on this in the context of the $437 million cash component of the purchase price and the $200 million in closing costs and debt repayments and so on that were in addition to that? So is that restricted cash amount enough?

[Navindra Dyal, executive]

Yes, it's not. The restricted cash amount is actually just covering off the costs that we will incur as a result of the transaction costs related to be basically acquiring Adriatic. It also includes a very, very small amount for stamp duties as well as for certain transaction-related costs.

So it does not cover the full debt repayments that otherwise we're contemplating for repaying certain of Adriatic's debt. Now that would just come out of our regular cash balance post transaction. But we're required under the U.K. rules to set aside the cash component of the transaction, and that's what you're seeing there.

[Don DeMarco, analyst]

Okay. then I'll just shift over to Coka Rakita. So David, with the FS pending release in Q4, what are the next steps after that? Will this be followed by a go-forward decision? Do you expect to start spending CapEx Q4 or Q1 2026? And if you could just remind us in the context of Adriatic, is Coka Rakita internally funded? Or would you look for potential external sources of funding to round that out?

[David Rae, executive]

Okay. So the next steps are that we're completing the feasibility. At the same time, we're working on a soybean feasibility, an additional step in addition to completing the certificate of resources and the exploitation permit. We anticipate an EIA, which is an application that goes in at the end of the year, that's the key thing. Then once we're into the new year, we anticipate all of that completed and a construction decision at midyear, so starting to build at midyear.

Some of the costs in terms of capital along [Technical Difficulty] the fact we intend to reuse equipment from Ada Tepe, as you know. So a good amount of the surface equipment from there. So other acquisitions, we can -- I think we'll talk about that more in due course. But I think the key thing at the moment is to see that we're on track and anticipate that we'll basically get permission internally to start building and externally to start building, and that will start happening in Q3 next year.

[Navindra Dyal, executive]

Yes. And Don, yes, we're very confident in our ability to fund Coka Rakita internally as well, based on the cash flow and the capital requirements, we'll be focused on the ramp-up of Vareš. And I'm sure Coka Rakita remains on track.

[Don DeMarco, analyst]

Okay. Great. And David, I think maybe you just mentioned the word acquisition. With that -- with Coka Rakita development about to commence Adriatic ramping up subject to the deal closing, what is Dundee's M&A priority and focus over the next year or so? Is it on the back burner for the time being? Or is it -- I think that's what you may have alluded to, but if you could just clarify.

[David Rae, executive]

Yes, Don, I wasn't actually alluding to that. We've got a very exciting organic growth portfolio. That's what we have already with Coka Rakita potential to [indiscernible] going forward, Loma Larga. And then on top of that, we've got the 4,400 hectares around [ Barish ] operations plus some additional sort of regional potential there. So that's all pretty exciting for us.

But we do the same as we have done historically. We look for opportunities where there are assets which may create value within the company. I would say that's a little less of something that's on the front burner now, but it's something that we do consistently over time. If we find the right asset, we will consider that. But right now, I would say that we've managed to really change our outlook.

So we published information that shows that we're looking at 600,000 ounces gold equivalent by the end of -- well, really by the time the Coka Rakita comes online, so as you sort of exit '28 going into '29. And that's without Loma Larga, which is another 175,000 ounces or so per year over 10 years.

So that's a really exciting portfolio to sort of have in front of us. And I think the one thing that perhaps people don't realize is that it's carrying on at that same margin that we held from Chelopech and Ada Tepe, Coka Rakita at 64, [ Barish ] under $90.

[Don DeMarco, analyst]

Yes. Yes, certainly, that's not lost on us. And so as a final question, will you be releasing 3-year guidance as you have -- or 3-year outlook as you have in the past? So with the next update we might see Adriatic perhaps, if it's subject to deal closing and then might even catch a little bit of Coka Rakita?

[Navindra Dyal, executive]

Yes, absolutely, Don. So the plan would be the acquisition of Adriatic, we would release updated 3-year outlook. And to the extent that there is updated information around Loma Larga in terms of the technical report as well as when the feasibility study is then complete for Coka Rakita, we would certainly update that, let update that as well.

[Operator]

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

[Jennifer Cameron, executive]

Well, thanks, everyone, for joining us. If you have any further questions, please feel free to reach out. And for those of us in Ontario, I hope you guys have a safe and happy long weekend. We'll talk to you next quarter.

[Operator]

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.