Dundee Precious Metals Inc.
TSX : DPM
TSX : DPM.WT.A

Dundee Precious Metals Inc.

November 05, 2014 18:52 ET

Dundee Precious Metals Announces 2014 Third Quarter Results

TORONTO, ONTARIO--(Marketwired - Nov. 5, 2014) - Dundee Precious Metals Inc. (TSX:DPM)(TSX:DPM.WT.A)

(All monetary figures are expressed in U.S. dollars unless otherwise stated)

Financial and Operating Highlights:

  • Mines - Chelopech production was in line with expectations while Kapan production remained below expectations due to the rebuilding of its development inventory and the implementation and training associated with the introduction of new mining practices and equipment.
  • Smelter - Tsumeb production was low this quarter as a result of the annual scheduled maintenance. Production is currently running at a rate of 200,000 tonnes per year. The construction of the acid plant and new converters is progressing, with start-up expected to be staged during the second half of 2015.
  • Near term growth - Released favourable preliminary economic assessment ("PEA") of the potential underground expansion at Kapan. Krumovgrad approval process is progressing well, with the Krumovgrad Municipal Council approving the Terms of Reference for the main detailed development plan.
  • Consolidated 2014 production guidance - Unchanged from prior guidance with the exception of gold which was reduced slightly to reflect lower forecast 2014 Kapan production.
  • Financial position - Exited third quarter with approximately $187.5 million of cash resources, including $165 million from undrawn portion of long-term revolving credit facility.

Dundee Precious Metals Inc. ("DPM" or the "Company") today reported a third quarter 2014 net loss attributable to common shareholders of $10.7 million ($0.08 per share) compared to $13.3 million ($0.10 per share) for the same period in 2013. Net loss attributable to common shareholders in the first nine months of 2014 was $80.4 million ($0.57 per share) compared to net earnings of $3.3 million ($0.02 per share) for the same period in 2013.

Net loss attributable to common shareholders for the third quarter and first nine months of 2014 was impacted by several items not reflective of the Company's underlying operating performance, including impairment losses, unrealized gains and losses attributable to hedging future copper and gold production, unrealized gains and losses attributable to DPM's equity settled warrants, and net losses on Sabina warrants. Excluding these items, adjusted net loss(1) during the third quarter of 2014 was $9.5 million ($0.07 per share) compared to adjusted net earnings of $10.1 million ($0.07 per share) for the corresponding period in 2013. This decrease was due primarily to higher volumes of payable metals in concentrate sold in 2013 reflecting a drawdown of concentrate inventory, a higher cost per tonne of concentrate sold, and higher operating expenses and depreciation at Tsumeb, partially offset by higher volumes of concentrate smelted at Tsumeb and the net favourable impact of a stronger U.S. dollar. In the first nine months of 2014, adjusted net loss was $2.5 million ($0.02 per share) compared to adjusted net earnings of $20.3 million ($0.15 per share) in the corresponding period in 2013. This decrease was due primarily to lower volumes of payable metals in concentrate sold reflecting lower recoveries at Chelopech and lower Kapan production, lower metal prices, higher depreciation and operating expenses at Tsumeb, and a higher cost per tonne of concentrate sold, partially offset by higher volumes of concentrate smelted and higher toll rates at Tsumeb, the net favourable impact of a stronger U.S. dollar and lower third party treatment charges at Chelopech.

"Chelopech continued to perform well during the quarter and with significantly higher grades expected during the fourth quarter is on track to meet 2014 guidance. Kapan production was below expectations and is now expected to return to normal levels in mid-2015. The annual maintenance of the Ausmelt furnace at Tsumeb limited throughput during the quarter but the smelter is now running well." said Rick Howes, President and CEO. "Despite weak third quarter financial results, we are making good progress at each of our operations, including our expansion opportunities at Kapan and Tsumeb, and with our Krumovgrad development project, which offer the potential to create significant value for our shareholders."

Adjusted EBITDA

Adjusted EBITDA(1) during the third quarter and first nine months of 2014 was $8.5 million and $57.5 million, respectively, compared to $26.5 million and $73.8 million in the corresponding periods in 2013, driven by the same factors affecting adjusted net (loss) earnings, except for depreciation which is excluded from adjusted EBITDA.

The average market price for gold during the third quarter and first nine months of 2014 decreased by 3% and 12%, respectively, compared to the corresponding periods in 2013. The average market price for copper during the third quarter and first nine months of 2014 decreased by 1% and 6%, respectively, compared to corresponding periods in 2013. The average realized copper price, including realized hedging gains, for the third quarter and first nine months of 2014 was $3.28 and $3.29 per pound, respectively, compared to $3.26 and $3.41 per pound in the corresponding periods in 2013.

Production and Deliveries

Copper and zinc concentrate production in the third quarter of 2014 of 31,468 tonnes was comparable to the corresponding period in 2013. Copper and zinc concentrate production in the first nine months of 2014 of 94,870 tonnes was 10% lower than the corresponding period in 2013. The decrease in the first nine months of 2014 relative to the corresponding period in 2013 was due primarily to lower copper grades and recoveries at Chelopech, and lower zinc grades and lower volumes of ore mined and processed at Kapan as a result reduced mining rates to allow for the rebuild of development inventory.

Recoveries at Chelopech in the third quarter and first nine months of 2014 were lower than the corresponding periods in 2013 due primarily to the treatment of increased volumes of ore characterized by a higher sulphur to copper ratio than originally anticipated. This material has a higher intrinsic pyrite content, which increases the load on downstream sections once recovered in the flotation circuits. Copper and gold recoveries in the copper circuit for the first seven months of 2014 were generally below projections from the metallurgical models for the ore treated. Following the circuit optimization work completed in July 2014, copper and gold recoveries are now in line with the predictions of the metallurgical models.

Gold contained in pyrite concentrate produced in the third quarter and first nine months of 2014 was 9,095 ounces and 24,075 ounces, respectively.

Concentrate smelted at Tsumeb during the third quarter and the first nine months of 2014 of 35,092 tonnes and 144,564 tonnes, respectively, was 6% and 27% higher than the corresponding periods in 2013 supported by the introduction of the second oxygen plant in late January 2014 and the completion of projects designed to capture fugitive emissions, which negatively impacted the 2013 production due to the downtime associated with commissioning activities. The annual maintenance shutdown, which started in early July, was completed on August 11, 2014, five days later than expected as a result of delays in the fabrication and delivery of certain materials from South Africa.

Deliveries of copper and zinc concentrates during the third quarter of 2014 of 30,651 tonnes were 21% lower than the corresponding period in 2013 due primarily to the timing of copper concentrate shipments. Copper concentrate deliveries at Chelopech in the third quarter of 2014 were in line with production, whereas, concentrate deliveries in the third quarter of 2013 were higher than production as Chelopech reduced its concentrate inventory to a lower targeted level. Deliveries of copper and zinc concentrates during the first nine months of 2014 of 97,356 tonnes were 12% lower than the corresponding period in 2013 due primarily to lower concentrate production at Chelopech as a result of lower recoveries and at Kapan as a result of lower volumes of ore mined and processed.

Relative to the third quarter of 2013, payable gold in copper and zinc concentrates sold in the third quarter of 2014 decreased by 26% to 28,075 ounces, payable copper in concentrate sold decreased by 23% to 9.5 million pounds, payable silver in concentrate sold decreased by 37% to 99,724 ounces and payable zinc in concentrate sold increased by 9% to 3.1 million pounds. The decreases in payable gold, copper and silver in concentrate sold were due primarily to lower copper concentrate deliveries as a result of the timing of shipments. The increase in payable zinc in concentrate sold was consistent with higher zinc concentrate deliveries.

Relative to the first nine months of 2013, payable gold in copper and zinc concentrates sold in the first nine months of 2014 decreased by 19% to 90,811 ounces, payable copper in concentrate sold decreased by 11% to 30.3 million pounds, payable silver in concentrate sold decreased by 17% to 336,097 ounces and payable zinc in concentrate sold decreased by 24% to 8.1 million pounds. These decreases were due primarily to lower metals contained in concentrate produced in the first nine months of 2014 relative to the corresponding period in 2013.

Payable gold in pyrite concentrate sold in the third quarter and first nine months of 2014 was 3,720 ounces (2013 - 1,994 ounces) and 14,713 ounces (2013 - 3,824 ounces), respectively.

Cash cost of sales per ounce of gold sold

Consolidated cash cost of sales per ounce of gold sold, net of by-product credits, during the third quarter of 2014 of $485 was 35% higher than the cash cost of sales of $359 for the corresponding period in 2013 due primarily to lower volumes of payable metals in concentrate sold as a result of the timing of shipments.

Consolidated cash cost of sales per ounce of gold sold, net of by-product credits, during the first nine months of 2014 of $427 was 31% higher than the cash cost of sales of $326 for the corresponding period in 2013 due primarily to lower volumes of payable metals in concentrate sold resulting from lower recoveries at Chelopech and lower volumes of ore mined and processed at Kapan, and lower metal prices, partially offset by lower treatment charges.

All-in sustaining cost per ounce of gold

Consolidated all-in sustaining cost per ounce of gold, net of by-product credits, in the third quarter of 2014 was $876 compared to $642 in the corresponding period in 2013. This increase was due primarily to the same factors affecting cash cost of sales per ounce of gold sold and higher cash outlays for sustaining capital expenditures, partially offset by lower allocated general and administrative expenses.

Consolidated all-in sustaining cost per ounce of gold, net of by-product credits, in the first nine months of 2014 was $819 compared to $625 in the corresponding period in 2013. This increase was due primarily to the same factors affecting cash cost of sales per ounce of gold sold and higher cash outlays for sustaining capital expenditures.

Cash provided from operating activities

Cash provided from operating activities in the third quarter of 2014 was $14.7 million compared to $15.7 million in the corresponding period in 2013 due primarily to the same factors affecting adjusted EBITDA and higher income taxes paid, substantially offset by a decrease in working capital requirements. Cash provided from operating activities in the first nine months of 2014 was $50.4 million compared to $59.2 million in the corresponding period in 2013 due primarily to the same factors affecting adjusted EBITDA, partially offset by a decrease in working capital requirements and lower income taxes paid.

Cash used in operating activities, before changes in non-cash working capital, during the third quarter of 2014 was $2.7 million compared to cash provided from operating activities, before changes in non-cash working capital, of $30.6 million in the corresponding period in 2013. This decrease was due primarily to the same factors affecting adjusted EBITDA and higher income taxes paid. Cash provided from operating activities, before changes in non-cash working capital, during the first nine months of 2014 of $46.6 million was $17.2 million lower than the corresponding period in 2013 due primarily to the same factors affecting adjusted EBITDA, partially offset by lower income taxes paid.

Capital expenditures

Cash outlays for capital expenditures during the third quarter of 2014 of $49.5 million was $14.4 million lower than the corresponding period in 2013 due primarily to the timing of payments for work related to the construction of a new acid plant at Tsumeb. Cash outlays for capital expenditures during the first nine months of 2014 of $152.2 million was $13.5 million lower than the corresponding period in 2013 due primarily to lower spending on sustaining and growth capital expenditures at Chelopech.

Financial position

As at September 30, 2014, DPM maintained a consolidated cash position of $22.5 million, an investment portfolio valued at $13.4 million and $165.0 million of additional liquidity under its credit facility. These cash resources, together with the cash flow currently being generated, support the continued development of the Company's business.

2014 Guidance

The Company's production and cash cost guidance for 2014 is set out in the following table and is substantially unchanged from the guidance issued in July 2014, with the exception of gold to reflect adjustments made to Kapan's production, and a reduction in consolidated cash cost per tonne of ore processed to reflect Chelopech's lower cost per tonne.

Current 2014 Guidance Prior 2014 Guidance
Chelopech Kapan Tsumeb Consolidated(3) Consolidated
Ore mined/milled ('000s tonnes) 1,900 - 2,050 420 - 440 - 2,320 - 2,490 2,320 - 2,490
Concentrate smelted ('000s tonnes) - - 190 - 220 190 - 220 190 - 220
Metals contained in concentrate produced(1):
Gold ('000s ounces) 126.0 - 130.0 20.0 - 23.0 - 145 - 149 149 - 157
Copper (million pounds) 42.7 - 46.2 2.2 - 2.4 - 45.1 - 49.0 45.1 - 49.0
Zinc (million pounds) - 11.6 - 15.9 - 11.6 - 15.9 11.6 - 15.9
Silver ('000s ounces) 210 - 230 400 - 430 - 640 - 698 640 - 698
Cash cost/tonne of ore processed ($)(2),(4) 40 - 42 81 - 91 - 46 - 51 51 - 56
Cash cost/ounce of gold sold, net of by-product credits ($)(1),(2),(4) 285 - 430 925 - 975 - 335 - 505 335 - 505
All-in-sustaining cost per ounce of gold ($)(1),(2),(4) - - - 710 - 815 710 - 815
Cash cost/tonne of concentrate smelted ($)(2),(4) - - 280 - 350 280 - 350 280 - 350
Payable gold in pyrite concentrate sold ('000s ounces) 27 - 33 - - 27 - 33 27 - 33
(1) Excludes metals in pyrite concentrate and, where applicable, the treatment charges, transportation and other selling costs related to the sale of pyrite concentrate, which is reported separately.
(2) Based on current exchange rates and, where applicable, a copper price of $3.21 per pound, a silver price of $19.21 per ounce and a zinc price of $0.99 per pound.
(3) Consolidated guidance does not necessarily represent the sum or average of Chelopech and Kapan guidance.
(4) Cash cost per tonne of ore processed, cash cost per ounce of gold sold, net of by-product credits, all-in sustaining cost per ounce of gold, and cash cost per tonne of concentrate smelted are not defined measures under GAAP. Refer to the MD&A for reconciliations to IFRS.

The Chelopech mine performed as expected in the quarter and remains on track to achieve its 2014 annual guidance. Gold recoveries continued to improve throughout the third quarter as stability with the new pyrite flotation circuit was being optimized, but remained marginally below expected levels, while copper recoveries were in line with expectations. During the fourth quarter of 2014, the Chelopech mine is expected to deliver higher metals production as a result of mining higher grade zones as part of the planned mining sequence in 2014.

At the Kapan mine, production in the third quarter of 2014 remained below expectations as required training activities continued to receive extended attention following the fatality in the second quarter. The primary impact was in mining dilution performance where improvements to equipment use and a focus on dilution are expected to produce improved performance in the fourth quarter. Kapan's forecast 2014 metals production has been revised to reflect lower than anticipated metals production in the third quarter of 2014. Capital development rates at Kapan have improved by 50% from mid-2013 levels but are still short of the required rates to achieve and maintain the targeted level of development inventory. Additional mining equipment to support these changes and increase development recovery rates was delivered in the third quarter of 2014. Training and commissioning is now underway and is expected to be completed in the fourth quarter of 2014. Development rates are expected to support a return to full production in the third quarter of 2015.

At the Company's Tsumeb smelter, the annual maintenance shutdown, which started in early July, was completed on August 11, 2014, five days later than expected as a result of delays in the fabrication and delivery of certain materials from South Africa. Year to date, the smelter has demonstrated the ability to treat the typical concentrate mix at an annualized rate of 240,000 tonnes. However, current treatment of concentrate with a higher copper content and the accumulation of in-process copper material (reverts) following the closure of the reverberatory furnace in 2013 have constrained the concentrate treatment to an annualized rate of 200,000 tonnes and will likely continue to do so until the new copper converters are in operation at the end of 2015. Management is considering other alternatives to increase the concentrate treatment to the Ausmelt capacity. Despite this converter constraint, the smelter remains on track to achieve its 2014 smelting guidance.

For 2014, the majority of the Company's growth capital expenditures(1) were focused on the construction of an acid plant at Tsumeb. Other growth capital expenditures included the pyrite recovery circuit and margin improvement projects at Chelopech, securing the remaining permits and planning for the commencement of construction related to the Krumovgrad Gold Project, and exploration and development work to enhance underground operations and advance a potential expansion at Kapan. In aggregate, these expenditures are expected to range between $160 million and $175 million. Sustaining capital expenditures(1) are expected to range between $37 million and $45 million.

The 2014 guidance provided is not expected to occur evenly throughout the year as a result of variations associated with areas being mined from quarter to quarter, the timing of concentrate deliveries, planned outages, including the annual maintenance shutdown at Tsumeb, which this year occurred during the month of July. Also, the rate of capital expenditures may vary from quarter to quarter based on the schedule for, and execution of, each capital project and, where applicable, the receipt of necessary permits and approvals. Further details can be found in the Company's MD&A under the section "2014 Guidance".

(1) Adjusted net (loss) earnings, adjusted basic (loss) earnings per share, adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), cash (used in) provided from operating activities, before changes in non-cash working capital, cash cost per tonne of ore processed, cash cost per ounce of gold sold, net of by-product credits, all-in sustaining cost per ounce of gold, cash cost per tonne of concentrate smelted, and growth and sustaining capital expenditures are not defined measures under International Financial Reporting Standards ("IFRS"). Presenting these measures from period to period helps management and investors evaluate earnings and cash flow trends more readily in comparison with results from prior periods. Refer to the "Non-GAAP Financial Measures" section of the management's discussion and analysis for the three and nine months ended September 30, 2014 (the "MD&A") for further discussion of these items, including reconciliations to net (loss) earnings attributable to common shareholders and (loss) earnings before income taxes.

Key Financial and Operational Highlights
$ millions, except where noted
Ended September 30,
Three Months Nine Months
2014 2013 2014 2013
Revenue 60.3 92.0 234.7 260.2
Gross (loss) profit (1) (3.3 ) 29.2 39.9 69.8
(Loss) earnings before income taxes (9.9 ) (13.9 ) (79.9 ) 7.2
Net (loss) earnings attributable to common shareholders (10.7 ) (13.3 ) (80.4 ) 3.3
Basic (loss) earnings per share ($) (0.08 ) (0.10 ) (0.57 ) 0.02
Adjusted EBITDA (2) 8.5 26.5 57.5 73.8
Adjusted net (loss) earnings (2) (9.5 ) 10.1 (2.5 ) 20.3
Adjusted basic (loss) earnings per share ($) (2) (0.07 ) 0.07 (0.02 ) 0.15
Cash provided from operating activities 14.7 15.7 50.4 59.2
Cash (used in) provided from operating activities, before changes in non-cash working capital (2) (2.7 ) 30.6 46.6 63.8
Copper and zinc concentrate produced (mt) 31,468 31,718 94,870 105,045
Metals in copper and zinc concentrate produced:
Gold (ounces) 30,741 32,298 96,183 117,387
Copper ('000s pounds) 10,624 10,851 31,579 34,884
Zinc ('000s pounds) 2,986 2,419 9,110 11,621
Silver (ounces) 166,192 127,180 465,127 497,593
Tsumeb - concentrate smelted (mt) 35,092 33,090 144,564 113,976
Deliveries of copper and zinc concentrate (mt) 30,651 38,749 97,356 110,363
Payable metals in copper and zinc concentrate sold:
Gold (ounces) 28,075 38,012 90,811 112,580
Copper ('000s pounds) 9,503 12,405 30,262 34,184
Zinc ('000s pounds) 3,070 2,820 8,101 10,617
Silver (ounces) 99,724 158,572 336,097 404,859
Payable gold in pyrite concentrate sold (ounces) 3,720 1,994 14,713 3,824
Cash cost of sales per ounce of gold sold, net of by-product credits ($) (2) 485 359 427 326
All-in sustaining cost per ounce of gold ($) (2) 876 642 819 625
Cash cost/tonne of concentrate smelted at Tsumeb($) (2) 510 477 352 444
(1) Gross (loss) profit is regarded as an additional GAAP measure and is presented in the Company's condensed interim unaudited consolidated statements of loss. Gross (loss) profit represents revenue less cost of sales and is one of several measures used by management and investors to assess the underlying operating profitability of a business.
(2) Adjusted EBITDA; adjusted net (loss) earnings; adjusted basic (loss) earnings per share; cash (used in) provided from operating activities, before changes in non-cash working capital; cash cost of sales per ounce of gold sold, net of by-product credits; all-in sustaining cost per ounce of gold; and cash cost per tonne of concentrate smelted, are not defined measures under IFRS. Refer to the MD&A for reconciliations to IFRS measures.

DPM's condensed interim unaudited consolidated financial statements, and MD&A for the third quarter and first nine months ended September 30, 2014, are posted on the Company's website at www.dundeeprecious.com and have been filed on SEDAR at www.sedar.com.

The Company will be holding a call to discuss its 2014 third quarter results on November 6, 2014, at 9:00 a.m. (E.S.T.). Participants are invited to join the live webcast (audio only) at: http://www.gowebcasting.com/5944. Alternatively participants can access a listen only telephone option at 416-340-2219 or North America Toll Free at 1-866-226-1798. A replay of the call will be available at 905-694-9451 or North America Toll Free at 1-800-408-3053, passcode 7892267. The audio webcast for this conference call will also be archived and available on the Company's website at www.dundeeprecious.com.

Dundee Precious Metals Inc. is a Canadian based, international gold mining company engaged in the acquisition, exploration, development, mining and processing of precious metals. The Company's principal operating assets include the Chelopech operation, which produces a copper concentrate containing gold and silver, located east of Sofia, Bulgaria; the Kapan operation, which produces a copper concentrate and a zinc concentrate, both containing gold and silver, located in southern Armenia; and the Tsumeb smelter, a concentrate processing facility located in Namibia. DPM also holds interests in a number of developing gold properties located in Bulgaria, Serbia, and northern Canada, including interests held through its 50.1% owned subsidiary, Avala Resources Ltd., and its 12.1% interest in Sabina Gold & Silver Corp.

Cautionary Note Regarding Forward-Looking Statements

This press release contains "forward looking statements" that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements with respect to the future price of gold, copper, zinc and silver, the estimation of mineral reserves and resources, the realization of such mineral estimates, the timing and amount of estimated future production and output, costs of production, capital expenditures, costs and timing of the development of new deposits, success of exploration activities, permitting time lines, currency fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, reclamation expenses, the potential or anticipated outcome of title disputes or claims and timing and possible outcome of pending litigation. Often, but not always, forward looking statements can be identified by the use of words such as "plans", "expects", or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", or "does not anticipate", or "believes", or variations of such words and phrases or that state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward looking statements are based on the opinions and estimates of management as of the date such statements are made and they involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any other future results, performance or achievements expressed or implied by the forward looking statements. Such factors include, among others: the actual results of current exploration activities; actual results of current reclamation activities; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; future prices of gold, copper, zinc and silver; possible variations in ore grade or recovery rates; failure of plant, equipment or processes to operate as anticipated;
accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities, uncertainties inherent with conducting business in foreign jurisdictions where corruption, civil unrest, political instability and uncertainties with the rule of law may impact the Company's activities; fluctuations in metal prices; unanticipated title disputes; claims or litigation; limitation on insurance coverage; as well as those risk factors discussed or referred to in the Company's MD&A under the heading "Risks and Uncertainties" and under the heading "Cautionary Note Regarding Forward-Looking Statements" which include further details on material assumptions used to develop such forward-looking statements and material risk factors that could cause actual results to differ materially from forward-looking statements, and other documents (including without limitation the Company's 2013 AIF) filed from time to time with the securities regulatory authorities in all provinces and territories of Canada and available on SEDAR at www.sedar.com. There can be no assurance that forward looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Unless required by securities laws, the Company undertakes no obligation to update forward looking statements if circumstances or management's estimates or opinions should change. Accordingly, readers are cautioned not to place undue reliance on forward looking statements.

Contact Information

  • Dundee Precious Metals Inc.
    Rick Howes
    President and Chief Executive Officer
    (416) 365-2836
    rhowes@dundeeprecious.com

    Dundee Precious Metals Inc.
    Hume Kyle
    Executive Vice President and Chief Financial Officer
    (416) 365-5091
    hkyle@dundeeprecious.com

    Dundee Precious Metals Inc.
    Lori Beak
    Senior Vice President, Investor & Regulatory Affairs
    and Corporate Secretary
    (416) 365-5165
    lbeak@dundeeprecious.com