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

Dundee Precious Metals Inc.

May 12, 2009 21:33 ET

Dundee Precious Metals Reports First Quarter 2009 Results

TORONTO, ONTARIO--(Marketwire - May 12, 2009) -

(All monetary figures are expressed in Canadian Dollars unless otherwise stated)

Dundee Precious Metals Inc. ("DPM" or the "Company") (TSX:DPM)(TSX:DPM.WT)(TSX:DPM.WT.A) today announced its unaudited results for the first quarter ended March 31, 2009. DPM reported a first quarter net loss of $6.1 million (basic and diluted net loss per share of $0.06). This compares with first quarter 2008 net earnings of $8.4 million (basic and diluted net earnings per share of $0.14).

"Higher mine output and lower unit operating costs contributed to strong first quarter operating performance at Chelopech - providing a strong foundation for the planned mine and mill expansion," said Jonathan Goodman, President and CEO. "In addition, restructuring activities, including cost savings initiatives, are continuing throughout the organization with positive results."

The following table summarizes the Company's financial and operating results for the periods indicated:



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$ millions, except Three Months
per share amounts -------------------
Ended March 31, 2009 2008
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Net Revenue $ 27.0 $ 39.8
Cost of Sales 23.4 21.9
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Gross Profit from Mining Operations 3.6 17.9
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Investment and Other Income (Expense) (0.9) 2.4
Net Earnings (Loss) (6.1) 8.4

Basic Earnings (Loss) Per Share $ (0.06) $ 0.14
Diluted Earnings (Loss) Per Share $ (0.06) $ 0.14

Net Cash Used in Operating Activities (12.7) (7.4)
Capital Expenditures (8.5) (19.7)
Purchase of Short-term Investments (5.6) -
Other Investing Activities (1.3) 3.0
Financing Activities (0.9) (0.6)
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Decrease in Cash $ (29.0) $ (24.7)
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Concentrate Produced (mt)
Chelopech 16,305 14,183
Deno Gold - 1,885
Cash Cost per tonne Ore Processed (US$/t)(1)
Chelopech $ 47.74 $ 59.38
Deno Gold $ - $ 107.54
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FIRST QUARTER 2009 - FINANCIAL HIGHLIGHTS

- First quarter of 2009 financial results, relative to first quarter of 2008, benefited from improved operating performance, including a 20% reduction in unit cash cost per tonne and reduced exploration and administrative expenses due to ongoing restructuring and cost savings initiatives.

- The net loss in the first quarter of 2009 was $6.1 million compared to net earnings of $8.4 million in the corresponding prior year period. The decrease in earnings was primarily due to lower gross profit from mining operations and a foreign exchange loss partially offset by a decrease in administrative and exploration expenses. The decrease in gross profit from mining operations was primarily due to lower deliveries of concentrates and lower selling prices for copper, gold and silver partially offset by lower production costs and favourable mark-to-market adjustments relating to the open positions of provisionally priced concentrate sales, net of losses on copper derivatives.

- The Chelopech operations reported net revenue of $26.4 million on corresponding concentrate deliveries of 16,573 tonnes. Chelopech cash cost per tonne of ore processed(1) in the period was 20% lower than the corresponding prior year period due to the favourable impact of a weaker Euro relative to the U.S. dollar (depreciation of 13% period over period), higher volumes of material processed, lower spending on services due to the implementation of cost savings initiatives and lower prices for certain raw materials. These favourable variances were partially offset by higher spending on backfill due to the introduction of hydraulic backfill in the second quarter of 2008 with higher volume of backfill placed in stopes, and increased labour rates.

- The Deno Gold operation was on care and maintenance in the first quarter of 2009 and reported a gross loss from mining operations of $3.6 million.

- Working capital requirements in the first quarter of 2009 increased by $14.4 million due to a decrease in accounts payable, an increase in accounts receivable and an increase in inventories partially offset by an increase in deferred revenue.

- As at March 31, 2009, DPM had cash, short-term investments and marketable securities of $82.2 million (market value) versus $108.6 million (market value) at the end of year 2008.

SIGNIFICANT ITEMS

- Results of the update to the 2005 definitive feasibility study on the Chelopech Expansion Project confirmed the commercial viability of the project and indicated an internal rate of return of over 27%, future capital costs of US$216 million and a payback period of approximately three years.

- Certain permits required to advance the construction of the mine and mill expansion, including the semi-autogenous grinding mill and concentrator expansion, have been received and work is progressing. The metals processing facility is in the process of being permitted with construction expected to commence in the year 2010, subject to financing and approval by DPM's board of directors.

- DPM reached a definitive agreement with Sabina Silver Corporation ("Sabina") for the sale of the Back River project in exchange for $7 million cash, 17 million Sabina common shares and 10 million Special Warrants, consisting of one common share and 1/2 common share purchase warrant exercisable upon Sabina achieving certain exploration and production milestones or upon the occurrence of certain other events. The transaction is subject to various conditions, including regulatory and shareholder approvals.

- In response to the very positive regulatory and operational advances made by Deno Gold in the five month period it was on care and maintenance, DPM elected to restart operations at the Kapan facilities in April 2009. At current metal prices, Deno Gold is still expected to incur a financial loss in 2009 on its mining operations. However, the benefits of restarting operations, including the minimization of losses, outweigh the costs of maintaining the operations on care and maintenance.

- The Company entered into certain cash settled derivative transactions with respect to 2,900 tonnes of payable copper in concentrate sold by Chelopech on a provisional pricing basis. The derivative contracts were entered into to mitigate substantially all of the copper price exposure and associated earnings volatility as a result of the time lag between the receipt of provisional sales revenue and the specified final pricing period. These derivative contracts mature over the period of April through June 2009.

A complete set of DPM's Consolidated Financial Statements, Notes to the Consolidated Financial Statements and Management's Discussion and Analysis for the first quarter ended March 31, 2009 will be posted on the Company's website at www.dundeeprecious.com and will be filed on Sedar at www.sedar.com.

CONFERENCE CALL

An analyst conference call is scheduled for Wednesday, May 13, 2009 at 3:30 p.m. (EST) in conjunction with the Company's Annual and General Meeting of Shareholders, to present these results and will be webcast live at: http://events.onlinebroadcasting.com/dundee/051309/index.php.

The audio webcast for this conference call will be archived and available on the Company's website at www.dundeeprecious.com.

OVERVIEW

DPM is a Canadian based, international mining company engaged in the acquisition, exploration, development and mining of precious metal properties. Its common shares and share purchase warrants (symbols: DPM; DPM.WT; DPM.WT.A) are traded on the Toronto Stock Exchange ("TSX"). DPM's business objectives are to identify, acquire, finance, develop and operate low-cost, long-life mining properties.

The Company's operating interests include its 100% ownership of Chelopech Mining EAD ("Chelopech"), a gold, copper, silver concentrates producer, owner of the Chelopech mine located approximately 70 kilometres east of Sofia, Bulgaria, and a 95% interest in Vatrin Investment Limited ("Vatrin"), a private entity which holds 100% of Deno Gold Mining Company CJSC ("Deno Gold"), its principal asset being the Kapan mine, a gold, copper, zinc, silver concentrates producer located about 320 kilometres south east of the capital city of Yerevan in Southern Armenia. DPM's interests also include a 100% interest in the Krumovgrad development stage gold property located in south eastern Bulgaria, near the town of Krumovgrad, a 100% interest in the Back River gold project located in Nunavut in the Canadian Arctic and numerous exploration properties in one of the larger gold-copper-silver mining regions in Serbia. On March 30, 2009, DPM announced that it had entered into a definitive agreement to sell its Back River properties.

SUMMARIZED FINANCIAL RESULTS

Net Revenue

Net revenue from the sale of concentrates of $27.0 million in the first quarter of 2009 was $12.8 million or 32% lower than first quarter of 2008 due primarily to a decrease in deliveries of concentrates and lower selling prices for copper, gold and silver partially offset by the favourable impact of a weaker Canadian dollar relative to the U.S. dollar and favourable mark-to-market adjustments, net of losses on copper derivatives. The weakening of the Canadian dollar relative to the U.S. dollar increased revenue by $5.0 million in the period.

The average London Metal Exchange ("LME") cash copper price(2) in the first quarter of 2009 of US$1.55/lb was 56% lower than first quarter of 2008 average price of US$3.54/lb resulting in a significant decrease in revenue in the first quarter of 2009. The average London Bullion gold price(2) in the first quarter of 2009 of US$908/oz was 2% lower than first quarter of 2008 average price of US$927/oz. Favourable mark-to-market adjustments of $4.6 million, relating to the open positions of provisionally priced concentrate sales, were recorded in the first quarter of 2009 as a result of the increase in forward prices for copper and zinc as at March 31, 2009 relative to December 31, 2008, compared to favourable mark-to-market adjustments of $2.8 million recorded in the first quarter of 2008. Partially offsetting the favourable mark-to-market adjustments recorded in the first quarter of 2009 were losses on copper derivatives of $1.3 million.

Deliveries of concentrates produced at Chelopech of 16,573 tonnes in the first quarter of 2009 were 11% lower than first quarter of 2008 deliveries of 18,529 tonnes due to a drawdown of concentrate inventories in the first quarter of 2008. Deliveries of concentrates produced at Deno Gold were nil in the first quarter of 2009 compared to deliveries of 872 tonnes in the first quarter of 2008 as Deno Gold operations were on care and maintenance in the first quarter of 2009.

Cost of sales

Cost of sales of $23.4 million in the first quarter of 2009 was $1.5 million or 7% higher than the corresponding prior year period due primarily to the unfavourable impact of a weaker Canadian dollar relative to the U.S. dollar partially offset by lower deliveries of concentrates and lower production costs at Chelopech. Cost of sales at Chelopech and Deno Gold are converted from Euro and Dram to U.S. dollar and the U.S. dollar consolidated cost of sales is converted to Canadian dollar. The weakening of the Canadian dollar relative to the U.S. dollar increased cost of sales by $3.4 million in the period.

Cash cost per tonne of ore processed(1) at Chelopech in the first quarter of 2009 of US$47.74 was US$11.64 or 20% lower than first quarter of 2008 cash cost per tonne of ore processed(1) of US$59.38 due to the favourable impact of a weaker Euro relative to the U.S. dollar (depreciation of 13% period over period), higher volumes of material processed, lower spending on services resulting from the implementation of cost savings initiatives introduced in late 2008 and in the first quarter of 2009 and a decrease in prices for certain raw materials. These positive variances were partially offset by higher spending on backfill due to the introduction of hydraulic backfill in the second quarter of 2008 with higher volume of backfill placed in stopes, and increased labour rates.

Gross profit

Chelopech recorded a gross profit from mining operations of $7.3 million in the first quarter of 2009 compared to a gross profit of $20.4 million in the first quarter of 2008. The decrease in gross profit from mining operations was due to lower selling prices for copper, gold and silver and lower deliveries of concentrates partially offset by lower production costs and favourable mark-to-market adjustments, net of losses on copper derivatives. The average LME cash copper price(2) in the first quarter of 2009 was 56% lower than first quarter of 2008 average price. The average London Bullion gold price(2) in the first quarter of 2009 was 2% lower than first quarter of 2008 average price. Favourable mark-to-market adjustments of $3.9 million relating to the open positions of provisionally priced concentrate sales were recorded in the first quarter of 2009, as a result of the increase in forward prices for copper as at March 31, 2009 relative to December 31, 2008, compared to favourable mark-to-market adjustments of $1.5 million recorded in the first quarter of 2008. Offsetting the favourable mark-to-market adjustments recorded in the first quarter of 2009 were losses of $1.2 million related to the copper derivatives.

Deno Gold recorded a gross loss from mining operations of $3.6 million in the first quarter of 2009, which was higher than the gross loss from mining operations of $2.5 million recorded in the first quarter of 2008. Deno Gold was on care and maintenance in the first quarter of 2009. Favourable mark-to-market adjustments of $0.7 million on the open positions of provisionally priced concentrate sales were recorded in the first quarter of 2009 compared to favourable adjustments of $1.3 million in the first quarter of 2008.

Investment and other income (expense)

Investment and other expense in the first quarter of 2009 was $0.9 million compared to first quarter of 2008 investment and other income of $2.4 million. The decrease was primarily due to lower net realized gains from the sales of investments and an investment write-down of $1.1 million as a result of the decline in market value of one investment in the period.

Administrative expense

Administrative expense of $4.0 million in the first quarter of 2009 was $0.9 million lower than first quarter of 2008 due primarily to a decrease in employment costs and associated expenses and lower spending on outside services as a result of the cost savings initiatives introduced in the first quarter of 2009.

Exploration expense

Exploration expense of $1.6 million in the first quarter of 2009 was $3.5 million lower than first quarter of 2008 due to a decrease in the level of exploration activities in Serbia following the suspension of activities in the fourth quarter of 2008.

Foreign Exchange

Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the period end exchange rates, whereas non-monetary assets and liabilities and related expenses denominated in foreign currencies are translated at the exchange rate in effect at the transaction date. Income and expense items are translated at the exchange rate in effect on the date of the transaction. Exchange gains and losses resulting from the translation of these amounts are included in the consolidated statement of earnings. In the first quarter of 2009, there was a foreign exchange loss of $2.7 million compared with a foreign exchange gain of $0.5 million in the first quarter of 2008.

Income tax recovery

DPM's effective tax recovery rate of 10.0% for the first quarter of 2009 was lower than the statutory rate of 33.0% primarily due to the unrecognized tax benefits relating to operating losses and the non-deductible write-downs of investments and stock option expense partially offset by the benefit of profits earned in jurisdictions having a lower tax rate.

Cash Flow (Shortfall) and Financial Condition

The following table summarizes the Company's cash shortfall from operating activities for the periods indicated:



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$ thousands Three Months
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Ended March 31, 2009 2008
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Net earnings (loss) $ (6,100) $ 8,428
Non-cash charges (credits) to earnings:
Amortization of property, plant and equipment 4,568 3,529
Property impairment provisions 309 13
Net losses (gains) on sale of investments 47 (1,785)
Write-downs of investments to market value 1,130 -
Unrealized losses on copper derivatives 1,324 -
Other 423 211
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Total non-cash charges to earnings 7,801 1,968
Increase in non-cash working capital (14,405) (17,744)
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Net cash used in operating activities $(12,704) $ (7,348)
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Cash used in operating activities in the first quarter of 2009 was $12.7 million, compared with cash used in operating activities of $7.3 million in the first quarter of 2008. The increase in cash used in operating activities in the first quarter of 2009 relative to the corresponding prior year period was primarily due to the decrease in gross profit from mining operations partially offset by a decrease in working capital requirements.

The non-cash working capital requirements of $14.4 million in the first quarter of 2009 was primarily due to a decrease in accounts payable, an increase in accounts receivable and an increase in inventories partially offset by an increase in deferred revenue.

The following table summarizes the Company's investing activities for the periods indicated:



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$ thousands Three Months
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Ended March 31, 2009 2008
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Proceeds on sale of portfolio investments $ 2,304 $ 2,977
Purchase of short-term investments (5,558) -
Loan advances (3,767) -
Capital expenditures (8,470) (19,723)
Other 94 -
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Net cash used in investing activities $(15,397) $(16,746)
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Capital expenditures at Chelopech in the first quarter of 2009 of $6.0 million were 48% lower than the corresponding prior year period due to a reduction in non-critical expenditures, including those related to the expansion project. Capital expenditures at Deno Gold in the first quarter of 2009 of $2.5 million were 56% lower than the corresponding prior year period due to lower level of exploration activities in the first quarter of 2009 following the suspension of activities in the fourth quarter of 2008. Expenditures related to the Back River project incurred in the first quarter of 2009 were expensed as the project was on care and maintenance.

In the first quarter of 2009, DPM advanced $3.8 million (US$3.0 million) to Namibian Custom Smelters (Pty) Limited ("NCS"), a subsidiary of Weatherly International plc, as per the agreement DPM signed with NCS in December 2008 to advance up to US$7 million of loans to NCS. Loan advances to NCS totalled US$6.0 million as at March 31, 2009.

Financing Activities

The following table summarizes the Company's financing activities for the periods indicated:



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$ thousands Three Months
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Ended March 31, 2009 2008
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Redemption of deferred share units $ - $ (58)
Repayment of debt (711) (563)
Repayment of lease (207) -
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Net cash used in financing activities $ (918) $ (621)
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AVERAGE METAL PRICES

The following table, summarizing the average metal prices for the London Bullion Market Association ("LBM") gold, LME copper Grade A, LME special high grade ("SHG") zinc and LBM silver prices, is used to illustrate the Company's average metal price exposures based on its key reference prices for the periods indicated.



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US$ Average Three Months
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Ended March 31, 2009 2008
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London Bullion gold ($/oz) $ 908 $ 927
LME settlement copper ($/lb) 1.55 3.54
LME SHG zinc ($/lb) 0.53 1.10
LBM spot silver ($/oz) $ 12.61 $ 17.68
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NON-GAAP FINANCIAL MEASURES

We have referred to cash cost per tonne of ore processed because we understand that certain investors use this information to assess the Company's performance and also determine the Company's ability to generate cash flow for investing activities. This measurement captures all of the important components of the Company's production and related costs. In addition, management utilizes this metric as an important management tool to monitor cost performance of the Company's operations. This measurement has no standardized meaning under Canadian GAAP and is therefore unlikely to be comparable to similar measures presented by other companies. This measurement is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP.

The following table provides, for the periods indicated, a reconciliation between the Company's cash cost measure and Canadian GAAP cost of sales:



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$ thousands, unless otherwise indicated
For the quarter ended March 31, 2009 Chelopech Deno Gold Total
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Ore processed (mt) 243,457 -

Cost of sales (Cdn$) $ 19,103 $ 4,345 $ 23,448
Cost of sales (US$) $ 15,996 $ 3,563 $ 19,559
Deduct:
Amortization (3,092) (361)
Reclamation costs and other (303) (128)
Care and maintenance costs - (3,074)
Change in concentrate inventory (979) -
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Total cash cost of production (US$) $ 11,622 $ -
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Cash cost per tonne of ore processed (US$) $ 47.74 $ -
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$ thousands, unless otherwise indicated
For the quarter ended March 31, 2008 Chelopech Deno Gold Total
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Ore processed (mt) 219,370 79,779

Cost of sales (Cdn$) $ 17,439 $ 4,477 $ 21,916
Cost of sales (US$) $ 16,750 $ 4,301 $ 21,051
Add/(Deduct):
Amortization and other (2,014) (546)
Change in concentrate inventory (1,711) 4,825
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Total cash cost of production (US$) $ 13,025 $ 8,580
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Cash cost per tonne of ore processed (US$) $ 59.38 $ 107.54
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(1) A reconciliation of the Company's cash cost per tonne ore processed to cost of sales under Canadian GAAP for the first quarters of 2009 and 2008 is shown in the table entitled "Non-GAAP Financial Measures".

(2) Refer to the quarterly information section for the average metal prices used to illustrate the Company's average metal price exposures based on its key reference prices.

To view the Financial Statements, please click the following link:

http://media3.marketwire.com/docs/dpm0512.pdf

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 mineral estimates, the timing and amount of estimated future production, 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, unanticipated reclamation expenses, title disputes or claims, limitations on insurance coverage 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 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, fluctuations in metal prices, as well as those risk factors discussed or referred to in Management's Discussion and Analysis under the heading "Risks and Uncertainties" and other documents filed from time to time with the securities regulatory authorities in all provinces and territories of Canada and available at www.sedar.com.

Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended. 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. 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.

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