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Research Note - Dundee Precious Metals Inc. (DPM:TSX,$6.20|BUY $15.50 TARGET) Q2 Financials In-Line; Beat on AISC - Progress at Loma Larga

Yesterday, after market close, DPM released Q2/22 financial and operating results. Production results were pre-released on July 11th, 2022. Q2 was a strong quarter for DPM with production and cost metrics beating expectations, however, the 45-day maintenance shutdown at the Tsumeb Smelter affected earnings. The Company was within guidance for both production metrics as well as cost.


DPM reported better than expected cost performance in Q2 with AISC of $792/oz Au vs. our estimate of $843/oz Au. Cash costs were $611/oz Au vs. our estimate $602/oz Au. Cash flow generated from operations was $71.8M, below our estimate of $75.9M. Free cash flow also missed expectations, coming in at $41.2M for the quarter vs. our expectations of $61.2M. The miss on cashflow can primarily be attributed to the 45-day maintenance shutdown of the Tsumeb Smelter as well as the capital expenditure required for the maintenance. As a reminder, the Smelter is up and running and the Company is seeing better efficiency following the maintenance.


We are maintaining our BUY rating and our 12-month target price of C$15.50/share.


DPM continues to maintain a strong financial position, ending the quarter with $423M in cash, an undrawn $150M credit facility, an investment portfolio of $35.8M and no debt.


On July 28th, 2022, DPM maintained its dividend of $0.04/sh (~2% annualized) payable on October 17th and repurchased 1.6M common shares for a total value of $9.5M in the quarter.


Progress at Loma Larga: As previously reported, the Company provided an update on the Loma Larga project in Ecuador, stating it received technical approval of the Environmental Impact Assessment (“EIA”) study from the Ministry of Environment, Water and Ecological Transition (“MAATE”). The process is now advancing to the Citizens Participation Process (CPP), followed by another review by the MAATE and the issuance of the environmental license, which is expected in Q3 of 2022. We note that the CPP was temporarily postponed due to the national protests in June. Despite the protests, we are pleased with the developments DPM has made since the acquisition of the project.


In parallel with the permitting activities, DPM continues to advance towards an updated feasibility study (FS). Since the acquisition of the project the Company has been progressing with several optimization studies to better improve the FS completed by the previous owner. These studies include a metallurgical test program, mine optimization trade-off studies and a 15,800m drill program to study the following more accurately: hydrogeological, geotechnical, metallurgical, condemnation and extension drilling.


DPM plans to complete the FS in Q4/22 or early Q3/22; we expect the project economics to exceed the previous FS which depicted a project NPV5% of $520M using a base case gold price of US$1,400/oz.

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