Ladies and gentlemen, thank you for standing by, and welcome to the Dundee Precious Metals Second Quarter 2020 Earnings Conference Call. At this time, Please be advised that the call will be recorded. I would now like to hand the call over to Jennifer Cameron, Please go ahead.
Thank you and good morning. I'm Jennifer Cameron, Director of Investor Relations, and I'd like to welcome you to Dundee Precious Metals Second Quarter Conference Call. With me today are David Ray, President and CEO and Hume Kyle, Chief Financial Officer. After the close of business yesterday, we announced our 2nd quarter results and we hope you have had an need to review our materials. 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 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. These measures have no standardized meanings 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 Please refer to the non GAAP financial measures section of our most recent MD and A for reconciliations of these non GAAP measures. Please note that unless otherwise stated, operational and financial information communicated during this call has generally been rounded and any references to 2020 pertain to the comparable periods in 2019.
I'll now turn the call over to David Ray.
Good morning, and thank you all for joining us today. As you have seen from our news release circulated last night, we delivered another exceptional quarter. Achieving multiple records for operating and financial performance. The strong results we've achieved in the first half of the year is a reflection of the outstanding efforts proactively respond to the challenges of the COVID-nineteen pandemic as we continue to prioritize the health and safety of our workforce and provide support to our local communities in Bulgaria, Namibia and Serbia. Most recently, this is included upgrades to the Tsumeb District Hospital in Namibia, where our contributions provided a new decontamination facility, COVID-nineteen screening rooms, upgraded reception and testing area, a refurbished ward, accommodations for healthcare workers and other medical equipment and PPE.
We've also donated to organizations in Canada in supportive of COVID relief efforts. We are continuing to take proactive measures to closely monitor the situation and given our financial and operating strength, we will session to manage these challenges. Looking at highlights of our second quarter. These include excellent operating performance at all our operations, which resulted in smelter while accommodating a 30 day staffing and throughput reduction due to COVID-nineteen in the request of the local authorities. We had a strong cost performance resulting in an all in sustaining cost for the quarter at $7.29 per ounce.
Our strong operational performance combined with higher gold prices generated strong financial results, which included record net earnings adjusted EBITDA and a record $58,000,000 of free cash flow for the quarter. It's also important to highlight, Assume, we'll also note that the free cash flow number was at the delivery on our prepaid gold facility of approximately 7000 ounces in the quarter. After delivering a very strong first half of the year, I'm pleased to say that we are tracking towards the high end of our annual guidance for production and remain on track to meet all of the guidance metrics, which Hume will review following my remarks. Turning to Adatepec, Atifepi continues to deliver impressive performance after achieving its targeted production rate within its first full quarter of operation last year, at Otothea has steadily increased its gold production in each quarter. In Q2, gold production increased to a new record of 32,300 ounces exceeding planned levels as a result of a combination of strong gold grades and higher volume of ore treated.
The cash cost of $44 per tonne of ore processed Cost performance was also significantly better than anticipated for reasons again, which Jean will discuss shortly. The mine and mill continue to perform at planned levels and to meet our exceed our expectations. With the strong start to the year, the Tepi continues to be on track to meet its 2020 guidance with gold production increasing significantly over 2019 levels as our newest mine contributes its 1st full year of production and cash flow generation to our portfolio. We're also continuing with our exploration efforts around Atatepec with field activities and drilling continuing at near mine prospects. We have approximately 5000 meters of drilling planned at Cernac and 2 of the satellite deposits during the second half of the year.
Turning to Chelopech. It continued its track record of consistent performance producing over 49,000 ounce of gold and £9,400,000 of copper, Gold production was higher than expected due to optimization of the mining sequence, which resulted in higher gold grades to the mill and gold grades in Pyrite concentrate copper production was as expected. Cash costs of $37 per tonne of ore processed were also in line with our So overall Chelopech is on track to meet its 2020 guidance and continues its excellent performance. In terms of exploration, we continue to focus on extending mine life through our in mine and brownfield exploration programs. In the second quarter, we drilled 11,000 meters on resort development drilling with the aim of better defining the shape and volume of existing ore bodies and to explore for new mineralization along model trends.
In terms of brownfield activities, diamond drilling from surface continued through the second quarter of 2020, targeting the Wifestyle target and the Kraasta with over 4000 meters completed on 11 holes. The new target was identified in addition at West Shaft, which is located approximately 1 kilometer Southwest of the Chelopech mine and we're drilling to test this on that commenced in late June. Sales of Tsumeb, it delivered a strong performance during the quarter, while also managing certain unique challenges within our group related to COVID-nineteen. As we previously announced, we've reduced operations at Tsumeb for a period of 30 days during the second quarter as we shut down an ancillary plant and reduce the number of people at the sites in direct response to the government's request to reduce staffing levels. Full operations, however, resumed in early May, and we continue to a number of employees and contractors working outside, along with the control practices that we've established at all of our sites.
The operating team managed these challenges well and while complex concentrates smelted for the second quarter was reduced by approximately 10% performance remains strong with the smelter processing over 58,000 tons at a cash cost of $3.45 per ton. As a result of its strong performance and good management of the challenges posed by COVID, SINA remains on track to deliver its 2020 guidance. Other as you can see from the exceptional 2nd quarter results, 2020 is on track to be another milestone year for DPM as we are now starting to demo rate the significant potential of our portfolio. In terms of future growth, our team up project in Serbia is advancing well as a potential growth opportunity. Following encouraging results from the optimization were completed last year to incorporate the sulfide portion of the resource, we initiated study, which is progressing well and is expected to be completed by the end of 2020.
We also continue to evaluate additional opportunities to support growth and that have the potential to generate stronger terms and enhance the value of the company. Overall, DPM has never been in a strong position with our strong 2nd quarter results, we've demonstrated that significant free cash flow generation is underway and that we are committed to deploying the capital in a disciplined manner. Earlier this year, we were pleased to announce an inaugural dividend of $0.02 per share, a quarterly level we believe to be sustainable based on our free cash flow outlook. And yesterday announced the 3rd quarter dividend payable on October 15th. This is a signal of our commitment to delivering superior returns to shareholders and a disciplined approach to capital allocation, as well as our confidence that we will continue to deliver strong results in the coming years.
Before I wrap up, I'd like to acknowledge all of our dedicated employees across the company for their outstanding efforts to proactively respond to the challenges of the COVID 19 pandemic. While also maintaining the continuity of our operations. With continued volatility in global markets, we expect strong fundamentals for gold to continue and DPM is well positioned to benefit in this environment and to withstand any potential impacts arising from COVID 19. We firmly believe that DPM's strong fundamentals continue to represent a compelling value opportunity for investors. So I'll now turn the call over to you for a review of our financial results and comment on our 2020 guidance, following which we'll open the call to questions.
Thanks very much Dave. Good morning everybody. As Dave noted, Q2 was an exceptional quarter for DPM with continued strong operational performance from all of our operations and higher gold prices that generated record results, including record net earnings and record cash flow. For the quarter, adjusted net earnings were 40 $1,000,000 or $0.25 per share, representing an increase of $0.16 per share compared to 2019, and adjusted EBITDA was 7 $79,000,000, up $45,000,000 compared to 2019. Adjusted net earnings for the 6 months were $92,000,000 or $0.51 per share, representing an increase of $0.43 compared to 2019, and adjusted EBITDA was 156,000,000 up $105,000,000 compared to 2019.
Relative to these prior period results, the results certainly benefited from higher volumes of gold, primarily reflecting the startup of Atatepe and continued strong performance from our flagship Chelopech mine, as well as higher gold prices and a stronger dollar. And with the strong share price performance that we experienced year to date. And particularly, in the quarter, we did book some significant mark to market costs. That partially offset these favorable benefits that I just referred to. From a cash flow perspective, cash flow from operating activities, in the quarter and year to date was $76,000,000 $85,000,000, respectively, compared with $924,000,000 in 20.19.
Reflecting the same factors that increased earnings as well as changes in working capital due primarily to timing of customer receipts, higher gold prices and higher deliveries. Funds from operations, which is before working capital were $67,000,000 124,000,000 2 and year to date, compared with $30,000,000 $45,000,000 in 20 19. This performance translated into record free cash flows $58,000,000 $108,000,000 in the quarter and year to date, respectively, compared to $24,000,000 $34,000,000 in 20.19 and reflects the delivery of 7020,000 ounces of gold in the quarter and year to date in respect of the prepaid forward gold sales arrangement. Which resulted in approximately $10,27,000,000 of deferred revenue being recognized in earnings with no corresponding contribution to cash flow. Over the balance of the Our all in sustaining costs for the quarter was $7.29, up 3% from 2019, due primarily to lower product by product credits and higher share based compensation due to the increase in DPM share price, partially offset by the impact of low cost gold from Atifepa.
Year to date, all in sustaining cost was $6.62, down 13% from 2019, reflecting primarily the low cost gold production at Sumatate. At Tsumeb Q2 and year to date cost per ton was $3.45 $3.52, respectively, down 8% 5% period over period due primarily to a weaker czar, which was partially offset by lower asset prices and in Q2 by lower volumes and concentrate smelted as a result of regional measures that were undertaken by the Namibian government in order to reduce the risks related to COVID-nineteen in the natural resource sector. From a capital expenditure standpoint, sustaining capital expenditures in Q2 and year to date were $11,000,000 $18,000,000, respectively, up $6,000,000 $10,000,000 from 2019, reflecting the investment we're making to extend the life Chile pit tailway management facility, as well as the additional expenditures that are emanating from the start up at Atepe. Growth capital, for Q2 and year to date were $1,400,000,000, respectively, down $14,000,000 $29,000,000 period over period, simply relating to the completion of the Atatepec mine. With these results, our financial position strengthened during the quarter, available cash resources now at $226,000,000, comprising $76,000,000 of cash and $150,000,000 of undrawn revolving credit facility.
We also have a liquid portfolio, which provides additional potential upside as this comprised primarily of a 9.4% interest in Sabina, and a 19.4 percent interest in IND with an excess market value of $65,000,000. From a risk management perspective, all of our key metrics and underlying financial exposures are well within established tolerance levels during quarter. There was no changes made in our balance of year of 21 hedge positions, that we established to reduce Tsumeb's operating costs exposure to foreign currency movements. So in, so for 2020 2021, approximately 79% 55% of Tsumeb projected operating costs have been hedged using 0 cost collars and detailed information can be seen in the MD and A. We are also continuing to closely monitor and assess the potential impacts of COVID-nineteen on the business and wherever appropriate or deploying additional resources and measures to ensure that we protect our employees and the continued operation of our facilities.
And of course, while we cannot guarantee that we will continue to be successful in mitigating these impacts, we do remain diligent and have the necessary financial resources to deal with any potential impacts coming from this pandemic. Looking forward, we continue to focus on increasing the profitability of our business by optimizing our existing assets and we are on track to meet or beat previously issued 2020 guidance. In particular, our 2 mines combined gold production is expected to be between 2 57,299 ounces of gold with copper production between £35,000,000 £40,000,000 of copper, with gold expected to be at the higher end of the range, reflecting the strong operating performance that we are seeing from both operations, which are expected to deliver all in sustaining costs in the range of $700 to $7.80 per ounce. Should foreign exchange rates and copper prices remain at current levels over the balance of the year, we would actually expect 2020 costs to be at or below the lower end of our guidance. As Dave mentioned earlier, at Atatepe, or at Atatepe, we did lower our 2020 cash cost per ton guidance.
From $50 to $60 per tonne to $44 to $50 per tonne, reflecting approximately a 15% improvement that we see in the cost of the business. At Tsumeb, complex concentrate, throughput is expected to be between 5000 tons for the year, with cash costs expected to come in at the lower end of the range of $3.70 to $4.50 per ton. Our longer term outlook covering 20212022 remains unchanged from what we issued in February 2020 and can be found in the outlook section of our MD and A. With the significant free cash flow, the being generated by the business as demonstrated by our Q2 results were in great shape, financially to optimize and grow the business. Which we remain committed to doing so in a disciplined manner, consistent with our capital allocation framework and expected to continue to grow our cash position to support prudent investments and high return growth opportunities and to return a portion of our free cash flow generation to our shareholders by way of a regular quarterly dividend the most recent of which we announced yesterday.
Finally, we are pleased to see perform well, both in absolute terms and relative terms to our peers. And when you consider the strength of our operations, our 3 year outlook, and our potential to generate significant free cash flow, we continue to believe that DPM represents an attractive investment opportunity for gold investors. So with that, I'll turn
first question comes from Cosmos Chiu of CIBC. Your line is open.
Hi, thanks, David and Hugh. And, first off, congratulations on a very strong Q2. Maybe my first question is on addedtepe, again, very strong Q2 here. Your grade was very high. At, 5.34 gram per ton in the quarter.
Could you maybe talk a bit about the sustainability of that head grade. I remember when I was on-site last year, almost a year now or over a year, You had put together some stockpiles, some higher highest grade stockpiles, mid grade, low grade. How are those stockpiles looking and how that kind of fits into your near term grade profile?
It's not a consequence of what's going on with the stockpiles. So what happened was that the institute grade was a little higher than we'd anticipated. This has been a bias, as you know, it's been an ongoing bias to the positive, which of course is a very nice problem to have. We have a similar bias at Chelopech of around 3%, but less significant than it was in this quarter. So looking forward, we would not anticipate that that will be the grade consistently going forward.
And in fact, being such a small deposit, we don't have a lot of flexibility in terms of the sequence of activities. Here we've got to be very careful about what we're bringing out in terms of waste. Just as important as what we're bringing out in terms of ore in terms of building behind WF and so on. So in this particular case, combination of 2 things: 1, the grade was higher in such anticipated, which was like I said, nice prompt out. And it has actually come down a little after that.
So it's more towards what we would typically expect. So I think this was a higher quarter than anticipated. Like I said, it is a slightly consistent bias high and I don't believe it's got anything to do with stockpiles movements in the particular case.
For sure. And David, on that, so it sounds like it is positive grade reconciliation Do you have a handle on it yet? Is it, and would that positive grade reconciliation be reflected any way later on through a reserve resource update, and how would that potentially change your mine plan?
Yes. So we are as busy, I think, as you know, Cosmos on upgrading the reserves and resources for Chelopech and what we anticipate is that we'll have a resource confirmation towards the end of this coming this quarter and a technical report early in the fourth quarter. And within that will be the latest information, which is include the very large amount of grade control drilling. And obviously, the latest assessment of the some conversion of resources as well. So you can anticipate seeing that this will be the updated statement in terms of the institute grade reconciliations and also the projected ounces as part of the reserve going forward.
That is David, as you mentioned, yes, that's for Chelopech. How about for add a tap pay?
No, that is add a tap pay.
Oh, that is add a tap pay. Okay. And then, as you mentioned, the IMWF, there were, I don't want to say issues, but there were some hiccups last year. In terms of building it out. Could you give us a quick update on it?
How is it any issues now in terms of settlement Are you back on track and how does it look for the remainder of what kind of capacity do you have right now?
Yes, so it's not a constraint at the moment as you'll see in a quarter where we demonstrated despite mill downtime, we still produce basically the design capacity of the facility for the quarter without that mill new line. So we're not having any constraints at all. Consequence of behind WF nor do we project any at the moment. I think if you recall, you were at site and you saw the 2 values and of course what happens is as you progress with the RNW, the constraints in terms of surface area reduced for those 4, the the risk initially in the operation was highest right at the point of this first startup. And we managed through that and we've come through a full set of seasons as well.
We've been through winter summer, high rainfalls, loan rainfall. So we now fully familiar with all the different operating parameters of this facility. So At this point, what I see is reducing not increasing than it is not a current constraint.
Perfect. And then maybe just on quickly on the recovery, see that recovery is fairly stable at Atatepe, 83.9%. If I remember correctly, the target was to get up to 85%. So I guess my question is, you're fairly happy with where recovery levels are. From what you know so far, could you actually get beyond that 85% or is 85% what you're still targeting at this point in time?
We're still targeting 85%. The 80 just under 84% is a little lower than where we believe the opportunity is. We actually have some additional tools that are coming in to give us additional information on which we can get more continuous monitoring and all. We got a piece of equipment coming in. It's just been delayed by COVID.
So that was anticipated to be in by the middle of the year. It's actually outside. And this will give us an online analysis of what's going on in the flotation. So it gets something that's actually fairly unique. This piece of equipment is not commonly available used not used widely.
And we'll be implementing and it will give us information on what our actual losses are at the moment. You have to wait for the assay results and then make some decisions on Maspal. To control what we anticipate will be the recovery. That's not an ideal controlling. So we do anticipate there are opportunities.
And at this point, we're still targeting 85%.
For sure. And maybe just one question here on Tsumeb. Switching gears a little bit, as you talked about, David, there was a 30 day curtailment period. As a response to COVID-nineteen pandemic. During that period, were you able to do kind of any maintenance work, routine maintenance work Did you need to do any kind of routine maintenance work?
And on that as well, could you remind us in terms of maintenance cycle? I think previously you had extended it from 12 months to 18 months when's the next sort of big shutdown coming up?
Yes. Thanks for raising that actually is something that I didn't mention, but you might see some of the images around the work that we were doing. So we have maintenance cycle activity, significant things at all of our sites actually. So we have to rebuild 2 of the convertors. This would typically be done by bringing in people from South Africa to do that work.
It's a very significant job and it requires a level of parties, which we don't typically expect to have indirect support in Namibia. But in this case, we couldn't really bring people in from South Africa So what we did is we used some of the digital tools that we have. So we have people working with cameras and using iPads and having conversations about quality and how to make certain adjustments and things like that. And that was very successful. So we've actually rebuilt 2 converters during the quarter.
So the production included that. The osmelt, so just to touch on that, and then I'll come back to the mines. The osmelt is around 9 months into its operating cycle. Now we anticipate that we will be doing the rebuild. Are we planning for the rebuild at some point in the first quarter of year.
So that's making preparations so that we're ready for any eventualities. So at this point, the Osmelt is trending well in terms of its refractory And then you didn't ask about the mines, but I thought I might throw it in. We actually, as I mentioned earlier, did the realign on both segments during the quarter And actually what happened was that our own teams did those because they couldn't rely on outside third parties and we were keeping people away from the site. To control what might happen with COVID. So the coordination team using all levels of people in the organization, including one of our operations direct that did those relights and they happened on time on budget and safely.
So we're extremely happy with the performance of our teams on dealing with those types of significant where we'd normally rely on bringing in third parties.
Perfect. That sounds great. Thanks, David, and Hume. And congrats once again on a very strong Q2. Have a good long weekend and stay safe.
Our next question comes from Ingrid Rico of Stifel GMP. Your line is open.
Great, thanks. Good morning, David and human and the rest of the team. Congrats on that another strong quarter. My question, is that Chelopech, you had indicated that the higher gold grades were of an optimized mining sequencing. So I'm wondering if you can comment a bit more on that and whether this is a result of underground exploration success?
And how should we think about that rate profile for the remainder of the year?
Yes, so thanks for raising that, Ingrid. I'll take a go at that. So yes, maybe the optimization is a bit of a traction here. Of course, what we do is we review the sequence on a regular basis. You're correct to assume that what we do is as we are doing our infill drilling and we take a stance in terms of different grades available to us.
We do take up opportunities periodically to look out well. We have something in proximity, would it make sense to change out elements of the sequence? However, typically, we don't like doing that because what would happen doing it on such a short term is you create a number of inefficiencies and one of the things that Chelopech is known for. And think its performance is related to is its focus on what's the plan, what's the delivery against that plan on the bunch of short interval controls and so on. However, in this case, what happened was we had a few sequence changes within Q1, which were not planned.
And we took the opportunity to look at what's the right approach in Q2. And it was partly due to we had one stope, which we ended up moving out of the sequence a little and it had implications on recovery grade as these things do because we have so many different ore types at Chelopech. So perhaps it's a little strong in terms of the terminology sort of routine activity we did. It's not related to bringing in any higher grades that we've found in upgrades that weren't already part of the plant. And a part of that would also be, as I mentioned, we do tend to have a slight positive bias on gold grades and we actually have a slight negative bias in copper grades at cell So that also affected them.
And so for the rest the remainder of the year, we should just think of sort of steady grades, the way we've been seeing it over the last sort of 12 months.
I think that would be reasonable to assume yes.
Okay. And for Atatepe, you cover a lot of my questions, but I guess maybe in terms of any maintenance for the remainder of the year, Is there anything that's planned for that or also we should expect the throughput to be strong for the second half?
Yes. Good question. Thank you. So we did anticipate that when we do our SAG Mill relines, that there would be an impact on the quarterly production, but as you'll know, between Q1 and Q2. We've managed to mitigate that as we've been working on the process plants and we've been getting greater online time in instantaneous tonnage capability.
So we do in fact have a realign in Q4. So we have 2 relines for the year. We did one in will do another in Q4. I'm not anticipating that will have an impact on the production, however, because I believe we can mitigate that. We are at the moment just under the constraint that we have, we are allowed to move up to 10% over our permitting level at added check-in.
We still have a little bit in hand on that, so we can still exceed a little on the production side. However, I think it's probably going to be more down to grade for the rest year in terms of variability. And at this point, I think Q2 was an exceptional quarter. That was certainly above what we anticipated. It is going to come back more was what would be the great the resource level for the rest of the year.
And I think we've reflected that in terms of our optimism in terms of cash costs, but a little bit lower generation rate on goal for the rest of the year. That's what's built into the guidance.
Okay. That's great. That's it for me. Thank you.
Thank you, Ingrid.
There are no further questions. I'd like to turn the call back over to David Ray for any closing remarks.
Well, thank you very much. I appreciate everybody joining us this morning. And we're looking forward to keeping everybody updated on our activities moving forward. Once again, thank you very much and enjoy the long Thank you. Bye bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.