Ladies and gentlemen, thank you for standing by, welcome to the Dundee Precious Metals second quarter 2020 earnings conference call. At this time, all participants are in listen- only mode. After the speaker's presentation, there'll be a question- and- answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that the call will be recorded. If you require additional assistance, please press star then zero to reach an operator. 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 Rae, President and CEO, and Hume Kyle, Chief Financial Officer. After the close of business yesterday, we announced our second quarter results, and we hope you have had an opportunity 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 IFRS. Please refer to the 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 have generally been rounded, and any references to 2020 pertain to the comparable periods in 2019. I'll now turn the call over to David Rae.
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 by all of our sites to proactively respond to the challenges of the COVID-19 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 has included upgrades to the Tsumeb district hospital in Namibia, where our contributions provided a new decontamination facility, COVID-19 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 support of their COVID relief efforts.
We are continuing to take proactive measures to closely monitor the situation, given our financial and operating strength, we're well positioned to manage these challenges. Looking at highlights of our second quarter, these include excellent operating performance at all our operations, which resulted in a production of 81,000 oz of gold and 9.4 million pounds of copper. There was strong performance at the smelter while accommodating a 30-day staffing and throughput reduction due to COVID-19 and the request of the local authorities, we had a strong cost performance resulting in an all-in sustaining cost for the quarter of $729 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 million of free cash flow for the quarter.
It's also important to highlight, as Hume will also note, that this free cash flow number was after delivery on our prepaid gold facility of approximately 7,000 oz 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 other guidance metrics, which Hume will review following my remarks. Turning to Ada Tepe. Ada Tepe continues to deliver impressive performance. After achieving its targeted production rate within its first full quarter of operation last year, Ada Tepe has steadily increased its gold production in each quarter. In Q2, gold production increased to a new record of 32,300 oz, exceeding planned levels as a result of a combination of strong gold grades and higher volume of ore treated.
With cash costs of $44 per ton of ore processed, cost performance was also significantly better than anticipated for reasons, again, which Hume will discuss shortly. The mine and mill continue to perform at planned levels and to meet or exceed our expectations. With this strong start to the year, Ada Tepe continues to be on track to meet its 2020 guidance, with gold production increasing significantly over 2019 levels as our newest mine contributes its first full year of production and cash flow generation to our portfolio. We're also continuing with our exploration efforts around Ada Tepe, with field activities and drilling continuing at near- mine prospects. We have approximately 5,000 m of drilling planned at Surnak and two other satellite deposits during the second half of the year. Turning to Chelopech.
It continued its track record of consistent performance, producing over 49,000 oz of gold and 9.4 million pounds 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 ton of ore processed were also in line with our expectations. 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 brownfields exploration programs. In the second quarter, we drilled 11,000 m on resource 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 activity, diamond drilling from surface continued through the second quarter of 2020, targeting the Wedge South target and Krasta with over 4,000 m completed on 11 holes. A new target was identified in addition at West Shaft, which is located approximately 1 km southwest of the Chelopech Mine. We're drilling to test this zone, and that commenced in late June. In terms of Tsumeb, it delivered a strong performance during the quarter, while also managing certain unique challenges within our group related to COVID-19. As we previously announced, we reduced operations at Tsumeb for a period of 30 days during the second quarter, as we shut down ancillary plants and reduced the number of people at the site in direct response to the government's request to reduce staffing levels.
Full operations, however, resumed in early May, and we continue to manage the number of employees and contractors working at site, 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 melted for the second quarter was reduced by approximately 10%, our performance remains strong with the smelter processing over 58,000 tons at a cash cost of $345 per ton. As a result of its strong performance and good management of the challenges posed by COVID, Tsumeb remains on track to deliver its 2020 guidance. Overall, as you can see from the exceptional second quarter results, 2020 is on track to be another milestone year for DPM as we are now starting to demonstrate the significant potential of our portfolio.
In terms of future growth, our Timok project in Serbia is advancing well with a potential growth opportunity. Following encouraging results from the optimization work completed last year to incorporate the sulfide portion of the resource, we initiated a pre-feasibility 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 strong returns and enhance the value of the company. Overall, DPM has never been in a strong position. With our strong second 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. Yesterday announced a third 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, 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. I'll now turn the call over to Hume for a review of our financial results and comments 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 $46 million or $0.25 per share, representing an increase of $0.16 per share compared to 2019, and adjusted EBITDA was $79 million, up $45 million compared to 2019. Adjusted net earnings for the six months were $92 million or $0.51 per share, representing an increase of $0.43 compared to 2019, and adjusted EBITDA was $156 million, up $105 million compared to 2019.
Relative to these prior- period results, the results certainly benefited from higher volumes of gold, primarily reflecting the start-up of Ada Tepe and continued strong performance from our flagship Chelopech Mine, as well as higher gold prices and a stronger dollar. 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 million and $85 million respectively, compared with $9 million and $24 million in 2019, 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 million and $124 million in Q2 and year to date, compared with $30 million and $45 million in 2019. This performance translated into record free cash flow of $58 million and $108 million in the quarter and year to date, respectively, compared to $24 million and $34 million in 2019 and reflects the delivery of 7,000 and 20,000 oz of gold in the quarter and year to date in respect of the prepaid forward gold sales arrangement, which resulted in approximately $10 million and $27 million of deferred revenue being recognized in earnings with no corresponding contribution to cash flow. Over the balance of the year, we expect to deliver the remaining 14,000 oz that are due under this arrangement.
Turning to our consolidated cost measures, our all-in sustaining cost for the quarter was $729, up 3% from 2019, due primarily to lower byproduct credits and higher share-based compensation due to the increase in DPM share price, partially offset by the impact of low-cost gold from Ada Tepe. Year-to-date, all-in sustaining cost was $662, down 13% from 2019, reflecting primarily the low-cost gold production from Ada Tepe. At Tsumeb, Q2 and year-to-date cost per ton was $345 and $352 respectively, down 8% and 5% period-over-period, due primarily to a weaker ZAR, which is partially offset by lower acid prices and in Q2 by lower volumes of concentrate smelted as a result of regional measures that were undertaken by the Namibian government in order to reduce the risks related to COVID-19 in the natural resource sector.
From a CapEx expenditure standpoint, sustaining capital expenditures in Q2 and year-to-date were $11 million and $18 million respectively, up $6 million and $10 million from 2019, reflecting the investment we're making to extend the life of Chelopech Tailings Management facility, as well as the additional expenditures that are emanating from the startup of Ada Tepe. Growth capital for Q2 and year-to-date were $1 million and $4 million respectively, down $14 million and $29 million period- over- period, simply relating to the completion of the Ada Tepe mine. With these results, our financial position strengthened during the quarter with available cash resources now at $226 million, comprising $76 million of cash and $150 million of an undrawn revolving credit facility. We also have a liquid portfolio which provides additional potential upside.
This is comprised primarily of a 9.4% interest in Sabina and a 19.4% interest in INV, with an excess market value of $65 million. From a risk management perspective, all of our key metrics and underlying financial exposures are well within established tolerance levels. During the quarter, there was no changes made in our balance of year or 2021 hedge positions that we established to reduce Tsumeb's operating cost exposure to foreign currency movements. For 2020 and 2021, approximately 79% and 55% of Tsumeb's projected operating costs have been hedged using zero cost collars, and detailed information can be seen in the MD&A. We are also continuing to closely monitor and assess the potential impacts of COVID-19 on the business and wherever appropriate, are deploying additional resources, and measures to ensure that we protect our employees and the continued operation of our facilities.
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, we are on track to meet or beat previously issued 2020 guidance. In particular, our two mines' combined gold production is expected to be between 257,000 and 299,000 oz of gold, with copper production between 35 and 40 million pounds of copper, with gold expected to be at the higher end of the range, reflecting the strong operating performance that we're seeing from both operations, which are expected to deliver all-in sustaining costs in the range of $700-$780 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 Ada Tepe, we did lower our 2020 cash cost per ton guidance from $50-$60 per ton to $44-$50 per ton, reflecting approximately a 15% improvement that we see in the cost of the business. At Tsumeb, complex concentrate throughput is expected to be between 230,000 and 265,000 tons for the year, with cash costs expected to come in at the lower end of the range of $378-$450 per ton. Our longer-term outlook covering 2021 and 2022 remains unchanged from what we issued in February 2020 and can be found in the outlook section of our MD&A.
With the significant free cash flow that's being generated by the business, as demonstrated by our Q2 results, we're 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 expect to continue to grow our cash position to support prudent investments in 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 the market is recognizing our efforts as our share price has continued to perform well, both in absolute terms and relative terms to our peers.
When you consider the strength of our operations, our three-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. With that, I'll turn the call back over to the operator.
As a reminder, to ask a question, you will need to press star then one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Cosmos Chiu of CIBC. Your line is open.
Hi. Thanks, David and Hume. First off, congratulations on a very strong Q2. Maybe my first question is on Ada Tepe. Again, very strong Q2 here. Your grade was very high at 5.34 g 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 highest grade stockpiles, mid-grade, low- grade. How are those stockpiles looking and how that kind of fits into your near- term grade profile?
Hi, Cosmos. Yeah, thanks.
Hi, David.
It's not a consequence of what's going on with the stockpiles. What happened was that the in-situ 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. Looking forward, we would not anticipate that that will be the grade consistently going forward. 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 weight, just as important as what we're bringing out in terms of ore, in terms of building the IMWF and so on.
In this particular case, combination of two things. One, the grade was higher in-situ than we anticipated, which was, like I said, a nice problem to have. It has actually come down a little after that, so it's more towards what we would typically expect. 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 stockpile movements in this particular case.
For sure. David, on that, it sounds like it is positive grade reconciliation. Do you have a handle on it yet? Would that positive grade reconciliation be reflected in any way later on through a resource update? How would that potentially change a mine plan?
Yeah. We are as busy, I think, as you know, Cosmos, on upgrading the reserves and resources for Chelopech. What we anticipate is that we'll have a resource confirmation towards the end of this quarter and a technical report early in the fourth quarter. Within that will be the latest information, which does include a very large amount of grade control drilling. Obviously a latest assessment of some conversion of resources as well. You can anticipate seeing that. This will be the updated statement in terms of the in-situ grade reconciliations and also the projected ounces as part of the reserve going forward.
David, as you mentioned, that's for Chelopech. How about for Ada Tepe?
No, that is Ada Tepe.
Oh, that is Ada Tepe. Okay. 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? How does it look for the remainder of, what kind of capacity do you have right now?
Yeah. It's not a constraint at the moment, as you'll see in a quarter where we demonstrated despite mill downtime, we still produced at basically the design capacity of the facility for the quarter without that mill new line. We're not having any constraints at all as a consequence of the IMWF, nor do we project any at the moment. I think if you recall, you were at site and you saw the two valleys, and of course what happens is as you progress with the IMWF, the constraints in terms of surface area reduce. Therefore, the risk initially in the operation was highest right at the point of the first startup. We managed through that, and we've come through a full set of seasons as well. We've been through winter, summer, high rainfalls, low rainfalls.
We're now fully familiar with all the different operating parameters of this facility. At this point, what I see is risk reducing, not increasing, and it is not a current constraint.
Perfect. Then maybe just quickly on the recovery, I see that recovery is fairly stable at Ada Tepe, 83.9%. If I remember correctly, the target was to get up to 85%. I guess my question is, are you 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 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 control. We've 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 at site. This will give us an online analysis of what's going on in the flotation circuit. Something that's actually fairly unique. This piece of equipment is not commonly available, 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 mass pull to control what we anticipate will be the recovery. That's not an ideal control loop. We do anticipate there are opportunities, and at this point we're still targeting 85%.
Mm-hmm, for sure. 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-19 pandemic. During that period, were you able to do any maintenance work, routine maintenance work? Did you need to do any kind of routine maintenance work? On that as well, could you remind us in terms of the maintenance cycle, I think previously you had extended it from 12 months to 18 months. When is the next big shutdown coming up?
Yeah. Thanks for raising that, actually. It's something that I didn't mention, but you might see some of the images around the work that we were doing. We have maintenance cycle activity, significant things at all of our sites, actually. We had to rebuild two of the converters, which 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 expertise which we don't typically expect to have in direct support in Namibia. In this case, we couldn't really bring people in from South Africa. What we did is we used some of the digital tools that we have. We have people working with cameras and using iPads and having conversations about quality and how to make certain adjustments and things like that. That was very successful.
We've actually rebuilt two converters during the quarter. The production included that. The Ausmelt, just to touch on that, and then I'll come back to the mines. The Ausmelt is around nine months into its operating cycle now, and we anticipate that we will be doing the rebuild, or we're planning for the rebuild at some point in the first quarter of next year. That's making preparations so that we're ready for any eventuality. At this point, the Ausmelt is trending well in terms of its refractory consumption. You didn't ask about the mines, but I thought I might throw it in. We actually, as I mentioned earlier, did the reline on both SAG mills during the quarter.
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. The coordination team using all levels of people in the organization, including one of our operations directors, that did those relines, and they happened on time, on budget, and safely. We're extremely happy with the performance of our teams on dealing with those types of significant items 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.
Thanks, Cosmos.
Thanks, Cosmos.
Our next question comes from Ingrid Rico of Stifel GMP. Your line is open.
Great. Thanks. Good morning, David and Hume, and the rest of the team. Congrats on another strong quarter. My question is at Chelopech. You had indicated that the higher gold grades were a reflection of an optimized mining sequencing. 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 grade profile for the remainder of the year?
Yeah. Thanks for raising that, Ingrid. I'll take a go at that. Yeah, maybe the optimization is a bit of a distraction 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 opportunities periodically to look at, well, we have something in proximity, would it make sense to change out elements of the sequence? Typically, we don't like doing that because what would happen is doing it on such a short term is you create a number of inefficiencies.
One of the things that Chelopech is known for, and I think its performance is related to, is its focus on what's the plan, what's the delivery against that plan on a 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. 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 and grade, as these things do, because we have so many different ore types at Chelopech. Perhaps it's a little strong in terms of the terminology. It's a sort of routine activity we did.
It's not related to bringing in any higher grades that we've found in upper areas that weren't already part of the plant. 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 Chelopech. That also factored in.
Okay. For the remainder of the year, we should just think of sort of steady grades, the way we've been seeing it over the last 12 months.
I think that would be reasonable to assume, yes.
Okay. For Ada Tepe, you covered 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? Also we should expect the throughput to be strong for the second half?
Yeah, good question. Thank you. 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 notice between Q1 and Q2, we've managed to mitigate that as we've been working on the process plants and been getting greater online time and instantaneous tonnage capability. We do in fact have a reline in Q4. We have two relines per year. We did one in Q2. We'll 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 Ada Tepe. We still have a little bit in hand on that. We can still exceed a little on the production side. However, I think it's probably going to be more down to grades for the rest of the year in terms of variability. At this point, I think Q2 was an exceptional quarter. That was certainly above what we anticipated. It is going to come back more towards what would be the resource level for the rest of the year. I think we've reflected that in terms of our optimism, in terms of cash cost, but a little bit lower generation rate on gold 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 Rae for any closing remarks.
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 weekend. 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.