Hey, ladies and gentlemen, welcome to the Dundee Precious Metals third quarter 2018 analyst conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require operator assistance during the conference, you may press star then zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Janet Reid. Ma'am, you may begin.
Good morning, everyone. I'm Janet Reid, the Manager of Investor Relations, welcome to Dundee Precious Metals' third quarter conference call. With me today are Rick Howes, President and CEO, and Hume Kyle, Chief Financial Officer, who will each comment on the quarter, as well as David Rae, Chief Operating Officer, Nikolay Hristov, SVP of Sustainable Development, and John Lindsay, SVP of Projects. They are here today to assist with answering any questions following our formal remarks. After close of business yesterday, we released our third quarter results and hope you have had an opportunity to review the material. 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 2017 pertain to the comparable periods in 2017. On this morning's call, Rick will comment on our third quarter and year-to-date operating results, as well as the progress being made on our capital projects and exploration programs for the quarter.
Hume will then provide an overview of our third quarter and year-to-date financial results, as well as our updated guidance for 2018. With that, I'll turn the call over to Rick.
Thanks, Janet, and hello, everyone, and thanks for joining us today for our third quarter 2018 conference call. I'm pleased to provide you with an update on third quarter results and progress on our key projects and initiatives. Overall financial results in the third quarter were strong, with earnings per share of $0.11, reflecting the steady progress being made by our operating teams to advance our operational excellence and optimization programs designed to improve the performance of our operations. We had strong metal production and sales from Chelopech and record smelter concentrate through for Tsumeb. In addition, we continue to advance construction and commissioning of our Krumovgrad project, which is 82% complete through the end of the third quarter, with first concentrate now expected in Q1 2019. Our balance sheet remains strong, with total liquidity of $250 million, including our cash and undrawn revolving credit facility.
Debt stands at only $39 million, as most of the funding for the Krumovgrad project has been coming from our free cash flow generation, which was $25 million in the quarter and $58 million year to date. We saw some weakness in gold price in the third quarter, with an average realized gold price of $1,209, down 7.5% from the previous quarter, reflecting the strong U.S. dollar, rising interest rates, and concerns about global trade tensions between China and the U.S. Copper also saw price weakness, with the price off more than 14% since the middle of June. Realized price for copper in Q3 was $2.77 per pound. I would also like to mention that all three of our active facilities achieved major safety milestone records this year so far.
Both the Krumovgrad project and the Tsumeb operation achieved 2 million lost time injury-free work hours, and our Chelopech operation achieved 1 million lost time injury-free work hours. These are outstanding results and are a testament to the effort and commitment of our entire workforce to work safely. Chelopech produced 49,644 ounces of gold and 10.3 million pounds of copper in the quarter at an all-in sustaining cost of $620 per ounce, which is putting us on track to be in the upper end of gold production guidance and lower end of all-in sustaining cost guidance for the year. We have produced record gold production for the first three quarters of 155,247 ounces at an all-in sustaining cost of $607 an ounce. We are seeing slightly higher grades and recoveries when compared to 2017. We expect copper grades to remain about the same for the rest of this year.
However, we expect gold grades to decline somewhat in the fourth quarter compared to the first nine months of the year. We expect to be at the upper end of guidance by year-end and close to the record gold production we achieved last year, which was 197,000 ounces. The EUR has strengthened 7% over the first nine months of 2017, increasing our cost per ton by 6% year-over-year. We have a number of improvement projects underway that will enhance revenues and decrease costs, including drill and blast optimization, mill optimization, a move to integrated dynamic planning and execution, and the introduction of our digital smart center for improved decision making.
In our in-mine exploration, a total of 6,392 meters of resource development diamond drilling was completed, which comprised 2,282 meters of grade control drilling aimed to better define the shape and volume of existing ore bodies and 4,110 meters of extensional drilling, designed to explore for new mineralization along model trends. We continue to identify extensions to existing ore bodies and new zones. We are focused on reserve conversion of some of these recently discovered resources, particularly in the inactive upper levels of the old sub-level cave mining area. Positive results were recorded for extensions of block 150, 525, targets seven and 700. We continued drilling on 250 meter spacing in the Southeast Breccia Pipe zone, 600 ground diamond drill holes totaling 1,967 meters were completed in the quarter. Several new 10 to 20 meter wide zones of typical Chelopech sulfide mineralized altered breccias were identified.
Diamond drilling at the Krasta target, approximately two kilometers northwest of the main Chelopech ore bodies, continued in the third quarter. Four diamond drill holes totaling 1,091 meters were completed. Ten holes have been completed and have outlined a new zone of shallow copper gold mineralization over a strike length of about 300 meters between 100 and 300 meters from surface. Mineralization is open in all directions, and permits for follow-up drilling are expected to be issued in the middle of next year. In Q4, we plan to continue drilling the Krasta target and Southeast Breccia Pipe zone, and conduct a drone magnetic survey and test several new targets on the Brevene license. Chelopech resources and reserves will be updated in the Annual Information Form in March. The smelter performance in Q3 continued the trend to more reliable and consistent operating performance.
We smelted a record 68,431 tons of complex copper concentrate, which is 12% higher than our previous record in Q4 2016. This is due primarily to the increased availability of all plant and increased process stability, including the high pressure oxygen plant, the performance of which has been optimized over the course of 2018. Performance was also enhanced by the introduction of converter and Ausmelt furnace improvements, including increased oxygen enrichment at the Ausmelt furnace, which helped to mitigate the impact of the converter reliance on the Ausmelt throughput. Process optimization will continue through the fourth quarter. 2018 complex concentrate smelters has been updated to reflect the strong performance year to date and continued strong forecast fourth quarter performance. Cash cost per ton of concentrate processed in the quarter was the best ever, $362 per ton.
Benefiting from the higher throughput, as well as cost reduction efforts, largely through reduction of outside services and labor productivity improvements. We continue to make progress reducing the secondary copper inventories that accumulated during the construction and commissioning of the new acid plant and copper converters. This reduction will continue through the rest of 2018 and 2019, and will result in a reduction in stockpile interest and allow higher throughput capacity for fresh concentrates. We continue to advance the smelter expansion project to increase the throughput of complex copper concentrate to as much as 370,000 tons per annum. The feasibility study was completed in the fourth quarter of 2016 and confirmed the robust project economics with an estimated completion capital cost of approximately $52 million.
The scope of the project includes the rotary holding furnace, additional cooling and other upgrades to the Ausmelt furnace, as well as upgrades to the slag mill area. Work is progressing on securing the necessary permits to support this planned increase, and discussions are underway to secure sufficient complex concentrate feed to fill the expanded capacity. A decision on this project is not expected to occur until the second half of 2019. The Krumovgrad construction project is approximately 82% complete versus the planned 89% complete at the end of September. Project is now expected to reach first concentrate production in Q1 2019. The schedule slippage is a result of delays caused by the concrete contractor delivery issues. Concrete contractor has been replaced. We have been unable to mobilize sufficient quality crews to catch up on the rest of the schedule.
Spending of $126 million has been incurred to date, with an additional $38 million to $42 million forecasted to complete. The aggregate cost of the project is still expected to be between $164 million and $168 million, compared to the original estimate of $178 million. A number of key milestones were achieved in Q3. All permits required for construction have now been received. The final construction permit for the discharge water line was issued in October. The construction for the main power line to the site was completed. The water reservoirs were lined and ready for filling. The thickener area construction was completed and cold commissioned. The integrated mine waste facility platforms were completed. We now have started construction of the first waste rock berm cells to store the tailings. We have mined 93,000 tons of ore, 155,000 tons of waste from the open pit.
Planned grade control drilling for the first phase of the pit was completed. The new information is being used to create the grade control model and refine the ore reserve model. The major mill structural, mechanical, and piping installations are progressing well, as is the electrical instrumentation work. Pre-commissioning activities have begun. Hot commissioning will start later in the fourth quarter. The operating team is on track with all elements of the operational readiness plan. Exploration has identified a number of satellite deposits within a few kilometers of Krumovgrad. We began phase 2 drilling in the Cernak satellite deposit, located four kilometers to the west of Krumovgrad, of the Krumovgrad open pit in Q3. We drilled 2,600 meters in 20 holes with assays pending. This program will be completed in Q4, and a maiden mineral resource estimate will be completed in Q1 2019.
Four drill holes were completed in the El Obo license with assays pending. Drilling will also begin on two other nearby licenses in early 2019. A drone magnetic survey will be flown over these areas in Q4. On September 24th, we announced the results of the updated mineral resource estimate for the Timok gold project in Serbia. We reported total indicated mineral resources of 47 million tonnes at 1.32 grams per tonne gold for 2 million ounces of resource, including oxide indicated mineral resources of 22 million tonnes at 1.06 grams for 740,000 tonnes, and transitional indicated mineral resources of 9.2 million tonnes at 1.1 grams per tonne gold for 338,000 ounces. The net change compared to the 2017 mineral resource estimate shows an increase 35% in tonnes and 16% increase in ounces.
Based on the updated mineral resource estimate, we have initiated a scoping study for Timok, and depending on the results of the scoping study, expect to release a preliminary economic assessment in the first quarter of 2019. These studies will focus on the initial economics of the oxide and transitional material to be constrained in a separate open pit shell, as well as the high-level potential for subsequent development of the sulfide resource. Development of a permitting approvals plan incorporating the ESIA process and approvals, as well as all additional permits and approvals, will be initiated as part of this study. Exploration plans for 2019 are being developed to identify additional high-quality targets to expand the near-surface oxide resources. Exploration drilling with a focus on shallow targets continued during the third quarter of 2018 and totaled 7,000 meters and 42 holes.
An additional 2,380 meters of trenching and channeling and 52 line kilometers of IP geophysics were completed. Exploration plans for the fourth quarter of 2018 include further diamond drilling, in-field soil sampling, geological mapping, trench and channel sampling, and high-resolution drone-based magnetic surveys. At the Malartic Joint Venture project in Quebec during the third quarter, till sediment sampling was completed. Exploration plans for the fourth quarter of 2018 include soil sampling to follow up on anomalous till sediments and a high-resolution aeromagnetic survey along the Marbenite and Norbenite shear zones within the Malartic Group. In summary, the strong results for the quarter reflects the exceptional progress our team has made to improve the performance of our operations and advance our growth projects. Tsumeb is starting to show the true potential of smelter assets to contribute significantly to the earnings and free cash flow of our business.
Given our significant near-term growth and free cash flow from our Krumovgrad project and solid earnings and free cash flow from our two existing operating assets, we represent an attractive investment opportunity for value and growth investors. Thank you. I'll now turn the call over to Hume, who will review the financial results and 2018 guidance, following which we will open the floor to questions.
Morning. Thank you, Rick. For the third quarter of 2018, we reported adjusted net earnings of $0.10 per share compared to $0.04 per share in 2017, an adjusted EBITDA of $36 million compared to $26 million in 2017. These increases were primarily driven by record operating and financial results at Tsumeb, as well as continued strong performance from Chelopech. For the first nine months of 2018, we reported adjusted net earnings of $0.18 per share compared to $0.07 and adjusted EBITDA of $87 million compared to $70 million in 2017. These increases were primarily driven by higher realized metal prices and higher volumes of metal sold at Chelopech, reflecting higher grades and recoveries. Higher volumes of complex concentrates smelted and higher estimated metal recoveries at Tsumeb, reflecting Tsumeb's continued success with optimizing performance and reducing secondaries, partially offset by a weaker U.S. dollar.
Similarly, from a cash flow perspective, funds from operations during the third quarter and first nine months of the year were $34 million and $81 million respectively, compared to $27 million and $70 million in 2017. Free cash flow, which we define as funds from operation less cash outlays for sustaining capital and mandatory debt service obligations, was $25 million and $58 million in the third quarter and first nine months respectively, compared to $18 million and $32 million in 2017. These increases reflect higher funds from operations as a result of the improved operations at both Chelopech and Tsumeb and $16 million of term loan repayments that occurred in the first nine months of 2017.
Turning to cost measures, cash cost per ton of ore processed was $34 for the third quarter of 2018, down 5% in 2017, due primarily to higher mine throughput and the timing of maintenance activities. Cash cost per ton of ore processed for the first nine months was $35, up 6% from 2017, due primarily to a stronger EUR. all-in sustaining cost per ounce was $620 and $607 for the third quarter and first nine months of 2018, down $65 and $93 from 2017. Due primarily to higher by-product credits as a result of higher realized copper prices and volumes of copper sold, and lower cash outlays for sustaining capital expenditures. At Tsumeb, cash costs per ton in the third quarter and for the first nine months was $362 and $457 per ton, down $122 and $19 from 2017 levels.
The third quarter increase was primarily due to higher volumes of complex concentrates melted and Tsumeb's cost reduction program, partially offset by higher labor and electricity rates. The year-to-date decrease was primarily due to higher volumes of concentrates melted, higher acid by-product credit, and Tsumeb's cost reduction programs, partially offset again by higher labor and electricity rates and a stronger ZAR relative to the U.S. dollar. From a capital spending standpoint, sustaining growth capital expenditures for the third quarter of 2018 were $7 million and $20 million respectively, for an aggregate spend of $27 million, up slightly from the $25 million we spent in 2017. Sustaining growth capital expenditures for the first nine months were $18 million and $16 million respectively, for an aggregate spend of $84 million, up from $67 million in 2017, primarily due to Krumovgrad's construction activities.
At September 30th, we'd incurred approximately $126 million in respect of the Krumovgrad project. We remain on track, with a cost coming in at approximately $164 million to $168 million, 7% below the original estimate that we put out of $178 million. As Rick noted, our financial position at September 30th is strong, with approximately $255 million of cash resources, including $232 million under our long-term credit facility. We also hold a 10% interest in Sabina, valued at approximately $30 million. From a risk management perspective, during the quarter we also initiated the establishment of a 2019 hedge position in respect to the South African rand, which as you know is linked to the Namibian dollar. This was done to reduce the exposure that we have with respect to foreign currency movements on Tsumeb's operating costs and lock in a rate that supports free cash flow generation at Tsumeb.
To date, we've hedged approximately 60% of Tsumeb's Namibian dollar exposure or operating costs using zero-cost option contracts that provide for, on average, a minimum and maximum exchange rate between 14.2 and 15.66. For the balance of 2018, our hedge position remains unchanged with approximately 90% of Tsumeb's operating costs fully hedged at a weighted average rate of approximately 3.19. Turning to our guidance, based on the year-to-date operating results that we've reported and our outlook for the balance of the year, we've updated our 2018 guidance for a second time to both narrow the range as previously provided and to reflect higher annual mine and smelter production as well as lower per-unit operating costs and growth capital expenditures. As a result, at Chelopech, gold produced and sold is expected to be between 190,000 and 200,000 ounces, and 161,000 and 170,000 ounces respectively, up approximately 8% from our original guidance.
Copper produced is expected to be between 35 and 38 million pounds, essentially in line with our original guidance. While mine cash cost per ton is expected to be between $35 and $37 per ton, down approximately 7%, and all-in sustaining cost per ounce is expected to be between $640 and $710 an ounce, down roughly 10% from our original guidance. At Tsumeb, complex concentrate smelted is expected to be between 230,000 and 250,000 tons. This is a slightly narrower range than we'd provided previously, which was 220,000 to 250,000 tons per year. Roughly up about 2% from the original guidance. Our cost guidance has now been lowered to $430 to $460 per ton, which is down approximately 6% from the original guidance that we provided.
Growth capital guidance has also been reduced and is now expected to be between $82 and $90 million, down from the $94 to $100 million that we had originally put out, and this is primarily due to delays that we've experienced with concrete installation at Krumovgrad. While we haven't provided any guidance with respect to MineRP, I can say that we continue to make good progress executing the business plan and we remain confident in MineRP's growth potential and the value proposition that it offers both the mining industry and DPM.
In closing, the first gold from our low-cost Krumovgrad gold project is expected to occur in the first quarter of 2019. We are nearing a period of significantly higher gold production and free cash flow generation, which we firmly believe should support further increases in our share price, both in the short term and in the longer term, through a disciplined approach to capital allocation that will seek to prudently invest excess cash in high return growth opportunities and/or return it to our shareholders. With that, I'll turn it back to the operator.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star then the one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that is star then one to ask a question. Our first question comes from Cosmos Chiu with CIBC. Your line is now open.
Hi. Thanks, Rick and Hume, for the conference call here.
My first question's on Krumovgrad. I just want to get a bit more color in terms of, you're almost there, 81%. What are some of the critical path items now to make sure that the first concentrate gets shipped in Q1 2019?
Hi. Yeah, it's John Lindsay here.
Hi, John.
The major items sort of going forward will be the completion of the piping works, the electrical, the instrumentation. Civil works, essentially complete. The structural work's essentially complete. The mechanical installation, for the most part, is complete. It really just grinding through the balance of the piping and electrical work that needs to be done to get finished. As Rick had noted, there were a few significant milestones achieved in the quarter, particularly the power supply. We now are connected to the grid, so we have power available for commissioning. We can start the larger mill motors in the fourth quarter for commissioning as we had planned. In essence, it's just grinding through the balance of the work.
Mm-hmm. Great. That's good to hear. Maybe switching gears a little bit, certainly good to see that the Timok technical report getting filed last night, giving us a bit more detail here. I don't know if it's still too early at this point in time, but I'm just trying to get a sense in terms of timing. Krumovgrad is shipping now in Q1 2019. Timok very well dovetail nicely in terms of project-wise, in terms of production, in terms of growth. I'm just wondering about, number one, timing, and number two, looking at the details behind it. It looks like you've done a lot of column testing. It looks like this is going to be designed as a heap leach going through the oxide and transitional material first. How should we look at it? Is it gonna be kind of stage?
Is that the alternative that you're looking at, stage in terms of heap leach, oxide, transitional, and then later on figure out what to do with the sulfides? How should we look at it?
Yeah. John Lindsay again.
Hi.
It's kind of early to start to lay out sort of a timeline like that. As Rick noted, we've just sort of commenced the scoping study in the fourth quarter. Once we've completed that study, we'll have a better idea of what that development timeline looks like, and particularly around the permitting and approvals timeline, which is, as you know, these days, is probably gonna drive the development timeline. Yeah, your comment about a stage project there, that's probably the way it's going to end up, sort of a sensible way to go about that. The sulfides are quite refractory, so they're gonna be a tough nut to crack. It'll be good to be generating some cash out of the oxides before we get into that sulfide part of it.
summary, yeah, it's a bit early to give any sort of definitive timelines at this stage.
Yeah. I didn't get into all the details in the report last night, how does the recovery change from going from oxides to the transitional material?
Yeah, that's a good question. Like I said, the sulfide material is quite refractory, and we're gonna have to spend some time looking at process options for that.
It's gonna be a tough nut to crack that one. The oxide recoveries based on the work that we've done to date have been very encouraging.
Okay. Maybe one last question here in terms of at Tsumeb, great to see that production and tonnes processed was a record. I'm just wondering about the market here for complex concentrate. I think there was a comment made in the press release saying that tolling charges have come down a bit in Q3. I'm just wondering about, because certainly it looks like you're going in the right direction in terms of getting capacity up, getting processing capacity up at Tsumeb, how about the demand for that product too?
This is David Rae.
Hey, David.
We continue to talk to potential suppliers and current suppliers of concentrate. We do think there's opportunity in the market. The question is when. At this point, what we're doing is we're working on the smelter capacity and getting the optimization ahead of when we're gonna see these materials coming in. Now, of course, if you look at it from a variable cost point of view, there's more open opportunity for concentrates going forward. It means that longer term, what we're looking for are light concentrates to what we have now, but there may be some short-term opportunity where we continue to develop and demonstrate the capacity of the smelter. I think this is why Rick is saying, at this point, the expansion consideration is really only gonna be a second quarter 2019 decision.
For sure. Again, on the Tsumeb smelter here, good to see that cost per tonne was quite good in Q3 at about $350 per tonne. If I were to, and I did, if I am to take your full year guidance here, lowered full year guidance and back out what has happened the first nine months, it looks like Q4 cost per tonne could be about the same as Q3. I just wanna make sure that the cost per tonne at Tsumeb was lowered quite a bit quarter-over-quarter in Q3. Just wanna make sure that's sustainable.
We believe that the cost demonstrated in Q3 are sustainable. We have a number of different initiatives. It's not just processing, right? There's some very strong improvements been made in terms of our operating costs as well, particularly as Rick mentioned, on contracted and outside services. We'd see that continue. There's still some potential for improvement, which are linked to the reduction and getting out of these inventories of materials that we've had accumulated after the capital spend. There's still more opportunity there.
Great. Thanks a lot. Those are all the questions I have.
Thank you. Our next question comes from Don MacLean with Paradigm Capital. Your line is now open.
Hello. Good morning, guys. Nice beat on the earnings and the cash flow. Congrats on Tsumeb. Keep it up. I guess my questions are just extensions of what Cosmos was talking about. You'd said, David, that the cost from Q3 should be sustainable going forward. Is that going forward indefinitely before expansion? Maybe from the standpoint of the cash flow, if you look at the free cash flow in Q3 of $25 million, how much of that would have actually come from Tsumeb? I guess we'll start with that couple of questions.
I don't have the.
EBITDA was.
EBITDA was $16.
million.
The sustaining capital was probably, what, several million in the quarter, so $12 million of free cash flow from Tsumeb.
$12 million of the $25 that was reported.
Yes.
I think that's a lot larger number than most of us are carrying. I can speak for myself. From a sustainability of that, because this now brings into mind the contracts, does that look like that can be carried on, and when is the next reline likely?
All right. I think that's an important point. You're really asking what can we expect going forward quarter by quarter. In Q2 this year, we have the rebuild, and that is a very significant spend for the year. The costs in that quarter, of course, are going to be very different, and free cash flow are going to be very different. In terms of a full running quarter, the type of numbers we posted in Q3 are the type of results we would expect to see going forward, so subject to the availability and the treatment terms on concentrates and that type of thing. Generally, what you're now starting to see is the benefit of having continuity of operation, reduced rework, and recycling, which all come about when the smelter operation gets to that last element of continuity.
Yeah, I think if I just add to that as well, Don. Yeah, Q3 was a great quarter, and we're projecting another strong quarter in Q4. I think looking at next year, we have every reason to believe that we can sustain the level of production or performance that we're seeing at Tsumeb. I think, broadly speaking, what we've said before in terms of EBITDA and free cash flow, I think it remains intact. We might beat that in the future with the kind of performance that we're seeing. The EBITDA numbers that we've said in the past, probably somewhere in the range of $20 million-$30 million top line of EBITDA. Then some sustaining CapEx, let's say somewhere in the area of $15 million, just provides us comfort from a market perspective that we're going to generate positive free cash flow.
It could be low single digits, or it could be somewhere, $15 million, $20 million, $25 million even of free cash flow in a great year. I think Q3 was just a demonstration of what it could look like.
Just to clarify, Hume Kyle, I believe I heard that the free cash flow from Tsumeb in Q3 was $12 million for the quarter, what you're talking about is a $5 million-$15 million free cash flow for the year going forward in the numbers that you've put out there to this point. Is that suggesting there's a lot more upside if you can maintain the kind of productivity and contracts that you have? How should we be thinking about it within that? That's a big bandwidth.
It is. From my standpoint, we just want to be realistic, underpromise, overdeliver, in terms of setting expectations. Q3 was a great quarter, no doubt about it. I think for the year, we're still looking at probably generating EBITDA for Tsumeb, probably something close to, let's say, just annually, let's say $30 million. Our sustained capital is going to be somewhere a little bit north of $15 million. Free cash flow this year will be at the top end or higher end of the overall guidance that we've been providing coming into 2018. Really, at this stage, no comment with respect to 2019. We'll issue that guidance in Q1.
Right. Okay. Q3 sets the bar nice and high for next year, that's for sure. Then again, Cosmos Chiu touched on the new resource for Timok, that's a tough refractory mineralization. I guess the question is, a million ounces of oxide in transition, is that enough conceptually for DPM to take seriously? How should we be thinking about this project? Is this a project that the company's going to pursue rigorously and has some pretty positive feelings about, given that Krumovgrad will be winding down about the time that you're trying to make some kind of decision on Timok?
Yeah, Don, that million ounces, it does look encouraging, and we do
It's encouraging, and that's why we kicked off our scoping study. We'll have a look at the economics of mining that million ounces of oxide and see what that looks like. Next quarter, we'll have a bit more news to, or a bit more definition to be able to update you with. It's a bit early to say anything sort of definitive on that yet. We're encouraged.
John, I'm just trying to remember from visiting the site a few years ago, it's not really so much mountainous in the vicinity as rolling hills. Can you use that to your advantage for, like, a valley fill type of heap leach?
Again, those are some of the things we'll be looking at in this quarter with our scoping studies. Yeah. It's possible, but certainly, that's part of what we're looking at now is to try and figure some of that out.
Yeah. We're used to your terrain and your topography can be a real asset or it can be a real disadvantage.
It seemed to me that there was potential for an advantage in this case.
It might be, and like I say, those are some of the sort of conceptual things that we'll sort of flesh out a bit in the next couple of months.
Okay, the million-dollar question.
What are you going to do with all your free cash flow?
I think what we were trying to say, or I tried to say on the call was that there's two basic alternatives. First and foremost, we want to grow the business. We have opportunities to grow the business organically, that we've talked about on the call and in our disclosure documents. There's also the opportunity to grow the business beyond our existing asset base. Certainly, we're better positioned in today's environment than we were with a stronger share price and significant free cash flow over the next five years, which roughly speaking, at today's prices, is going to be somewhere in the $100 million-$150 million range over five years and averaging something certainly in the mid to higher end of that range.
We've got a lot of opportunity to deploy capital, but we're going to do it in a disciplined way and in a creative way. To the extent that we see opportunities to grow and do it in a creative way, we'll deploy that capital that way, but we'll also consider returning it to shareholders. Either in the form of a dividend or to the extent that our share price is significantly undervalued, then we would definitely consider doing a buyback. They're not mutually exclusive. We would consider doing any one of those just depending upon the circumstances that we see.
Right. Encourage you to do that. Return to the shareholders is something that we've seen too little of in the North American industry, for sure. Anyways, congrats again on a fine quarter.
Thanks, John.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star and one on your touch-tone telephone. Our next question comes from Trevor Turnbull with Scotiabank. Your line is now open.
Yeah, thank you. Hume, I know you touched on the concentrate production from Krumovgrad, and I may have missed it. With it starting in Q1, do you expect to start to see sales of concentrates in the same period? I'm just kind of wondering, not thinking of commercial production necessarily, but simply revenue coming in from sales. Is there going to be a bit of a lag because it's a concentrate, or is it likely that you'll pretty much realize whatever you produce in terms of sales in the same period?
Yeah. We do anticipate hitting commercial production possibly in the first quarter, at the end of the first quarter. Could be tight. At the latest, early in the second quarter. I think from an internal perspective, we're looking at hitting 60% of design capacity.
30 consecutive days.
For how many days?
30 consecutive days.
For 30 consecutive days. I think that it's realistic to anticipate that.
Yeah. The other thing is we likely will see the concentrates being shipped by truck over land, so they're not constrained by building up large inventories and then shipping them upon water. That will tend to have the flow of revenues coming more continuously.
Right. It's more of a continuous shipping schedule as-
Yeah
as opposed to, like you say, building up a tidewater situation.
Right.
Therefore, they must be staying in Europe, I assume?
Yes.
Yeah, I wasn't actually also asking so much about the commercial production, but just Well, I guess you've answered it. I was going to say whether or not any sales of concentrate take place, it'll be happening fairly-
In Q2, yeah.
Yeah, okay. In fairly continuous basis. All right, great. Thank you very much.
Thanks, Trevor.
Thank you. This concludes today's Q&A session. I would now like to turn the call back over to Rick Howes for closing remarks.
Yes, just want to say thank you for attending the call today and wish everybody a great Friday and weekend. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.