Good morning. My name is James, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Dundee Precious Metals First Quarter 2018 Analyst Conference Call. All lines have been placed on mute to prevent any background noise And after the speakers' remarks, there will be a question and answer Thank you. I'd now like to introduce Janet Reid.
Good morning, everyone. I'm Janet, the Manager of Investor Relations, and welcome to Dundee Precious Metals First Quarter Conference Call. With me today are Rick Howe, President and CEO and Hume Kyle, Chief Financial Officer, who will each comment on the quarter as well as David Ray, Chief Operating Officer Nick Elijah Stoss, Senior Vice President, Sustainable Business Development and John Lindsay, Senior Vice President, Projects. They are here today to assist with answering questions following our formal remarks. After close of business yesterday, we released our first quarter results and hope you've had an opportunity to review our material.
All forward looking information to during this call is subject to the forward looking qualification, which is detailed in our news release and incorporated in full for the 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 in calculation performed by DPM are based on management's reasonable judgment and are consistently applied. These methods are intended to provide 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 and 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 pertaining to the comparable period in 2018 on this morning's call. Rick will comment on our first quarter 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 first quarter financial results and our guidance for 2018. With that, I'll turn the call over to Rick Howe.
Thanks Janet. Hello, everyone, and thanks for joining us today for our first quarter 2018 conference call. I'm pleased to provide you with an update on our first quarter results and progress on our key projects and initiatives. As the global economy continues its gradual recovery, commodities should continue to benefit. The gold price has remained above US1300 dollars since December, but range down between $1300 $13.50.
Prospects for gold remain strong based on the macro trends of U. S. Dollar weakening, slowing gold supply growth strong demand growth trajectories in both India and China and largest consumer who are the largest consumers of gold. Despite the continued rise in interest rates as the Fed continues its policy of monetary tightening, gold still built momentum and restoring equity values in a low interest rate environment. Gold as a Store of Wealth, offers investors a good alternative and a hedge against potential rising inflation.
And geopolitical risk and uncertainty. Following the strong price performance in copper for 2017, copper declined more than 6%. In the 1st 3 months of 2018. Surging warehouse inventories and weaker Chinese demand put pressure on prices. The near term prices may remain volatile to these factors as well as to near term supply disruptions.
The longer term, however, the copper market is expected to go into a deficit with rising copper demand from general global growth growing electric vehicle demand and a lack of recent investment in new supply. We expect copper to go into a deficit starting in 2019. Global Gold And Big Spend Equities are down 2% and 4% respectively year to date and the GDXJ is down 6%. Following our strong share price move up in 2017, our share price has continued its positive trend in 2018, improving 10%. Since the beginning of the year and up 20% since the beginning of 2017.
As we advance our low cost organic gold growth project at Krumovgrad, to production. We continue to execute on our strategy to create value by optimizing operating performance. Advancing our organic growth projects and building a pipeline of future growth opportunities, while we maintain our balance sheet strength. We had a strong first quarter performance from both Chelopech and Tsumeb operations, which achieved record quarterly gold production at Chelopech of 57,000 331 ounces and copper production of £9,300,000. Our all in sustaining cost per ounce of gold was $696.
At our Tsumeb smelter, we smelled the 54,142 tons of complex concentrate more than planned as a result of deferring the annual maintenance check down from Q1 into Q2. We're currently on track to achieve full year guidance and all performance measures. Overall, financial results were negatively impacted by the weaker U. S. Dollar relative to the euro and to the South African Rand.
Earnings of $0.02 per share in Q1 was also not really reflective of the high first quarter metals production due to the timing of deliveries. This should correct itself in the coming quarters as deliveries catch up to production. Growth capital expenditures of $25,000,000, primarily related to the completion of the Krumovgrad gold project are on track with plan. 2018, sustaining capital expenditures are expected to be between $29,000,000 $39,000,000, with spending in Q1 of only $5,000,000 sustaining capital are expected to increase to increase our effort to add to our resource base around existing operations and projects. The increased budget will fund drilling programs at Chelopech's Krumovgrad, TMOC, in Serbia and Malartic gold project in Quebec.
With Krumovgrad project construction more than 59% complete, Our balance sheet remains strong with $33,000,000 in debt and total equity of $294,000,000, made up of $50,000,000 in cash $42,000,000 in undrawn revolving credit facility as well as investments at fair value of $37,000,000. The smelter performance in Q1 continued the trend to more reliable and consistent operating performance. We smelted 54,000 tons of complex concentrate. This was higher than planned due to the annual maintenance shutdown being deferred from Q1 into Q2 as a result of the furnace integrity integrity improvement initiatives, which was which has extended the life of the furnace bricks. However, furnace refractory life has been Historically, furnace refractory life has been around 9 months.
This campaign will achieve 15 months and we believe further improvements are possible. Concentrate throughput in the quarter was hampered by power interruptions during an abnormally heavy rainy period in February March. And off gas related problems, which we have since addressed. Start of maintenance shutdown is now scheduled to occur in May. Volumes concentrated are expected to improve significantly in the second half of the year.
Throughput for 2018 is still expected to be within the guidance of 2 20 It's 250,000 tons as we continue to optimize the performance and gain experience in operating this newly upgraded and interconnected facility. Q1 cash cost per tonne of concentrate process was $499,000,000. This was negatively affected by the 12% stronger rand relative to the U. S. Dollar.
Cost reduction efforts this year will help to reduce some of this impact. Reductions have been targeted in the areas of productivity, maintenance, contractors and outside services and utilities. We continue to make progress reducing the secondary copper inventories that have accumulated during the construction and commissioning of the acid plant and copper converters. This reduction will continue through 2018 and we expect to be back to normal levels in 2019. This will result in a reduction in stockpile interest and allow higher throughput capacity for new concentrates.
We continue to advance the smelter expansion project to increase the throughput of complex concentrate to as much as 370,000 tons brand. The feasibility study was completed in the fourth quarter of 2016 and confirmed the robust project economics with an exited made at implementation capital costs. Of approximately $52,000,000. The scope of the project includes the rotary holding furnace, additional cooling and other upgrades to the Osmell furnace as well as upgrades to the slide mill area. Work is progressing on securing the necessary permits to support this plan increase and early discussions are underway to secure sufficient comp constrate feet to fill this expanded capacity.
A decision on this project is not expected to occur until 2019 at Theravius. Telefetch had a record quarter of gold production of 57,000 ounces following our record year last year of 197,000 ounces. This was a result of higher gold grades of 4.5 grams in the quarter due to positive reconciliations from our 103 and 'nineteen blocks as well as higher recoveries. We expect copper grades to remain about the same for the rest of the year, however, we expect gold grades to return closer to reserve average grades of around 3.2 grams for the remainder of the year. Higher gold grades in Pyrate concentrate also contributed to the higher gold production.
Cash cost per tonne of ore processed was $37, which was 12% higher than Q1 2017 due primarily to these much stronger euro. A number of improvement projects underway and should help offset some of the impact of the stronger euro. We have several projects to further increase mining intensity and lower mining costs and we continue our process plant optimization work designed to reduce energy, consumables and improve metal recoveries. Talapish is on track to achieve production and cost guidance for the year. In our in mine exploration program, we drilled 9146 meters.
And continue to identify extensions to existing ore bodies and one new zone. We will be focused on reserve conversion of some of these recently discovered resources particularly in the inactive upper levels of the old sublevel cave mining area. Very positive results were recorded for downward plunge extensions of Block 8 'nineteen, 'twenty five and 150 in the upper levels. In our active regional exploration program around Chelopech, we began a 20,000 meter drill program designed to systematically drill test the 1.6 kilometer strike length target known as the Southeast Brecher Pipestone. 1600 meters were completed in the first quarter, resulting in several good mineralized intersections, the best one being twenty five meters at 4.5 grams gold equivalent with updates still pending on 4 more holes.
2 holes were completed on the craft and deep target following encouraging results from the first two drill holes in Q4 2017, drilling on the craft to shallow target will begin in Q2. A number of other new targets have been identified from ground geophysics and geochemistry work, which will be tested in the near future. Our Krumovgrad construction project was approximately 59% complete at the end of March, and the project remains on track for 1st concentrate production in the fourth quarter of 2018. Approximately $96,000,000 has been incurred to date with an additional $68,000,000 to $72,000,000 forecasted to complete in 2018. The aggregate cost of the project is expected to be between $164,000,000 $168,000,000 compared to the original estimate of 178,000,000 A number of key milestones were achieved in Q1.
The integrated mine waste facility earthworks was completed The major mill mechanical installations began, the electrical and instrumentation contract were mobilized to site and now began their work and good progress was made on the key remaining construction permits, including the new Access Road main power line and discharge water pipeline. Pre commissioning activities will begin in Q2, followed by hot commissioning and open pre stripping and ore stockpiling in Q3. First concentrate is expected in Q4 and commercial production in Q1 twenty nineteen. The operating team is focused on operational readiness and deploying a shared service model to maximize the synergies with Chelopech. Exploration has identified a number of satellite deposits within a few kilometers of Krumovgrad.
Drilling on the pleased with this additional 25 drill holes planned for the remainder of the year on this target. An additional three holes are also planned for the Couple North satellite. Once this program is completed, a resource assessment and technical report will be completed on these sound weight deposits in the first half of twenty nineteen. The Cartagena satellite will be drilled in 2019, followed by drilling on the remaining satellites. On our Chirite license, approximately 20 Kilometers' northeast at Krumovgrad, we are following up on a near service low sulfidation gold vein system drilled by the state in the 80s.
At our Greenfields Tmock Gold project in Serbia, following this discovery of the Cork and West oxide deposit in 2017, We completed a major re logging program in the Cortkin And Bigger Hill Deposits to model the oxide and transitional zone boundaries. We also conducted foursore bottle roll test at column leach test on the Corkon West, Quorkan, and bigger Hill oxide and transitional zones. Bottle World Test indicate recoveries of 90% to 95% for corkett and Bigger Hill Oxide, 75% for corkett West Oxide, and 50% to 55% for corporate transitions on off-site. Column leach test results are expected in Q2. We believe initial phase oxide We believe initial phase Hawkes IT bleeds could have the potential to significantly improve the economics of this project.
Additional drilling is planned for bigger hillbolder feeder targets in the Corpus West Oxide zone in Q2 and an updated resource estimate will be completed for all deposits in Q3 followed by an internal scoping study at our Marlartic joint venture in Pershemec with Pershemec in Quebec. And initial nineteen forty two meters of stealth drilling program was completed. This program was designed to characterize the various targets that were defined within the Volcanoe Sedimentary Blake River Group Exploration from mapping and geophysical were completed in 2017. Sample logging and an update sampling logging and an updated geological modeling to refine the targets will be completed in Q2. For 2018, our focus will be on executing our organic growth projects specifically the successful construction, completion, commissioning and ramp up of the long anticipated high grade, low cost, Krumovgrad, open pit gold project in Bulgaria, which will generate significant growth in gold production and cash flow starting in 2019.
The continued optimization of the Tsumeb smelter performance so that we continue to generate growing free cash flow from this business And number 3, continue pursuing our growth opportunities with our existing portfolio of assets and through a disciplined approach to acquisition opportunity. Thank you. I will now turn the call over to Huya, who will review the financial results and 2018 guidance, following which we will open the floor to questions.
Thanks Rick. For the first quarter, we reported adjusted net earnings of essentially nil per share compared to an adjusted loss of $0.04 share for the first quarter of 2017 and adjusted EBITDA of $20,000,000 compared to $14,000,000 in 20 17. These increases were primarily driven by higher volumes of throughput deductions for metals exposure at Tsumeb higher realized metal prices, partially offset by a U. S. Weaker dollar.
And lower volumes of payable metals sold due to the timing of deliveries at Chelopech, which mask what was otherwise a strong production quarter for Chelopech and was the key factor that resulted in our Q1 financial results being weaker than what you would have expected given the underlying strong performance. From a cash flow perspective, funds from operations during the quarter were $18,000,000, up slightly from $17,000,000 in 20 17. And free cash flow, defined as funds from operation, less sustaining capital and debt service obligations, was $11,000,000, essentially unchanged from 2017. As Rick has already commented on our Q1 costs, I will simply add that the increase with respect to our per ton of costs at Chelopech was entirely due to currency, which more than offset the per unit lower operating costs that we achieved during the quarter. With respect to our all in sustaining costs, the favorable impact of a higher gold grade in concentrates sold more than offset the FX impact during the quarter as well.
And assume that our cash cost of $499, which was down $53 per ton relative to prior year was essentially entirely attributable to the volume impact. Associated with a full run-in Q1 versus annual maintenance in Q1 of 2017 last year. From a capital expenditure standpoint, sustaining growth capital expenditures for the quarter were $5,000,000 $25,000,000, respectively, for an aggregate spend of $30,000,000, up $22,000,000 in the corresponding period of $27,000,000 and a little lower than what we'd actually planned. This increase was related primarily to increased construction activities at Krumovgrad where we incurred approximately $18,000,000 during the quarter, or approximately $96,000,000 since commencement of construction, with approximately $70,000,000 to go. Based on installed quantities, we are approximately 60% complete, pretty much in line with schedule, and we're tracking to come in under budget and to deliver 1st concentrate in the 4th quarter 2018.
During the quarter, no additional hedging was undertaken beyond the regular QP hedging that we do. And as a result, for the balance of the year, 52 percent of our expected payable copper by product production was hedged at 262 or is hedged at 262. Which was part of our derisking strategy to support moving forward with Krumovgrad. And 36% has been hedged using options, which provide a forward of 280 in ceiling of $3.32. From a currency standpoint, we've hedged approximately 33% of the Namibian dollar at 13.68 and effectively all of our projected euro capital expenditures in respect to Krumovgrad, it's, 115 for the balance of the year, which essentially ports, our objective of staying within the capital budget.
Coming into the second quarter of 2018, we remain in very good financial shape. We've got $257,000,000 in aggregate liquidity comprised of the undrawn $242,000,000 revolving credit facility and $15,000,000 of cash. And with increasing forecast cash flow generation, we're well positioned to complete the Krumovgrad Gold Project and advance the other growth initiatives that Rick referred to. Looking note over the balance of the year, we're confident that both Chelopech and Tsumeb will achieve the expected levels of performance with Chelopech's metal production being lower and in sales being higher than what was reported in Q1 and zoom in throughput on average after taking into account the annual maintenance shuts scheduled for mid May being higher over the balance of the year. As a result, our 2018 production cost guidance has remained unchanged from what we issued in February.
Notably gold production is expected to be 165,000 to 195,000 ounces. And that excludes 3000 ounces that we expect to produce out of Krumovgrad prior to declaring commercial production. Copper production is expected to be between £34,000,000 $40,000,000. Tsumeb production is expected to be between $220,050,002. Our all in sustaining cost for our goal is expected to be between $640,000 $8.55 and the cash cost Tsumeb is expected to range between $440,500,000.
On the capital front sustaining capital expenditures for 2018, As Rick noted, they are expected to be between $29,000,000 $39,000,000, up from the average over up from, up on average over our Q1 levels and up from prior years due to raising the elevation of Chelopech sailing management facility and a few projects that were shifted from 2017 to 2018. Growth capital expenditures in 2018 are expected to be in the $92,000,000 to $100,000,000 range, consistent with what we said earlier, $88,000,000 of which relates to Krumovgrad. And the balance relates to resource development, drilling and a new smart center at Chelopech and the upgrade of the slight of the slight Mocon trade plan. At Tsumeb. Our exploration spending, range is $10,000,000 to $15,000,000 with the majority being directed towards Chelopech Krumovgrad and our advanced exploration project, called Timot Gold in Serbia with a balance focused on greenfield projects in Bulgaria.
Sumer Serbia and our Malarta project in Quebec. Corporate G And A, excluding the mark to market impacts associated with the share based compensation, which resulted in higher G And A in Q1 due to the continued appreciation of our share price is expected to track current levels and fall within our annual guidance of 20 $24,000,000. And as Rick mentioned, we're very focused on delivering tumor grant on time and under budget, preparing for startup and advancing a number of initiatives, all of which are expected to increase executing its business plan in Q1, interest in its industry changing tools is high. And while we do not expect minor to have a material impact on our financial results for 2018. We remain confident in its future growth potential and its ability to add value as a portfolio investment and as a component of our overall digital strategy.
In closing, while the timing of the delivery that Chelopech stands in Q1's financial results, This is expected to correct itself and translate into better financial results over the balance of the year. And as a result, we anticipate exiting 2018 with a strong balance sheet And as Rick already noted with Krumovgrad construction being complete, we expect to see additional increase in reported production and free cash flow generation commencing in 2019. And with that, I'll turn the call back over to the operator.
Your first question comes from the line of Trevor Turnbull from Scotiabank. Go ahead please. Your line is open.
Yes, hi guys. I just wanted to ask a little bit about the costs at Tsumeb. In the MD and A, you mentioned there was labor costs electricity cost and then obviously the South African rand, which is tied to the local currency. I also I thought you guys were able to take out some of the contractor costs at Tsumeb And so I was kind of wondering if you could talk a little bit about where you see labor costs going forward. I think Rick might have mentioned something about electricity, which sounded like it may have been a temporary issue, but if you could mention that as well, And then given that you are hedging up to a third of your Bots Swan and currency exposure through the Rand, Do you see that as continuing to be a pressure on the cost going forward?
All right. So this is David. Let's start with contractors. One of the things that we've done in the course of the last few months is we've in sourced our maintenance activity and we've also in sourced the oxygen plant activity. And in combination, that's potentially a 5% overall operating cost per year, saving directly with that activity.
So What we're doing is that as we finished the other activity now in terms of continuity, we're looking towards those areas where we've been working with external third parties. Where we're paying additional money for those service provisions. And we believe we're in better position now to take that on and get efficiencies.
So I
don't know if that answers your questions. Those are the primary targets on contractors. In terms of electricity, the electricity rates in Namibia have been increasing at a rate that between 10% 17% per year. And that's primarily a concern for us. There's lots of opportunity in terms of optimization of our energy use because maximum demand consumption is a large part of that cost.
So what we're doing is we're looking for continuity on energy that better operation of the plant. So we make better use of the power that we're actually paying for there's some optimization in terms of the power utilization. And then other than that, we're also considering alternative supply of energy with the potential of constraining that inflationary cost. I don't know if that helps with the electricity,
Yes, sorry, David, just on the electricity, what proportion of the cost is electricity right now?
So mid-twenty percent.
And it's tied to the local currency, I would assume?
It is.
Okay. Thanks. Sorry. And then on the currency, Did you do you feel that that 1 third is sufficient for example, that level of currency hedging you're talking about at this time, was that in place for Q1 as well?
We did hedge, a little over 30% of the, the ZAR or the Namibian dollar, which is linked to the ZAR heading into 2018. And we consciously stopped hedging anything further following the abrupt move in the the currency very late in the year. We continue to monitor it. As you probably know, it's like last year, it probably averaged 13.5%. And then with the elections of Africa, There was a very strong rally that caused it to probably go down to about 11.5 and it's currently trading around, I think, 12.60 to 12.70 So we're monitoring that.
I would anticipate that we would opportunistically try to put on some additional hedging and increase that position From an overall standpoint, we can certainly tolerate the volatility in the currency. From a Soma perspective, It is significant and key objective for us is to continue to manage Tsumeb to a free cash flow situation.
And sorry. And then what proportion of the costs then are tied to the currency? I would assume virtually all of it.
Virtually all of it. Yes. Okay.
And then just one last question while I've got you, Hume. You mentioned MineRP. And also there was a comment that suggested that it's going through a bit of a growth and ramp up period which was why it had some higher G and A costs. Is that something that you expect to continue or Will those costs start to come down now that you're through that at least initial spend?
Well, I think it's it's probably more like the opposite. They've had to increase their G and A to support the growth trajectory that they're on. So what's lagging is the signing of contracts And we're seeing very good momentum in that regard and we expect additional contracts to be signed over the balance of the year and into 2019. So No, that G and A increase was fully contemplated, expected to stay and probably increase further based on getting traction on signing additional contracts.
So we should rather than yes, so we should be looking for the revenue to start to catch up.
Yes. Yes. And, you'll recall that when we did the deal, we made the investment. We provided them a $5,000,000 line. They, they drew 3 We don't expect at all to put any more than 2 if any more at all in over the balance of the year.
It's all just going to be predicated on the timing of closing certain sales.
Your next question comes from the line of Don MacLean from Pardrum Capital. Go ahead please. Your line is open.
Just a quick question on the re breaking. I think you've been talking about the extending it to sort of 14, 16 months. Does that look like that's a sustainable schedule?
Yes. Don, actually, it looks like that's actually very cautious. So we've already done 14 months now. And The remaining Brit Life is double what it was at the end of the last campaign. So we're very confident of the ability to move towards 18 months.
Main thing now is understanding what we have to do with the rest of the plant to have that able to utilize that full timeline.
Including the roof. Just kidding.
The root at this point is we've got that sort of 3 day replacement on every 6 months. It's not really material and we're still looking at the design of that. So That will in the meantime be a constraint, but it's not material overall.
There are no further questions at this time. I turn the call back over to Rick House for closing remarks.
Okay. Thank you very much for joining us on the call today. And I wish everyone a good week and a happy Mother's Day.
This concludes today's conference. I'll disconnect.