Good day, and thank you for standing by. Welcome to the Dundee Precious Metals First Quarter 2024 Earnings Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand over to our first speaker for today, Jennifer Cameron, Director, Investor Relations. Go ahead, Jennifer.
Thank you, and good morning. I'm Jennifer Cameron, Director, Investor Relations, and I'd like to welcome you to the Dundee Precious Metals First Quarter Conference Call. Joining us today are members of our senior management team, including David Rae, President and CEO, and Navin Dyal, Chief Financial Officer. Before we begin, I'd like to remind you that 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 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 or ratios. 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 are related to continuing operations and have generally been rounded. References to 2023 pertain to the comparable periods in 2023, and references to averages are based on midpoints of our outlook or guidance. I'll now turn the call over to David Rae.
Thanks, Jennifer. Good morning, and thank you all for joining us. As you would have seen from our news release circulated last night, our first quarter was a solid start to the year, a result of strong production, our low-cost structure, and the benefit of higher metal prices improving our already robust margins. This morning, Navin and I will provide a brief update on our first quarter results and discuss why we believe that DPM continues to be well-positioned to deliver value to all of our stakeholders now and over the long term. Since the beginning of the year, we've had a significant amount of news flow, and I'd like to take a few moments to provide some strategic context about those developments in our portfolio. First, at the beginning of March, we announced the sale of the Tsumeb Smelter to Sinomine, including all assets and liabilities, for $49 million.
Since we acquired the smelter in 2010, it was viewed as a strategic asset in our portfolio, providing a secure processing outlook for the complex concentrate produced by Chelopech. However, with the developments in our global smelting markets, we've been able to place Chelopech at several other third-party smelters, providing secure and reliable processing at favorable commercial terms without the need to own and operate the smelter. Therefore, Tsumeb is no longer strategic to our portfolio, and this transaction simplifies our portfolio going forward and is consistent with our strategic objective of focusing on our gold mining assets.
We're extremely proud of the investments that we have made to transform Tsumeb's operational and environmental performance into a specialized custom smelter with a highly skilled workforce, and we'll be working closely with Sinomine to ensure a smooth transition as we advance towards closing the transaction, which is expected in the third quarter. Second, last week, we were excited to announce a significant milestone with respect to the Čoka Rakita project in Serbia, sharing the results of the preliminary economic assessment, which we completed during the quarter. I'll touch on the results of the PEA and next steps for the projects in more detail in a minute, but at a high level, the results from the PEA confirm our view that Čoka Rakita is a highly attractive project and demonstrates the project's potential to add very high-margin gold production growth to our portfolio and generate robust economic returns.
Finally, at the end of February, we decided to walk away from an opportunity we saw in the proposed transaction of Osino Resources after Osino received a superior bid. While it was a disappointing development, we firmly believe it was the right decision, one which demonstrates our disciplined approach to M&A and how we prioritize value accretion to our shareholders. We continue to prioritize M&A opportunities that we see as accretive on a NAV per share basis, with high-quality assets in prospective regions and where we see a strong strategic fit with our portfolio and our capabilities. DPM has really strong fundamentals to producing assets, strong free cash flow generation, a low-cost structure, a high-quality growth asset in Čoka Rakita, which we will continue to fast-track for development, and a strong financial position to fund our internal growth pipeline while paying a dividend.
We are, therefore, in a position to be very disciplined as we assess opportunities. Turning now to our results, highlights from our first quarter include solid production of approximately 63,000 ounces of gold and 7 million pounds of copper, all-in sustaining costs of $883 per ounce in line with our guidance for the year, strong free cash flow generation of $62 million, and continued financial strength as we ended the quarter with a consolidated cash balance of $626 million. With higher grades and recoveries expected at both operations over the balance of the year, I'm pleased to say that both mines are on track to achieve the 2024 production and cost guidance.
Looking at our operations in more detail, Chelopech continued its track record of strong performance in the first quarter, producing approximately 37,000 ounces of gold and 6.7 million pounds of copper, with an all-in sustaining cost of $849 per gold ounce sold, within our expectations for the quarter. With improved grades and recoveries forecast for the balance of the year, Chelopech is on track to meet its 2024 guidance for production and costs. We continue to focus on extending Chelopech's mine life through its successful in-mine exploration program and an aggressive brownfields exploration program. I'd like to highlight the Sharlo Dere prospect, which is located within the Chelopech mine concession and proximal to existing Chelopech underground development, where we saw positive results from drilling last year that highlighted potential for further mine life extensions at Chelopech.
We plan to follow up on those drilling results with further infill drilling in the second quarter to support potential inclusion in a mineral resource for Sharlo Dere in the Chelopech life-of-mine plan. Ada Tepe produced approximately 25,000 ounces of gold in the first quarter in line with our expectations, all-in sustaining costs of $583 per ounce of gold sold, which was below the low end of our Ada Tepe guidance range for the year. Ada Tepe has consistently outperformed our expectations since commissioning in 2019, and we are confident that Ada Tepe will continue to deliver strong results. Turning to our development projects, I'll start with our activities in Serbia. At the beginning of 2023, we were pleased to announce this new high-grade discovery at the Čoka Rakita prospect, located three kilometers southeast of the Timok project.
In the 16 months since that announcement, we have continued an aggressive infill and scout drilling program, completed an initial mineral resource estimate demonstrating a high-grade 1.8 million ounce resource, and published the results of the PEA. This rapid progress is not only a testament to the quality of the Čoka Rakita project but also to our exploration and technical teams. The PEA assumes the start of construction in mid-2026, with a first production of concentrate targeted for the first half of 2028. We have initiated a PFS, and we are advancing project permitting activities in support of this timeline, with good support and engagement from key regional and national authorities. This includes preparations for the EIA, which we expect to submit in the first quarter of 2026.
What makes Čoka Rakita particularly exciting is that not only is it an attractive project on a standalone basis, with an IRR of 33% to the $1,700 gold price, but that it's also got significant exploration potential that we see across our four licenses. We are continuing our scout drilling program, which is focused on aggressively pursuing additional scout targets and following up on the positive results we published at the end of February. Overall, we're very excited by Čoka Rakita's potential in a region where we have had a presence for many years and where we've developed strong relationships with local stakeholders. Turning to Loma Larga in Ecuador, we continue to progress activities related to permitting and stakeholder relations and to support the government in fulfilling the requirements of the August 2023 ruling.
During the quarter, the government commenced the environmental consultation process, completed the informal phase of the process in April. An interim procedure for the prior free and informed consultation process for the Loma Larga project has been outlined by the Ministry of Energy and Mines, and the baseline ecosystem and water studies are currently in progress and expected to be completed by August 2024. At the Tierras Coloradas's concession, which is located 200 kilometers south of Loma Larga in Ecuador's Loja Province, the 10,000-meter drilling program is nearing completion. This program is designed to further assess the extension and geometry of the Aparecida and La Tuna vein systems and to test other additional epithermal veins.
We will continue to take a disciplined approach with respect to future investments in activities in Ecuador, which will be based on the project achieving key milestones, the overall operating environments in the country, and other capital allocation priorities. Before closing, I'm pleased to share that we will be publishing our 2023 Sustainability Performance Data Supplement in the next few weeks, which will provide a view into our performance in this key area of our business over the past year. Highlights include our progress towards our greenhouse gas emission reduction targets, environmental performance, and what we've engaged with in terms of human rights. We look forward to sharing the report, which will be published on our website. To wrap up on the quarter, results demonstrate the strengths that cause DPM to stand out in the gold industry.
We are a unique position, a unique position in the industry with a strong base of production, attractive all-in sustaining costs, significant free cash flow generation, and the financial strengths to fund our growth pipeline and exploration prospects, while at the same time continuing to return capital to shareholders. I'll now turn the call over to Navin for a review of our financial results and the outlook, following which we will open the call to questions.
Thanks, Dave. I'll be touching briefly on the financial highlights from the quarter, provide an update on how we are tracking in terms of our guidance for the year, and conclude with some commentary on our balance sheet and return of capital program. All of my remarks will focus on results from continuing operations, and unless otherwise noted, will not include results from discontinued operation, that being the results from Tsumeb. Looking at our financial highlights from the quarter, we achieved solid performance with both mines on track to achieve their respective 2024 production and cost guidance, and we continue to deliver strong financial results supported by a favorable commodity price environment.
Highlights for the quarter include revenue of $124 million, comparable to the prior year with lower volumes of metal sold and lower realized copper prices, largely offset by higher realized gold prices and lower treatment charges at Chelopech as a result of securing better commercial terms. Cost of sales of $62 million were also comparable to the prior year with higher labor costs and the timing of maintenance activities at Ada Tepe, largely offset by lower royalties at Ada Tepe reflecting lower contained ounces mined and lower prices for power and direct materials. Adjusted net earnings of $33 million or $0.18 per share was 25% lower compared to the prior year due primarily to lower volumes of gold and copper sold and higher exploration and evaluation expenses, mainly related to the Čoka Rakita gold project, partially offset by higher realized gold prices and lower treatment charges at Chelopech.
Cash flow from continuing operations of $36 million was $30 million lower than the prior year due primarily to the timing of collections from customers, partially offset by timing of payments to suppliers. At March 31st, 2024, we had approximately $30 million higher than normal receivable balances at Chelopech, which related to sales made in the latter half of the quarter, and all of which were collected by the end of April. Free cash flow from continuing operations of $62 million was 6% lower than the prior year due primarily to the same factors impacting earnings, partially offset by the timing of cash outlays for sustaining capital expenditures.
Taking a closer look at our cost metrics for the quarter, all-in sustaining costs of $883 per ounce of gold sold was comparable to the prior year with fewer ounces of gold sold and lower byproduct credits, largely offset by lower treatment charges at Chelopech and lower prices for power and direct materials. In terms of our capital spending for the first quarter, sustaining capital expenditures were $6 million compared to the prior year of $7 million due primarily to the completion of the planned upgrade of Chelopech's tailings management facility, which was completed in the second quarter of 2023. Gross capital expenditures of $8 million compared to the prior year of $6 million due primarily to a $4 million expenditure for electric mobile equipment received at Chelopech in the first quarter of 2024, partially offset by lower planned expenditures related to Loma Larga.
Our three-year outlook remains unchanged from that reported in February, except for evaluation expenses in 2024 related to the Čoka Rakita project, which is now expected to range between $30 million-$35 million, up from the previous range of $10 million-$13 million as we advance to the PFS phase for Čoka Rakita, which is expected to be completed by the first quarter of 2025. We continue to maintain a strong balance sheet and cash position with a consolidated cash balance of $626 million, which includes the cash held at Tsumeb, no debt, and a $150 million undrawn credit facility. We have the financial flexibility to fund growth opportunities that generate additional value for stakeholders while continuing to return a portion of our free cash flow to our shareholders.
Turning to shareholder returns, we continue to deploy our capital in a disciplined manner that balances our desire to reinvest in growing and optimizing our business with our commitment to returning capital to our shareholders. The company renewed its share buyback program towards the end of March, which includes the purchase of up to 15.5 million of the company's shares, representing approximately 9.8% of the public float as of March 6th, 2024, and over a period of 12 months commencing March 18th, 2024. We continue to pay a quarterly dividend, which currently offers an attractive 2% yield based on last night's closing share price. During the first quarter, the company repurchased 253,000 shares at a total cost of $1.9 million under the share buyback program and paid $7.2 million or $0.04 per share of dividends, representing an aggregate return of 15% of our free cash flow to shareholders.
In closing, we continue to deliver strong performance from our mining operations and are on track to achieve our full-year guidance. We have a solid cash position, and we expect to continue our track record of generating significant free cash flow. With that, I will turn the call back to the operator for Q&A.
Thank you. At this time, we will conduct our question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Wayne Lam of RBC. Go ahead, Wayne.
Hey, morning, guys. I'm just wondering at Čoka Rakita, in terms of the permitting timeline that you guys have set for it and I guess the six months between EIA submission and intended receipt, just wondering if there's any precedent in country in terms of that permitting timeline that kind of informs your confidence on that timeframe.
Hi, Wayne. Good to talk to you. So what we've done is we've been working with the government pretty closely in terms of the timeline. So the comment was that we'll submit the EIA in the first quarter of 2026 and anticipate moving forward with construction. Sort of mid-year is sort of the thinking. We're working actively with the government and there's a good intent to try and advance these things. So it's not that it's this point and drifting later. We're looking at the opportunities to advance. The other thing is that we're in conversation with the authorities right the way through the activities that we're doing and the work that is required in order to have a competent EIA, which can then get a positive decision.
So I wouldn't sort of read too much into the six months between those two, and does that then push us back to later in the year in 2026? Our intent is, as early as possible in 2026, make that construction decision. Are there precedents? There's been precedents in terms of timing from pre-feasibility through to production with the last mine that was built in country. So as a consequence of that, we're quite confident that we can achieve an accelerated path to a construction decision. But like I said, we're working with the authorities to make sure there are no surprises and we're well prepared and ready.
Okay, great. Thanks. And then maybe just wondering in terms of marketing terms, given the tightness in concentrate supply, I'm just curious what kind of cost savings you guys are seeing on treatment charges. And then I guess more broadly, it seems like a number of factors seem to be going your way on the cost side. And just wondering if in the coming quarters, when you guys see higher grades, if you guys might be seeing any upside or improvement versus where guidance was set.
Sure. Hi, Wayne. Yeah, with respect to treatment charges, certainly when it comes to Chelopech and as we look forward to their treatment charges that they incur or Chelopech incurs, we're definitely seeing a benefit for the market. The way we typically price or contract out with our customers, we start the process late the previous year, and then we continue that through the current year as we look forward to shipments later in the year. So certainly, as we look to the second half of the year, we expect to see a greater benefit of treatment charges, lower treatment charges as we progress through the year. On the flip side, when it comes to Tsumeb, obviously, it's being challenged because of the same market, as they mentioned earlier.
When it comes to cost benefits, certainly, as I mentioned, we are seeing the benefit of lower power costs, and we are seeing some of the benefit of lower costs for certain direct materials, particularly with respect to cement and certain of our other reagents as well. So yes, we could end up seeing a bit of a benefit on our All-in Sustaining Costs as we progress through the year, but for now, we're maintaining our guidance just in light of everything else that's going on globally.
Okay, great. Thanks. And then maybe just last one for me. Just given the amount of cash you guys are putting on the balance sheet, at what point do you guys consider an increase in the dividend here? Or is there any potential to even provide a special dividend given the amount of cash building on the balance sheet? Or are you guys kind of saving that for any future CapEx needs or potential M&A?
Yeah. Yeah, we think about that all the time, and especially in the light of this current commodity price environment, certainly, that's a question that's top of mind for the management as well as the board. We've currently maintained this dividend. We've doubled it, actually, since we initiated it back in 2021. But as we look forward to our capital allocation, we remain disciplined around ensuring that we have enough cash within the business for our projects, for our exploration programs, especially in light of Čoka Rakita. But we also have a view of returning a certain amount of that cash to our shareholders. So that is something we consider as we meet with our board and discuss that with management.
Okay, great. Well, certainly, great position to be in. Thanks for taking my questions.
Thanks.
Operator, is there another question?
I'm sorry. Our next question comes from Raj Ray of BMO. Go ahead, Raj.
Thank you, Operator. Good morning, Dave and team. My first question is a follow-up on Wayne's question on capital returns. So Dave, so Q1, the share buybacks were a little on the lighter side compared to what you did over 2023. Is there a reason? I just want to know that you still see value in the stock at these current prices and whether you expect to keep buying. So that's my first question. My second is on your growth pipelines. Great to see Čoka Rakita coming online in 2028. Still have the gap from 2026 to 2028 in terms of potential production drop once Ada Tepe runs its course. Are you still thinking of filling the gap? I mean, is there any potential you see in terms of extending Ada Tepe? I know you have said in the past maybe a few months, but has anything changed? Those are my two.
I do have a third one with respect to the Sveta Petka commercial discovery license that you received in January 2024. Can you touch upon what are the next steps for that? Thank you.
Thanks, Raj. I'll start with the first one. So the buyback program started in late March. We only reinstalled our program on March 18th. So that's why the share buybacks were a bit lighter. As well, the reason we didn't have an automatic repurchase going on during the year, January/February months as well, is we were essentially working towards the Tsumeb sale during that time as well. So we were essentially prohibited from making those types of transactions during that time. So the buyback is a bit lighter in Q1 mainly because we reinitiated that NCIB program late in March. So that's an answer to that. And then Dave?
So in terms of your question about Sveta Petka, we'll take that one first before the growth pipeline. So at Sveta Petka, what's happened is we've received the commercial discovery. Just projecting that forward with what's necessary to complete. So there's an EIA conversation now, but ultimately, there's a conversation about receiving the concession. We would anticipate that being late 2025. Now, just coming back to the last point, you're asking about the growth pipeline. So we see that as priced into the stock. So that's the first thing. But having said that, we know from the conversations that we have with the different stakeholders that this is a question that keeps coming up. Now, Osino would have been a great fit for that. So it's definitely one of the things that we would keep in mind, but it's not the overriding priority.
At the end of the day, we are looking for those options which are a great fit with the organization and which announce the share accretion.
Sorry, Raj, just coming back to the latter part of your question on the buyback. So yes, we would expect to continue the buyback program this year. Again, now that we've restarted it at the end of March, we would expect to start making repurchases given where share price is relative to what we think value is.
Yeah. I think what you've heard previously remains, which is that we project forward the build-up in cash and then look at cash use. Obviously, we've had the good fortune of having success with exploration and putting some money into that. We, of course, continue the dividend. It is a conversation: is this at an appropriate level? Should we be thinking about doing more? The buyback remains an option for us. We're not thinking about doing anything in terms of any special purchase on that. Buybacks and options are the two. But as we're building cash at a rate higher than we need, the intent is to use the buyback facility in order to provide additional return to shareholders.
Okay, that's great, Dave and Navin. Thank you. That's it from me.
Thank you. One moment for our next question. Our next question comes from Don DeMarco with National Bank Financial. Go ahead, Don.
Thank you, Operator. Good morning, David and team. So first question, with the buildup in accounts receivable in Q1, did you say you expect to have this unwound in Q2, potentially lifting the cash balance? And can you reiterate what this consisted of?
Sure. So our production for the quarter was essentially back-end weighted towards the tail end of the quarter. And so when we ship our concentrate out to our customers. Typically, what ends up happening is when it's shipped, it's 15 days before we can collect the cash on that shipment. We get to recognize the sale at the time it's shipped, but then the collection of cash is typically 15 days. And with the production being heavily tilted towards the back end of the quarter, we end up seeing a lot of our sales recognized towards the back end of the quarter, but then the receivables weren't collected until the following month. So that's the main reason for that. It's not expected to recur in the coming quarters.
It's your question around whether or not we might expect to see essentially most of the cash coming in from first quarter as well as the second quarter. There will be some of that, but at this point, I wouldn't comment on whether or not there would be essentially a double-up in the second quarter.
Okay. Thanks, Navin. Shifting to the Čoka Rakita PEA, it looks strong. I see AISC is $715 an ounce. This looks like another high-margin mine, good replacement for Ada Tepe. But can you provide some of the assumptions that support the low-cost outlook?
So what we've done here, Don, is we're in the fortunate position that we have an operating asset with a long operating history just five hours away. So basically, the way we've done this, all of the assumptions for underground, when we look at things like developments and more specifically, if we talk about mining cost in terms of what you've asked, all of those are coming from what do we do at Chelopech? What do we compensate for in terms of new asset, new place, training, development, some amount of building efficiencies over time, that type of thing? If you look at some of the other numbers and you didn't particularly ask this question, but for instance, if you have a look at the ramp development, those are actually external costs, not our costs.
So underground, it's all based off Chelopech corrected for scale, corrected for new location, some opportunity for efficiencies. But in terms of a lot of the surface stuff at this point, as mentioned, we've still got some trade-off studies. So there's some potential optimization or certainly offsets to any additional inflationary pressures that we might see. I don't know if that answered your question, Don.
It does to a degree. I think that it lends for certain confidence in those costs because you have Chelopech not far away. But in terms of perhaps maybe mining method or grade, any color on either of those?
Yeah. So mining method at this point, everything that we've done, including the block size in the ore bodies, is leading to similar practices at Chelopech, which is long-hole open stoping. Nothing really out of the ordinary at Čoka Rakita, except it has gravity concentration as a bigger part than we typically have in other operations, so. Anything further clarification, Don?
No, that's fine. Thank you. And I get it that the resource is still evolving. You're doing more exploration. So is there opportunities to potentially upsize the throughput? I think the PEA had 2,300 tons per day.
So the way I would look at it at the moment is that we've got one particular type of material at Čoka Rakita. And if you go back to February, we announced something that was 1.1 kilometers away in an area slightly it was north-northeast of Čoka Rakita. And that was looking at the marbles, which were a level below the skarn, which Čoka Rakita is primarily formed off. And that is 26 meters of I think 3.5% copper and just over three grams gold. So that could be something that might require a slightly different circuit. So then coming back to your question, can we actually scale Čoka Rakita? The way we would see it is being built-in modules.
So if there is some expansion, it's quite likely that that may require a slightly different flow sheet, perhaps crush mill floats as opposed to crush mill gravity separation floats and this type of thing. If what we find is more of the same, and we're very optimistic there's more there, then that same modular approach could be used to actually increase the capacity on the same flow sheet.
Okay. Great. Thanks for that, David, and good luck with next steps.
Thank you.
Thank you for your question. One moment for our next question. Our next question comes from Eric Winmill of Scotiabank. Go ahead, Eric.
Great. Thank you. Good morning, David and team. Thanks for taking my question. Just a follow-up on the Chelopech brownfield. Apologies I missed it earlier, but do you have any details in terms of number of rigs? Is this from surface or underground? And maybe sort of what next steps are, how much drilling you think is going to be needed to advance some of those resource targets? Appreciate it. Thank you.
Yeah. So far, with the activity that we've reported in Q1, the bulk of that work has been underground. So the plan is to put some surface rigs on now in Q2. As we mentioned, Sharlo Dere here will be doing more work on at this point. I believe we said two rigs earlier we're going to put in place primarily, but it will depend on what exactly we're finding and what the opportunity is. So there's a couple of things that we're still working on in and around Chelopech, but primarily over the concession, we'll have two rigs. That's the intent at this point. And that's additionally because I mentioned to the underground work, which is typically about 45,000 meters per year. So there's two different sets of activities going after this.
Okay. Fantastic. Appreciate the added color. I'll hop back in the queue. Thanks. Cheers.
Thanks, Eric.
Thank you for your question. At this time, we are showing no further questions. I'd like to turn it back to Jennifer Cameron. Please go ahead, Jennifer, for closing.
Great. Thank you all for joining us. If you have any further questions, please feel free to reach out, and we look forward to speaking to you over the coming weeks. Thanks and take care.
Thanks, everybody, for your participation in today's conference call. This now does conclude the program. You may disconnect.