Good day, and thank you for standing by. Welcome to the Dundee Precious Metals second quarter 2024 earnings results conference call. At this time, all participants are in a 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Cameron. Please go ahead.
Thank you, and good morning. I'm Jennifer Cameron, Director of Investor Relations, and I'd like to welcome you to the Dundee Precious Metals second 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 meaning under IFRS and may not be comparable to similar measures presented by other companies. These definitions 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 reconciliation of these measures. Please note that unless otherwise stated, operational and financial information communicated during this call are related to continuing operations and have been generally rounded. References to 2023 pertain to the comparable periods in 2023, and references to averages are based on midpoint 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. I'm pleased to provide you with an overview of our second quarter results and to provide some insights into our achievements during this period. This morning, David and I will briefly review our results and discuss why we believe DPM continues to be well-positioned to deliver value now and over the long term. As you would have seen from our news release circulated last night, we've delivered a very strong quarter, which included record financial results and excellent cost performance.
Highlights from our second quarter include production of approximately 68,000 ounces of gold and 8 million pounds of copper, an all-in sustaining cost of $710 an ounce in line with our guidance for the year, record free cash flow generation of $82 million, and continued financial strength as we ended the quarter with a consolidated cash balance of $707 million and no debt. I'm pleased to say that we're on track to achieve our 2024 guidance targets, which will mark the 10th consecutive year we have achieved or outperformed our gold production and all-in sustaining cost guidance, a testament to the strength of our operating team and the quality of our mines. During the quarter, we also advanced our growth pipeline, completing the PEA for Čoka Rakita, and initiated the pre-feasibility study, which is on track for completion in the first quarter of 2025.
Taking a look at our operations in more detail, Chelopech continued its consistent track record in the second quarter, producing 44,000 ounces of gold and 8 million pounds of copper at an impressive all-in sustaining cost of $531 per gold ounce sold. Over the balance of the year, we expect improved copper grades at Chelopech, and the operation is on track to achieve its production guidance for the year. With all-in sustaining cost of $670 per ounce in the first half, Chelopech is also expected to be well within its cost guidance for the year. We continue to focus on extending Chelopech's mine life through our successful in-mine exploration program and an aggressive brownfield exploration program. With increased in-mine and brownfield exploration drilling, we believe there's strong potential to continue our track record of extending mine life at Chelopech, which currently extends to 2032.
We commenced in the quarter drilling at Sharlo Dere, evaluating extensions and confirming several high-grade intercepts from previous work. We also continue to advance the activities to support moving to the commercial discovery phase for Brezhene, and this includes a one-year extension of the exploration rights, which we expect to receive in the fourth quarter. Ada Tepe produced approximately 24,000 ounces of gold in the second quarter in line with our expectations. All-in sustaining cost was $699 per ounce of gold sold, which is below the low end of Ada Tepe's 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. We're also continuing our exploration efforts around Ada Tepe with activities focused on delineation of Krumovitsa.
Drilling, which commenced at the end of March, is ongoing, and permitting for the next phase of drill sites is in progress. Turning to our development projects and starting with our high-quality Čoka Rakita project, we completed and showed the results of the PEA in the second quarter, which outlined a high-margin, low-cost underground mine, robust economics with first production targeted for 2028. Based on the positive results, we initiated a PFS, which is advancing well and is on track for completion in the first quarter of 2025. We're also advancing project permitting activities in support of this timeline with good support and engagement from key regional and national authorities. This includes preparation for the EIA, which we expect to submit in the first quarter of 2026.
What makes Čoka Rakita particularly exciting is that it's not only an attractive project on a standalone basis with an IRR of 33% at a $1,700 gold price, but it also has significant exploration potential across our four licenses. We are continuing our scout drilling program, which is focused on aggressively pursuing additional targets and following up on the positive results we published earlier in the year. Overall, we're very excited by Čoka Rakita's potential in a region where we've had a presence for many years and where we've developed strong relationships with local stakeholders. Turning to the Loma Larga project, we continue to progress activities related to permitting and stakeholder relations. The informational phase of the environmental consultation process was successfully completed in April, and we are working with the Ministry of Energy and Mines to outline an interim procedure for the free, prior, and informed consultation process.
The baseline ecosystem and water studies are also currently in progress. We 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 environment in the country, and our other capital allocation priorities. In our release last night, we provided an update on the Tsumeb sale. As we progress towards closing, all Chinese regulatory approvals have now been received, with the Namibian Competition Act being the only remaining approval required. Due to DPM's sale of the smelter, the smelter's tolling agent has elected to end the existing agreement it had with Tsumeb, and DPM will therefore be required to purchase all unprocessed concentrates and secondary materials owed by Tsumeb, which amounts to approximately $80 million net of the cash settlement of the outstanding metal recoverable.
As a result of this development, we're in discussions with Sinomine regarding amendments to the agreement, including an expected reduction in the cash consideration for the smelter from $49 million to $20 million. We're also discussing an arrangement whereby DPM would step into the position of a tolling agent on a temporary basis, commencing when the current agreement with IXM ends and terminating four months following closing. We view this as a necessary step to facilitate the transaction, one that we are comfortable in making given DPM's experience and knowledge of smelter counterparties. The sale of the smelter is consistent with our strategic objective of focusing on our gold mining assets and simplifying our portfolio going forward, and we continue to target closing the transaction in the third quarter.
Overall, we delivered record financial results for the second quarter and first half of the year, and with both mines on track to achieve our 2024 guidance, we are well-positioned to continue our strong operating track record. I'll now turn the call over to Navin for a review of our financial results.
Thanks, Dave. I'll be touching briefly on the financial highlights for 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 operations. Looking at our financial results, second quarter highlights include revenue of $157 million, record adjusted net earnings of $71 million or $0.39 per share, cash flow from operating activities of $126 million, and record free cash flow of $82 million. Overall, results during the quarter reflect our strong operating performance, the low-cost nature of our operations, and a favorable commodity price environment.
Looking at our earnings and cash flow in more detail, revenue of $157 million in the second quarter was 18% higher than 2023, due primarily to higher realized prices of metals sold, partially offset by lower volumes of gold sold at Ada Tepe as planned. Adjusted net earnings in the second quarter of $71 million or $0.39 per share increased compared to the prior year, due primarily to higher revenue and higher interest income, partially offset by higher planned exploration and evaluation expenses from Čoka Rakita and higher income tax. Cash flow from operating activities of $126 million for the quarter was higher than the prior year, due primarily to higher earnings generated in the quarter, as well as the timing of deliveries and the collection of outstanding receivables.
Free cash flow in the quarter was $82 million, an increase of $16 million compared to 2023, due primarily to higher earnings generated in the quarter and lower cash outlays for sustaining capital expenditures. Taking a look at our cost metrics for the quarter, all-in sustaining cost of $710 per ounce of gold sold was slightly lower than the prior year, due primarily to higher byproduct credits, lower treatment charges, and lower cash outlays for sustaining capital, partially offset by lower gold sold and higher costs related to share-based compensation, labor, and freight. In terms of our capital spending, sustaining capital expenditures were $8 million for the quarter compared to $6 million in 2023, due primarily to the timing of expenditures. Gross capital expenditures of $4 million for the quarter were lower compared to 2023, due primarily to lower expenditures related to the Loma Larga gold project, as expected.
As Dave mentioned, with strong results in the first half of the year, we are on track to achieve our annual guidance metrics for the year. We continue to maintain a strong balance sheet and cash position with a consolidated cash balance of $707 million, which includes the cash held at Tsumeb, no debt, and a $150 million undrawn revolving credit facility. Given the strength of our balance sheet and our outlook for continued strong free cash flow generation, we are in a unique position with the financial flexibility to fund growth opportunities while continuing to return a portion of our free cash flow to our shareholders in line with our commitment to capital discipline.
During the first half of 2024, the company repurchased 2.3 million shares at a total cost of $18.4 million under the share buyback program and paid $14.5 million of dividends, representing an aggregate return of 23% of our free cash flow to shareholders. With that, I will turn the call back to Dave for his concluding remarks.
Thanks, Navin. In closing, we believe that our strong Q2 results demonstrate that DPM is in a unique position in the industry, considering our strong operating track record, our all-in sustaining costs, which are among the lowest in the gold industry, our significant free cash flow generation, attractive organic projects, and the financial strength and flexibility to internally fund our growth pipeline while continuing to return capital to shareholders. And with that, I'd like now to open the call to any questions.
As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Wayne Lam with RBC. Your line is open.
Yeah, thanks, guys. Morning, everyone. I guess just at Tsumeb, just wanted to understand a little bit on the sale and the reduction in the purchase price. Is the $29 million in cash reduction mostly driven by Sinomine having to go out and find a new tolling agent? Just curious why such a large concession of the overall price had to be made. And then in the event that they cannot find someone to assume that role, is there a scenario where DPM would have to take that on for an extended period, or could there be a further amendment to the currently proposed terms?
Yeah, hi, Wayne. So first of all, there were two different elements to the change in valuation. The trigger was the position with the tolling agent. And of course, at that point, we reviewed the current situation in terms of the market. So those were the sort of two elements. Coming to your second point about finding someone, we don't think it's an issue with the ability to find someone in the market in order to perform that function. But this does create opportunity for Sinomine in terms of how they might do that. Do we see that we might extend? Do we see further amendments at this point? No. It's pretty clear that that's four months.
Okay, great. Thanks. And then do you foresee any credit risk on the $80 million that you guys are effectively lending? Just wondering if this could be perhaps interpreted as lending $80 million to help close a $20 million sale, which seems like quite a bit of risk.
Hi, Wayne. It's Navin. No, we're actually not lending the funds. We're buying the concentrate ourselves. So it's essentially a working capital facility, and it's no different than what IXM had been providing to us over the many years. So we're just stepping into IXM's position as essentially the financier for this inventory. And under IXM's purview as being the tolling agent, they own the material. As we step into it as DPM, we will own the material.
Okay, understood. Thanks for the color. And just lastly, at Ada Tepe with the $5-$70 million exploration spend guided this year, you guys have been pretty upfront about the mine life being depleted at mid-2026. As you look out to next year, is the plan to continue to spend on drilling there to try to extend out a few more quarters beyond that? Or just wondering if there becomes a point where you don't feel the return there justifies the capital outlay?
I think the simplest to that is that we've identified a very exciting prospect, which has demonstrated some incredible value for the company. As long as we feel that there are opportunities in exploration in and around that area, we will continue.
Okay. Good to hear there's still some prospectivity. Okay. Yeah, that's all for me. Thanks for taking my questions.
Thank you. Our next question comes from Eric Winmill with Scotiabank. Your line is now open.
Great. Good morning, David and team. Thanks for taking my question. Really nice to see the cash build here in Q2. Maybe just continuing on the questions about Tsumeb, if you're acting as tolling agent, do you see a situation where maybe you end up sending more Chelopech ore to Tsumeb for processing in the future?
Definitely not.
Okay. That's helpful. Thank you. And so obviously, TC/RC is coming down this quarter. Do you sort of see that as a sustainable level going forward, or any thoughts here on TC/RCs throughout the balance of this year?
Yep. I can answer that. Yeah. So we have seen definitely a decrease in the TC/RCs. It's been beneficial for Chelopech, certainly, and not so much for the smelter. It appears as if, based on what we're seeing, that we might be coming off the bottom, but it probably still will take some time for that to come back to normal levels, at least for the smelter. But we are enjoying it in terms of reduced TC/RCs and also better payable terms, actually, mostly for Chelopech.
Okay. That's helpful. Thank you very much. Just turning to Tierras Coloradas, I know you've had some pretty good results there. I know you drilled almost 12,000 meters in Q2. I assume we'll see those results soon. And now applying for advanced exploration permits, what does that involve here? I mean, and should we read through positively here that you like what you're seeing and that's why you want to move to the advanced exploration?
So we do like what we're seeing at Tierras Coloradas. You're correct in saying that we've completed an amount of work, and we're currently waiting to see the outcome from that. But our view on Tierras Coloradas is more than just the area that we've looked at. There remains opportunity there beyond what we currently targeted, which was the veins. There's also what we suspect is a porphyry there plus some high sulfidation epithermal potential. So what we're also doing at the same time is we're looking at other targeting opportunities and doing some surface work, the leg work, basically, to prepare for future targeting. In terms of the exploration permitting, that's not preventing us from drilling. That's just something that we are going through at the moment with the intent of changing to a different phase of the exploration process.
Okay, great. Thank you very much. And maybe if you can indulge me one more question, just on sustaining CapEx, looks like maybe you're running a little bit low relative to the full year guidance. So should we expect that the sustaining CapEx is going to pick up in the back half of the year?
Yeah. Eric, yeah, that's probably a good assumption. Picking up in the back half, it's typically back-end weighted or sustaining capital spend. So yeah.
Okay. Fantastic. Well, thanks a lot. Appreciate the added color. And yeah, congrats again on the nice free cash flow build. Cheers.
Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Again, that is star 11 to ask a question. Our next question comes from Frederic Bolton with BMO Capital Markets. Your line is now open.
Hi. Good morning. Thank you for taking my call. So I just have a couple of questions because I haven't seen them being asked and answered. So given the strong free cash flow and low-cost Chelopech, are there any thoughts on increasing shareholder returns?
Sure. I'll take that. Hi, Frederic. We typically revisit this topic quite regularly as a management team and a board. We're focused on taking a balanced approach to capital allocation, which focuses on our balance sheet strength, capital return to shareholders, and reinvestment. Just a reminder, we're one of the very few producers of our size that pay a dividend. We continue to use our NCIB as a tool for the capital allocation program. And we also view our cash balance as a strategic advantage. So we want to make sure that we maintain the financial strength to fund our growth pipeline as well as continuing to pay a sustainable dividend as well as pursue other opportunities.
Okay. Thank you. And so I noticed that you'll be deferring the initial results that Sharlo Dere did in the Chelopech. How should we interpret this? Is this a case of the geology being more complicated than expected, or can you give us a bit more color on that, please?
Really just a question of prioritization and looking at whether we drill from surface or underground. So we've moved to having more drills access this from underground. So you've got to get in the position to make that happen. You've got to get the bigger drill rigs to make that happen and so on. So if anything, we're still excited about what's happening at Sharlo Dere. We want to do that work. We're just reconfiguring the way we're going to approach it. So we'll have two drills from underground, two drills from surface. Just the timing at which that's starting is not going to allow us to bring that into the next update of the reserves and resources.
Okay. Great. Thank you. Sorry, I just have one last question just to follow up on the previous caller. With regards to the TC/RC charges for the rest of the year, I know you mentioned that you're happy with these levels. Can you just give us a little bit of guidance how we should look at it for the rest of the year? Could we continue to model at these levels?
Yeah, Frederic, it's a bit challenging because TCs and RCs are one component of the way we kind of sell our concentrate. The other component, obviously, is the payable metal factor that gets applied. What we are seeing, I guess, in terms of guidance, what we're seeing relative to our budget for the year, we're seeing about a $4-$5 million benefit on the whole, taking into account higher payable terms and perhaps flat to lower TCRCs that's hitting the bottom line, essentially. But it's hard to give a specific guidance on what the TC rates would be for the balance of the year. It's actually a combination of TCs and better payable terms.
Okay. Understood. Thank you. That's it for me. I'm positive that's no greater.
Thank you. I'm showing no further questions at this time. I would now like to turn it back to Jennifer Cameron for closing remarks.
Thank you all for joining us today. If you have any further questions, please feel free to reach out. For those of you in Ontario, please enjoy the long weekend. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.