DPM Metals Inc. (DPM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Dundee Precious Metals Annual Meeting 2020. [Operator Instructions] I would now like to hand the conference over to Chairman, Jonathan Goodman. Please go ahead.

Thank you. Good afternoon, and welcome to the Dundee Precious Metals 2020 Annual Meeting of Shareholders. I now call the meeting to order. My name is Jonathan Goodman, and as Chair of the company, I will chair today's meeting. As you know, we took the early initiative to move to a virtual format for our annual meeting this year in response to the COVID-19 global pandemic. To ensure the health and safety of our shareholders, colleagues and communities, we are using the power of technology to enable our shareholders to attend this meeting in a virtual format via live webcast. This format allows all shareholders and appointed proxy holders from any location to attend, participate and vote at the meeting. Guests are also welcome to attend and listen to our meeting. As the meeting is being held virtually, we'd like to set out a few rules for the orderly conduct of the meeting. Questions can be submitted using the instant messaging service of the virtual interface. Please note that there may be a slight delay in questions being received by us after they've been submitted. Please follow the instructions in the virtual platform, which allows you to indicate your name, which entity you represent, if any, and confirm whether you are a registered shareholder or duly appointed proxy holder. Questions in respect of a motion can only be submitted by a registered shareholder or duly appointed proxy holder. When reading out a question on a motion, we will note the name of the registered shareholder or proxy holder submitting the question. Following the formal part of the meeting and management presentation, there will be a Q&A session where all registered shareholders, proxy holders and guests are welcome to ask questions of a more general nature in order to deal with all questions in a timely fashion. Questions of a similar nature will be answered once and duplicative questions will not receive a response. If we are unable to address your questions during the meeting due to the time constraints, a representative of Dundee will reach out to you following the meeting with the response. For the purpose of the meeting today, voting on all matters will be conducted by electronic ballot. To allow sufficient time for voting, the polls will be open at the beginning of the meeting, and you will receive a message on the virtual interface requesting you to start registering your votes. I remind you that only registered shareholders and duly appointed proxy holders who have properly logged in with their control numbers and user name will be able to see the screen. All motions being brought forth at this meeting and will be asked to vote on each business item. We remind you that if you are a registered shareholder and you have already voted by proxy, you need not vote again unless you wish to change your vote. If you plan to vote at the meeting, you may choose to vote on each resolution immediately or wait to cast your vote until after an item is discussed or following the conclusion of discussion on all voting matters. To simply click on your choice for or withhold or against as applicable. A confirmation message will appear to show your vote has been received. To change your vote, simply change your selection. The votes you submitted on each polling item at the time of the poll closure will be recorded. Totals in favor or against or withheld, as the case may be, for each resolution item will be tallied by the scrutineers once the voting is completed, and the Chair will report on the outcome of all motions at the end of the meeting. We will now proceed with the formal part of today's meeting. To expedite the formal part of the meeting, I will move all motions as the proxy appointee. I would like to introduce the members of the management and other directors present at the meeting. We have Rick Howes, our departing President and CEO; David Rae, our incoming President and CEO and former Executive Vice President and Chief Operating Officer; Hume Kyle, Executive Vice President and Chief Financial Officer; Kelly Stark-Anderson, Executive Vice President, Corporate Affairs, General Counsel and Corporate Secretary; and Michael Dorfman, Executive Vice President, Corporate Development. Following the formal business, Rick Howes will highlight our 2019 results and achievements before introducing our new CEO, David Rae, who will review the current outlook and the company -- for the company and respond to questions. I now ask that the 2020 Annual Meeting of the Shareholders of the company come to order and hereby declare the polls open on all resolutions and will remain open until the last item of business of the meeting has been completed. Kelly Stark-Anderson, Executive Vice President, Corporate Affairs, General Counsel and Corporate Secretary of the company will act as secretary of the meeting. For the purpose of this meeting, I appoint Computershare Investor Services as scrutineers to compute the votes of any polls taken at the meeting and to report thereon to the secretary. Constitution of the meeting. The items of business for today's meeting are set out in the management information circular of the company dated March 25, 2020. This year, we e-mailed to shareholders using notice and access and delivered to your meeting materials by providing you with a notice and posting the materials on our website at www.dundeeprecious.com, only mailing materials to shareholders who previously requested paper copies. The meeting materials, along with the audited consolidated financial statements and related MD&A for the year ended December 31, 2019, were mailed April 7, 2020. Unless there's an objection, which may be voiced only by registered shareholders or duly appointed proxy holders by using the instant messaging service of the virtual interface, I will dispense with the reading of the notice of meeting. Copies of the management information circular and other meeting materials are available on the company's profile on the SEDAR website. As no objections have been received, we will continue. Our transfer agent, Computershare Investor Services has attested to the proper mailing of the notice calling this meeting, the transfer agent has filed with the proof of service of such mailing, and I direct that a copy of such proof of service be retained with the records of the company. I have been advised that there are 2 or more people attending the meeting who hold or represent by proxy shares representing more than 25% of our outstanding voting shares of the company. Therefore, a quorum of shareholders is present and the meeting is properly called and duly constituted for the transaction of business. I've received the scrutineer's report, and I direct that their formal report be retained with the records of the company. Presentation of financial statements and audit report. As the first item of business on the agenda for today's meeting, I present the audited financial statements of the company for the year ended December 31, 2019, together with the auditor's report for the shareholders thereon. Copies of such documents have been mailed to the shareholders who requested. The next segment of business is the election of directors. In accordance with the advanced notice of bylaws of the company for nominations of directors by shareholders, we did not receive any notice of any director nominations for this year's meeting. Accordingly, the only persons eligible to be nominated for election of directors of the company are the persons nominated by management. The 9 directors to be elected by the shareholders of the company shall hold office until the close of business of the first annual meeting with shareholders of the company following election or until their successors are elected or appointed. Peter Gillin, David Rae, Jeremy Kinsman, Juanita Montalvo, Peter Nixon, Marie-Anne Tawill, Anthony Walsh, Donald Young, and me, Jonathan Goodman have been nominated directors for the ensuing year or until their successors are elected or appointed. Each of the persons nominated confirm that he or she is prepared to serve as a director. Since there is no other nominations, I move the motion to elect each of the individual nominated as directors. Unless there are any questions, I will move on to the next item of business. Appointment of auditor. The next item of business is the appointment of auditor of the company for the ensuing year and to authorize the directors of the company to fix the auditor's remuneration. The Audit Committee of the Board of Directors of the company has approved, subject to shareholder confirmation, the appointment of PricewaterhouseCoopers LLP, Chartered Professional Accountants as the auditor of the company. I move that PricewaterhouseCoopers LLP, Chartered Professional Accountants be appointed the auditor of the company until the next Annual General Meeting of Shareholders and the Board of Directors be authorized to fix the auditor's remuneration. Unless there are any questions, I will move on to the next item of business. Advisory say on pay resolution. The next and final item of business is to pass a nonbinding advisory resolution accepting the company's approach to executive compensation. The form of this resolution is outlined in the circular. I move that the nonbinding advisory resolution accepting the company's approach to executive compensation as set out in the circular be approved and confirmed. As we mentioned, voting today is being conducted by electronic ballot. I'll now take a moment for registered shareholders and appointed proxy holders to complete the voting. [Voting]

For those of you who have not cast your votes, please do so now. We will provide registered shareholders and duly appointed proxy holders approximately 1 more minute to complete the electronic ballots. Once the electronic balloting closes, the voting will disappear and your votes will automatically be submitted. [Voting]

Voting is now closed. I would ask that the scrutineer compile the report regarding the results of voting on all business matters. However, I've been advised that based on the proxies we received today, all voting overwhelmingly -- all voted overwhelmingly in favor of all the matters today. Each of the 9 nominees received no less than 88% of the votes in favor of his or her election as director of the company to serve until the next Annual Meeting of Shareholders or until their successors are elected or appointed. 99.85% have voted in favor of the appointment of PricewaterhouseCoopers LLP as the auditor of the company and to authorize the Board of Directors of the company to fix the remuneration. 97.65% have voted in favor to pass the nonbinding advisory resolution accepting the company's approach to executive compensation. I declare that each of the 9 nominees have been duly elected as directors, PricewaterhouseCoopers LLP has been duly appointed as the auditor of the company and the nonbinding advisory resolution accepting the company's approach to the executive compensation has been duly passed. I confirm that the results will be published on SEDAR and by press release following the meeting. The formal items of business as set out in the notice of meeting have now been dealt with. I move that this meeting now terminate. As there is no further business to come before the meeting, I declare the formal part of the meeting to be concluded. Before I hand over things to Rick Howes and David Rae to provide an update on the company, I'd like to take a moment to acknowledge the significant contributions Rick Howes has made during his tenure at DPM. As we previously announced in December 2019, Rick will be stepping down as President and CEO effective today. Rick has been instrumental in leading the company through a transformational period in our history, culminating in our recent transformation -- transition to a mid-tier producer. Under his leadership, DPM's significant accomplishments have included: transforming Chelopech into a world class asset, following an expansion to 2 million tonnes of ore per annum; and successfully permitting, building and ramping up production at Ada Tepe, one of the highest-grade open-pit mines in the world; optimizing performance at the Tsumeb Smelter; developing a culture of innovation and advancing our digital strategy to value to the business; and continuing to build and elevate the DPM brand as an industry leader in ESG. Rick is leaving the company in very solid position with a promising future ahead of it. On behalf of the Board, I'd like to thank Rick for his leadership and commitment to realizing value for its shareholders. Since December, Rick has been working closely with David to ensure a smooth transition into the role. And David has the Board's full confidence as he has been a major contributor to our success in his time as Chief Operating Officer. With that, I'll now hand things over to Rick to highlight 2019 results and achievements to be followed by our new CEO, David Rae, to continue with the management presentation and question and answer.

Thank you, Jonathan. I'm truly very proud of what we accomplished together over the last 11 years. These achievements have culminated in a milestone year for the company. Now I'll be reviewing our 2019 results before handing the presentation over to David Rae, who assumes the role of President and CEO effective today. Of course, this has been a very difficult few months across the globe with the COVID-19 pandemic. We are doing our best to ensure the health and safety of our employees and to support our local communities, which Dave will elaborate on further shortly. Before we begin, let me draw your attention to our cautionary statement on Slide 8, as we will be discussing forward-looking information during our remarks. As highlighted on Slide 9, in 2019, we established ourselves as an emerging mid-tier producer by successfully ramping up our second gold mine and delivered record annual metals production. Notably, we achieved these results while maintaining an impressive safety record, with our Bulgarian operations achieving an impressive 2.5 million hours without a lost time injury during the year. During the year, we generated operating cash flow of $99 million and $67 million of free cash flow and reduced our debt and ended the year in a strong financial position. Turning to Slide 10. We also continue to focus on advancing future growth opportunities. We completed a PEA on the Timok gold project in Serbia, which with recent optimization looks very encouraging. Timok has the potential to provide organic growth for a relatively low initial capital cost, and we have recently initiated a pre-feasibility study to take the project forward. Our exploration efforts at Chelopech and Ada Tepe continued, with the objective of increasing the mine life at each site. We were once again able to extend Chelopech's mine life, which continues to be approximately 8 years. During the year, we also made a strategic investment in INV Metals, the owners of the Loma Larga project, a permitted stage project in southern Ecuador. With similarities to both Chelopech and Ada Tepe, we believe our unique technical and operating skills as well as our shared commitment to the environment and communities where we operate will be invaluable to the INV team as it advances the project. We are committed to building shareholder value, and with significant free cash flow expected from the business in the coming years, we are pleased to reward shareholders with the inaugural quarterly dividend of $0.02 per share. This is a level we believe is sustainable based on our current and future outlook while maintaining sufficient capital resources to reinvest in our business. We were pleased to see that our significant achievements in 2019 were recognized by the market, with our share price increasing by approximately 55% in 2019, outperforming both the GDXJ and the GDX indices. Overall, 2019 was a pivotal year for DPM as we successfully completed a multiyear investment phase and successful optimization of our assets. Our successes in 2019 laid the foundation for a bright future for the company, and we're off to an even stronger start in 2020, which Dave will be discussing in a few moments. I've said this before and I will say it again, I'm very proud of all that our team has accomplished over my 11 years with the company. I take -- I'd like to take a moment to acknowledge all our dedicated employees across the company who contributed to our success throughout my tenure and to thank our shareholders and Board of Directors for their support. Today, as I step down from the CEO position and hand the reins over to Dave, I'm confident that I'm leaving the company in the strongest position it has ever been in. I wish the company great success in the future, and I'm very confident it will be in good hands under David's leadership to realize additional value for our shareholders. I'll now hand the presentation over to Dave.

Thank you, Rick, and thank you for all your support over the years. I'm pleased to be able to provide an update on our business, review our Q1 results and discuss how we are well positioned for the future. As a reminder, we will be taking questions after I finish my remarks. And for those of you who wish to ask a question, you may do so at any point using the Ask a Question feature in the webcast interface. I'll begin with Slide 12. As Rick mentioned, the company is in a very strong position to continue realizing value for shareholders. We have a growing production profile with declining all-in sustaining costs. We expect to generate significant free cash flow over the 3 years of approximately $140 million to $180 million per year. We have demonstrated capital discipline and our commitment to returning cash to shareholders with the initiation of a sustainable quarterly dividend. We have a culture of innovation that is adding value to our operations, and we have a proven track record of delivering industry-leading ESG solutions, building social acceptance and securing permits in each of the countries where we operate. Moving now to Slide 13. With the world facing an unprecedented situation as the government and society as a whole take measures to combat the COVID-19 pandemic, we quickly established procedures and contingency plans that focused on 3 items: protecting the health and safety of our people and the local communities; maintaining the continuity of our operations; and managing potential risks related to our global supply chains. Thus far, our operations are continuing to operate in line with our guidance for the year, and we have not experienced any disruptions to our inbound and outbound supplies. We are continuing to take proactive measures to closely monitor the situation, and given our financial and operational strength, we are well positioned to manage these challenges. The COVID-19 pandemic has had a significant impact on the local communities where we operate, and we're making several efforts to provide support and assistance, with a particular focus on the most vulnerable groups within the communities. Collectively, DPM has contributed over $750,000 to support numerous COVID-19 initiatives to benefit the local communities where we operate, and we've shared some of the highlights on Slide 14. This financial support has been focused on local hospitals to support their activities and to assist them in preparing additional medical facilities to isolate and treat COVID-19 patients. These efforts have also included building accommodations for health care professionals treating COVID-19 patients, renovating an intensive care isolation ward and the donation of specialized medical equipment. We've also provided necessary medical supplies and protective equipment. In addition to financial support, there are some great examples of our employees using their skills to contribute in other ways, such as our teams at Tsumeb who began manufacturing hand sanitizer in line with WHO standards for our employees and the local community. As you can see on Slide 15, despite the challenges caused by COVID-19, we delivered an exceptional first quarter and achieved a number of records for our operating and financial performance. These results are a tribute to our strong local operating teams, the relationships we have built with our stakeholders and the quality of our portfolio. I'd like to touch on some of the first quarter operating highlights from our assets, starting with Ada Tepe. Last year, the full ramp-up of our newest mine was achieved within only 3 months, a remarkable accomplishment in the mining industry. Ada Tepe has continued to meet or exceed expectations and in only its second full quarter of operation, produced 30,000 ounces of gold. Chelopech continued its track record of consistent performance with gold production in line with our expectations. And Tsumeb achieved its second highest quarterly production on record, which was a significant increase from the previous quarter as the operation ramped up, following an extended maintenance shutdown completed during Q4 2019. Turning now to Slide 16. This performance resulted in very strong consolidated production for the quarter of 73,000 ounces at an all-in cost of $593 per ounce. We also generated strong financial results, including record adjusted EBITDA, record adjusted earnings per share and a record $49 million of free cash flow for the quarter. 2020, as Rick was saying, is on track to be another milestone year for DPM as we are now starting to demonstrate the full potential of our portfolio. Turning to Slide 17. In February, we initiated a 3-year outlook for production, all-in sustaining costs, smelter costs and capital expenditures. In providing a longer-term outlook for our business, we aim to provide greater visibility and transparency to the market as we transition to a mid-tier producer. This highlights our strong production profile of approximately 300,000 ounces of gold, with all-in costs declining to the low to mid-$700 per ounce level, which is well within the lowest quartile in the industry. As you can see on Slide 18, we continue to maintain a strong balance sheet with a growing cash balance, a liquid investment portfolio and no debt. At the end of the first quarter, we have a net cash balance of $14 million and $175 million available under undrawn credit facilities. Our ending cash balance for the quarter would have been much higher had it not been for an increase in working capital of approximately $48 million, which was largely a result of the timing of certain receipts from customers and higher payments to suppliers. It was not linked to COVID-19. As we manage our financial position, we are focused on ensuring that we have adequate liquidity and that we manage within prudent financial metrics. I'd now like to focus on 3 aspects of our company that I believe will set us apart from our peers: first, our continuing success in adding value to our operations through innovation; second, our industry-leading ESG performance; and finally, our significant free cash flow potential and commitment to shareholder value. Moving to Slide 19. For a number of years, we've established a reputation as an innovative mining company for our work in applying new technologies to drive value in our business. Through the focus on innovation, we've developed the capabilities to quickly assess new technologies and efficiently incorporate them into business to create further value. More recent -- most recently, the systems we had in place allowed us to respond very quickly as an organization to the COVID-19 pandemic and seamlessly transition to remote work in many areas, with little to no interruption to the overall business. Turning to Slide 20 and specifically talking about mining innovation. When assessing new technologies, we look for the potential to increase safety, lower costs, improve operating performance and reduce our environmental impact. We continue to explore and advance our use of technologies in several areas where we see a lot of promise, such as the blast movement monitoring in Ada Tepe, which contributes greater ore selectivity and ensures ore loss dilution and misclassification are minimized. We're also implementing digital monitoring of the integrated mine waste facility at Ada Tepe, which provides online oversight on critical equipment and process from any location. With an approach of piloting at 1 location and rollout globally, we would envisage expanding this to Chelopech and Tsumeb. Another example is the Ausmelt furnace soft level sensor and tapping adviser, which provides real-time information at Tsumeb and advice to operations. This increases copper yield by reducing losses to slag and improves operating efficiencies. We are now planning to expand the use of this platform at our other operations to develop a digital twin of our process plants for real-time and optimized decision-making and control. As we move forward, we see a lot of opportunity in this area to help increase safety, lower mining costs and improve our operating performance while reducing our environmental impact. Moving to Slide 22. We believe that sustainability in the mining industry requires that companies adopt an enduring and robust business strategy that can deliver prosperity to all stakeholders over the longer term. There is also an increasing focus from our investors on ESG, a trend that we welcome as ESG has been an integral part of DPI's identity and our history. Our approach is grounded in our values and is supporting -- supported by a strong policy commitment, a robust management system and our people who are strongly aligned with the values and objectives of our company. When we completed construction of Ada Tepe last year, it became the first new mine in Bulgaria in over 40 years, a significant achievement considering its location in a Natura 2000 zone, one of the most environmentally protected areas in Europe. As part of the project, we developed and implemented a small and medium enterprise fund, which is designed to support sustainable livelihood in the region beyond the life of the mine through entrepreneurship and enterprise development. And we've seen the positive impact of our operations as the region now has more people returning to live and work than emigrating abroad. To highlight a few of the ESG highlights, I'd note that we've achieved significant improvements year-over-year in relation to materials and energy consumption despite a stable production rate at both Chelopech and Tsumeb. We also continue to see strong safety performance and are extremely proud with the 5-year trend for total recordable injuries shown here on Slide 22, which continues to improve year after year. When it comes to local employment and gender diversity, we are very proud of the fact that our management teams are comprised almost entirely of local employees, and we have a significant proportion of women in senior positions. Our efforts and track record have not gone unnoticed and resulted in DPM receiving an A rating by MSCI, a well-respected independent ESG rating agency. Also, our teams in Bulgaria recently received the Annual Grand Award for Investor of the Year from the Bulgarian Agency of Investment, which is pictured in Slide 23. We are proud to have achieved -- received this prestigious award, particularly given we were nominated by the local mayor of the municipality, the same municipality that initially was opposed to the Ada Tepe mine for many years. This is a strong testament to our ability to secure and maintain our social license and win the trust and respect from our local partners. In addition, our efforts to protect endangered tortoises in the Natura 2000 area around our Ada Tepe operation was recognized by the Bulgarian Forum for Business Leaders, which presented DPM with an environmental investment award. Now turning to Slide 25. Our results in 2019 and a strong future outlook for DPM are the culmination of a multiyear investment phase in our business and the successful optimization of our assets. With Ada Tepe now in operation, we are about to realize the full potential of our portfolio through significant cash flow generation. As we look forward, we expect to generate an average of $140 million to $180 million per year of free cash flow over the next 3 years at gold prices of $1,500 to the current $1,700 per ounce. With this significant free cash flow, we're committed to maintaining a disciplined approach to capital allocation that balances our desire to provide a cash return to our shareholders and reinvest in our business, which is highlighted on Slide 26. Earlier this year, we rewarded our shareholders with an inaugural quarterly dividend of $0.02 per share, a level we believe to be sustainable based on our free cash flow outlook. And yesterday, we announced our second quarterly dividend payable on July 15. This is a signal of our commitment to delivering superior returns to shareholders and a disciplined approach to capital allocation as well as our confidence that we will continue to deliver strong results in the coming years. Few companies of our size have implemented a dividend, and we believe this is an attractive feature that will further distinguish us from our peers. To close on Slide 27. Overall, DPM has never been in a strong position -- stronger position. With our strong first quarter results, we have demonstrated that significant free cash flow generation is now underway and that we are committed to deploying this capital in a disciplined manner. With continued volatility in global markets, we expect the strong fundamentals for gold to continue. DPM is now extremely well positioned relative to our peers to benefit in this environment of higher gold prices and can also better withstand any fluctuations that may occur. We firmly believe that DPM's strong fundamentals continue to represent a compelling value opportunity for investors. On behalf of our employees and our Board of Directors, I would like to thank you for your continued support. Thank you for your attention today. We'd now like to answer any questions that have been submitted through the virtual interface.

Thank you. [Operator Instructions] Please note, there may be a slight delay in questions being received by us after they've been submitted. In order to deal with all questions in a timely manner, questions of a similar nature will be answered once. If we are unable to answer your questions during the meeting due to time constraints, Investor Relations will reach out to you following the meeting to provide a response. There are currently no questions in the queue so let's just give it one moment while we wait for any to come in. As there are no questions at this time, this concludes the Q&A session. Should anyone wish to follow up, please do reach out to Investor Relations and we'll be happy to take your questions off-line. Thank you for joining us.

And this concludes today's conference. You may now disconnect. Presenters, please hold.