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

Thank you, and good morning. Apologies for the small delay in getting started today, we had a couple of technical difficulties, but hopefully, much like everyone's email, we're back on track now. My name is Jennifer Cameron, Director of Investor Relations, and I want to welcome all of you to our third quarter conference call. With us today are members of our senior management team, including David Rae, President and CEO, and Navin Dyal, Chief Financial Officer. Before we get going, I want to remind everyone that any forward-looking information shared on this call carries the forward-looking qualification, which appears in detail in our news release and is incorporated in full for the purposes of today's call. Some financial measures discussed on this call are not recognized under IFRS and are known as non-GAAP measures or ratios. Such measures lack standardized meanings under IFRS and might not be comparable to similar measures presented by other companies. The definitions DPM has established and the calculations it performs rest on management's reasonable judgment and are applied consistently; these measures are meant to offer additional information and should not be viewed on their own or as a replacement for measures prepared in accordance with IFRS. Kindly refer to the non-GAAP financial measures discussed in our most recent MD&A for reconciliations of these measures. Please note that, unless otherwise stated, operational and financial information communicated on this call relates to continuing operations and has generally been rounded. References to 2025 pertain to the comparable periods in 2025, and references to averages are based on midpoint of our outlook or guidance. I'll now hand the call over to David Rae.

Good morning, everyone, and thank you for joining us today. First off, I want to recognize the dedication our teams have shown across every operation—their commitment to safety, operational excellence, and responsible mining is what continues to propel us forward. During the third quarter we delivered strong results, generating solid free cash flow and earnings as we continued advancing our growth strategy. Achieving commercial production at Vareš ahead of schedule, along with the continuing momentum of our growth pipeline—which includes expansion of the Brevene Porphyry South discovery—demonstrates once again that DPM is a growing, European-focused precious metals producer. Let me highlight several key accomplishments from the quarter: we produced approximately 96,000 gold equivalent ounces, and we are well positioned to satisfy our 2026 production guidance for a 12th consecutive year. Vareš commenced commercial production in August, earlier than planned, and remains on track to reach full production by year-end; our margins remain strong, with an all-in sustaining cost of $1,580 per gold equivalent ounce sold versus an average realized gold price of $4,314, or $4,534 per ounce. Navin will walk you through what is driving our costs, including how our strong share price performance factors in, plus the remainder of our reconfirmed 2026 guidance. Free cash flow totaled $179 million, backed by strong operating performance and metal prices. We continue returning capital to shareholders—$81 million, or 45% of free cash flow, via share buybacks and dividend payments—and we ended the quarter with $839 million in cash and $1.2 billion in total liquidity. Now let me go into greater detail on our operations and growth projects, starting with Vareš. Our progress there has been very encouraging. In August we achieved commercial production ahead of schedule, having exceeded an average of 60% of design throughput capacity along with recoveries above target across 30 consecutive days. Vareš produced roughly 44,000 gold equivalent ounces in the third quarter, at an all-in sustaining cost of $767 per gold equivalent ounce sold. Bear in mind that this reflects capitalization of certain pre-commercial production costs, and we expect it to increase over the rest of the year while remaining within our guidance. Navin will provide some color on that all-in sustaining cost at Vareš and on our guidance expectations. We are on track to ramp up to the 850,000 tons per year run rate by year-end, and we expect Vareš to exceed the top end of its 2026 production guidance range. I would also like to address the recent ruling from the Constitutional Court of Bosnia and Herzegovina, which was announced on October 1st. As my comments have indicated, operations at Vareš have continued as usual. That decision neither terminates nor suspends the Vareš concession agreement. The court has established a six-month review period for the relevant authorities, with the Attorney General involved, to examine the challenged acts for compliance with the Law on the Temporary Prohibition of Disposal of State Property. During this period, we are communicating directly with state, federation, and cantonal authorities to ensure our interests are represented and to help enable a state-level resolution regarding the state property issue in the country. Vareš has a substantial local presence, employing over 700 people from Bosnia and Herzegovina. Since acquiring ownership, we have invested significantly in safety, training, and leadership development, and we rank as the top exporter in Zenica-Doboj Canton; we will continue engaging constructively with authorities and will inform the market if any material developments occur. At present, our focus at Vareš remains unchanged: achieving a safe and successful ramp-up to full production, and we remain dedicated to being a responsible long-term partner in Bosnia and Herzegovina. Turning to Chelopech, this flagship operation generated approximately 50,000 gold equivalent ounces during the third quarter, in line with the mine plan, at an all-in sustaining cost of $1,460 per gold equivalent ounce sold. Chelopech is on track to meet its guidance for the year. We are very encouraged by progress at the Wedge Zone prospect, which we will now refer to as Block 250, as it has been integrated into the Chelopech mine plan as a near-term opportunity. Block 250 is expected to boost production and extend mine life at Chelopech, with first production anticipated near the end of 2028. We remain on schedule to complete an initial mineral resource estimate by year-end, and we are working diligently to separate operating activities and prepare for the twin declines, including ventilation, so that actual decline driving can begin at the end of the first quarter of next year; we will also continue exploring the broader Wedge Zone corridor this year, including analogous structural settings along the Petrovden Fault. Shifting to Brevene Porphyry South, our fourth major discovery since 2023, we reported new high-grade intercepts in late September confirming that the system extends onto the Chelopech mine concession. Extended intercepts include 717 m at 3.3 g per ton gold equivalent and more than 1 km at 2.5 g per ton gold equivalent. These results demonstrate potential for scale and continuity, with broad continuous intervals of high-grade copper-gold porphyry mineralization. Drilling has confirmed a large potassic alteration envelope exceeding 500 m by 500 m and more than 1,000 m vertically. The system remains open to the north, south, west, and at depth. As anticipated, the exploration license period ended at the close of September, and we have relocated drilling onto the Chelopech mine concession. Currently we have 12 drill rigs dedicated to assessing the resource potential of the discovery, with up to 15,000 m of additional drilling planned through year-end, and delineation of additional resource will continue through 2027. We are targeting an initial resource estimate in the second half of 2027, which will form the basis for a preliminary economic assessment planned for the first half of 2028, with the gold price at $4,534 per ounce informing our planning assumptions. Meanwhile, we're still advancing the Brevene exploration license toward a mining concession under Bulgaria's well-established permitting system. At the end of August, we submitted the final geology report to the Ministry of Energy, and that report includes a technical and economic assessment; the regulators continue to review it. From here, the key milestones are recognition of a commercial discovery, submission of a mining concession application, environmental and other permits, and lastly the granting of a concession contract. While we move through that process, our near-term exploration news for the Chelopech camp will focus on results from within the mine concession, and further Brevene results will follow once those regulatory milestones are achieved. Block 250 and Brevene Porphyry South are two clear examples of how we have transformed our growth prospects, assembling an excellent, fully funded project pipeline that sets DPM apart from other mid-tier producers. We presently hold a number of attractive growth opportunities, including Čoka Rakita, where the gold price sits at $4,534 per ounce. Following Serbia's October 25th parliamentary election, administrative and regulatory decision timelines may be extended as the new government takes form and the National Assembly is convened.

If the government formation process calls for it, we’ll coordinate with the relevant authorities on timing for the project’s next phase, and we’ll share schedule updates when appropriate. At the same time, work continues on engineering and procurement for Čoka Rakita, including taking apart and restoring the Ada Tepe mill, increasing purchasing activity, and locking in fabrication schedules for key equipment. We’re choosing the underground contractor and moving detailed engineering forward. Our commitment stands to engage proactively with every level of government and with local communities, and to operate under industry best practices along with the relevant Serbian and European Union standards. Drilling at the Rakita camp keeps producing encouraging results. New results from Dumitru Potok and Rakita North show that mineralization is still open along strike, laterally, and at depth. Drilling stretched the marble-hosted intrusive skarn mineralization roughly 90 m to the west and 100 m to the southwest and delivered encouraging results 300 m north of the current mineral resource, pointing to additional expansion potential; those results sharpen our understanding of the mineralization geometry and suggest that mineralized tonnage could be larger than earlier modeled. Because of that success, we increased the 2026 drilling program at Čoka Rakita by another 12,000 to 15,000 m, with emphasis on expanding the Dumitru Potok mineral resource, infill drilling, and testing targets across the license. We anticipate finishing an updated Dumitru Potok mineral resource estimate by the end of the first quarter of 2027, and it will serve as the foundation for a preliminary economic assessment that we aim to complete by the end of 2027. With a substantial gold-copper inferred mineral resource already defined at Dumitru Potok and the prospect open in multiple directions, we look forward to pushing the drilling program ahead and to continuing to establish the potential of this organic growth prospect. As we said in July, production at Ada Tepe ended on schedule on July the 15th, 2026, and mine closure work is going well. As the first new mine in the Balkans in more than 40 years, Ada Tepe has stood as proof of DPM’s capacity to permit, build, and operate a world-class asset and to apply standards that exceed what is required. I especially want to recognize the community for welcoming us, partnering with us, and collaborating with us to create a world-class example of how mining can be carried out responsibly, with standards that go beyond those required and for the benefit of all stakeholders. We are now showing responsible mine closure, with 95% of the mine area expected to be returned to Natura 2000, the European Union’s nature protection network. I am proud of what we have achieved at Ada Tepe, and I am confident that we are leaving a positive legacy for future generations. Before I hand the call over to Navin, I’ll summarize our priorities for the rest of 2026. By the end of the year, we will have brought the Vareš ramp-up to the 850,000 tons per year run rate, and we will push forward with engineering and procurement work at Čoka Rakita while cooperating closely with the authorities as the new government takes shape. Our aim is to surface value from our discovery of two deposits with tier-one potential in gold-copper. With the same dedication to responsible, efficient mining, to financial discipline, and to creating value, we will keep delivering on these priorities. Navin will now take over the call for a review of our financial results.

Thanks, Dave. I'll spend a few minutes on the quarter's financial highlights, then update you on how we're tracking against the guidance for the year, and finish with some commentary on our balance sheet and the return of capital program. All told, DPM posted strong financial results in the third quarter, along with record revenue, earnings, and free cash flow across the first nine months of 2026, helped by higher metal prices and by adding the Vareš mine to our portfolio. Turning to earnings and cash flow, quarterly revenue came in at $312 million, up 17% from the prior year, driven mainly by higher realized metal prices and by more gold equivalent ounces sold, which we refer to herein as GEO, at Vareš following the acquisition in September of 2025, partly offset by fewer GEO sold at Ada Tepe as that mine wrapped up operations in July. Adjusted net earnings for the quarter were $144 million, or $0.66 per share, 12% above the prior year, driven primarily by higher realized metal prices, more GEO sold at Vareš, and a lower cost of sales, partly offset by higher income taxes, higher exploration expenses, and larger mark-to-market adjustments to share-based compensation expenses. Adjusted net earnings included $17 million of depreciation expense tied to the Vareš mine properties. The depreciable value of those mine properties reflected their carrying value along with the fair value adjustment recognized as part of the purchase price allocation on the acquisition of Adriatic. Depreciation began on August 10th, 2026, when commercial production was declared. At full production rates over the life of the Vareš mine, annualized depreciation on these mine properties, net of the reversal of deferred tax liabilities associated with the fair value adjustment, is expected to come to roughly $180 per ton of ore processed at Vareš. Adjusting items for the first nine months, which were not indicative of the company's operating performance, mainly included a $33 million reversal of certain provisions at Vareš, a $12 million fair value loss on the copper stream liability, and a $10 million loss on the settlement of a previously recognized receivable related to the DPM tolling agreement. Cash flow provided from operating activities for the quarter was $191 million, $7 million above the prior year, driven primarily by higher earnings generated in the period, partly offset by the timing of payments to suppliers and the timing of deliveries and subsequent receipts of cash. Free cash flow for the quarter was $179 million, an increase of $32 million versus the prior year, due primarily to higher adjusted net earnings generated in the quarter. Looking at our cost metrics for the first nine months of 2026, all-in sustaining costs of $14.72 per GEO sold compared with an average realized gold price of $45.34 per ounce, which reflects the high margin, low-cost nature of our operations. Our all-in sustaining cost for each GEO sold came in 3% above the previous year. The main driver was increased costs at Chelopech and Ada Tepe, stemming from greater labor expenses, higher energy costs, and a stronger Euro against the U.S. dollar. That was partly offset by a lower all-in sustaining cost per GEO sold at Vareš, thanks to capitalization of certain pre-commercial production operating costs. For the fourth quarter, all-in sustaining cost per GEO sold at Vareš is anticipated to rise, since the gross operating costs at Vareš are now part of its all-in sustaining cost following the declaration of commercial production. For the full year, all-in sustaining cost per GEO sold at Vareš should land at the low end of the 2026 guidance range, mainly because of lower gross operating costs and higher GEO sold. All-in sustaining cost was additionally affected by mark-to-market adjustments to share-based compensation expenses, producing an increase of $154 per GEO sold versus an increase of $159 per GEO sold a year earlier, which mirrors DPM's strong share price performance. We remain on track to achieve our all-in sustaining cost guidance for the year, and we are watching closely the market dynamics beyond our control that affect costs, such as metal prices, foreign exchange rates, and energy prices, along with how they move relative to guidance assumptions. Turning to capital spending for the quarter, sustaining capital expenditures came to $8 million, below the prior year, largely because there was no capital expenditure at Ada Tepe, as that mine reached the end of its life in July 2026. That was partly offset by higher capital expenditures at Chelopech, mainly from increased resource drilling and development activities. Growth capital expenditures totaled $26 million, above the prior year, reflecting capital expenditures at Vareš, including capitalization of certain pre-commercial production operating costs, partly offset by lower capital costs tied to the Čoka Rakita project, mainly because of the timing of expenditures. Last night, we issued an updated three-year outlook that supports our continued focus on funding our exploration success and high-quality organic growth pipeline, while maintaining our portfolio of high-margin operations, which has produced our exceptional track record of delivery. The three-year outlook is unchanged apart from the following updates to the company's guidance for 2026. Given positive results to date, exploration expenses are now projected at between $75 million and $80 million to support additional drilling at Chelopech tied to the Brevene Porphyry South license, with initial mineral resource estimates targeted for the second half of 2027, and the Wedge Zone, also known as Block 250, also at Chelopech, where ramp development begins in the fourth quarter 2026, as well as Serbian drilling programs. At Vareš, growth capital expenditures are now expected to decline to $90 million-$100 million, reflecting the earlier-than-planned declaration of commercial production and the corresponding lower capitalized pre-commercial production costs, as well as growth cash costs. For Chelopech, growth capex is now projected to rise to between $9 million and $10 million, which will support engineering and design work tied to developing twin declines toward Block 250, and DPM still aims for first production there in late 2028. The three-year outlook at the Čoka Rakita project has not changed. After the parliamentary election in the Republic of Serbia on October 25, 2026, the company points out that administrative regulatory decision timelines could stretch out while a new government takes shape and the National Assembly is convened. DPM keeps moving engineering and procurement work forward on that project and stays committed to it, and any timeline updates, should they be needed, will come in due course. Our balance sheet and cash position remain strong, with a consolidated cash balance of $839 million, no debt, and a $400 million undrawn revolving credit facility as of the end of the quarter; given that significant strength and robust free cash flow, we are well placed to fund growth opportunities and exploration prospects while still delivering peer-leading returns to shareholders via our enhanced share buyback program; during the first nine months of 2026, under the company's normal course issuer bid, or NCIB, we bought back four million shares for a total cost of $150 million and paid roughly $27 million in dividends. Between October 1 and November 11, 2026, we repurchased an additional approximately one million shares for a total cost of $49 million, which lifts year-to-date repurchases to approximately five million shares at an aggregate cost of approximately $198 million. We keep deploying capital in a disciplined way that balances our wish to reinvest in growing and optimizing the business against our commitment to returning capital to shareholders. To close, our mining operations keep delivering strong performance and we continue our record of generating significant free cash flow. We remain in a strong cash position and focused on growth. I will now hand the call back to Dave for his concluding remarks.

Thanks, Navin. This is a really exciting moment for DPM. As it stands today, DPM stands as a top-tier mining company, boasting margins that lead the industry, development assets that carry less risk thanks to their size and quality, and a capital allocation approach that stays disciplined. That combination produced share price outperformance over multiple years. With $839 million in cash, zero debt, and robust free cash flow, we have all the funding needed to carry out our growth pipeline while still returning capital to shareholders. Our focus stays on executing the strategy so we can deliver above-average returns to our shareholders as a mid-tier precious metals company, with a clear path ahead for driving value. At this point I'd like to open the call up for questions.

Alright, thank you all for being here. Should it happen that you couldn’t ask your question, don’t hesitate to get in touch. You all know how to locate us. We’re also eager to stay engaged for the rest of the quarter and to share information about our investor day coming up on December 8th. Appreciate your attention, and we’ll be glad to connect with you.

This concludes today's conference call. Thank you for participating. You may now disconnect.