Dundee Precious Metals Inc

Dundee Precious Metals Inc (TSX: DPM) is an international gold mining company engaged in acquiring, exploration, development, mining, and precious metals processing. The Company has three reportable operating segments Chelopech and Ada Tepe in Bulgaria and Tsumeb in Namibia.

Key highlights 

• Robust operational performance: The Company achieved record net earnings and free cash flow during the quarter, reflecting continued strong operating performance at Chelopech and Ada Tepe, combined with high gold prices.The management also took some prudent steps to control the cost of sales. As a result, the company increased its gross profit margin. Payable gold in concentrate sold in Q3 2020 increased by 81% to 69,174 ounces, compared to Q3 2019, primarily due to increased concentrate deliveries and higher gold production because of higher grades.

Source: Company 

• Increase in free cash flows: In Q3 2020, the company posted Free cash flow of USD 59.0 million, compared to USD 21.0 million in the previous corresponding period. This increase was primarily due to higher volumes of gold sold and higher realized gold prices, which was partially offset by higher cash outflows for sustaining capital expenditures and the impact of the prepaid forward gold sales arrangement.

Source: Company 

• Ample Liquidity: As on September 30, 2020, the Company had cash of USD 102.4 million, investments valued at USD 75.6 million along with USD 150.0 million of undrawn capacity under its RCF. The management believes that this cash resource and available lines of credit under its RCF would continue to provide sufficient liquidity to meet its current operating and capital expenditure requirements, as well as growth opportunities for the foreseeable period.

• Dividend distribution:The Company declared a dividend of USD 0.02 per common share payable on January 15, 2021, to shareholders with a record date of December 31, 2020, resulting in an aggregate of USD 0.08 per common share dividends being declared in 2020. 

Financial overview of Q3 2020 (In thousands of USD)

Source: Company 

• In Q3 2020, the Company reported revenue of USD 158.0 million, increased by USD 63.1 million compared to the previous corresponding period primarily due to increased concentrate deliveries combined with higher gold production because of higher grades, and higher realized gold prices.
• On the back of lower cost of sales, the Company managed to increase its EBIT, which stood at USD 59 million, compared to USD 11.7 million in the previous corresponding period.
• The Company posted net income of USD 53.2 million in the reported quarter, compared to USD 7.5 million in Q3 2019. 

Risks associated with investment

The company’s financial performance is mostly dependent on the gold price, which directly affects its profitability, margins, and cash flows. The price of gold is subject to volatility. It is affected by various factors, such as the strength of the US dollar, Interest rates, Inflation rates, demand and supply, all beyond the company’s control. 

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company came out with the robust performance, strong cash position and zero debt on the balance sheet.  We expect that despite a little pullback in the prices, gold, as an asset class would continue to remain in the limelight as uncertainty over the global economic growth is still prevailing. We believe that average realized gold prices per ounce would continue to expand, which would lead to margin expansions. Therefore, based on the above rationale and valuation, we have given a "Hold" rating at the closing price of CAD 9.15 on December 31, 2020. We considered Centerra Gold Inc, New Gold Inc, SSR Mining Inc etc. as the comparison's peer group.

Source: Refinitiv (Thomson Reuters)

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