Dundee Precious Metals Inc.

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

Key Highlights:

• Stable Production Guidance: The company reported a stable three-year outlook for both copper and gold, driven by improved smelter performance, which is a key positive. Stable production along with a decline in all-In sustaining cost augurs well for improved cashflows and margins.

                Source: Company Presentation

• Zero-Debt Balance-Sheet: The company has no debt component in its balance-sheet, which signifies negligible balance sheet risk. Moreover, looking at the capital-intensive nature of the business, we believe the company has the upper hand over its peers, as DPM is funding its Capex and working capital through its cash flows.
• The Board of Directors announced a quarterly dividend of USD 0.02 per share, payable on January 20, 2020.

Q3FY20 Financial Highlights:

• DPM announced its quarterly results, wherein the company posted revenue of USD 157.940 million, significantly higher from USD 94.890 million in the previous corresponding period (pcp). The increase was primarily driven by 81% increase in volumes of payable gold in concentrate sold resulting in a higher concentrate delivery and further supported by higher gold production aided by higher grades, and higher realized gold prices.

Operational Metrics (Source: Company Reports)

• Earnings before income taxes were reported at USD 59.058 million, higher than USD 11.675 million in Q3FY19, thanks to the higher revenue, partially offset by a higher cost of sales, increase in general and administrative expenses and an elevated exploration and evaluation expenses. However, a significantly lower finance cost (USD 5.074 million versus USD 3.494 million in Q3FY19) supported the profitability.
• Net earnings soared to USD 53.273 million, as compared to USD 7.514 million in the previous corresponding period (pcp).
• Cash balance at the end of third quarter of FY20 stood at USD 102.365 million, while total assets stood at USD 897.346 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: A volatility in gold prices would impact the realization price and subsequently, the revenue and profitability of the group.

Valuation Methodology (Illustrative): P/E based valuation

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

Stock Recommendation:

We believe the company’s future performance would be supported by the elevated gold prices due to low- interest scenario and lack of investment options. The company has a strong balance sheet with no outstanding debt, growing net cash position and liquid investment portfolio. The stock of DPM has gained more than 49% so far this year. We have valued the stock using P/E based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Fortuna Silver Mines Inc, SSR Mining Inc etc. Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 8.30 on November 27, 2020.

DPM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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