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.

Why should investor’s book profit?

• Higher cash conversion period: The company takes higher time to convert its inventories to cash flows, when compared to the industry median. This indicates lower operational efficiencies. Notably, cash cycle days stood at 111.5 days in Q3FY21, significantly higher than the industry median of 53.2 days.

• Increase in All-in sustaining cost: In Q3FY21, the company reported a higher All-in sustaining cost per ounce of USD 701, which was 10% higher than Q3FY20 due primarily to higher local currency operating expenses in Bulgaria coupled with higher cash outlays for sustaining capital expenditures and lower volumes of gold sold. Continuation of the above trend would likely to weigh high on the profitability margins.

• Decline in production: The company reported lower gold production in both Q3FY21, and 9MFY21, respectively at 71,755 oz and 227,141 oz, respectively, as compared to the 79,844 oz and 234,172 oz in pcp. Additionally copper production also stood lower at 8,350 thousand pounds in Q3FY21, versus 9.224 thousand pounds in pcp. This might impact the overall company’s performance, which is a key concern.
  

Valuation Methodology (Illustrative): Price to CF based

   Analysis by Kalkine Group

Stock Recommendation:

We have seen a softness in the gold prices during the latter part of CY21 reflecting expectations of rising interest rates and a stronger U.S. dollar, and the continuation of the trend might lead to lower realization for the company. We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered peers like B2Gold Corp, Fortuna Silver Mines Inc etc. Hence considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock at the closing price of DPM at CAD 7.86 on January 20, 2022.

One-Year Technical Price Chart (as on January 20, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.