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Edited Transcript of DPM.TO earnings conference call or presentation 8-Nov-19 2:00pm GMT

Q3 2019 Dundee Precious Metals Inc Earnings Call

TORONTO Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Dundee Precious Metals Inc earnings conference call or presentation Friday, November 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Rae

Dundee Precious Metals Inc. - Executive VP & COO

* Hadia Chaudhry

* Hume D. Kyle

Dundee Precious Metals Inc. - Executive VP & CFO

* Richard Allen Howes

Dundee Precious Metals Inc. - President, CEO & Director

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Conference Call Participants

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* Cosmos Chiu

CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Dundee Precious Metals Third Quarter and Year-to-date 2019 Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Hadia Chaudhry, please go ahead, ma'am.

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Hadia Chaudhry, [2]

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Good morning, everyone. My name is Hadia Chaurdhy, Legal Counsel. Welcome to Dundee Precious Metal's third quarter conference call. With me today are Rick Howes, President and CEO; and Hume Kyle, Chief Financial Officer, who will each comment on the quarter; as well as David Rae, Chief Operating Officer, who is here today to assist with answering questions following our formal remarks.

After closing business yesterday, we released our third quarter results and hope you've had an opportunity to review our material.

All forward-looking information provided during this call is subject to the forward-looking qualification, which is detailed in our news release and incorporated in full for purposes of today's call. Certain financial measures referred to during this call are not measures recognized under IFRS, and are referred to as non-GAAP measures. These measures have no standardized meanings under IFRS, and may not be comparable to similar measures presented by other companies. The definitions established and calculations performed by DPM are based on management's reasonable judgment and are consistently applied.

These measures are intended to provide additional information and should not be considered in isolation or as substitute for measures prepared in accordance with IFRS. Please refer to the Non-GAAP Financial Measures section of our most recent MD&A for reconciliations of these non-GAAP measures. Please note that unless otherwise stated, operational and financial information communicated during this call have generally been rounded, and any references to 2018 pertain to the comparable period in 2018.

On this morning's call, Rick will comment on our third quarter and year-to-date operating results as well as the progress being made on our exploration programs for the quarter. Hume will then provide a brief overview of our third quarter and year-to-date financial results as well as our guidance for 2019.

With that, I'll turn the call over to Rick.

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Richard Allen Howes, Dundee Precious Metals Inc. - President, CEO & Director [3]

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Thanks, Hania, and hello, everyone. Thanks for joining us today for our third quarter 2019 conference call.

I'm pleased to provide you with an update on quarter -- third quarter results and progress on our key projects and initiatives. We achieved record quarterly gold production at Chelopech and Ada Tepe. However, the adjusted earnings per share of $0.03 and cash flow per share of $0.12 in the third quarter did not fully reflect the solid performance. Timing of the concentrate deliveries at Chelopech and finalization of commercial sales agreements at Ada Tepe resulted in a build in metal inventory and lower copper and gold sales than produced. As a result, we expect a very strong fourth quarter with sales being significantly higher, reflecting the drawdown in this inventory.

We have now successfully completed the ramp-up to full production at Ada Tepe in mid-September, following achievement of commercial production in June. The temporary constraint at Ada Tepe due to the integrated mine waste facility was successfully resolved by the end of August. Both operations performed in line with third quarter operating plans and remain on track to achieve their 2019 production guidance.

Record gold production of 65,642 ounces in the third quarter was produced at a cash cost of $528 per ounce and an all-in sustaining cost of $728 per ounce, which should start to come down further now that Ada Tepe has reached full production capacity at the end of Q3.

Tsumeb copper concentrates smelted at 42,186 tonnes was lower than planned due to an incident which occurred in early September and caused injuries to 2 employees and some damage to the furnace and offgas systems. This resulted in a 14-day outage to carry out the repairs.

On restart, following this outage, there was a failure in a section of the Ausmelt furnace lining, which resulted in having to keep the plant down to do a furnace reline and advance the other annual maintenance shutdown work that was originally planned for the fourth quarter of 2019. The plant resumed to operation on October 25, 2019, and is now operating well, and we expect to be within the guidance for the year.

With Ada Tepe capital spending now complete, our balance sheet remains strong. At the end of the quarter, we had cash of $15 million; investments of $45 million; debt of $27 million, down $14 million from last quarter; and an undrawn revolving credit facility of $148 million. We expect to quickly pay off the remaining debt and start building a cash position in the next quarter.

We saw a quarter-on-quarter move up in the gold price to an average realized price of $14.61 from $13.21 in Q3. Copper prices moved lower with an average realized price of $2.64 from $2.77 in Q3. The recent strong move up in gold price in June to the $1,500 level seems to have held, aided by the deficit and sentiment of both the Fed and European Central Banks, and low interest rates aided by the economic concerns over the U.S.-China trade disputes and other geopolitical stability and global economic concerns.

Chelopech produced 40,308 ounces of gold and 10.1 million pounds of copper at a cash cost per ounce net of byproduct credits of $453 an ounce. The decrease in gold production compared to the first 2 quarters was due primarily to slightly lower grade and recoveries. Gold and copper grades in Q4 are expected to be similar to Q3. We have a number of key improvement projects underway this year that will enhance revenues and increase costs, including drill and blast optimization and the transition from the use of ANFO to emulsion explosives, autonomous drone surveying, further mill optimization moved to integrated and dynamic mine planning and execution with MineRP and the introduction of a digital smart center for improved decision-making.

We are continuing with our successful in-mine resource development drilling program, which totaled 15,800 meters in the quarter, concentrating on the upper levels of Target 700 Blocks 151, 5, 25 and 10. Further to this, the areas down plunge of Block 144 and extensional drilling towards Block 151 to explore a prominent trend of mineralization on the upper levels of Block 151. The result of this program has been the extension of the existing orebody in the northwesterly direction between the 480 and 350 elevations.

In Q4, in addition to these areas, we will carry out a short program to define the mineralized contours of Block 153, which is still open at depth.

In the regional exploration program around Chelopech, 2,283 meters of diamond drilling were completed at the Wedge Target on the spread of Sveta Petka and Brevene exploration licenses. Along the Southern and Central part of the Wedge zone, a deep directional drill program to test the northern extension of Blocks 147 and 149 is in progress. Exploration plans for the fourth quarter of 2019 include 2,200 meters of drilling near the Krasta prospect.

The Ada Tepe mine first production was in March of this year. We reached commercial correction in June, received final operating permits in August and reached full production in September while coming in under budget and within 1 quarter of the original schedule. This was an impressive feat in today's mining industry, and we recognize the great effort by both our project build team and our operating teams to achieve this.

We have been running at 100% of design throughput of 105 tonnes per hour since mid-September and had design recoveries since June. 581,000 tonnes of waste and 158,000 tonnes of ore was mined in the third quarter, and 154,000 tonnes of ore was treated through the mill at an average grade of 5.9 grams per tonne.

Head grades were purposely raised in August and September, following stabilization of the mill performance by blending from the high-grade stockpiles. Gold mill recovery was 87.1% for the quarter, reflecting the higher grade spreads to the mill. Despite the lower mill throughput, as we ramped up production in the quarter, gold production was 25,314 ounces. Payable gold and metals sold was 10,094 ounces as a result of a buildup in concentrate inventory on site. This was because only test blocks were sent out to a number of potential smelters for the purpose of selecting and finalizing concentrate sales agreement. Sales agreements are now in complete, and the inventory build up will be drawn down to normal levels in the fourth quarter.

The temporary constraints related to the integrated mine waste facility due to the longer-than-expected tailing settlement time was resolved in August, allowing the ramp-up to full production to proceed in September. This was solved by redesigning the subsequent cells to improve consolidation drainage rates and by adding additional resources to speed up cell construction time. In addition, we are testing different reagents to aid in faster consolidation and building 2 contingency cells, with the [MERs One] now completed in October. The second one is expected to be ready in the first quarter of 2020.

What is also helping is the size of the IMWF cells, which are increasing as we move up the valley, allowing for longer settling at construction time when switching between the 2 barrels.

We are continuing with our exports and efforts around Ada Tepe. Drilling commenced in the third quarter of 2019 on the Chiirite exploration license, which is approximately 25 kilometers northeast of Ada Tepe, with encouraging early results. During the fourth quarter, exploration work will continue at Chiirite and comment -- and commence at a local license to the southwest of Ada Tepe.

At the Tsumeb smelter, complex concentrate smelter during the third quarter of 2019 was 42,186 tonnes, which was lower than expected due primarily to the previous reported pressurization effect in the Ausmelt offgas system that occurred on September 3, 2019, during a restart after routine maintenance. Repairs to the damage of gas system components were completed over a 14-day period. And during the restart of the facility, it was determined that the initial pressurization event had also caused damage to the lining of the furnace. This resulted in advancing the Ausmelt furnace remine and broader smelter maintenance shutdown work that we're planning for the fourth quarter. This was completed over the 38-day period. The plant resumed operation on October 25, 2019, and is operating well. With the improved temperature stability of the furnace operations, we anticipate achieving 18- to 24-month mining life between the rebuilds, which would mean the next major maintenance shutdown would not occur until 2021, allowing for increased complex concentrate smelter throughput in 2020.

With good process stability reached and the continuing efforts on performance and cost improvements, we are seeing improving financial results at the smelter. Tsumeb generated an EBITDA of $3.3 million in the quarter and a record year-to-date EBITDA of $25.3 million. Cash cost per tonne of complex concentrate smelted net of by-product credits this quarter of $516 per tonne was higher than the previous quarter due to the lower carbon smelter. Cash cost per tonne during the first 9 months was $408 per tonne, which is in line with the guidance.

We continue to advance the smelter expansion project to increase the throughput of complex concentrate to as much as 370,000-tonne per annum.

Feasibility study was completed in the fourth quarter of 2016 and confirmed the robust project economics with an estimated implementation capital cost of $52 million. Scope of the project includes the rotary holding for institutional cooling and other upgrades to the Ausmelt furnace as well as upgrades to the slag mill area. Work to secure the necessary permits to support this planning to increase in production is progressing. We submitted an updated ESIA for approval in July of 2019 and are awaiting review and approval from the environment ministry. Discussions are ongoing for potential new sources of complex concentrate feed to build this expanded capacity.

On July 25 -- on July 15, 2019, we announced the results of the preliminary economic assessment for our Timok Gold Project for the board district in Serbia. BA is up -- is based on the updated mineral resource estimate completed in September of 2018, comprised of base case considering primary oxide and transition material tight, upon which the project will not be authorized for mining and processing strategies, including an economic evaluation of the largest sulfide resource.

The study is based on open pit mining and deep leaching of the oxide and transition materials followed by later construction of our conventional mill facility to produce a flotation gold concentrate. The summary highlights our -- of the projects are an after-tax NPV of $105 million; an after-tax IRR of 18.6% at $1,250 gold; an all-in sustaining costs of $717 per ounce and peak annual gold production of approximately 132,000 ounces. The initial capital cost is $136 billion with a mine life of 9 years.

Based on the results of the PEA, we are conducting geotechnical and hydrogeological study as well as doing further optimization work to target additional sulfurized material prior to commencing a preliminary feasibility study. We have completed the permitting and approvals plan, incorporating the environmental and social impact assessment process and approvals as well as all additional licensing, and we are currently developing our stakeholder engagement plan.

Our Serbian exploration activity focused on Timok and Tulare project continues. Applications to extend the Potaj Cuka and Bigar Istok exploration licenses for an additional 2 years were approved on July '19.

Two exploration drill holes on the northern plank at the Bigar Hill deposit demonstrated potential for previously unknown mineralized trends outside the existing resource at the Timok gold project and further drills on testing is planned for the fourth quarter.

At Tulare, a revised geological interpretation was used to generate drill targets for higher grade gold-copper realization at depth. Drill testing of a number of priority targets is planned for the fourth quarter.

We see great potential for investment in MineRP as a unique new enterprise digital platform for the mining industry. We are starting to see strong interest in sales growth with the large mining industry clients looking to digitally transform their business. We are seeing significant growth in revenues in Q3 and expect this revenue growth trend to continue as mining company interest in this new platform continues to grow.

We, ourselves, are adopting MineRP as well as many other digital technologies to transform our business. The intent we have with MineRP is to introduce new planning enhancements; enable the intelligent use of data; key benefits expected from this initiative are data unification to a single platform; ability to dynamically plan, schedule and execute our plan with real-time monitoring performance versus planned; and much faster response time and better decision-making through the use of data.

On October 28, 2019, we invested today a $10 million pursuant to a private placement, resulting in approximately 19.5% equity interest in INV Metals. This investment is in line with our disciplined capital allocation framework that reinvesting capital in the business in an accretive manner with building financial strength and returning capital to shareholders. Among the larger project and the deposit has strong similarities to our Chelopech mine, and our technical and operating skills as well as our skills and commitment to sustainability are expected to be valuable to the R&D during the next phase of permitting.

In summary, with the strong results from Chelopech and Tsumeb and the ramp-up of production at Ada Tepe are now complete, we are positioned to start generating significant free cash flow from the business early this quarter. This reflects the exceptional progress our team has made over the last several years to improve the performance of our operations and advance our key growth projects like Ada Tepe, which is now at full production.

Tsumeb continues to improve and contribute to the free cash flow of our business for further upside as possible by increasing throughput and reducing costs further. And Chelopech continues to perform exceptionally well and continues to extend its life through exploration success. Our Timok gold project in Serbia, currently in early-stage development stage, is advancing well as a potential next-stage growth for the company, and we are looking for growth prospects that will generate strong returns and enhanced value. We're looking for other growth prospects that will generate strong returns and enhance the value of the company. We expect a strong performance in 2020 from all 3 assets, enhanced by the fact that we do not anticipate having an annual maintenance shutdown in 2020 at Tsumeb.

In discussion with our shareholders and Board, we have adopted a disciplined capital allocation framework that will balance reinvestment in growth in the business and returning capital to shareholders once we are in a position to do so.

With significant growth in free cash flow now underway and future organic growth potential, along with a very strong management team, we represent a real growth and value investment opportunity for investors.

Thanks. And I will now return the call to Hume, who will review the financial results and 2019 guidance, following which, we will open the floor to questions.

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Hume D. Kyle, Dundee Precious Metals Inc. - Executive VP & CFO [4]

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Thanks, Rick. Good morning, everybody. Overall, as Rick noted, in the quarter, we saw weaker operating results at Tsumeb due to the downtime that was taken in September. That had the effect of reducing our bottom line by approximately $8 million. And we saw strong operating performance at both Chelopech and at Ada Tepe that contributed to the record gold production in the quarter.

From a financial perspective, however, the record gold production did not reflect in the third quarter results due to the timing that Rick highlighted earlier. And combined, these 2 factors contributed to an excess of 20,000 ounces of gold, representing roughly $30 million in gross revenue that was produced, but not sold in the quarter. This will fully reverse in Q4 and should result in a strong fourth quarter sales and earnings.

Having said that, Q3 adjusted earnings were $0.03 per share, slightly above consensus estimates compared with $0.10 in 2018, and adjusted EBITDA was $33 million, down from $36 million in 2018. In addition to timing of metal deliveries and Tsumeb downtime, which were the dominant factors impacting the quarter, third quarter earnings did benefit from the start-up and commencement of shipping concentrate from our Ada Tepe mine as well as higher realized gold prices, which averaged $1,461 per ounce in Q3, stronger U.S. dollar, lower treatment charges at Chelopech and higher estimated recoveries at Tsumeb.

For the first 9 months, adjusted net earnings were $0.10 per share compared to $0.18 per share in 2018, and adjusted EBITDA was $83 million compared to $87 million in 2018. For the period over -- for this period-over-period, year-to-date performance was impacted by the same factors I noted for Q3 as well as higher local currency operating expenses, principally around labor and fuel, lower toll rates and reduced reductions for stockpile interest at Tsumeb, and with the start-up of Ada Tepe, higher depreciation.

From a cash flow perspective, Q3 and year-to-date cash flow was -- free cash flow was $21 million and $55 million, respectively. These results were slightly lower than the comparable period in 2018 and were impacted by the same factors that impacted adjusted EBITDA as well as by cash outlays for sustaining capital expenditures were -- that were up for the quarter, mainly due to timing and comparable on a year-to-date basis, which is consistent with our planned 2019 sustaining CapEx spend.

Turning to the key cash cost measures. Our all-in sustaining cost per ounce for Q3 was $728, up $108. On a year-to-date basis, it was $751, up $144. And these increases were primarily due to the impact associated with slower-than-anticipated ramp-up to full production at Ada Tepe, which had the result of lower-grade materials initially produced being delivered in the quarter as well as lower grades at Chelopech, higher cash inlays for sustaining CapEx, partially offset by a stronger U.S. dollar and lower treatment charges at Chelopech.

At Tsumeb, Q3 cash costs were $516, up $154 from 2018. This is primarily due to the lower throughputs coming from both the planned and unplanned downtime, partially offset by the favorable impact of a stronger dollar. Year-to-date, cash cost was $408, down $49 from 2018 due primarily to the favorable impact of a weaker SAR and higher byproduct credits from higher asset prices, partially offset by higher OpEx, again, principally related to higher labor and fuel rates and then lower volume.

From a capital standpoint, sustaining and growth capital expenditures for the third quarter were $11 million and $2 million, respectively, for an aggregate of $13 million, down from $27 million in 2018. Sustaining and growth capital expenditures for the first 19 -- 9 months were $9 million -- $19 million, I should say, and $35 million, respectively, for an aggregate spend of $54 million, down from $84 million in 2018. These decreases were primarily due to the reduced outlays in connection with the construction of the Ada Tepe mine, which was completed earlier this year, partially offset by higher sustaining capital expenditures, all of which were in line with our guidance for the year. At September 30, our financial position remains strong with minimal debt and net cash resources.

From a risk-management perspective, during the quarter, we reduced -- or increased our 2020 hedge position to reduce Tsumeb's [$11 million] operating cost exposure. As a result, at September 30, approximately 82% of Q4 2019 operating costs were hedged is in a zero-cost option strategy that provides for, on average, minimum and maximum exchange rates of $14.09 and $15.55, and approximately 77% of our 2020 exposure was hedged using a similar strategy that provides for, on average, a minimum and maximum exchange rate of $14.63 and $16.13. We also have our prepaid forward gold sales arrangement, which, as you may recall, was entered into in 2016 as part of our strategy to reduce the risks associated with proceeding with the funding of the construction of Ada Tepe. This arrangement requires that we deliver an aggregate of 46,000 ounces over a period of 15 months commencing on November 19, running through to April 2020 and satisfaction of the upfront $50 million cash prepayment we received in September 2016 and represents approximately 14% of the expected gold deliveries during this period with approximately 75% of the deliveries occurring in 2020.

Looking forward over the balance of the year. Full year production guidance remains unchanged from the guidance provided on our October 9 news release that contained our Q3 production results and updated guidance. For the year, we remained well on track to achieve both our current and the original guidance that we issued earlier this year. And all cash cost guidance remains unchanged with the exception of Ada Tepe's cash cost per tonne, which we lowered to $50 to $55 per tonne from $55 to $65 to reflect year-to-date performance.

In closing, with Ada Tepe now at full production and expected to draw down the elevated Q3 inventories containing in excess of 20,000 ounces, and Tsumeb now back up and running and running well, Q4 is shaping up to be a strong quarter, with 2019 gold production on track to achieve a new annual record. This should translate into strong free cash flow generation for the quarter, which will be used to eliminate all remaining drawdowns under the revolver and the building of a modest cash position by year-end.

With that, I turn the call back to the operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from the line of Cosmos Chiu from CIBC.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [2]

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I guess I changed jobs. I'm still at CIBC. Maybe my first question is on Tsumeb. Glad to hear that all the issues that you've had that caused the downtime has now been resolved. I guess my question is more on CapEx. I see that you spent about $5.6 million in CapEx at Tsumeb versus a full year guidance of $14 million to $18 million. I would have thought that you would have -- no, have had to spend more money, given all the unplanned sort of maintenance, all that work that you might have had to do in Q3. Could you maybe walk me through in terms of how I should reconcile that number to a full year guidance?

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David Rae, Dundee Precious Metals Inc. - Executive VP & COO [3]

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Cosmos, it's Dave. So we are expecting to spend on the low side of the capital guidance. There's some potential to miss on the low side, which should be a nice problem to have. However, the reason why we've left it the way it is, is that a lot of that capital that we expected is, in fact, associated with the shutdown. So we're talking about around $7 million just associated with the shutdown. And not all of that, of course, is spent after the fact. I mean we are going to see an accelerated spend in Q4.

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Hume D. Kyle, Dundee Precious Metals Inc. - Executive VP & CFO [4]

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Yes. I would add -- just add to that as well, but for the September down time, most of the costs that was incurred in that month was really in connection with repairing the damage from the pressurization event. That actually wasn't a lot of money, call it like $1 million, and then the costs associated with the maintenance, any additional cost that hasn't already been incurred just in terms of prepurchase, they'll be incurred moving forward.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [5]

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Okay, for sure. And maybe the same sort of question for Chelopech and Ada Tepe. I see that you're sort of running below guidance at Chelopech and slightly above guidance at Ada Tepe. Could you maybe comment on that as well in terms of CapEx?

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Richard Allen Howes, Dundee Precious Metals Inc. - President, CEO & Director [6]

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Ada Tepe is going to be more associated with the IWS and the efforts that we had to put in to basically get ahead of our issues with capacity. So it's the Chelopech -- the dominant factor for them has been construction. The TMF -- the rate at the TMF, and that is expected to be completed in December. So that's slightly ahead of the original schedule. I think we'd anticipate that was going to be in Q1, if I recall correctly.

And so at this point, I think we are expecting this Krumovgrad continue to be trending a little Chelopech. I think their costs are pretty well set at the moment. So there is variance, it's likely to be towards the low end of guidance, I would expect. Hume, did you have any comment on that?

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Hume D. Kyle, Dundee Precious Metals Inc. - Executive VP & CFO [7]

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Yes. No, like year-to-date, it's all timing. We do expect to see a pickup in Q4 and fully expect that our sustaining CapEx guidance for the year will fall within the range that we provided.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [8]

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For sure. And maybe more specifically on Ada Tepe here. I don't know how much you can share with us. But just trying to -- I want, hopefully, a bit more detail in terms of the stockpiles in terms of tonnage and grade and what you have so far in those stockpiles. And how do the stockpiles going to fit into your overall strategy in terms of mine plan, short term, long term? Are you going to continue utilizing some of those higher grades of that stockpile in 2019? And then is that going to last into 2020?

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Hume D. Kyle, Dundee Precious Metals Inc. - Executive VP & CFO [9]

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So Cosmos, we've consumed the higher grade stockpile, and we're back to something more typical as the resource grade in Q4. Well, we utilized that to get a little ahead at the reduced tonnage period and benefited from an earlier rest on the recovery. So I would say that going forward, we have roughly 150,000 tonnes of normal material sitting on surface. There's some low-grade material that is forecast to be sort of at the end of the life of mine, not during the sort of next 6 months, a year, 2 years, that type. So overall, what you can expect to go to the punch, I think it's really what you're aiming to get at, is going to be our resource grades over the next 18 months.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [10]

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Okay. And then on that, kind of related to it as well in terms of recovery, I think your technical reports have pointed to about 85% recovery. Certainly good to see that you're over that 87%. And -- but we expect that to come down then? If you're looking at grades that could be coming back down sort of to reserve resource sort of level in terms of grade?

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Hume D. Kyle, Dundee Precious Metals Inc. - Executive VP & CFO [11]

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Yes. So we do think that the particular recovery performance that we had in Q3 was associated to the higher grades. Typically, we're ranging between 83% and 87%, which is the sort of range that we see. And we feel like 85% is the right number to be guiding on at the moment. Having said that, of course, we will be starting to bring in our continuous improvement practices. We have a few ideas on how we can improve this. So now the 85% is the right number to keep in mind that you're projecting for.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [12]

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For sure. Maybe switching gears a little bit here and maybe a question for Rick. I haven't really had a chance to talk to you, Rick, since the investment into INV. Maybe -- I know you touched on it earlier on during the conference call, but maybe could you maybe elaborate a little bit more in terms of what do you see in INV? I know it's not the biggest investment, but are there any concerns in terms of the geopolitical situation in Ecuador? And what's a longer term sort of thinking behind this investment here? And maybe a bit more comment into the overall strategy for DPM as we generate all that cash in Q4 2019, also into 2020 in terms of capital allocation.

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Richard Allen Howes, Dundee Precious Metals Inc. - President, CEO & Director [13]

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Sure, I'll go. So the investment in INV at this stage is purely a strategic investment. It's not that we made any decision really, what we want to do in terms of that going forward beyond the strategic investment amount that we've invested at this stage. We do think, obviously, there's some great similarities in terms of the mine itself. And it's -- take a orebody that it is. It's a nice culmination of our ore body. It's very similar to Chelopech in terms of the mineralization, in terms of the type of mining that's being proposed, processing. And of course, it's a higher rustic concentrate as well. So it produced a higher rustic copper concentrate, which, again, would fit very nicely with our strengths around the smelting side of the business.

So based on that, we certainly can help with that project in many ways on our skills, and we can enhance that project value, we think, with those skills and knowledge. So that's really the -- I'll say, the near-term focus for us is to help this project along, perhaps help it through the permitting phase. And of course, we're now part of the Technical Advisory group on the project, and we have a Board seat on INV. So it's -- I'll call it an optionality thing for us, to some extent, at this stage. It's too early to say what we would really do long term. And there are some permitting difficulties, I think, that they'll be faced with in terms of the environment that's there. They haven't advanced through the permitting phase yet. And there are, of course, a bit of a geopolitical and social concerns associated with the project in the mining in that region. So that's all going to be addressed first. And so obviously, we're not interested in taking a high risk on that aspect. So hence, the, I'll call it, the total investment that we've made.

Beyond that, I'd say, we're focused around our organic growth. And our capital allocation framework obviously is all about balancing investment and growth to the business with return of money to shareholders. So we've spent a fair bit of time with both our shareholders and our Board to see and align around the strategy around capital allocation that makes sense, given our situation in terms of a strong free cash flow growth that's coming. So it's a balanced approach that we'll be taking. And in terms of the investment in growth, obviously, we'll be looking for accretive investments or investments that generate substantial returns for our shareholders. And so that will be the way in which we look at it.

And then with the organic growth we have at Timok, that's going to be the primary focus to keep advancing that project forward, optimizing it to generate again strong returns and strong outcomes for our shareholders and stakeholders, all stakeholders really, and continue to look around for other growth prospects. We will be doing that as well. But again, using our very disciplined approach to generating strong returns for those projects.

So we are in a mode, I would say, of focusing around, using some of the free cash flow generation for growth as well as return money to shareholders.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [14]

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Yes. And Rick, on that, should we expect -- or could we expect DPM to make more of these strategic investment -- toehold investments -- in company -- in other companies in the future?

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Richard Allen Howes, Dundee Precious Metals Inc. - President, CEO & Director [15]

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Possibility in what I believe there. The ones that really sort of we can demonstrate really attractive returns on, the universal is old, it's limited and given the strength of our share price and so on currently to do them, we must be careful about the ones that we choose. But I would say if they fit the profile and they're a way of approaching, getting a toehold if they're the right projects is certainly considered.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [16]

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Yes. And then, Rick, I don't know if you can share with us, but did you and had you looked at INV for a long time? Was this like -- are we talking years or months? How did it come together?

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Richard Allen Howes, Dundee Precious Metals Inc. - President, CEO & Director [17]

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Yes. I don't know. We were -- we've been aware of this project for quite a few years. And even one of which is called [Flimsy Culture] under IM Global, but our interest probably peaked in the last couple of years, and we've spent a bit more time looking at it and determining what the projects look like and so on. So yes, it's not been a short-term thing. This is something we've been keeping an eye on for a while.

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Operator [18]

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(Operator Instructions) And I'm not showing any questions at this time. I would like to turn the call back over to Rick Howes for any closing remarks.

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Richard Allen Howes, Dundee Precious Metals Inc. - President, CEO & Director [19]

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So thank you for joining us on our call today, and I wish everyone a great weekend. Thank you.

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Operator [20]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.