U.S. markets open in 42 minutes

Edited Transcript of DPM.TO earnings conference call or presentation 14-Feb-20 2:00pm GMT

Q4 2019 Dundee Precious Metals Inc Earnings Call

TORONTO Feb 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Dundee Precious Metals Inc earnings conference call or presentation Friday, February 14, 2020 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David Rae

Dundee Precious Metals Inc. - Executive VP, COO & Director

* Hume D. Kyle

Dundee Precious Metals Inc. - Executive VP & CFO

* Jennifer Cameron

Dundee Precious Metals Inc. - Director of IR

* Richard Allen Howes

Dundee Precious Metals Inc. - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Don DeMarco

National Bank Financial, Inc., Research Division - Analyst

* Stephen Saroki;Equinox Partners, L.P.;Analyst

* Trevor Turnbull

Scotiabank Global Banking and Markets, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by and welcome to the Dundee Precious Metals Fourth Quarter and Full Year 2019 Results Call. (Operator Instructions) Please be advised, today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker, Jennifer Cameron, Director of Investor Relations. Please go ahead.

--------------------------------------------------------------------------------

Jennifer Cameron, Dundee Precious Metals Inc. - Director of IR [2]

--------------------------------------------------------------------------------

Thank you, and good morning. I'm Jennifer Cameron, Director of Investor Relations, and I'd like to welcome you to Dundee Precious Metals fourth quarter conference call. With me today are Rick Howes, President and CEO; and Hume Kyle, Chief Financial Officer; who will each comment on our results, as well as David Rae, Chief Operating Officer; who is available for the question-and-answer session following our remarks.

After the close of business yesterday, we released our fourth quarter results and our 3-year outlook, 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 the 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 meaning under IFRS and may not be comparable to similar measures presented by other companies. The definitions present -- 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 a 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 of 2019.

I'll now turn the call over to Rick.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Jennifer. Good morning, and thank you all for joining us today. I'm pleased to provide you with an overview of our fourth quarter and full year 2019 results and provide some insights into our achievements over this period. Some highlights of the year include record gold production as we successfully commissioned and ramped up our second mine at Ada Tepe; achieved our updated full year guidance for gold and copper production concentrates smelted and all-in sustaining costs; growing our free cash flow by 25% and increasing our adjusted net earnings by 18% compared with 2018; securing an agreement to build the smelter's existing capacity for the next 3 years and strengthening our balance sheet as we reduced debt and increase our cash position.

2019 was a pivotal year for DPM as we have successfully completed a multiyear investment phase and successful optimization of our assets. We entered 2020 in a strong position with significant free cash flow expected from the business in the coming years. As a result, we're very pleased to reward our shareholders with the introduction of a regular dividend and have declared an inaugural quarterly dividend of $0.02 per share, underscoring our commitment to maintaining a disciplined approach to capital allocation as well as our confidence that we will continue to deliver strong results in the coming years.

We ended the year with strong performance in the fourth quarter with record production of 70,000 gold ounces at an all-in sustaining cost of $679 an ounce. Our strong fourth quarter performance contributed to record annual production in 2019 of more than 230,000 ounces of gold and 37 million pounds of copper at an all-in sustaining cost of $725 an ounce and free cash flow generation of $67 million for the year.

At Ada Tepe, strong fourth quarter results, which included production of approximately 27,000 ounces and cash cost of $395 per ounce were a result of higher gold rates in northeast. Gold recovery in concentrate, which was 85% during the fourth quarter, continued to perform as expected. Payable gold and metals sold of approximately 39,000 ounces, greater than the goal contained in concentrate produced and was a substantial increase compared with the third quarter. This was due to the sale during the quarter of excess concentrate in inventory, which was drawing down to more normal levels following the buildup in Q3 as we finalized the concentrate sales agreements. Ada Tepe delivered impressive performance over the last 2 quarters, following its commissioning in June, producing approximately 57,000 ounces in 2019 and achieving the high end of its updated guidance.

Early in the year, we successfully resolved a temporary constraint at Ada Tepe due to the integrated mine waste facility through a number of initiatives targeting improvements in the consolidation, drainage rate, speed up of cell construction and building contingency cells. I'm pleased to say that settlement timing of tailings has approved. And with construction of new cells ongoing, we expect no further constraints or delays and further operating flexibility going forward.

Ada Tepe continues to operate well and meet expectations in terms of throughput, gold recoveries and grades to the mill. It is quite exceptional that we were able to ramp up the design throughput and recoveries approximately 3 months after declaring commercial production, attributed to our operating team's strong capabilities and our operating excellence model.

Looking ahead to 2020, we expect a strong year from Ada Tepe, with gold production expected to increase significantly over 2019 as our newest mine contributes its first full year of production and cash flow generation to DPM's portfolio. We are also continuing with our exploration efforts around Ada Tepe. We plan to drill approximately 5,200 meters on Surnak and other nearby satellite deposits on the mining concession during 2020, focused on sulfide mineralization with the goal of extending the mine life at Ada Tepe.

In 2019, we commenced drilling on the Chatal kaya prospect on the Chiirite exploration license where we have discovered several steeply dipping, gold-bearing quartz vein which we'll continue to drill in 2020.

Chelopech continued its track record of strong consistent operational performance and achieved its 2019 guidance, producing 173,000 gold ounces and over 37 million pounds of copper. Fourth quarter production of approximately 43,000 gold ounces and 10 million pounds of copper was slightly ahead of our expectations as a result of mining in higher-grade zones and higher gold recoveries and higher pyrite concentrate.

We have a number of ongoing improvement projects that are expected to enhance revenue and increased costs, including a drill map and blast optimization and transition from the use of ANFO to emulsion explosives, autonomous drone surveying, further mill optimization using advanced analytics, move to integrated and dynamic planning and execution with MineRP and advancing our digital smart center for improved operating decision-making.

We expect Chelopech's gold production in 2020 to be comparable to 2019, reflecting grades in line with life of mine levels.

In terms of exploration, we are focused on extending the mine life through our in-mine brownfields exploration programs. In 2019, a total of 60,000 meters of resource development drilling was completed with the aim of expanding the current ore body extend and convert mineral resources to mineral reserves. We continued diamond drilling in the fourth quarter from underground positions, along the Southeast Breccia Pipe Zone from surface at the Wedge South target and at the Krasta prospect.

At the Southeast Breccia Pipe Zone, our 6 target areas with a potential of 1 million to 3 million tonne blocks, which are being prioritized for all of drilling relative to other near-mine targets in 2020. The Krasta prospect has now been drilled over a strike length of approximately 390 meters with the Northeast trend and between 100 and 400 meters from surface, an infill drill program of 3,500 meters to further evaluate the prospects as planned for 2020. Results from the first 2 holes at the Wedge South target are encouraging. For the first quarter of 2020, our exploration activities are focused on continuing the surface drilling at Krasta and Wedge South targets within the Sveta Petka exploration license.

Tsumeb met its updated 2019 guidance, smelting 250,000 -- 215,000 tonnes at a cash cost of $421 per tonne, net of by-product credits. We successfully completed the planned annual maintenance shutdown during the fourth quarter. The plant resumed operation in late October and continues to operate well. Despite meeting guidance on securing a 3-year contract for existing capacity, as you will have seen from our release last night, we recorded $107 million noncash impairment charge at Tsumeb. Hume will provide some commentary on this shortly, but it's worth noting that while we recognize the impairment at Tsumeb, this is largely driven by the potential to process Chelopech's concentrate at higher margins at other outlets, which we believe would generate additional value for Chelopech and the company overall.

Following the maintenance in 2019, which resulted in improved temperature stability of the furnace operations, and with the next shutdown scheduled for 2021, Tsumeb is strongly positioned to deliver record throughput in 2020. Based on the midpoint of our 2020 guidance range, we are forecasting a 15% increase in complex concentrate smelter at Tsumeb compared to 2019.

Revenue for MineRP in 2019 was $15.6 million, an increase of over 30% from 2018. Much of this growth occurred in the last 2 quarters of the year, which is an indication of the sharp ramp-up in customer uptick that we are seeing. We expect even stronger revenue growth and earnings in 2020 as we enter for this unique and powerful enterprise official platform for mining continues to grow.

We expect another strong year in 2020 as we realize a full year of benefits from our 2 operating mines, optimize performance at our smelter and significant free cash flow generation potential of our total portfolio. We expect consolidated production of 257,000 to 299,000 ounces of gold and 35 million to 40 million pounds of copper, with an all-in sustaining cost of $700 to $780 per gold ounce.

In yesterday's news release, we also initiated a 3-year outlook for production, all-in sustaining costs and capital expenditures, which highlights our strong production profile and declining sustaining capital expenditures and reinforce the long-term free cash flow generation potential of our portfolio. In providing a long-term outlook for our business, we aim to provide greater visibility into the market as we transition to a mid-tier producer. Our 3-year outlook 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. Hume will take you through our 3-year outlook and more detailed 2020 guidance.

In terms of future growth, our Timok gold project in Serbia is advancing well as potential -- as a potential growth opportunity for the company. We completed the PEA and shared the results earlier in 2019. In the fourth quarter, we completed an internal optimization study, and we are currently completing hydrological and geotechnical drilling prior to making a decision in the first half of 2020 to move ahead with the pre-feasibility studies.

We also continue to evaluate additional growth projects to support growth that have the potential to generate strong returns, enhanced value -- and enhance the value of the company.

In December of last year, we announced that almost -- after almost 7 years as CEO and 10 years with the company, I will be stepping down. And David Rae, our current Chief Operating Officer, will be succeeding me as CEO at our Annual General Meeting in May. Dave has been instrumental in our achievements over the last several years and has quite a crucial role in taking us to where we are today. I'm confident I'm leaving the company in very solid position and in strong hands with Dave's leadership to take the company forward.

To wrap up, we entered 2020 in a very strong position with 2 operating mines expected to deliver strong production and cost performance, and Tsumeb well positioned to generate strong performance with no maintenance shutdown in 2020. A strong 3-year outlook for production, all-in sustaining costs and lower CapEx that highlights our significant free cash flow generation potential and a strong balance sheet with a net positive cash position, growth and exploration opportunities that we believe have the potential to add further value.

I'd like to acknowledge all of our dedicated employees across the company who contributed to our strong results in 2019, which was a pivotal year for DPM. As you can see from our fourth quarter results, we have demonstrated that significant free cash flow generation is now underway and that we are in a strong position to reward our shareholders through a sustainable quarterly dividend. We believe that this, combined with our future organic growth potential and our strong management team, represents a real growth and value investment opportunity for investors.

I'll now turn the call over to Hume for a review of our financial results and our 3-year outlook.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Rick. Good morning, everybody. Overall, solid fourth quarter operating performance and record annual gold production for 2019 contributed to strong fourth quarter and full year financial results, including generating almost $100 million in cash flow and growing our cash flow by approximately 25% and adjusted net earnings by 18% compared to last year. We also reduced our debt and ended the year in a net cash position.

In addition, 2019 financial results also benefited from higher gold prices and a stronger U.S. dollar, which partially offset the higher local currency denominated costs and lower throughput at Tsumeb, which, for the quarter, was impacted by the timing of the scheduled Ausmelt furnace maintenance in October and for the year was impacted by pressurization event we reported with our third quarter that resulted in 24 days of additional downtime.

As a result, adjusted net earnings for the fourth quarter were $16 million or $0.09 per share, up $0.11 compared to the same period in 2018. For 2019, adjusted net earnings were $34 million or $0.19 per share, up $0.03 compared with 2018. Fourth quarter results, while solid, were negatively impacted by several factors aggregating to $0.09. These related to higher stock-based compensation as a result of strong share performance, the reversal of previously booked tax losses in respect to MineRP and higher metal exposure at Tsumeb, which relates primarily to Q4 increase in secondaries, the nature of which is expected to generate better recoveries and reverse much of the increase in exposure that was recognized in Q4.

Adjusted EBITDA for Q4 was $55 million, up $43 million compared to the same period in 2018. 2019 adjusted EBITDA was $138 million, up $39 million year-over-year. During Q4, we also reported $107 million impairment, as Rick noted earlier, and this was in respect of Tsumeb. And this was -- this impacted our reported net earnings. This resulted in a reported net loss attributable to common shareholders of $93 million and $71 million for the fourth quarter and full year, respectively. This impairment is attributable to a delay in the expected timing of the Tsumeb expansion and, more importantly, the potential for DPM to capitalize on market demand to process Chelopech concentrate and other outlets and, in its place, additional volumes at the third-party concentrate at Tsumeb. While this has the potential to generate value for Chelopech and DPM as a whole, this would result in lower revenues and margins at Tsumeb, which, for financial reporting purposes, must be assessed on a stand-alone basis.

Having said that, the outlook for increasing volumes of complex concentrate coming to market remains favorable and could well support increasing Tsumeb's capacity. However, as we've stated historically, we will not proceed with the expansion without a long-term contract that supports the capital investment of roughly $39 million to expand capacity to 370,000 tonnes per year. Until this happens, we will capitalize when able on the opportunity to optimize the mix of concentrate being processed by Tsumeb.

From a cash flow perspective, Q4 annual funds from operations were $33 million and $110 million, respectively. This contributed to strong free cash flow generation during the fourth quarter and for 2019, up $16 million and $13 million compared to previous periods. These results were higher than the comparable periods in 2018 and reflect the same factors impacting EBITDA with the exception that free cash flow includes higher sustaining capital outlays related to the timing of Tsumeb's scheduled furnace maintenance and the work related to extending the life of Chelopech Tailings Management Facility while, on the other hand, it does not recognize the revenue that we recognized in Q4 in respect of approximately 12,000 ounces of gold that were used to partially satisfy our obligations under our prepaid forward sales arrangement as the proceeds for these ounces was received in 2016.

Turning to our consolidated cost measures. Our all-in sustaining cost per ounce for Q4 was $679, down $185 from 2018 due primarily to deliveries of low-cost coal produced at Ada Tepe. For 2019, all-in sustaining cost was $725, up $65 due primarily to lower expected gold grades and higher cash outlays for sustaining capital at Chelopech, partially offset by deliveries of low-cost coal produced at Ada Tepe.

At Tsumeb, Q4 cash cost per tonne was $465. This was up $52 from 2018 due primarily to lower throughput stemming from the timing of the Ausmelt furnace maintenance shutdown, partially offset by a favorable impact of a weaker ZAR. For 2019, cash cost per tonne was $421. This was down $21 from 2018 due primarily to the favorable impact of a weaker ZAR, partially offset by lower volumes of complex concentrate smelted.

From a capital expenditure standpoint, our sustaining capital expenditures for the fourth quarter in 2019 were $18 million and $37 million, respectively. This was up $27 million from 2018, reflecting costs associated with extending Chelopech Tailings Management Facility as well as the start-up of Ada Tepe.

Growth capital for the fourth quarter was $2 million and for the year $37 million, down $80 million from 2018 due to the completion of Ada Tepe, which was completed in June under budget. With the start-up of Ada Tepe and additional free cash flow that it's generating in the fourth quarter, we are now debt-free and exited the year with a net cash position of $13 million. As a result, at December 31, our financial position was strong with $188 million of cash resources, including $165 million under our long-term revolving credit facility and a portfolio of investments that provides additional upside, comprised of a 10.4% interest in Sabina, a 19.5% interest in IP and a 78% interest in MineRP.

From a risk perspective, we've entered into a series of hedges during 2019 to reduce net operating cost exposure to foreign currency movements. As a result, at December 31, approximately 85% at Tsumeb's projected, 2020 operating costs have been hedged using a 0 cost option strategy that provides for a floor and ceiling for the weighted average exchange rate between 14.61 and 16.14.

Looking forward, we will continue to focus on increasing the profitability of the business by optimizing our existing assets. As you'll have seen from the results we released yesterday, we initiated a 3-year outlook covering certain key metrics, which is supplemented with more detailed guidance for 2020. I'll begin providing some overall highlights covering our 3-year outlook and then review key elements of our 2020 guidance.

We are forecasting a strong gold production profile with gold production expected to grow approximately 20% in 2020 based on the midpoint of our guidance and expect to maintain this level through 2022. Copper production in 2020 is expected to be in line with 2019 and stable through 2022.

All-in sustaining costs are forecast to trend lower following a slight increase expected in 2020 and reflects normal course cost inflation and higher sustaining capital expenditures, which I'll touch on momentarily. Smelter performance is expected to be strong with the record level of throughput expected in 2020. Annual throughput estimates for Tsumeb are expected to vary due to the timing of the planned maintenance shutdown, the next of which is scheduled for 2021. This results in an expected increase in complex concentrate smelted in 2021, with 2022 expected to be in line with 2020. Cost variation in 2021 and '22 is due solely to volume.

In terms of sustaining capital, we are expecting an increase in 2020, reflecting a full year of operation at Ada Tepe, increased cost relating to ongoing cell construction at the operation of the integrated waste management facilities and further investment related to extending the life of Chelopech Tailings Management Facility. For 2021 and 2022, sustaining capital is expected to be below 2020 levels, but 2022 will be representative of a longer-term range.

Our production cost estimates for 2021 and '22 did not yet incorporate any cost-saving initiatives, operating performance improvements, potential improvements to mine grades and recoveries or variations in third-party processing at Tsumeb to capitalize on the potential to realize higher margins by processing Chelopech concentrate at other facilities. In addition, cost estimates did not reflect inflation or potential offsetting variations in foreign exchange rates, so we believe there is potential upside to these estimates.

In terms of our 2020 guidance, gold production is expected to be between 257,000 and 299,000 ounces, reflecting 94,000 ounces to 115,000 ounces from Ada Tepe and the balance from Chelopech, where grades are expected to be in line with life of mine grade levels. Payable gold sold is expected to be 229,000 to 267,000, of which 34,000 will be used to fully satisfy our delivery obligations under the prepaid forward gold sales arrangement we entered in 2016.

Copper production is expected to be between 35 million and 40 million pounds, and payable copper in sold is expected to be between 33 million and 38 million pounds.

At Tsumeb, we expect record production with throughput between 230,000 and 265,000 tonnes, reflecting uninterrupted production with the next planned Ausmelt furnace maintenance shutdown scheduled for 2021.

From a cost perspective, our all-in sustaining cost per ounce of gold sold is expected to be $780 to $700 -- sorry, $700 to $780 compared to $725 in 2019. This is due primarily to the impact of lower grades at Chelopech, higher sustaining capital expenditures, partially offset by an increase in lower-cost ounces stemming from a full year of operations at Ada Tepe. Cash cost per tonne of complex concentrate smelted is expected to be between $370 and $450. This compares with $421 in 2019 due primarily to higher forecast volume and a weaker ZAR.

On the capital front, sustaining capital expenditures for 2020 are expected to be between $43 million and $54 million. This is up from $37 million in 2019. This increase is primarily due to an increase in spending at Chelopech related to the tailings management facility, increased spending at Ada Tepe related to its integrated waste management facility and several corporate system-related initiatives.

Growth expenditures for 2020 are expected to range between $5 million and $10 million. This is down 37 -- from $37 million in 2019 due primarily to the completion of the Ada Tepe mine. This growth capital expenditure is related primarily to resource development and margin improvement initiatives.

Exploration expenditures for 2020 are expected to be between $13 million and $15 million, up $11 million -- or up from $11 million in 2019 and will focus on the drill programs on mine concessions and exploration licenses at Chelopech, Ada Tepe and the Timok gold project in Serbia. The remaining exploration budget will be deployed primarily to other greenfield projects in Bulgaria, Serbia and Malartic project in Québec.

Evaluation expenditures for 2020 are expected to be between $2 million and $8 million and relate to potential costs associated with moving forward with the feasibility study on the Timok gold project, which, subject to the results of geotechnical and optimization we're currently underway, is expected to be initiated in the first half of 2020. While we have not provided any guidance in connection with MineRP, it is continuing to make good progress executing on its business plan, achieving record performance in the second half of 29 (sic) [2019]. And with a growing pipeline of potential new customers, we remain confident in the growth potential and value proposition it offers the mining industry and DPM.

As Rick mentioned, we announced the introduction of a regular dividend with the declaration of our inaugural dividend of $0.02 per share. The introduction of this dividend reflects our outlook for significant free cash flow generation, our commitment to providing shareholders with the cash return and our desire to reinvest in growing and optimizing the business, all of which is consistent with our capital allocation framework and our objective to deliver value to our shareholders. The level of this dividend reflects our intention to establish a dividend that can be sustained over time and is based on our free cash flow outlook. As a result, this has the potential to grow and will be supplemented from time to time at the discretion of the Board.

We have also initiated a normal course issuer bid to purchase up to 9 million shares on the TSX, which is subject to acceptance by the TSX. And if accepted, any purchases thereafter will be made in accordance with applicable rules and policy of the TSX and applicable securities law.

In closing, we are in solid financial shape. With significant free cash flow generation underway, we are committed to maintaining a disciplined approach to capital allocation and are in a great position to further build our financial strength, to prudently invest excess cash and high-return growth opportunities or possibly in DPM shares under our normal course issuer bid and to return a portion of our free cash flow generation to our shareholders by way of the dividend we announced yesterday. With this context, we firmly believe, notwithstanding the strong share price appreciation that we've seen in recent years that DPM continues to represent an attractive investment opportunity for gold investors.

With that, I'll turn the call back over to the operator for Q&A.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question comes from the line of Trevor Turnbull with Scotiabank.

--------------------------------------------------------------------------------

Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [2]

--------------------------------------------------------------------------------

I was just looking at the 3-year guidance, and I noticed that Ada Tepe looks like it has a pretty good bump in 2022, at least relative to what, I think, had been in the original tech report. And I just wondered if you could put a little color around that. And does that change anything in terms of the life-of-mine output? Have you actually added ounces or encountered more ounces than you expected? Or is this just a slight timing difference?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Trevor, this is David. So there's no change from the profile in the years of operation, so it may just be down to the news of when we started. So there's really nothing that's changed in terms of our understanding of the ore body, the number of ounces, the expectation in treatment and so.

--------------------------------------------------------------------------------

Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [4]

--------------------------------------------------------------------------------

All right. Yes, I'll have to go back and look. Maybe we just had our numbers off a bit. And then I guess, David, the other question I had, it was touched on a couple of times about the complex concentrate market conditions. And I just wondered if you could give us a bit of background on that and maybe a bit of comfort as we think about how those might improve, not over the next 3 years, but over the longer term. Are -- is there any concern over the complex concentrate market failing to become more robust as we think of Tsumeb as a long-term, long-lived asset?

--------------------------------------------------------------------------------

David Rae, Dundee Precious Metals Inc. - Executive VP, COO & Director [5]

--------------------------------------------------------------------------------

Yes, that's a good question. Okay. So the way I would view things at the moment, if you have a look at the discipline in the copper market, there's projects that were expected to come in, let's say, in 2017, 2018, 2019 and so on. What's happening is that those have been delayed, waiting for some clarity on demand, and producers have been exercising a degree of discipline, but I don't necessarily think it was the historic. So the outcome of that has been that the smelters have, at this point, overcapacity problems. What that means is that the TC becomes something that is more competitive. And of course, those projects will decline from a producer point of view. And this opened the opportunity for us in the sense that there's more people interested in taking our concentrate, but it also means that it puts pressure on Tsumeb. And we've seen the slippage in the TCs that it can attract. However, I do believe this is part of the normal cycle. And what we are seeing is other incidents that occur in the market where either smelters that are taking concentrator affected or if an operator has an issue and suddenly have more asking to concentrate than expected. That's been sending some signals, which I would suggest are implying we're at the bottom of that cycle and likely to see things returning to a more normal situation. And the example of that is the fact that one of our major suppliers wanted to move to a 3-year contract in a situation where additional material have been coming to market. And there was smelter difficulty in treating some of that concentrate, and I'm not talking about our smelter, in that case.

So I do believe that you're going to still be seeing the concentrates that we'd originally identified coming to market. We know there is some players that have fallen out of a potential supply position. But others still have expansion and funds in place. So I do believe that what we're seeing now in terms of the smelter is at least an even point as well as a low point in terms of the supply concentrate going forward. So it's not that the impairment was a reflection of a lack of ability to find concentrate. It's just that we have an ability to divert rather than require the increased capacity.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

And our next question comes from the line of Don DeMarco with National Bank.

--------------------------------------------------------------------------------

Don DeMarco, National Bank Financial, Inc., Research Division - Analyst [7]

--------------------------------------------------------------------------------

I just wanted to follow up on the answer to the last question. And in terms of looking at Tsumeb, the implied revenue per tonne, should we model for 2020 a continuation of what was reported in Q4 then?

--------------------------------------------------------------------------------

Hume D. Kyle, Dundee Precious Metals Inc. - Executive VP & CFO [8]

--------------------------------------------------------------------------------

Well, yes, I wouldn't say necessarily. Probably, the year is a better reflection of what you would expect to see, like from a third-party toll perspective, I would expect toll rates for 2020 to be in line with 2019. And then as it relates to the Chelopech material that goes to site, it probably will be down a little bit in 2020 relative to 2019 because the Chelopech concentrate contract is a cost-plus arrangement. And in 2019, because we had additional down days, it was like 24 days of additional downtime associated with the pressurization event that actually resulted in a higher toll rate to Chelopech. So in 2020, we should actually see that come down. And frankly, that's where most of the variability occurs in any particular quarter. It's really around the downtime because it causes the Chelopech toll arrangement to jump up for a period of time, or approximately 3 months, essentially, 3 or 4 months depending on the length of any outage.

--------------------------------------------------------------------------------

Don DeMarco, National Bank Financial, Inc., Research Division - Analyst [9]

--------------------------------------------------------------------------------

Okay. So you expect that, that implied revenue per tonne in Q4 would be a low watermark down versus what you're expecting in 2020.

--------------------------------------------------------------------------------

Hume D. Kyle, Dundee Precious Metals Inc. - Executive VP & CFO [10]

--------------------------------------------------------------------------------

Say that again.

--------------------------------------------------------------------------------

Don DeMarco, National Bank Financial, Inc., Research Division - Analyst [11]

--------------------------------------------------------------------------------

Do you expect that, that -- like when I see the total revenue in Q4 is $20.9 million and that was concentrated smelter about 48,600 tonnes. So the implied revenue per tonne, do you think that, that's a low watermark then in Q4 going forward? That's what I'm hearing you say.

--------------------------------------------------------------------------------

Hume D. Kyle, Dundee Precious Metals Inc. - Executive VP & CFO [12]

--------------------------------------------------------------------------------

Yes. Certainly, sorry, the other thing. So I talked about the variability of the toll rates between third party and Chelopech. The other thing that did negatively impact the net revenue on a per tonne basis in Tsumeb for Q4 was higher metals exposure. I did comment on that in my earlier comments. And so we did have an increased level of metals exposure in Q4, which we would expect to reverse in Q1. It's really related to a buildup of secondaries that occurred that was related to the outage and other things that we were doing at site and the nature of that material as such that it's very difficult to estimate the metal content and our processes are such that we tend to underestimate the metal content in then secondary material that gave rise to the exposure. When it's processed in Q1, we would expect most of that to come back as a metal recovery.

--------------------------------------------------------------------------------

Don DeMarco, National Bank Financial, Inc., Research Division - Analyst [13]

--------------------------------------------------------------------------------

Okay, okay. That's all for me. So congratulations on the outlook for 2020, the impressive cost performance at Ada Tepe and the dividend policy.

--------------------------------------------------------------------------------

Richard Allen Howes, Dundee Precious Metals Inc. - President, CEO & Director [14]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from Stephen Saroki with Equinox.

--------------------------------------------------------------------------------

Stephen Saroki;Equinox Partners, L.P.;Analyst, [16]

--------------------------------------------------------------------------------

I have 2 questions for you. The first is working out the dividend, it works at about $11 million. You -- I thought that it would be bigger than that. But what's the criteria of increasing that dividend?

The second thing is you also announced an NCIB for $9 million. You didn't use it last year. Do you plan on using it this year?

--------------------------------------------------------------------------------

Hume D. Kyle, Dundee Precious Metals Inc. - Executive VP & CFO [17]

--------------------------------------------------------------------------------

Okay. So you were breaking up a little bit, but I think I understood your first question. So the first question, I would answer and that there really isn't a set target that we have formally put out as being a basis for the dividend. Our intent was strictly to establish what we believe is a dividend level that can be sustained over a long period of time. The $0.04 -- or sorry, the $0.08 that we put out is a level that we're quite comfortable with. And then based on our outlook and in reality, if metal prices continue at these levels, it is quite possible that we'll look to increase that dividend over time or alternatively consider supplementing it, depending upon our outlook and where metal prices stand and what our financial position might be at any given point in time. So I don't really want to be in a position that we're -- indicating to market that we're specifically targeting a percentage of free cash flow. It's derived from free cash flow, but it's not -- there's no set percentage per se that the Board has approved or is communicated as part of the policy.

The NCIB is something that we've had in the past. It's something that last year when we wanted to reinstitute it. I wouldn't say that there's any formal commitment on our part at this point to say that we will go out and start to buy back 9 million shares, but it is something that we would like to have in our toolbox. And from time to time, when appropriate, we would expect to use that program, all in the context of maintaining our disciplined commitment to capital allocation.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

And I'm not showing any further questions at this time. I would now like to turn the call back to your speakers.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. Thank you very much for joining us today, and I hope everybody has a great weekend.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

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