CA - Dundee: Cash-Generating Machine

Summary

• Rock solid balance sheet with $400 million + in cash.
• Consistent FCF generator.
• Recently announced high-grade deposit in Serbia described as possessing "exceptional results."

All amounts in this memo are in U.S. dollars.

Dundee Precious Metals (DPM:CA) (DPMLF) is a Canadian based, international gold mining company engaged in the exploration, development, mining and processing of precious metals. ( corporate presentation )

At September 30, 2022, DPM had $420 million of cash, $32 million of investments and no debt. DPM generated $252 million of free cash flow for the year ended December 31, 2021 and $133 million of free cash flow for the nine months ended September 30, 2022. DPM's cash flow and balance sheet strength are highlighted by its ever-increasing net cash balances of $150 million at year-end 2020, $334 million at year-end 2021 and $420 million at September 30, 2022. DPM pays a quarterly dividend of $0.04/share, a 3.6% yield. The company repurchased $14 million of stock year-to-date as of September 30, 2022.

DPM recently released preliminary 2022 production results showing production of 273,000 ounces of gold and 31 million pounds of copper. The following compares 2021 actual production results to 2022 actual results and 2023/2024 outlook:

1. Based on "preliminary production results" released January 10, 2023.

On January 16, 2023, Dundee Precious Metals announced the discovery of a high-grade deposit at the ?oka Rakita exploration prospect in eastern Serbia and reported "exceptional results" from recent drilling. ?oka Rakita is located three kilometers southeast of the Company's Timok gold project and is 100% owned by DPM. Given the potential of this new high-grade discovery, the Company now expects to focus on further exploration at ?oka Rakita in 2023. As a result, the Company is pausing further work on the Timok feasibility study.

We estimate 2022 free cash flow, FCF, of $180 million. That's a 37% FCF yield on Enterprise Value, EV, (4.77/share * 190mm shares - 420mm cash) as of December 31, 2022. Assuming a FCF yield of 12% on Enterprise Value and adding back cash, investments at 50% and $40 million for the smelter, implies a value of $10.40 per share.

In fact, the sum of DPM's free cash flow since January 1, 2020 (estimating 2022 at $180 million) is $643 million, which equates to 132% of EV. The last two years free cash flow (2021 and estimated 2022) equate to 89% of EV. Although this free cash flow is not in perpetuity since mines have defined lives, the company effectively gets cash flows equivalent to its EV in just over two years, an extraordinary value proposition in our opinion, and thus why it's the Fund's largest holding.

The 2022 Guidance and 2023/2024 Outlook for production is quite attractive even before the new production from Loma Larga and ?oka Rakita and Timok come online. DPM is conservatively managed and has a fortress balance sheet. With a significant cash balance of $420 million, no debt, $32 million in marketable securities, significant free cash flow generation and very attractive assets, we believe DPM is significantly undervalued.

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