Monday, July 25, 2016

Dundee Precious Metals - Power Outages In Namibia Are A Risk Factor

Today Dundee Precious Metals announced that its smelter, located in Tsumeb, Namibia, encountered a power outage. Well, I have made a quick research on this issue and it looks like power outages in Namibia are quite a common event.

I believe that DPM is prepared for such events and the company has signed a proper insurance policy. However, the last announcement reveals that the Friday's outage made some serious damage to the smelter. The company writes:

"...cooling water entered the Ausmelt furnace as a result of the back-up systems for power and cooling water not operating as expected, which compromised the integrity of the refractory lining. As a consequence, and following initial inspections completed on Sunday, July 24, 2016, management believes that the refractory lining will need to be fully replaced.
This outage is expected to reduce 2016 concentrate throughput by approximately 20,000 tonnes. The vast majority of the costs associated with repairing the physical damage are expected to be covered through the Company's insurance program. The response taken by operations management during this event ensured that no one was placed at risk during the outage"

To remind my readers, DPM planned to process 215 - 250 thousand metric tonnes of concentrate at Tsumeb so a 20 thousand tonnes reduction means a 10% lower output (and 2016 revenue lower by around $12 million).

Apart from the loss in revenue, the company has to make some serious repairs.
According to the announcement above, the costs associated with repairs should be covered by insurance policy. But what about the lost revenue? The company did not comment on that issue.

Market reaction

Market reaction on that news was, in my opinion, fairly negligible. DPM share prices lost 4.58% on the Toronto Stock Exchange. The broad market, represented by GDX lost 3.65%

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