Wednesday, April 12, 2017

Dundee Precious Metals - 1Q 2017 Operating Results

A few minutes ago Dundee Precious Metals (DPM.TO) announced its 1Q 2017 operating results. I guess Dundee is not a popular company among precious metals investors. Maybe it is so due to its quite complicated business model - the company, apart from a typical mining business, runs also a chemical plant in Namibia (the Tsumeb smelter).

Anyway, today's results are really good. Chelopech, the largest underground gold mine in Europe (located in Bulgaria), produced a substantial amount of gold:

source: Simple Digressions

Last year the company sold the Kapan mine so now it operates only Chelopech. However, Dundee is currently constructing its second mine, also located in Bulgaria. This time it will a medium-size open-pit mine called Krumovgrad - it should be online in late 2018.

The Tsumeb smelter delivered disappointing results but  I would not bother about it. Due to some maintenance issues, this plant was not fully operational in 1Q 2017. Hence, lower amount of concentrates smelted (only 41.6 thousand tons) compared to, for example, 4Q 2016 (61.3 thousand tons). Since no additional stoppages are expected, the smelter should process 210 - 240 thousand tons of concentrate this year.

I think that Dundee shares are substantially undervalued against the company's peers (I mean precious metals miners). For example, they are trading at the EV/EBITDA ratio of 5.6 which is much lower than other mid-cap miners (around 8.0 - 9.0). It looks like a mining company involved in a capital intensive business (smelter) does not attract too many investors. Pity...

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