Update: Dundee Precious Metals' Earnings

Aug. 4.14 | About: Dundee Precious (DPMLF)

Summary

Dundee Precious Metals reported adjusted earnings of $9.3 million and operating cash flow of $24 million on production of 38,000 ounces of gold.

Annualized, this data is better than my conservative figures put forth last July.

With the stock price up 24% and the company's heightened debt position investors should be cautious, although the stock isn't expensive.

Dundee Precious Metals (OTCPK:DPMLF) recently announced its second-quarter earnings figures. The company reported an $80 million loss due to write-downs on its exploration portfolio. However the company's adjusted earnings came in at $9.3 million, and its operating cash-flow came in at $24 million for the quarter. Both figures are significantly higher than those reported in the second quarter of last year ($3.6 million in earnings and $11.5 million in operating cash-flow). This is despite the fact that total gold production fell slightly to 38,800 oz. down from 40,600 oz. in the second quarter last year as production costs fell from $650/oz. to $581/oz., which is much better than I expected. The company also reported a decline in smelting costs for its third party Snumeb Smeltering facility ($296/tonne vs. $389/tonne last year). Other than the write-downs the one negative since my July, 2013 article is that the company has assumed over $40 million in additional debt, bringing the total to $114 million.

Despite reporting a loss Dundee's operations are generally performing well. The company is reducing its production costs despite the fact that lower by-product production means that by-product offsets are smaller than they were a year ago. While total production is down due to declining production at the company's Chelopech Mine in Bulgaria, growing production at the company's Kapan Mine in Armenia partially offsets this, and operational efficiencies mean that the company is growing its earnings and its cash flow. This bodes extremely well considering the growth potential at the Kapan Mine and the company's Krumovgrad Project in Bulgaria, which is expected to begin producing in 2017 with extremely low costs.

Ultimately the report is a mixed bag, and considering that the share price has risen 24% since I recommended the stock, given that production hasn't been growing, and given the company's increased debt position investors should probably wait for a pullback before entering a position. However there is no denying the company's operational efficiencies and this should draw shareholder interest as the company is growing profits even in a weak gold price environment.

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