Dundee Precious Metals Inc

TSX:DPM

Earnings Call Transcript 2019-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to the Dundee Precious Metals Second Quarter and Year-to-date 2019 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Janet Reid. You may begin.

[Janet Reid, Manager of Investor Relations]

Good morning, everyone. I'm Janet Reid, the Manager of Investor Relations. And welcome to Dundee Precious Metals second quarter conference call. With me today are Rick Howes, President and CEO; Hume Kyle, Chief Financial Officer, who will each comment on the quarter; as well as David Rae, Chief Operating Officer; and Nikolay Hristov, VP, Sustainable Development, who are here today to assist with answering questions following the formal remarks. After close of business yesterday, we released our second quarter results, and I hope you've had an opportunity to review our material. All forward-looking information provided during this call is subject to forward-looking qualification, which is detailed in our news release and incorporated in full for 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 meanings under IFRS and may not be comparable to similar measures presented by other companies. The 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 in 2018. On this morning's call, Rick will comment on our second quarter and year-to-date operating results as well as the progress being made on our capital projects and exploration programs for the quarter. Hume will then provide a brief overview of our second quarter and year-to-date financial results as well as our guidance for 2019. With that, I'll turn the call over to Rick.

[Richard Allen Howes, President, CEO & Director]

Thanks, Janet. And hello, everyone, and thanks for joining us today for our second quarter 2019 conference call. I'm pleased to provide you with an update on first (sic) [ second ] quarter results and progress on our key projects and initiatives. Financial results in the second quarter of 2019 reflected strong operating performance in Chelopech and Tsumeb. Both operations performed in line with second quarter operating plans and remain on track to achieve their 2019 production guidance. This resulted in earnings per share of $0.09 and cash flow per share of $0.17 in the quarter. Gold production at Ada Tepe reached commercial production on June 8 but was somewhat lower than anticipated in the period due to temporary constraints with the integrated mine waste facility, which are expected to be resolved in the third quarter. We still expect ramp up to full design capacity in the third quarter, resulting in even stronger financial performance for the second half of the year and only a minor deferral of production revenues. Gold production for the second quarter was 52,425 ounces at an all-in sustaining cost of $707. With most of the Ada Tepe capital spending now complete -- or all of the Ada Tepe capital spending complete, our balance sheet remains strong. At the end of the quarter, we have a net debt of $19 million, $34 million in investments and an undrawn revolving credit facility of $134 million following the downsizing of that facility in the quarter to reflect the upcoming growth in free cash flow and lower capital spending requirements. With Ada Tepe now ramping up, we expect to start building a cash position in the second half of the year. We saw a quarter-on-quarter movement up in the gold price to an average realized gold price of $1,321 from $1,301 in the quarter. Compared to Q1, copper prices were relatively unchanged with an average realized copper price of $2.77. This recent strong move up in the gold price in June was perhaps an overdue correction to the upside given the dovish sentiment of both the Fed and European Central Banks and expected interest rate cuts inundated by the economic concerns over the U.S.-China trade dispute and geopolitical concerns over increasing tensions with Iran. Chelopech produced 47,000 ounces of gold and 9.1 million pounds of copper at a cash cost per ounce, net of by-product credits, of $618 an ounce. The increase in gold production compared to the first quarter was due primarily to higher grades and recoveries. Gold grades are expected to be slightly lower in the third and fourth quarters and concentrates slightly higher, consistent with the plan. We have a number of key improvement projects underway this year that will enhance revenues and decrease costs, including drill and blast optimization and the transition from the use of ANFO explosives to emulsion explosives, autonomous drone survey, further mill optimization and move to integrated dynamic planning and execution with MineRP and the introduction of digital smart center for improved decision-making. We continue with our investments in exploration in and around Chelopech to increase resources and reserves. In-mine resource development drilling totaled 17,000 meters in the quarter, concentrating on the upper levels of Block 18, 151, 5, 8 and Target 700 with the aim to expand current orebody extents and allow conversion of mineral resources into mineral reserves. Further to this, the areas down plunge of Block 147, 149 South, 151 and Target 'North' were also drilled through the second quarter of 2019. Both programs produced a number of significant intercepts, which can be seen in our Q2 MD&A. In the regional exploration program around Chelopech, a total of 600 -- 6,866 meters of diamond drilling was done and continued from the underground positions along the 1.5-kilometer long Southeast Breccia Pipe Zone and from surface on the Krasta target and other prospects located in the Sveta Petka and Brevene licenses. Krasta now has 21 of 22 holes drills -- drilled, hitting mineralization in 21 of 22 holes in a new zone of shallow copper-gold mineralization over a strike length of 300 meters between 130 and 500 meters from surface. This will be further tested in Q3 and Q4 with drilling to determine the up-dip extents towards surface and a potential open pit resource. Also, the significant intercept from that drilling can be seen in our Q2 MD&A. Complex concentrate smelted during the second quarter of 2019 at the Tsumeb smelter was 61,667 tonnes, which contributed to a record 6-month EBITDA of $22 million. With good process stability reached and the continuing effort around performance and cost improvements, we are seeing continually improving financial results from this smelter. With the improved temperature stability of the furnace operations, we anticipate achieving a record 18-month lining life between rebuilds, which means the annual maintenance shutdown would occur in Q4 of 2019, and we would not see a major maintenance shutdown in 2020. Cash cost per tonne of complex concentrates smelted, net of by-product credits, during the first 6 months of 2019 of $372 a tonne was $150 a tonne lower than the corresponding period in 2018. This was primarily due to the higher volumes smelted as a result of the extended furnace lining life. We continue to make progress reducing the secondary copper inventories that accumulated during construction and commissioning of the new acid plant and copper converters. We have now reduced excess inventories by 64% since July 2017. This reduction will continue through 2019 and will result in a reduction of stockpile interest and allow higher throughput capacity for fresh concentrates. We continue to advance the smelter expansion project to increase the throughput of complex concentrate to as much as 370,000 tonnes per annum. The feasibility study was completed in the fourth quarter of 2016 and confirmed the robust project economics with an estimated implementation capital cost of $52 million. The scope of the project includes rotary holding furnace, additional cooling and other upgrades to the Ausmelt furnace as well as upgrades to the slag mill area. Work to secure the necessary permits to support this planned increase in production is progressing. We submitted an updated ESIA for approval in Q2 and are awaiting review and approval from the environment ministry. Discussions are ongoing for potential new sources of complex concentrate feed to fill this expanding capacity. Construction on the Ada Tepe gold project is now 100% complete, and construction crews have been demobilized. First concentrate production was achieved in March, and commercial production was achieved on June 8. We expect to receive the operating permit in Q3. The commissioning and ramp-up phase of both the mine and mill have gone very well so far and much faster than is typical of most start-ups. We have seen many days in the second quarter where the plant has already been running at 100% design throughput of 105 tonnes an hour and design recovery of 85%. Mining of the ore and waste continues through the second quarter of 2019 with 196,000 tonnes of waste and 73,000 tonnes of ore mined. 98,700 tonnes of ore were treated through the mill at an average grade of 2.8 grams per tonne. Head grades during the second quarter were not representative of what can be expected going forward as lower-grade ore from the stockpile was purposely fed to the mill while we commissioned and ramped up production. Now that we have reached design recovery rate, grades will be brought back to planned grade for the remainder of the year. Gold production in Q2 of 5,351 ounces were lower than planned. The mill was constrained by the ability to dispose of tailings in the integrated mine waste facility due to the longer-than-expected tailings settlement time in the north -- in the first North Valley cell, which delayed cell construction and readiness to accept tailings in the subsequent cell on the next lift in the North Valley. This resulted in having to shut the mill down for 21 days to complete this construction of this North Valley cell, which was completed on July 7. Since then, we have run the mill at 60% capacity until construction of the next cells on the second lift in the South Valley are complete, which is expected to occur before the end of August. Construction of these cells is progressing as planned. We have a number of other steps that will help solve the problem quickly and permanently. Our engineering consultants have made a number of design improvements to the IMWF cells to allow faster drainage and consolidation. We are advancing test work on different chemical reagent additions to aid with faster drainage in cell. We have sourced additional earthworks equipment and contractors to assist with accelerated construction of the new cells. We are constructing 2 contingency cells in order to have a backup tailings storage location if needed. Also, as we advance up the 2 valleys, the area and total volume of storage in the cells per lift will increase, taking some pressure off the settlement time and cell construction time constraints we have experienced at the bottom of the 2 valleys where the cell capacities are much smaller, which results in a much shorter cycle time into the cell vault. In other words, we will be able to build much bigger cells as we move up the 2 valleys with more time for settling and construction of the next cell. We view this as a temporary problem and small production deferral that will be resolved in this quarter. We also have some operating flexibility and make-up capacity with the ability to blend feed to the mill from our high-grade ore stockpiles for the remainder of the year. We have lowered annual gold production from 55,000 to 75,000 ounces to 45,000 to 60,000 ounces to reflect the impact of issue here. Project spending is complete as of the end of June with final project costs coming in under budget at $164 million compared to the original estimate of $178 million. Exploration has identified a number of satellite deposits within a few kilometers of Krumovgrad. We have completed the drilling program for the Surnak satellite deposit located approximately 3 kilometers southwest of the Krumovgrad open pit and are awaiting on metallurgical test work to be completed before releasing the data and resource estimate, which we expect to complete and release in Q3. Drilling will begin on the next 2 satellite discoveries, Synap and Kuklitsa, in Q4. Drilling on 2 other exploration targets in the region, Chatal Kaya and [ Chernichino ], will begin in Q3. On July 15, 2019, we announced the results of preliminary economic assessment for our Timok gold project in the Bor district in Serbia. The PEA is based on an updated mineral resource estimate completed in September 2018 and provides a base case considering primarily oxide and transitional material, upon which the project will now be optimized for mining and processing strategies, including an economic valuation of the larger sulphide resource. The study is based on open-pit mining and heap leaching of the oxide and transitional material followed by later construction of a conventional mill facility to produce a flotation gold concentrate. Summary highlights of the project are: an after-tax NPV 5% of $105 million, after-tax IRR of 18.6% at $1,250 gold and an all-in sustaining cost of $717 an ounce and peak annual gold production of approximately 132,000 ounces. Initial capital cost is $36 million, with a mine life of 9 years. Based on results of the PEA, DPM is conducting a geotechnical and hydrogeological study as well as further optimization work to target additional sulphide material prior to commencing a preliminary feasibility study. Development of a permitting and approvals plan incorporating the environmental and social impact assessment process and approvals as well as additional licensing, major permits and authorization requirements were initiated in the fourth quarter of 2018. Exploration during the second quarter of 2019 included infill soil sampling and geological mapping to the north and west of the Korkan deposit and in the northern half of the Umka license. A technical review that included an artificial intelligence study identified many high-priority near resource drill targets as well as other targets within geochemical and geophysical anomalies that occur over a distance of 5 kilometers north of the Korkan pit deposit. Exploration plans for the third and fourth quarters of 2019 include up to 2,000 meters of trenching and 5,000 meters of diamond drilling on these new targets with the aim of increasing near-surface oxide resources. The application to extend the Potaj Cuka and Bigar Istok exploration licenses for an additional 2 years were approved on July 19. We see great potential with our investment in MineRP, a unique new enterprise digital platform for the mining industry. We ourselves are adopting MineRP as well as many other digital technologies to transform our business. The intent we have for MineRP is to introduce new mine planning enhancements and enable the intelligent use of data. Key benefits expected from this initiative are data unification to a single platform, rapid parametric life-of-mine planning and sequencing and real-time monitoring of performance versus plan with faster response to interruptions and better decision-making. MineRP is making good progress in introducing this unique platform that marries the science of mining to the business of mining to the industry with good industry interest and uptaking. We expect significant growth in revenues beginning in the second half of 2019, and several major new mining customers have signed on or in the process of signing on to this new software platform. In summary, the strong results from Tsumeb and Chelopech, along with the ramp-up of production that is now underway at Krumovgrad reflects the exceptional progress our team has made to improve the performance of our operations and advance our growth projects. Tsumeb continues to improve and contribute to the free cash flow of our business, with further upside possible by increasing throughput and reducing costs further, which is the focus for 2019 and beyond. With significant near-term growth in free cash flow coming from our Krumovgrad project beginning in the second half of this year, we represent a real growth and value investment opportunity for investors. We expect to build a cash position which will start this year and grow rapidly over the next several years. In discussion with our Board, we have adopted a disciplined allocation -- capital allocation framework that will balance reinvestment in the business with returning capital to shareholders once we are in a position to do so. Thank you. I will now turn the call over to Hume who will review the financial results and 2019 guidance. Following which, we will open the floor to questions.

[Hume D. Kyle, Executive VP & CFO]

Thanks, Rick. Overall, Q2 financial results reflected the solid operating performance of Chelopech and Tsumeb while Ada Tepe didn't contribute to earnings in the quarter or generate the ounces that we forecast but did achieve the commercial production on June 8 that we expected. And as Rick noted, it's expected to ramp up to full design capacity in the third quarter of 2019. From an earnings perspective, we reported Q2 adjusted earnings of $0.09 compared with an analyst consensus estimate of $0.03 and to $0.08 in 2018 and adjusted EBITDA of $34 million, up from $32 million in 2018. These increases were primarily driven by Tsumeb, which reported higher volumes of complex concentrate smelted, mainly attributable to improving performance and to the furnace maintenance that was done in Q2 of last year as well as reduced stockpile interest, higher estimated metal recoveries and a stronger U.S. dollar relative to both the euro and the South African rand. These were partially offset by lower volumes of gold and concentrates sold as a result of lower planned grade Chelopech and higher local currency operating costs. For the first 6 months, we reported adjusted earnings of $0.08 per share and adjusted EBITDA of $51 million, which were comparable to 2018 and reflect the same factors that impact Q2 results as well as higher treatment charges related to unfavorable final settlements on previously reported provisionally priced concentrate sales and the mark-to-market impact related to the increase in our share price, mainly in Q1, each of which dragged down our Q1 financial results. For the quarter and year-to-date results, gold and copper realized prices did not have a significant impact relative to 2018 with the gold price increase being offset by a reduction in copper prices. Q2 and year-to-date funds from operations were $30 million and $45 million, respectively, while free cash flow was $24 million and $34 million, respectively. These results were essentially unchanged from the comparable periods in 2018 and reflect the same factors that affected adjusted EBITDA with the exception of free cash flow, which also benefited from lower sustaining capital expenditures during the first half of the year, which primarily reflects the timing of Tsumeb's scheduled furnace maintenance as well as work related to Chelopech's TMF upgrades. Turning to cost measures at Chelopech. Q2 and year-to-date cash cost per tonne of ore processed was $35, comparable to 2018 and down 4% from year-to-date 2018 due primarily to the stronger U.S. dollar. At Ada Tepe, Q2 and year-to-date cash cost per tonne of ore processed was $48, which was in line with plan. And on a consolidated basis, our all-in sustaining cost per ounce for Q2 was $707, up $167 from 2018 due primarily to lower gold grades. Year-to-date all-in sustaining cost was $761, up $160 primarily due to lower copper grades and gold grades, higher treatment charges, higher share-based compensation as a result of the mark-to-market impact related to our share price increase in Q1, higher cash outlays for sustaining capital expenditures relating to the TMF upgrade and partially offset by the U.S. stronger dollar. At Tsumeb, Q2 and year-to-date cash costs were $373 and $372 per tonne, down 32% and 29% compared to 2018. This was due to the higher throughput, higher by-product credits from increased acid deliveries and prices and the favorable impact of a weaker ZAR which offset higher local currency operating costs. From a capital expenditure standpoint, sustaining and growth capital expenditures for the second quarter were $5 million and $15 million, respectively, for an aggregate spend of $20 million, down from $27 million in 2018. Sustaining and growth capital expenditures for the 6 -- first 6 months were $7 million and $33 million, respectively, for an aggregate of $40 million, down from $57 million in 2018. These decreases were due primarily to the reduced outlays in connection with the Ada Tepe mine and the timing of planned sustaining capital expenditures, including the timing of Tsumeb's furnace maintenance, which is scheduled for Q4 this year versus Q2 in 2018. At June 30, construction of the Ada Tepe project was complete. The aggregate capital cost for the project was $164 million and is 8% below the original budget of $178 million. At June 30, our financial position is strong with $156 million of cash resources, including $135 million of undrawn capacity under the revolver and $22 million of cash as well as a 25 -- 10.3% interest in Sabina. During the first half of 2019, we also took the opportunity to divest our royalty interest in Kapan and some equipment no longer required at Chelopech. This generated proceeds of approximately $8 million, and while it was not reported in our free cash flow numbers, it did add to our cash resources. With Ada Tepe production now ramping up and DPM shifting towards a period of significant cash flow generation, we reduced the size of our revolver to $175 million to better align with our near-term capital requirements and made certain other amendments to reduce costs and increase flexibility. From a risk management perspective, during the quarter, we increased our 2020 hedge position in respect to the Namibian dollar to reduce Tsumeb's operating cost exposure. As a result, at June 30, approximately 96% of Tsumeb's 2019 operating costs were hedged for the balance of the year using a 0 cost option strategy that provided for, on average, a minimum and maximum exchange rate of 14 and 15.46. And for 2020, approximately 59% was hedged using a similar strategy with a floor that, on average, provides for a floor of 14.64 and a ceiling of 16.15. Looking forward, based on current market environment, we expect further increases in our operational and financial results in the second quarter of this -- second half of this year driven by continued solid operating performance from both Chelopech and Tsumeb as well as the start-up of the Ada Tepe mine. By year-end, we expect to have no drawdowns under our revolver, and we'll have built a modest and growing cash position. For the full year, guidance remains unchanged from the guidance that we provided on July 10 in connection with our Q2 production results as well as the updated guidance in respect of Ada Tepe's ore throughput, gold production and sales to reflect the temporary constraint in the IMWF. With the release of our financial results yesterday, we also updated our guidance for Ada Tepe's cash cost per tonne of ore processed to $55 to $65 per tonne, up from $50 to $60. Overall, the IMWF constraint is in no way material to the business, and we've taken a number of actions to address the issue and remain confident that Ada Tepe will remain on track to achieve full production in Q3 and, thereafter, contribute significantly to increase gold production and free cash flow and should support further increases in our share price. With that, I'll turn the call back over to the operator.

[Operator]

[Operator Instructions] And our first question comes from Cosmos Chiu from CIBC Capital.

[Cosmos Chiu]

Great. Maybe first off, my question is on Ada Tepe or also known as the artist formerly known as Krumovgrad here. On the IMWF, it sounds like you've figured out the issues behind the settlement and -- the longer-than-expected settlement of some of the fines and whatnot and it sounds like you've built the next set of cells at the end of July. Next set's coming up as you go up the valley in late August. Could you remind us, Rick, does that give you enough capacity for the remainder of 2019?

[Richard Allen Howes, President, CEO & Director]

Well, it's an ongoing process. So you have to keep constructing cells, but -- and you also need cells from one valley to the next. So we got behind the schedule because of the delay in the settling. It was really started with the very first cell. So we're playing catch-up, but we will be caught up by, as we say, pretty much the end of August. After that, we don't anticipate that we won't -- we'll have any problems keeping up with the cycle between the North Valley and the South Valley. So that's really the process. So we -- many, many cells constructed over that period towards the end of the year -- or to the end of the year, but it will happen on a fairly consistent frequency.

[Cosmos Chiu]

But as we go up the valley as -- when I was on site back in April, it opens up. So there's more areas that -- where you can construct cells.

[Richard Allen Howes, President, CEO & Director]

Yes, that's correct. And the cells we're constructing now in the [ cell flags ] are quite a bit larger. One of them is quite a bit larger and will hold a much longer and larger quantity of tailings. So it gives us much more time to prepare the other cells and so on. So that's kind of where the relief comes from, and that's why we've been saying we're pretty confident, at the end of August, we will have -- be in a situation where we can run full capacity on a continuous basis from thereon in.

[Cosmos Chiu]

And then on that, Rick, in terms of your revised guidance of 45,000 to 60,000 ounces coming from Ada Tepe, is that based on, as you said, getting to 100% capacity by the end of August? Or is there some kind of flexibility in terms of grade that you can rely upon just given all the ore that you've stockpiled? And I believe some of that is fairly high grade.

[Richard Allen Howes, President, CEO & Director]

Yes. Based on the assumption that by the end -- that we will be in that position at the end of August to turn the mill back up to full capacity, so we may even be able to do that slightly earlier. And that's what we're looking at, is some upside potential there. And as you say, the other opportunity really revolves around feeding higher grades from the stockpiles into the feed mix from the mining activities. So yes, we definitely expect that we'll bring grades up as well. So not all that's built into, let's say, that base assumption. It's upside that we intend to try and execute on.

[Cosmos Chiu]

And on that, Rick, I don't know if you have it handy on you, but what kind of tonnage and what kind of grade do you currently have in the stockpiles?

[Richard Allen Howes, President, CEO & Director]

Well, I think Dave probably has the answer to the stockpile size.

[David Rae, Executive VP & COO]

Stockpile's about 150,000 tonnes, and the grade on the stockpile at the moment is around 4 grams a tonne. And as Rick said, there's quite a number of different grades in those stockpiles. So what's currently coming from the mine and what we're blending together with the higher grade on stockpiles allows us to get to a number beyond what's in that stockpile in terms of grade. What we anticipate coming from the mine is also going to be higher grade [ running vaults ]. So 4.40 is the number that's the asset grade that we're going to be able to run and the number of high we're anticipating between now and the end of the year.

[Cosmos Chiu]

And then you also mentioned that, in the MD&A, you're still awaiting the formal operating permit from the government. Any updates here? When -- I guess when we talked about this back on the site tour, there's really no concerns. It's really just crossing the Ts and dotting the Is here. Is that still the case?

[David Rae, Executive VP & COO]

Yes. Cosmos, it's a significant piece of work. The people at the site has done an excellent job to get us to where we are now. What we have is 2 sort of groups of these things. The first one is around the power supply, and we have signed to that completion. So we're expecting that to be done in the first week of August. The main area of the site itself, 4 different sub permits. But on that, there are meetings to be held on the 8th and the 9th where, basically, we're formally reviewing and expecting sign off of those items to take this site live. There will be a short period after that until we're issued with a permit. But at that point, we're already in a position where we are able to operate normally. So basically, within the first half of August, we're expecting to have that behind us.

[Cosmos Chiu]

Yes, for sure. Maybe switching gears a little bit. As you mentioned, Hume and Rick, you're entering a period of very high or increasing free cash flow with Krumovgrad -- Ada Tepe coming in. I think Rick, you sort of touched on that in terms of your capital allocation strategy. But could you give us a bit more color in terms of -- you have a lot of areas where you can kind of allocate capital. You touched on Timok. You touched on Tsumeb. You touched on -- would you repay the debt? Would you issue a or have -- initiate a dividend? Maybe if you can give us a bit more color on that, I think that would help.

[Richard Allen Howes, President, CEO & Director]

Yes. The context of the strategy really for that is really to look at the priorities within the capital allocation opportunities. Reinvesting in the business particularly around exploration in and around existing assets is giving us the highest returns, so that gets the highest priority. And then after that, it falls down through the ranks, but basically, clearly, sustaining capital plus reinvestment in exploration to extend the life or add to reserves. And then after that, it really comes to -- around growth of the company, what are the opportunities that are in front of us, what are the returns that can be generated from that capital and also returning money to shareholders in the form of potential dividend or share buybacks. We are weighing those options going forward. So I think the outlook is pretty good in terms of free cash flow, and we think we can actually do both return some money to shareholders in the form of, potentially, a dividend once we get and build a cash position up and continue to look at opportunities around potential growth in the company. We've got the organic project in Timok, which we're moving forward on and we're also looking at potential acquisition opportunities that might fit our strategic alignment and generate returns that we would anticipate to meet our hurdles for return to shareholders.

[Cosmos Chiu]

Okay. And then on free cash flow, you mentioned $24.4 million in Q2. Could you tell us how much of that actually came from Tsumeb?

[Hume D. Kyle, Executive VP & CFO]

Free cash flow for Tsumeb for the period?

[Cosmos Chiu]

For the quarter, yes.

[Hume D. Kyle, Executive VP & CFO]

It would have been actually quite strong. Let me just take a quick look here. So yes, for Q2, it probably would have been like $10 million.

[Operator]

[Operator Instructions] And our next question comes from Jacob Willoughby from Beacon Securities.

[Jacob Willoughby, Director & Mining Analyst]

Congrats on a good quarter, guys. My questions -- well, first...

[Richard Allen Howes, President, CEO & Director]

We can't hear you.

[Jacob Willoughby, Director & Mining Analyst]

Oh, sorry. Can you hear me better now?

[Richard Allen Howes, President, CEO & Director]

Yes, yes. That's good.

[Jacob Willoughby, Director & Mining Analyst]

Hello?

[Richard Allen Howes, President, CEO & Director]

Yes. We can hear you, Jacob.

[Jacob Willoughby, Director & Mining Analyst]

Okay. Can you tell us what your next steps are for your project in -- for Timok?

[Richard Allen Howes, President, CEO & Director]

Yes. We just completed the PEA, and we -- the economics that we show are, I'll say, just that, kind of our minimum hurdle rate. So we would like to see the project a little bit more robust, and we see some optimization opportunities. So we're looking -- before we decide to move to pre-feasibility, we're going to look at some of these optimization possibilities, particularly around the sulphides and whether we've optimized the pit shells and -- around the sulphide aspect of it. We know pretty well the oxide portion will transition for us very well, but the pit shells were not designed originally to optimize the complete package. It was really just to optimize the heap leach part of the project. So now we're going to go back and just look at that and also exploration. We think there's some upside that we could get around near -- additional oxide ounces near surface in and around the existing pits. They're -- and as I mentioned in the early discussion, we have done some work with AI on all the exploration data, and we have identified a large number of new targets to test near-surface oxides on. And that's what we'll be doing in the next couple of quarters. So with that, if we could add oxide ounces also and optimize the sulphides, we think that we can improve the project economics. And then from there, if it looks good, we'll move to pre-feasibility, and that's kind of the steps we're on now.

[Jacob Willoughby, Director & Mining Analyst]

Okay. That's good. So no rush there?

[Richard Allen Howes, President, CEO & Director]

No rush. I mean certainly, it's going to take a few years to get permits and so on. So I mean the overall time line would be more likely a 2024 production start or something like that, looking at the time lines now.

[Jacob Willoughby, Director & Mining Analyst]

Okay. And then just on the smelter shutdown, is it going to start right around the beginning of Q4?

[David Rae, Executive VP & COO]

So we're anticipating the shutdown is going to be in October start.

[Jacob Willoughby, Director & Mining Analyst]

Okay. And I mean, you have to shut it down and then it's got to cool down and everything. So if you shut it down October 1, do you think it will be back running January 1?

[David Rae, Executive VP & COO]

Oh, yes. So we're talking basically 21 to 24 days from the time you take the process off -- you stop putting feed to the furnace to the time you put feedback on the furnace. So it will be running again in October.

[Jacob Willoughby, Director & Mining Analyst]

Oh, okay. So just basically a month. And then how long does it take to heat it up again?

[David Rae, Executive VP & COO]

That's -- the heat up is included in that time line, and it's 4 to 5 days.

[Operator]

And our next question comes from Ingrid Rico from JMP Securities (sic) [ GMP Securities ].

[Ingrid Rico, Mining Analyst]

My question is on Tsumeb and looking at the CapEx. So guidance remains at $14 million to $18 million, which I presume the bulk of it will be spent in Q4 with the shutdown. But really, given the year-to-date spend, that CapEx number seems kind of high for Q4. So could you maybe comment on that? And how should we think about CapEx at the smelter?

[David Rae, Executive VP & COO]

It's possible that might be a stretch for Tsumeb to spend, you're correct. The bulk of the money remaining to be spent is -- let's say, is already allocated and the split is around the shutdown. So we're anticipating that's going to be in the region of about $5 million to $8 million for the shutdown. This one, we would anticipate to be a little bigger than what we're going to have going forward because there's a number of things that we're testing during this shutdown, which we expect to mitigate costs going forward and potentially extend time lines. So to your question of do we think that's likely to occur, I would say that they're likely to underspend. So they're at the bottom of the range of the spend on capital between now and the end of the year.

[Ingrid Rico, Mining Analyst]

Okay. All right. And then just to follow-up to -- on Cosmos' questions on capital allocation. So thinking on that and Timok, could you remind us what does DMP (sic) [ DPM ] look for a project, looking at other opportunities?

[Richard Allen Howes, President, CEO & Director]

Sorry, I missed that. What?

[Ingrid Rico, Mining Analyst]

On -- just on capital allocation. So what does Dundee look for another project if you're looking at other opportunities?

[Richard Allen Howes, President, CEO & Director]

Well, strategic fit. And clearly, the #1 thing is robust returns that would generate, including acquisition if it was an acquisition; and if it required development, total returns that would exceed our small, say, requirements and be accretive to shareholders. That's the key criteria. Beyond that, it's obviously mainly around risk and jurisdictions and making sure that it's a strategic fit with the business itself and plays to our strengths and I think that's sort of the whole package really. And our strengths mainly being underground mining. But it doesn't mean we'd do open pits, but basically, look at areas where we think we can create value that may not be visible to people or opportunities that we could outperform the current assumptions around value creation for the assets.

[Operator]

And there are no further questions at this time. I would like to turn the call back to Rick Howes for any further remarks.

[Richard Allen Howes, President, CEO & Director]

Yes. So thanks very much for joining us today on the call. And wish everyone a great day and then great rest of your week.

[Operator]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.