Dundee Precious Metals Inc

TSX:DPM

Earnings Call Transcript 2018-Q3

[Operator]

Good day, ladies and gentlemen, and welcome to the Dundee Precious Metals Third Quarter 2018 Analyst Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Janet Reid. Ma'am, you may begin.

[Janet Reid, Manager of Investor Relations]

Good morning, everyone. I'm Janet, the Manager of Investor Relations, and welcome to Dundee Precious Metals third quarter conference call. With me today are Rick Howes, President and CEO; and Hume Kyle, Chief Financial Officer, who will each comment on the quarter; as well as David Rae, Chief Operating Officer; Nikolay Hristov, SVP of Sustainable Development; and John Lindsay, SVP of Projects, they are here today to assist with answering any questions following our formal remarks.After close of business yesterday, we released our third quarter results and hope you've had an opportunity to review the material. All forward-looking information provided during this call is subject to the 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 2017 pertain to the comparable periods in 2017.On this morning's call, Rick will comment on our third 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 an overview of our third quarter and year-to-date financial results as well as our updated guidance for 2018.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 third quarter 2018 conference call. I'm pleased to provide you with an update on third quarter results and progress on our key projects and initiatives. Overall financial results in the third quarter were strong with earnings per share of $0.11, reflecting the steady progress being made by our operating teams to advance our operational excellence and optimization programs designed to improve the performance of our operations.We had strong metal production and sales from Chelopech and record smelter concentrate throughput at Tsumeb. In addition, we continued to advance construction and commissioning of our Krumovgrad project, which is 82% complete at the end of the third quarter with first concentrate now expected in Q1 2019. Our balance sheet remains strong with total liquidity of $250 million, including our cash and undrawn revolving credit facility. Debt stands at only $39 million as most of the funding for the Krumovgrad project has been coming from our free cash flow generation, which was $25 million in the quarter and $58 million year-to-date.We saw some weakness in gold price in the third quarter with an average realized gold price of $1,209, down 7.5% from the previous quarter, reflecting the strong US dollar, rising interest rates and concerns about global trade tensions between China and the US. Copper also saw price weakness with the price off more than 14% since the middle of June. Realized price for copper in Q3 was $2.77 per pound.I would also like to mention that all 3 of our active facilities achieved major safety milestone records this year so far. Both Krumovgrad project and the Tsumeb operation achieved 2 million lost-time injury free work hours and our Chelopech operation achieved 1 million lost-time injury free work hours. These are outstanding results and are a testament to the effort and commitment of our entire workforce to work safely.Chelopech produced 49,644 ounces of gold and 10.3 million pounds of copper in the quarter at an all-in sustaining costs of $620 per ounce, which is putting us on track to be in the upper end of gold production guidance and lowering end of all-in sustaining cost guidance for the year. We produced record gold production for the first 3 quarters of 155,247 ounces at all-in sustaining costs of $607 an ounce. We are seeing slightly higher grades and recoveries when compared to 2017. We expect copper rates to remain about the same for the rest of this year, however, we expect gold rates to decline somewhat in the fourth quarter compared to the first 9 months of the year.We expect to be at the upper end of guidance by year-end and close to the record gold production we achieved last year which was 197,000 ounces. The euro has strengthened 7% over the first 9 months of 2017, increasing our cost per tonne by 6% year-over-year. We have a number of improvement projects underway that will enhance revenues and decrease costs, including drill and blast optimization, mill optimization and move to integrated dynamic planning and execution, and the introduction of our digital smart center for improved decision making.In our in-mine exploration, a total of 6,392 meters of resource development diamond drilling was completed, which comprised 2,282 meters of grade control drilling aimed to better define the shape and volume of existing ore bodies and 4,110 meters of extensional drilling, designed to explore for new mineralization along modeled trends.We continue to identify extensions to existing ore bodies and new zones. We are focused on reserve conversion of some of these recently discovered resources, particularly in the inactive upper levels of the old sublevel cave mining area. Positive results were recorded for extensions of Block 150, 5, 25, targets 7 and 700. We continued drilling on 250-meter spacing in the South East Breccia Pipe Zone. 6 underground diamond drill holes totaling 1,967 were completed in the quarter. Several new 10 to 20 meter wide zones of typical Chelopech sulfide mineralized altered branches were identified.Diamond drilling at Krasta target approximately 2 kilometers northwest of the main Chelopech ore bodies continued in the third quarter. Four diamond drill holes totaling 1,091 meters were completed. 10 holes have been completed in new zone, a shallow copper mineralization over a strike length of about 300 meters between 100 meters and 300 meters from surface. Mineralization is opened in all directions and permits for follow-up drilling are expected to be issued in the middle of next year.In Q4, we plan to continue drilling the Krasta target in South East Breccia Pipe Zone and conduct a drone magnetic survey and test several new targets on Brevene license. Chelopech resources and reserves will be updated in the annual information form in March. The smelter performance in Q3 continued to trend more reliable and consistent operating performance. Smelted record 68,431 tonnes of complex copper concentrate, which is 12% higher than our previous record in Q4 2016. This is due primarily to the increased availability of all plants and increased process stability, including the high pressure oxygen plant, the performance of which has been optimized over the course of 2018.Performance was also enhanced by the introduction of converter and Ausmelt furnace improvements, including increased oxygen enrichment of the Ausmelt furnace, which helped to mitigate the impact of the converted reliance on the Ausmelt throughput. Process optimization will continue through the fourth quarter. 2018 complex concentrate smelted has been updated to reflect the strong performance year-to-date and continued strong forecast fourth quarter performance. Cash cost per tonne of concentrate process in the quarter was the best ever $362 per tonne, benefiting from the higher throughput as well as cost reduction efforts largely through reduction of outside services and labor productivity improvements.We continue to make progress reducing the secondary copper inventories that accumulated during the construction and commissioning of the new acid plant and copper converters. This reduction will continue through the rest of 2018 and 2019 and will result in the reduction in stockpile interest and allow higher throughput capacity for fresh concentrates.We continue to advance the smelter expansion project to increase the throughput of complex copper 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 completion capital cost of approximately $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 is progressing on securing the necessary permits to support this planned increase and discussions are underway to secure sufficient complex concentrate feed to fill the expanded capacity. A decision on this project is not expected to occur until the second half of 2019. Construction projects are approximately 82% complete versus the planned 89% complete at the end of September. Project is now expected to reach first concentrate production in Q1 2019. The schedule slippage is a result of delays caused by the concrete contractor delivery issues. Concrete contractor has been replaced, but we have been unable to mobilize sufficient quality crews to catch up on the rest of the schedule. Spending of $126 million has been incurred to date with an additional $38 million to $42 million forecasted to complete. The aggregate cost of the project is still expected to be between $164 million and $168 million compared to the original estimate of $178 million.A number of key milestones were achieved in Q3. All permits required for construction have now been received. The final construction permit for the discharge water line was issued in October. The construction for the main power line for the site was completed. The water reservoir for line is ready for filling. The thickener area construction was completed and cold commissioned. The integrated mine waste facility platforms were completed, and we now have started construction of the first waste rock [ burn cells ] to store the tailings. We have mined 93,000 tonnes of ore, 155,000 tonnes of waste from the open pit.Planned grade control drilling for the first phase of the pit was completed, and the new information is being used to create the grade control model, and refine the ore reserve model. The major mill structural, mechanical and piping installations are progressing well, as is the electrical instrumentation work. Pre-commissioning activities have begun, and hot commissioning will start later in the fourth quarter. The operating team is on track with all elements of the operational readiness plan.Exploration has identified a number of satellite deposits within a few kilometers of Krumovgrad. We began Phase 2 drilling in the Surnak satellite deposit located 4 kilometers to the west of Krumovgrad open pit in Q3. We drilled 2,600 meters and 20 walls with our phase pending. This program will be completed in Q4, and a maiden mineral resource estimate will be completed in Q1 2019. Four drillholes were completed in the Elhovo license [ with license dependent ]. Drilling will also begin on 2 other nearby licenses in early 2019. A drone magnetic survey will be flown over these areas in Q4.On September 24, we announced the results of the updated Mineral Resource estimate for the Timok gold project in Serbia. We reported total indicated Mineral Resources of 47 million tonnes at 1.32 grams per ton gold, for 2 million ounces of resource. Including onsite Indicated Mineral Resources of 22 million tonnes at 1.06 grams for 742,000 tonnes and transitional Indicated Mineral Resources of 9.2 million tonnes at 1.1 gram per ton gold for 338,000 ounces. The net change compared to the 2017 Mineral Resource estimate shows an increased 35% in tonnes and 16% increase in ounces. Based on the updated Mineral Resource estimate, we have initiated a scoping study for Timok and depending on the results of the scoping study, we expect to release a preliminary economic assessment in the first quarter of 2019. These studies will focus on the initial economics of the oxide and transitional material to be constrained in a separate open pit shell as well as the high level potential for subsequent development of the sulfide resource.Development of a permitting and approvals plan incorporating the ESIA process and approvals as well as all additional permits and approvals will be initiated as part of this study. Exploration plans for 2019, are being developed to identify additional high quality targets to expand the near surface oxide resource. Exploration drilling with a focus on shallow targets continued during the third quarter of 2018 and totaled 7,000 meters in 42 holes. An additional 2,380 meters of trenching and channeling and 52 line kilometers of IP geophysics were completed. Exploration plans for the fourth quarter of 2018 include further diamond drilling, infill soil sampling, geological mapping, trench and channel sampling and high resolution drone-based magnetic survey.At the Malartic joint venture project in Quebec during the third quarter -- project till sediment sampling was completed. Exploration plans for the fourth quarter of 2018 includes soil sampling to follow up on anomalous till sediments, and a high resolution aeromagnetic survey along the Marbenite and Norbenite shear zones within the Malartic Group.In summary, the strong results for the quarter reflects the exceptional progress our team has made to improve the performance of our operations and advance our growth projects. Tsumeb is starting to show the true potential the smelter has to contribute significantly to the earnings and free cash flow of our business. Given our significant near-term growth and free cash flow from our Krumovgrad project, and solid earnings and free cash flow from our 2 existing operating assets, we expect attractive -- we represent an attractive investment opportunity for value and growth investors. Thank you. I'll now turn the call over to Hume, who will review the financial results and 2018 guidance, following which we will open the floor to questions.

[Hume D. Kyle, Executive VP & CFO]

Good morning. Thank you, Rick. For the third quarter of 2018, we reported adjusted net earnings of $0.10 per share compared to $0.04 per share in 2017, and adjusted EBITDA of $36 million compared to $26 million in 2017. These increases were primarily driven by record operating and financial results at Tsumeb as well as continued strong performance from Chelopech.For the first 9 months of 2018, we reported adjusted net earnings of $0.18 per share compared to $0.07 and adjusted EBITDA of $87 million compared to $70 million in 2017. These increases were primarily driven by higher realized metal prices and higher volumes of metal sold at Chelopech, reflecting higher grades and recoveries, higher volumes of complex concentrate smelted and higher estimated metal recoveries at Tsumeb, reflecting Tsumeb continued success of optimizing performance and reducing the secondaries, partially offset by a weaker US dollar.Similarly, from a cash flow perspective, funds from operations during the third quarter and first 9 months of the year were $34 million and $81 million, respectively, compared to $27 million and $70 million in 2017. Free cash flow, which we define as funds from operation, less cash outlays or sustaining capital and mandatory debt service obligations was $25 million and $58 million in the third quarter and first 9 months respectively compared to $18 million and $32 million in 2017. These increases reflect higher funds from operations as a result of the improved operations at both Chelopech and Tsumeb and $16 million of term loan repayments that occurred in the first 9 months of 2017.Turning to cost measures, cash cost per tonne of ore processed was $34 for the third quarter of 2018, down 5% in 2017, due primarily to higher mine throughput, and the timing of maintenance activities. Cash cost per tonne of ore processed for the first 9 months was up -- sorry, $35, up 6% from 2017, due primarily to a stronger euro. All-in sustaining cost per ounce was $620 and $607 for the third quarter and first 9 months of 2018, down $65 and $93 from 2017, due primarily to higher byproduct credits, as a result of higher realized copper prices and volumes of copper sold, and lower cash outlays for sustaining capital expenditures.At Tsumeb, cash cost per tonne in the third quarter and for the first 9 months was $362 and $457 per tonne, down $122 and $19 from 2017 levels. The third quarter increase was primarily due to higher volumes of complex concentrate smelted, and Tsumeb's cost reduction program, partially offset by higher labor and electricity rates. The year-to-date decrease was primarily due to higher volumes of concentrate smelted, higher asset byproduct credit and Tsumeb's cost reduction programs, partially offset again by higher labor and electricity rates, and a stronger ZAR relative to the US dollar.From a capital spending standpoint, sustaining growth capital expenditures for the third quarter of 2018 were $7 million and $20 million, respectively for an aggregate spend of $27 million, up slightly from the $25 million we spent in 2017. Sustaining the growth capital expenditures for the first 9 months were $18 million and $16 million, respectively for an aggregate spend of $84 million, up from $67 million in 2017, primarily due to Krumovgrad construction activities.At September 30, we incurred approximately $126 million in respect of the Krumovgrad project. We remain on track with a cost coming in at approximately $164 million to $168 million, 7% below the original estimate that we put out of $178 million. As Rick noted, our financial position at September 30, is strong with approximately $255 million of cash resources, including $232 million under our long-term credit facility. We also hold a 10% interest in Sabina valued at approximately $30 million. From a risk management perspective, during the quarter, we also initiated establishment of 2019 hedge position in respect to the South African rand, which as you know is linked to the Namibian dollar. This was done to reduce the exposure that we have with respect to foreign currency movements on Tsumeb's operating costs and lock in a rate that supports free cash flow generation of at Tsumeb. To date, we have hedged approximately 60% of Tsumeb's Namibian dollar exposure or operating costs using 0 cost option in contracts that provide for on average a minimum and maximum exchange rate between 14.2x and 15.6x. For the balance of 2018, our hedge position remains unchanged with approximately 90% of Tsumeb's operating costs fully hedged at a weighted average rate of approximately 3.19.Turning to our guidance. Based on the year-to-date operating results that we reported and our outlook for the balance of the year, we've updated our 2018 guidance for a second time to both narrow the ranges previously provided and to reflect higher annual mine and smelter production as well as lower per-unit operating cost and growth capital expenditures. As a result at Chelopech gold produced and sold is expected to be between 190,000 and 200,000 ounces and 161,000 and 170,000 ounces respectively, up approximately 8% from our original guidance. Copper produced is expected to be between 35 million to 38 million pounds, essentially in line with our original guidance.While mining cash cost per ton is expected to be between $35 and $37 per tonne, down approximately 7% and all-in sustaining cost per ounce is expected to be between $640 and $710 an ounce, down roughly 10% from our original guidance. At Tsumeb, complex concentrate smelted is expected to be between 230,000 and 250,000 tonnes. This is slightly narrow range than we have provided previously, which was 220,000 to 250,000 tonnes per year, so roughly up about 2% from the original guidance and our cost guidance is now been lowered to $430 to $460 per ton, which is down approximately 6% from the original guidance that we've provided.Growth capital guidance has also been reduced and is now expected to be between $82 million and $90 million, down from the $94 million to $100 million that we have originally put out and this is primarily due to the delays that we've experienced with concrete completion from Krumovgrad. While we haven't provided any guidance with respect to MineRP, I can say that we continue to make good progress executing the business plan and we remain confident in MineRP’s growth potential and value proposition that offers both the mining industry and DPM.In closing, the first ore from our low-cost Krumovgrad gold project is expected to occur in the first quarter of 2019 and we are nearing a period of significantly higher gold production and free cash flow generation, which we firmly believe should support further increases in our share price, both in the short-term and in the longer term through a disciplined approach to capital allocation that will seek to prudently invest excess cash in high return growth opportunities and we will return it to our shareholders.With that, I'll turn it back to the operator.

[Operator]

[Operator Instructions] Our first question comes from Cosmos Chiu with CIBC.

[Cosmos Chiu]

My first question is on Krumovgrad. I just want to get a bit more color in terms of -- you almost there 81%, what are some of the critical path items now to make sure that the first concentrate guests shipped in Q1 2019?

[John Lindsay, Senior Vice President of Projects]

Yes, John Lindsay here. So the major items going forward we have completion of the piping works, the electrical and the instrumentation. Civil work is essentially complete. The structural work essentially complete. The mechanical installation for most part is complete. So it really gets grinding through the balance of the piping and electrical work, but that needs to be done to get finished. As Rick had noted there were a few significant milestones achieved in the quarter, particularly in the power supplies. So we know we are connected to the grid so the half power available for commissioning. So we can start the larger mill motors in the fourth quarter for commissioning as we have planned. So in essence, it's gets grinding through the balance of the work.

[Cosmos Chiu]

Great. That's good to hear. And then, maybe switching gears a little bit, certainly good to see that the Timok technical report getting filed last night, giving us a bit more detail here, but I don't know if it's still too early at this point in time, but I'm just trying to get a sense in terms of timing, Krumovgrad is shipping now in Q1 2019. Timok, very well dovetailed nicely in terms of project wise, in terms of production, in terms of growth, so I'm just wondering about number one timing and number two, looking at the details behind it, it looks like you've done a lot of column testing, it looks like this is going to be designed a heap leach going through the oxide and transitional material first. So how should we look at it? Is it going to be like kind of stage? Is that the alternative that you're looking at stage in terms of heap leach oxide transitional and then later on figure out what to do with the sulfides or how should we look at it?

[John Lindsay, Senior Vice President of Projects]

Yes, John Lindsay again. It's kind of early to start to layout in sort of a timeline like that. As Rick noted, we just sort of commenced scoping study in the fourth quarter. Once we've completed that study, we will have a better idea of what the development timeline looks like and particularly around the permitting and approvals timeline, which is, as you know these days is probably going to drive the development pipeline. And yes, your comment about stage project there, that's probably the way it's going to end up sort of sensible way to go about the sulfides are, quite refractory so that it will be a tough nut to crack. So the good tends to be generating some cash out of the oxides before we get into that sulfide part of it. It's a bit early to give any sort of definitive timelines at this stage.

[Cosmos Chiu]

I didn't get into all the details in the report last night, but how does the recovery change from oxides to the transitional material?

[John Lindsay, Senior Vice President of Projects]

Yes, that's a good question. Like I said, the sulfide material is quite refractory and you're going to have to spend some time looking at process options for that. It's going to be a tough nut to crack that, but the oxide recovery is based on the work that we've done to-date have been very, very encouraging.

[Cosmos Chiu]

And then maybe one last question here in terms -- at Tsumeb, you know great to see that production and tonnes process was a record. I'm just wondering about the market here for complex concentrate. I think there was a comment made in the press release saying that drilling charges have come down a bit in Q3, I'm just wondering about -- certainly it looks like you're going in the right direction in terms of getting capacity up, getting process and capacity up at Tsumeb, but how about the demand for that product?

[David Rae, Executive VP & COO]

So this is David Rae. So we continue to talk to potential suppliers and current suppliers of concentrates and we do think there's opportunity in the market. Question is when. So at this point, what we're doing is we're working on the smelter capacity and getting the optimization ahead of when we going to see these materials coming in. Now of course, if you look at it from a variable cost point of view there's more open opportunity for concentrates going forward. So it means that longer-term, what we're looking for like concentrates to what we have now that there may be some short-term opportunity where we continue to develop and demonstrate the capacity of the smelter. I think this is why Rick is saying at this point, the expansion consideration is really only going to be at second quarter 2019 decision.

[Cosmos Chiu]

Again on the Tsumeb smelter here. Good to see that cost per ton was quite good in Q3 at about $350 per ton, if I were to -- I did, if I'm to take your full-year guidance here, lowered full-year guidance and back out what has happened in the first 9 months, it looks like Q4 cost per ton could be about the same as Q3. So I just want to make sure that the cost per ton I assume was lowered quite a bit quarter-over-quarter in Q3, so I want to make sure that's sustainable?

[David Rae, Executive VP & COO]

We believe that the cost demonstrated in Q3 all sustainable. We have a number of different initiatives. It's not just processing rate, there's some very strong improvements have been made in terms of our operating costs as well, particularly, as Rick mentioned on contracted and outside services. So we see that continue, but still some potential for improvement, which are linked to the reduction and getting out of these inventories of materials that we've had accumulated out to the capital spend. So there's still more opportunity there.

[Operator]

Our next question comes from Don MacLean with Paradigm Capital.

[Don MacLean, Senior Analyst of Gold]

Nice beat on the earnings and the cash flow and congrats on Tsumeb, keep it up. I guess my questions are sort of just extensions of what Cosmos was talking about. And you said, David, that the costs from Q3 should be sustainable going forward. Is that going forward and definitely before expansion and then maybe from the standpoint of the cash flow, if you look at the free cash flow in Q3 of $25 million, how much of that would have actually come from Tsumeb? That's -- we'll start with that couple of questions.

[David Rae, Executive VP & COO]

And just what was -- EBITDA was $16 million, and the sustaining capital was probably $7 million in the quarter, so $12 million of free cash flow from Tsumeb.

[Don MacLean, Senior Analyst of Gold]

$12 million of the $25 million that was reported?

[David Rae, Executive VP & COO]

Yes.

[Don MacLean, Senior Analyst of Gold]

I think that's a larger number than most of us are carrying, I can speak for myself. And so from a sustainability of that, because this now brings into mind of the contracts. Does that look like that can be carried on? And when's the next relying likely?

[John Lindsay, Senior Vice President of Projects]

All right. I think that's an important point. So you're really asking what's the beat, what can we expect going forward quarter-by-quarter? So in Q2 this year, we have the rebuild, and that is a very significant spend for the year. So the cost for that quarter is going to be very different, and free cash flow is going to be very good. But in terms of the full running quarter, the types of numbers we posted in Q3 are the type of results we would expect to see going forward subject to the availability and the treatment stems of concentrates [ in the part of the vendor ] but generally what you're now starting to see is the benefit of having continuity of operation, reduced rework and recycling which all comes about when they operate the smelter operation and I guess that last element of continuity.

[Hume D. Kyle, Executive VP & CFO]

Yes, I think -- just add to that as well, Don, I mean Q3 was a great quarter, and we're projecting another strong quarter in Q4. And I mean, I think looking at next year, we have every reason to believe that we can sustain the level of production performance that we're seeing at Tsumeb. I think, broadly speaking what we've said before, in terms of EBITDA and free cash flow, I think it remains intact. We might beat that in the future with the kind of performance that we're seeing. But the EBIT number -- EBITDA numbers that we've said in the past, probably somewhere in the range of $20 million to $30 million topline of EBITDA. And then sort of some sustaining CapEx, let's say, somewhere in the area of $15 million, just provide us comfort from a market perspective that we're going to generate positive free cash flow. It could be low-single digits or it could be somewhere $15 million, $20 million, $25 million even a free cash flow on a great year. But I think Q3 was just a demonstration of what it could look like.

[Don MacLean, Senior Analyst of Gold]

So just to clarify, Hume, that I believe I heard that the free cash flow from Tsumeb in Q3 was $12 million for the quarter, and what you're talking about is a $5 million to $15 million free cash flow for the year going forward, and sort of the numbers that you've put out there to this point. So is that suggesting there is a lot more upside, if you can maintain the kind of productivity. And I guess contracts that you have in warehouse, how should we be thinking about it within that, that's a big bandwidth.

[Hume D. Kyle, Executive VP & CFO]

It is. I mean, I guess from my standpoint, we just want to be realistic under promise, over deliver in terms of setting expectations. Q3 was great quarter, no doubt about it. But I think for the year, we're still looking at probably generating EBITDA for Tsumeb, probably something close to let's say just annualized, let's say $30 million. Our sustaining capital is going to be somewhere a little bit north of $15 million of free cash flow this year will be kind of at the top end or higher end of the overall guidance that we've been providing, coming into 2018. And really at this stage, no comment with respect to 2019, we'll achieve that guidance in Q1.

[Don MacLean, Senior Analyst of Gold]

All right. Okay. Well, Q3 sets the bar nice and high for next year that's for sure. And then again, Cosmos touched on the new resource for Timok, and I mean that is -- that's a tough refractory mineralization. So the -- I guess the question is, is 1 million ounces of oxide in transition, is that enough conceptually for DPM to take seriously? And how should we be thinking about this project? Is this a project that the company is going to pursue rigorously, and have some pretty positive feelings about, given that Krumovgrad will be winding down about the time you're trying to make some time of decision on Timok?

[John Lindsay, Senior Vice President of Projects]

Yes, Don, that million ounces does look encouraging, and we do -- I think it’s encouraging and that's why we kicked off our scoping study. So we'll have a look at the economics of mining that million ounces of oxide and see what that looks like. So next quarter, we'll have a bit more -- a bit more used to or bit more definition to be able to update you with, but it's a bit early to say anything to the definitive on that, but we're encouraged.

[Don MacLean, Senior Analyst of Gold]

John, I'm just trying to remember from visiting the site few years ago. It's not really so much mountainous in that vicinity as Rolling Hills. Can you use that to your advantage for like a valley fill type of heap leach?

[John Lindsay, Senior Vice President of Projects]

Again, those are some of the things we'll be looking at in this quarter when we go with our scoping study. So yes, that's -- it's possible, but certainly -- that's part of what we're looking at in our risk studies to try and figure some of that out.

[Don MacLean, Senior Analyst of Gold]

Yes, I mean we're used to -- your terrain and your topography can be a real asset or can be a real disadvantage, but it seemed to me that there was potential for an advantage in this case.

[John Lindsay, Senior Vice President of Projects]

It might be, and like I said, that's the -- those are some of the sort of conceptual things that we'll sort of flesh out of bit in the next couple of months.

[Don MacLean, Senior Analyst of Gold]

Okay. And then the million-dollar question, what are you going to do with all your free cash flow?

[Richard Allen Howes, President, CEO & Director]

I think, we're trying to say, or I tried to say on the call was that there's 2 basic alternatives. First and foremost we want to grow the business and we have opportunities to grow the business organically that we've talked about on the call and in our disclosure documents and there's also the opportunity to grow the business beyond our existing asset base and certainly we're better positioned in today's environment than we were with a stronger share price and significant free cash flow over the next 5 years, which roughly speaking at today's price is going to be somewhere in the $100 million to $150 million range over 5 years, and averaging something certainly in the mid-to-higher end of that range. So we've got a lot of opportunity to deploy capital, but we're going to do it in a disciplined way, and an accretive way. So to the extent that we see opportunities to grow and do in an accretive way we will deploy that capital that way, but we'll also consider returning it to shareholders, either in the form of a dividend or to the extent that our share price is significantly undervalued then we would definitely consider to doing a buyback. And they're not mutually exclusive. I mean we would consider doing any one of those just depending upon the circumstances that we see.

[Don MacLean, Senior Analyst of Gold]

Great, well, encourage you to do that, return to the shareholders is something that we've seen, too little of in the North American industry for sure. Anyways, congrats again on a fine quarter.

[Operator]

[Operator Instructions] Our next question comes from Trevor Turnbull with Scotiabank.

[Trevor Turnbull, Analyst]

Hume, I know you touched on the concentrate production from Krumovgrad and I may have missed it. With it starting in Q1, do you expect to start to see sales of concentrates in the same period and I'm just kind of wondering, not thinking of commercial production necessarily but simply revenue coming in from sales. Is there going to be a bit of a lag because it's a concentrate or is it likely that you'll pretty much realized whatever you produce in terms of sales in the same period?

[Hume D. Kyle, Executive VP & CFO]

We do anticipate hitting commercial production possibly in the first quarter -- at the end of the first quarter. It could be tight or at the latest early in the second quarter. So I mean I think our -- from an internal perspective, we're looking at hitting 60% of design capacity for 30 consecutive days. So I think that it's realistic to anticipate that.

[Richard Allen Howes, President, CEO & Director]

The other thing is we likely will see the concentrates being shipped by truck overland. So they're not constrained by building up large inventories and then shipping them on water. So that will tend to have the flow of revenues coming more continuously.

[Trevor Turnbull, Analyst]

Right. So it's more of a continuous shipping schedule as opposed to, like you say, building up a tidewater situation, so therefore they must be staying in Europe, I assume?

[Richard Allen Howes, President, CEO & Director]

Yes.

[Trevor Turnbull, Analyst]

I wasn't actually also asking so much about the commercial production, but just I guess you've answered it, I was going to say whether or not any sales of concentrate take place. It will be happening fairly continuous basis.

[Hume D. Kyle, Executive VP & CFO]

Starting in Q2.

[Operator]

Thank you. This concludes today's Q&A session. I would now like to turn the call back over to Rick Howes for closing remarks.

[Richard Allen Howes, President, CEO & Director]

Yes, just want to say thank you for attending the call today and wish everybody a great Friday and weekend. Thank you.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.