Dundee Precious Metals Inc

TSX:DPM

Earnings Call Analysis

DPM Delivers Strong Q3 with Solid Guidance

In Q3, DPM maintained strong production and one of the lowest all-in sustaining costs in the gold mining industry, generating significant free cash flow with a disciplined capital allocation and shareholder return strategy. The revenue was $135 million, spurred by higher gold sales and prices, contributing to a comparable adjusted net earnings of $27 million year-over-year, despite lower Tsumeb revenues and higher expenses. The company's cash flow from operations increased to $67 million with a steady free cash flow of $45 million. Mining operations are on track with 2023 guidance for gold production and all-in sustaining costs, despite anticipated lower Tsumeb concentrate smelting due to earlier downtime. With $563 million in cash, no debt, and a $150 million credit facility, DPM plans to continue growing and returning capital to shareholders, including maintaining dividends and pursuing a $100 million share buyback program.

Robust Financial Performance with a Focus on Sustainable Growth

The company has delivered a financially robust quarter, highlighting a revenue increase to $135 million aided by higher gold sales volume and stronger gold and copper prices. These were slightly offset by lower smelting volumes due to maintenance activities. Adjusted net earnings remained stable at $27 million, while cash flow from operations rose to $67 million, thanks to favorable timing in cash receipts and payments. The free cash flow amounted to $45 million, primarily influenced by similar factors affecting earnings. A substantial balance sheet with $563 million in cash and no debt underscores the company's strong financial positioning, enhanced by a $150 million undrawn credit facility. All these factors combined underscore the company's ability to achieve its 2023 guidance for gold production, deliveries, and all-in sustaining costs, alongside significant free cash flow generation.

Challenges and Adjustments in Operating Costs

The quarter saw an elevation in the all-in sustaining cost to $911 per ounce of gold sold, primarily due to one-time increased treatment charges from delivering Chelopech's concentrate for processing. Cost optimization strategies have been instrumental in offsetting these increases. Despite obstacles such as an unplanned downtime earlier in the year and lower copper prices than anticipated, which could potentially increase the per-ounce cost by $12, the company remains within its all-in sustaining cost guidance. This financial discipline extends into capital allocation, with reinvestment in sustainable growth and shareholder returns through consistent dividends and a strategic share buyback program.

Continued Shareholder Value and Prudent Capital Management

The company's capital management approach prioritizes low-risk, short-term investments, aligning with its disciplined strategy for capital allocation. In 2022, dividends were increased to $0.04 per share quarterly with a long-term view, reflecting a commitment to shareholder value. While maintaining this steady dividend, the company continues to reinvest in growth and sustain the business, with a careful balance of funding future projects and avenues for increasing shareholder wealth, exemplified by its recent share repurchases totalling approximately $66 million in 2023.

Earnings Call Transcript 2023-Q3

[Operator]

Good day. Thank you for standing by. Welcome to the Dundee Precious Metals Third Quarter 2023 Earnings Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker, Jennifer Cameron. Please go ahead.

[Jennifer Cameron, executive]

Thank you, and good morning, and thank you, everyone, for your patience as we got that technical issue sorted out. I'm Jennifer Cameron, Director of Investor Relations, and I'd like to welcome you to our call. With me today are members of our senior management team including David Rae, President and CEO; and Navin Dyal, Chief Financial Officer.

Before we begin, I'd like to remind you that 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 the 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 or ratios. 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 are related to continuing operations and have generally been rounded, references to 2022 pertain to the comparable periods in 2022 and references to averages are based on midpoint of our outlook or guidance.

I'll now turn the call over to David Rae.

[David Rae, executive]

Good morning, and thank you all for joining us. I'm pleased to provide you with an overview of our third quarter results and some insights into our achievements during this period. This morning, I'll briefly review our results and discuss why we believe DPM continues to be well positioned to deliver value to all our stakeholders now and over the long term.

Highlights from our third quarter include strong production of 74,000 ounces of gold and 7.2 million pounds of copper, all-in sustaining costs of $911 per ounce of gold sold and continued strong free cash flow generation of $45 million. With strong operating performance generating over $180 million of free cash flow year-to-date, our mining operations are on track to achieve our 2023 guidance for production and all-in sustaining costs, demonstrating the quality of our assets and the strength of our operating teams.

We exited the quarter in a very strong financial position with a cash balance of $563 million and we continue to deploy our capital in a disciplined manner. In addition to investing in our future growth and exploration prospects, we returned approximately 42% of our free cash flow to shareholders during the first 9 months of the year to our sustainable quarterly dividend and enhance share buyback program, which Navin will touch on shortly.

Looking at our operations in more detail, Chelopech continued its track record of strong performance in the third quarter, producing approximately 40,000 ounces of gold and 7.2 million pounds of copper. Chelopech's all-in sustaining cost at $1,120 per ounce of gold sold reflects higher treatment charges during the quarter as a result of shipping concentrate at Tsumeb as opposed to using third-party smelters as was the case in the first two quarters of the year. In the fourth quarter and going forward, we do not expect to process additional concentrate from Chelopech at Tsumeb.

We continue to advance the Chelopech brownfield exploration program with 8 drill rigs currently active along the Brevene exploration license and the Sharlo Dere target within the mine concession. Later this month, we expect to provide an update on our exploration activities along with updating the mineral reserve and resource estimates in light of my plans at Chelopech. With increase in mine and brownfield exploration drilling, we believe there is strong potential to continue our track record of extending mine life at Chelopech.

Turning to Ada Tepe, the mine continued to deliver impressive performance, achieving a new record for quarterly production. The mine produced approximately 34,000 ounces of gold with an all-in sustaining cost of $509 per ounce of gold sold, which is at the low end of Ada Tepe's guidance range of the cost. Ada Tepe has consistently outperformed our expectations since commissioning in 2019, and we are confident that Ada Tepe will continue to deliver strong results, supported by the updated life of mine plan we announced in January this year. We're also continuing our exploration efforts around Ada Tepe at the newly granted Krumovitza exploration license we started scout drilling in August.

At Tsumeb, complex concentrate smelted during the quarter was approximately 22,000 tonnes, which reflects the planned maintenance shutdown that occurred in the quarter. During the Ausmelt [ reline ] focused shutdown, we also completed repairs to the offgas system, where water leaks affected operational stability in the last campaign. While we resumed full operations in Tsumeb towards the end of September and are seeing improved performance in line with a more normalized throughput rate, we expect Tsumeb to be at the low end of its production guidance and towards the high end of its cash cost guidance at year-end.

In Serbia, exploration activities focused on the Coka Rakita deposit with 11 jewel rigs currently in operation. Since we announced the high-grade discovery in January, we've been aggressively drilling the deposit with over 63,000 meters completed in the first 9 months of the year. Infill drilling is a 30- x 30-meter spacing, is well advanced, covering the core of the system in order to provide additional confidence in the continuity and high-grade nature of the mineralization.

We expect to complete a major mineral resource estimate for Coka Rakita by the end of this year, and we're also progressing activities to accelerate the advancement of the project. This includes metallurgical test work and geotech evaluation of potential surface locations for the exploration decline mine infrastructure and processing facilities.

Coka Rakita has several positive attributes that we look for in projects, including a very high-grade core, good initial metallurgical results, strong infrastructure and a great fit with our skill sets, resulting in significant potential within our organic growth portfolio. We also believe there's significant additional exploration potential in the surrounding line package and we started scout drilling to test other camp-wide targets near Coka Rakita as well as the 10,000 meter scout drilling program we've discussed previously at Umka.

In October, we were granted new exploration license for the area hosting the Timok Gold Project. And this provides additional exploration potential on prospective targets immediately to the north of Coka Rakita. We are preparing an aggressive exploration program and plan to start testing for skarn targets on the new licenses to the north and west of Coka Rakita, and we expect to commence a 25,000-meter drilling program in early 2024.

Turning to Loma Larga, there were two important developments for our activities in Ecuador during the quarter. First, we entered into an investment protection agreement with the government, a significant milestone that provides tax stability and incentives as well as legal protections such as resolution of disputes through international arbitration.

Second, the decision on the appeal of the constitutional protective action was received in August. Based on our analysis, the decision reaffirmed our concessions for Loma Larga and clarified that consultation. Certain local indigenous populations is required. It also held that environmental consultation with communities in the project's area of influence and additional reports on the impact on water resources and the nearby national recreation area would need to be delivered to them by the Ministry of Environment to the court prior to advancing the project to the exploitation phase.

We are in the process of seeking clarification on these requirements for these additional reports, the indigenous and environmental consultation and the steps needed in order to resume the planned drilling campaign in support of the updated feasibility study and to assess the impact on the project development time line.

At the same time, we've continued to advance the feasibility study optimization, which includes leveraging our expertise with similar deposits such as Chelopech and to incorporate certain scope changes. These scope changes combined with inflation pressures consistent with general industry trends are expected to result in significant increases to the estimated capital and operating costs for the project. We are continuing with the optimization phase beyond our original time line being ending in 2023 in order to evaluate additional opportunities and to potentially incorporate the results from drilling once we're able to resume these activities.

We continue to view Loma Larga as a high-quality advanced stage project with the potential to generate strong economic returns following the results of the ongoing optimization. We will continue to take a disciplined approach with respect to future investments in the Loma Larga project based on key milestones in the overall operating environment in Ecuador. And as such, we anticipate our spending related to Loma Larga in 2024 to be materially lower than the 2023 levels.

At Tierras Coloradas, the concession 200 kilometers to the south of Loma Larga in Ecuador's locale province, we initiated a 10,000-meter drilling program in August, completing 2,300 meters during the quarter. This program is designed to follow up the positive results we reported at the end of February, which confirmed the presence of two high-grade vein systems that remain open in multiple directions. The primary focus will be to further assess the extension and geometry of the two vein systems and to test recently discovered high-grade vein and soil anomalies.

In closing, our third quarter results continue to demonstrate DPM's strong performance and the highlights within our industry. These highlights include strong consistent production from our operations and an all-in sustaining cost that ranks among the lowest in the gold mining industry, significant free cash flow generation, financial strength and flexibility, a record of disciplined capital allocation and returning capital to shareholders, attractive development projects, a proven exploration success, both in extending mine life of our operations and discovering new brownfield opportunities and a strong leadership and technical team with a history of adding real value through innovation.

I'll now turn the call over to Navin for a review of our financial results and outlook, following which we'll open the call to questions.

[Navindra Dyal, executive]

Thanks, Dave. I'll be touching briefly on the financial highlights for the quarter. I will also provide an update on how we are tracking in terms of our guidance for the year, and I'll conclude with some commentary on our balance sheet and return of capital program.

Financial highlights for the third quarter include revenue of $135 million, which was higher than the prior year due primarily to higher volumes of gold sold and higher realized gold and copper prices, partially offset by lower volumes of complex concentrate smelted, reflecting the timing of the Ausmelt furnace maintenance shutdown.

Adjusted net earnings of $27 million were comparable to the prior year, due primarily to higher revenues from gold operations, partially offset by lower revenues from Tsumeb and higher plant exploration and evaluation expenses. When comparing adjusted net earnings for the third quarter to the second quarter of this year, earnings were lower due primarily to higher treatment charges at Chelopech as all of Chelopech's gold copper concentration was delivered to Tsumeb this quarter, combined with lower revenues from Tsumeb, reflecting the planned Ausmelt furnace maintenance shutdown this quarter. Note that the concentrate from Chelopech delivered to Tsumeb that this quarter will not be processed by the smelter until the fourth quarter.

Cash flow from operations of $67 million was higher than the prior year due primarily due to the timing of deliveries and subsequent receipts of cash and also the timing of payments to suppliers. Free cash flow of $45 million was comparable to the prior year due primarily to the factors impacting adjusted earnings.

Taking a closer look at our cost metrics, our all-in sustaining cost during the quarter was $911 per ounce of gold sold. This represented an increase relative to the previous two quarters this year. It's important to note that this was the only quarter this year in which we plan to deliver Chelopech's gold, copper concentrate to Tsumeb for processing, which resulted in higher treatment charges.

Going forward, we anticipate that all of Chelopech's concentrate will be delivered to third-party smelters at lower treatment charges. And as a result, we remain on track to achieve our own sustaining cost guidance for the year.

At Tsumeb, cash cost in the third quarter up $921 per tonne, reflecting the planned maintenance shutdown, which occurred during the quarter.

In terms of our capital spend, sustaining capital expenditures were $17 million for the quarter, which included capital related to the maintenance shutdown of Tsumeb, which is lower than planned as a result of cost optimization initiatives.

Growth capital expenditures were $6 million for the quarter and were primarily related to the Loma Larga project. As Dave noted, we are anticipating a significantly reduced level of capital expenditures at Loma Larga in 2024 relative to 2023.

Looking at our guidance for the year, which is outlined in detail on Slide 17 of the webcast, I'm pleased to report that given our strong year-to-date performance and forecast for fourth quarter, our mining operations are on track to achieve their 2023 guidance for gold production and deliveries as well as all-in sustaining costs. At Tsumeb, as a result of the unplanned downtime we experienced earlier in the year, we are forecasting to be below guidance for complex concentrates smelted and towards the high end of guidance for cash cost per tonne.

Looking at unit cost, Chelopech and Ada Tepe are expected to be at or below the low end of guidance range for mine cash cost per tonne, reflecting lower-than-expected costs for direct materials and lower royalties at Ada Tepe. When looking at our all-in sustaining cost guidance, one thing I'd like to note is that copper prices have been trending lower than the price assumptions reflected in our guidance.

To illustrate how a 10% change in the price of copper can impact our cost, a reduction in copper prices from our fourth quarter guidance assumption of $4 per pound to $3.60 per pound would increase our full year all-in sustaining costs by approximately $12 per ounce of gold sold. We anticipate all in-sustaining costs to remain within our guidance range, even with this lower balance of the year comp price assumption.

Also note that our full year guidance for all-in sustaining cost excludes mark-to-market adjustments for share-based compensation expense. For the 9 months ended September 30, higher share-based compensation expense from mark-to-market adjustments has added $4.6 million or $24 per ounce to our all-in sustaining costs.

With significant year-to-date free cash flow generation, we continue to maintain a strong balance sheet with $563 million of cash at the end of the quarter. With our strong cash position, no debt and $150 million undrawn credit facility, we have the financial flexibility to fund future growth opportunities that generate additional value for stakeholders while continuing to return a portion of our free cash flow to our shareholders. On that front, we continue to deploy our capital in a disciplined manner that balances our desire to reinvest in growing and optimizing our business with our commitment to returning capital to our shareholders.

In addition to investing in our future growth and exploration projects, we continue to pay a quarterly dividend of $0.04 per share since 2022, which currently offers an attractive 2.3% yield based on last night's closing share price and continue to enhance our share buyback program to purchase up to $100 million of the company's shares over a 12-month period, which began on March 1 this year. To date, in 2023, we've repurchased over 9.7 million shares for a total value of approximately $66 million.

In closing, we continue to deliver solid performance from our mining operations, and we are in a strong position to achieve our guidance and continue our track record of generating significant free cash flow.

With that, I'll now open the call for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Don DeMarco with National Bank Financial.

[Don DeMarco, analyst]

Congratulations on a strong quarter, good free cash flows, low cost at Ada Tepe. Looking at -- you've got this upcoming maiden resource estimate for Coka Rakita. Do you expect this resource to all be in the inferred category? Or have you done enough drilling to put them into M&I?

[Navindra Dyal, executive]

Hi, Don. Yes, we do expect most, if not all, will still be in the inferred category, while we're doing the 30 x 30 drill spacing now. The database is now closed, and so most of it will still be an inferred.

[Don DeMarco, analyst]

Okay. When we look at this, the magnitude of the ounces in this resource, how should we view that in the context of what you might need to support a go-forward decision in developing Coka Rakita? In other words, what would your sort of threshold be to -- on a preliminary basis, this is a large enough endowment to build a mine.

[Navindra Dyal, executive]

Yes. I think what we're going to do is focus on putting out the maiden resource and then most likely early in 2024, we're going to be continuing with the PEA, which will define exactly, I think, what you're getting at and we'll define the potential economics of the deposit. I would say it's a little early to say. But based on the -- our initial view is that we have a strong stand-alone project at this time, that will be further supported by a PEA next year.

[Don DeMarco, analyst]

Okay. Look forward to that. And would the PEA be based on the resource estimate that's coming out of December? And when do you expect the next resource update follow-up?

[Navindra Dyal, executive]

We're actually still determining whether or not the PEA will be based on the December resource. As of now, yes. But we're in the process of looking at that time line.

[Don DeMarco, analyst]

Okay. Great. We will look forward to that. Just shifting over to Ada Tepe then, we've seen from your 3-year guidance that production can start to ease, costs are still very attractive. But when would you expect Ada Tepe to be depleted? I'm looking at the technical report, it's hard to know. There's been some changes in drilling. Is it '26, '27, '28 or later?

[David Rae, executive]

Hi Don, yes, as we -- in the January update to the life of mine plan, based on the drilling that we've done to that point, we've continued to say that we anticipate the final year of operation of Ada Tepe to be 2026. I would say at this point, given what's going on, it's quite likely we might add months to that, but I do not, at this point, anticipate adding years.

However, we continue to do exploration -- make the assumption that success with exploration would have some gap in operations before we have the permits and the necessary other things required to actually bring that into a continuing operation. So we would anticipate a gap in operations.

[Operator]

This question comes from the line of Eric Winmill with Scotiabank.

[Eric Winmill, analyst]

Great. Maybe just a quick question on the smelter. I know you've said it's non-core. And just wondering are you looking to maybe sell it if there's a process in place? Or what's the kind of threshold you would look at to actually make a sale transaction or is there any limiting factors in country? We're interested to hear any more thoughts on that, please.

[David Rae, executive]

Yes, great question. So we've said repeatedly that it's non-core. And also, we've confirmed now that we are not intending to send more concentrate. So clearly, this is more of a distraction than a core asset for us.

I don't want to talk about what's going on with any processes and future actions. But what I would say is that we continue to have conversations with different groups and these sort of increased over time, largely focused on the critical minerals that are on the property, particularly gallium and germanium. So more than that at this point, I don't particularly want to comment. In terms of constraints within country, I think it's clearly recognized that this is not a core asset for us.

I just want to make it very clear that we think Namibia is an excellent place to do business. And during our 13 years in country, we've really appreciated the transparency within which the midyear goes about its business. So it's a good environment for us. It's quite simply that the particular asset at the moment is really on the extreme of what we're doing as a business and want to make sure that we carry on with our capital investments towards gold mining and not towards smelting.

[Eric Winmill, analyst]

Okay, great. Very helpful. Appreciate that. Maybe just another question on treasury management, higher interest rate environment. The interest income is becoming a lot more material for your growing cash balance. Any commentary in terms of how you're managing that, what you're seeing there? I assume most of which probably in short-term instruments. Are you looking to invest some of that longer term? Any comments would be appreciated.

[Navindra Dyal, executive]

Sure. Hi Eric, it's Navin. Yes, we take a very risk-based approach when we think about our cash. And we generally invest in short-term, low-risk investments. So we're not at this point considering to enter into any type of longer-term type arrangements that might result in more yield. So again, it's very, very risk-based approach that we take for our cash management.

We also look at the upcoming business and the requirements of the business in order to plan accordingly. And as you would have seen, we've been very disciplined in our capital allocation, returning a portion of that to shareholders in the form of dividends and share buybacks, while maintaining to kind of sustain the business and also with a view of the projects that are up and coming, keeping in mind of that as well.

[Eric Winmill, analyst]

That would be great. No, it's helpful. And I guess lastly, on the dividends, any thoughts or discussion around possibly increasing the amount of dividends?

[Navindra Dyal, executive]

Not at this point, Eric. We've -- when we increased the dividend to $0.04 per share per quarter in 2022, it was with a view of the longer term. And so we wanted to make sure that we had a dividend that was sustainable for the business, and we feel at this point that, that's the right level.

[Operator]

The next question comes from Wayne Lam with RBC.

[Wayne Lam, analyst]

Just wondering on the cash cost at Tsumeb. We've seen some level of improvement with the optimization over the past year, offset by some of the maintenance items. I guess looking at the 3-year outlook that had been provided, the guidance was showing a sequential decline in costs over the next few years. I'm just wondering if that is still the plan, if that's still achievable at Tsumeb?

[Navindra Dyal, executive]

Yes. Hi, Wayne. Yes, absolutely. I think if you recall, the smelters costs, about 89%, 90% of the costs are fixed. So the natural way to reduce that cost per tonne, I should say, is by increasing throughput. And as you would have seen, we just got through our annual maintenance shut to service the Ausmelt furnace this past quarter. And we expect, despite notwithstanding the fact that we think we believe that we're going to be below our guidance for the year, we expect that, that shutdown and that maintenance work will lead to increased throughput.

And the best example of that perhaps would be last year in 2022 when we serviced the furnace in the second quarter, we saw a significant uptick in the third quarter of last year. So again, that should give you some indication as to where we think throughput will be for the smelter. And if we sustain that level of throughput, the cost being majority fixed should come down into the level that we've outlined in our 3-year outlook.

[Wayne Lam, analyst]

Okay. Great. And then just wondering on the continued advancement at Loma Larga, with the elections kind of wrapped up in country, is there any assistance that can be provided from a government regulatory perspective? Or is this kind of purely a legal thing and something that has to loop through the legal and legal process and just gaining more clarity on the consultation?

[David Rae, executive]

Yes. I think we're respecting the legal processes. And clearly, there's work that's got to be done there and time required. We do take advantage of a number of different sort of levels of supports within Ecuador and outside of Ecuador.

Having said that, I think the primary thing at the moment is that they just had a new election and a new president in place. And putting together the ministries and really, we need that traction with the new government, with the assembly, the new President, plus the ministers in order to engage to be able to look at what we can do. There's some possibility we can resume different activities.

Now what I would say is, and we didn't mention it in the commentary this morning that the items like the [ 69 kV ] line, which are separate to what's currently held up by the constitutional protective action, those things have been continuing. We just completed the 2-week consultation process, and at the moment, that under the auspices of the government organizations is actually being reviewed at the moment and we're anticipating movie to get an EIA issued for that.

The roads would be similar. So really, the constitutional protective action is more around what's happening directly on the property and looking to move that EIA forward. So at this point, we've seen some delay with the different machinations around the change in government.

We are optimistic to see what the new government will do and looking forward to engaging with the ministry. And just to close the loop on that, we will be talking to groups internally and externally who were helping to get the right message across of our capability and country and the value that we can create.

[Wayne Lam, analyst]

And then maybe just lastly, on the increase in cost at Chelopech, I mean, obviously, part of that is due to the lower copper price, but how much pressure are you seeing on labor and consumables? And then on the lower treatment and freight charges, directing concentrate to the third-party smelters, is there a level of cost savings that you can provide on those charges going forward?

[Navindra Dyal, executive]

Yes. Sorry, what -- the first question was on labor and consumables. Just commentary on that. And what was the second question?

[Wayne Lam, analyst]

Just on the treatment and the freight charges.

[Navindra Dyal, executive]

Treatment and freight charges. Okay. Got it. Okay. So I'll take -- I'll answer the first one and then I'll deal with the second. So on the labor and consumables, we have been -- on labor cost specifically, we have been seeing, as we've seen with inflationary environments across the world increases when it comes to labor and those are usually a bit more of a stickier cost when it comes to dealing with those types of costs.

On the consumable side of things, we've actually seen improvements relative to our budget for the year on direct consumables. So for example, electricity costs have actually trended lower over the past year. We've not -- in the early part of the year, we didn't even need to use the subsidy. Essentially in Bulgaria, we were actually -- injury costs were trading below the subsidy level.

In other costs, we are seeing benefits in cement and reagents reductions there as well. So relative to budget, we've actually enjoyed better-than-expected cost, lower prices. Hence, why from a cost per tonne basis for both Ada Tepe and Chelopech, we are trending towards the lower end of that relative to our guidance.

On the treatment charges themselves and the freight, yes, certainly with Tsumeb, there is an arrangement between Chelopech and Tsumeb that sees the materially higher treatment charges and there is an additional amount of freight as well in terms of the shipment there. And that's why during this current quarter, we see significant treatment charges and freight.

But as Dave mentioned, we are -- post this quarter, all of Chelopech's material will be shipped to third-party smelters, which we enjoy much favorable treatment charges and lower freight charges albeit at the expense of a bit of the payable -- production of payable ounces. But overall, that's been our strategy as to divert more of that production and going forward, all of our production from Tsumeb to the third-party smelters to benefit from those lower prices.

[Wayne Lam, analyst]

Okay. On those charges, though, is there a level of cost savings that we can kind of look towards in terms of modeling?

[Navindra Dyal, executive]

I think the best way to look at that would be -- if you look at the treatment of freight charges this quarter and compare that to what you would have seen in the second quarter, and you could see that in our reconciliation of all-in sustaining costs in the back of our MD&A. And the difference there is about $12 million in total. And again, I would suggest that from a payable production perspective, it's probably about 2% change in your payable gold with code model.

[Operator]

I'm showing no further questions at this time. And I would now like to turn it back to Jennifer Cameron for closing remarks.

[Jennifer Cameron, executive]

Well, thank you, everyone, for joining us today. We look forward to catching up with you over the next couple of months, and we'll see you next quarter. Thank you, and take care.

[Operator]

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.