Vareš Ramp Up And Coka Rakita Pipeline Will Transform Long Term Production Profile

Catalysts

About DPM Metals

DPM Metals is a mid tier precious metals producer with a portfolio of gold and copper mining and development assets.

What are the underlying business or industry changes driving this perspective?

• Ramp up of the high grade Vareš mine, with management targeting an 850,000 tonne per year run rate and indicating better than previously anticipated 2026 volumes and grades, has the potential to lift group production levels and support higher revenue and earnings.
• Ongoing in mine and brownfields drilling at Chelopech, including the new high sulphidation Wedge Zone Deep target located about 300 meters below current reserves, is aimed at supporting a 10 year plus reserve life, which could extend cash flow duration and help sustain net margins.
• The Coka Rakita project, where the feasibility study is advancing on schedule and mine construction is currently expected to commence in early 2027 with first concentrate in the first half of 2029, provides a long dated growth pipeline that could materially increase future revenue and earnings once in operation.
• Exploration success around Coka Rakita, especially at Dumitru Potok with long high grade copper intervals and mineralization traced over hundreds of meters, plus nearby Rakita North and Frasen targets, points to a larger camp that could support higher future production density per dollar of infrastructure and improve long term returns on capital and free cash flow.
• A strong balance sheet with US$414 million of cash, no debt and an undrawn US$150 million credit facility, together with record quarterly free cash flow of US$148 million, gives the company capacity to fund Vareš ramp up, Coka Rakita build out and expanded exploration without relying heavily on external financing, which can support earnings per share and financial resilience.

Assumptions

This narrative explores a more optimistic perspective on DPM Metals compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming DPM Metals's revenue will grow by 9.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 38.4% today to 54.7% in 3 years time.
• The bullish analysts expect earnings to reach $549.8 million (and earnings per share of $5.38) by about January 2029, up from $298.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 29.0x on those 2029 earnings, down from 29.7x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 28.6x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.17%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The revocation of the environmental license at Loma Larga highlights long term permitting and socio political risk for large greenfield projects. If this situation remains unresolved or recurs at other assets, it could reduce the size of DPM Metals' future project pipeline and weigh on longer term revenue and earnings potential.
• The updated permitting time line at Coka Rakita, with mine construction now expected to start in early 2027 and first concentrate in the first half of 2029, shows that large projects can face timing slippage. Any further delays or changes in approvals could push out cash flow generation and affect future revenue and free cash flow.
• The planned wind down of Ada Tepe mining and processing operations in the second quarter of next year, with no plan to extend operations even in a higher gold price environment, means a reduction in one source of production over time. This could lead to lower group output if replacement volumes do not materialize as expected, putting pressure on revenue and potentially on net margins.
• All in sustaining costs for the first nine months of 2025 of US$1,136 per ounce of gold sold were 32% higher than 2024, driven in part by rising labor costs and mark to market share based compensation. If these structural cost pressures persist or intensify, they could squeeze operating margins and limit earnings, even if production volumes remain solid.
• The outlook for Vareš and Coka Rakita relies on successful integration, ramp up and execution over several years. Any operational underperformance, weaker than expected grades, or need for higher capital and operating spend at these mines could reduce the contribution they make to future revenue growth and free cash flow, challenging the more optimistic earnings expectations.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for DPM Metals is CA$64.7, which represents up to two standard deviations above the consensus price target of CA$52.02. This valuation is based on what can be assumed as the expectations of DPM Metals's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$64.8, and the most bearish reporting a price target of just CA$42.88.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $1.0 billion, earnings will come to $549.8 million, and it would be trading on a PE ratio of 29.0x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of CA$54.25, the analyst price target of CA$64.7 is 16.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.