Future Gold Production May Increase By 2028, But Revenue Declines And Cost Pressures Could Impact Earnings

Key Takeaways

• Advancing the Coka Rakita project and Chelopech exploration will boost gold production, revenues, and earnings, supporting long-term growth.
  
• Strong cash position and free cash flow enable strategic investments and share repurchases, enhancing earnings per share and financial stability.
  
• Rising costs, project delays, and high competition could compress margins and impact future revenue and cash flow for Dundee Precious Metals.

Catalysts

A gold mining company, engages in the acquisition, exploration, development, mining, and processing of precious metals.

• The successful advancement of the Coka Rakita project, including additional discoveries and the ongoing feasibility study, is expected to significantly increase high-margin gold production by 2028, positively impacting future revenue and earnings.
  
• Dundee Precious Metals' strong cash position of over $800 million provides financial capacity to fund growth opportunities, which could support revenue and earnings growth through strategic investments and developments.
  
• The company's track record of consistently delivering free cash flow supports continued share repurchase programs, with up to $200 million authorized for 2025, enhancing earnings per share through reduced share count.
  
• Continued exploration and potential mine life extension at Chelopech, including new targets and the anticipated North concession approval, are expected to sustain production levels and enhance revenues over the next decade.
  
• Progress at Loma Larga, with an updated feasibility study reflecting current market conditions and permitting advances, offers optionality for future growth and revenue diversification if the project moves forward.

Dundee Precious Metals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dundee Precious Metals's revenue will decrease by 9.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 40.1% today to 38.2% in 3 years time.
• Analysts expect earnings to reach $172.0 million (and earnings per share of $0.97) by about April 2028, down from $243.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, up from 8.7x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 4.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.8%, as per the Simply Wall St company report.

Dundee Precious Metals Future Earnings Per Share Growth

Risks

• The closure of the Ada Tepe mine without substantial exploration success could lead to a decrease in production, impacting revenue and cash flow.
  
• The delay in the Coka Rakita project to 2028 means a potential dip in production in 2027, which could negatively affect revenue from the gold segment.
  
• High competition in the mining sector could make acquisitions expensive, impacting Dundee's cash reserves and potentially not yielding expected returns.
  
• Uncertainties surrounding the Loma Larga project, including permitting delays, could affect the timeline and future revenue projections of the company.
  
• Rising labor and exploration costs, as highlighted in the financial results, could compress net margins despite higher commodity prices.

Valuation

• The analysts have a consensus price target of CA$20.738 for Dundee Precious Metals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$24.52, and the most bearish reporting a price target of just CA$17.72.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $450.0 million, earnings will come to $172.0 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 6.8%.
• Given the current share price of CA$17.65, the analyst price target of CA$20.74 is 14.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.