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Reaction to Dundee Precious Metals' copper risk overstated

Last updated: 04:23 17 Jan 2015 AEDT, First published: 05:23 17 Jan 2015 AEDT

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Dundee Precious Metals' (TSE:DPM) fourth quarter production results came in above estimates, according to Dundee Capital Markets, which said the Canadian precious and base metal producer's share price movement represents an overreaction spurred by the recent copper decline.

"Dundee Precious Metals is the most heavily discounted producer under coverage, and in our view, ongoing improvements in operating results, the delivery of NCS smelter upgrades in 2H15, and the advancement of Krumovgrad permitting in 2H15 have the potential to close this valuation gap," wrote analyst Josh Wolfson in a report.

Dundee Precious Metals last year produced a total of 145,000 ounces of gold in concentrate, meeting the lower end of its revised 145,000 to 149,000 ounce guidance. 

At Chelopech, fourth quarter production came in at 43,000 ounces of gold and 14.3 million pounds of copper, topping Dundee Capital's estimates due to higher grade ore zone sequencing and more tonnes processed. At the Kapan mine, gold output was 14 percent higher than Dundee Capital's view at 6.5 koz, mainly attributable to higher grades processed.

Wolfson said that while the company's exposure to copper is "material" and lower copper prices will impact its long-term valuation, more than 90 percent of Dundee Precious Metals' copper production is hedged in 2015 at $3.21 per pound.

"While a further correction to copper prices is a risk, we believe shares already reflect this today," the Dundee Capital analyst added.

As a result of the recent weakness in cooper, shares of Dundee Precious Metals have come under signficant selling pressure, down 17 percent in the past two days, said Dundee Capital in its report released after market close Thursday.

Shares rebounded today to gain 9.6 percent at C$3.09 in Toronto. Dundee Precious Metals operates two polymetallic mines, Chelopech in Bulgaria and Kapan in Armenia, and is permitting the Krumovgrad project in Bulgaria. It also owns the Tsumeb smelter in Namibia, and holds equity positions in Sabina and Avala.

Dundee Capital Markets said it has no rating or target price on Dundee Precious Metals.

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