Dundee Precious Metals Inc

TSX:DPM

Earnings Call Transcript

[Operator]

Welcome to the Dundee Precious Metals Third Quarter 2024 Earnings Results Conference Call. [Operator Instructions]. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Jennifer Cameron. Please go ahead.

[Jennifer Cameron, executive]

Thank you, and good morning. I'm Jennifer Cameron, Director of Investor Relations, and I'd like to welcome you to our third quarter conference call. Joining us 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 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 meaning 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 2023 pertain to the comparable period in 2023 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. This morning, Navin and I will briefly review our third quarter results and discuss why we believe DPM continues to be well positioned to deliver value now and over the long term.

Highlights from our third quarter include progress at our Coka Rakita project as we completed the infill drilling to the PFS and announced 2 new high-grade discoveries, solid production of approximately 60,000 ounces of gold and 7 million pounds of copper, very strong margins, which increased 53% quarter-over-quarter, reflecting an all-in sustaining cost of $1,005 per ounce and an average gold price of $2,548 per ounce. Also, we have a robust free cash flow with generation of $71 million and continued financial strength as we ended the quarter with a consolidated cash balance of $658 million and no debt.

I'm pleased to say that we are on track to achieve our 2024 guidance target, which will mark the tenth consecutive year we have achieved or outperformed our gold production and all-in sustaining cost guidance, a testament to the strength of our operating team and the quality of our mines.

Taking a look at our operations in more detail, Chelopech continued its consistent track record in the third quarter, producing 44,000 ounces of gold and 7 million pounds of copper at an impressive all-in sustaining cost of $638 per ounce of gold sold. Over the balance of the year, we expect improved copper grades at Chelopech, and the operation is on track to achieve its production guidance for the year. With all-in sustaining costs of $659 per ounce year-to-date, Chelopech is also expected to be well within its cost guidance for the year.

At Ada Tepe, some temporary challenges impacted performance during the quarter, including lower-than-expected head grades, recoveries and fleet availability. This resulted in third quarter production of approximately 16,000 ounces of gold and an all-in sustaining cost of $1,171 per ounce of gold sold. The issues that impacted fleet availability have been resolved with performance tracking to plan, and we expect higher production in the fourth quarter than Ada Tepe remains on track to achieve its guidance for the year.

Turning to our development projects. We continue to progress the pre-feasibility study for our high-quality Coka Rakita project, which is on track for completion in the first quarter of 2025. At the end of the third quarter, the PFS design and engineering was approximately 80% complete.

During the quarter, we completed the PFS infill drilling program the results of which continue to confirm the continuity of the high-grade mineralization and an updated mineral resource estimate is underway. The geotechnical and hydrogeological drilling program, which will support PFS design and cost estimates is nearing completion.

We're also advancing project permitting activities in support of this time line with good support and engagement from key regional and national authorities. And this includes preparations for the EIA, which we expect to submit in the first quarter of 2026. What makes Coka Rakita particularly exciting is that it's an attractive project on a stand-alone basis, operating -- offering very robust economic returns, production growth and strong margins.

And also there's a significant exploration potential across our 4 licenses as demonstrated by our recent scout drilling results. In September, we announced 2 new discoveries at the Dumitri Potok and Frasen prospect, which are both located only a kilometer north of Coka Rakita. It is still early days for these discoveries with additional work to do in order to understand the footprint, continuity and overall size potential as well as the metallurgy.

However, the exploration upside remains evident from our ongoing drilling success as new high-grade copper gold mineralization keeps expanding its footprint at Dumitri Potok and Frasen. It also demonstrates that our targeting model is working and that there is significant potential for additional mineralization along strike to Coka Rakita, Dumitri Potok and Frasen.

Overall, we're very excited by Coka Rakita potential in a region where we've had a presence for many years that has a long history of exploration and mining development and where we have developed strong relationships with local stakeholders.

Turning to the Loma Larga project. We continue to progress activities related to permitting and stakeholder relations. The baseline ecosystem and water studies were complete during the third quarter and submitted to the court by the Ministry of Environment. At the end of October, the environmental consultation process with local communities overall voting favorably for the development of the project.

We would expect the environmental license to be issued once the free prior and informed consultation process is completed. We continue to take a disciplined approach with respect to future investments in activities in Ecuador which will be based on the project achieving key milestones. The overall operating environment in the country and, of course, other capital allocation priorities.

Overall, we continue to deliver strong financial results and with both mines on track to achieve our 2024 guidance targets. We're well positioned to continue our strong operating track record. I'll now turn the call over to Navin for a review of our financial results.

[Navindra Dyal, executive]

Thanks, Dave. I'll be touching briefly on the financial highlights for the quarter and conclude with some commentary on our balance sheet and return of capital program. All of my remarks will focus on results from continuing operations, unless otherwise noted.

Looking at our financial highlights. Third quarter highlights include revenue of $147 million. Adjusted net earnings of $46 million or $0.26 per share, cash flow provided from operating activities of $52 million and free cash flow of $71 million. Overall, results during the quarter reflect our strong operating performance, the low-cost nature of our operations and a favorable commodity price environment.

Looking at our earnings and cash flow in more detail. Revenue of $147 million in the quarter was 21% higher than 2023 due to higher realized metal prices and lower treatment charges at Chelopech, partially offset by lower volumes of gold sold at Ada Tepe.

Adjusted net earnings in the quarter of $46 million or $0.26 per share increase compared to the prior year due to higher revenue and interest income, partially offset by higher plant exploration and evaluation expenses. Higher share-based compensation expenses, reflecting DPM's strong share price performance and higher income tax.

Cash flow provided from operating activities of $52 million for the quarter was lower than the prior year due to the timing of collection from sales, partially offset by higher earnings generated in the quarter. Free cash flow, which is calculated before changes in working capital, was $71 million for the quarter, an increase of $25 million compared to 2023 due to higher earnings generated in the quarter.

Taking a look at our cost metrics for the quarter. All-in sustaining costs of $1,005 per ounce was 10% higher than the prior year due primarily to lower volumes of gold sold and higher share-based compensation expenses, partially offset by lower treatment charges at Chelopech and higher byproduct credits as a result of higher realized copper prices.

In terms of our capital spending, sustaining capital expenditures were $11 million for the quarter, and were comparable to 2023. While gross capital expenditure of $3 million for the quarter were lower compared to 2023 due primarily to lower expenditures related to the Loma Larga project as expected.

On August 30, 2024, we closed the sale of the Tsumeb smelter for a net cash consideration of $15.9 million. During the quarter, the company agreed to step in to IXM's position and entered into a tolling agreement with Sinomine for a period ending 4 months following closing of the sale, where the company will purchase new metal bearing materials and sell the copper blister produced by Tsumeb until the agreement.

Sinomine is contractually obligated to pay the company for all DPM owned inventories at the NBB agreement, which terminates effective December 31, 2024. As a result, as of September 30, the company had a total net cash outflow of $94.8 million related to this tolling agreement.

We continue to maintain a strong balance sheet and cash position with a consolidated cash balance of $658 million, no debt and a $150 million undrawn revolving credit facility. Given the strength of our balance sheet and our outlook for continued strong free cash flow generation, we are in a unique position with the financial flexibility to fund growth opportunities while continuing to return a portion of our free cash flow to our shareholders in line with our commitment to capital discipline.

During the first 9 months of 2024, the company repurchased 3.4 million shares at a total cost of $28.3 million under the share buyback program and paid $21.7 million of dividends. representing an aggregate return of 23% of our free cash flow to shareholders. I'll now turn the call back to Dave for his concluding remarks.

[David Rae, executive]

Thanks, Navin. In closing, we're in a unique position in the industry, considering our strong operating track record, the low-cost nature of our operating mines generating significant free cash flow. Our attractive organic projects and the financial spend and flexibility to internally fund growth while continuing to return capital to shareholders. I'd now like to open the call for any questions.

[Operator]

[Operator Instructions]. Our first question comes from Raj Ray of BMO.

[Raj Ray, analyst]

A couple of questions. First up on the working capital changes at Tsumeb. Do you anticipate any more working capital buildup over the next 4 months? Or this is kind of a one-off and it reverses at the end of 4 months?

And second is a broader question on capital allocation. I mean I understand that the company is looking at growth opportunities both within the portfolio as well as potentially outside. But gold price is significantly higher this year compared to last year. Yet if I look at the share buybacks for this year, it's moving around $27 million versus $53 million last year as of Q3. And then if I look at the payout ratios, now there's 2 things.

One is, if you look at the average payout ratio for the last 4 years for the gold industry, it's been around 65%. Dundee is at the low end of that, around 23%. Now this one, obviously, the free cash flow is much larger for Dundee given your cost structure. But secondly, like do you anticipate keeping the same capital returns? I mean the one risk you -- there's 2 questions that we get from investors. One, does the company believe that it's fairly valued at this point? And second is -- is there imminent M&A potential that the company sees in the market? I'll leave it at that.

[Navindra Dyal, executive]

Yes, it's Navin. I'll answer the first question and touch upon the capital allocation question in a second, and then I'll probably turn it back to Dave. So in terms of the working capital buildup, Yes, we do -- what we will see over the course of the 4 months is puts and takes in terms of buildup of purchases that we've made as well as the timing of blister returns as well. So within the quarter, you'll see increases in inventory, but decreasing by -- the decreases as a result of blister returns.

So by the end of the year, though, again, we fully anticipate that this agreement and as contractually obligated this agreement terminates at the end of December. So we would expect that all that working capital come back once this agreement is terminated and Sinomine purchase that inventory.

Maybe turning to your second question on capital allocation. So in terms of conversations that we might otherwise have around increasing share buybacks, that type of conversation. We have that regularly as a management team and then obviously, with the Board. We've always taken, as you know, is a very balanced approach to capital allocation that focuses on the balance sheet strength and capital return to shareholders and also reinvestment in the business, considering we have a significant organic growth pipeline up and coming, that return a lot of value to shareholders.

We're one of the few producers of our size that actually pay a dividend, and as you know we supplement that with the NCIB. And as you pointed out, we definitely consider our cash balance to be a strategic advantage. We have the financial strength to fund our growth opportunities but also have the ability to continue to pay a dividend and also pursue accretive M&A opportunities. And perhaps with that, maybe I'll turn it back to Dave on perhaps discussing more about considerations around growth.

[David Rae, executive]

Yes. So Raj, I mean we obviously maintain a set of targets that we review on a regular basis and consider for M&A opportunities. We also -- just to make sure that we have the right context. We have 2 different organic growth projects in our portfolio, one of which Coka Rakita is very exciting and imminent and the other of which continues to progress slowly and quietly in the background which producing 200,000 ounces a year at its low all-in sustaining costs is exciting as well.

So there's the potential for use of funds, either returning capital, and we have a healthy conversation on what we do in terms of dividends and buybacks, opportunities to invest where we have some accretive results from M&A and then also looking at what's happening in terms of the picture investments and the outlook sort of year-by-year for both Coka Rakita also for our secondary project at Loma Larga. And I think more than that, I don't know if that answered your question, if you have anything else that you'd like to clarify, but that, I think, is a reasonable indication of our position.

[Operator]

Next question comes from Don DeMarco of National Bank Financial.

[Don DeMarco, analyst]

Thank you, operator. And Navin, I'd just like to continue to follow up on the response to your question to Rob. You mentioned that you expect working capital to come back after the agreement is terminated. So with the agreement terminating at the end of December, should we expect the repayments to be reflected on the Q4 financials or in Q1?

[Navindra Dyal, executive]

Yes, so the agreement terminated on December 31 and the mechanics of the way that works with respect to the buyback of that inventory is that, that buyback occurs on December 31. However, given the fact that it's also -- we're in the holiday season and it's scheduled to occur right on the New Year's Day, it's New Year's Eve, this could slip into the first week of the -- of Q3 in terms of the payments.

Also just to note as well, what they're buying essentially is both the raw materials that is on site and on ship as well as the contractual metal and circuit, which is obviously in the circuit. And we'll have a final adjustment of what that figure is only post December 31. But I would expect the majority of the value of that working capital would be recovered by the end of the year.

[Don DeMarco, analyst]

Okay. Fair enough. And just in general, are the outlays that you incurred over the last few months, consistent with what you expected? Or are they a little bit higher or lower?

[Navindra Dyal, executive]

Sorry, just get the first part of your question on the delays.

[Don DeMarco, analyst]

Yes. Are the outlays of the -- cash outlays that you incurred to purchase the concentrate? Is it in line with your expectations? Or is it a bit higher or lower?

[Navindra Dyal, executive]

Yes. It certainly is a little bit higher with -- it is -- it does fluctuate with metal prices. So certainly, there will be with higher metal prices, copper prices, the value of that metal is definitely going to be higher.

But in terms of the expected timing of those purchases, they're in line. I think what the other piece of this is really the performance culture and how quickly they return. And not there, it's subject to, obviously, the operating performance and downtime that may be associated with the smelter that would essentially extend the timing of the delivery of the cluster at any point.

[Don DeMarco, analyst]

Okay. Now just over to David. Chelopech has posted a couple of quarters of ASIC in the $500 to $600 range. Is this the new norm? Where we're looking ahead to 2025 and guidance, how should we kind of frame our expectations on cost looking at?

[David Rae, executive]

So Don, of course, we will be updating our guidance when we come up with our Q4 numbers. What do you see coming through the primarily 2 things. So the one is the copper price in on the ending cost. The other one is also the change in concentrates and where they're going. So that's had a very material impact for 2 reasons. One is the direct charge to TC. But the other piece, which is perhaps not as evident as it also allows us to target a higher recovery with a greater mass pull.

So we've increased the tonnes, decrease the grade, which increases the overall recovery. So there's those 2 things, the copper impact, plus also a change in the way we're operating the facility, which is with the recovery way outweighing the increased costs associated with additional tonnage of concentrate.

[Don DeMarco, analyst]

Okay. So clearly, those are the drivers that are supporting these low costs. But would you say that Q2 and Q3 then might be the new norm in terms of the costs that we're seeing there?

[David Rae, executive]

So Q3 includes a number of different things, which are important for the start of the annual cycle, which recognizes pay increases for instance. So that is a more representative number than would be Q2. And things like inflationary pressures as such, we started to see unwinding of some of that previous pressure. So looking at that, like reagents, steel costs and things like that, but we're starting to see that come down. So I would say to look at is Q3 is a good start, but we will update you on that early in the new year.

[Don DeMarco, analyst]

Okay. And then final question. So we're continuing to hear progress at Loma Larga. It'd be nice to get an impression of your overall strategy for this asset. I mean, you made this investment at a lower gold price. No doubt it's increased in value. Two things then. When would we expect an update on the economics, including development CapEx? And second, are you sort of squarely focused on developing this asset? Or would it -- can it potentially be a divestment candidate for a profit?

[David Rae, executive]

So let me start with that in reverse. We're not wedded to any particular asset. So the decision in terms of the strategy on any asset is something that we consider as any in a given time. So we have tiers Colorado, and we have Loma Larga [indiscernible].

I think we've been very pleasantly surprised by the progress that's been made recently despite many other things happening in country, and that's led us to the point where we've had the 2 technical reports required by the constitutional, of course, submitted just at the end of the quarter, actually in October.

And then, of course, we just had the consultation where some communities looking at that particular information that's coming out of those 2 studies. All of these things are good progress, and we're now just waiting to see the prior informed consultation being completed.

So let's just have a look at projects in the rest of your question, though. We still have to do some additional work here, which will update the economics of this project. So first thing that would happen with clearance to progress the project is we're going to commence some drilling, and that will be focused on geotech hydrogeology and some minor amounts of resource clarification, particularly at depth below the deposit.

So that work is expected to happen and will then feed into going through our current status with our internal technical view of how we develop this project, and that's going to lead to an update to a feasibility study. So that's going to take us some -- I don't expect that to be overnight just as the idea of looking at what the individual costs are the supply [ earth ] works and other contracting and things like that. This takes a long time.

[Don DeMarco, analyst]

Would that be a 2025 item?

[David Rae, executive]

It depends on when we got the clearing to move forward, to be quite honest. We're not talking about something that's going to be done, let's say, in 6 months, it's going to take a little bit longer than that one to move on. And at the moment, we can't do drilling on the asset. That's primarily the main thing that we need to do.

But just to come back on to -- you've seen the movements of Coka Rakita we've identified the opportunity that really excited about what we see, that's really gone into prime position and is our main focus of the organization.

[Operator]

[Operator Instructions] Our next question comes from Jeremy Hoy of Canaccord Genuity.

[Jeremy Hoy, analyst]

Really appreciate that color on Loma Larga. That answers one of the questions I did have. But I did want to ask on Chelopech. There was a mention of the China VAT tax applicability potentially changing. I was wondering if you could provide a little bit more color on that. And there was also a mention of potential alternative buyers, but my understanding was there are limited buyers for this concentrate. And so just kind of want to understand exactly how you're thinking about that.

[Navindra Dyal, executive]

Sure, Jeremy. It's Navin here. So just a bit of background. So we have been sending about 70% to 75% of our concentrate to China. This is both the copper gold concentrate and the pyrite and again, we produce 2 types of concentrate there. The pyrite concentrates that we send from Chelopech have always attracted VAT at 13% and an additional duty of 1%. Our copper gold concentrate that we would send there would not attract that VAT or that duty because it was a high-grade metal threshold that was required in China to be considered a precious metal or gold concentrate that was not subject to this.

So what China Tax Authority is proposing, and these are only proposed changes at this point, is to apply VAT and duty on gold concentrate that otherwise has a high component of iron and sulfur, which when they would consider a pyrite concentrate and hence, would be captured or attract VAT and duty. So that's the background of this.

So at this point, this is really just -- this is really fairly new on what we saw in September, and this is being -- have been reported in October was that the imports of this concentrate purchased by the buyers in China of the smelters has been significantly down.

What I'll also point out in terms of the impact to us is that our contracts clearly state that any additional taxes that are incurred are at the buyer's expense. However, we do recognize that ultimately, this will have -- if this were to be enacted that this would definitely have an impact on additional -- future deliveries of concentrate to China, considering the additional cost that would be required.

Now in our case, look, we've been producing this concentrate for about -- over 20 years now. We are very familiar with the market, the broader market and we do have alternatives to that. But as you point out, though, given the nature of our concentrate, that those additional areas of potential areas that we can deliver concentrate, might incur additional costs. But at this point, it's really too early for us to really comment on that. Hopefully, that helps.

[Operator]

Our next question comes from Eric Winmill of Bank of Nova Scotia.

[Eric Winmill, analyst]

David. Just on the inventory payments at Tsumeb, just trying to understand here, I know you said there's no major financial gain or loss associated with that. But just wondering if we should be modeling margins obviously on these inventory sales. Also do you anticipate any counterparty risk on this? And I guess, is there any potential here that this agreement could get extended beyond the December 31 deadline?

[Navindra Dyal, executive]

All right. Thanks, Eric. So I'll just address a few of those here. So in terms of the margin, it's a back-to-back contract essentially. So we purchased the cost of the materials essentially from the previous tolling agent, which is IXM, and then we deliver the blister back to them as well. So because of that back-to-back nature, the -- there's no price risk because essentially, they're hedging on both sides of that transaction. And essentially, we don't collect essentially any type of commission on that as well.

So that's what I would suggest with that. In terms of counterparty risk, IXM has been a purchase service materials. They want the blister. And hence, I don't think that there's an issue here. And then when it comes to margin or additional costs, we are charging an interest on this to Sinomine for the working capital. This cost this interest is north of 7.5%. And given where interest rates have been falling, the cash would have been essentially sitting in our account at less than that. So we are making a small amount on this interest income, but it's enough to cover our internal costs, which we're managing all of these transactions internally. So hopefully, that helps.

[Eric Winmill, analyst]

And just last part in terms of extending this beyond December 31.

[Navindra Dyal, executive]

Yes, of course. Yes, as I mentioned before, the contract ends on December 31. And thus far, we've enjoyed a really good relationship with both Sinomine and IXM and everything is working in accordance with our agreement.

[Eric Winmill, analyst]

Okay. I really appreciate that. Just quickly on Coka Rakita. So obviously, new resource estimate is underway there. Do you anticipate releasing that, I guess, in advance in that PFS?

[David Rae, executive]

So what will happen is that primary activity here and the work done was to convert in [indiscernible] indicated. So that's the main thing that you're going to see. Yes. Hopefully, that answers your question.

[Eric Winmill, analyst]

Okay. Perfect. I appreciate that. Just one more for me. There was a mention in the disclosures here about the Brevene license. Chelopech. Just wondering, I guess, what's plan there? And what do you see for that particular part of the deposit or the land package?

[David Rae, executive]

Yes, sure. Eric, I think there's 2 different things that we typically talk about here. The one that's been [indiscernible] historically, and that's what we're now referring to as Chelopech North. So that's advanced from where we now are with Brevene. So an exploration license to a geological discovery, which is where we are now with Brevene and we've subsequently advanced beyond that to a commercial discovery. And by the end of next year, we're anticipating having a new concession for them.

So Brevene is part of that same thing. So we've now got the geological discovery. What we're now doing is we're justifying with the authorities that plan for this next phase of work, which we would be a 1-year period of drilling, which would then be used to justify commercial discovery.

Now the impact of this is it opens up the real estate of which we can do work to discover additional potential feed to Chelopech. So that's the primary impact of all of this work is just to open [indiscernible]. At the same time, as you know, we continue to drill in areas within the concession. And from underground, we continue to do some, let's say, 70% extensional and 30% infill for around 40,000 meters per year.

So all of those things are looking to a view of extending the life of mine at Chelopech. And obviously, the more real estate we've got in that area and our prospective is the more we're able to look at real extend that [indiscernible challenge. So that's [indiscernible].

So just, Eric, the one thing I'm not too sure is quite clear. Of course, we'll be releasing the PFS. We've said that's going to be in the first quarter of next year, and that will include consideration of what additional benefit we've got from the drilling that we've done where we've taken it down to 35, 30-meter spacing with 15 by 15 in the high-grade areas. So just making sure that I've got that point across in terms of Coka Rakita.

[Eric Winmill, analyst]

Okay, fantastic. I really appreciate the added color. Actually, maybe just one more, if you don't mind. But Ada Tepe, obviously expecting stronger production there. I know you kind of touched on that, but maybe anything specific you can point to in terms of what's changed there or reasons why production is down and why you see it ticking up here in Q4?

[David Rae, executive]

Yes. So we had a combination of underperformance in an area in terms of grade, combined with some issues with our flexibility related to truck availability. So both of those are resolved in terms of Q4. So we're not anticipating any impact carry through from early Q3 into Q4.

[Operator]

Next question comes from Ingrid Rico of Stifel.

[Ingrid Rico, analyst]

I just wanted to follow up with a question previously asked. I think Don asked about the Chelopech cost. So understanding the benefit the lower TC/RCs and freight charges. But I did notice that the unit cost per ton did increase quarter-over-quarter. Just if we can get a bit of color on what are the drivers there? Is it just purely labor wages coming up to inflation? Or is there any other sort of inflationary pressures on consumables that are coming through?

[Navindra Dyal, executive]

Yes, I'll answer that. So yes, the main factors there was labor wages and also a little bit of share-based compensation expenses because we saw an increase in our mark-to-market for the quarter. on the unit cost at Chelopech. So -- and the labor, as Dave pointed out, is that we typically have wage increases in the middle of the year. In fact, they're backdated to July in Bulgaria. So that's going to be a bit of a factor here in terms of the increase that you're seeing there.

But also, I think what also should be mentioned is that we did have slightly lower tons in the quarter relative to the prior year. It's about 6% down. Hence, why on a per unit basis, we're seeing a little bit of an increase there. But when it comes to other consumables, we're actually seeing relative to our budget, either flat to slightly improving costs in some of those areas, particularly with respect to things like steel and [ running ] media, we just renewed a contract there recently in which we saw savings from the prior contract as well. When it comes to other major consumables, we're not seeing any inflationary pressures happening there. So hopefully that answers your question.

[Ingrid Rico, analyst]

Yes, that's great, Navin. Just in terms of the labor increase and the labor wage increase, just remind me, the contract set every year? Or are you now locked in on the wages for a longer-term period?

[Navindra Dyal, executive]

Yes. It's every 2 years that we have these negotiations.

[Ingrid Rico, analyst]

Excellent. And if I can just also a follow-up on the concentrate being sent to China. As I understand, these are already contracts for 2025 to 2027, what is your ability in those contracts to maybe divert some of those sales to other regions and whether that's possible under the contracts.

[Navindra Dyal, executive]

Sure. Yes. I mean clearly, if we a couple of things to mention here. One is the -- any of the bad increases or duties that would be applied to the buyer's account. So we would be happy to continue to deliver into China if so long as the customer is willing to take it. Now the issue or perhaps then for the customer in this case or the smelters is that if they take this concentrate and if this proposal by the Chinese Tax Authorities were to remain in place, they would be operating likely at a loss for much of this contract. Hence, we've seen such a decline in work.

They have been very vocal. The smelters themselves have been very vocal against these proposals. So if they're operating at a loss, they certainly would be looking to potentially exit these contracts and not take the material in one instance, in which case we would be looking for alternatives and for this concentrate. But ourselves, we would be happy to continue to deliver again. We're not -- this VAT and this duty does not essentially get passed on to us if we continue to deliver into China, it would have to be absorbed.

[Ingrid Rico, analyst]

Understood. That's great color. And just to finish up on sort of the concentrate sales. Maybe just if you can share how you're seeing those commercial terms in the global market, have we sort of peaked on those sort of good terms? Or how do you look at those into 2025?

[Navindra Dyal, executive]

Yes. We have seen a significant improvement in our TCs through the course of the year. And I think I mentioned this before, it's about $100 a tonne in terms of benefit there. that we've seen in the global market. We don't think it's necessarily bottomed just yet. We continue to see improvements there. But certainly, it's at record lows in terms of these charges.

[Operator]

This concludes the question-and-answer session. I would now like to turn it back to Jennifer Cameron for closing remarks.

[Jennifer Cameron, executive]

Well, thank you all for joining us. We look forward to keeping you updated over the course of the next few months, and we'll catch up on the next quarter. Please feel free to reach out with any additional questions. Thank you.

[Operator]

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