Canada Research Published by Raymond James Ltd. Dundee Precious Metals Inc. July 31, Outperform 2 C$7.50 target price

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1 Canada Research Published by Raymond James Ltd. July 31, 2014 DPM-TSX Adam Low CFA Wayne Lam CFA, (Associate) Mining Precious Metals - Gold Outperform 2 C$7.50 target price Company Comment Inconsequential Write-Down on Kapan, but CFPS Hits the Mark Recommendation We reiterate our Outperform rating and our C$7.50 target price. Analysis Reported 2Q14 EPS misses due to hefty write-downs Reported EPS came in at US$(0.57), primarily due to a US$70 mln impairment taken on the Kapan mine. The exploration and evaluation costs incurred to support an open pit mine plan, which has been out of consideration for nearly a year, were written-off. Adjusted EPS barely misses the mark, but CFPS beats Adjusted EPS in 2Q14 was US$0.07, slightly below our estimate and consensus of US$0.08. However, cash flow per share (excluding changes in working capital) of US$0.23 was above our forecast of US$0.21 and consensus of US$0.19. Overall, the company s financial performance improved sequentially, as the Chelopech mine experienced improved throughput, and grades and recoveries increased for gold, copper, and silver. Guidance was trimmed, as was hinted at earlier in July In 2Q14 the Kapan mine was subject to a temporary shut-down following a fatality. As hinted at in the July 10, 2014 announcement for the 2Q14 production results, management has reduced Kapan s guidance for the year as a result. Kapan is now projected to produce 23,000 27,000 oz of gold, and mln lbs of copper (previously 29,000 36,000 oz, and mln lbs, respectively). Also as previously telegraphed, management has cut the top-end of its gold production guidance for Chelopech to 130,000 oz (from 138,000 oz). Our estimates remain conservatively below the low-end of guidance. Tsumeb smelter volumes increase, but profitability dips sequentially Cash costs to operate the smelter fell to US$296/tonne, the lowest since 4Q11, as the volume expansion at the smelter is delivering economies of scale. The smelter s turnaround remains intact, generating EBITDA of US$7.1 mln during the quarter, however, it did fall from the US$10.2 mln in EBITDA achieved in 1Q14. We suspect that the shift to a greater proportion of 3rd-party concentrates from 25% in 1Q14 to 50% in 2Q14 resulted in lower penalty premiums at the smelter, leading to the lower EBITDA. Valuation Dundee Precious Metals shares trade at a P/NAV of This compares to the average for the junior gold producer peer group of Based on our 2015 estimates the shares are trading at P/CF and EV/EBITDA multiples of 6.5 and 5.7, respectively, representing more substantial discounts relative to the peer group average of 19% and 5%, respectively. Our target price of C$7.50 is based on a 70%/30% weighting of a 1.1 multiple applied to our NAV estimate of C$6.58/share and a 10.0 EV/EBITDA multiple applied to our 2014 EBITDA estimate (in-line with risk and liquidity-adjusted historic producer multiples). Current Price ( Jul ) C$5.51 Total Return to Target 36% 52-Week Range C$ C$2.50 Suitability High Risk Market Data Market Capitalization (mln) US$710 Current Net Debt (mln) US$75 Enterprise Value (mln) US$789 Shares Outstanding (mln, f.d.) Day Avg Daily Volume (000s) 307 Dividend/Yield C$0.00/0.0% Key Financial Metrics 2013A 2014E 2015E P/E P/NAV 30.0x 14.1x 12.1x 0.84x NA EBITDA (mln) Old US$103 US$117 US$139 New US$103 US$118 US$139 Au Production (000s oz) Old New Cu Production (000s MT) Old New Au Cash Cost (US$/oz) Old US$329 US$566 US$607 New US$329 US$474 US$607 Concentrate Smelted (MT) 152, , ,600 Gold Price (US$/oz) US$1,413 US$1,321 US$1,350 Copper price (US$/lb) US$3.33 US$3.14 US$3.25 Company Description Dundee Precious Metals is a vertically integrated gold and copper producer. It operates the Chelopech mine in Bulgaria, the Tsumeb copper smelter in Namibia, and the Kapan mine in Armenia. EPS 1Q 2Q 3Q 4Q Full Revenues NAV Mar Jun Sep Dec Year (mln) 2013A US$0.01 US$0.12 US$(0.10) US$0.14 US$0.17 US$345 Old 2014E 0.07A C$6.88 New 2014E 0.07A (0.57)A (0.32) 370 C$6.58 Old 2015E NA New 2015E NA Source: Raymond James Ltd., Thomson One Please read domestic and foreign disclosure/risk information beginning on page 4 and Analyst Certification on page 4.

2 Canada Research Page 2 of 8 Additional Highlights From the 2Q14 Results Construction of the acid plant at Tsumeb proceeding largely as anticipated Construction of the acid plant remains on schedule with expected completion in 4Q14. Management indicated that the new converters being built in conjunction with the acid plant are now projected to be commissioned in 2Q15 (previously 1Q15). Regarding the budget, management reiterated their capital cost estimate for the project of US$240 million. The working capital decreased sequentially, but ample room remains under the existing credit facility Net working capital at the end of 2Q14 was US$40.7 million, down from US$62.3 million in 1Q14, as a result of significant capital expenditures during the quarter, predominantly for the sulphuric acid plant at the Tsumeb smelter. However, Dundee Precious Metals remains well positioned to meet the spending requirements for its ongoing projects, with US$200 million undrawn under its long-term revolving credit facility. This compares to US$111.1 in contractual capital and debt obligations over the next year. Continued exploration success at Chelopech and Kapan During the quarter, underground exploration drilling was conducted at both the Chelopech and Kapan mines. The drilling at Chelopech was focused on Blocks 19 and 151, and was successful at extending the mineralization of both ore-bodies. The company also received the initial permit approvals to drill the Sveta Petka licence to the immediate north of the Chelopech mine. Sveta Petka is being reviewed as a porphyry exploration target, and management intends to commence drilling in 2H14. Net Asset Value Estimate We have updated our model for the 2Q14 financial results. Additionally, we have increased our estimate for the capital expenditure required for an expansion of the Kapan mine to US$30 million (previously US$10). Our revised net asset value (NAV) per share estimate is C$6.58 (from C$6.88). The details of our NAV estimate are shown in Exhibit 1. Exhibit 1: Net Asset Value Estimate Ownership US$ (mln) US$/shr Valuation Basis Projects Chelopech 100.0% % Real FY End 2014E Tsumeb 90.0% % Real FY End 2014E Krumovgrad 100.0% % Real FY End 2014E Kapan 100.0% % Real FY End 2014E Exploration 100.0% BEE cash flows for Tsumeb 100.0% % Real FY End 2014E Other Assets Cash and Marketable Securities Balance sheet as at FY-14E Working Cap net of Cash and ST Debt Balance sheet as at FY-14E Options various expiry dates Debt and Obligations Short Term Debt (16.3) (0.11) Balance sheet as at FY-14E Long-term Debt (123.1) (0.81) Balance sheet as at FY-14E Corporate SG&A (211.5) (1.40) 8% Real FY-14E Deferred Taxes (0.1) (0.00) Balance sheet as at FY-14E Provision for Contingencies NET ASSET VALUE $6.58 C$6.58 Fully Diluted Shares Outstanding 151,511,723 Basic Shares Outstanding 140,512,349 Copper: '13A=US$3.33/lb, '14E=US$3.14/lb, '15E=US$3.25/lb, '16E=US$3.50/lb, '17E=US$3.50/lb, L-T=US$3.00/lb Zinc: '13A=US$0.87/lb, '14E=US$0.95/lb, '15E=US$1.10/lb, '16E=US$1.30/lb, '17E=US$1.25/lb, L-T=US$1.10/lb Silver: '13A=US$23.89/oz, '14E=US$21.03/oz, '15E=US$22.00/oz, '16E=US$22.00/oz, '17E=US$22.00/oz, L-T=US$21.50/oz Gold: '13A=US$1,413/oz, '14E=US$1,321/oz, '15E=US$1,350/oz, '16E=US$1,350/oz, '17E=US$1,350/oz, L-T=US$1,250/oz Source: Raymond James Ltd.

3 Canada Research Page 3 of 8 2Q14 Conference Call Dundee Precious Metals s management team will host a conference call on Thursday, July at 9:00 am ET. Dial-in details: , or

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RATING DISTRIBUTIONS Coverage Universe Rating Distribution Investment Banking Distribution RJL RJA RJ LatAm RJEE RJL RJA RJ LatAm RJEE Strong Buy and Outperform (Buy) 68% 54% 50% 46% 36% 22% 0% 0% Market Perform (Hold) 29% 41% 50% 38% 24% 10% 0% 0% Underperform (Sell) 3% 5% 0% 16% 33% 0% 0% 0% RAYMOND JAMES RELATIONSHIP DISCLOSURES Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all companies under research coverage within the next three months. Company Name Disclosure Raymond James Ltd - the analyst and/or associate has viewed the material operations of Dundee Precious Metals Inc. Raymond James Ltd - within the last 12 months, has paid for all or a material portion of the travel costs associated with a site visit by the analyst and/or associate.

6 Canada Research Page 6 of 8 STOCK CHARTS, TARGET PRICES, AND VALUATION METHODOLOGIES Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry- or company-specific occurrences. Target Prices: The information below indicates our target price and rating changes for DPM stock over the past three years. Valuation Methodology: Our valuation is based on historic risk and liquidity adjusted producer P/NAV and EV/EBITDA multiples. RISK FACTORS General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation. Risks - General risks experienced by mining companies Mining operations are typically subject to a number of risks, including: environmental compliance issues, personnel accidents, metallurgical/other processing problems, unexpected rock formations, ground or slope failures, flooding, fires, earthquakes, rock bursts, equipment failures, and consultant errors. Interruptions to mining operations can occur due to inclement weather conditions, road closures, port closures, inconsistent electricity or water supply, and/or local protests. Metal price uncertainty Our net asset value estimate and target price are highly leveraged to our metal price forecasts. Deviation from these forecasts could result in materially different performance. Project permitting risk 10% of our net asset value (NAV) is derived from the Krumovgrad gold project in Bulgaria. The company has faced some local opposition during the permitting process for the development of the project. Although the company appears to be making progress towards resolving the issues, should the permitting remain unresolved it could delay the start-up of the project and reduce our net present value estimate for the asset. Uncertainty of third-party demand for complex copper concentrate smelting In 2013 the Tsumeb smelter obtained 49% of its copper concentrate feed internally from the Chelopech mine, with the remainder sourced from third-parties. Chelopech is currently operating at close to design throughput and the smelter is expanding its capacity, which means that the proportion of third-party concentrate will need to increase going forward in order to keep the smelter at close to full utilization. Should an expected increase in the demand for Tsumeb s toll treatment services fail to materialize, the consequence would be a less robust growth forecast for Tsumeb than we currently model. Foreign country/geopolitical risk Dundee Precious Metals has operations in Bulgaria, Namibia, and Armenia, and investments in Serbia. All of these are developing countries that can at times be subject to political change and variations in sentiment with respect to the

7 Canada Research Page 7 of 8 mining industry. However, we believe that the company has been very pro-active in taking measures to mitigate these foreign country/geopolitical risks. Bulgaria accounts for 62% of our mine-site NAV, and has recently experienced some political upheaval. In February 2013 protests forced the resignation of the government at the time and led to a parliamentary election in May Only one year into a four-year term, the new left-leaning government has already faced five no-confidence votes called by the opposition and the ruling party had a poor showing in the European Parliament elections in May These events have led to plans for another parliamentary election to be held on October 5, Although Bulgaria s federal politics have been dramatic, we note that this has had relatively no impact on Dundee Precious Metals mines. The Chelopech mine continues to operate without interference from government, and the Krumovgrad project, while encumbered in some local political obstacles, appears to be making progress towards resolving these issues and has repeatedly won rulings by the federal judiciary. It is also worth noting that while Bulgaria is currently experiencing some turmoil, it has been part of the European Union since January 1, 2007, and thus has the underlying stability of the E.U. Namibia accounts for 28% of our mine-site NAV, and while Namibia is one of the most politically stable countries in Africa the company s Tsumeb smelter has in the past faced criticism from the local community and the federal government regarding the environmental and health impacts of the smelter. The company has made significant investments to address these concerns and is in the process of meaningfully reducing employee exposure to arsenic and reducing SO2 emissions. We believe that Dundee Precious Metals has successfully secured its social license to operate in Namibia. Armenia accounts for 10% of our mine-site NAV, and while the company s Kapan mine has not been subject to any notable disputes, the mine is located very close to the country s border and the neighboring Nagorno-Karabakh region. Armenia has had adversarial relations with Azerbaijan to the east, and a tenuous relationship with Turkey to the west. Armenia and Azerbaijan have fought two wars in the past century, the most recent one from 1988 through 1994, due to competing claims over the disputed Nagorno-Karabakh region, and the two countries remain technically at war. While the countries do not have diplomatic relations, there is not any active fighting at present, and the mine itself has not been directly affected by the conflict in the past. Currency fluctuation A large proportion of Dundee Precious Metals operating costs are denominated in foreign currencies, particularly the Bulgarian lev, the Namibian dollar, and the Armenian dram, while effectively 100% of the company s revenue is earned in U.S. dollars. An increase in the value of the lev, Namibian dollar, or the dram relative to the U.S. dollar would have a negative impact on the company s profit margin. We note that the lev is pegged to the, and the Namibian dollar is pegged to the South African rand. Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available for Raymond James at rjcapitalmarkets.com/disclosures/index and for Raymond James Limited at INTERNATIONAL DISCLOSURES FOR CLIENTS IN THE UNITED STATES: Any foreign securities discussed in this report are generally not eligible for sale in the U.S. unless they are listed on a U.S. exchange. 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