Q3 2019 Earnings Call
My second place I'm used to perhaps any background noise.
So just speakers remarks, all of your question and answer session, if you'd like to ask the question. During this session Central Press Star then a number one I guess, what a phone keypad if you'd like to withdraw your question. Please press if hockey.
I would like to remind everyone that this conference call. It 15 recorded on Friday November 15th.
Am eastern time problem I like to tend to conference over to Mr., Patrick Druid Senior Vice President Investor Relations. Please go ahead.
Thank you operator, good morning, ladies and gentlemen, I think he prepares sitting in today's call I'm joined today by Randy Smallwood wouldn't precious metals, President and Chief Executive Officer, Gary Brown, Senior Vice President and Chief Financial Officer, and Haytham Hodaly Senior Vice President corporate development I'd like to bring to your attention that some of the commentary today's call may contain forward looking statements. There can be no assurances that board.
Looking statements will prove to be accurate as actual results and future events could differ materially from those anticipate in such statements.
In addition to our financial results cautionary note regarding forward looking statements. Please refer to this actually entitled description of the business risk factors in weakens annual information form and the risks identified under risk and uncertainties in management's discussion and analysis, both available on SEDAR and Edgar Eaton's form 40 F. In women's form 6K, both on par with your securities and.
James Commission.
These documents together with the Q3 2019, Mdna and the press release from last night, so that the material assumptions and risk factors that could cause actual results to differ including among others fluctuations or the price of commodities. The absence of control over mining operations from which we purchase is precious metals and risk related as such mining operations and the continued operations.
It was counterparties it should be noted it all figures refer to on today's call or any U.S. dollar unless otherwise noted in addition reference to Wiedner Wheaton precious metals on this call include Wheaton precious metals Corp, and or its wholly owned subsidiaries as applicable now I'd like to turn the call over to Randy Smallwood, Our president and Chief Executive Officer.
Thank you Patrick and good morning, ladies and gentlemen, thank you for joining us today to discuss Wheaton <unk> third quarter results of 2019.
I'm pleased to report the we delivered another solid quarter from a diversified portfolio of high quality assets in the third quarter of 2019 reproduced over 100000 ounces of gold 6 million ounces of silver and 5000 ounces of palladium.
From a cash flow perspective, Wheaton generated over $140 million of operating cash flow and declared a quarterly dividend of nine cents per common share inline with our dividend policy set for 2019 by the board of directors.
This quarter highlights the strength of weakness business model and our ability to generate strong cash flows, particularly in an environment of rising commodity prices throughout the quarter, we saw a gold and silver prices increase by an average of 17% over the previous year.
While our cash flow and net earnings increased by over 30% on 100% respectively.
Looking forward, we are still currently on track for record annual gold production. However, we have updated guidance for the year to reflect outperformance of global and the production interruptions at Penasquito.
With that I'd like to turn the call over to Gary Brown, Senior Vice President and Chief Financial Officer, who will provide more details on our results Gary.
Thank you Randy and good morning, ladies and gentlemen, the company's precious metal interest produced 185000 gold equivalent ounces in the third quarter of 29 team comprised of 104200 ounces of gold 6.1 million ounces of silver and 5500 ounces of palladium.
On a gold equivalent basis. This was consistent with the third quarter over prior year within creep silver production being offset by decrease.
In gold and Palladium production.
The decrease in Golden Palladium production was due primarily to lower reported production at the Stillwater mine were reported production in the third quarter of 20, a team included some material processed in prior periods gold production was also impacted by lower production at the other gold interest, including Minto, which was play.
Based on the care and maintenance in October of 28 team with these decreases being partially offset by higher production that Slobodan sand Abbas.
The increase in silver production was primarily due to higher grade the penasquito.
Gold equivalent sales volumes for Q3, 2019 amounted to 155000 ounces consistent with the third quarter of the prior year with the increases in sales the Golden Palladium being partially offset by lower silver sales volumes.
September Thirtyth 2019, approximately 85500 payable gold ounces 4.2 million payable silver ounces and 4200 payable palladium ounces had been produced but not yet delivered to the company representing an increase during the quarter of 4300 payable gold ounces and 700000 payable silver.
Her ounces well payable palladium ounces decreased by 300 ounces.
The volume of the ounces produced but not delivered were consistent consistent with what we would expect to be normal levels.
Revenue for the third quarter of 2019 amounted to $224 million, representing a 20% increase relative to Q3 2018, primarily due to a 22% increase in the average realized gold price and a 15% increase in the average realized silver price of this revenue 62%.
It was attributable to gold, 35% silver and 3% Palladium.
Gross margin for the third quarter of 2019 increased by 65% to $96 million, primarily due to the increase in commodity prices.
Cash based DNA expenses amounted to $13 million in the third quarter of 29 team representing an increase of $5 million from Q3 2018 with the increase being primarily related to increased accruals relative to the outstanding performance share units or P.S. use during Q3 29 team.
For the 2019 fiscal year. The company has reduced its estimate of the total non stock based GNS expenses, which excludes expenses relating to the value of stock options restricted share units NPS used to be in the range of $33 million to $36 million.
Interest cost for the third quarter of 2019 amounted to $11 million, resulting in an effective interest rate on outstanding debt of 4.02% as compared to $12 million of interest costs at an effective interest rate of 3.61% impure incurred in Q3 2018.
During the third quarter of 29 team Chesapeake Goldcorp exercised its option to required two thirds of the metastasis royalty for $9 million, resulting in a gain on disposal $3 million net earnings amounted to $76 million <unk> third quarter of 29 team compared to 34 mill.
<unk> dollars in Q3 2018 after negating the effect of the gain on disposal of the metastasis royalty.
And other items that are nonrecurring in nature adjusted net earnings in the third quarter 2019 amounted to $73 million more than double that of Q3 2018 with the increase being primarily the result of higher commodity prices.
Basic adjusted earnings per share doubled to 16 cents compared to eight cents per share in the prior year.
Operating cash flow through the third quarter 2019 amounted to $142 million were 32 cents per share compared to $108 million were 24 cents per share in the prior year, representing a 33% increase on a per share basis.
Based on the company's dividend policy. The company's board has declared a dividend of nine cents a share payable to shareholders of record on December 420, 19 under the dividend reinvestment plan. The board has elected to offer shareholders. The option of having their dividends reinvested in newly issued common shares as a company and a 3% discount tomorrow.
Market.
The operational highlights for the third quarter 2019 included the following.
The Lobo generated 73600 ounces of attributable gold production in Q3, 29 team an increase compared to Q3 2018 of 2% well gold sales volumes in Q3, 2019 relative to Salobo decreased 3% to 63100 ounces, resulting from negative change.
It is in gold ounces produced but not yet delivered two weeks.
Attributable gold production relative to Sudbury, and Q3 2019 amounted to 6600 ounces wealth sales amounted to 7600 ounces, an increase compared to Q3 2018 of 2% and 197% respectively.
The increase in the sales being the result of positive changes in gold ounces produced but not yet delivered two week.
It is worth highlighting that throughput at the Sudbury mines is typically lower than the third quarter as a result, the planned maintenance shutdowns occurring in the summer months.
Attributable gold production relative to can stand C. N Q3, 2019 amounted to 5200 ounces well so sales amounted to 4700 ounces, an increase compared to Q3, 2018% to 42% and 59% respectively, reflecting the receipt of 2000 ounces of gold as compensation.
For the delay in accessing the pop a conscious deposit.
Attributable gold and blading production relative to the Stillwater mine decreased by 49% and 38% to 3200 ounces and 5500 ounces respectively. As production in the third quarter of 2018 included some material processed in prior periods.
The other gold interest generated 4300 ounces of attributable gold production in Q3, 29 team a decrease compared to Q3, 2018% to 36% primarily due to the Minto mine being placed into care and maintenance during October of 2018.
According to Pembridge is news release dated October 16th 2019 milling operations at Minto recommenced on October 10 2019.
Pembridge States that the mill will operate on two weeks on two weeks off schedule until sufficient development has been achieved underground to enable a higher monthly processing capacity.
Attributable silver production relative to the Penasquito mine increased 93% to 2 million ounces, resulting from the mining of higher grade material.
Though production in the third quarter of 2019 was significantly better than in Q3 2018. It was adversely impacted by an illegal blockade, which began on September 15 with mining operations not resuming until October 22nd.
Attributable silver production relative to add to mean in Q3 2019 amounted to 1.2 million ounces, while sales amounted to 1.1 million ounces, a decrease compared to Q3 2018 of 13% in 21%, respectively with the decreased production levels being due to unexpected decreasing grade.
Due to mine sequencing in the open pit.
Attributable silver production relative to the other silver interest in Q3, 2019 amounted to 2.2 million ounces well sales amounted to 1.7 million ounces, a decrease compared to Q3 2018 of 12% and 11% respectively with the decrease being driven primarily by lower production from the I'll just dropped mine.
During the second quarter of 2019, the company repaid $82 million on the revolving facility and may dividend payments totaling $33 million with these cash outflows being partially offset by proceeds from the exercise of stock options. The disposal of long term equity investments and the partial disposal.
The metastasis royalty agreement generating $38 million of cash inflows in total.
Overall, the company's net debt position was reduced by a $146 million during the third quarter of 29 team with the balance at September Thirtyth being $862 million.
The company's cash position strong forecast future operating cash flows combined with available credit capacity under the revolving facility positions the company well to satisfy its funding commitments sustain its dividend policy, while at the same time, providing flexibility to consummate additional accretive precious metal purchase agreements.
That concludes the financial summary, and with that I'd turn the call back over to Randy.
Thank you Gary.
For the remainder of 2019, we expect to see continued strong results from our gold operations.
Offsetting the impact of the deferred silver production seen in the first nine months of the year due to temporary shutdowns opinions Scioto as I guess Gary's already discussed.
So as such we now expect to produce approximately 390000 ounces of gold up from the 385000 ounces that was forecast last quarter due to stronger than anticipated production from the local.
Attributable silver production has been adjusted to approximately 21 million ounces of silver down from 22.5 million ounces to reflect the production interruptions at Penasquito.
The forecast production of Palladium from Stillwater in 2019 remains unchanged at approximately 22000 ounces.
We continue to expect steady growth from our portfolio such that over the next five years inclusive of 2019, we expect to produce on average 750000 gold equivalent ounces annually.
I would like to remind everyone. The Wheaton currently does not include any production in that five year forecast from Barclays Global three ongoing expansion.
The Hudbays Hudbays Rosemont project or the recently restarted Minto mine.
With respect to this local expansion valley has confirmed that it continues to advance ahead of schedule with physical completion of the expansion now at 27%, including the completion of the concrete foundations for the mill and the primary crusher bases in the arrival to site of the first loads related to the long distance conveyor belt.
Given their progress to date and assuming construction continues at the same pace, we expect the expansion at the local could begin contributing to our production profile as early as 2020 too.
Our organic growth profile continues to be very strong.
On the corporate development front, we remain focused on adding additional production from high quality accretive opportunities, we move sector, leading cash flow coupled with available credit under our revolving facility provides ample capacity for continued investments.
As always we will remain disciplined and continue to focus on acquiring streams that are accretive to our current shareholders and come from long life assets producing in the lowest half of their respective cost curves.
In summary, there was some challenges with silver production in the first nine months of 2019 with the interruptions at Penasquito, However, with the mind safely back to full operation and new month expectation of achieving higher grades we look forward to a much stronger fourth quarter.
And on the gold side, we are very pleased we continue to be very pleased with the outperformance of our gold assets, resulting in increased guidance and we are on track record gold production in 2019.
As our revenue is derived from a diversified production profile of 100% precious metals.
We provide significant leverage to not only gold, but silver and palladium, as well, which bodes well in an environment of increasing commodity prices as we've seen in this past quarter.
We believe our production remains founded on the highest quality portfolio of precious metal streams in the industry underpinned by very low cost mining operations such as the global.
And to Mina and Stillwater.
And so with that I'd like to open up the call for questions operator.
Thank you ladies and gentlemen.
The question and answer session, if you'd like to ask the question. Please press star and the number one telephone keypad, if you'd like to withdraw your question. Please.
There will probably.
<unk>.
Thank you.
Your first question comes from the line of from <unk> capital.
Capital. Please go ahead.
Hi, good morning, Thanks for taking my questions.
Two of them, if I may Randy I know that CSR is a big part of the weekend strategy.
Can you talk a little bit about sort of the community relations work you've done ahead of phase three expansion, that's a mobile and when do you think we can hear more details from valley.
On the project scope. Another currently working on some details that may impact stream deliveries.
Okay. So take the first part of that we've had the along relationship but salobo with with valley and we orchestrate that through a partnership with the valet Foundation.
And so there's been a number of different programs in the area of Salobo.
Improvements to health facilities as yet I know, we supported a health clinic and one of the local villages. There. We've also initiated some.
Some small business enterprise support.
For some of the local communities that were out there was some changes in terms of trained scheduling and stuff like this and so we provided some support to to promote small business development and help supply in that.
Yes, so it's been a very active program, obviously salobo is very important asset for us and and so we've done quite a bit of work on that side.
Thats already Ralph what was the second part of the question you talked about some changes.
Are they currently working on the school details right.
You know I know, it's just that step up to the 12 million out 12 million tons per year step up but are there other changes around the mine plan the footprint or the actual production plan when you get down to the metal level that may impact how we've done is approaching a phase three screen deliveries.
Yeah, Okay, and one of the reasons that we don't include the phase three deliveries is that they haven't selected a final mine plan at a at Salobo. They have the option of of continuing their current practices, which is to stockpile low grade material or to switch over to a a mining practice that that would take all the.
Sure and process through the mill at the same time and not build up a low grade stockpile.
Yes, they would have to make that decision until probably 2021, because the only the only impact is a different size mobile fleet.
If they're going to be stockpile and low grade material it means or overall moving more material, which means that going to need a slightly larger mobile fleet.
Last I checked all that takes is one 800 caterpillar and you can have that equipment, they're relatively quick.
And so.
And so that's not a decision that they've finalized yet and that's one of them either of them Nimbly affirmed guidance in terms of what we see coming forward typically the range in additional production for us is going to be somewhere between the.
If they if they go with the.
Full feed from the.
And not do any stockpiling that probably see at a bump of over 50 to 60000 ounces of gold per year. If they go to a stockpile that they maintain current practices and go with a low grade stockpiling procedure, we would probably somewhere in the area of 100 110000 ounces of additional gold production per year and so.
It's it's that range, we're probably not going to get a firm decision from from them and tell as I said 2021, I would think them, they're still going through in doing optimization studies to try and determine what works the best for them. We were hopeful that they do take the stockpiling approach. It's what they currently do at the site that it's proven very effective at this site in terms of moving.
Metal production forward, it's proven effective at many sites around the world in terms of that and so but that's a decision that just hasn't been made yet on the valet side and so so we're we're monitoring that and and then give guidance as we get guidance on that.
Got it.
Very helpful on.
Constancio.
We've heard from Hudbay on top of Contra or in 2020 that hasn't changed and 8000 ounces payment that hasn't changed either is or comments you can make on what happens if public conch or it doesn't come in until late 2020.
Or not in 2020 at all any disclosures around helping us on what those payments may look like.
Yeah, Ralph it's Gary here.
You know if.
If they're not mining by the end of 2020.
Then there is a.
We have the option to.
Demand.
An 85000 ounce.
Of gold.
Payment, which would be.
Delivered over.
I believe it's a 12 month period.
But so and that's too.
To return the capital that we deployed.
Relative to the public Anja pit.
But at this point it it still looks like there.
Going to be in a the public entre pit sometime next year.
Yeah, I mean the trend here.
Our partnership with had been as an important one we've we've done a lot to work with them on different projects and such and so.
We're supportive in terms of their efforts to move this thing forward and they are making progress slowly, but they are making progress. They are moving forward on it and so so we will work with had made through this and.
Where we had but we get compensated until the end to 2020 and then at that point, we have an option to to either cash or get competition back or work with had been that's our choice.
Very helpful. Thanks, everyone.
Thank you Ralph.
Again, if you like that the question. Please press star one on your telephone keypad.
Your next question comes from on.
Chuck.
Please go ahead.
Hi, guys. Thanks, taking my question just a quick one can you provide some guidance.
Longer term.
Equity investment portfolio.
I saw that first majestic is now down below 10%.
<unk>.
And.
On your plans there would be great.
Well, where we're very impressed with what first Majestic has done at San Dimas since they've taken over they've had great exploration success and and so we are long term supporters. The first majestic and look forward to watching them brings and amass back to its former glory in terms of performance.
So so I can I can tell you, we we have moved slightly below 10%.
The sort of more of a strategic decision just to get to the point, but we are long term supported the first majestic send to mass is an incredible asset.
As as I'm sure you know Alex I've had a very long history of that asset even before Wheaton precious metals and and I know how well it can perform when you've got a motivated.
Team that is investing into the ground there and first majestic has done an incredible job to date.
It's very refreshing to see and and I think that.
We the market and investors out there still haven't seen the full benefits of that.
Of that investment from first majestic side and so.
So yes were long term supporters in that front.
Okay sounds good thanks.
Thank you Alex.
Your next question comes from the line of Charlie Gibson Edison. Please go ahead.
Good morning, Thank you very much and if I may congratulations on your quota.
I Wonder if I could as Charles about not a so I wonder if I can tell us just on your Silva guidance of 21 million for 29 team and I can that one nice thing you've looked like you've already produce 16 and off million ounces. So that would imply four and a half million in the fourth quarter, which is quite a step.
From the third quarter production wise and I. Just wonder is is that all attributable to penasquito is that something else. So is that you'll natural conservatism.
It's our natural conservatism, we don't like we don't we don't like missing our production guidance and so.
As as things like this we obviously the shutdowns of the deferrals that we've seen from.
From Penasquito as they've worked their way through this we're hopeful that that newmont has got to resolve to in finality not going to happen again.
But having having to shut downs within the first three quarters of this than of this.
This year, we decided to to stay a little bit on the conservative side I agree we've got ample.
Calculations, all we have to do is produced 4.4 million ounces.
In in this quarter, which if you consider if everything run smoothly through that we should not have any problems at all.
On that front, and so I am confident but when we put out our production guidance. It is a number that we are confident on and we just felt 21 million was the right number.
I'm I'm comfortable that we will at least achieve that.
Surely answer yet at the margin.
At the margin as well, we do have with the Yauliyacu sharing mechanism in place.
They've hit the that threshold. So we wouldn't expect to see slightly less production from.
Well.
Understood. Thank you very much.
Thank you Charles and thank you everyone for dialing in today in closing, we believe Wheaton is well positioned to continue delivering value to our shareholders for a number of different reasons, firstly by having low unpredictable costs. The result in some of the highest margins in the entire precious metal space.
Secondly, through our steady organic growth profile over the next several years and proven track record of accretive quality acquisitions.
Thirdly by offering our shareholders exposure to some of the best mines in the world through our high quality portfolio of long life low cost assets, and lastly by being a leader among precious metal streamers, and sustainability and supporting our partners and the communities in which we live and operate.
I do look forward to speaking with you all again thank you.
This concludes today's conference call. Thank you for participating please disconnect your line.