Q4 2020 Wheaton Precious Metals Corp Earnings Call
Okay.
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
2024th quarter and full year results conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session.
I would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question press the pound key. Thank you I would like to remind everyone that this conference call is being reported on March 12, 2020 at 11, a M eastern time.
I will now turn the conference over to Mr. Patrick Jones Senior Vice President of Investor Relations. Please go ahead.
Thank you operator, and good morning, ladies and gentlemen, and thank you for participating in today's call I'm joined today by Randy Smallwood, Wheaton precious Metals', President and Chief Executive Officer, Gary Brown, Senior Vice President and Chief Financial Officer, and Haytham, <unk> Senior Vice President corporate development.
Like to bring to your attention on some of the commentary on today's call may contain forward looking statements. There can be no assurances that forward looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. In addition to our financial results cautionary note regarding forward looking statements. Please refer to the section entitled description of the business risk factors in <unk>.
In general information form and the risks identified under risks and uncertainty in management's discussion and analysis for the year ended December 31, 2020, both available on SEDAR and in Wheaton form 40 F and Wheaton form 6K, both available on Edgar These documents in the press release from last night, you said on the material assumptions and risk factors that could cause actual.
All to differ including among others fluctuations on the price of commodities impacts on Wheaton ore mining operations from which Wheaton purchases precious metals as a result of an epidemic, which related to mining operations from which Wheaton purchases precious metals. They continued ability of Wheaton counterparties to satisfy their obligations under precious metal purchase agreements and the impact of.
Any ongoing audits by CRA. It should be noted that all figures referred to on today's call are in U S dollars unless otherwise noted 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> fourth quarter and year end results of 2020.
I do hope everyone has been keeping healthy and safe since our last quarterly conference call as we near the one year Mark of the COVID-19 pandemic, our top priority of Wheaton remains the welfare of our employees, our mining partners and the communities in which we operate.
Despite the challenges posed by this pandemic 2020 was a very productive year and we were successful in delivering value back to our shareholders on so many fronts.
I am pleased to announce that in 2020, Wheaton high quality portfolio of assets generated revenue of over $1 billion.
And operating cash flow of over $765 million both records for the company.
And given Wheaton innovative dividend policy. This strong cash flow has resulted in a 30% increase to our minimum quarterly dividend dividend relative to last year.
In addition, we were pleased to execute on our growth strategy announcing two accretive transactions.
In 2020 on their motto mine located in Columbia, and the close them and mine located in Mexico.
Our confidence in our ability to deliver continued long term organic growth from our portfolio has also led us to introduce 10 year production guidance for the first time.
In addition to our usual one and five year forecasts.
I will provide more details on our growth profile later in this call, but I would first 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 interests produced 178800 gold equivalent ounces in the fourth quarter of 2020 comprised of 93100 ounces of gold $6 5 million ounces of silver and 5700 ounces of palladium.
Relative to the fourth quarter of the prior year. This represented a decrease of 4% on a gold equivalent basis with lower production. That's logo on triple sub triple seven resulting from the temporary suspension of operations at each mine site.
Being partially offset by the mining of higher grade material at and Humana.
On a gold equivalent basis sales volumes decreased 3% in line with the lower production levels.
At December 31, 2020 ounces produced but not delivered or P. B M. D amounted to approximately 133000 gold equivalent payable ounces, representing approximately two two months of payable production.
This amount of PP&E is consistent with the average <unk> balance of approximately 139000 gold equivalent ounces over the preceding fourth quarters.
Revenue for the fourth quarter of 2020 amounted to $286 million, representing a 28% increase relative to Q4 2019, primarily due to a 33% increase in the average realized gold equivalent price, partially offset by the 3% decrease in sales volumes.
Of this revenue, 57% was attributable to gold, 39% for silver and 4% to palladium.
Gross margin for the fourth quarter of 2020 increased 69% to $162 million once again, highlighting the leverage our business model provides to increasing precious metal prices.
Cash based G&A expenses amounted to $8 million in the fourth quarter of 2020, representing a decrease of $2 million from Q4, 2019, primarily due to lower accrued costs associated with performance share units or psus, which which was partially offset by higher charitable donations.
With the company donating nearly $1 million relative to the previously announced $5 million community support and response fund related to the COVID-19 pandemic inch.
Interest costs for the fourth quarter of 2020 amounted to $1 million, resulting in an effective interest rate on outstanding debt of one 2% as compared to $8 million of interest costs on an effective interest rate of 362% incurred in Q4 2019 with the average outstanding debt balance decreasing.
39% during the most recently completed quarter and being 63% lower than it was in the fourth quarter of 2019.
Net earnings amounted to $157 million in the fourth quarter of 2020 more than double that generated in Q4 2019.
Basic adjusted earnings per share increased 101% to 33 compared to <unk> 17 per share in the prior year.
Operating cash flow for the fourth quarter of 2020 amounted $208 million or <unk> 46 per share compared to $132 million or 29 per share in the prior year, representing a 57% increase on a per share basis.
Based on the company's dividend policy. The company's board has declared a dividend of <unk> 13 per share an increase of 8% compared to the prior quarter payable to shareholders of record on March 26 2021.
Under the dividend reinvestment plan. The board has elected to offer shareholders the option of having their dividends reinvested in newly issued common shares for the company at a 1% discount to market.
Relative to 2021, the company is setting the dividend floor at <unk> 13 per share a 30% increase from the floor that was established relative to 2020, highlighting the continued strength of the company's operating cash flows and the benefits of the company's unique dividend policy whereby dividend.
Fusions are targeted at 30% of operating cash flow.
During the fourth quarter of 2020, the company repaid $293 million on the revolving facility and made dividend payments of $47 million with these cash outflows being partially offset by the proceeds from the sale of first majestic shares in the amount of $113 million.
Overall net cash outflows amounted to $17 million in Q4, 2020, resulting in cash and cash equivalents at December 31 of $193 million. This combined with the $195 million outstanding under the revolving facility resulted in a net debt position as at December 30 <unk>.
One of only $2 million.
For the year ended December 31, 2020 production on a gold equivalent basis met the company's revised guidance and was within 2% of the original guidance. Despite the various shutdowns in the second quarter, resulting from the COVID-19 pandemic.
Despite the pandemic sales volumes were virtually unchanged relative to 2019, primarily due to relative changes to the ounces produced but not delivered.
Revenue for the year amounted to a record $1 $1 billion. The first time in the company's history that we have broken the $1 billion Mark.
Of this revenue, 60% was attributable to gold sales, 36% to silver and 4% to palladium.
On a gold equivalent basis average realized commodity prices rose by 28% in 2020, leading to an increase in gross margin of 69%.
Cash based G&A G&A expenses in 2020 amounted to $60 million, representing an increase of $11 million from 2019 with the increase being primarily related to higher accrued costs associated with the psus and higher charitable donations for.
For 2021, the company estimates that non stock based G&A expenses, which exclude expenses relating to the value of stock options and psus will amount to 42% to $45 million.
Interest costs for 2020 amounted to $12 million, a decrease of $33 million relative to 2019, resulting in an effective interest rate on outstanding debt of 2.03% base.
Basic adjusted earnings per share increased 106% to one dollar and 12 <unk> compared to 54 per share in the prior year.
Cash flow from operations amounted to $765 million, an increase of 53% as compared to 2019, primarily due to the higher commodity prices. This translated into operating cash flow per share of $1 71, compared to $1 12 and 2019.
Having ended 2020 in a neutral net debt position the capacity provided by the $2 billion revolving credit facility combined with the strong forecast operating cash flows positions the company very well to satisfy its funding commitments.
<unk> sustained its dividend policy, while at the same time, having the flexibility to consummate additional accretive precious metal purchase agreements that concludes the financial summary, and with that I turn the call back over to Randy.
Thank you Gary.
We are pleased to reiterate our 2021 on long term production guidance previously announced in February.
For 2021, Wheaton estimated attributable production is forecast to range between 370 to 400000 ounces of gold.
<unk> 22 to 24 million ounces of silver and.
And 40 to 45000 gold equivalent ounces of cobalt and palladium.
Mounting to total gold equivalent production of approximately $720 to 780000 ounces.
In 2021 gold production is forecast to increase mainly driven by growth at Salobo, San Dimas and Constancia Silke.
Silver production is forecast to increase as additional ounces from cosma in Keno Hill are expected.
<unk> production is expected to remain stable in 2021 and for the first time, we have cobalt production from the voice. These bay mine with our first shipments having already been received in February.
Looking forward, we anticipate steady organic growth building over the next five years with gold equivalent production, averaging 810000 ounces per year.
Growing to 830000 ounces per year over a 10 year time horizon.
Average production over the next five years and 10 years is expected to increase primarily due to continued production growth from Salobo and Constancia pennies, Quito, and Stillwater as well as incremental ounces from them or motto Cozman and Boise based streams.
While HUD based progress on the Rosemont project appears promising production from Rosemont is not included in the Wheaton five year guidance, but is reflected in the 10 year forecast.
And lastly, although barrick's continues to advance a comprehensive review of the Pascua Lama project and Pan American continues advancing discussions on Navidad without any framework on timing Wheaton does not currently include any production from these projects in its long term forecasts.
On the corporate development front, despite travel restrictions our team was busier than ever in 2020 announcing two new streaming agreements and reviewing numerous other opportunities.
We quickly adapted to the new environment and developed alternative methods for due diligence, allowing us to continue to thoroughly review potential new acquisitions we.
We were pleased to add two high quality assets to our portfolio.
Silver and gold stream on the motto project located in Colombia, and a silver stream on that cause them in mind in Mexico, which we are welcoming back into our asset base. After a previous stream at close them and ended in 2017.
We believe both these projects demonstrate strong upside potential and will provide our shareholders with further opportunities for organic growth.
Our corporate development pipeline remains robust and looking ahead, we will continue to focus on acquiring accretive precious metal streams that complement our high quality portfolio.
The importance of delivering shareholder value, while minimizing our impact on supporting our local communities was never more evident than in 2020.
And as a streaming company, we recognize that the stronger our partners are the stronger we are.
So to support our mining partners and local communities, we launched a $5 million of fund to help address and alleviate the impacts of this pandemic.
Which more than doubled our existing community investment budget.
At the end of 2020 over $3 million of that has been had been deployed in support of initiatives with our mining partners and frontline organizations, including food banks shelters in hospitals.
Wheaton has always strive to be a sustainability leader in the precious metals streaming space and this year, we significantly increased our disclosure around ESG risk management through the release of our inaugural sustainability report.
We were honored to be recognized by several ESG rating providers for.
For our performance in this area with sector leading scores.
Most recently Wheaton was ranked by sustained Olympics as the top precious metals company.
And perhaps more impressively in the global top 50 out of over 12000 companies across all sectors.
As we look forward our work in this arena will only grow in importance.
We are proud of the steps we have taken thus far we recognize that sustainability is a journey and we are as committed as ever to constant and continual improvement.
And ensuring that we leave a positive impact.
In summary, despite the unprecedented challenges of this year Wheaton has emerged stronger than ever with a sustainable foundation and a very promising future.
We achieved both record revenue and cash flow levels and exceeded the midpoint of our production guidance for the ninth consecutive year.
For the first time, we introduced 10 year production guidance, demonstrating our belief in the steady long term expected organic growth.
From our portfolio.
We listed on the London stock exchange in order to broaden our investment base to those looking for exposure to precious metals and to provide another point of entry for new internationally based shareholders to invest in Wheaton.
With our value, creating business model commitment to operating responsibly and focus on high quality assets will continue to provide investors with what we consider to be the best vehicle for investing into precious metals.
And finally on the backdrop of global uncertainty I considered our privilege our responsibility as good corporate citizens to continue to provide support where it is needed. The most it is times like these when assisting our most vulnerable is of the utmost importance. It is simply the right thing to do.
So with that I'd like to open up the call for questions operator.
Thank you, ladies and gentlemen, we will now conduct a question and answer session. If you would like to ask a question. Please press Star then the number one on your telephone keypad.
If you would like to withdraw your question press the pound key.
It will be a brief pause while we compile the Q&A roster.
Your first question comes from Tyler Langton Jpmorgan. Please go ahead.
Hey, good morning, guys. Thanks for taking my question I guess, maybe just starting with slow, but I know you mentioned from you're expecting higher production.
This year can you just talk a little bit about the profile that you expect for.
This year on the next couple of years, just kind of maybe relative to sort of more normal levels that we saw in 2019.
I'll share Tyler and thanks again for picking up coverage.
Wheaton I appreciate having you on board and joining the joining the debt.
The team or the family.
It's a low bulk.
Salobo.
Very exciting what we see over the next few years at Salobo, Obviously, I think thereabouts mid 60, 68% mechanically complete at the end of the year on the phase III expansion.
And that's expected to turn on the switches sometime in 2022.
And theyre hopeful to sort of to get the completion test satisfied on that third third phase of expansion by the end of 2022, and so as I said, a 50% increase in throughput.
Current practice at the mine site is that the stockpile lower grade material common with a lot of the larger open pit copper mines around the world They stockpile lower grade material and focus on processing higher grade material through the through the mill. That's current practice. They haven't made a final decision yet as to their approach once the third phase opens.
<unk>.
Economically it makes sense for for a stockpiled approach and in fact, we've got some incentives provided to continue.
Hopefully it pushed by lay down that path in terms of continuing the stockpiling approach, but they haven't made that decision yet so it's a little bit a little bit tough for us to give an accurate forecast over the next few years in terms of how phase III is going to impact production. Our approach in our production forecast is that we have assumed that theyre not going to stockpile debt.
Going to push things too. So we think that's a pretty conservative approach, we think it has a.
It infers conservative aspect to our own production forecast for 2022 and beyond because.
Economically we do think it does make sense for them to continue the stockpiling.
Yeah.
Approach in setting aside lower grade materials, and pushing higher grade material through the mill.
Of particular excitement, though on top of that as the back in December valet, a game announced.
On the.
The phase for expansion that is the first time that they've discussed it publicly we've had obviously discussions with them extensively on this but.
They have discussed it released it publicly and that would involve another increase in equal increase of.
Capacity, which would take it from 90000 tonnes per day up to 120000 tonnes per day and expectations are that they would have that up and running.
By 2027, and so lots of lots of activity at Salobo lots of growth at Salobo. The the resource we have released our update updated resources and you can see the growth on that side and so.
This deposit just continues to deliver for us.
Great. That's helpful. And then I guess, just switching to sort of that M&A.
You mentioned that the pipeline remains robust can you just talk a little bit out.
Sort of the types of deals youre seeing in terms of size and whether it's more.
Based on our producers looking to do precious metal streams or on the precious metal side, just any color there would be great.
Tyler I'm going to let Haytham answer that when he leads our corporate development front. So haytham you on the line sure. Thanks, Brendan and good morning, good morning.
Just give me a bit of an overview.
Been pretty busy new.
The new year started lots of new opportunities to look at they are primarily development stage for opportunities that fit into a lot of them into our early deposit structure, which on a few times and that's where we take precious metals as a pipe credit from based on my mind on these types of opportunities. Obviously as we're streaming were expressed theres also some opportunities that focus on balance sheet repair and some expansion.
Opportunity as well where streaming can actually funds for most expanses for the fact that streaming is being considered for all of these areas actually further highlights the competitive cost of capital with streams provide but they're on.
There are some royalty packages out there that we have.
<unk> seen in the past, but I can tell you. There is nothing that made sense from a wheaton perspective in large part because of their size or because they come with a significant amount of non precious metal revenues, we're going to continue to focus on on the larger I would say development stage and expansion stage opportunities we are seeing right now.
Great Yeah, I would think so.
Just add that what we're seeing is a lot of base metal growth base.
Base metal companies with a kick up in copper prices and another base metals is there's a lot of companies that are now looking at putting back into the ground and so that's that's probably the biggest changes.
And then of course, a lot of those assets have precious metal byproduct streams that.
Will will provide a good competitive source of capital to help those companies grow.
Great. Thanks, so much.
Thank you thank you Tyler.
Your next question comes from Ralph for feeding eight capital. Please go ahead.
Good morning, everyone. Thanks for taking my questions.
Hey, Ralph.
Randy I, just had one and I wanted to come back to some mobile.
And the potential for.
Thanks for.
Should we be thinking about that as sort of more of an underground operation, perhaps even moving for block cave or is this just sort of a more of a systemic extra 12 million tonnes per annum.
Be tacked on and then I guess the second question is when do you think about that incremental investment debt Wheaton wood.
Be inclined to pursue should we just sort of take the old agreement, which would come in around a $900 million contribution.
Yes, so I mean.
I actually personally believe that there is a potential for a block cave ultimately, but I can tell you that.
The reserves that we have with an open pit at Salobo are going to be the phase for expansion would be related to expansion of open pit operations it wouldn't be related to any.
Any of the block cave side, but there is no doubt that long term potential for for underground operations. That's low but does exist. Just we've still got I think 20, plus 30 plus years of reserves in front of us even with the expansion throughput there and so I think it'll be an open pit for a very very long time in phase four is related to open pit production.
And then.
Sorry, the second part of the question.
The income.
The higher.
The reality is that.
Valet.
Has one opportunity to ask us for for payment and we would expect that they would ask us for payment on the completion of phase III and.
That's the payment of somewhere in the neighborhood of.
Assuming that they complete.
Satisfy the completion test in 2022 of $570 to $670 million and that's a that's the last of our contingent payments related to Salobo.
So if they expand to phase for theirs.
No additional payment that Wheaton would make.
Yes, just to reiterate it's a onetime option that Vale has to collect on expansion payment and so its their choice is to collect it at the end of phase III or reserve it until the interface for the payment of course increases with scale, but decreases with time.
So it's we fully.
We expect them to be exercising that onetime option at the end of day phase once they satisfy the completion test on phase III.
Got it much clearer now okay. Thanks, very much great.
Great. Thanks.
Your next question comes from Josh Wolfson RBC capital markets. Please go ahead.
Hi, Jeff Thanks.
Hey, good morning.
Continuing on the theme with the local here.
The next opportunity on the stockpiling.
Is there any sort of timeline you can provide in terms of when we could expect an update on and just maybe from a technical perspective is there anything to prevent the company from making this decision at a later date.
Before the expansion is finished.
Well, so the driving from a from a critical timeline perspective, the only real difference at the site itself would be a bit of.
Surface preparation, but its debt.
It's the mobile.
Equipment fleet size that would have to be adjusted.
And.
In my experience all that takes is one 800 caterpillar komatsu.
I'll find a way to get get that and so so that's not a critical that doesn't take a lot of time to make adjustments to in terms of the size of the mobile fleet, but.
You see the need a slightly larger mobile fleet it from there going to be stockpiling some of the material versus feeding at all to the mill and just means more material being moved on a on a daily basis.
So that's kind of on the critical path coming from the other end back.
Have the updated resource, which is now public but we don't have the updated reserve yet because they haven't actually made the final decision as to what what.
Plan is going forward, but the fact that the resource is in place means it's it's really a matter of their engineering teams and our technical teams, they're the entire group sort of coming down to that decision. We're of course hopeful that it happens sometime.
The earlier the better just because it gives us that much more clarity on a go forward basis.
And we've definitely dangle the.
On the incentives there from from the from the difference in the expansion payments that we make and so we're hopeful that it's sometime in the first half of this year.
Confident that it will be sometime this year.
But it should be in the first half of this year.
Okay, good to hear and.
On the other operations for valet for for voice each day.
Could you provide an update on how that operation will ramp up for looked like over the course of this year, given youre going to get some of the open pit material, but the underground would be ramping up and then.
Follow on question to that.
Historically, one of the opportunities cited as being maybe cobalt marketing just given the jurisdiction the acid operation.
And if you have any views on that and you know today with production commencing net would be of interest share okay, well, let's start off with the actual asset itself. So you are correct I mean the underground.
Was the delayed mainly as a result of some suspensions in production that they had on site last year as a result of the pandemic.
In a weird way, it's a little bit of a positive for us because material that would have been mined last year was pushed into this year, but it has delayed the start of the underground.
For us, it's not really a ramp up because of the production levels are pretty consistent from open pit to underground in terms of the material. So so we're getting pretty good production flows already from the open pit.
And.
As of January 1st irrespective of whether it comes from open pit or underground and so as the underground does come into play.
It'll it'll obviously offsets and we've got the open pit there is a dampening device to make sure that we have good consistent production from the from the pit itself. So things are looking good there from the marketing side I can tell you we went through.
On the E.
Our product marketing.
A request for proposals and we had very very strong interest in our product. We ultimately did select a marketing agent that is working through this is a product that is well known it's been produced for a long time and so there was great high demand for for.
For the cobalt from <unk> Bay, and so we're pretty happy with what we've seen in terms of.
We've now seen our first sales in.
And we're pretty happy with the weighted handling.
The.
<unk>.
The the recent pricing action in cobalt and some of the challenges that we've seen elsewhere around the world from other production is really sort of timed itself very well for us to start receiving are on cobalt production here and so.
This is a new product for us and it's a new method of marketing for us in terms of being a bulk product versus story or.
Precious metals.
And so so we are we're really looking at these first couple of years.
Yes.
You need to learn more on this market and see if there's ways. We can further optimize it.
Great. Thank you.
Thanks Ross.
Your next question comes from Cosmos <unk> from CIBC. Please go ahead.
Hi, Thanks.
Hi, Thanks, Randy Gary and team and great to see the dividend increase here.
Maybe you know on my questions are on the two.
New acquisitions here, maybe first off on my motto.
I see that.
First payment is $34 million second payments for a million, but they have not been paid yet I'm. Just wondering you know the timing in terms of that payment and then also when would you start receiving production from that asset is it when you pay that first payment.
And then as a follow on I'll ask those questions later on.
Great I appreciate the.
Little bit of a pile of questions.
Time.
So yes, no the payments haven't been made yet because there was some some 10 year issues that had to be clarified down there.
And that is in process it looks like it's going to be happening very very soon here right now.
And yes, we will get a.
A bit of production from the upper zone, which is currently in production. It does date back to.
I can't remember, which date, but to date back dates back to the last year and so we will get a bit of us and.
On inventory of production that has built up over that time once the payments made.
The real estate and.
Oh, sorry go ahead.
July one stage by July.
On July 1st Yes, So date back to July 1st so it would be a nice little bump.
But it's not that's not the reason we're in more motto. The reason we're in my motto is for that lower lower deep zone and all it takes is a good look at the drilling results.
The company's achieved there we're actually really excited about that debt.
Geological potential.
And where that project, where we think that project can go and then when you look at the new management team coming in with Arris.
Long history of being able to build from projects like this and so.
We're pretty excited about that project and Cosmos just to make sure you are aware, we've not booked any production yet even though with the crews back to July one.
We've not book any production in 2024 of our motto nor have we for Cosan debt those will both be true up in Q1 once payments are made.
Okay. Yeah that was actually my follow on question in terms of.
No.
So it's going to be in Q1 that we see slightly higher production for both likely more model and also close them because close them and you've made the entire payment already so that's coming in in Q1, but my model, maybe Q1 as well.
As long as we do make that payment we do anticipate I can tell you. We're all prep to make that payment. It's just a question of getting the final Ts crossed i's dotted so as long as that happens in the next few weeks and yes, and Cosan is accrued as of December 1st So it's not as long.
Mhm, Yeah for sure and then.
You know I don't think I saw that in the MD&A, but again I don't think it's huge Randy but.
How much have you sort of factored in in terms of 2021 guidance from these two assets here or is that something that you can share with us.
Those are both factored in we did include Muramoto again my motto is very small until we get to the deep zone as Randy alluded to.
And though we certainly had.
We did that acquisition in December that we announced it so that would be certainly included in in 2021 I can tell you, though we did use a conservative approach, we do think capstone, maybe not in 2021, but further on.
We'll grow production. So we think there's upside there for sure in the five and 10 year guidance, but it is in our current guidance some of the initiatives that capstone.
Neil got underway at Kosmos will definitely improve production numbers, there so and we expect to see that coming over the next couple of years.
And Randy could you remind us in terms of the timing of the deep zone.
And my model.
Potential timing.
It's 2023, but Haytham you are on the line you do you have that yeah. You bet I think it is late 'twenty 'twenty two early 'twenty 'twenty four is the expected timing.
Great.
And then maybe another.
Other stream here Keno Hill I'm seeing debt.
Mill startup commissioning.
In November 2020.
Just given the timing and then concentrate and whatnot.
When should we start expecting.
Contribution from that stream and to your knowledge, how how's the startup go on.
So the start up was a little bit challenged mainly because of Covid risk management.
October November there was a.
The second wave sort of came through and so there was a.
An increase in restrictions on it then it definitely made to startup challenging for them in terms of getting staff in there safely and making sure that they were.
Maintaining a high risk management protocols that that definitely made it a little bit more challenging for them to get it up and running smoothly, but they were successful in getting first production through.
It's a concentrate for us that gets shipped off and so we're hopeful that as as you know as we seem to be coming out of this second wave and the things lighten up a bit for <unk> in terms of <unk>.
Getting it up to full speed they are getting some good very very impressive.
Grades out of the underground and so things do look very promising from that front, but so we fully expect to come spring they should be getting closer and closer to full production levels yeah.
Cosmos, we didn't book any production.
2020 for Keno Hill, but you'll you'll see it start to accrue production starting probably in the first quarter I don't see any reason why we wouldn't have production in the first quarter.
Great. Thanks, Patrick and then maybe one more question here at all in Q4, usually producers like to catch up sales versus production I guess, we didn't really see it in Q4 2020. This year, maybe due to COVID-19 impact any insight in terms of Wednesday in Boston, you know that might reverse in terms of <unk>.
<unk> exceeding production in a later quarter or is it going to be in Q1 Q2, any any kind of insight there that you know at this point in time.
Well.
You're right last year because of the suspensions in the in the second quarter and into part of the third quarter in some places.
First quarter on into the second quarter in some places.
You know it.
It had a bit of an odd effect to those normal produced but not yet sold.
We expect the numbers are not too far off of where we were we average on a on a quarterly basis and so we do expect it to normalize.
No.
It's always been our experience at the fourth quarter is the one where sales gets pushed because everyone squeezes the sort of the inventory pipeline to try on and boost our year end results and so that's usually the incentive for it and that's one of the reasons why we typically do see that in the fourth quarter.
I would hazard a guess that once we get back to normal normal levels, which I think we are at pretty close to right now.
Not going to be until the fourth quarter again that we see something like that cosmos, probably again, the incentive to just sort of make the year end results look a little bit better.
As a as a continual objective right zone.
Thanks, Thanks, again, Randy Gary Patrick and Haytham and those are all the questions I have.
Thank you for everyone's staying safe and have a good weekend.
Yes.
Yes.
Your next question comes from Brian Macarthur Raymond James. Please go ahead.
Good morning.
Ryan Hey, Brian.
There's a lot of good.
Good morning, there's a lot of talk on the industry about rate of return on our screens going forward. So I'm just kind of curious with your sell down up first majestic.
How do you think about the rate of return on what I would call that span. The math may 2018 deal because when I sort of look at this you put up 220 million on.
Got my math, right and correct me if I'm wrong, you got 90 for back already in cash, but now you've also sold 151 million share give or take a first majestic and you have more to go and you still have the stream. So do you count or do you look at that sale of first Majestic when you do those right of return cash.
<unk>, but I'm just curious how you're philosophically think about that given you know.
The significance of the majestic positions.
Look.
Philosophically I look at it is as we had an opportunity to do the stream cozman with capstone and.
And one of the ways to pay for that was too.
To sell out of the share as a first majestic and sort of put that money back into silver on the ground.
At close them on which is a good long life asset.
We are strong supporters of first majestic and what theyre doing and send them as we think that that asset is perfectly suited for first majestic.
And.
I think some of the initiatives that they've got underway is just going to make that asset even stronger than what it currently is now.
They've got some good strong focus on putting first off drill holes.
Into the ground, which which is always the first requirement in terms of.
On making sure you've got the exploration potential on the resources.
<unk> reserves, but also just the continued optimization of the mill and improvements in terms of throughput and recovery rates and investing back into it send them as is.
Even even after this morning Sander mass is for logistics flagship and so it's always going to be a core focus of their investment.
We were comfortable shareholders and supportive shareholders of them, but we saw an opportunity to to also stay focused and we're also very very bullish on silver.
But we are.
We're very comfortable with that so in terms of rate of return Gary.
Yeah look Brian you have to realize we view the.
Santa mass restructuring that we did back in 2018 as.
A very successful transaction and a real win win transaction one net.
Has.
<unk> benefited.
Benefited first majestic has done a wonderful job with the asset with the.
The exploration success that they've had but.
The the original stream we received.
The current stream.
And the current stream we modified.
The the stream so that we were getting about 60% of what we were previously.
Getting and for the 40% that we gave up.
We received a $151 million of first majestic shares and so you have to take that into a cat right. So we got $370 million and then the Goldcorp gave us $10 million to to get rid of them.
Their guarantee relative to that asset so we received $380 million for the original stream.
Now we've.
We have received $156 million so far.
On December.
At December 31, 2020.
In the proceeds from selling the first majestic shares and we had about $100 million.
First majestic shares at yearend so low.
Let's call it $260 million relative to our original <unk>.
Valuation of $151 million. So we've we've generated as that.
December 31, 2020 about a 70%.
Turn on the first Majestic shares and that's reflective of the fantastic job that first Majestic has done with Santa mass and that combined with you have to remember we're dealing with about a 1200 dollar gold price environment, when we consummated that deal.
So with gold.
Being up over 40% since then.
The combination of those two things has resulted in.
No.
A very significant return.
On the stream.
We have received 90 over $94 million to date on on them.
The amended stream.
And.
The mine life, there is been extended significantly with the exploration success that first majestic is.
So.
On that.
I think was a very successful.
Restructuring and.
We're very happy with the way that that asset is performing.
Great. Thanks, and maybe just a second question on the voices Bay deal.
And with all this talk about marketing and as you've mentioned, it's a premium product.
Is the reference what is actually the reference price for the cobalt price that youre going to get post marketing I mean, if we get into a situation where you had a two tiered market or something is it is it technically I just can't remember is it technically defined reference a certain per.
Price or is there some.
<unk>.
Yes, Brian we have we currently have on agency agreement were and we sell it with.
At block prices over the period right and so so obviously we monitor the.
For the spot market prices, but but.
But each each block that gets sold as is.
As a sign of the price at.
At the time of the transaction itself on a go forward basis. So there's.
Theres a number of different reference point.
Point out there are reference prices out there.
And obviously, we monitor that and our agent monitors that in terms of how that moves forward, but it's not directly related to those agency prices. It's there for reference yes, Brian it is going to be difficult because it used to be metals bullish, but I think they may have changed their name was the reference that was most of.
Applicable lemme isn't a great proxy, but what the <unk> price. If you look at that will give you a proportional or directional movement.
And you can look at <unk> I mean, you can see <unk> prices have gone from mid teens to well into mid Twenty's. So.
Over the past.
Until late 2020, so just as we were starting to sell our first products and we've made our for sale.
Pricing had very much improved but as far as an exact number.
It's going to be tough to.
<unk> forecast other than a directional move from Ele me. Unfortunately.
Right, but just so I'm clear I mean, there is a philosophical discussion out there in the market that.
Cobalt from.
Canada might be worth more than.
Cobalt from let's say places in Africa.
It would be negotiated thing and our clients want us to pay a premium for these stuff from Canada. It would be negotiated price three year Mark Your agency debt technically you would get a premium if you if you could do that and that existed in the market. It's not like it's not cast in stone reference point anything.
Exactly right.
It's a unique product that comes from voices band. It's got it has been it's in the marketplace is well known in the marketplace and so theres people that really like this product.
And.
They are the ones that are stepping up our first sale happened to someone that that has been using voices Bay cobalt for a long time and it was for a good price zone.
Great. Thank you all for answering all my questions. Thank.
Thank you Brian.
Your next question comes from Richard Hatch from bearing for please go ahead.
Thanks, very much and yet moving them on June.
Cayman debt metrics congrats.
That's on the better it gets set of numbers.
Got a few questions.
First one just on slide by I Wonder if you might just be able to.
On the bi.
What you could potentially on the green.
Realized in terms of production level machine I just on the various sales.
So I appreciate it's quite difficult.
How do you have the full picture that but would you be able to give us any on this suite of Steve I'm on.
So the $3 million for expansion.
That could take production levels.
Well, what I can tell you is the amount of tons that each one of those expansions relates to.
Currently the mine is running at around a 60000 ton per day.
Capacity.
The phase III, we'll take it from 60000 to 90000 tonnes per day.
On the face for the proposed phase for its not not definite yet by any means but but.
It sure looks like it's shaping up will be another 30000 tons per day. So it will take the mine ultimately from currently 60000 tons per day to 120000 tonnes per day.
Which which still when you look at copper mines around the world is large open pit copper mines around the world is not it's not the largest in the world by any means.
That's a pretty normal operating rate and in fact very similar to what we see opinion Quito.
There's even higher strip ratios so.
Now the question is what what grade did they choose and stockpiling and it's very tough I mean, we know that currently right now.
They are stockpiling lower grade material they have been ever since they started up from 2012 and setting aside the lower grade material on building up on low grade stockpile, which will ultimately at the very end of the mine life be processed through the mill and they are doing that and so current production levels sort of do reflect.
The stockpiling approach now.
Now we know that debt.
If it's easy for us to forecast and in fact, that's what we have included in our long term forward forecasts.
As is assuming that they processed ore mined through the.
The mill and not and do not stockpiling stop stockpiling and we feel we feel that thats, a very conservative base case, which we feel there's definitely upside on over and above that.
However, the quantum of the amount of material that they stockpile if they keep on using the same practices. They have right now you would you would.
Fly that theres a possibility of some.
Some some.
On a 50% increase this time round, but.
It's just not going to be like that typically when you scale up in terms of capacity throughput any crossover grades for stockpiling will drop a bit as you sort of adapt to that higher capacity through the mill and so.
It's just it's a very broad spectrum of possible results that I, just it's tough for us to put a.
Put any more guidance on it other than the fact that we're confident that it will be higher than what we've got in our forecast.
But the quantum higher really does come down to how much material they decided to set aside in the stockpiling campaign.
Cereal they decided to move through the mill and it is for the entire spectrum of results, it's very flexible on their side.
What I can again reinforces the fact that not only do we feel it makes economic sense for them to continue stockpiling, but there is a pretty healthy incentive as Gary mentioned earlier on about $100 million incentive over and above on an expansion of payment if they commit to.
Continuous stockpiling program and focus on high grade materials through the mill and so for the combination of.
Strong economic stronger economics, plus plus net incentive.
We do hope that they make the decision but in the end it's valleys decision as to their approach there and I just wish I could give you more guidance on that but I can't.
Non of sponge plus super helpful.
Just a quick one on Rosemont.
You mentioned that as a percentage of loans have guidance.
How is that coming on on mining.
On this.
Well, we havent coming on about six years out but thats.
We actually think HUD Bay is making good progress on on there are discussions with in terms of the appeal of that decision and in fact had based on guidance is that they expect to announce are hopefully get to a decision point sometime here within the next I think it's a few months actually.
Within this year definitely and so given that theres about a two and a half to three year build time on that and there is a there's a reasonable chance that they could move forward, even if they're not successful in appealing. The recent decision. They do have the opportunity to try and shift the operations on the privately owned land and move forward it would be a smaller.
Calle operation it really doesn't make sense, but sometimes we are forced to do things that don't make sense in order to get around these challenges but.
There they are definitely making good progress on that front and we are confident that they will.
That they'll be successful and in that event. There is we think a pretty good chance it will come with it our five year guidance, but we just felt again to be on the conservative side.
<unk> they'll get there but.
Even if it wasn't the five years, we probably wouldn't see it until the fifth year that five year guidance and so it really.
As.
It's something that's going to be.
And I think good chance it will be six years out seven years out and so we've got it sort of supplying production through the six years six to 10 of the 10 year guidance.
Okay, and just quickly on the dividend.
I mean quite cheap dividend hike again.
Right.
Hosting.
Good.
Our balance sheet is going to make into net cash.
What.
What you hit on it in Kansas.
Hi.
On my numbers on the slide.
Thanks, Paul for you on one one of the house.
That's helpful.
Can you give a little bit more of a push.
Do you think you can give it to another.
She will shape out just to give yourself that extra firepower would you think we could expect to see dividends potentially go higher.
12 months out.
Well, it's important to keep in mind that we do average our dividend over the previous four quarters of cash flow and so as we see this organic growth that we've just discussed over the next few years.
We know that there's going to be upward pressure on this dividend just by virtue of the fact that we do tie it to our cash flows and if we if we see some some renewed strength in precious metal prices that will that will also put upward pressure on that dividend. So it's naturally going to be there.
Richard I can tell you that debt.
We're focused on trying to add to our portfolio and if we're successful now we only do it if it's accretive and if it's high quality. We're very very selective I can tell you that our hit rate is about one on 100 in terms of projects that we look at versus ones, where we.
We close on them. So we are very very selective on what we invest into but our objective is to continue growing the company with ounces from the ground and.
If we're not successful that means that you are right. This year, we're going to build up an incredible clearly strong cash balance on the balance sheet and.
That's not where I would like to be and what that means is that given given.
At the end of this year, if we haven't made any other significant acquisitions in terms of putting money back into the ground. Then we will definitely be entertaining a potential for increasing the payout ratio from 30% to possibly as high as 40% or 50%.
I don't see it jumping to <unk> would be the next natural step would be 40, but that's only going to come when we have the cash to give back to our shareholders, we're not going to borrow to get back to our shareholders we will borrow.
To acquire ounces from the ground, but our focus is on.
On on growing the company, but if we can't if we can't see good opportunities to grow the company and the money will come back to our shareholders.
Yeah, especially given kind of a continuation on them.
Hey, you know unlikely, but time will tell if we start to get too large of a.
Our balance sheet too if you have too much cash on hand.
Then.
Those things can be it's unlikely this year.
Okay. Thank you and last one is just the price and if you read syndicate debt kind of the pipeline for deals with it might've been on I guess, one of the other guys touched on it badly wrong.
Part two on at the moment, how how confident are you.
Once a day.
On the patent is kind of hovering either the Paypal case, there's still quite a lot of west for wheat.
On a seat news flow on deals.
Just to answer that question, Richard I would say.
Probably half.
10 to 12.
$100 million to $300 million of opportunities in the pipeline that we're constantly looking at and then we hope to be able to get a couple of those across the line.
How confident on why I think Randy everything we can to make sure that we do.
Two accretive transactions and I'm fairly confident we'll be successful in 2021.
Very helpful. Thanks for your time guys much appreciated thank you Richard.
One more question please.
Your last question comes from Trevor Turnbull Scotiabank. Please go ahead Trevor good to hear you.
Thanks, Randy and forgive me for the Ultimate last Salobo question.
Could you just maybe briefly.
Talk a little bit about the relationship between the copper and the gold and how.
If youre going to see sustained higher copper prices does that work towards valley, making a decision either one way or the other on the stockpiling issue in terms of.
On the expansion.
Well, there's no doubt it has an impact on that because.
Get a 100% of the copper revenue and about 25% of the gold revenue so the higher copper prices.
We'll definitely incentivize them to push that forward. There is a on a on a on a more global corporate basis down there Vale has a very continually every time you ever see them present, they're constantly focused on trying to expand their presence in base metals.
They have a lot of exposure to iron ore on there.
To continue on message that the.
The expectation is to try and double the contribution from the base metals Division.
Clay.
And for mobile global and global for US continually referenced was on a panel discussion are on this this this week with the BDC, where where it was referenced and so so we do think that stronger copper prices even provides more incentive for them to go down this path.
Try and reap some of the benefit of these copper prices today.
And sorry, so just on the simplest level higher copper grades does correlate with a higher gold grades. So it all works in the same direction.
It's a beautiful that way isn't it.
Yes, alright, thanks Randy.
Thank you Trevor and thank you everyone.
In closing, we do believe Wheaton is very well positioned to continue delivering value to our shareholders for a number of different reasons, firstly by having low and predictable costs that result in some of the highest margins in the entire precious metal space, resulting in very strong operating cash flows secondly, through our steady organic growth profile and proven track.
Third a accretive quality acquisitions thirdly by offering our shareholders exposure to some of the highest quality mines in the world through our portfolio of long life low cost assets.
And lastly by being a leader amongst precious metal streamers in sustainability through initiatives, such as our CSR fund and strong support of our partners and the communities in which we live and operate.
I do look forward to speaking with all of you again soon stay healthy stay safe.
This concludes this conference call for today. Thank you for participating please disconnect your lines.
Okay.
Okay.
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On the road.
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