Q1 2021 Wheaton Precious Metals Corp Earnings Call
Thank you for standing by.
And welcome to the Wheaton precious metals 2021 first quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone key.
Pat.
Or type your question in the Q&A box of the webinar if.
If you would like to withdraw your question press the pound key.
I would like to remind everyone that this conference call is being recorded on Friday may 7th 2021 at 11, a M eastern time.
I will now turn the conference over to Mr. Patrick Drouin Senior Vice President of Investor Relations. Please go ahead.
Thank you operator, 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. Please note for those not currently on the webcast. The slide presentation accompanying this conference call.
<unk> in PDF format on the events page of the Wheaton precious metals website.
I'd like to bring to your attention that some of the commentary in 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 slide two of this presentation and our financial results contain important cautionary notes regarding forward looking statements and I would direct everyone to read.
View those notes in connection with the presentation as well as the risk factors set out in Wheaton annual information form managements discussion and analysis for the year ended December 31, 2020, and Wheaton form 40 F. It should be noted that all figures referred to on today's call are in U S dollars unless otherwise noted in addition that reference to Wheaton.
Or 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.
Okay.
Thank you Patrick and good morning, ladies and gentlemen, thank you for joining us today to discuss Wheaton first quarter results of 2021.
I do hope everyone has been keeping healthy and safe since our last quarterly conference call.
I am pleased to announce that in the first quarter of 2021, Wheaton as high quality portfolio of assets generated record breaking revenue of over $320 million in operating cash flow of over $230 million.
Given wheaton innovative dividend policy. This strong cash flow has resulted in a 40% increase to the quarterly dividend relative to Q1 of 2020.
Marking the third quarterly dividend increase in a row.
In addition, we continued to execute on our growth strategy closing the previously announced stream on the close them and mine located in Mexico, and announcing a new stream when the census Domingo project located in Chile.
Both assets are owned by Capstone a company. We are very pleased to re partner with as they grow these exceptional assets.
Hey, Sam will provide more details on our corporate development activities later in this call.
Our organic growth profile continues to advance with had been announcing that they are on track to achieve production from the public conscious deposit income direct get the Constancia mine in the second quarter.
Two of our development projects transitioned into operating mines in the first quarter with Wheaton, receiving silver from electrical Keno Hill, and cobalt from Vale Vale, our Wallet's avoid these base.
Lastly, our confidence in our ability to deliver continued long term organic growth from our portfolio led us to introduce 10 year production guidance for the first time. In addition to our usual one in 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, Our 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 190004 hundred gold equivalent ounces in the first quarter of 2021 comprised of 77700 ounces of gold $6 8 million ounces of silver 5800 ounces of palladium.
And $1 2 million pounds of cobalt with Q1, representing the first period that the company had reportable cobalt production from the Boise based stream.
Cobalt production in the first quarter of 2021 includes some material produced at the Boise's Bay mined from prior periods as the company is entitled to any cobalt process as of January one 2021.
Relative to the first quarter of the prior year. This represented a decrease of 2% on a gold equivalent basis with lower production at <unk>.
Lobo being attributable to lower throughput and grade due to unplanned maintenance during the quarter being partially offset by the first reported production relative to cobalt.
On a gold equivalent basis sales volumes were virtually unchanged as the decrease in production was offset by a 4200 gold equivalent ounce decrease in ounces produced but not delivered or P. B and D. In Q1 2021.
As of March 31, 2021 ounces in <unk> amounted to approximately 136000 gold equivalent payable ounces, representing approximately two three months of payable production. This amount of PP&E is consistent with the average PP&E balance of approximately 140000 gold.
Trivalent ounces over the preceding four quarters.
Revenue for the first quarter of 2021 amounted to $324 million, representing a 27% increase relative to Q1 2020 due to the increase in the average realized gold equivalent price.
Of this revenue, 41% was attributable to gold sales, 54% silver, 4% Palladium and 1% cobalt drew.
Driven by the increase in commodity prices gross margin for the first quarter of 2021 increased 42% to $175 million.
Cash based G&A expenses amounted to $11 million in the first quarter of 2021, representing a decrease of $1 million from Q1, 2020, primarily due to lower accrued costs associated with the performance share units or psus.
The company continues to estimate 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 for 2021 <unk>.
During the first quarter of 2021, the company fully repaid its outstanding debt under its revolving facility with interest cost during Q1 amounting to only $200000, resulting in an effective interest rate on outstanding debt of $1, one, 7% as compared to $6 million of interest costs at an effective intra.
Rate of 3.03% incurred in Q1 2020.
Net earnings amounted to $162 million in the first quarter of 2021, 71% increase compared to $95 million in Q1 2020.
Basic adjusted earnings per share increased 54% to 36 compared to <unk> 23 in the prior year.
Operating cash flow for the first quarter of 2021 amounted to $232 million or <unk> 52 per share compared to $178 million or <unk> 40 per share in the prior year.
Representing a 30% increase on a per share basis.
Based on the company's dividend policy. The company's board has declared a dividend of <unk> 14 cents a share payable to shareholders of record on May 21, 2021, a 40% increase from the comparable quarter of 2020, an 8% increase from the prior quarter and the third consecutive quarterly increase highlighting the.
Patients that the company's unique dividend policy provides two increase in commodity prices.
Under the dividend reinvestment plan. The board has elected to offer shareholders the option of having their dividends reinvested in newly issued common shares of the company at a 1% discount to market.
During the first quarter of 2021, the company repaid the $195 million, which had been outstanding on the revolving facility invested $150 million relative to the Cozman stream and $4 million relative to the brewery Creek royalty with these cash outflows being partially offset.
By proceeds from the sale of first Majestic shares generating proceeds of $112 million and $5 million from the exercise of stock options overall net cash decreased by $2 million in Q1, 2021, resulting in cash and cash equivalents at March 31 of 191 million.
And no outstanding debt that concludes the financial summary, and with that I will hand, the call over to hate them for an update on corporate development.
Thank you Ryan and thank you all for joining us today I'm sure by now you've all had a chance to go through the economics on our newest stream on Capstone Center Domingo <unk> project located in Chile, hopefully you're as excited as we are in this one as you can see from the attached slides we've entered into a gold stream on a poly metallic assets and thats exactly when streaming works.
As you are taking precious metals that are a company that is getting a base metals valuation and getting a re rating within wheaton.
Which we're also able to share with our partner and our acquisition price and that ensures a win win scenario.
It's a life of mine stream on 100 percentage of the gold dropping to two thirds of the gold after a certain threshold ounce number has been delivered with an 18% production payments that increases to 22% once the upfront deposits is reduced to zero.
Total stream deposit is $290 million $30 million of which was paid on April 21, with the remainder to be Patriot construction.
Fully permitted project and assuming everything keeps moving forward at the planned phase could be contributing as early as 2024.
We also see significant upside with potential for increased throughput and a cobalt circuit, which would actually increase our overall gold reserves down the road.
This project is a long life assets with low operating costs falling in the first cost quartile that will continue to contribute to the high quality of our existing streaming portfolio.
In addition, I'd like to give you a bit of an overview on our streaming opportunity landscape.
Needless to say, we've been quite busy lots of new precious metals streaming opportunities to look at where the majority of falling I would say into the $100 million to $300 million range, primarily development stage opportunities that fit into our early deposit structure, and where we're taking precious metals as a byproduct from base metals mine and as I said, just a little while earlier this type of opportunities where streaming works.
Best.
To a lesser extent theres a few opportunities that are focused on funding expansions not much. These days in the way of balance sheet repair, but strong commodity prices tend to fix that for a lot of companies. The fact that streaming is considered for all of these areas further highlights the competitive cost of capital and flexibility to streams can provide relative to other financing options.
Also been some royalty packages in the past and we do take the time to look at these packages, but none have made sense from Wheaton perspectives in large part because of their size or because they come with a significant amount of non precious metals revenues and we are continuing to focus from precious metal streams. I would also note that the valuation for these royalty packages or are often ridiculous as junior.
Up and coming royalty and streaming companies tend to overpay, regardless of quality just to build scale in an effort to get to the higher valuations thankfully. We can continue to focus on high quality streaming assets. All in all we're very optimistic that we can continue to deploy our cash flows to accretively add quality streams in the current environment. Thank you everyone and over to you Randy.
Thank you Haytham.
We are pleased to reiterate our 2021 and long term production guidance previously announced in February.
For 2021 Wheaton estimated attributable production is on track to produce between 370 to 400000 ounces of gold.
22, 5% to 24 million ounces of silver and 40 to 45000 gold equivalent ounces of other metals being cobalt in palladium.
Amounting to total gold equivalent production of approximately $720 to 780000 ounces.
As our strong development pipeline continues to deliver organic growth I would like to highlight a few assets to watch for as we look toward the rest of 2021.
As I mentioned at the beginning of the call in April Hebei achieved a significant milestone as they completed the final land user agreement for the public onto deposits at Constancia.
<unk> has commenced development activities in the open pit and the first production is expected in the second quarter of 2021.
At Salobo Vale has reported that physical completion of the Salobo III expansion was at 73% at the end of the first quarter and remains on track for startup in the first half of 2022.
And lastly, we closed our previously announced stream on Eris, Eric Gold's more motto mined last month in advance the initial upfront payment of $34 million for six 5% of the gold and 100% of the silver produced at from the mine.
We expect to record our first production from our motto with our second quarter results, which will include a catch up from the effective date of this of the stream back in July one of 2020.
In summary, Wheaton recorded a strong first quarter distinguished by several key highlights.
We achieved record revenue and declared a record quarterly dividend, which was the third consecutive dividend increase in a row.
Our commitment to accretive growth was emphasized by the announcement of a new stream on the centre Domingo project located in Chile.
Where we are pleased to once again be working with our partner Capstone.
While our portfolio continues to remain heavily weighted to precious metals Wheaton received an inaugural cobalt production from the from Vale is Boise's Bay mine, which we consider to be one of the most sustainable sources of cobalt in the world.
Wheaton has always strive to be a sustainability leader and we were honored to be recognized by external rating agencies for our performance in this area with sector leading scores.
We look forward to updating the market on our journey and our second annual sustainability report, which will be published later this month.
And lastly, we believe our portfolio continues to deliver ample opportunity for organic growth the benefits of which we expect to see from assets such as Constancia Keno Hill and avoid these bay here in 2021.
So with that I would like to open up the call for questions operator.
Operator, we're ready for questions.
Yeah.
Okay.
Operator.
Yeah.
Uh huh.
Hello, operator.
Okay.
Yes.
Okay.
We appear to have lost connectivity with the operator.
And so.
And I'm not sure if everyone else can hear us so I'm just going to summarize because we're not getting any questions here.
I just want to thank 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 and predictable costs, which coupled with leverage to increase in commodity prices resulted in some of the highest margin in the entire precious metals space.
Sorry, Randy.
To do this to you, but if we could them actually theres a few questions coming on via email that maybe we can go ahead and answer sounds good despite the technical difficulties.
With the operator.
The first one.
From Jackie <unk> of BMO.
She is asking if we could please talk about cobalt sales.
As they they were below production in the quarter.
And perhaps we can also again elaborate a bit more on the the strong production we saw in cobalt as well sure.
With respect to any new stream as it comes on there's always going to be a bit of a working inventory build and typically in most of our precious metals mines. We guide towards two to three months worth of production from each assets, depending on whether it's a dore product or whether it's a copper concentrate now what happens is we do have several assets that are very vertically integrated.
Sudbury is one that we've had for many many years now.
Where the finished product that goes through the smelters in it as a finished product that we receive and it's the same now with voice These bay cobalt.
It is not only mine that the voices Bay operation, but it's now it's process due to the smelter that long harbour, which means that the period that it didn't in process is a much longer period, because it gives the touch a vertically integrated operation.
Our guidance would be that we expect to have about four to five months worth of working inventory.
In process now the way the contract was structured with malaise that anything that within working progress as of January one is to the credit of Wheaton and so we stepped into this contract with acquiring not only the actual production from Q1, but also the working inventory that was in the system and <unk>.
Being wintertime it was likely a bit of a.
Higher inventories than normal just because of shipping shipping.
In winter through through that area and so so all in all it means a much higher working inventory at the at the site itself and that's what we've reported is the higher production sales of course.
As we took over ownership of this stuff in inventory, we had to fill up the sales end of it and start we have our own warehouses and our own sales agency itself. So we had to.
Our first sales didn't happen until the near the end of that first quarter and Thats why sales are so much lower than the overall inventory but.
With respect to avoid these day, we will continually buildup or we continually have probably about four to five months worth of production in sort of a working inventory in process.
Alright, so we're going to we're just going to go with its formats, Michael javelin has reached out and assets.
The thoughts on barrick's successful drilling so far at Lamour, including the Penelope peds, and whether or not you had thoughts as to whether we are entitled to that material as well, yes, we get 25% of whatever silver is produced from any of that area in the past, while and the Lama side of the border and so.
We recognize that as exploration potential we did the original transaction.
But we never really felt that we were going to see production from that the pascua Lama deposits is definitely a core focus area, but but with the Penelope in other regions around the lamp.
Having capacity to deliver upside value.
It further reinforces why we wanted to keep the stream, even though we had the option to collapse the stream and get our money back from Barrick, We chose to keep it. This is an asset that we're confident will eventually deliver a metal to us in one form or another it sounds like it will be coming.
Yeah.
Another question coming in Randy as far as the discussions on Papa concert with high Bay, if we can provide any additional color on.
That is for the penalty payments that were to be due coming at the end of the second quarter will look Wheaton has long prided itself on being a partner in.
In our streaming agreements in Hebei is of course, a very important partner for us from from Triple seven all the way through to Constancia and ultimately to Rosemont.
And so we will work with them I mean, we do have to preserve the reason we have these these <unk>.
Measured in place these penalty payment mechanisms in place to protect our own shareholders and the value that we have.
We've delivered but we will work with HUD Bay, we are in discussions with them to find a way that will deliver good solid value to not only preserve the value that we have but also work and provide some support to hot band. So that's that's a discussion thats in process.
Okay.
I'm just going to ask one more time is the operator on the line currently.
Okay I appreciate the emails command will stick with the questions as they are coming in and I. Appreciate the analyst you you're rolling with a time Theres a technical issue we're having.
Okay.
Okay can we start queuing up the questions I do see that there is.
People in the queue.
Okay. Thank you, ladies and gentlemen, we will now conduct the Q&A portion of the call.
I think we can skip you frankly have already started okay.
Okay.
Tyler is.
Yes.
Your first question is from Tyler Langston.
Yeah, Hey, good morning, everybody.
Thanks for taking my question.
Thanks, Todd and thanks for your patience.
No problem.
It does it with ISO level I think Randy maybe last quarter, you had talked about that you're hopeful that they might.
To close the value might be close to making a decision on whether they would.
Stockpile, the low grade or maybe sometime in the first half of this year, just kind of any any updates or thoughts there.
Yes, and this relates to the mining plan for the phase III Phase III comes in what what what portion of the or will they stockpile versus feeding through the mill.
Great profile do they choose to move forward with it is an active discussion we've we've been in talks with them. They haven't made any final decisions yet and so we're continuing to work with Vale to see which direction.
It should go.
It's quite clear that.
That in the copper industry worldwide in large scale open pit theres, a lot of economic sense and especially in today's price environment. There is a lot of economic sense in.
And moving some of the higher grade products forward and stockpiling low grade materials.
It makes strong sense and every corporation copper operation in the World and so we're hopeful that Vale does choose that path or can choose to continue on that path. That's what they're doing right now with the first two phases.
Again, we're just waiting for a final decision out of that group.
Okay. No that's helpful and then just.
One more additional question on slope I guess I think in the release you mentioned that production was impacted by lower throughput I guess there were some changes made maintenance routines.
It's largely be behind them going forward, just how to think about that.
Yes.
It was really.
They basically had to go through a bit of a safety reset on the maintenance side.
Because of a couple of incidents that they had in the fourth quarter of last year.
That we strongly strongly support.
Net zero harm is always an objective that we want all of our partners to strive for and it is exactly what valet striving for and so they had to go through a bit of a reset in the maintenance side and what day.
<unk> had an impact really was equipment availability during the first quarter.
They are definitely better than they were at the start of the.
They definitely have improved but there is still some some progress to be made again it has to be done safely and we're in full support of that but there may still be some residual impact into the second quarter.
The advantage of the opportunity here is to in terms of making sure again that.
All the operations and run with net zero harm.
Perfect. That's it from me thanks, so much.
Thank you.
Your next question comes from the line of Ralph <unk>.
<unk> from eight capital.
One Ralph.
Good morning, Thanks for taking my questions.
Randy and maybe Haytham.
When I look across the weighted stream portfolio.
The majority of term exposure is a life of mine and however, I'm seeing more and more transactions happening in the market with these buyback options on the part of the operator and I'm. Just wondering would you say that that's a characteristic that you're seeing in some of the some of the corporate development activities that youre looking at.
Are you open to those types of deals and I guess my my second question is would you carry a higher investment threshold.
When you look at those types of deals given the potentially lower optionality.
Hi, Haytham I'll, let you answer that one.
Sure you bet. Okay. Thanks for the color. Thanks for the question Ralph and just to answer your question, Yes, we are.
Seeing a lot more buybacks at least by our competitors.
Buybacks are appropriate for certain size companies for junior companies that are building and have a strong potential for an acquisition opportunity where they're going to be acquired we see that is pretty important to them what <unk> seen in our transactions in the past is we've offered buybacks in the event of a change of control, but in that in that.
Buyback, we do tend to get some pretty reasonable returns.
If we're looking at.
Buybacks without a change of control, we really are quite opposed to that unless we're getting a return that's well well above our typical returns for these streaming opportunities than our typical return I believe is somewhere around 17%. So we'd be looking for something between 25% to 30, if we're going to do something to that effect, but again, we're opposed to that.
We're really pushing on the life of mine contracts with buybacks for these junior companies and these early deposit structures only in the event of change control Ralph.
Fair enough good point, yes.
And then if I can just maybe have a follow up.
<unk> total pizza hut is talking about sort of alleviating some of the some of the permitting on on federal lands by going sort of with a smaller footprint on non federal lands. Just wondering if you have sort of any early indications of what that could mean in and if the footprint and the scale of the project changes how does that impact the $230 million contingent payment.
Based on a certain output to throughput thanks.
Yes, I'll take that one Ralph.
First off it will have an impact it's not so much the actual operation itself. The deposit itself. So mining will still be along the lines, where it has an impact is where do you store your country Rocky a waste dropped disposals and linear stockpile you're.
Your tailings.
And that's that's going to have an extra cost to it if you're limited in terms of that and so you always hate if an operation is going to go forward.
I mean, I'm a believer, we should always try and make these things as efficient as we can.
And costs like that all they do is drive up the impact of these operations and used only getting the same benefit and so so it just makes sense from all perspectives from any any sustainability perspective anything along those lines to make sure that we do this as efficiently as we can.
So I am hopeful that they are successful in terms of being able to do it the best design basis, irrespective of federal lands or not but but so the deposit itself. Those extra costs will obviously have an impact in terms of cutoff grades and stuff like that but the deposit itself has very very high.
Margins and so therefore, it shouldnt be.
I wouldn't expect any significant impact at all actually and in fact, I would say that.
Ill.
Some of the exploration success that they've had in the area.
We will be a very very Pleasant addition to from from from a value perspective, we've always felt that was good strong exploration potential there and it just hasnt been explored because it's been in a tied.
Tied up in our permitting process for such a long time.
Nobody nobody likes the variability of exploration success, and what kind of an impact that may have but this is now looking.
Even we're starting to see evidence of that exploration potential.
With respect to the actual contract itself that we have because it's a development contract where were funding construction there'll be completion tests.
At certain levels of production that has to be attained standard format for our construction funding contracts.
Got it okay, well understood. Thanks, Randy Thanks.
Thanks, Rob.
Your next question comes from the line of Jackie.
Black ski.
From BMO capital markets.
Alright, thanks very much.
Just wanted to ask a follow up to the question that that Pat Patrick Red already.
On cobalt sorry to go back to this but can you can you just give me an idea just because I'm trying to.
So to fine tune My model is the production that you reported for Q1 cobalt from <unk> is that is that something that we would expect to see sort of a nice steady state run rate do you think thats.
Jacob.
Where cobalt should be going forward.
No it's actually light for a steady state run rate, mainly because we had to get our own systems in place in terms of warehousing and buildup.
With the agency agreement that we have built up inventory and start having a per sales. So our first sales didn't actually occur until near the end of the first quarter.
When you look at the overall production.
And you see.
I mean again the way we typically run these things as I mean, we've given our guidance in terms of production on a per year basis.
This is going to require about four to five months worth of working inventories. So if you just take a little bit less than half of that annual production number. That's that's what we will probably wind up having in a working inventory basis from <unk> Bay and it is going to be.
It is going to have some a bit more variability than what we've had or volatility than what we have in some of other materials mainly because.
These are lump sum sales, we tend to sell a block of cobalt at a time and so depending on whether it happens before court vendor after quarter end is going to have a bit of an impact. So we will have some volatility in terms of the sales numbers that of Boise's Bay.
But.
I think that if you.
Blue your eyes, a bit I would set aside about four to five months worth of the share of annual production keep that as a working inventory and then of course, our annual production should be about.
Sorry, our quarterly production should be about a quarter of our estimated annual numbers.
Yes, maybe I'll just add some additional color there.
<unk>.
This was the first quarter that we were entitled to.
Cobalt from voices Bay, and and were entitled to anything that had been process, but not.
Sold.
That was.
No.
Sitting in inventory.
As at January one.
2021.
<unk>.
There is probably.
Four plus months of.
Production that had been that was sitting in.
And inventory at January 1st So you know.
Our production run rate.
That is attributable to us is estimated at about 400000 pounds a quarter.
Yes, Okay that that's really what I was.
So I had been modeling the production number that you reported.
So I guess on the positive side just wondering if we were just walo unproductive, but that's that's really helpful. Thanks. Thanks, Gary.
If I can just ask one other question.
You are of course Gen results for Q1, it looks like at least in my numbers and from what I can see the consensus numbers as well was a little bit lighter than expectation on gold and a little stronger on silver and it seemed like it kind of worked out too.
Two being kind of net net.
I noticed you haven't changed your guidance are you expecting that ratio just a reverse and Angola will strengthen going forward from here.
Well.
Gold of course, Salobo is a very important part of our gold production global though there's a bit of a safety reset that's still in process. There and valet is taking that very seriously as they should and so.
That's unlikely to be made up.
You can process more tonnes through the mill the mills only got a certain amount of capacity and so so with the with the lower production in the first quarter.
It will climb back up to the regular run rate as these these new safety measures are fully embraced and everyone.
Net returns back to normal operating rates and so.
I don't think we will probably not see.
Some of that gold production that we missed in the first quarter, but.
Fortunately, we had opinion keto step up and deliver on the silver side.
As an offset.
Again, the benefit of how diversified our portfolio is is that when we have one asset week to have it made up elsewhere.
Has done very well for us.
Absolutely that's it from me thanks, very much thank you Jackie.
Your next question comes from Cosmos Shue.
From Ci BC.
Alright, Thanks, Randy Gary Haytham, Patrick we made us technological difficulties.
Can I ask my questions now.
But maybe.
My first question is on costs.
I noticed that cash costs in Q1 was $6 33 per ounce for silver.
Higher than last quarter.
Part due to the others category, which was $9 41 per ounce.
Could you maybe talk a bit more about that is that is that electrical and what should we expect for the remainder of 2021.
Well.
Well Gary.
Yes, I mean.
From a cash cost perspective.
<unk>.
Certainly the primary driver of.
The increase in.
In the silver cash.
Cash costs.
And it's just a mixture you've also got.
Streams.
Like and to Mena, where we're paying.
Percentage of spot so as spot prices increase so does so does our production.
Payment.
It's a combination of cros.
We do also have some other contracts, where we have incentives for production and higher production payments for higher production levels and that would also feed into some of those contracts and so so.
It's a combination of all of the above.
Gotcha.
And then maybe a quick question here on Santa Domingo.
Hopefully you're kind of monitoring the situation in Chile, I guess youre talking about higher taxes, who isn't.
But is this keeping you up at night Haytham or how should we look at it would you like to make a comment on.
The potential impact.
Yes.
I'll talk to in a word there first and then Haytham you can add in if he wants but.
That's one of the reasons that we do focus on first quartile.
We focus on assets that have the capacity to handle impacts like this and still be profitable for all of the stakeholders, including governments and communities and the likes and so that is an incredibly important aspect of our investment I think it's something that really.
We try and differentiate ourselves here at Wheaton in terms of focusing on this as the bottom half of the respective cost curve Santa Domingo as a first quartile producer.
That being said.
We are seeing this around the world as you've as you alluded to there what government isn't trying to raise tax revenues to try and fund the programs that they are all having to implement around the world and so so again. This is this is something that we're used to seeing I mean, some of the some of the increases in Chile are quite surprising in terms of the <unk>.
<unk> and the difference in the.
You do get concerned that it's going to have an impact on other investments into the country versus other countries.
Perhaps is going to make countries like.
Like Peru, Ecuador.
Or can be an even more attractive from that perspective so.
It's something that.
You do monitor, but again it really reinforces the.
The importance of having good strong operating margin. So that we can handle stuff like this and still deliver positive value to all stakeholders. So pay something you want to add anything to that.
I know you hit to know Randy Hester, Randy I think the only thing that I would say is this is Ron.
You said in terms of cost per tonne first cost quartile assets payback on this based on the economics at the time were less than two years. So this is a phenomenal project is fully permitted copper iron ore iron oxide copper gold project.
If you look at what Theyre doing in terms of overall cost to reduce costs they've entered into this agreement with <unk> on the on the port there working on agreements.
To replace Iron pipeline with rail option. So there's so many different cost savings at this project is really only getting better. So it's unfortunate that everyone is trying to get their own extra little bit of tax, but I can tell you. This project stands on its own.
Of course, maybe.
Maybe one last question here.
As we've heard from.
Silver producers silver operators.
It's much harder to make acquisitions on silver deposits as we've seen a lot of silver producers are day.
Diversifying and acquiring gold assets is that the same case in terms of the royalty and streaming business are you finding it harder.
To make acquisitions and silver versus gold or is that not really the case.
While there is definitely a bias silver tends to be more common byproduct from lead zinc operations and we havent seen a lot of investment into the zinc space of late we still haven't seen a big kick up focus on gold sorry to focus on the copper that we can focus on copper.
And and even nickel to that extent tends to have more of a gold byproduct than it does the silver byproduct and so so we are seeing more gold than we are silver.
It is to me one of the factors that does make silver. So attractive is the fact that there's just not a lot of growth coming into the space and I agree it seems to be a natural progression that that all silver companies eventually become precious metals companies because they just don't they.
They can't find enough opportunities to grow in the silver space and still stay focused in the silver and it kind of highlights it and so yes, we definitely have a bias towards gold in our corporate development portfolio.
I will highlight that in our Optionality portfolio, we are very heavily silver bias, obviously pascua Lama.
Rosemont is dominant silver production.
Navidad is dominant silver production and so.
So.
It's a.
The Optionality will deliver some good strong silver growth over the over the next few years as we continue to add other opportunities that we will probably net tend to be more gold focused.
Great. Thanks, again, Randy and team those are all the questions I have have a good <unk>.
Weekend.
Thank you Cosmos.
Your next question comes from <unk>.
Anything.
Australia Alliance.
Great. Good morning, guys. Thanks.
Thank you for being with.
The technical challenges.
A little bit about it on the last conference call. It didn't look like you got a premium in the first quarter on the realized the cobalt price can you give us an update on the marketing side of it and how that's progressing.
Sure.
The cobalt from <unk> Bay of course is all produced at long Harbour. So it's got good clear provenance, all the way down.
We have we've entered into an agency agreement. So we have a representative that market since product day representative.
Of course, very familiar with the product they've they've been marketing it now for about the last five or six years and so it is a preferred product that.
It goes out to market there is theres, a clientele that understands the product and understands wood, what it's what it is best used for and so so.
In a sense, we've been able to take advantage of some of the some of the learnings of the previous when we sort of wrap that into our own portfolio.
Our into our own actions now.
No.
This is a bit of a.
This is a new product for us and so there's going to be a bit of a learning curve for us where we are studying it and trying to find ways to even deliver more value as we can again, our belief behind the quality of the production from Boise space with <unk>.
Partner like valet and with an.
An asset like Boise space.
This is this is a product that should stand out in the cobalt space as a preferred product for for any anything out there that and especially given how important provenance is.
We're really happy bringing this product into our overall portfolio.
Okay, great. Thank you.
Your next question comes from Richard Hatch from <unk>.
Baird.
Yes.
Yes good.
Good morning, Randy and team. Thanks, very much for your time and just a quick one pump per ton chat and can.
Can you give us any kind of Steve as to how.
How we should think about extra.
Extra deliveries and we see it just a case that we have to kind of wait and see how that.
Discussions with.
Appreciate it's pretty small, but just kind of getting to think of it.
Sorry, and the public.
<unk> is expected to be producing by here in the second quarter of this year.
I think you might be referencing the penalty payments sorry, yes.
Yes, sorry, sorry, if I wasn't clear exactly yeah.
And so we did.
Given the challenges that <unk> was facing especially in the pandemic and trying to sort of work forward with the community down there, but having all of the restrictions on the pandemic, we did give them a six month waiver and extended.
Some of the deadlines in terms of in supportive of their challenges of trying to work their way through the pandemic and moving forward to have finally been successful, but it is a bit.
It was a bit later than expected and.
I mean.
I can't give you any more color because we're still in discussions with them. So there hasn't been any final decisions, but we are we.
We do intend to be supportive of what day. There. There are good strong partner of ours, they're a partner that recognizes the value of streaming in terms of helping them build their company and what we can actually deliver as they partner with theirs and so so I can't go into any other detail other than the fact that we are in discussions with them to find their way.
It is interesting.
There is higher payable rates for the for the public conscious than there is for the main constancia pit.
Just because of the higher precious metal grades it gets better recoveries.
And so.
There's all sorts of opportunities. They have also acquired some additional land in the area. There's there's lots of opportunities to discuss and work together our intent as always is to come up with a solution that not only preserves value for our shareholders, but also delivers value to their shareholders and find a way to to make sure that it's a win win situation and until we finalize those discussion.
<unk>.
There is no more detail to provide because we just don't know what the final number is going to be.
Okay, Yes understood.
No worries. Thanks, Thank you for that and then just on net.
Can I just ask one follow up.
<unk> talked about this last quarter just on dividends.
Can you slow down your first majestic share $112 million in the bank makes net cash.
Completely appreciate that with the rising commodity price and the way the dividend policy each kind of price.
Is a natural.
Rising dividend payment.
Just due to the nature of the policy and the way the commodity price has made.
And net cash balance sheet.
Wages total price or sold on kind of raising that dividend and efficiently even higher I mean this is still the case that we right from the second half do you see how the business plays out and then consider it.
Any other sort of change fees average kind of steady as she guys.
Well it's a.
Before the end of this year it will still be steady as she goes we have entered into a number of contracts, where we're actually drip feeding into construction as these projects go into construction and so there will be some cash going out the door.
And then Haytham as he described earlier on as he and his team are incredibly busy on the corporate development front.
There's a lot of base metal interest in the world right now with copper prices in nickel price is doing what theyre doing there is a lot of.
Interest in sort of funding and investing into growth in that space and I would say the base metal industry as really woken up from our slumber amongst lumber and is now really focused on how do they grow.
Highlight how how much value stream delivers to our base metal assets. When you are looking to build or expand the amount of capital that we contribute versus the share of revenue that we takeaway will always improve the project's internal rate of return and we always deliver a higher value from those precious metals.
That we're purchasing than what they are being valued in the in those companies' portfolios and so it just is it's such a positive net.
And we really saw that I think quite strongly and capstone share performance once we announced the Goldman deal back in December.
It's just.
It's the best way.
Equity to provide equity financing for these projects going forward and so so we do see a really big opportunity set right now on the corporate development front.
Challenge to anthem, and so far he is doing a pretty good job of stepping up to it in terms of spending the money as fast as it's coming in but we will see obviously, we'll build up a bit of a war chest, but we don't want anything to get too big I would expect that.
Next year, if we haven't made any significant investments in force still well to the positive from a cash balance than we will be getting some serious consideration to what that dividend whether that whether the dividend stays at 30% of cash flow or whether it claims to 40 or 50 or whatever we will we will.
We'll sort of see as it goes but our primary objective is to continue looking for accretive acquisitions and put that money back into the ground and what I call. The best of both of the World is ounces from the ground.
And Richard if I can just add to that.
We have really seeded our organic growth profile ignoring.
What haytham.
<unk> team.
Are evaluating right now so.
We've got.
The Rosemont.
The development project.
Santa Domingo now we've got the deep zone at my motto.
The salobo expansion.
And.
So if you if you look at.
The payment profile associated with that we've got about $1 6 million billion dollars of.
Of payments that come due when those projects either get completed or start moving forward. So we always.
Take take all that into account when when making capital allocation decisions.
Okay, very very helpful and.
Thanks, Randy Thanks, Gary and net congrats on a very good close once again thank.
Thank you Richard one last question please.
Your next question comes from the line of Matthew Murphy from Barclays.
Yes.
Hi, I'd tried to withdraw it but since.
Since I'm here, just not to beat a dead horse on the cobalt just checking the guidance.
Does the guidance that you put out include the work in process material that you inherited before from pre 2021.
I will admit that we underestimated that we expected some but we didnt think it was going to be that much.
So okay, so it might be conservative bias towards.
It looks good for cobalt production this year.
Okay. Thanks, a lot.
Well, thanks, everyone for dialing in and then the patients in terms of some of the technical difficulties at least on that side.
It's kind of nice that we have multiple forms of technology here and we were able to get some questions in from from from email. So.
<unk>.
Look I just wanted to it was a good strong quarter.
We believe that we are very well positioned to continue delivering value to our shareholders number of different reasons, low and predictable costs leveraged to increasing commodity prices and some of the highest margins in the entire precious metals space.
Our portfolio. We believe is some of the highest quality mines in the world. Good long life low cost assets that will deliver value for a very very long time reinforced is with our 10 year guidance, we've put out.
The strength of our dividend policy.
<unk> is linked to our cash flow. So we're going to see continued strength, there, especially as we see the organic growth and commodity prices, providing support for that we're going to see continued strength on the dividend side.
And sustainability is something that's incredibly important for us we work with our partners on a continual basis to try and make sure that combined we as as a partnership delivered the best product, we can for all our stakeholders, including the communities, including the governments, including everyone else's that get that gets benefits from these from these efforts and so it's.
Just the right thing to do and so with that thank you. Thank you everyone for your patience in terms of working through the technical and.
I do look forward to speaking with all of you again soon hopefully sometime very soon face to face fingers crossed thanks again.
This concludes this conference call for today. Thank you for participating please disconnect your lines.
Okay.