Q2 2021 Wheaton Precious Metals Corp Earnings Call
[music].
Good morning, ladies and gentlemen, and thank you for standing by welcome to you.
2021 second quarter results conference call.
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'd like to ask a question. During this time simply press Star then the number one on your telephone keypad, if you'd like to withdraw your question. Please press Star then the number to you.
I would like to remind everyone that this conference call is being recorded on Friday August 13, 2021 at 11, a M eastern time.
I'd now like to 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 that those for those not currently on the webcast. The slide presentation accompanying this call for.
This call is available in PDF format on the presentations page of Wheaton precious metals website.
I'd like to bring to your attention that some of the commentary on today's call may contain forward looking statements and I would direct everyone to slide.
Two to review the presentation to review the important cautionary notes regarding forward looking statements. It should be noted that all figures referred to on today's call are in U S dollars unless otherwise noted in addition reference to Wheaton or Wheaton precious metals on this call include Wheaton precious metals Corp, and or its wholly owned subsidiaries as of <unk>.
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 second quarter results of 2021.
I do hope everyone has been keeping healthy and safe since our last quarterly conference call.
I'm pleased to announce that our record sales volumes in the first half of 2021 have.
Have resulted in both record revenue and cash flow.
This solid performance reflects the underlying strength of our diversified high quality portfolio and has resulted in a 50% increase to the quarterly dividend relative to the second quarter of 2020, marking the fourth quarterly dividend increase in a row.
Okay.
We continued to execute on our growth strategy closing the previously announced stream on the address goal.
One by my motto mine.
Oh, sorry, one more motto mine located in Columbia, and the Capstone owned Center Domingo project located in Chile.
In addition, subsequent to the quarter, we signed a nonbinding term sheet with Rio two to enter into a new stream on the Phoenix Gold project located in Chile.
<unk> will provide details on this most recent transaction later in this call.
Our organic growth profile continues to advance with first production from the <unk> deposit at HUD based Constancia mine in the second quarter.
And at BIOLASE voices pay operation the commencement of the transition from open pit to underground mining.
I am pleased to announce that in May Wheaton published its second annual sustainability report highlighting our strong ESG performance, which continues to be recognized with sector, leading scores from external rating agencies.
The report looks back at a year, where the COVID-19 pandemic significantly impacted lives and communities globally and reinforced the need for all stakeholders to work together to make a positive contribution.
Recognizing this need we launched a $5 million.
Muni support and response fund more than doubling the budget for existing community reinvestment programs.
The fund was designed to meet the immediate needs of communities that are directly influenced by the mines, which we have precious metal streaming agreements.
And wheat and continues to work with our mining partners and nonprofit organizations to identify where funds could make the greatest impact and alleviate pressures, resulting from this pandemic.
Details on the specific initiatives supported by this fund are outlined in the sustainability report, which if you haven't done so already I highly encourage you to download from our website.
I would now 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 interest produced 194100 gold equivalent ounces in the second quarter of 2021 comprised of 9300 ounces of gold six 7 million ounces of silver 5300 ounces of Palladium and 380000 pounds of cobalt.
Relative to the second quarter of the prior year. This represented an increase of 32% on a gold equivalent basis with the prior year's production being affected by the temporary suspension of operations at six mines from which the company derives precious metal as a result of the COVID-19 pandemic.
On a gold equivalent basis sales volumes were 7% higher with the changes in PP&E tempering the significant increase in production in the most recent quarter.
As at June 32021, approximately 138000 gold equivalent payable ounces were in <unk>. In addition to 134500 pounds of cobalt or 1000 gold equivalent ounces with the combined figure of 139000 gold equivalent ounces representing.
Approximately $2 two months of payable production. This is consistent with the average <unk> balance of approximately 134000 gold equivalent ounces over the preceding four quarters.
Revenue for the second quarter of 2021 amounted to $330 million, representing a 33% increase relative to Q2.2020, primarily due to a 24% increase in the average realized gold equivalent price combined with the higher sales volume.
This revenue, 50% was attributable to gold, 45%, silver and 3% palladium and 2% to cobalt.
Driven by the increase in commodity prices gross margin for the second quarter of 2021 increased 46% to $182 million.
Cash based G&A expenses amounted to $17 million in the second quarter of 2021, representing a decrease of $3 million from Q2, 2020, primarily due to lower accrued costs associated with performance share units or psus.
The company estimates that non stock based G&A expenses, which exclude expenses relating to the value of stock options and Psus will fall at the higher end of the previously communicated $42 million to $45 million range for 2021.
Net earnings increased by 57% to $166 million in the second quarter of 2021 compared to $106 million in Q2.2020.
Basic adjusted earnings per share increased 65% to 36.
Compared to 22 per share in the prior year.
Operating cash flow for the second quarter of 2021 amounted to $216 million or <unk> 48 per share compared to $152 million or <unk> 34 per share in the prior year, representing a 42% increase on a per share basis.
Based on the company's dividend policy. The company's board has declared a dividend of <unk> 15 cents a share payable to shareholders of record on August 27, 2021.50.
50% higher than the dividend declared relative to Q2, 2020, and representing the fourth consecutive quarterly increase highlighting the participation that the company's unique dividend policy provides to both production growth and 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 second quarter of 2021, the company made dividend payments relative to the prior two quarters totaling $104 million.
Made $64 million in upfront payments relative to them our motto in Santo Domingo <unk>.
Yes.
We acquired $2 million of long term equity investments overall net cash inflows amounted to $44 million in Q2, 2021, resulting in cash and cash equivalents at June 30 of $235 million.
Also during the quarter the term of the Companys $2 billion revolving facility was extended by an additional year with the facility now maturing in June 2026.
As at June 32021, the company had over $2.2 billion of immediate liquidity, which when combined with the <unk> $300 million ATM program and strong forecast operating cash flows positions the company very well to satisfy its funding commitments and sustain 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 over to hate them.
Thanks, Gary and thank you all for joining us today by now you've all had a chance to go through the economics on our newest stream on Rio to Phoenix Gold mine in Chile, just northeast Copyable and I can tell you that we're very happy to be a stream partner on this project, especially with such as proven management team run by Alex Blackburn has a strong track record of advancing this time.
Deposits as you can see on slide 11, we've entered into a small life of mine gold stream, which starts at 6% and then it stays there for the majority of the reserve life before dropping to 4% and eventually to $3 five with an 18% production payments that increase its 22% upfront deposits reduced to zero.
Total stream deposit is $50 million payable in two installments of 25 million each one payable on closing another one once the EIA is received which is the primary hurdle in Chile.
As well as funding being in place et cetera, It's a fairly simple 20000 tonne a day heap Leach project, which has the potential to expand to a much larger heap leach overtime. The original study by the previous owner was for a project that was four times the size. So although there is no current plan to ramp up to this we do see potential for some future expansion.
Everything keeps moving forward at the plant based this asset could be contributing to Wheaton as early as the end of next year.
In summary, this project has a long life asset with potential for expansions improvement in recoveries results in near term production and is accretive to Wheaton on all metrics. We're very excited to be working with this management team and look forward to helping them advance this asset and the company.
I can also take a minute to update you on the streaming opportunity landscape, we're seeing lots of new freshmen, Australia opportunities. The majority is still falling into the $100 million to $300 million range, primarily development stage opportunities with precious metals as a byproduct, which is obviously where streaming works best we're also seeing streaming being considered to fund expansions and.
M&A opportunities, which is a little bit not much. These days in the way of balance sheet repair, but that's expected and strong commodity price environments.
Optimistic that we can continue to deploy our cash to accretively add quality streams in the current environment and we will continue to look at streams of all sizes, but our focus has always remained on quality over to you Randy.
Thank you Haytham.
As a result of strong production in the first half of the year. We are pleased to reiterate our full year production guidance.
For 2021 Wheaton has estimated attributable production is forecast to range 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 and palladium.
With half of 2021 now behind US we now expect to finish the year towards the high end of our guided range for silver and towards the lower end of our guided range for gold.
On a gold equivalent basis, we anticipate closing the year well within the guided range of $720 to 780000 gold equivalent gold equivalent ounces previously announced back in February.
As our strong development pipeline continued to deliver organic growth I would like to highlight a few assets to watch for in the coming months.
At Salobo Vale has reported that physical completion of this global III expansion was at 77% at the end of the second quarter.
And is on track for startup in the second half of 2022.
As I mentioned at the beginning of the call in April <unk> achieved commercial production from the <unk> deposit, which has gold grades that are significantly higher than the main constancia pit.
As these great as these higher grades into the mine plan public content is expected to contribute to a significant increase in gold production at Constancia through 2025.
And lastly in June <unk> achieved a significant milestone when first ore was produced from the Reed Brook underground mine at Boise space, which we consider to be one of the most sustainable sources of cobalt in the world.
Physical completion of the underground mine extension was at 66% at the end of the second quarter and the Eastern Deeps Underground mine is expected to start up in 2022.
So in summary, Wheaton recorded a strong second quarter distinguished by several key highlights we achieved record revenue and declared a record quarterly dividend, which was the fourth consecutive dividend increase in a row.
Our commitment to accretive growth was emphasized by the closing of new streams on the Arris gold own Mara Mato mine located in Columbia, and the Centre Domingo project located in Chile, where we are pleased to once again be working with our partner capstone.
In addition, subsequent to the quarter, we signed a non binding term sheet with Rio to enter into a new stream on the Phoenix Gold project located in Chile, a strong development project, which we look forward to welcoming into our portfolio of high quality assets.
Our organic growth pipeline remains robust with Wheaton receiving inaugural allowances from the <unk> deposit at Constancia and cobalt production from the underground extension that Boise's Bay.
In the quarter Wheaton published its annual sustainability report highlighting our strong ESG performance and we are on.
There are to be recognized by external rating agencies for our performance in this area with sector leading scores.
Lastly, we believe our portfolio continues to deliver ample opportunity for organic growth the benefit of which we expect to see from assets such as Salobo voice is banned constancia in the in the coming months.
So with that I would like to open up the call for questions. Please operator.
Thank you, ladies and gentlemen, we will now conduct a question and answer session if you'd like to ask a question.
Star then the number one on your telephone keypad, if you'd like to withdraw your question. Please press Star then the number Q.
A speaker phone please lift your handset before pressing any key there will be a brief pause while we compile the Q&A roster.
Your first question comes from Tyler Langton with JP Morgan. Please go ahead.
Good morning, Randy and team Thanks for taking my question.
Just to start on I guess slow, but I think key production.
Was it proved over Q1 levels I think is still impacted by some of that in the mine maintenance changes I guess to this largely.
The behind the company in Q3, or just how do you kind of see kind of production for the second half of the year.
Yes, as mentioned that related to some of the changes in the maintenance.
Again.
Trying to improve overall.
Maintenance practices down there mainly from a safety perspective, so fully supportive of everything that <unk> is doing.
We do expect that transition through the third quarter, we're hopeful that by the end of the third quarter, we should back up be backup to the normal running rates, but we do expect a bit of an impact still here in the third quarter.
Okay, Great and then just.
In terms of the dividend then be at the 30% payout ratio.
Any sense in terms of.
What's your thoughts I guess around potentially sort of increasing that sort of.
Our ratio was sort of in the near to medium term.
Yes, Tyler it all comes down to how effective we arent putting money back into the ground. We've we're obviously generating very strong cash flows.
<unk> and his team have continued.
To keep a good strong list of opportunities in front of us and so closing those transactions.
If we wind up with.
Yes.
What I would call it effective balance sheet, which means not having a lot of cash on hand.
And then the.
Those are not raising the dividend, but if we start building up a bit of a cash balance if we start getting too much to the positive on that side, then we'll definitely be considering that dividend going from 30% up to 40 or 50.
That will come at some time, it's just a matter of timing and what other opportunities we have to to put our capital to work back into the ground.
Our objective is always to sort of add good quality ounces in the ground for the future.
Great. Thanks, so much.
Thank you Todd.
Ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Your next question comes from Puneet <unk> with <unk> capital. Please go ahead.
Hi, good morning could you see that.
Deal on Phoenix can you take us through some of the upside on that asset maybe the exploration potential that grew to it and how you think it will grow because the initial mine plan looks as you mentioned at the top like it can get bigger if you take a look at that big oxide resource.
Sure. Thanks, Haytham I'll, let you take that one along with it.
Sure. Thanks Randy.
Thanks for the question I can tell you that what we're more excited about right now is not so much. The aspiration I've said. This thing currently has about 14 years of proven and probable reserves and a similar amount of years in the M&A resources. So there won't be a lot of focus on exploration drilling at the <unk>.
Essentially is going to be on further expansion, it's going to be on improvements in recoveries.
It's going to be on.
Continuing to optimize the circuit so.
From that perspective.
A project that has the potential to contribute right now about $4 to 5000 ounces a year, but yes.
Over time, I think this could double triple or even quadruple dependent depending on how much success they have.
Okay.
And then just.
Valeant Salobo.
There is a little bit of delay in the start up it looks like from the first half of next year to the second half Valley's released didn't have much to go on is there any more color you can provide on that.
Okay.
Well I can I can just say that some of the challenges that Vale has had at salobo in terms of managing the risk from the pandemic.
It has had an impact they've had to ship out non essential staff and sort of limit.
People on site as part of their risk management system down there and we.
<unk>.
We kind of expected in fact, we were surprised that up until now it hasnt resulted in much of a delay but.
That is going to have a bit of an impact and I think thats really where I would point the finger too.
On the timing of that completion of of global III.
It's mainly related to some of the challenges they've had in terms of having staff on to.
Limiting staff on site and in terms of.
Moving that forward so so.
It's still well on track they are still moving forward they.
They did focus on critical path to try and keep it going online, but sure enough it.
It had a bit of an impact it's gone from the first half as you mentioned first half of next year to the second half of next year.
Okay. Thanks, Randy.
Thank you Bernie.
Your next question comes from Trevor Turnbull with Scotiabank. Please go ahead.
Yes, Thanks Randy.
I just wondered if you guys could comment a little bit on what happened back in June where some of the finance ministers had talked about really moving ahead on something like a global minimum tax and I. Just wondered how you guys are thinking about that in the event that it does get <unk>.
<unk>.
And if theres any changes you would envision with respect to how you do business.
Well it's.
It's an interesting topic.
I would say.
I think the thing that stands out to me the most is probably there.
A number of hurdles that would have to be overcome in.
It's good to listen to the most developed countries in the world. The G. Seven talk about implementing this but the.
The OECD is made up of another 132 countries outside of the G. Seven and you would have to get alignment amongst that that number in.
Yes.
I just find that probably one of the biggest hurdles in terms of going forward with that and we've already seen.
A number of countries.
GAAP up and say that they're not supportive of moving forward or something like that and then others say that.
That they would expect compensation for having to give up some of that freedom that each of these countries. Currently has and so so I just think there's going to be a number of hurdles in terms of moving that forward.
Obviously anything that happens would be across industry.
Across industry and across all industries and so it would be.
Our uniform impact on.
All companies.
There has been some discussions about some exclusions for resource focused countries companies.
Companies are resource focused businesses and also transportation businesses and so there is just so many variables at play that it's really tough to sort of quantify this.
What I will confirm of course and it doesn't take it.
It doesn't take me to highlight this is that we're seeing this all around the world is one of the reasons that we're so bullish on precious metal prices is that.
Countries around the world, they're all scrambling to try and find revenue to trying not not balanced the books, they've given up on trying to do that that just trying to minimize or lessen the amount of.
Negative.
There is on their balance sheets.
As a country goes and so so this is this is all pressures related to I would say fiscal mismanagement, all the way around which makes me even feel more bullish about precious metals as a as a as an investment medium and so.
It's something that we're seeing around the world we're seeing it.
Locally in certain jurisdictions and of course, we're hearing at the <unk> level and.
There's a lot of.
There's a long ways to go before I think we'll see anything concrete out of this.
Yes, no I appreciate that and we're talking we're talking about significant hurdles whenever you're trying to get alignment with with numerous groups and obviously theres a lot of hypotheticals.
That would come into play which makes us.
Very difficult kind of discussion to quantify we.
We do get a lot of questions on it and I guess the only other follow up I might have is that in.
The event it does manage to go through.
A way that it looks like it would impact Wheaton.
Do you have any sort of tax shields that you could use in a situation like this or would you be somewhat nakedly exposed.
To this type of kind of overarching minimum tax.
Well it's.
Without any type of framework in terms of what would actually be coming in it's really tough to comment on something like that theres. Just so many variables that come into play.
Yes.
We are a responsible company when it comes to paying taxes, we pay the appropriate taxes required taxes everywhere and do that support and that provides so.
No.
I can just say, it's really tough to comment on that without some type of.
Framework as to what we what we'd be expecting and so.
All I can tell you is that we.
We are a company that focuses on making sure that we deliver.
To deliver the best we can to all of our stakeholders and so whatever comes out of this I assure you we will be doing the best we can to manage that.
Okay I appreciate that Randy Thank you.
Your next question comes from Jackie <unk> with BMO. Please go ahead. Thanks.
Thanks, very much I just wanted to follow up on that question I mean, what has been asked already but just to follow up on Phoenix.
Ted.
In response to his question you said that there is the potential to double or maybe triple.
That some volumes coming out of Phoenix.
You guys have any sense or can you give us any kind of guidance in terms of like what the what the timing would look like win win.
When <unk> is maybe planning on doing at least.
Early level studies on that expansion, just just to give us a sense of like.
When we should be watching for that.
Haytham I'll, let you take that one sure thanks, Randy and good morning Jackie.
Just to answer the question. So Rio two right now is only planning on building a 20000 tonne a day operation a heap leach operation the previous owner had scaled up to 80000 tons. A day, obviously that was back in about 2013.2014, much lower commodity prices. So there's definitely the potential for expansion is Rio two is not out there, saying that they're going to spend but I can tell you just looking at the <unk>.
Assuming that they are successful in ramping this up by the fourth quarter of next year I think its something they have to consider over the next I would say five years to expand to double and continue on but again, we're not I'm not speaking on behalf of Rio. This is what we believe at Wheaton, We think it's got very strong scalability.
That's really helpful color. Thanks, very much Keith I was spending time looking through their technical requirements.
And I didn't see that so thank you very much for further context is helpful that does it for me thanks, guys. Thanks.
Thanks.
Thanks Jackie.
And thank you everyone for dialing in today in closing we believe Wheaton is very well positioned to continue delivering value to all of our stakeholders for a number of different reasons, firstly by having low and predictable costs, which coupled with when coupled with leverage to increase in commodity prices resulted in some of the highest margins in the entire.
Precious metal space.
Secondly by offering our shareholders exposure to some of the highest quality mines in the world through our portfolio of long life low cost assets.
Thirdly by returning value to shareholders through our unique cash flow linked dividend policy, which most recently allowed us to declare another record quarterly dividend.
And lastly by being a leader amongst precious metal streamers in sustainability and by supporting our partners and the communities.
And the communities in which we live and operate.
So to close out I'd like to invite you to save the date for our upcoming Investor day, which will be held virtually on September 20 <unk>.
During this event, we will have members of our executive team providing updates on their respective areas of expertise and in addition to tactical presentations from a few of our partners.
I look forward to providing a fulsome update at that time until then stay healthy and stay safe. Thank.
Thank you.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating.
You disconnect your lines have a great day.