Q3 2021 Wheaton Precious Metals Corp Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by welcome to Wheaton precious metals 2021 second quarter 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. If you would like to ask a question. During this time simply press Star then one.
Number one on your telephone keypad, if he would like to withdraw your question. Please press Star then the number two thank you I would like to remind everyone that this call is being recorded on Friday November 5th 2021 at 11, a M E. T. I will now turn the conference over to Mr. Patrick Jermain Senior Vice.
Didn't 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, Haytham, <unk> Senior Vice President corporate development and West Carson Vice President of mining operations. Please note that for those not currently on the web.
The slide presentation accompanying this conference call is available in PDF format on the presentations 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 and I would direct everyone to review slide two of this presentation, which contains 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.
Now I'd like to turn the call over to Randy Smallwood, our President and Chief Executive Officer.
Yeah.
Thank you Patrick and good morning, ladies and gentlemen.
Thank you for joining us today to discuss Wheaton third quarter results of 2021.
I am pleased to announce the Wheaton diversified high quality portfolio continues to deliver strong results, including record revenue earnings and cash flow for the first nine months of 2021.
In the third quarter of 2021, we produced approximately 86000 ounces of gold.
Six 4 million ounces of silver 5.1 thousand ounces of Palladium and 370000 pounds of cobalt.
From a financial perspective, Wheaton generated over $200 million of operating cash flow and $268 million of revenue in the third quarter.
Given our strong underlying financials Wheaton remains committed to returning capital to shareholders and declared a <unk> 15 dividend, representing a 25% increase relative to the third quarter of 2020.
We continued to execute on our growth strategy, signing a non binding term sheet with Rio two in connection with the Phoenix Gold project located in Chile, a transaction, we expect to close in the coming weeks.
And we are actively trying to put our strong balance sheet to work looking at a number of precious metal streaming opportunities.
Strong production in the first nine months of the year has allowed us to tighten the range of our production guidance, which is now 735000 to 765000 gold equivalent ounces in line with the midpoint of our original guidance.
Lastly, following ratings updates in this quarter. We are pleased to announce that Wheaton has demonstrated leadership in ESG continues to be met with sector, leading scores, including a double AA rating from MSCI.
And our number one ranking in the precious metal space by sustained analytics.
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 interests produced 184900 gold equivalent ounces in the third quarter of 2021 relative to the third quarter of the prior year. This represented a 2% increase in production on a gold equivalent basis with increased attributable.
<unk> production relative to <unk> keto constancia in Santa math, being offset by lower production from Salobo and Sudbury in.
In contrast to the increased production and sales volumes were 9% lower due to the timing of shipments, resulting in the balances of ounces produced but not delivered or <unk> growing in the most recent quarter as at September 32021, approximately 151000 gold equivalent payable ounces were in PP&E.
In addition to inventory amounting to 488000 pounds of cobalt or 4800 gold equivalent ounces with the combined figure of 156000 gold equivalent ounces, representing approximately two five months of payable production.
This amount of PP&E and inventory is approximately 20000 gold equivalent ounces higher than the average balance of 136000 gold equivalent ounces over the preceding four quarters.
Revenue for the third quarter of 2021 amounted to $269 million, representing a 12% decrease relative to Q3 2020, primarily due to the lower sales volumes, coupled with a 4% decrease in the average realized price.
This revenue, 45% was attributable to gold, 49% to silver, 5% palladium and 1% to cobalt.
Driven by the lower sales volumes and prices gross margin for the third quarter of 2021 decreased 14% to $151 million.
Cash based G&A expenses amounted to $12 million in the third quarter of 2021, representing a decrease of $8 million from Q3, 2020, primarily due to lower accrued costs associated with the performance share units or psus.
The company currently estimates that non stock based G&A expenses, which exclude expenses relating to the value of stock options and psus will amount to <unk> $42 million to $44 million for 2021.
Net earnings amounted to $135 million in the third quarter compared to $150 million in Q3 2020.
With the 10% decrease being primarily the result of the buildup in PP&E.
Basic adjusted earnings per share decreased 10% to 34 cents compared to 33 eight cents.
Per share in the prior year operating cash flow for the third quarter of 2021 amounted to $201 million or <unk> 45 per share compared to $228 million or 51 per share in the prior year, representing a 12% decrease on a per share basis with the decrease being once again the result of the buildup in PP&E.
The company's board has declared a dividend of <unk> 15 cents a share payable to shareholders of record on November 20, <unk> 2021.
And 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 third quarter of 2021, the company made a dividend dividend payments of $57 million invested $5 million in long term equity investments and made a $1 million advanced binaural for Dakota Bombous project early deposit precious metal purchase agreements.
Overall net cash inflows amounted to $137 million in Q3, 2021, resulting in cash and cash equivalents at September 30th two of $372 million, the Companys $2 billion revolving credit facility remains undrawn and fully available.
September 32021, giving the company almost $2 $4 billion of immediate liquidity, which when combined with the honour accessed $300 million ATM program and strong forecast operating cash flows positions the company very well to satisfy its funding commitments and sustain this dividend policy.
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 to West Carson VP of mining operations, Wes Thanks, Gary and good morning overall.
Overall production in the third quarter was consistent with expectations with continued strong production from <unk>, and <unk> and Constancia offset by lower than expected performance from Salobo and Sudbury and.
In the third quarter Silver produced 55200 ounces of attributable gold a decrease of approximately 13% relative to third quarter of 2020 with throughput being affected by the implementation of additional safety and maintenance protocols and great decreasing in line with expectations.
On October 22nd Valley announced the resumption of copper concentrate production at Salobo production had been halted for 18 days due to a fire in one of their main conveyors other activities, including mine in maintenance operations continued as usual during this period.
Valley also reported that physical completion of the Salobo III expansion was 81% at the end of the third quarter and continues on track for startup in the second half of 2022.
Valley Sudbury mines produced 500 ounces of attributable gold in the third quarter, a decrease of approximately 88% relative to 2020. This.
This was primarily due to lower throughput as operations at the mine was suspended as a result of a labor dispute which lasted from June one through August 9th.
Valley announced on August 3rd that a new five year collective bargaining agreement had been ratified by the mine workers.
Also during the quarter Constancia produced half a million ounces of attributable silver and 8500 ounces of attributable gold an increase of approximately 21% and 126% respectively relative to the third quarter of 2020.
The increase in both silver and gold production was primarily due to higher grades resulting from the commencement of ore production from the public conscious I'd like deposit and the increase in fixed recoveries on attributable gold for 55% to 70%.
And finally, the voices be underground mine extension, which includes development of two new underground mines REIT broke in eastern deeps with 70% physically complete at the end of the third quarter.
We broke produced its first store in June and Valley has indicated that eastern Dps is expected to start up in 2022.
Moving to the next slide.
We estimated attributable production in 2021 is now forecast to be approximately 735000 ounces.
765000 gold equivalent ounces in line with previous guidance of 720000 to 780000 ounces and maintaining the midpoint to 750000 ounces. However, given strong performance at <unk> and to meet invoices paid offset by lower than expected production at Salobo and Sudbury weakness adjusting the production mix by metal as per the table shown on.
Slide <unk>.
Longer term guidance remains unchanged at an average production of 810000 ounces for the five year period, ending in 2025, and 830000 ounces for the 10 year period ending in 2030.
That concludes the operations overview and with that I'll turn the call back to Randy.
Thank you.
Yes.
In summary, we recorded a solid third quarter distinguished by several key highlights.
We achieved record nine month revenue earnings and cash flow and declared a <unk> <unk> quarterly dividend.
Our commitment to accretive growth was emphasized by the signing of a non binding term sheet with Rio two for a new <unk> new stream on the Phoenix Gold project, a strong development project, which we look forward to welcoming into our portfolio of high quality assets.
And our technical teams have been very active visiting a number of potential new precious metal streaming opportunities as we strive to put our strong balance sheet to work.
We narrowed our annual production guidance range from 10 to 735000 to 765000 gold equivalent ounces in line with the midpoint of our original guidance.
We were honored to once again be recognized by external rating rating agencies for our ESG performance with sector leading scores.
And 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 These bay and Constancia.
So with that I would 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'd like to ask a question. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key.
<unk> be a brief pause, while we compile the Q&A roster.
Your first question comes from Tyler Langton from JP Morgan. Please go ahead.
Randy and team Thanks for taking my question.
Good morning.
Maybe just starting so level I guess, you know sort of your production.
From 2020 and in 2021 was this impacted by sort of Covid in the mine maintenance issues.
Is 2022 shaping up to be a more normal year or it could be the first part of the year still be a little weak as some of these issues carryover just kind of any color there would be helpful.
Well I'll, let Wes add in a bit but what I would say is 2022 of course, salobo III will be starting up towards the end of 2022 and so so.
So I do expect that to be.
The next phase of growth coming into two production at Salobo. So I do expect good strength there in terms of the normal course of operating issues.
All the intentions, while I'll, let Wes I should comment sure, yes, I'd say that the issues that you were having earlier in the year. This year, we're really kind of solved by August of this year and we saw that the mine production get backup to really normal levels and unfortunately kind of September and a fire in October there were some issues start to work more on the plant side, but.
With those solved now we see things kind of coming back online in the fourth quarter here and really no issues going into 2022, and I think really a push to get things back on online in that back on track.
Okay. That's helpful and then just.
Kind of on deals I mean are you seeing I guess with sort of the sort of the recent inflationary pressures.
And then I guess, especially within the precious for precious metal deals.
Pressures kind of making some projects less viable or people just sort of sort of take a fresh look at them just kind of interested in sort of are you seeing anything on that front.
Well I mean I think the.
The inflationary pressures, probably our best to represent in the mining industry by the commodity prices that we're seeing out there and so that's driving a lot of investment into this space and so I would actually say that.
But a lot of the opportunities we're looking at are coming into fruition because of the higher commodity prices now that's ultimately going to wind up catching its way back into the cost of the consumables and the infrastructure and such and there is no doubt and even on the labor side, we are seeing cost pressure around the around the industry itself, but.
I would say at the current state of the industry right now.
Higher commodity prices have actually.
Open up a bit of an opportunity set here in terms of people looking for for.
For funding for new projects, and I would highlight that especially on the green metal side.
The amount of copper opportunities in nickel opportunities that we're seeing where we where we are looking at funding the precious metals to help build these green metal focused operations getting their precious metals byproduct off these things, we're just seeing a lot of interest in that space and so on.
A big number of projects that are of Haytham, you want to add anything.
Hit the nail right on the head Randy it's basically higher commodity prices are driving a lot of the opportunities because youre seeing a lot of these development stage opportunities look for funding and so the majority of the opportunities. We're seeing right now are call. It sub $300 million streaming operations, where we're taking precious metals out of non precious metals company.
Okay. So it seems that it's more it's more sort of base metals precious metal streams as opposed to pure precious metal projects.
Yes, that's correct definitely.
Alright, that's it for me thanks, so much thanks.
Thanks, Patrick.
Your next question comes from Ralph <unk> from eight capital. Please go ahead.
Hi, good morning, Thanks for taking my questions Randy.
Randy Firstly on <unk>.
<unk> mass.
You know what I'm seeing.
Sales come in slightly below production and I'm just wondering how much of that is first majestic strategy of holding back.
Silver production into Q or some silver sales into Q4 as sort of a speculative strategy are they telling you that sort of something that's one off.
And.
As we know with that strategy and or would you sort of go so far as to maybe create some offsetting hedging transactions at nullify that timing risk.
Well.
I think it's a pretty small amount until we would never work.
We're not a fan of doing any hedging around quarter end to sort of take that risk on.
When we've seen what's happening.
And Keith done this in times past and sometimes it works and sometimes it doesn't we're strong believers in sort of working the market.
The current market and not trying to shape it.
And so not a not a strong supporter of doing that but at the same time first majestic has the same to do that if they want.
I think when we look at first at first Majestic and their track record and center mass. It just it's a record of continuous improvement ever since they've taken over the asset continues to deliver and so I think when it comes to sand demand.
We're more excited about the potential of filling that mill.
Now that capacity of close to three I think it's 3000 tonnes per day and Theyre not operating at that level, yet and so we are seeing a lot of investment in that space.
And so we haven't seen any serious impact on that front in terms of holding back but.
Well, we'll stay on top of that.
Okay. Thanks, Randy and I wanted to ask a follow up on.
Topical theme of global minimum tax.
Just wondering if if internally you have run sort of worst case scenarios on what that could mean to potential valuation and such.
And just for frame of reference.
To get to a 7% 8% impact on a worst case scenario, a 15% effective today and just wondering is that sort of realistic or are a mile to lunch.
Ill, let garry take that one.
Yeah.
I think it's very difficult to.
Estimate what the impact would be given all the uncertainties that arise.
That's around the.
Potential implementation of the global minimum tax but.
If.
If the legislation was to be enacted.
Such that it applies in 2023.
If.
Our contracts would not qualify for the.
Additional deduction for tangible assets and and.
And if.
Our loss carryforward position.
It is available in Canada to offset.
Canadian income for tax purposes.
Then.
I would say that you're in the right ballpark with with your estimate.
But.
I would.
Highlight that this global minimum tax is going to have very broad.
Global application and.
I can make a pretty sound case for that additional cost being passed on to.
Consumers at the end of the day, which is going to drive inflationary pressures up which bodes well for precious metal prices.
Yes, I'd just highlight the number of Ifs that Gary mentioned and Theres a lot of that has to be satisfied and the lack of clarity in terms of what's coming so so we definitely remain on the watch and.
And observing it but Jeff there is a lot of this.
Yes.
All good points guys. Thanks very much.
Thanks Ralph.
Your next question comes from Cosmos <unk> from CIBC. Please go ahead.
Hi, Thanks, Randy and team and happy Friday.
Maybe my first question is on <unk>.
Could you remind me I guess.
The MD&A you mentioned there is 488000.
<unk> held in inventory by Wheaton and then also a 638000 pounds.
But not sold.
What's the difference here the inventory.
Pounds is that are you holding holding it for a higher cobalt price is that.
How that works could you remind me how sales work again.
Rosie is great.
Well I'll start and maybe Wes might.
It might have some additional color but.
We.
We recognize production.
Prior to the <unk>.
The cobalt rounds actually being delivered to our warehouse so.
You do have the differentiation between produced but not delivered and actual inventory.
Then I would also just say that.
Cobalt.
Sure.
Selling activity is very seasonal and <unk>.
What you will.
You tend to see is that at the fall of every calendar year is what is referred to as the meeting season, where.
Cobalt buyers.
Look to enter into longer term committed.
Supply arrangements.
And so we.
<unk>.
We've been quite active this fall in that type of activity. So so.
Yeah.
You would see generally I think moving forward a buildup of inventory leading into the third quarter of every calendar year.
Yes, I think that they wanted to.
To add is I mean, the difference between that inventory in the PP&E is really that we recorded inventory starting at the processing plant voyages base and then there's a lag between there and it goes through the long harbour facility and then over to Rotterdam. So and then we actually record the inventory once we get into the warehouse in Rotterdam. So so there is that.
Lagging there, which is the difference between those two numbers.
Cosmos. It's this is a new commodity for us and it.
It's a bit of a it's an industrial commodity.
Albeit in higher and higher demand and to be honest holding it into this fourth quarter has proven profitable for us.
Looking at cobalt prices. So it's actually worked out well, but it does have unique characteristics in terms of how you.
How you fill those those needs there is a seasonality to the demand.
And we basically held it in our warehouses to.
Two.
Take advantage of that demand that increase in demand.
Sure. Thanks, Bryan maybe a follow up here.
Honest, whether you're looking at a few years back when you first did the voice East Bay deal. It was met with a bit of skepticism at that point in time, but in hindsight.
It's looking pretty smart.
If I got a quick Google search cobalt prices have done pretty well of late as you mentioned I believe a $58000 per ton.
I guess my first question is twofold, maybe first off.
Randy any comments on the cobalt price and should we and as you talked about there's a lot of seasonality like when we price to what cobalt price should we be using.
Then secondly.
I think you've kind of mentioned it earlier as well but.
A lot of interest in these days in these green metals.
In terms of anything that's related to.
Evs and things like that any appetite in terms of adding to that exposure because I think earlier during the conference call Gerry mentioned that cobalt was only 1%.
Revenue any kind of desire appetite to increase that maybe even say lithium.
Well, yes.
A lot of questions there cosmos.
My best.
So first off the <unk>.
<unk> Bay Cobalt was a very unique opportunity for us and Thats why we straight we are a precious metals focused company first and foremost, but voice East Bay is operated by valley, a very important partner of ours and when we had to look at that site. The voices Bay operation and the long harbour processing facility.
Produces the cleanest greenest, most environmentally sound most socially responsible cobalt in the world.
The hydro facilities at long harbour, which process and it's a dedicated facility that only processes boise's base. So it's not being contaminated with anything any cobalt or any production from anywhere else.
<unk> is unique within the cobalt world and we think that this deserves special.
Recognition and so it's one of the reasons that we stepped into the contract in the first place now in terms of the market.
I really think the cobalt market is just getting just getting started.
Yes.
The the demand.
You don't have to look too far to have a look at some of the demand figures that are being estimated with respect to especially with respect to electric vehicles and Cosmos, you know me well enough I've been driving electric for 10 years now and.
I will never go back it's just better period on so many aspects and so we know the world shifting that direction. The demand figures are astounding in terms of the amount of cobalt that's going to be needed over the next while and so so the only way that that gets satisfied as commodity price and we are very bullish.
On cobalt prices.
So we do look at unique opportunity, we look at every opportunity out there we like to understand what's happening in the world around us and so we never ever ignore any opportunity that comes through.
Successfully avoided any oil and gas investments, it's not something that we're interested in we just don't think it's the right direction to go.
And we haven't gone after what I would call base metals. However.
The metals like cobalt do sometimes warrant some some special review I do reiterate we are focused on precious metals that is what we think we're good at and Thats, what we wanted to deliver to our shareholders portfolios.
And I think we've got a great track record on that front, but we will look at every other opportunity out there.
And the Green metals.
Again as I mentioned it in one of the earlier questions.
A lot of the projects that we're looking at funding our green metals projects and we are in there buying the precious metals byproduct from these copper mines in the zinc mines in nickel mines.
And so.
There's definitely a real push in that direction and I think we're well positioned.
Not only take advantage of it with our existing portfolio, but to continue to put our balance sheet back to work on this and grow in that space.
Great maybe.
Maybe switching gears, a little bit and turning to Salobo.
Good to hear that.
<unk> III is still on track.
To come in the second half of 2022.
I noticed in the MD&A that.
Progress was a bit slow.
During the quarter. It was 77% complete at the end of Q2, 81% complete at the end of Q3.
I would imagine that's in part due to COVID-19 measures in part due to maybe even the conveyor fire at for the conveyor belt during the quarter.
My question again is twofold.
Number one is that is that is my understanding correct and number two should we expect.
Better progress, maybe Q4 and certainly into.
2022, and since I have less here, maybe you can talk to what are some of the key sort of critical components critical paths that they still need to achieve to get to that second half 2022 target.
Sure, Yes, I would say that today I mean.
The perceived kind of slowdown in progress there I mean, just kind of the nature of these projects as you get close to the end it will that that progress will appear to slow down a little bit just because there is sort of more difficult components of it that theyre starting to tie and really no impact from the conveyor fire, it's actually a totally separate line from Salobo III. So that's one of the advantages of actually getting some.
Level, three up and running here is that because that conveyor fire happened they actually lost.
Two lines, so, but once a about three is up and running they will be able to run that line completely separately.
Overall here I mean, they did delay.
<unk> last quarter, they delayed from each one to each two next year. So we did see that kind of pushed back that that really is the impact I think from from Covid that we've seen over the last kind of 18 months here, but overall certainly well on track to move things in I mean, they've got a lot of the mechanical tie ins are done a lot of the tie ins to existing infrastructure Dino.
Already so a lot of it now is really just kind of getting things.
Kind of finished off with the last kind of I mean, all your piping and cables and all that stuff that really is kind of the final tie ins. So we had a great update every month on their progress there and it is moving along extremely well.
And Cosmos I would just highlight that.
That ballet.
Really bounce back very quickly from that can bear.
Let me clarify a lot faster than they were even expecting so I'm going to do it in 18 days, which was really quite quite impressive.
Great. Thanks again those are all the questions I have happy Friday.
Thanks Cosmos.
Yes.
Ladies and gentlemen, as a reminder, if you have a question. Please press Star then the number one on your telephone keypad.
Your next question comes from John Hey, Moses from John You Moses Independent Research. Please go ahead.
Hey, this is John good morning.
John when tests were reported earnings.
You said something about changing their standard vehicle.
Lithium iron phosphate.
Composition, I guess that means no nickel and cobalt.
Despite performance questions and I apologize I didnt take enough chemistry or physics classes.
A very long time ago.
And I understand all of these battery sizes.
It would seem like there's a little risk.
To the battery metals, where the lithium looks like its going to happened and theyre going to need to copper wires would ever the battery composition is.
Should we expect.
More cobalt or stuff in that direction first.
And then just conceptually I know your name is precious metals, but.
Aluminum is very green.
60% of it comes from recall.
So the supply could very well go down.
Plastic bottles going away in the PVC siding is going away and construction.
My name is better than steel in vehicles Evs are all aluminum.
So I think aluminum is just fabulous.
Iron ore depletes on three different axes.
First lower output of Cowen.
Copper.
Nickel by the Big base metals companies and it does not look like China is going to produce more as much as I used to.
So.
Do we think that there is a possibility that you could.
Consider other materials that are depleting very rapidly or have supply risks.
Yes, the gold funds sort of go out of business as a potential customers of ours. So we look at cash flow and we think any cash flow is precious not just precious metals.
Well, let me answer as many questions as Cosmos I'm sorry.
Yeah, well, let me start with the cobalt.
Thrift thing of cobalt in batteries has long been.
It's normal it's one of the highest cost components of cobalt alright, sorry of batteries out there and so we're not surprised.
Again, I'm, a geologist which does involve a bit of chemistry, but not the cameras, but I'm going to tell you that cobalt. The main purpose of cobalt in batteries is to stop them from burning up is that.
And every time, we see people push towards trying to reduce the amount of cobalt in batteries you start running into overheat issues and I do know that there is a lot of engineering in every battery application to try and control the the heat, especially during recharge.
And one of the ways that batteries are effective as to be able to recharge them rapidly. It's that's how they work their way into the workforce as a replacement for internal combustion so.
Although we expect continued drifting I think the increase in demand is substantially we're talking magnitudes higher than the the.
The impacts of drifting on a per unit basis that we're going to see in cobalt and to be honest I think the drive towards shifting is going to continue because because the only way we see that the.
That gap between supply and demand being met as with higher cobalt prices and so so it definitely would expect that on the aluminum side.
I agree with you.
There's no doubt that aluminum is much more of the metal of the future aluminum is generally a bulk product that's produced on its own it's not a byproduct or our niche I think where we're the best at is acquiring non core byproducts from from from primary base metal producers. It's one of the reasons, we haven't stepped into the iron ore space also has its just not something that we are.
<unk> for us in terms of.
Trying to unlock hidden value within within some of these things and so so I don't see us stepping into the aluminum space, but I agree with your aluminum is definitely should be considered a green metal what are the challenges of course is the amount of energy that aluminum requires in terms of.
Processing and such.
But they're the world's getting better at that slowly, but but definitely getting better at that so so it's definitely not an area that.
We're focused on.
Our Cisco can have those wins.
Yes, Thanks Randy.
Yes, they can John so.
Yes.
As I said focused on precious metals happy to look at other opportunities when we see unique ones that stand out like the voice. These bay cobalt stream, then we'll step into that but our real focus still is on the precious metal side, we do think that there is.
In the face of all these strong commodity prices those are ultimately going to deliver inflation and I think in the in the face of what I see as an inflation wall hitting us.
There is no better time to be in precious metals, and I think that gold and silver are going to play a very important role in terms of preserving.
Value through through the coming years here.
Thank you I apologize for being a little goofy with my questions. Thanks, John.
Your next question comes from Adam Josephson from Keybanc. Please go ahead.
Randy and everyone. Good morning, Thank you for taking my questions.
Yes, Thanks Adam.
Yes, Randy just along somewhat similar lines to Kosmos and John on this precious metals versus other topic.
You've limited yourselves.
Streams.
As opposed to royalties and really precious metals as opposed to anything.
Anything else aside from call, Bob I, just and I know precious metals as your area of expertise.
I know precious metals multiples are higher.
Then than others, but.
Why do you think youre not.
Unnecessarily limiting yourselves by not looking at some of these other markets not looking at royalties I mean, theres a lot of competition in the precious metal streaming industry and I presume that's why some of your peers are looking.
Elsewhere. So why are you not.
Thinking along similar lines that hey, maybe we really ought to expand our horizons here.
Well Adam.
First off we haven't limited ourselves to streams I think the strength of the streaming model itself is what limited the streams.
Companies don't do new royalties they'll trade around existing royalties and we always look at existing royalties.
But stream streams are just better.
And even the existing traditional royalty companies recognize that and that's why everything everything new that they've done is stream focused and so it's not that we have limited ourselves to streams. It's just that that's the opportunity set that we've seen out there and so.
The other the other side to that is.
No.
I'm a strong believer that we should.
Instead of forcing a diversity of diverse portfolio and a blend of materials. If you want exposure to iron ore I can give you a long list of.
Iron ore royalty companies that give you the same risk profile as a streaming company, but are focused on iron ore.
If I, if you want exposure to oil and gas I can give you a long list of oil and gas royalty and streaming companies.
You mean, the royalty companies.
That will give you that exposure.
Me too for us at Wheaton to actually start putting together a blend of those commodities has forced every single one of our shareholders to get exposure to that.
And I really do think that and perhaps there's some comfort in that from from shareholders that want someone to sort of manage that diversity, but but I actually think that if I look down our shareholder list theres quite a different appetite for what that diversity is and I think it's actually much better in the hands of our investors and our shareholders to divide what that does to decide what kind of dive.
They want exposure to and so that's really the core focus now with respect to the competition.
We've had no problem finding precious metal streams, we've done all of this.
The scale is a bit smaller right now than it has been it is a cyclical market, we will see times when when big opportunities come in but even though the scale is smaller right now the quantity is dramatically higher.
So I can tell you that our legal team has never been busier in terms of.
The number of.
Of contracts the number of deals that we're working on we're not seeing a shortage of opportunities in the precious metal space.
What we are seeing a shortage of as a number of high quality precious metal streaming opportunities.
But it's not a but theres not an overall shortage.
I think our balance sheet.
Mike might imply that the fact that were strongly positive and have no debt.
It says that maybe we're not putting the money to work as fast as it's coming in.
Trust me, we are striving to do that and I just I'm a strong believer that when it comes to the diversity.
I think that's better left in our shareholders hands versus Thats coming up with some magic mix that will.
Sometimes schein well for you.
As it has recently for some of our peers, but at the same time it actually dramatically lowers your exposure whenever you see a strong move within the precious metal space and so we're comfortable staying in this focus and have a width.
Nathan I should look at anthem, Thanks, Brian and Adam as you implied that we don't look at royalties. We do look at royalties. So theres two different types of royalties as royalties that already exist, which we definitely look at but what were finding that there is so much competition in smaller companies trying to get scale too to drive a reevaluation.
It becomes ridiculous and it makes way more sense for us to focus on streams at that point now we'd never look to actually specifically create a royalty over a stream because the counterparty always realize is that the stream is much more attractive because it's a structured properly. They can receive a similar upfront value and get a production payment when the ounce of gold silver platinum palladium whatever happens to be us.
Produced and delivered so the stream structure is also more attractive because outside of Canada. It actually allows the mining company, which is best capable of managing its taxes to do so in the host country.
So there are royalties there are there are existing royalties and there are.
New royalties, we just find that it always makes more sense to look at and do streams instead.
I appreciate it.
On the topic of Salobo and valet and obviously, they're a terrific partner.
Obviously, the recent disruptions at Salobo, just highlight precisely how much exposure you have.
To that asset into that counterparty.
Are you inclined to try to diversify yourself, along those lines just to limit company risk and perhaps.
Trade at a higher multiple given your lower concentration along those lines.
Well if if your biggest asset is your best asset that's not a bad thing like Salobo is by far in terms of operating margins is that just a good strong asset on so many fronts and so so there's no doubt. It is also our biggest asset.
Hey.
That's the whole effort in terms of diversifying it as going out and looking for new opportunities and so haytham and his team are constantly looking to lower that percentage of salobo by continuing to add growth.
We're not going to cut back on <unk>, just because the asset is very healthy very strong.
Salobo III is coming on stream next year Salobo for has been talked about.
By Vale.
We think it's we think it's inevitable that the global four will come along.
Just by all you have to do is look at the waist Lobo III was laid out it just begs for a fourth line to be added.
So we're confident that's going to happen eventually.
And so we're quite comfortable having global as a core asset in our franchise West you went to sugar.
And it's also worth highlighting just the strength and diversity of our portfolio is the reason that even with Salobo, having these challenges this year, we're still well on track.
All of our other assets performed extremely well this year end and were.
<unk> has not hurt us so and we've seen really great performance from some of the other assets in <unk> Constancia Boise's Bay, they've all done extremely well this year, so and I think that diversity really shines through.
But.
I assure you we.
We're doing everything we can to try and minimize level by adding further assets.
Sure, Yes, I am.
Appreciate that one last one just on silver silver prices have been.
Gone nowhere of late.
As have gold prices and I'm just wondering if you think there'll be a time in the foreseeable future Randy at which silver prices will move independently of gold prices, given you've pointed out the different supply demand fundamentals in those two markets.
Or is there are no reason to expect them to diverge at any point in the foreseeable future in your mind.
Well they should in my eyes silver should catch up it's still is trading on a relative basis to gold below where it should be and then when you look at the fundamentals and I've said, it before and I'll say it again here the fundamentals behind silver or even stronger than that of gold and so.
We should see that.
Again, the focus around the world.
And listening to.
Everything coming out of top 26 in Glasgow, Scotland right now.
Is about being more efficient and the one aspect that silver one attribute that silver delivers is the highest deficiency in terms of moving energy around circuit boards around the solar panels around it is it.
The electricity energy moves through silver better than any other metal even better than copper.
Silver has stronger NT, antibacterial tendencies or quantities than than even copper.
And so.
The demand is only going to get stronger for silver on the on the industrial application side.
And then as a store of value against inflation.
We're also does play a role in that space and so the fundamentals are there.
Yes, I would expect.
History has long showing in that silver always outperforms and a strong market I do think that we're still coming off a bit of a pandemic bump in terms of precious metal prices, but but boy. It all you have to do is looking at 'twenty.
<unk> 25, or 30 year graft to understand that we are in a long uptrend in precious metals and no doubt.
Right alongside money supply.
And I don't see that trend ending any time soon and so so silver silver will get its time in the Sun.
Thanks, a lot Randy.
Thank you Adam.
Your next question comes from Richard Hatch from Darren. Please go ahead.
Yes, thanks very much.
Thanks for the time.
Yes.
It's just to say congrats on keeping disciplined capital allocation.
Oscar.
Most of them.
Stroke shareholder value So we'll launch.
Keeping your powder dry and waiting too long.
Just a couple of them.
Yes.
No question.
Gary just wondering if you could give us just to think about how that PP&E.
<unk>, particularly from our supply base in that standpoint.
Q4, maybe into.
Q1.
And then just kind of still on slide eight.
So what's the kind of recent latest may need to contend with that.
Large titan.
Types of Vale.
Since about the street.
Isn't it.
Hi, guys.
<unk>.
Yes, there would be appreciated if you've got any color on that and then just point of clarification on the yen.
Minimum tax question, Gary is it kind of a neat fit sort of high single digit percentage point right. Thank you.
Thanks.
Yes, okay. So the <unk>.
Clear.
We generally see.
Our partners look to flush out concentrate in Dore.
Leading into the yearend.
Calendar year end so.
We generally would expect that <unk> would.
Should be reduced.
As of December 31.
We.
We've seen volatility in that in the past so it's very difficult to to estimate with any type of certainty, but suffice it to say that we would expect that.
<unk> wood.
Wood.
A decrease leading into.
At December 31.
The second question was the payment relative to Salobo three I think.
With.
The push out of the ramping up to the second half of next year of that line that new line.
We would expect that valet wood.
<unk> the completion test.
Gives rise to the payment in 2023 now so.
We estimate that the payment we will make relative to that will be in the range of $550 to $650 million in that payment would be made in 2023.
And then I wasn't sure what the question.
Yes.
And.
<unk> you.
You've got asked the question earlier about the global minimum tax.
The numbers.
But I just wanted to clarify that.
Right.
Yes.
We're assuming.
From a tax rate perspective.
We're assuming a 15% global minimum tax rate.
But in terms of the impact.
And I think I think that was the question that he asked.
Well I think what we there is so many question that had been asked by Ralph was.
That he had estimated the impact to be 7% to 8%.
Confirm that that with all of the uncertainty associated with.
With the calculation.
Again.
When will it be implemented requiring legislation to be passed.
Which we all know can be a very challenging and time consuming process.
Whether we qualify for the additional deduction on the <unk>.
<unk> assets side.
Side of things, which would.
<unk> dramatically mute the impact of this on our business and.
Whether we can utilize the loss carryforward position that we have in Canada.
Otherwise available to offset Canadian income.
That estimate that was put out there is in the ballpark of Av.
What we would expect with a 15% GMT.
Thanks, Steve.
Okay.
Thanks Richard.
Your next question comes from Penny pinch from IAA capital. Please go ahead.
Hi, Good morning, guys yesterday on the <unk> call they were talking about the opportunity to reprocess tailings and flip on.
I thought that was interesting just wondering if your triple seven contract with cover any metals recovered from that in the future.
Yeah.
Yes, yes it is.
Those are included in the current contracts. So we have had some initial discussions with <unk> on that but there would be kind of further discussions.
Wired depending on how they how they decide to progress that.
Okay. That's interesting and is that usually something that you built into your other contracts you sell it to another operator went down that route you would also benefit in the future.
Yes.
The contracts are all life of mine.
And so this is a product that's contained within the area of interest that we signed the contract on Enzo. So yes. It gets captured into it we don't talk about tailings much because theres not a lot of exploration upside and tailings.
But there's no doubt that as.
As demand increases.
And for that matter.
The driving forces behind the tailings that thin fan is in terms of environmental treatment and cleaning them up even further.
I think that's something that the industry is going to get better at in terms of making sure that we extract as much value out of this product as we can and with higher.
With higher prices and the costs and challenges of building new facilities, that's only going to make it more attractive. So yes that does come in our life of mine contract.
Okay.
Good from ESG perspective, and that benefits our shareholders as well so good to see.
Yes, and thank you everyone for dialing in today that was a good healthy question and answer period.
Yes.
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 when coupled with the leverage to increase in commodity prices result 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 diversified portfolio of long life low cost assets.
Thirdly by returning value to shareholders through our unique cash flow linked dividend policy.
And lastly by being a leader amongst precious metal streamers in sustainability and by supporting our partners and the communities in which we live and operate.
I do look forward to speaking with you all again soon until then please stay healthy and stay safe. Thank you.
Thank you. This concludes your conference call for today. Thank you for participating please disconnect your lines.