Q2 2022 Wheaton Precious Metals Corp Earnings Call
Okay.
[music].
Good morning, ladies and gentlemen, thank you for standing by welcome to Wheaton precious metals 2022 second quarter conference call. All lines have been placed on mute to prevent any background noise. After.
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 keypad or type your question in the Q&A box of the webinar.
Would like to withdraw your question Press Star then the number two thank you.
I would like to remind everyone that this conference call is being recorded on Friday August 12, 2022 at 11, a M eastern time.
I will now turn the conference over to Mr. Patrick Drouin, Senior Vice President of Investor Relations and sustainability. Please go ahead Sir.
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 mining operations. Please note that for those not currently on the <unk>.
Webcast. The slide presentation accompanying this conference call is available in PDF format on the presentation page of the 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 review slide two of the presentation, which contains important cautionary notes regarding forward looking statements.
Note 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 includes Wheaton precious metals Corp, and its wholly owned subsidiaries as applicable now I'd like to turn the call over to Randy Smallwood, Our President and Chief Executive Officer.
Thank you Patrick and good morning, everyone. Thank you for joining us today to discuss <unk> second quarter results of 2022.
I am pleased to say that our portfolio once again delivered solid revenue earnings and cash flow in the first half of 2022 as Gary will discuss later.
This solid performance reflects the resiliency of the streaming model to inflationary pressures currently being felt across the global economy.
And especially amongst the traditional miners.
In fact, our average cost cash cost per gold equivalent ounce actually decreased in the first half of 2022 relative to the first half of 2021.
While we continue to actively pursue a number of new opportunities in the second quarter. We also showed our willingness to strategically identify opportunities both inside and outside of our portfolio that create value for our shareholders.
To that end in the quarter, we announced the proposed termination of the Keno Hill stream for $135 million.
Which when completed will ultimately result in an absolute return on our Keno Hill investment of over 300%.
However, the termination of the stream combined with severe weather events at Stillwater and lower than expected throughput from Salobo have resulted in wheaton, having to lower its 2022 production guidance.
<unk> will provide more information later in the call.
Despite this giving given our strong balance sheet liquidity available for investment the production growth at our key producing assets and our diverse diverse development portfolio. We are on track to generate sustained long term production and strong growth over the next four years.
Lastly, we once again demonstrated our leadership in sustainability and value creation for all stakeholders by publishing our third annual sustainability report and announcing a sustainability linked element in connection to the renewal of our existing Undrawn $2 billion.
<unk> credit facility.
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.
Thank you Randy and good morning, ladies and gentlemen, the company's precious metal interests produced 163000 gold equivalent ounces or GE OS in the second quarter of 2022 comprised of 68000 ounces of gold $6 5 million ounces of silver 3900 ounces.
The palladium and 136000 pounds of cobalt.
Relative to the second quarter of the prior year. This represented a decrease of 15% on a gold equivalent basis, primarily due to lower production at Salobo.
On a gold equivalent basis sales volumes were only 3% lower relative to Q2 2021 with changes in ounces produced but not delivered or <unk> largely offsetting the lower production levels as of June 32022, approximately 123000 Geos were in PP&E. In addition.
To cobalt inventory amounting to 10700 Geos.
With the combined figure of 133000, Geos, representing approximately two four months of payable production. This is approximately 24000 geos lower than the average over the preceding four quarters revenue for the second quarter of 2022 amounted to $303 million.
Representing an 8% decrease relative to Q2 2021 due to a 5% decrease in the average realized gold equivalent price combined with the lower sales volumes of this revenue, 52% was attributable to gold sales, 43% silver, 2% Palladium and 3% cobalt drew.
Given by the lower realized prices and sales volumes gross margin for the second quarter of 2022 decreased 11% to $162 million. However, worthy of note is the 1% decrease in the average cash cost per geo highlighting the resiliency of our business model to the inflationary pressure.
There is being experienced across the mining industry.
G&A expenses amounted to $10 million in the second quarter of 2022, and donations and community investment expenses amounted to an additional $1 million with a combined figure of $11 million being virtually unchanged from Q2 2021.
For 2022, the company continues to estimate that G&A expenses will amount to 41% to $42 million, while donations and community investments are estimated to amount to an additional $6 million to $7 million.
Stock based compensation amounted to $2 million in the second quarter of 2022, representing a decrease of $6 million relative to comparable quarter of the prior year, primarily due to the differences in crude costs associated with the psus.
Net earnings amounted to $149 million in the second quarter of 2022 compared to $166 million in Q2 2021.
Basic adjusted earnings per share decreased 8% to 33 compared to 36 per share in the prior year.
Operating cash flow for the second quarter of 2022 amounted to $206 million or <unk> 46 per share compared to $216 million or <unk> 48 per share in the prior year, representing a 5% decrease on a per share basis.
Based on the company's dividend policy. The company's board has declared a dividend of <unk> 15, a share payable to shareholders of record on August 26 2022.
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 2022, the company made dividend payments relative to the prior two quarters totaling $117 million invested $15 million relative to my motto and acquired $3 million of long term equity investments overall net cash inflows amounted to $72 million in Q2.
22, resulting in cash and cash equivalents at June $30 million to $449 million.
Recently, the company added a sustainability linked element to its revolving credit facility underscoring the company's commitment to ESG initiatives. In addition, the term of the revolving facility was extended to July 18 2027.
The capacity provided by the Undrawn $2 billion revolving credit facility combined with the strong forecasted 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.
Thanks, Gary and good morning.
Overall production in the second quarter came in lower than anticipated with lower than expected performance from Salobo and Stillwater, partially offset by stronger than expected production from Constancia Panis Quito and at Dominion.
In the second quarter Salobo produced 34000 ounces of attributable gold a decrease of approximately 39% relative to the second quarter of 2021 due to lower throughput and grades.
Mine movement saw its continued improvement throughout the quarter. However, concentrate production was negatively impacted by process plant performance due to delays in the ramp up after a planned maintenance shutdown in additional corrective maintenance.
Valley expects further maintenance work to continue in the second half of 2022 with a focus on improving the overall operational performance at both the mine and process plant.
Ultimately, resulting in improved production through the remainder of the year.
<unk> also reported the physical completion at the slowest remind expansion was 95% at the end of the second quarter. In addition, they began commissioning activities at the primary crushing and stockpile areas during the quarter.
And the second quarters Stillwater mines produced 2200 ounces of attributable gold and 3900 ounces of attributable Palladium, a decrease of approximately 27% for gold and 26% for palladium relative to the second quarter of 2021.
Regional floods impacted the Stillwater operations on June nine sorry June 13th 2022, including damage to multiple bridges in the access road Stillwater mine.
Access to the East Boulder mine and the Columbus metallurgical facilities remained intact.
Both facilities continued cooperations during the flooding events.
Operations at the Stillwater mine, which accounts for 60% of the mine production from Stillwater operations resumed production on July 29, 2022, once the access to the mine has been restored production at the Stillwater mine is expected to return to normal levels by the fourth quarter.
During the quarter. The voices Bay mine produced 136000 pounds attributable cobalt a decrease of approximately 64% relative to the second quarter of 2021, primarily due to lower grades during the ongoing transitional period between the depletion of the avoid open pit.
And the ramp up to full production of the voices be underground project.
The voices underground mine extension, which includes development of two new underground mines Rebroke. Many stern deeps was 74% physically complete at the end of the second quarter re brick underground continues our production for development during the quarter and valley has indicated that eastern Dps is expected to start up in the second half of 2022.
Given the proposed sale of the Keno Hill NPA lower production from Stillwater due to severe weather as well as lower than expected production from salobo weakness lowering production guidance.
<unk> estimated attributable production in 2022 is now forecast to be 300000 to 320000 ounces of gold.
$2 five to 24 million ounces of silver and 35000 to 40000 gold equivalent ounces of other metals.
Resulting in production of approximately 640000 to 680000 gold equivalent ounces.
For the five year period, ending in 2026. The company now estimates that average production will amount to 820000 gold equivalent ounces and for the 10 year period ending in 2031. The company now estimates that average annual production will amount to 870000 gold equivalent ounces.
That concludes the operations overview and with that ill turn the call back to <unk>.
Thank you Wes and thank you Gary.
In summary, while not without its challenges we recorded a solid quarter distinguished by several key highlights.
We achieved strong quarterly revenue earnings and cash flow and declared a <unk> 15 quarterly dividend.
We enhanced our financial flexibility, which positions us well for future accretive growth.
And lastly, we once again showed our leadership in sustainability by implementing a sustainability linked credit facility.
And by being recognized as one of the best 50, corporate citizens in Canada by corporate Knights.
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.
I'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 press the star followed by the number too.
There will be a brief pause while we compile the Q&A roster.
The first question comes from Trevor Turnbull of Scotiabank. Please go ahead.
Yes, Thanks Randy.
I was just wondering if you could talk a little bit about the changes to the five and 10 year guidance I realize they're relatively small in the grand scheme of things.
And somewhat attributable to the adjustment on that termination of <unk> stream and then the main changes that came out recently here on Stillwater, but I wondered if there was any other contributing factors that caused you to adjust those longer term outlooks.
Well I'll, let Wes provide additional detail, but I'll start off by saying that salobo.
The drop in production this year into global also has a big impact when you average it out over the five and 10 year period.
Keep in mind that 2022 is part of that five and 10 year average rate and so so there is no doubt that that had an impact in terms of production and then as you said the sale of keno.
The.
The updated mine plan from.
Yes.
Stillwater.
The other factor that's come in is that we've now start starting to see the shape of copper world Rosemont.
And the production.
Expected production in the early years, even though there is significant growth in terms of total ounces to be received from Rosemont.
We're going to start at the Copperweld area and so production is definitely less than what was in the original Rosemont plans.
And that also has an impact in terms of dropping the long term forecast and so across the spectrum.
<unk> anything to add yes, the only other two minor ones, where there was a change in to our Peru, as well and where that fits into the production profile and the new plan. They came out with and then that Phoenix being pushed out as well where they went to other minor ones, but overall really I mean, the main thing was the change to this year and then the Keno Hill stream or they are the two major ones.
Okay, that's great color I hadn't thought about the impact of this year's Salobo numbers, but I appreciate that and thank you.
Great.
Thank you Trevor.
Thank you.
The next question comes from Adam Josephson of Keybanc. Please go ahead.
Randy and everyone else. Good morning, Thanks for taking my questions. Just one follow up on the last on your answer to the last one can you quantify how much of the five and 10 year reduction is based on this year's production specifically versus the other.
Factors that you mentioned.
Yes, it's about probably about 30% of it would come in from this year.
For the five years and then for the five year and then on the 10 year top of Africa, So yes exactly.
Exactly.
Got it Okay and then this year it seems like Salobo was of the 70000 ounce reduction Salobo seems like was about 50 Randy is that.
In the right ballpark or is there something I'm missing there.
It's right in that ballpark I was going to say I mean, we've obviously seen less production from Stillwater with the flood events that they've had there. So that's going to have an impact voice. These bay is a little bit behind schedule in terms of going underground. So we're seeing a little bit less cobalt out of boise's and.
I mean.
The silver is still pretty well on track, but but we have been impacted on the gold both at Stillwater and at Salobo.
Salobo and then cobalt out of.
Palladium and cobalt out of course Stillwater invoices.
It's about just over 40000 is the number from from Salobo and so and we are expecting things to improve in kind of Q3 Q4 here Q2 was pretty rough.
And how much.
So 40 of the 70 ish was slowed by how much is stillwater.
Check here.
<unk>.
I mean, the out of the 17 between 40, let's call it about 15% to 20.
Yes, I'd say the twenties.
And related to the five and 10 year, Randy or worse, how much would you say Stillwater is just can you go into more details about the updated mine plan and the impact that.
Thats, having on your view of what the long term production to you will be.
Still <unk> Stillwater is reasonably small.
In the long term youre only talking probably a couple of thousand ounces off of each of the five year tenure. They are still planning on ramping up over the next few years and it does there is some impact from the Blitz ramp up but it isn't significant in the overall scheme.
The one number on the 10 year guidance that.
Is impacted is of course rosemont last shifting over to capo world that actually has a reasonable impact for the first five years again, it's a good news story because those are all ounces that weren't even part of our original plan and so we'll be seeing that production and we're confident that ultimately the full rosemont will get built and will be operated but.
With the new.
The new guidance that we've that we've seen in our discussions with with HUD Bay as Theyre moving that project forward that actually has a pretty big big impact on our on our 10 year guidance not so much on our five year guidance because.
It only comes on near the end of that five year guidance, but.
But on the 10 year guidance, that's actually one of the biggest contributors to the tenure to the change in the 10 year guidance, yes, absolutely got it thanks Brad.
On Salobo, how much confidence do you have that Salobo III will start up as you now expect it to in the fourth quarter and just more broadly on <unk>, but what is your confidence level at this point that they've got their operational problem at least they have a firm grasp of.
What the problems are and what they need to do to fix them compare it to what's happened over the really since the pandemic started.
While I'll, let Wes had a bit more color and detail I will say that we have just got down for our first site visit in a number of years and I can't underscore how much more important it is to be physically on site versus virtual mine tours in terms of getting a feel for how things.
Our operating and getting a sense of confidence in terms of their ability. So I will let west provide a bit of color, but I will tell you that one of the reasons that we invest in the most profitable mines in the world is that there is a very strong incentive on the Vale site to get it fixed too and I know that theres been a lot of management changes down there to try and resolve.
These issues that being said, we can't we can't forget the impact of the pandemic and trying to manage the pandemic in Brazil was one of the tougher hit countries on the planet in terms of how Covid did impact operations and so the measure is a lot of the measures to try and limit the impact at the site itself also has.
And impact on productivity and working our way forward. So west do you want to add more color sure. Yes. So I was down on site with our technical team.
Early part of June so really quite recently set up well to really give us more confidence in the rest of this year and the ramp up of Salobo III. We are down there for four days in total we've got a good review of the entire sites and we have a great relationship with valet as being our largest partner and theyre always incredibly transparent with us and walking through exactly what the.
Challenges are and as Randy said I mean, there have been quite a few changes at the site. They recognized what the issues are around the maintenance that have really been contributed to by by Covid, particularly and also all the way back to the fatalities. They had back in 2020, they've struggled really to kind of get things back in line through that period, but very strong confidence now they've got things figure.
It out I think Salobo III is looking great and you could certainly see walking around the site. There I mean, the 95% completion is there.
We'll get things going by the end of the year here, it's going to take some time to wrap it up though and actually get it up to full capacity and I think the mine is in great shape to be able to feed all three lines into next year.
It's important to remember that when phase one when the mine first started it took about 24 months to reach full capacity on that first line second line took about 18 months to get to full capacity.
Obviously as they continue down this path that should should improve so we're hoping that we should see full capacity easily by.
At the end of 2023 2024.
21 of the great things about walking through the Salobo III project. There was just all of the improvements they've made from learnings on global one and two.
They've added in a bunch more kind of redundancies in there to help with availability they've spent a lot of time on making sure that that global three line is kind of the best they can it's also worth noting that it is a completely separate line right from the primary crusher all the way through so there is no impact on <unk> level, one and two and how they run when they startups logo III. So there isn't any of the tie ins or anything that.
You need to do at that it's actually a completely separate line.
I appreciate that from both West just to clarify one thing on.
The impact of Salobo on your long term guidance aside from your lower production expectation for this year have your longer term salobo production expectations changed based on the problems they've had or are those the same as they were before the only impact on five and 10 year is the 40 ish thousand lower.
Alex is this year.
Yes, it's just the production this year that we've lowered we're still very confident in the long term guidance.
And then that we provided previously.
I appreciate and Randy just one last one on jurisdictional issues, specifically in South America.
If at all has your outlook changed in terms of.
Your your willingness or reluctance to invest in <unk>.
Many of those countries for perhaps obvious reasons.
Yes, it's a political risk is a challenge.
And getting it right is.
A country like Chile, which is for for decades has been one of the best investing jurisdictions in the world is all of sudden proving very challenging with a number of permits being rejected of late with the new government down there.
I know that ultimately it's going to have an impact on foreign investment into the mining industry down there and I can tell you that all you have to do is look at.
They're they're they're state minor codelco and the lack of capital that it has in terms of building and advancing its own projects that that's going to have a real negative impact on Chile.
Yes.
It's.
What you try and do is find assets that are strong enough to withstand.
Any changes in taxation, because we see it everywhere in the world even here in Canada, we see increases in taxation, all the time and and so on and so again I reiterate the importance of looking for first and second quartile assets and focusing on assets that that deliver high profitability to all our stakeholders, including the recipient governments for.
Taxes in the recipient communities for income and stuff, we got to make sure that we focus on these because they are the ones that are that have the best capacity to withstand these pressures.
Albeit increasing taxation or increasing royalties are bigger challenges in terms of permitting and the extra cost associated with that.
It just sort of reinforces the importance of making sure that we focus on.
On assets that have the capacity to manage that and still deliver their essential products to society.
And just one last one in terms of the discount rate that you would apply to a country like Chile can you give us any rough sense of how that might have changed based on what's happened over the past year or so.
Yeah, it's a little bit higher than it was.
Yeah.
It is a very fluid we do we do have a team.
That assesses political risk and so it's a very fluid number. So the number I would tell you today would be different tomorrow than we would have been different yesterday, it's a fluid number that we whenever we're looking at a project, we try and assess not only where our country is but we also look at the vectors in terms of where do we expect it to be.
The one thing about the streaming industry is these are life of mine investments.
Someone comes along and offers you a really good price for an existing stream their life of mine investments and so political risk is incredibly important for us and so we do put a lot of effort into it and I can tell you that yet Chilean political risk has added to our risk profile and we're not willing to pay as much for Chilean opportunities as we were a year ago.
Two years ago.
Yes, thanks, so much Randy.
Thank you Adam.
Thank you. The next question comes from Ralph <unk>.
Eight capital. Please go ahead.
Good morning, Thanks for taking my questions Randy Yes.
Yes, Randy.
R&D, if we can stay on the theme of Chile.
Are you involved in.
Sort of a mitigation plan that Phoenix with the partner real too.
Just given your growing ESG competence and how that's become a focus for the company and would you be open to.
Part of their strategy, which is to seek alternative financing and whether that be through a renegotiated stream or other capital investment needs.
While we are definitely in touch with them I'll, let haytham provide a bit of color here, but obviously, it's an it's an asset that we like we think it is.
And Thats got good optionality and good growth potential.
But ultimately it's got to get up and running in the first place and so there is no doubt that RIN.
In discussions with with Rio two on that one and Haytham I don't if you want to add some color you bet. Thanks for the question Ralph just just in terms of.
Phoenix specifically.
We are in discussions with them, we are trying to figure out what type of capital is required over the next little while and trying to figure out ways to work with them to try and fill that cap of those capital needs generally speaking anytime one of our partners runs and any challenges. We're always there we're always trying to try to determine how to best help them what the right path.
For them would be in this situation in a politically motivated decision down in Chile.
Got it tread slowly here and try to figure out how you can withstand this.
This regime here at least for the next couple of years.
Yes fair enough I appreciate that.
Gary can I ask you a question on the sustainability linked facility and.
Whether or not Gary this opens you up to exposure.
On third party ESG scores right and does the.
The potential right.
On drawn amounts sort of go beyond emissions targets into parity goals.
Whether or not you run the risk of sort.
Environmental stewardship on things, maybe somewhat not in your total control.
Well there is three elements.
Kpis underlying the sustainability linked.
Component of our revolver and.
And the maximum change in the drawn pricing associated with that.
Achieving or not achieving those.
Target is five basis points, plus or minus five basis points. So.
One of those targets is relative to our.
Ties into our partners.
Commitments to.
Greenhouse gas emission reductions and so you take five basis points divided by three youre down to 1.6 basis points.
And.
That being said, we do anticipate.
Improvements.
In our baseline kpis from that perspective so.
This.
The downside risk is really negligible.
And we certainly.
Do believe that.
There is.
More.
<unk>.
Better chance of us.
<unk> our cost of borrowing.
In this regard Patrick yes, Ralph I'll, just add the only kpis that ties to.
External rating agencies won based on our S&P rating.
The added disclosure that we had in our lives sustainability report that came out in which we're actually quant.
Quantifying our scope III investment.
<unk> emissions and whatnot as well as a number of other targets that we have put in place in that report we strongly believe that that score will be going much much higher so.
It isn't overly concerning to us because again of the work we're doing in the added disclosure that we've already put into place that should be reflected in the next round of scoring by S&P.
And Ralph I'd I'd, just add one more thing.
We can't hide behind our partners.
<unk>.
There's a lot of companies in this space that have done that for years, but we are responsible for the investments that we make them for the partners. We have and obviously, we don't control them, but we have to do everything and we have to take ownership in terms of the fact that they are our partners on a go forward basis and so we do everything we can to try and help them be better and I think that's one of the things that really differentiates streaming.
Is that that focus on the relationship.
Got it well said I appreciate the answers thank you.
Thanks Ralph.
Thank you.
Question comes from Charlie <unk> of Baird.
Byrne Bank. Please go ahead.
Okay.
Good morning Congrats.
Congratulations on the results and thank you very much for taking my question.
Good evening I was wondering.
Good evening.
Okay.
Sure.
Okay. So can you please.
You highlighted in your presentation available capital.
And the current pricing environment.
Some of the commentary on how youre thinking about deals per screen.
We're finding them.
More available to you at the mine.
I'll, let let haytham answer that one.
Sure. Thanks for the question Charlie.
We'll continue to see a number of smaller streaming opportunities most of them falling into the sub $300 million range and they are primarily development stage opportunities not unlike what <unk> seen over the last couple of years. My team is currently working through a number of due diligence processes and to put things in perspective, we are usually looking at about 10 to 12 opportunities at any given point in time.
And hopefully we can narrow down on one or two high quality assets that meet our requirements over the next 12 months, if all goes well now.
Now keep in mind that we do have strong organic growth, especially given the success. We've had on entering into these streaming transactions over the last 24 months. So so.
We will be able to put some cash towards that but we will continue to look for ways to deploy our cash but it has to be accretively over the next little while.
Yes.
Yes, I would add to that.
No.
Any any companies out there that have existing operations have done relatively well in terms of commodity prices and therefore cash flow internal cash flows and not a lot not a lot of need for outside capital for the ones that have existing operations and so it just continues to.
To focus our development set onto development company single asset development companies that are building mines and helping.
Helping fund that.
And there is definitely a healthy demand for that.
Understood.
And then can you I might have missed this so could you. Please remind me.
Going forward in terms of the commodity prices are they materially different to the ones that you use for this year and sort of thinking of the cobalt selloff of amendment $33 per pound assumption in 'twenty two.
Sure.
Yes.
Sorry is that do you mean like with respect to gold equivalent ounces and the production forecast or yes.
Yes.
Stephen Yes, we kept them, we kept them identical to to make sure. It was an apples to apples comparison. So so the conversion integral to equivalent ounces for the forecast is exactly the same as it was at the start of this year.
But to be clear when we look at new opportunities, we evaluate them in terms of the current spot price.
Again, it's a very fluid number.
I've been in this business for well over 30 years now and.
I still can't tell you what the price of gold is going to be tomorrow.
Well, it's a very fluid it's always a function whenever we're looking at new opportunities. It's always a function of the spot price of the day.
That's what drives valuations.
Okay understood.
To be clear.
The pricing needs for this year at the same for five and 10 year.
Geo calculations.
Correct, Yes, yes, yes, we set those numbers once a year just so that they stay consistent.
Kind of when we put out our original guidance, we gave an answer there.
Okay understood. Thank you very much.
Thanks, Charlie.
Thank you. The next question comes from Lawson Winder at Bank of America Securities. Please go ahead.
Good morning, gentlemen, thank you for today's update and thank you for the color you've provided so far on the update on the long term guidance. That's been very helpful. I was hoping regarding Stillwater.
That you guys, perhaps would have a little bit more color around yesterdays update from excess W than we do in particular around gold. So when you guys. Originally did that screen. The expectation was for around 14000 ounces per year of gold once it hit its run rate is that.
Do you have a sense of how materially Thats changed.
Yes overall, it hasnt changed significantly so I mean, it does ramp up.
The Blitz project comes on so but over the next year or two is really where the main impact is the project has been slowed down slightly so, but it's not a significant impact on gold, particularly.
It's really over the really over the next couple of years.
The Blitz project and the other improvements are just taking longer to implement and no doubt further complicated by the the flood events that they've had there this year.
Yes of course.
Okay. Thanks for that color.
On cobalt so in the other metals category was there any change to the dollar.
Longer term outlook for cobalt.
There was a slight drop in the longer term outlook on cobalt, just really because of voices Bay and some of the challenges there with the with the project and kind of getting those underground is up and running so primarily 2023 dropped down a little bit so that affected the other metals for the five and 10 years.
Okay. That's super helpful. Thank you.
And then I'm just trying to true up my model for Copperweld Rosemont. So in your prior guidance, what year, where youre, assuming for startup of Rosemont and now in your current guidance.
Or are you assuming for startup for copperweld.
We've got.
A very minor amount of production from copperweld at the end of the five year guidance. So we expect it's going to be in that range.
Theres still firming up things on the HUD based side and so we still await more clarity. This is just our best guess on our part in terms of that is is four plus years out before we see any production, but it is a very very small amount, where we see it coming on is really.
Six I guess six to 10 is copper world. If they have some success on the permitting side. This could this could also on the federal side in terms of the Rosemont portion of the project.
Yes.
It would immediately bring about a change in that mining plan to bring on that additional production out of <unk>. So it's a very fluid plan Hebei is.
Firming things up as we speak but we just we.
We saw enough of a change in the indication here in terms of early production out of Rosemont that it warranted pulling it out of the 10 year guidance at a similar place to where it was in the previous guidance, we put out earlier this year as well so the actual timing of it hasnt changed its more of the actual volumes that changed because of the new plan that they put out.
Okay got it no that's outstanding Thank you for the help with that and then.
Finally, I just want to ask about Keno Hill, thanks for providing the IRR of 335% is pretty remarkable and hard to argue it but I know that was announced that you guys were excited about and with a much better capitalized operator coming in.
I'd be curious to get your thoughts on whether it was even close in terms of the potential return on having that asset actually ramp up and produce at its full capability versus the return you realized from selling it.
Well again, I think that needed the.
It's kind of one of these things where you have to balance holding the stream on it and determining whether the investment would have gone into the project the way it was.
Or to back out and we just felt that the project itself. We've been supportive of that project for well over 10 years now I think close to 14 years. When we did the original deal and it just hasnt been able to deliver.
It's a challenging jurisdiction, we know that Hecla has got better capabilities they've got.
Operating teams up at Greens Creek in Alaska, right next door so to speak.
It's a long ways away, but then on a relative basis right next door.
And we just felt that that was the best way for that project to move forward.
The price offered we had a lot of discussions about how to continue the stream on it and so on but in the end we had to look at where we felt the best return was it would've taken us a very long time to put a $135 million out of that project.
And we just felt it was time to wash our hands of it then.
And let <unk> give it a go.
Thats cleared very well understood. Thanks, very much Randy and thank you.
Yes, Thanks a lot.
Thank you.
The next question comes from Brian Macarthur of Raymond James. Please go ahead.
Good morning, I'd like to go back to the global outlook a different way.
I see you haven't changed your expected payment.
Next year, but you sort of give guidance to $5 50 to 650 to get to 36 million tons.
I guess my first question is do you still expect to make the payment next year second question I guess do you think the ramp up slower seal paid at the lower end of that just because of the new outlook for Salobo.
Or three.
Does it Jeff is there if you can just go through how it scales up again the trade off.
The 90 days, what you have to hit versus what you have to pay what the scaling of your payment looks like.
Brian Great question because.
It's clear that Vale has some work to do.
The the expense from payment is measured based on total performance of the site not just line three and I think that's important to remember and as we have seen and as we're reporting here right now on line, one and line to art performing to spec and so they've got a lot of work to do in order to get to the full payment and as you know and.
I think just about everyone knows it is a matrix that is based on time and throughput levels total throughput levels not line III throughput levels, but total throughput levels.
And so.
We're I'm hopeful I would love nothing better than to make that full payment because that means they are up and running all the way across the board on lines. One two and three however, there is a bit of work for Vale to do on this front.
And Youre right.
I think thats, probably a pretty conservative.
Given that they are as I said align one took two years to get up to full level line two took 18 months.
Because it's a 90 day completion test that means you've got to add on a quarter. When you start your test it takes a full quarter of production to sort of satisfy that test I think there is a pretty good chance that expansion payment might not be made until 2024. We're hopeful it's made next year, but at the same time, they've got to get this line up and running and getting it to those levels.
And the test is based on.
I think it's 90% of throughput capacity.
And so it's.
It's it's going to be.
It's going to be.
It's going to be a challenge for them.
They are still striving for that.
If you want anything to add that is slightly higher than 90%, 90% on that one they actually have to $35 million.
Great.
So we're at $35 million shows a 36 million capacity.
And.
Sorry, just on that 35 of the 36 that would trigger that matrix and I guess, it's the same all the way up let's say they only got two.
Next year, if they got the 32, they could actually elect if they ran it and they've got that you're just payment 32, but is there a scenario where the better now to wait.
Try and get it up to.
Yes, Sir.
So like two years out and therefore, you don't pay for even two years from now or something.
It's a onetime trigger they are the ones that are left when they want to initiate the test.
And then we.
Right.
Over the next 90 day period, we wait and see what the results are in in that.
At the end of that we pay them based on their performance over the 90 days, but it's a onetime trigger they've only got one chance to exercise this and so one of the other possible scenarios as they wait.
We know there has been discussion about global for Theres been no commitments on slow on valet side.
One of the other scenarios they could have is to wait and complete slow before.
And get it to the point now that's easily quite a number of years out, but with the increased throughput capacity it would bump up.
It would bump up numbers and so it's their option to choose whenever they want to exercise it or our best guess is still that they somehow satisfy it sometime next year, it's probably got a bit of conservatism to it.
I would think that Theres a real.
Risk of it getting pushed into 2024 as I said I'd love to make this payment because that means that they've resolve these issues and we're back to salobo being the <unk>.
Best asset in our portfolio again.
Great. Thanks, very much for the color Randy.
Thank you Brian .
Thank you. The next question comes from Adam Josephson of Keybanc. Please go ahead.
Adam welcome back everyone.
Thanks Randy.
Don't ask you add enough questions earlier, obviously.
Haytham would you mind indulging me on where Youre seeing most of your opportunities is it from precious metals mines as a base metals mines.
Shift you've seen up late along those lines.
Yes, the majority of the opportunities we're seeing have been precious metals from a base metal mines. There are some development projects out there that are more precious metals focused but have very very strong margins that are considering precious metal streams as well but.
There is.
There is also opportunities if we wanted to consider taking precious metal streams in a tiny bit of base. If it helps a bit but right at this point in time everything we're looking at is precious metals focused.
I hear you there.
Randy.
Months or years past, you've I think expressed the view that silver prices back to a question earlier about your commodity price outlook.
No one knows where these prices are going but that you thought to perhaps silver and gold prices could decouple, just given all of the.
Presume secular opportunities for silver and obviously, we have not seen that happen.
Have you changed your thinking at all along those lines do you still expect silver to decouple from gold at some point.
Any thoughts on that would be great.
The fundamentals Havent changed silver acts as a precious metal. So it provides a store of value and a measure of value as gold does.
But silver does so much more silver also.
High efficiency electronics, which in todays world incredibly important more and more important to all the time silver conducts electricity better than any other noble metal and so if you want to maximize your battery length do you want to maximize your efficiency of processing power your solar.
Solar power generation on solar panels, you have to use silver.
Silver has got antibacterial qualities beyond any other noble metal again water purification systems.
Health applications.
Silver just has so many other.
And to me look around the world and look at the challenges that we face as a society in terms of.
Trying to be more efficient and less waste.
That just means that silver is going to play a bigger bigger role in terms of.
Of making sure that we use the energy we have as efficiently as we as we can and so that hasnt changed and for that I think silver is going silver has got the same attributes as a precious metal no obviously not as anywhere near as widely accepted as gold.
But it has the same attributes there are large mezz as a society that treated as a precious metal as a store of value, but it also has a increasing demand on.
On the industrial side that is becoming more and more important to society everyday and so I do I do believe that it will happen eventually.
It's underperformed relative to gold.
The other side of it is the bulk of silver production comes from lead zinc mines and I sure don't see a lot of lead and zinc mines being built nowadays theres right. That's an area. That's an area that is going to have an impact in terms of overall silver production. So you have got stressed on the supply side, you've got increasing demand on.
On the demand side.
I think all of the all the metrics just lineup to perfectly too to ignore it.
Alright, I appreciate that and then just one last one Randy in terms of the guidance. You gave obviously you guys give current year five year 10 year average of some peers that give five year and current year sub tiers that give just the current year and nothing more and I think Dave said look we only have so much visibility into the <unk>.
Future and so we just don't necessarily think giving 10 year average guidance is appropriate given.
What visibility, we have or don't have and so just given all of these projects that you've had moving around delayed et cetera have you.
Any consideration of perhaps just given I don't know current year and three year current year and five year as opposed to going out as far as you do given whatever visibility you have.
Adam.
Yes.
There is there is a point in time.
Data that's a measured in a point in time is important but I think vectors are also important and I think by giving us that by us, giving 10 year guidance. What we're highlighting is that it's a continuous uptrend that we've got strength for the next 10 years going forward and so.
I think it's the vector that we're talking about in that vector hasn't been hasn't changed what we're looking at now is we've seen a drop in terms of the overall, but the vector of the slope of that vector the slope of that growth hasnt changed from where it was a year ago or six months ago. When we came up with our previous guidance.
And that's that's a key it's a key attribute of our portfolio that I think it's important to make sure the investing public understands I know our shareholders understand it I mean, it's one of the attributes that we have good long 10 year growth in our portfolio we've got assets.
Sure.
I think it's close to 40 years of of proven and probable and measured and indicated.
Proven and probable reserves and measured and indicated resources and another I think it's 19 years of inferred resources.
After that there's not another portfolio out there that has that and so I think it is important to capture that in terms of our own production forecast. We are confident that we'll be out there obviously, it's going to change I'm, hoping.
I know it will change because we're going to make acquisitions over the next 10 years and so there is no doubt that it's going to change, but I think what is important is to show that that our 10 year average guidance is higher than our five year guidance and that Hasnt changed that vector is still as strong as it's ever been and Thats. The important aspect of making sure that we provide that 10 year guidance.
I think if you go through the precious metals industry as a whole lot of reasons a lot of people don't provide 10 year guidance because the vectors pointing in the wrong way and they've got holes that they need to fill by making either acquisitions or by spending aggressively on organic growth.
And that's one of the reasons why it's not embraced but in our portfolio, we do not see that.
To reinforce again one of the advantages of the streaming business model is that we provide precious metal investors access to long life base metal operations by investing in purchasing off the noncore byproduct precious metals and so it's a very unique portfolio that we have within the precious metal space to have such long life long reserve.
<unk> life long resource life and deliver that back and so we're we're comfortable with that 10 year guidance. We think it's an important thing to make sure that the investors know about out there.
Thanks, So much I really appreciate all your answers to my questions.
Thanks, Adam and thank you everyone for dialing in today in closing we believe that we are 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 leverage the increase in commodity prices resulted in some of the highest margins in the entire precious metal space.
Secondly by offering our shareholders exposure to our diversified portfolio of long life low cost assets and the strong organic growth embedded within it.
Thirdly by returning value to shareholders through our unique cash flow linked dividend policy and.
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.
This concludes this conference call for today.
Thank you for participating please disconnect your lines.
Yes.