Q3 2022 Wheaton Precious Metals Corp Earnings Call

To work in growing our portfolio.

And we continue to see a very healthy appetite for streaming as a source of capital for the mining industry. So we are actively pursuing a number of new accretive opportunities.

Additionally, we once again demonstrated our leadership in sustainability and were recognized as one of the best corporate citizens in Canada by corporate Knights.

And once again, we ranked in the global top 50 out of over 15000 multi sector companies by sustained political.

It is important to highlight that Wheaton is the only precious metals company in this global top 50, something we're proud of but that we must continue working on.

Given our strong balance sheet liquidity available for investment and our diverse and development portfolio. We are on tack track to generate sustained long term production and strong growth over the next 10 years and beyond.

I would now like to turn the call over to Gary Brown, Our senior Vice President and Chief Financial Officer, who will provide more details on our results Gary.

Thank you Randy and good morning, ladies and gentlemen.

The company's precious metal interest produced 159900 gold equivalent ounces or geos in the third quarter of 2022 relative to the third quarter of the prior year. This represented a decrease of 13% primarily due to lower production at Salobo and the closure of the Triple seven mine.

Revenue for the third quarter of 2022 amounted to $219 million, representing a 19% decrease relative to Q3 2021 due to a 12% decrease in commodity prices combined with a 7% decrease in sales volumes of this revenue, 49% was attributable to gold 40.

6%, silver, 4% palladium and 1% cobalt.

As at September 32022, approximately 138000, Geos were in <unk> and cobalt inventory, representing approximately two five months of payable production.

<unk> is 17000 geos lower than the average over the preceding four quarters.

Gross margin for the third quarter of 2022 decreased 33% to $102 million, reflecting not only the 19% decrease in revenues, but also a higher proportion of sales volumes being attributed to pimp as having a higher unit cost primarily <unk>.

G&A expenses and donations amounted to $10 million in the third quarter of 2022 virtually unchanged from Q3 2021 for 2022, the company expects that the aggregate of G&A expenses and donations will fall in the lower end of the previously announced range of $47 million to $49 million.

The company reflected virtually no stock based compensation in the third quarter of 2022 is the combination of stock option and <unk> expenses were offset by a reversal of previously accrued costs relative to performance share units or psus. The combined expense represented a decrease of $4 million relative to the.

Comparable quarter of the prior year.

During the third quarter of 2022, the company terminated its Keno Hill Pampa in exchange for $141 million of common shares and Hecla mining. This transaction resulted in an income inclusion net of tax of $103 million <unk>.

Including the Keno Hill disposition net earnings amounted to $196 million in the third quarter of 2022, a 45% increase relative to Q3 2021 neutralizing for the Keno Hill disposition together with a number of other minor items adjusted net earnings amounted to 94 million.

Compared to $137 million in Q3, 2021, with the decrease being attributable to the lower gross margin.

<unk> adjusted earnings per share amounted to 21 <unk>.

Compared to <unk> 30 per share in the prior year operating cash flow for the third quarter of 2022 amounted to $154 million or <unk> 34 per share compared to $201 million or <unk> 45 per share in the prior year, representing a 24% 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 November 21, 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 third quarter of 2022, the company disbursed $59 million of dividends invested $31 million relative to the goose pimple $15 million relative to the marathon Tampa and $1 million relative to the coda Bombous early deposit agreement highlighting that these projects are advancing.

<unk> fueling weakens future organic growth overall.

Overall net cash inflows amounted to $46 million in Q3, 2022, resulting in cash and cash equivalents at September 30 of $495 million.

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.

It concludes the financial summary, and with that I'll turn the call over to Wes.

Thanks, Gary and good morning.

Overall production in the third quarter came in as anticipated with stronger production from Constancia and <unk> offset by lower than expected performance from Salobo and Stillwater.

In the third quarter Shlomo produced 44200 ounces of attributable gold a decrease of approximately 20% relative to the third quarter of 2021 due to lower throughput.

Production in third quarter did however represent a 30% increase over the previous quarter.

Plant performance improved relative to the second quarter of 2022. Despite a continued focus on additional planned and corrective maintenance during the third quarter.

Valley expects further maintenance work to continue into the fourth quarter with a focus on improving the overall operational performance and reliability of the process plant ultimately, resulting in improved production through the remainder of the year.

Valley also reported that physical completion of the Salobo III expansion was 98% at the end of the third quarter's progress during the quarter included the full commissioning of the primary crushing circuit hot commissioning of the conveyor systems and commencement of wet commissioning in the flotation circuit.

In the third quarter. The Stillwater mines produced 1800 ounces of attributable gold and 3200 ounces of attributable Palladium, a decrease of approximately 38% for gold and 37% of palladium relative to the second quarter of 2021.

Regional floods impacted the Stillwater operations on June 13th 2022, including damage to multiple bridges and the access road into the Stillwater mine.

Access to the East Boulder mine and the Columbus metallurgical facilities remained intact and both facilities continued full operations during the flooding event.

Operations at the Stillwater mine, which accounts for 60% of the mine production from Stillwater operations resumed production on July 29, 2022, once safe access to the mine has been restored.

Production at the Stillwater mine is expected to return to normal levels in the fourth quarter.

During the quarter. The Constancia mine produced 560000 ounces of attributable silver and 7200 ounces of attributable gold an increase of 8% on silver production and a decrease of 16% on gold production relative to the third quarter of 2021, the increase in silver production was due to higher throughput in grades from the Constancia pit and the decrease in gold production was due to.

Decrease in the greed and volume of material mined from pump contemplate.

Production from the public conscious pit is expected to increase in the fourth quarter, resulting in higher gold production to close out the year.

Also during the quarter.

Sabina gold and silver announced a formal construction decision for its goose project Sabine expects the project to be in a position to commence full construction in early 2023 with first production planned for 2025.

Also during the quarter Artemis announced Artemis gold announced the commencement of site preparation work at their Blackwater project, including site clearing brokers works and sediment and erosion control autonomous anticipates that the Blackwater plant site will start major construction works in the first quarter of 2023.

We can expect production to continue through the remainder of the year in line with its guidance of approximately 640000 to 680000 gold equivalent ounces.

That concludes the operations overview and with that I'll turn the call back to Randy.

Thank you Wes.

In summary, Wheaton recorded a solid quarter distinguished by several key highlights.

We achieved a solid quarterly revenue earnings and cash flow and declared a <unk> 15.

Quarterly dividend.

We enhanced and strengthened our financial flexibility, which positions us well for future accretive growth of which we're very active on.

And lastly, we continued to show our leadership in sustainability.

An example of which is shown by our support of flood relief to the local communities around the Stillwater mine in Montana.

So with that I would like to open up the call for questions operator.

Thank you, Sir ladies and gentlemen, we will now conduct question and answer session. If you'd like to ask a question. Please press Star then the number one on your telephone keypad.

Your question please.

There will be a brief pause while we compile the Q&A roster.

First question comes from Trevor Turnbull with Scotiabank. Please go ahead.

Yes, Hi, Randy.

I just had a question with respect to Salobo third line starting to ramp up I wanted to ask how we should think about the attributable production for Wheaton.

I think the technical report indicated the mines going into a period of lower grades and I just wondered how quickly the combination of the ramp up and then the great profile works out to incremental growth to your account.

Thanks, Trevor and good to talk to you we will see some growth, but there is definitely lower grades coming at Salobo and and they are still working on the final mine plan in terms of how much material they want to move versus move through the mill versus stockpile and so until they finalize that it's tough for us to sort of finalize.

What kind of growth we are going to see I can assure that will be a bump up in gold production for us. It's a matter of ultimately how much they decided to put into stockpiles versus feeding through the mill and so there is still a bit of variability in terms of the possible scenarios here and we just haven't formed a final decision.

The limiting factor is I guess, the driving factor there mobile fleet and that is something that's relatively easy to make adjustments to it in terms of scale and size and so until they make a final decision. It's really tough for us to give you a firm answer what I can assure you is that there will be some growth in overall gold production, but it likely won't be to the 50 <unk>.

<unk> scale that we're seeing in terms of increased throughput capacity it'll be.

Much more likely around the 10% to 20, maybe as high as 25% growth in overall production.

Okay, Yes.

Paul.

The only other question I had was just respect then to timing of some of your payments the ones to capstone for Santa Domingo and then the payment coming in for <unk>. I was wondering are those things that happen next year or is any of that happening before year end.

Ah.

We're hopeful of the <unk> transaction should close before the end of this year, but we're still waiting for some final sign offs and stuff like that but.

I just had some discussions last week and it looks like it's on track to close before the end of the year.

And I can assure you that sense of Domingo.

Capstone busy down finishing off other activities down there and so they've still got some some stuff to do so we're not going to see anything on Santa Domingo here for <unk>.

I would think until probably sometime next year, we might be the first that will see anything on the sense of the window side.

Okay perfect. That's all I had thank you.

Thanks Trevor.

Thank you.

Our next question comes from John Tumazos with century management.

Research. Please go ahead.

Thank you.

Thank you just run through.

The cash in and cash out.

You go to sleep.

Lever for the strong financial position.

Is it reasonable to look at year end.

<unk> $900 million in cash, including the current cash interim earnings.

Glencore payment if it closes and pro forma the hecla shares whenever you choose to sell them.

Well I will highlight that there is a six month hold on those hecla shares and so they would they would still be headwind, we would still be holding hecla shares at the end of the year, but.

Gary I'm not sure if you've got a sense for that I mean, I don't think you're too far off in terms of in terms of that but.

Yes, I mean, I think we would probably expect to be closer to the $800 million.

Level, assuming that the.

The <unk> transaction closes.

Before the end of the year John .

We do have some payments going out to some of these development projects and so there may be some more payments before the end of the year on that track.

My next question is could you just itemize all the.

Property payments to even though they're not all going to fall next year or this quarter.

Rather than having surplus cash one way to think of it.

You've just pre funded most of your commitments for the next five years.

Yes, we've got some expansion obviously you get the expansion payments at Salobo coming up.

Given that that's a 90 day completion test.

Neil.

They're going to do their best to try and get that completed before the end of next year, but.

But they do have some work to do in terms of that and I will say that past commissioning there have typically taken about 18 months to reach full production profile. So so that's likely not going to hit.

Hit the books until I would I would think.

Yes.

Early 2024.

And then there is a number of projects all the way across the board I don't know if you.

Nonetheless.

Yes, John look.

This is probably a question that we could take offline.

As you know, we've got a number of development stage projects.

Payment schedule is very well detailed project by project and our <unk>.

Contingent contingency.

Note.

Just high level, we do expect that there'll be about $80 million of payments made before the end of this year relative to those development stage projects.

With the high end of the range relative to the Salobo III expansion.

<unk>.

Being $646 million, we expect that another one $3 billion will be paid over 23% and 24.

And with the remainder.

Coming in.

Subsequent to that period the biggest the biggest items are going to be Sabina Goose project moves forward Blackwater is artemis moves forward.

<unk> is moving forward the dentist in.

And then.

Marathon should be getting going sometime next year or two and so those are those are the most are the biggest items along with that global expansion payment yeah, but.

It's important to highlight John that even on the most aggressive.

Development.

Plan.

We.

We don't anticipate actually even dipping into our revolver to make any of these that these payments theyre all funded out of cash that we have on hand at the end of September which is just under $500 million plus.

Our cash flows from operations forecast.

And in the future.

So plenty of capacity for new deals.

Really great that there's no gun to your head to do a deal to put 1 billion to work that you've already got good projects locked up.

If I could ask one more.

I'd say on their call yesterday in their field trip a couple of weeks ago.

Talked about renegotiating the.

Rosemont.

<unk> terms with you.

Mhm and.

The copper price is probably higher than when the first deal was done almost a decade ago with Augusta.

And the ore grade guide higher.

And the tonnes of resource Scott higher obviously, the Capex is more too.

It appears as though the project better.

Not obvious to me.

Why the terms would be renegotiated.

Are you worried.

The companies are too.

Have a weird to try to rip up the deals and renegotiate them.

Well they can't Rip up the deal and we've got a good strong relationship with hot band So I think the.

The reason about renegotiation is.

Is the fact that their current plan going forward with copper world actually.

Contemplates a production rate that's about two thirds of what the original plan was and so given given that we were funding.

Mine that was supposed to be operating at a higher throughput rate.

We're going to have to have some discussions with them about how that works. The original plan had us receiving close to 60000 gold equivalent ounces a year from Rosemont.

That gold and silver is still there but.

But it's because of the revised development plan that brings copper world into play and it would only have are seeing in terms of the early years of production somewhere around 40000 ounces of gold equivalent production and so the renegotiation comes from the change in the mining plan itself, where we have to sit down and look at how that plant I mean theres no.

We have greatly benefited benefited from the successful exploration of copper world.

And.

And this project has grown its going to be a significant American copper.

Copper producer is.

There's a lot of strong benefits to that.

We find it frustrating the effort that <unk> had to put in to try and get permits on the federal side and I'll find it SaaS that theyre, having to take the route they are going down the copper world path, especially in a country thats.

So focused on trying to improve its own in country production of essential minerals like copper and so I am hopeful that.

They can eventually have some success on the other side and get back to the best planned down there, which is the original Rosemont plan with comparable coming into play, but given the challenges that <unk> had and all the previous owners have had in terms of trying to permit that project going forward copper world seems to be the path forward and given that change in mining plan.

We're we're going to have to sit down and see how we can work with them to make sure <unk> is a very important partner of ours, a very successful partnership but at.

At both Constancia Triple seven and ultimately Rosemont as we go forward and I look forward to working with Peter and his crew.

Crew in terms of coming to a successful solution and so theres no tearing up of the contract. This is this is just to reflect the changes in the actual mining.

The mining plan itself.

Thank you.

Thanks, John Thank you.

Your next question comes from that.

That with Baird. Please go ahead.

Good morning, or good afternoon, everyone. Thanks for taking my call my.

My questions and congratulations again on your results.

Just Randy just skip that one I think.

This is the lockdown exclude as well, but I think I missed it do you expect.

Well lay to initiate.

Q4 next year is that is that what you said.

So if I misunderstood that I think that would be the earliest they could.

The completion test.

It is a 90 day completion test and so the fact that it takes a full quarter to satisfy that it's going to be.

They're going to do their best to try and get done in Q4 of next year, but I will say that the previous few lines that they've commission there have taken at least 18 months too.

Going forward for them to actually get to full production levels and so it's going to be.

Alan.

Go forward so.

I hope you heard that Theres a lot of feedback on the line here.

Yes, I did I apologize I apologize the feedback has made me myself. So when you are.

Before we may have some of my address.

With regards to inventory inventory.

Inventory you've developed.

Yes.

Yes.

He has developed.

So youll go produced over the last couple of quarters. It looks like since the start of Q1 'twenty one.

Good afternoon guys.

The inventory build 100 kilo ounces of Geos.

I mean, just to unwind in Q4.

Or is it soon.

Stuff that you intend to sort of hold back for now.

We have.

<unk> seen a trend in <unk>.

For the fourth quarter of every year in terms of companies pushing sales out to try and improve their year end results and so I would expect typically what we have seen in years past.

Every year, but most times, we do see a quarter, where where companies do push sales forward to try and actually get that.

Production.

Extra sales.

The year end results.

Okay.

Okay. Thanks.

Thanks very much.

And then finally.

The 777 months paid successfully closed.

Part of the deal.

A nice 11 on your financial statements.

Yes, David sorry, when do you expect to receive any.

Any refund on this stream if any at all if that question makes any sense, sorry, I feel I have.

Yes.

What you're saying there is a minimum deliverable amount and it hasn't been achieved yet and so there is a payment I believe its about 20 or 30 years out.

Say that again <unk> is a very important partner of ours.

Are investigating the possibility of tailings reprocessing, there to try and sort of help with the reclamation, but also recover additional metals and so there is a possibility we may see some additional production out of Triple 700 sometime in the near future.

Down that path.

And again.

When it comes to those kind of refunds you have to keep in mind. This is a broader relationship amongst the amongst the company itself and so it always comes into play and so we are.

It is in the contract, but I hope, we never have to ever asked for that.

Massively I understand these are all my questions. Thank you so much.

Thanks Charles.

So we do have a couple of questions from the webcast that I will relay.

They are both related to share buybacks. One is what is our appetite for share buybacks and then the second one is will the new Liberal government here in Canada their policy to tax share buyback to 2% onward limit any future share buybacks by Wheaton precious metals.

Well I'll field that one Patrick it's Gary.

Gary here.

We.

Really.

Look at their being three ways to return excess cash to shareholders.

That is first through the quarterly dividend.

And the second would be share buybacks in the third would be special distributions and I can just say that we would much rather subscribe to the first of those options and <unk>.

And ratchet up the payout ratio, which is currently at or targeted to be 30% of our operating cash flow then to subscribe to either one of the other options.

So given the high unlikelihood of us subscribing to share buybacks.

I think that answers the second question as well.

That's all the questions on the webcast.

Okay, well, thank you everyone for dialing in today.

In closing, we believe Wheaton is 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 leveraged increasing 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 a strong organic growth embedded within it.

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.

This concludes the conference call for today. Thank you for participating please disconnect your lines.