Q2 2023 Wheaton Precious Metals Corp Earnings Call
Speaker 1: I encourage you to take a look at these reports to learn more about Wheaton's approach to sustainability and the programs that we support globally.
Speaker 1: At our annual general meeting held this past May, we welcome Jean Hall to our Board of Directors, bringing her strong skill set to the board and increasing female board representation to over 40%.
Speaker 1: I would like to thank the departing board member, Eduardo Luna, for his contributions during his tenure.
Speaker 1: And I would also like to pay homage to John Brough, who, after resigning as a director in May, sadly passed away just recently.
Speaker 1: He is and will be dearly missed by all of us at Wheaton.
Speaker 1: I had the privilege to work with both Eduardo and John since the inception of Wieden, and I'm immensely grateful for their invaluable guidance and leadership.
Speaker 1: I would now like to turn the call over to Wes Carson, our Vice President of Operations, who will provide more details on our results. Wes?
Speaker 2: Thanks, Randy. Good morning.
Speaker 2: Overall production in the second quarter came in higher than expected, primarily driven by significant sequential improvement at Salobo.
Speaker 2: In the second quarter, Salobo produced 54,800 ounces of attributable gold, an increase of 61% relative to the second quarter of 2022.
Speaker 2: Valley reported production in the quarter was driven by better than expected ramp up of Salobo 3 partially offset by planned maintenance activities and additional work on the crushers at Salobo 1 and 2.
Speaker 2: Additionally, Valier reports that planned maintenance activities will continue in the second half of 2023, and that the ramp-up of Slobo 3 is expected to be fully completed in 2024.
Speaker 2: During the quarter, Constantia produced 400,000 ounces of attributable silver and 7,400 ounces of attributable gold, a decrease of approximately 28% and 7% respectively relative to the second quarter of 2022, with a decrease in both metals primarily due to lower throughputs and grades.
Speaker 2: In the second quarter of 2023, Penasquito produced 1.7 million ounces of attributable silver, a decrease of approximately 17% relative to the second quarter of 2022 due to lower throughput. On June 8, 2023, Newmont Corporation reported that it had suspended operations at the Penasquito mine due to a labor dispute. To date, Newmont has indicated that it is in ongoing discussions with the leadership of the National Union of Mine and Metal Workers of the Mexican Republic and remains focused on finding a sustainable resolution to the dispute. Due to the delay between production and sales, we expect the impact of Penasquito suspended operations will be reflected in our sales...
Speaker 2: Additionally, on July 4, 2023, Artemis announced receipt of the Fisheries Act authorization for development of blackwater.
Speaker 2: These two permits represent significant milestones in the development of blackwater and allow the Artemis team to continue their focus on completing Phase 1 construction on schedule and to pour first gold in the second half of 2024.
Speaker 2: As Haytham will discuss later in the call, we expanded our gold stream on Blackwater in the quarter and have been impressed with Artemis' progress in developing the mine.
Speaker 2: This is a major milestone for ARIS as construction of the lower mine allows for application of bulk mining methods and improved processing, which is estimated to grow Maramata's gold production fivefold once construction is completed in the second half of 2025. Weins estimated attributable production in 2023 is forecast to be approximately 600,000 to 660,000 gold equivalent ounces, unchanged from previous guidance, but predicted and predicated on Penasquito's restarting production in the end of the third quarter. For the five-year period ending in 2027, the company estimates that average annual production will amount to about $2.5 million.
Speaker 2: sector leading organic growth of over 40% with an estimated total production for our current portfolio increasing to over 900,000 gold clove ounces by 2027.
Speaker 2: That concludes the operations overview and with that I will turn the call over to Gary. Thank you Wes. As described by Wes, production in the second quarter amounted to 148,000 gold equivalent ounces or GEOs, a 3% increase relative to the first quarter of 2023 and a 5% decrease in gold.
Speaker 3: by a 32% decrease in silver production, primarily due to the divestment of the Yaliaku and Kino Hill.
Speaker 3: precious metal purchase agreements combined with the ongoing labour dispute at Penasquito.
Speaker 3: Sales volumes amounted to over 139,000 GEOs, an 18% increase relative to the first quarter of 2023, and a decrease of 16% relative to the comparable period of the prior year, with the year-over-year variance being primarily due to the 6,000-ounce buildup of ounces produced but not yet delivered, or PB-
Speaker 3: ounce release of PBND in Q2 2022, resulting in a 22,000 ounce swing in sales volumes that is simply driven by the timing of shipments.
Speaker 3: Strong commodity prices coupled with our solid production base resulted in revenue of $265 million and a gross margin of $152 million. Of this revenue, 56% was attributable to gold, 41% to silver, 2% to palladium, and 1% to cobalt.
Speaker 3: representing approximately 2.1 months of payable production, which is a level that is consistent with the preceding four quarters.
Speaker 3: G&A expenses amounted to $10 million for the second quarter, and the company anticipates that G&A will amount to $40 to $43 million for the year.
Speaker 3: Adjusted net earnings amounted to $143 million, a $7 million decrease relative to the second quarter of 2022. It is worth noting though that when comparing the results to the prior year, the estimated impact to net earnings associated with the relative changes in PB&D was $18 million.
Speaker 3: Meaning, we would have exceeded prior years net earnings if not for the timing of deliveries. Despite the persistent inflationary environment, Wheaton continued to deliver robust cash operating margins in the second quarter, resulting in cash flow from operations of over $200 million and a quarterly dividend of 15 cents per share.
Speaker 3: consistent with the second quarter of 2022. In the quarter, Wheaton made total upfront cash payments of $89 million, consisting of $31 million payment relative to the Goose Project, $45 million relative to the Blackwater Project, and $12 million relative to the Ken Grejo's Project.
Speaker 3: Weeden also made dividend payments relative to the prior two quarters totaling $131 million.
Speaker 3: As mentioned by Randy, during the second quarter B2Gold completed its previously announced acquisition of Sabina and in conjunction with this acquisition exercised the option to acquire 33% of the stream under the goose pimpa.
in exchange for $46 million, resulting in a gain on the partial disposal of the pimp in the amount of $5 million and generating an IRR of 48%.
Overall, net cash inflows amounted to $29 million in Q2 2023, resulting in cash and cash equivalents at June 30th of $829 million. This significant cash balance, combined with the fully undrawn $2 billion revolving credit facility and the strength of our forecasted operating cash flows, positions the company exceptionally well and is a great opportunity for the company to continue to grow and grow
to satisfy its funding commitments and provides us with the financial flexibility to acquire additional accretive mineral stream interests.
That concludes the financial summary and with that I will turn the call over to Seamus stadium movement.
Thank you, Gary, and good morning everyone. The corporate development team remains exceptionally busy valuing opportunities and we're excited to have announced two deals in the quarter, both adding strong accretive growth to our development project pipeline.
Starting with the Cangreos project on slide 11, which is the largest primary gold deposit in Ecuador and owned and operated by Lumina Gold. This is a project which currently has more than 20 million ounces of gold in resources and 2.5 billion pounds of copper, not to mention moly and silver, and just recently completed a PFS in April this year.
For the agreement entered into in May 2023, Wheaton will receive 6.6% of the payable gold, dropping to 4.4% after 700,000 ounces have been delivered for the life of the mine.
In exchange, Wheaton will make an upfront payment of $300 million, the majority going in during construction, and ongoing delivery payments equal to 18% of the spot price.
Attributable production is forecast to average over 24,500 gold ounces per year for the life of the mine, contributing to our long-term growth profile, which, when coupled with significant exploration potential, makes this a very attractive addition to our portfolio.
It's important to note that Lumina Gold has strong community support for the project and no indigenous groups in the area as well. As with any transaction that Wheaton enters into, responsible and sustainable mining practices are paramount, and Wheaton looks forward to supporting Lumina both financially as they construct Tungrills and with their ongoing comprehensive community engagement efforts.
On to slide 12, on June 14th, Wheaton amended our existing Blackwater Gold precious metals purchase agreement with Artemis Gold to help them arrive at a fully financed transaction.
By expanding the threshold, we created a win-win situation where Artemis continues to get strong cash flows in the early days that allows them to service their debt while Wheaton gets a stronger for longer profile in a high quality asset with a strong operating and management team.
This revision now entitles us to purchase 8% of the payable gold production until 464,000 ounces have been delivered, an increase from the previous 280,000 ounces dropping to 4% for the life of the mine.
Notably, this threshold will increase should there be a delay in the anticipated timing of deliveries.
In exchange, Wheaton will make an additional upfront payment of $40 million, bringing total upfront consideration to the Blackwater Project to $481 million.
Since our acquisition of the gold and silver streams on Blackwater in 2021, we have been very impressed with the progress made by the Artem's team in de-risking the project and advancing construction activities, and Wheaton is excited to continue to contribute to the success at Blackwater.
That concludes the Corporate Development overview and with that, I will turn the call back over to Randy.
Thank you, Hatham.
In summary, Wheaton's second quarter was distinguished by several key highlights.
We achieved solid three month revenue, earnings, and cash flow, and declared a 15 cent quarterly dividend.
We believe our safety and quarter-over-quarter production growth positions us to achieve our previously announced annual guidance of 600 to 660.
thousand gold equivalent ounces. Our pipeline of development projects was further de-risked, supporting our impressive organic growth profile of over 40% in the next five years. Our commitment to accretive growth was emphasized by the addition of a gold stream.
on Lumina's Congrejos project and an expansion of our existing gold stream on Artemis Gold's Blackwater project.
Our balance sheet remains one of the strongest in the industry, providing ample capacity to add accretive, high-quality streams into our portfolio.
And lastly, we continue to demonstrate leadership and sustainability with the release of our annual sustainability report in addition to our inaugural climate change report, demonstrating our continued focus on transparency and delivering value to all stakeholders.
So with that, I would like to open up the call to questions. Operator.
Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you would 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 star two. If you would like to receive a question, please press star two.
Your first question is from Brian MacArthur from Raymond James. Please ask your question.
Good morning. I have a couple of questions.
My first question relates to Salobo. It looks like the ramp up is going fairly well there. And I know they need a 90 day period to hit their targets. Do you think that you'll have to make the payment this year? Because I guess January 1st is a date where if they hit $35 million.
tons you make your payment or is that still something that's more likely to happen next year? Well Brian , good to talk to you. We did revise that agreement earlier this year and so there is two phases to the agreement and so their first step in this is the 32 million dollar level, or sorry 32 million tons per year.
We're hopeful that we get to make that payment this year. Great, thanks. And my second question relates to another large option you have that's not in your guidance at PASQA. Another company made a fairly significant royalty purchase on that asset on the Chilean side recently. Do you have any update on that or any read through for that from your perspective, given your investment there? Yeah, I was pleased to see someone else agreeing with us in the sense that, and I've said this for a long time, it's the best half-built mine in the world.
it is one of the best gold deposits in the world. And it's a deposit that also produces substantial silver. So as a refresher, we get 25% of whatever silver is produced from both the Chilean side of that deposit and the Argentinian side of that deposit.
I know Barrick continues to advance and study and work at it to see if there's a way to move that forward. I know Mark agrees with me in the sense that it is a true world-class deposit that would fit into their growth profile very nicely. Obviously, there's some challenges on the Chilean side with respect to permitting.
But I know Barrick is investing in on the Argentinian side, so it's important that our stream does cover both sides of the border, not just the Chilean side, but both sides of the border. And so we're hopeful. As a reminder, a couple of years ago we had the opportunity to...
to collapse this stream and get our money back, and we chose not to because we do believe that this mine will eventually deliver a good, strong boost in silver production to our own portfolio as it moves forward, and we're just happy to see not only Barrick continuing to try and strive towards bringing at least the Argentinian side forward, but also in discussions on the Chilean side.
but also to see some of our peers also investing into the opportunity. I haven't heard PASQA for a while, so I was pleasantly surprised to hear that it was being brought back into the markets.
Great, thanks. Just to remind me, if I remember correctly, because you did get some of your original money back, it's about $250 million is sort of what you put into this so far. Is that the book's value on it now?
Well, we put in 625 million back in the early, well over 10 years ago, but we did receive silver from a number of other Barrix operations, and so our net investment into this is just over 250 million.
Great, thanks very much Randy.
Thank you Brian .
Thank you ladies and gentlemen. Once again, please press star 1 should you wish to ask a question.
Hi there, good morning. Randy and Hachem, I'd like to get your thoughts on Ecuador. It's not, you know, with congrejos it's not your first venture into the country, but just wondering how you were sort of factoring in, you know, country risk and country factors into the analysis.
because that's how we factor it in. So, depending on the project, we're very comfortable in certain areas in Ecuador, as in any country. It's always one of the more important things, and I think society is moving that way, is making sure you have strong community support.
Ralph, I would just add to that, you know, I think it's really important to recognize that we don't advance the vast majority of our upfront payments until there's a construction decision made and, you know, we would expect that that would only be made in, you know, a stable political
world pre-feasibility study in Q3 and this obviously follows on the PEA and it's looking like a very different project from the original deal that valued the stream. They're just wondering does the delivery of the PFS trigger renegotiation in some way on that quantum versus the original stream? Could we send something bigger or smaller depending on...
us. Peter and the team, we do a lot with them. Constantia, of course, is doing very well for us right now. We've had good history with Hutt Bay and we intend to continue having a good strong partnership there. The original stream was, of course, focused on the Rosemont.
deposit and it had a vision in terms of production rates and stuff like that. The copper world is definitely, I think it looks like it's probably going to wind up being slightly less, probably around two-thirds of the level of production.
But one has to remember that those ounces weren't even in the original forecast. And so Rosemont is still in the background waiting to move forward. And I think once Hudd Bay proves that CopperWorld can be operated in a safe and sound, environmentally and socially responsible manner, which is what I think is the most important thing.
And so, you know, once we see that pre-feasibility come in, we'll have a good look at it and then we'll sit down and talk about how we continue to grow our partnership with Hudbay. I'm not expecting any issues there. It's a good, strong asset as a whole and we'll see how that moves forward. But we're still waiting for those details too. I think there's still, you know, Hudbay's got several different options as crop world comes into play and I think they're still sort of fine-tuning that. That's why they haven't released it yet.
Gotcha. Okay, well thanks for asking Gary. Yeah. Thank you. Your next question is from Martin Pratir from Veritas Investment Research. Please ask your question.
I'll let Wes take that one. Sure, yeah, no, thanks for the question. Really, I mean, we're definitely encouraged by what we saw in Q2 here and then certainly Slobo 3 moving ahead and Slobo 1 and 2 seem to come kind of back in line with expectations. And we're really excited about where things are going for the rest of the year here. And there was in the forecast and kind of the budget for the rest of the year, there was an increase as they brought Slobo 3 online. We certainly expect them to kind of get in that same kind of vein as what we saw in Q2 and carry on for the rest of the year. As Randy said earlier, I mean, the more that we can see them getting closer to that expansion payment, the better off that we'll be.
And so we know that they're striving towards making sure that that gets satisfied in the second half of this year. And so there's no doubt that we're going to see continued growth at Salobo over the course of the year. And so what's exciting is the potential scale of that growth.
What were they in terms of counts per day in Q2?
It was running at about 70%. Of the three lines. Three lines at about 70%. So in order to achieve the 32 million tons per annum, you would have to be running it closer to 90%.
Yeah, still a ways to go to get to that completion test.
Yep, yeah, we shouldn't worth noting as well that I mean we were down there in April this this past April And then really things are moving along extremely well and that relationship with that with Valley continues to improve and really a great group down There that is moving things in the right direction Yeah, I was gonna highlight that 70% is an average over the q2 It was definitely higher towards the end of that. So it doesn't seem like that far of a stretch For them. They're pretty comfortable that they're going to be able to satisfy this. Yeah
Worth noting as well that we were down there in April , this past April , and really things are moving along extremely well. And that relationship with Vale continues to improve and really a great group down there that is moving things in the right direction. Yeah, I was going to highlight that 70% is an average over the Q2. It was definitely higher towards the end of that. So it doesn't seem like that far of a stretch for them. They're pretty comfortable that they're going to be able to satisfy this. Yeah. Perfect.
And on Cancrijos, is that fully permitted and will be impacted by the claim on the presidential decree that regulates environmental consultation which is impacting your other mind that it seems to be, well, there is a claim that is unconstitutional, that presidential decree.
So on congrios, you know the exploration permits have been received. The EIA is obtained for the exploration phase and the environmental baseline studies have been compiled. The exploration investment protection agreement has been signed but they still need to enter into a construction and production agreement and illuminately to undergo permitting for those operations.
the international changes that we've seen there. I think at this point in time, it doesn't really apply to something like Angrejos because it's so far out into the future. I think when we look at our profiles, we've got anywhere between near term is one to three years, medium term is three to five, and longer term is five to 10. This definitely falls into the five to 10 year profile. So.
that have been resolved by then.
Thank you very much.
Thanks, Martin.
Thank you. Your next question is from Jean Tomazo. Jean Tomazo is a very independent researcher. Please ask your question.
Thank you for taking my question. I'm going to start by setting up on Martin.
How many years out is Contreras of Lumen and Gold?
Did you say 5 to 10 or can you be precise, 5678?
Yeah, it falls into our- And more broadly.
Are you going to target
projects that are more than several years out, which is the hardest to finance.
For the emerging companies, given 5.5% short-term interest rates, tough market for gold stocks, etc., it's a great opportunity.
Thanks for the question John . To answer your question, Grayhouse falls into the latter part of this decade. It's probably somewhere around 28, 29 is when it would actually kick in based on the current profile. We are, the way we structure our transactions is we actually make staged payments along with the rest of the capital that's being infused into the project.
and for, like what we call those early deposit structures. So we commit very little at this point in time and that gives the company a lot of time to actually go back and actually raise the capital, whether it's debt, equity, private equity, stream, et cetera. So we work with our partners to try and help them get across the line and I think the longer term project.
really are a view on where we think commodity prices are going longer term. And we do think assets that contain both gold and copper, not only congrios, which is primarily a gold asset with about 20% of the revenues coming from copper, will start to be a lot more attractive, not just to the diversified base metal companies, but to a lot of the pressure metal companies as you've seen them going to base metals of lead.
I think it's important to just have a cross-section of investments, near term and longer term. This isn't an industry where we make acquisitions all the time. You have to be sensitive to where you think you are in the marketplace.
Yes, thank you, John . Thanks for the call. Thank you, and your last question is from Tanya from Deutsche Bank. Please ask your question.
Morning. I think it's me from Scotiabank. But anyways. We were chuckling. We missed that news release. Yeah, I was like, okay. I think that's me. Anyway, first of all. Good to talk to you, Tanya. Nice chatting with everyone.
Thank you for taking my questions. I have about three that I wanted to review and I'm going to start with Gary if I could first. Two for you Gary. I just wanted to ask and I asked on the Franco call as well because the Canadian government has come back with initial commentary and or
you know, initial commentary on this global minimum tax and the framework. Have you had a chance to look at it and anything that you could add there that, you know, you think we should be aware of?
Yeah, I mean we're still in the process of getting through the details, but it looks like the proposed legislation is in line with the principles that they previously released. Also –
really we don't see there being any change to our prior guidance, which is that we think that once implemented, assuming that it does get implemented, that it would have application to the income generated by our non-Canadian subsidiaries.
an 8 to 10 percent impact on our NAV. If we were to have it applied, if it had applied this year, I'd estimate that the implication would have been that we would have accrued like somewhere in the neighborhood of 35 to 40 million dollars.
Yeah, more than anything, Gary, was just more was there anything in there that you saw or read that's anything different from what we have all been led to believe? No. Was there any – there wasn't a lot of details on what could be deductible, et cetera, so I don't know if there was anything in that, but you had some intel on.
come in within our guidance range. So we're expecting, I mean, it would certainly have an impact and it would continue to impact through into Q4 if it were down for the entire quarter. So there is a delay of about six weeks, six weeks to two months between that kind of production and the actual sales. So specifically in Q3, we would see a sniff of sales because with that six to eight week delay and sort of the connection between production and sales, obviously they shut down on June 8th, which is three weeks before the end of the quarter. So that does leave some residual sales revenue that we should see in Q3, but not a lot as you'd imagine.
Does this have an impact? Obviously, you look at your dividend, we see obviously a free cash flow growing, and you have that 15% payout. Does this push out your thoughts on increasing that payout?
Well, I think what is more has an impact is the fact that Haytham keeps on finding good projects to invest into. You know, we've just committed now to Congrejos and I can tell you we're very busy on that front on the corporate development side and so, you know, I'm fully expecting that Haytham is going to deliver.
not going into accretive new acquisitions, it's going to go back to the shareholders. We've got good strong cash flows. We're seeing outperformance in a number of other assets and so we're falling into our guidance range. We're comfortable with our year guidance, the 2023 guidance.
And so, you know, the dividend is a good strong dividend. I think it, I believe it pays the highest yield in the space, at least amongst the senior streamers. And so it's a good strong dividend policy, but, you know, we've got plenty of capacity. We can see that in the balance sheet in terms of what we've done. It hasn't had an impact on that front.
I think it's probably, if we don't bump it, it's probably because Haytham keeps on finding great ways to spend it.
I think it's important to recognize, you know, we've set dividend policy based upon long-term, you know, forecasts and this is really just a short-term issue in our eyes.
And I was just thinking, you know, whether, you know, should I be thinking about, you know, for 2023 or has it been pushed out sort of into 2024?
just because of the panacea, you know, short-term flip. I wouldn't expect a change in our dividend policy until 2024 at the earliest. Okay, now that's helpful. Thank you. And if I could just squeeze one more in for Haytham because he's a money spender.
I wanted to circle back, Kate, with you. I just wanted to come back and ask this last quarter. The deal size, because this deal size seems to be, in my opinion, small relative to the size of your company. But are we still looking at that $150 to $350 million?
dollar range for precious metals acquisitions.
Good morning Tanya and thank you for the questions money spender I like that. I can tell you that we're looking at all ranges so you know the majority of the stuff probably is still sub 300 there's some that are much smaller than that we've got a couple that are actually 500 million plus as well so you know we're we're aggressively trying to move things forward we're probably trying to move
streaming that we've seen that that's likely attributable to the fact that equity is not there, debt is too expensive, private equity is very expensive and Wheaton treats our counter parties very fairly try to give them come up with win-win transactions so you know we're very excited here over the next little while try to get some more more transactions done.
Well, the plus 500 million dollar ones, I hate them that you have that you said you've got a couple there. Are they gold focused or are they silver?
They are precious metals focused, I would say they are a combination of gold and silver. Gold and silver, not platinum, palladium.
No, no, no. I mean our 90 plus percent, probably 95 percent of our focus is on gold and silver these days.
Okay, all right. I'm still looking at the same development and operating assets, still both categories.
Yeah, and the nice thing is we've got some that are closer to the operating stage, near-term operating stage as well, that will contribute to our overall earnings and cash flows in the near-term.
Okay. Okay, great. Thank you so much for answering my questions.
Thank you, Tanya, and 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 offering our shareholders exposure to our diversified portfolio of long-life, low-cost assets that we believe has one of the best organic growth profiles in the mining industry.
Secondly, by having low and predictable costs which are resilient to inflationary pressures, resulting in some of the highest margins in the entire precious metal space, which has allowed us to consistently return good value to our shareholders.
And lastly, by being a leader amongst precious metal streamers in sustainability, and by supporting our partners and our neighbors in the communities in which we live and which we operate.
So with that, I would like to finish off by saying that after nearly 20 years at this company, I have never been more excited about our future prospects. We believe that now,
is a great time to own more Wheaton.
I do look forward to speaking with all of you again soon. Thank you.
Ladies and gentlemen, this concludes the conference call for today. Thank you all for participating. You may all disconnect your lines.