Q2 2019 Earnings Call
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After the speakers remarks, there will be a question and answer session.
She would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key I would now like to turn the call over to Mr. Patrick German. Please go ahead.
Thank you operator.
Good morning, ladies and gentleman and thank you for participating in today's call I'm joined today by Randy Smallwood, wheat, and precious metals, Chief Executive Officer, and President Gary Brown, Senior Vice President and Chief Financial Officer, Haytham, Hodaly Senior Vice President of corporate development I'd like to bring to your attention that some of the commentary on todays call may contain forward looking statements. There can be no assurances that forward looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements.
In addition to our financial results cautionary note regarding forward looking statements.
Please refer to the section entitled descriptions of the business risk factors in we'd whose annual information form and the roof identified under risks and uncertainties in managements discussion and analysis both available on SEDAR and then we have this form 40 F and women's form 6K, both on file with US Securities and Exchange Commission.
These documents together with the Q2 2019 M. DNA in the press release from last night set out the material assumptions and risk factors that could cause actual results to differ including among others fluctuation in the price of commodities the absence of control over mining operations from which Wheaton purchases precious metals and risks related to such mining operations and that continued operations of wins counterparties. It should be noted that all figures referred to on today's call are any less dollars unless otherwise noted in addition reference to weaken or Wheaton precious metals on this call include Wheaton precious metal Corp, and or its wholly owned subsidiary <unk> 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, ladies and gentlemen, thank you for joining us today to discuss Wheaton.
Second quarter results of 2019.
The first half of 2019 has provided a solid start to the year and I am pleased to report we delivered strong operating results from our diversified portfolio of high quality assets.
In the second quarter of 2019, we produced over 100000 ounces of gold and over 4.5 million ounces of silver.
From a cash flow perspective, we generated nearly $110 million of operating cash flow and declared a quarterly dividend of nine cents per common share in line with our minimum target set for 2019 by the board of directors.
Looking forward. We are currently on track for a record annual gold production and we have reconfirmed our gold equivalent production guidance for the year.
With that I'd like to turn the call over to Gary Brown, one of our senior Vice President and our 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 turned in a solid second quarter performance despite operations being suspended at Penasquito for a large part of the period production for the second quarter of 2019 amounted to 162000 gold equivalent ounces comprised of 101000 ounces of gold 4.8 million ounces of silver and 5700 ounces of palladium.
Relative to the second quarter of the prior year. This represented an increase of 11% and gold production and a decrease of 19% in silver production. The increase in gold production was due primarily to the new streaming agreements relative to the San Dimas and Stillwater mine, coupled with higher production at Sudbury, partially offset by lower production at the other gold interests, including Minto, which was placed in the care and maintenance in October of 2018, well the decrease in silver production was primarily due to the termination of the sand about silver stream effective may 10th 2018, and reduced production at Penasquito, resulting from an illegal blockade, which began on April 29, and ultimately who was resolved in late June .
Sales volumes amounted to 90000 ounces of gold 4.2 million ounces of silver and 5300 ounces of palladium in the second quarter of 2019, representing an increase of 3% for gold and a decrease of 29% for silver relative to second quarter of 2018, the increase in gold sales volumes was due to the higher production levels largely offset by negative changes in the balance of payable gold produced but not yet delivered to weaken the decrease in the silver sales volumes was attributable to the lower production coupled with negative changes in the balance of payable silver produced but not yet delivered.
As of June Thirtyth 2019, approximately 81000 payable ounces of gold 3.3 million payable silver ounces and 4500 payable palladium ounces had been produced but not yet delivered to the company consistent with what we would expect to be normal levels.
Revenue for the second quarter of 2019 amounted to $189 million, representing an 11% decrease relative to Q2 2018, primarily due to the decrease in the silver sales volumes of this revenue, 63% was attributable gold, 33% was attributable to silver and 4% was attributable to palladium.
Gross margin for the second quarter of 2019 decreased 23% to $67 million due to the lower sales volume combined with higher depletion rates associated with the ounces coming from sand the math.
Cash based gene a expenses amounted to $11 million in the second quarter of 2019 virtually unchanged from Q2 2018 interest costs for the second quarter of 2019 amounted to $12 million, resulting in an effective interest rate on outstanding debt of 4.25% as compared to $6 million of interest costs at an effective rate of 3.44% incurred in Q2 2018.
During the second quarter of 2019, cobalt 27, which has a stream relative to Boise Bay, having similar terms to our Boise debate cobalt interest announced that they had agreed to a proposed acquisition by Paula investments.
Based on information available to US we have estimated the price paid by pile up for cobalt 20 Sevens Boise. They stream was significantly lower than the original purchase price, which we have concluded represented an indicator of impairment relative to our Boise is big cobalt interest as a result, we have recognized an impairment charge of $166 million relating to this stream during the second quarter.
The net loss amounted to $125 million in the second quarter of 2019 compared to net earnings of $318 million in Q2 2018. After negating the effect of the impairment and other items that are nonrecurring in nature. Adjusted net earnings in the second quarter of 2019 amounted to $45 million compared to adjusted net earnings of $72 million in Q2 2018 with the decrease being primarily the result of lower sales volumes relative to Penasquito, which was negatively affected by the illegal blockade in the quarter lower margins relating to say in a mass due to the conversion of the stream from a silver stream to a gold stream.
Lower gold sales volumes relative to slow due to timing of shipments.
And.
Higher finance costs.
Basic adjusted earnings per share decreased 38% to 10 cents.
Compared to 16 cents per share in the prior year.
Operating cash flow for the second quarter of 2019 amounted to $109 million or 25 cents per share compared to $135 million or 31 cents per share in the prior year, representing a 19% decrease on a per share basis with the decrease being attributable primarily to lower revenue and higher interest costs.
Based on the company's dividend policy. The Companys Board has declared a dividend of nine cents per share payable to shareholders of record on August 20, Threerd 2019.
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 3% discount to market.
For 2019, the company continues to estimate the non stock based gene expenses, which excludes expenses relating to the value of stock options and PS use will amount to $36 million to $38 million.
The operational highlights for the second quarter of 2019 included the following Slovo generated 67000 ounces of attributable gold production in Q2 2019, virtually identical to Q2 2018, well gold sales volumes in Q2, 2019 decreased 18% to 58000 ounces, resulting from timing differences in gold ounces produced but not yet delivered to wheat.
In the second quarter 2019 performance report valet reported that the ongoing expansion at Salobo continues to progress with the completion of Earth works in the crushing and flotation plants in the quarter.
Attributable gold production relative to Sudbury, and Q2 2019 amounted to 9000 ounces well sales amounted to 8300 ounces, an increase compared to Q2 2018 of 39% an 89% respectively with Q2 2018 production, having being negatively impacted by the temporary shutdown of the Coleman mine.
Attributable gold production relative to Constancio in Q2, 2019 amounted to 4500 ounces, while sales amounted to 4400 ounces, an increase compared to Q2, 2018% to 42% and 103% respectively, reflecting the receipt of 2000 ounces of gold is compensation for the delay in accessing the pampacancha deposit.
Attributable gold production relative to San Dimas in Q2, 2019 amounted to 11500 ounces wall sales amounted to 10300 ounces, an increase compared to Q2 2018 of 101% and 175% respectively. As the current period represented a full quarter's production while production in Q2 2018 only included production from May 18th onwards that being the date the contract came into effect.
The other gold interests generated 4800 ounces of attributable gold production in Q2 2019, a decrease compared to Q2 2018 of 36% primarily due to Minto mine being placed into care and maintenance during October of 2018.
Attributable silver production relative to Penasquito in Q2, 2019 amounted to 698000 ounces, while sales amounted to 912000 ounces, a decrease compared to Q2, 2018% to 45% and 41% respectively.
Production in the second quarter of 2019 was adversely impacted by an illegal blockade, which began April 29.
On June 17th Newmont announced that it was ramping up operations at Penasquito. Following the lifting of the blockade and the establishment of a dialogue process sponsored by the National government. They also stated that shipments from the mine have resumed and the mine used the downtime during the 49 days suspension of operations to bring forward maintenance on a variety of systems and equipment.
Attributable silver production relative to consensus in Q2, 2019 amounted to 511000 ounces a decrease compared to Q2 2018 of 8% while sales amounted to 478000 ounces an increase of 15%. The decrease in production was primarily the result of lower grades in the quarter.
Attributable silver production relative to the other silver interests in Q2, 2019 amounted to 2.3 million ounces, while sales amounted to 1.7 million ounces, an increase compared to Q2 2018 of 6% to 9% respectively with the increase being driven primarily by higher production from the zinc Rubin and I'll just draw mines, partially offset by lower production the eliokem.
During the second quarter of 2019, the company repaid $88 million on the revolving facility and made dividend payments totaling $64 million, which represented dividend payments for two quarters.
Overall net cash decreased by $39 million in Q2, 2019, resulting in cash and cash equivalents at June Thirtyth of $87 million. This combined with the $1.1 billion outstanding under the revolving facility resulted in a net debt position as of June thirtyth of $1 billion.
The company's cash position strong forecasted future operating cash flows combined with the available credit capacity under the revolving facility positions the company well to satisfy its funding commitments sustain its dividend policy, while at the same time, providing flexibility to consummate additional accretive precious metal purchase agreements.
With respect to the implementation of the settlement agreement with the CR rate, we did receive reassessments for the 2005 through to the 2017 taxation years, which were consistent with the company's expectations reinforcing the strength of the agreement that was executed in December of last year.
That concludes the financial summary, and with that I turn the call back over to Randy.
Thank you Gary.
As already mentioned, our gold equivalent production guidance remains unchanged highlighting the benefits of our diversified and balanced portfolio.
In 2019, we expect to see continued strong results from our gold operations offsetting the impact of the lower silver production seen in the first half due to the temporary shutdown at Penasquito as Gary has already discussed.
As such we still expect to produce 690000 gold equivalent ounces in 2019, but we have updated the mix of precious metals production.
Specifically Wheaton now expects to produce approximately 385000 ounces of gold up from 365000 ounces originally forecast due to stronger than anticipated production from Salobo.
And 22, and a half million ounces of silver down from 24, and a half million ounces again as a result of the temporary issues at Penasquito.
Forecast production of Palladium from Stillwater in 2019 remained unchanged at approximately 22000 ounces.
We continue to expect steady growth from our portfolio such that over the next five years inclusive of 2019, we expect to produce on average 750000 gold equivalent ounces annually.
I would like to remind everyone that Wheaton currently does not include any production in our five year forecast from Barclays Global three ongoing expansion or Hudbays Rosemont project.
It should be noted that Hudbay recently announced that the US District Court issued a ruling vacating and Remanding. The final record of decision for the Rosemont project.
The ruling prohibits hudbay from proceeding with construction at this time.
Had they believes the project conforms to federal laws and regulations and will appeal the decision.
As a reminder, Wheaton has not made any upfront payments to date relative to the Rosemont project.
And as far as the Salobo expansion valet continues to make excellent progress reporting that they have conducted concluded the earthworks and the crushing and plant areas. During the second quarter given their progress to date and assuming construction continues at the same pace. We do expect the expansion will begin contributing to our production profile towards the end of our five year guidance period.
Our organic growth profile continues to be very strong.
Even so on the corporate development front, we remain focused on adding additional production from high quality accretive opportunities.
Wheaton a sector, leading cash flow coupled with the available credit under our revolving facility provides ample capacity for continued investments.
As always we will remain disciplined and continue to focus on acquiring streams that are accretive to our current shareholders.
And come from long life assets, producing in the lowest half of their respective cost curves.
In summary, the first half of 2018 has provided a solid start to the year and we are on track for a record annual gold production.
And as our revenue is derived from a diversified pork production profile of 100% precious metals, we provide significant leverage to not only gold, but silver and palladium as well.
We believe our production remains founded on the highest quality portfolio of precious metal streams in the industry underpinned by very low cost mining operations, such as Salobo Antamina and Stillwater.
And so with that I would like to open up the call for questions operator.
At this time if anybody has a question. Please press star one on your telephone keypad.
And that would be star one.
Just wait a moment to consolidate given a roster.
Your first question comes from Cosmos.
From CNBC your line is open.
Hi, Thanks, Randy and Gary if a very thorough presentation.
I guess my first question is on the guidance here good to hear that it's been maintained.
But if I look at my mathematics is correct and sometimes it isn't.
First half you've done about 329000 ounces.
And that would imply a 10% increase on the second half could you remind us in terms of what which streams will be contributing to the increase in the second half.
Well, we can do we continue to see growth.
On the Blitz project announced at Stillwater, So, we'll see production on the palladium aside climb up there and gold from Stillwater itself going forward.
We see continued.
Like full operations at Penasquito through the course of the year, we did have a two month shutdown through that whole process.
Salobo continues to surprise to the upside and then the other the other one that's performing nicely and it seems nice upgrades ascend the math.
First majestic is getting in there getting their hands dirty they've got a good strong operating team on site and and we are confident that first majestic is got some continued upside opportunities on the sand Dms side, we're seeing that in terms of what they've been able to do.
Okay, but I guess, maybe more specifically then.
Maybe on a few of these assets are all penasquito. The blockade has now been cleared.
So should we expect a normal quarter in Q3 closer to the one point to 1.5 million ounces of a normal quarter.
1.2 to 1.5 seems like for me I don't have the hard numbers in front here for our credit, but that seems a little bit light on our side I think we are higher than that on a quarterly basis I think.
Yes, we are I mean.
Okay, you have to remember Kosmos that were.
They're getting into much higher grade.
Material.
Okay.
And if you do over the next two to three years actually and actually over the next four years sees the highest precious metal grades than its ever seen and thats. The highest grade portion that said little bit biased towards silver at the front end, which is of course important to us and then the gold grades climb up very nicely over the next few years after that and so so we do see continued growth there and so it's definitely up over $2 million in a normal quarter of production from Penasquito should see much much higher than 2 million ounces at quarter to our credit. Okay. So it should be a normal quarter starting in Q3.
It should be I mean on the sales side, there may be still some some some hangover coming through in terms of deliveries, but the production that.
Again with the startup it should be pretty good.
Maybe on Salobo, you know earlier on during 2019.
Well, we talked about 2019 guidance we were told.
So be careful in terms of Salobo first half grade.
It could be lower.
Clearly it didn't really happen.
I just want to make sure that.
There is no surprise us that.
It all these potentially lower grades will impact the second half.
We we havent seen any evidence of it.
And in fact, all everything we've seen points towards the positive and so weve.
Expectations and and so.
So it's it continues to to perform continues to do well, we've we've seen it as being a relatively.
When we did the original due diligence on this project back in 2013, we saw upside potential in terms of their grade estimation methods and their performance and and we thought there were being a little bit.
Too harsh on their dilution estimates and the combination of that has continued to deliver a value extra value back to us and our shareholders.
And cosmos its Patrick here in Ontario.
Because Q1 is typically the rainy season, obviously in Brazil, and sometimes it will.
Limit access to certain portions of the ore body, which we were anticipating I think valley with forecasting that they wouldn't get into some of the higher grade material in Q1, because of whether they were able to get into more higher grade material, which pushed Q1 up so we don't see any reason why.
They should be accessing good or for the rest of the year.
Okay.
And then I can stance here you know I guess hudbay earlier today talked about.
You know I guess some issues at the port in Peru buildup of concentrate 'cause stance here do you see any risk in that it's not your biggest you know stream.
But have you factored that into your guidance.
We haven't to date.
It hasn't had a lot of impact on on the hot Bayside those protests aren't aren't related to the Constancio project and so but it is the same port facility that the that had been currently uses and so we haven't seen any impact to that and we're confident that they'll work their way through that and I wouldn't expect that to add to affect production.
It may affect the timing of.
Shipments HM.
So in my House, you know it won't impact your production, but it might impact your sales it might yes, okay.
Maybe switching gears a little bit looking at the income statement here.
You know clearly you have to take a write down on the.
Voice East Bay Kobal stream.
Could you tell us what what price.
Did you use in terms of.
Calculating the realizable value and how does that compare to spot price today.
While the updated valuation is reflective of today's market.
The price that we use that originally price it was somewhere between between today's price and the spot price at the time it was well below the spot price.
Hey, it's actually.
Laid out in the financial statements Kosmos, we use the $14.83 cobalt per pound.
Okay.
Yes.
On the new valuation, yes, yes, yes is that spot today I'm, sorry, I don't have the spot price in front of me for cobalt the cobalt markets got a lot of different spot prices and so it's a it's it's reflective of the spot market today.
And I just want to point out we don't see any production from that asset until 2021.
You know and obviously prices haven't done as well as palladium have for us but.
And we are seeing production from Stillwater, So I still think we're.
On that front definitely add but but you know 2021 is still a ways off before we see any production from the Boise is Bay mine that the project is moving forward as well and a and I am still very optimistic about that that asset delivering good value for us and our shareholders.
HM.
Yeah, and you know talking about the spot market I'm by no means an expert in cobalt, but I'm reading that I guess glencore is talking about shutting down to about 10, M. mine and in the Congo have you looked into it like what does that really take off a lot of supply in terms of cobalt and has that have you seen any kind of you know impact I know, it's only been about two days have you seen any kind of impact on the spot price based on what Glencore is saying.
It yeah.
Definitely well now they said, they're shutting it down but it didnt shutdown currently it it represents about 20% of worldwide cobalt production. So HM Oh, it's it's one of the things that we found it tracked of about the Boise is bad investments was the fact that so much of it is controlled by Glencore and so much of it is coming out of the Congo, and I think those two attributes means that production coming from outside of the Congo and.
And in good stable jurisdiction with a good strong operating partner I I, just I believe that this product that our product will differentiate itself from that perspective, but yeah. It will definitely have an impact, but it's not going to have an impact immediately because the mine is still producing it is a scheduled shutdown in terms of.
Sometime here in the near term future and when that happens when you when you tighten up 20% of that that supply side.
That theres no doubt that that should have an impact on pricing.
Yes, I think it will be nicely for when we start receiving cobalt.
Yeah for sure and then I guess on the write down once again, you know certainly the sale of cobalt 27 was like.
Trigger point in terms of.
We can precious metals needing to test for impairments I'm correct me, if I'm wrong, but I think under if Chris. Unlike you know your good old Canadian gap, you can actually right back up any impairments and then from that perspective, maybe Gary what could be a potential trigger point in terms of potential write up encase cobalt prices come back up.
I think that would.
That would be the.
The impetus the likely in but as to it to a write up is.
A recovery in global oil prices that we viewed as being sustained.
And there is no time limit right you can write it up at any time, it's not like you got to wait a year before you're right it back up.
No, but again like we want to.
The last thing I want is you know.
These accounting pronouncements too.
To drive.
Anomalies in our in our income statement.
So I wouldn't.
I wouldn't.
Want to.
Write it back up if we just saw one quarter of.
Cobalt price recovery.
I would want to see a you know and be comfortable that that was a sustained.
Price increase.
And maybe one last quick question if I may.
4.25% interest in Q2, 2019 that seems kind of high.
You know Gary as we mentioned last year I think you had a three handle too and I think what we talked about this earlier when you first put the line of credit in place or even at a low to handle to it.
Could you remind us like how does it reset the interest rate and given the credit markets today should we be expecting a lower interest rate in Q3 and Q4.
Yeah, you're you have to remember lot.
Our.
The interest on our debt is driven by LIBOR and LIBOR has increased.
Significantly over the last.
Year to have its now.
Reversing that and.
And.
So that's that's primarily what was driven the increase in our.
In our interest rates and and yes, I would expect that.
With live or dropping.
That the interest rate.
In future quarters, assuming that doesn't reverse.
Will be lower than than it was in Q2.
In addition to that I mean, the reason that the.
Climbed up is that we invested $900 million into the industry last year in terms of expanding our own profile and our own production profile and ER.
As as these cash flows if we're not putting them back into the ground they chew against that revolver and so.
So it's a we did that $900 million of investments in 2018 without issuing a single share so absolutely zero dilution to our shareholders from that perspective and so.
Still a very wise source of capital for us.
Of course, thanks, those are all the questions I have thanks, Randy Gary Patrick and have a good weekend.
Thank you Cosmos you too.
Your next question will come from Mike Scialla from Bank of America. Your line is open.
Oh.
Randy just.
A question on past colon Lahmar, you may have seen a bare espresso USANA.
July 30, yes.
Our Mark Bristow as visiting the site 10 or that region and with respect to Pascua Lama you said the focus is going back to basics in order to review the original projects parameters and defined the future potential I guess couple of questions does that mean.
Shang gone Gold's Lucky the heap leaching Pascua Lama.
Has maybe gone by the wayside and.
And.
Just wondering what your thoughts were what Mark's thinking here going back to basics, so you're going to finish the rest for Mel I guess.
Thanks, well, yeah, I mean, it's it's I I'm and I'm happy that that Mark in his as he's taken the reins of Barrick.
Past what seems to be a continued focus item of his every time is done in South America, it's a topic of discussion and uneven.
Even beyond that we do believe it's a great project that.
That will do really good things for barrick's production profile in the future and ER and those are the type of assets.
I think I think he uses the phrase tier one is definitely a tier one asset.
In terms of its potential.
From the heap leaching side of never really felt that this this deposit leans towards that direction I think it's especially when you've got a mill that is.
Ah first line substantively built in the second line or close to half built on that that mill facility. I mean, there are those investments do have some value in terms of making a decision on how to go forward.
Obviously, the big challenges on the Chilean side, but when I when I am happy to see and I saw that sort of reiterated again in that news release and in the discussions from American Ive heard it from Barrick in direct discussions with them is that they are committed to Chile, they've got not only passed go out on the Chilean side, but they've also got a lot of other assets in Chile, and so they want to find a way to make it work and this is a mine that can be built and it can be built well and it can have minimal impact and.
And we're comfortable that it will work its way forward and so.
So happy to see that Mark sees the same quality in this asset as he's taken the reins as barrick as I have been for a long time I've long called it the best half built gold mine in the world and still believe that and ER and the fact that it is half built makes it even that much more attractive to them in terms of being able to go forward that you do have the the beauty of all the investment that said that's been put into the ground there already giving you a head start in terms of actually bringing that that asset on and so.
I do think that it reflects some really hidden value in our own portfolio and.
And look forward to the day that that against there.
Yes. His his additional focus on the agent done the Argentinian side or the team. The Barrick teams focused on it I find intriguing because.
You know to be honest the bulk of the focus in the past has been on the land side and that is where the bulk of the currently defined reserves are but.
We also capture any of that Optionality on the Argentinian side. So.
Happy to see it's still a topic of conversation in their side.
Okay, well, thank you for that.
Thank you Mike I have a good weekend.
And your next question will come from Ralph Professor per city.
Capital Your line is open.
Thanks, everyone. Just one question from me Randy if I may it's on a really deal flow.
You know theres significant bifurcation right between base metal prices and these higher gold and silver prices would you expect to see that translate into less streaming opportunities for base metals and more for gold going forward is it already happening.
In the pipeline that you see and what are the opportunities for you to actually sort of do something.
Before year end say for example.
I'm going to I mean, let haithum I'd take that one hey, Ralph Thanks for the question just just to give you a bit of a an overview on where we're at it's been a very busy quarter with a number of new opportunities were looking at the fall into the probably $100 million to $300 million ranging yes, we are seeing a lot of opportunities, where silver and gold or a byproduct, which is exactly what you want to see for streaming.
Given the nature of these type of opportunities that we're seeing which are mostly expansion development stage opportunities.
We wouldn't require it wouldn't be required to put up a lot of capital in the near term, we do a lot of due diligence on these assets before we actually decide to move move down the path, we would hope that we'd be able to close one or two transactions before the end of this year, but I can tell you where we're very cautious were to add only the best highest quality assets into our portfolio. So if it doesn't happen, it's probably because the assets weren't Wheaton type assets.
If I just add to that I mean, we are I personally have never ever set objectives for these for our teams in terms of making acquisitions, just because I don't want to have that that pressure on <unk>.
You know, we're a company that that you know with the organic growth profile that we've got with that means the strength of our current assets on a go forward basis, we don't need to make acquisitions, we can be patient, we can wait and so so although I'm hopeful that we do a continued to grow by investing back into the ground and get some of that accretive value for our share of same time, it's not something that I don't want to sit down hard boundaries for that and so and then getting back to your comment on the on the divergence between base metal prices and in precious metal prices and the body of the fact that the bulk of our precious metals does come from the base metal side, you're right. There is not a lot of investment into that base metal side right now and so it does sort of limit or some of those opportunities now what I will say is that the split between silver and gold we tend to get gold from our copper assets and we tend to get silver from our lead zinc assets and boy Theres, So little investment in the lead zinc side.
And so.
We will ultimately as even though I'm a bit more bullish on silver I think there's better fundamentals behind the price of silver, it's a very small market and when I look at the what Haithum and his team are working on from a from a kind of a commodity perspective. It is very very heavily biased towards gold streams from either copper assets or even gold streams on developing gold that assets are or gold and precious metal assets gold and silver assets, but there's definitely a very heavy bias towards gold and.
I predict that we will continue to grow that whole gold exposure side within this company.
I agree yeah.
Understood I appreciate your responses. Thank you.
Thank you Ralph.
Your next question comes from Chris Terry.
Bank Your line is open.
Hi, guys. Thanks for taking my questions.
I have I have a few in terms of the non development projects. You have you talked about Rosemont Pascua Lama, just wondering what you're seeing in terms of the other the other development options, which which ones are making some progress or if you could just comment on what's getting excited within the potential development options. Thanks.
Yeah, We've got a few of the early deposit investments that we've made which was earlier stage assets that are still a approaching feasibility and permitting and.
It's a pretty attractive form of financing you know Unfortunately, we're a pretty picky team when it comes to investing and so we turned down many more opportunities than a than what we we have.
But the the one that stands out or probably in terms of looking forward are moving forward as a as the sandspring asset toroparu.
You know it's a they have had some renewed focus on that there are updated a I think it's a preliminary economic assessment a P.A. does come out with it looks like this project is going to be moving forward they've.
I have attracted some investors that saw the same quality in this asset that a that we saw several years ago in terms of moving that one forward and so and then the other the other asset that that I think.
It looks very promising is a is the keno Hill.
Asset.
It's you know the Birmingham, sorry, it's a bit I was trying to remember the name of the vein to the Birmingham zone incredibly high grades and so alexco.
He is looking forward to moving that thing we've seen indications of support for the mining industry from the Yukon government from a position of permitting and hoping that.
Hoping that they step up and give a broader permit that allows exco alexco. Some freedom in terms of how they operate that that's a that asset or I should say that asset. There is a number of different things there and I think thats, what what electrical really needs some flexibility on the site through the permitting process. So that it gives them the freedom to to move that project forward the way it should be and so so keno hills, probably a nice little hidden surprised that we don't have in our current schedule right now who are approved from Sandspring I think.
You know, we'll we'll look very promising I take this time to just reiterate that we do not include any of the.
Any of the Salobo as phase three expansion in our current production profile and that is a 50% increase in mill throughput capacity now they will be chasing some lower grade material. There. So we don't expect it to be an immediate 50% increase in gold production for us, but it's going to be a very healthy increase in gold production and that is not part of our current production profile. The five year guidance that we put out and yet we could see that production is coming in as early as 2022, and so you know I do really think theres some upside potential there on the development side.
Okay. Thanks, Thanks, Randy and.
Maybe one for Gary just in terms of the net debt level overall, just to give you the flexibility to be able to do deals et cetera, just an update on where you'd like to see that I guess it. It's obviously still at comfortable levels, but do you want to see it at 500 to a billion net debt taught that Ryan just if you could comment a little bit on the progression of where you want that number to sit thanks.
Yes look I don't have a.
Target.
They are we are generating.
$500 million to $600 million of operating cash flow at a.
At current commodity prices here.
And and so I'm extremely comfortable with where the debt level is.
If we were to look at closing.
Acquisitions here.
I'd certainly be comfortable drawing down on the on the revolver to.
Consummate those transactions and just as a reminder, we've got a 2 billion dollar revolver.
And we are drawn to the tune of about a $1 billion at.
At the end of Q2, so we've got a billion dollars of capacity there I would be very comfortable drawing a fully on that if.
If.
Acquisitions drove.
Drove that and Chris I'll take the Merrell add one more thing given the nature of the opportunities were seeing little upfront capital is actually required.
As any spending we wouldnt be staged throughout the development timeline, which is typically over one to three years and that allows us to continue our focus on repaying debt.
Okay. Thanks, Thanks for that and then for you for your high some I'm just just a question in terms of the timing of those potential deals do you think we need to see the divestments from the majors happen first and that is to flush through before.
Other companies wouldn't commit to projects so can it come before that thanks.
Well you know I think you've got to look at what's in the pipeline right now and that the number the opportunities. We're seeing at this point in time are primarily development stage. So a lot of the majors that are looking to develop the or even expand their existing base metal operations.
Look we are looking for ways to improve the internal rate of return project going to stream always improves the internal rate of return of a broker. So from our perspective, we look at a number of these opportunities every year and we make sure we do a deep dive on each one before before we make sure we understand the opportunity before we make any kind of commitment I do think theres going to be some some.
Additional streaming opportunities over the next 12 months I can tell you we're seeing more opportunities now than we've seen over the last six months before this quarter.
Okay. Thanks, and then the last one from me just in terms of the guidance overall in Geo times I think on the on the first question you were going through the the assets that lift into the second half from a production, saying so just thinking about the conversion all the assumptions you've you've you've made on silver to gold ratio. We will you update those as we go through the year I guess you. Just you think you've kept those at the previous right than spot. So we can't change a little bit just if you can comment on that thanks, Yeah. No. I mean, you know when we come out with a forecast based on a conversion ratio, we're not going to try and take advantage or disadvantage from changes in that conversion ratio will keep we'll maintain that consistently in terms of our our guidance for the course of the year. So the 690. The updated 690 still maintains I think it was 81.3 conversion ratio 81.3 conversion ratio, even though we're seeing a different ratio right now that was the number that we originally.
He is that we're not going to we're not going to let that have an impact on on measuring our performance in terms of delivering that 690000 gold equivalent ounces.
And it also uses a one to one goal to play to room ratio, which we know is not great either so.
Okay. Thanks, a lot thanks, guys. Good luck.
Thanks. Thank you. Thank you Chris and thank you everyone for dialing in today and in closing we believe Wheaton is well positioned to continue to deliver value to our shareholders for a number of different reasons, firstly by having low unpredictable costs that result in not only some of the highest margins in the entire precious metal space, but also a sector leading operating cash flows.
Secondly, through our steady organic growth profile over the next few years and a proven track record of accretive quality acquisitions thirdly by offering our shareholders exposure to some of the best mines in the world through our high quality portfolio of long life low cost assets.
And lastly by being a leader amongst the precious metal streamers in sustainability and supporting our partners and the communities in which we live and operate.
I do look forward to speaking with you all again soon thank you very much for dialing in today.
Thank you everyone. This will conclude today's conference call you may now disconnect.