Wheaton Precious Metals Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 5, 2023

There are 11 speakers on the call.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Wheaton Precious Metals 2023 First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would like to remind everyone that this conference call is being recorded on Friday, May 5, 2023 at 11 am Eastern Time. I will now turn the conference over to Mr. Patrick Drouin, Senior Vice President of Investor Relations and Sustainability. Please go ahead.

Speaker 1

Thank you, operator. Good morning, ladies and gentlemen, and thank you for participating in today's call. I'm joined today by Randy Small with Wheaton Precious Metals President and Chief Executive Officer Gary Brown, Senior Vice President and Chief Financial Officer, Hazem Hohle, Senior Vice President, Corporate Development and Wes Carson, Vice President, Mining Operations. Please note that for those not Currently on the webcast, the slide presentation accompanying this conference call is available in PDF format on the Presentations page of the Wheaton Precious Metals website. I'd like to bring your attention that some of the commentary in today's call may contain forward looking statements and I would direct everyone to review Slide 2 of the presentation which Now I'd like to turn the call over to Randy Smallwood, our President and Chief Executive Officer.

Speaker 2

Thank you, Patrick, and good morning, everyone. Thank you for joining us today to discuss Wheaton's Q1 results of 2023. I am pleased to announce that our high quality portfolio of long life, low cost assets delivered a solid performance to start the year. 1st quarter production came in ahead of company expectations, positioning us very well to achieve our previously announced annual guidance of 600 And as we continue to see positive developments at a number of our key assets, including Salobo and Constancia, we expect to see significant production growth through 2023, culminating in a strong second half of the year. Notably, implicit in our 5 year annual average production guidance is an impressive organic growth profile of over 40%, with 2 thirds of that growth coming from assets that are already in operation.

Speaker 2

While inflationary pressures are still impacting all sectors of the economy, Wheaton has maintained a cash operating margin per of over 75%, highlighting the resiliency of the streaming model in an inflationary world. And we achieved a key milestone in this Q1 as Wheaton's total stream cash flow to date Has now exceeded 100 percent of its total upfront investments deployed since inception. This achievement highlights our disciplined and accretive growth to our approach to capital deployment. In particular, given that our portfolio still has over 30 years of mine life remaining based on reserves In addition to a healthy resource base, in this environment of high interest rates and increasing demand For Metals, our corporate development team remains very busy as we continue to see a healthy appetite for streaming as a source of capital for the mining industry, And we are actively pursuing several new accretive opportunities. And lastly, Wheaton continues To maintain our leadership and sustainability with sector leading scores, including a AA rating from MSCI and a genuine number one rating in Precious Metals by Sustainalytics.

Speaker 2

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 3

Thanks, Randy. Good morning. Overall production in the Q1 came in higher than expected with produced 43,700 ounces of attributable gold, virtually unchanged relative to the Q1 of 2022. Despite the strong quarter, Vale reported that production during the quarter was affected by reduced plant availability caused by additional plant and corrective maintenance. Additionally, The project is expected to ramp up to full capacity by the Q4 of 2024.

Speaker 3

During the quarter Constancia produced 600,000 of attributable silver and 6,900 ounces of attributable gold, an increase of approximately 21% and 9% relative to the Q1 of 2022. The increase in both silver and gold production was due to higher grades resulting from additional ore from the Pampacancha satellite deposit. Full mining activities resumed in the Pampacancha pit in February and the period of high stripping from March to June progressing well with mining of higher grade ore now expected in the Q2 of 2023 ahead of schedule. During the quarter, Artemis Gold announced the approval of its BC Mines Act permit, the final step required to allow Artemis to commence major works Construction activities of the Blackwater Mine with the expectation of an initial gold pour in the second half of twenty twenty four. Additionally, during the quarter, Artemis announced 2024 in preparation for the pre strip mining phase.

Speaker 3

Wheaton's estimated attributable production in 2023 forecast to be 320,000 to 350,000 ounces of gold, 20,000,000 to 22,000,000 ounces of silver and 22,000 to 25,000 GEOs company estimates that average annual production will amount to 850,000 GEOs. This includes organic growth of over 40 With total production from our current portfolio increasing to over 900,000 GEOs by 2027. That concludes the operations overview. And with that, I'll turn the call over to Gary.

Speaker 4

Thank you, Wes. I am pleased to present the financial highlights resulting from our solid operational performance to kick off the year. As described by Wes, production in the Q1 amounted to 142,000 GEOs above company expectations and consistent with the Q4 of Sales volumes amounted to over 117,000 GEOs, a decrease from the Q1 of the prior year, primarily due to the cessation production from 777, Yali Yaku and Keno Hill in 2022, coupled with relative changes to ounces produced but not yet Delivered or PBND. Strong commodity prices, which remain near historical highs, coupled with our Steady production base resulted in revenue of $214,000,000 and gross margin of $118,000,000 Of this revenue, 56% was attributable to gold, 40% to silver, 2% to palladium and 2% to cobalt. As of March 31, 2023, approximately 124,000 GEOs were in PBND and Cobalt inventory, representing Approximately 2.4 months of payable production, which is a level that is consistent with the preceding 4 quarters.

Speaker 4

G and A expenses and donations amounted to $11,500,000 for the Q1, resulting in adjusted net earnings of $104,000,000 The company continues to anticipate the G and A and donation expenses will amount to $47,000,000 to $50,000,000 for the year. Despite the persistent inflationary environment and thanks to our low and predictable cost structure, Wheaton continued to deliver robust cash operating margins In the Q1, resulting in cash flow from operations of $135,000,000 which in turn resulted in a quarterly dividend of $0.15 per share, consistent with the Q1 of 2022. In the quarter, Wheaton dispersed its 4th and final installment $32,000,000 relative to the Goose project, which continues to make advancements under the new ownership at B2Gold. It should be noted that subsequent to the quarter, B2Gold exercised the option to repurchase 33% of the stream out of the Goose Pimpup in exchange for a cash payment in the amount of $46,000,000 resulting in a gain on the partial disposal of the Pimpup in the amount of $5,000,000 which will be reflected in our Q2 results. Overall, net Cash inflows amounted to $104,000,000 resulting in cash and cash equivalents at March 31 of $800,000,000 This notable cash balance coupled with the fully undrawn $2,000,000,000 revolving credit facility and the strength of our forecasted operating cash positions the company exceptionally well to satisfy its funding commitments and provides us with the financial flexibility to acquire additional That concludes the financial summary.

Speaker 4

And with that, I turn the call back over to Randy.

Speaker 2

Thank you, Gary. In summary, Wheaton's Q1 was distinguished by several key highlights. We achieved solid 3 month revenue, earnings and cash flow and declared a $0.15 quarterly dividend. 1st quarter production came in ahead of our expectations, positioning us well to achieve our previously announced annual guidance of 600,000 to 660,000 gold equivalent Wheaton has now recouped 100% of its total upfront investments deployed since inception, highlighting our disciplined and accretive approach to capital deployment. We reiterated our forecast organic Production growth profile of over 40% over the next 5 years with approximately 2 thirds of that growth coming from mines Already in operation, therefore at lower risk of delivery.

Speaker 2

Our balance sheet remains one of the strongest in the industry, providing ample capacity to add accretive high quality streams into our portfolio, and we continue to be very busy on that front. And lastly, we continue to demonstrate leadership and sustainability with sector leading ESG ratings. So with that, I would like to open up the call for questions, operator, please.

Operator

Thank you. Ladies and gentlemen, we will now conduct a question and answer session. Your first question comes from Ralph Profiti with 8 Capital. Please go ahead.

Speaker 5

And Sabina, now that that transaction is closed.

Speaker 2

Sorry, Ralph, we missed the first part of that.

Speaker 5

Sorry, Randy, can you hear me now?

Speaker 2

Yes. Now I can. Yes.

Speaker 5

My apologies. Can you hear me now?

Speaker 2

Yes, we can.

Speaker 5

Sorry about that. Thanks, operator. Randy, B2Gold and Sabina is now closed. Just wondering if you've had conversations with the new management team and whether or not you're comfortable with The original guidance of when first production is, Q1 2025, I believe, and is that factored into your guidance?

Speaker 2

We haven't made any adjustments based on B2 operating it. I do have confidence in Clive and B2. They've got Very strong track record. I've known Clive and the B2 team for a very long time, have a lot of respect for what they're doing. The one advantage that they're going to have is, of course, a much stronger balance sheet than Sabina had originally.

Speaker 2

The negative to that is that we were always hoping to be able To add a bit more financing through growing the stream a bit, but clearly B2 has the capacity to deliver this project from a capital perspective. And so I think that what we're going to see is an even better project out of B2Gold or sort of out of the Goose project with B2Gold.

Speaker 5

Good. Yes, we're excited to see some of that optionality come in.

Speaker 2

Yes, definitely. Ross, you want to add something?

Speaker 3

Yes, also worth noting, it is in the 5 10 year guidance and the new the 5 10 year guidance is reflective of the buyback as well.

Speaker 5

Okay, good, good. And just factoring in, taking us a little bit of a step back from the buyback on that stream. Does the team at Wheaton make a risk factor adjustment for stream negotiations when they do have the buyback option in place? And can you sort of quantify Some of the decisions that you make on discount rates when that's factored in, is this sort of 2 separate pieces of analysis or one that you sort of commingle And to looking at how you risk adjust for the buyback optionality?

Speaker 2

Well, I mean the way we structure the buybacks is that we get a reasonable rate of return. We recognize that a lot of these partners that we're working with right now are Single asset development companies and we don't want to get in the way of them eventually being acquired. And so it is something that we're seeing a lot more of is the need for it. And what we're looking for is just a reasonable rate of return on that part of the risk capital that we're putting up. We are long term investors into these projects.

Speaker 2

And so we do want to make sure that we So I think the structure works well. I don't know, Haitham, you want to add anything to that?

Speaker 6

Yes. Thanks, Freddie. Ralph, what we've also done when we structure these things is we limit our buyback to a 1 third buyback And we want The Street to be perceived as a quality type of financing that doesn't deter M and A transactions. And I think that was very well proven here with The sustenance effectively of our 2 thirds of the remainder of our stream and then some of the private equity stuff didn't remain, which shows you that we're very the way we structure things, we're very capable of putting in place something that Actually appeals even to a potential acquirer of one of these development stage opportunities.

Speaker 2

So we're excited about partnering with Clive.

Speaker 5

Yes. Got you. Thanks very much. Very helpful.

Speaker 6

Thanks, Rob.

Operator

Your next question comes from Jackie Ryvieloski with BMO Capital Markets. Please go ahead.

Speaker 7

Thanks very much. My question is And Hudbay's Carpool World Project. I know you guys had talked before about restructuring that And I was just wondering if you could give us any update on that, if there's been any progress in discussions with the operator. Thanks.

Speaker 2

There hasn't Jackie. They're still working on finalizing their plans on a go forward basis. And so I think we just have to be patient and wait for them to come out with the firmer framework on how Copper World is going to compare relative to the original Rosemont Hudbay is a long time partner of ours and we've done a lot of work with them in the past And Peter and the team very well and so we look forward to sitting down with them at that stage. It's just it's not at that In terms of us being able to fine tune how that stream will come into play.

Speaker 7

Got it. Thank you very much.

Speaker 2

Thanks, Jackie.

Speaker 3

Operator?

Operator

Your next question comes from Merton Praktar with Veritas. Please go ahead.

Speaker 8

Thank you. I have two questions. My first question is that why Antamina production was weak And why Salobo, we see a very different Very different the sales than the production. I mean production was similar than last year, but sales were like 20% lower. That's my first question.

Speaker 2

Sure. Wes, do you want to take that?

Speaker 3

Yes. Thanks for the question, Martin. So Antamina really is just a function of where they're mine In the pit, so there's different grades in the various different areas of the pits and we did see higher grade coming out in The latter end of last year and really they're just into a lower grade area of the pit in this year. So that's really what we're seeing. As they move around within the pit, The different areas of the ore body are going to have different amounts of production to them.

Speaker 3

So not unexpected, basically what we would expect to see from now on. And on Salobo, really that is a lag between the production and the sales. So we get a copper concentrate from Salobo is what's produced there and there is a lag Between what's produced on the mine site and then what we see in sales. So and that's what's reflected in our produced but not delivered.

Speaker 2

And I will say that typically amongst All of our assets, in the Q1, we tend to wind up building up a bit of an inventory. And I think that just comes from the fact that a lot of our partners will Sort of squeeze the pipeline to try and get a bit more sales in before year end and then that whole sort of production So it wasn't a surprise to us in terms of seeing a bit more inventory build up over the course of the first And I would say that typically in the 4th quarters, we tend to see that drop as companies push up sales. So second question?

Speaker 8

Yes. Could you comment about the global tax impact? I mean, you mentioned that that's going to come into play very soon. So what is the company view on this?

Speaker 4

It's Gary Brown here. It's hard to give you a detailed response Given that we don't have any legislation to refer to at this point, all we can say is that based upon The comments made by the government of Canada that We do they do seem to be committed to implementing a GMT, a 15% Global minimum tax rate that seems to be applicable to 2024 And onwards, again, there's no legislation at this point. So there's a lot of work that would need to be done in order to implement that by Jan 1 next year, but we're assuming that that's going to happen. And the vast majority, 90 plus Percent of our income is generated outside of Canada. So we expect that it would have about That being said, I think the market is well aware of This new tax and has already reflected that in our valuation.

Speaker 8

But in terms of 2024, if it goes ahead, You expect to pay how much in taxes that year? Like a 10% or 15% or?

Speaker 4

Well, if you Assume that 90% of our income is generated outside of Canada And it's subject to a 0% tax. Multiply that by 15% to estimate what We would pay in 2024.

Speaker 2

The challenge is that without the legislation, we're not sure we don't have In terms of what's deductible, what goes against that tax, we're not there's not a framework yet in which we can paint it against right now. And So if you're going to it's really tough to sort of put firm numbers on that. I think what we have seen and it's been talked about quite a bit is that The overall estimated impact to our net asset value should be somewhere around 8% to 10%. And until we get further clarity and until I think everyone gets further clarity on what's actually coming Into play, we're not quite sure what we'll be able to how we'll be able to work with that legislation.

Speaker 8

Great. Thank you very much.

Speaker 2

Thanks, Martin. Next call or next question, please.

Operator

Your next question comes from Richard Hatch with Berenberg. Please go ahead. Yes.

Speaker 9

Good morning, Randy and team. Thanks a lot for the call and well done on a Good quarter. Gary, I've got my questions are mainly sort of aimed towards you. First one is just on Page 24 of the MD and A, you've got your contractual obligations and contingencies. I just wonder if you might be able Just help us out a little bit just in terms of just thinking about next quarter, what are the ones that we should start to like put into our models Just to make sure that we're right on the cash flow.

Speaker 9

That's the first one.

Speaker 4

Yes. I mean, I don't know that we can get That granular. So I think we've tried to outline what we are and this is a conservative Picture the contractual obligation schedule that we've put out showing $700,000,000 being paid Between March 31 December 31, that's assuming all of the projects and the biggest one of that is Salobo. And that may slip into 2024. But we're assuming that Vale achieves the full completion test of the Lobo III In that $552,000,000 number, but so I'm not prepared to break down what we expect to be dispersed next quarter at this point.

Speaker 5

Richard,

Speaker 1

we can speak offline as well and kind

Speaker 4

of walk through our best expectations. That being said, I think Richard, it's Important to highlight, we have no concerns with respect to paying We ended the quarter with $800,000,000 of cash on hand and we've got the $2,000,000,000 revolving credit facility there as well. So we're extraordinarily well positioned to make those disbursements as and when they come due.

Speaker 9

Sure. No, not worried about the balance sheet. It was just getting the model tight. And then on Nevis, Corvo, Last couple of quarters, volume sales volumes have really lagged production. I appreciate it's one of the smaller streams.

Speaker 9

But Have you got any color on what's going on there and when we should think about when that kind of elastic bands back into the sales?

Speaker 3

Yes, we did see that Neves Corvo this quarter actually came in quite a bit ahead of our expectations on that. So it is starting to come back. I think Some of it certainly is the ramp up of that zinc expansion project and where they've gotten to there. But overall, we've seen the performance improving at

Speaker 9

Yes. But if you look

Speaker 2

at the say for

Speaker 9

example, Q4, you got 369,000 ounces, Q1, you got $352,000,000 The sales were $80,000,000 $171,000,000 So the kind of the question is when do we start See some of those production volumes translate into sales?

Speaker 3

Yes. One of the things you have to remember on Nevesh is that the zinc So the silver and the zinc concentrate is not payable. So there is always going to be a fairly significant gap between sales and production on Neves Corvo. So it's not a direct comparison. So you won't be able to see that full amount come in.

Speaker 3

But that being said, there is a lag on the copper and the lead concentrate. So and as that Production starts to ramp up then we should see the sales driving behind. It's usually about a 3 month lag on that.

Speaker 2

Payabilities on silver and zinc concentrate are very low and there's quite a bit of the silver here that is contained in the concentrates. And so I think that's the there's a bigger discrepancy between that. We typically have recovery rates in our reserve and resource. Yes. So there should be some Yes.

Speaker 2

Happy to provide a bit more detail on that. But I think the challenge is that a lot of the silver out of Nevers Corporal comes out in zinc concentrate.

Speaker 9

Yes. Understood. All right, cool. And then on the depletion number, that was quite a bit lower Quarter on quarter, is there any I guess you got a couple of streams sort of all away, but is there anything that's anything there that we should be thinking about Is Felix still further out just in terms of depletion numbers?

Speaker 4

I think the main driver For the lower depletion this quarter was lower sales volume, which in turn was due to the cessation Flows from 3 mines that we're no longer receiving deliveries from. So We did we do go through a process in Q1 of every year of updating for any changes that we observe in the reserve and resources of the assets that we have interest That didn't change our overall depletion rate by more than 1 So it's a very nominal impact on our depletion rates going forward. So I think I guess the other factor would be that some of the mines that We disposed of last year higher depletion rate mines than The ones that we're currently receiving deliveries from. But overall, it's less than a 1% adjustment to Depletion rates.

Speaker 9

Okay. All right. Thanks, Gary. And last one, just on again, it's a bit of a weird one, but in the cash flow statement, Acquisition of long term investments, dollars 8,000,000 out the door, it sits in other in common shares held. Are you able to disclose what that was?

Speaker 4

That was the Integra investment.

Speaker 9

Okay. Cool. Thank you very much.

Speaker 2

Great. Operator, one more question, please.

Operator

Your next question comes from Tanya Jakusconek with Scotiabank. Please go ahead.

Speaker 10

Great. Good morning, everyone. Thank you so much for Taking my questions. I have 2. If I could just start on just the 2023 guidance.

Speaker 10

I just want to make sure I How your year progresses. So I'm thinking you've mentioned that you're going to have a stronger second half. I'm just wondering if I look at it holistically, does a 45 first half versus 55 2nd half seem reasonable with quarter over quarter improvements?

Speaker 2

That sounds about Right. I mean, what we see over the course of this year is just continued improvement. I mean, both the Constancia and Salobo As Line 3 ramps up and as they continue to improve Line 1 and Line 2 at Salobo and try and Get production up to former levels. We see continued improvement there and it and we've just finished another site visit down to Salobo And we're happy with the progress that is being made at the site. And so what I can tell you is the production for the Q1 was At the very top end of our guidance right now.

Speaker 2

So if we keep on this trend, we would be at the 660,000 gold equivalent an ounce level. We were right at that top end of our guidance range. And so that's kind of probably the best way to set it up in terms of how we see it. Every quarter, In fact, if I sit and look at it, I think that every quarter for the next 5 years should probably be better than the last one. There might be a few blips In there, but we are going to see continued improvement all the way across the portfolio, Tanya.

Speaker 10

Okay. And so just for 2023, Just that we have Salobo ramping up, that's right Constancia getting into the higher grades, so that should be better second half. What about Boise Bay and Penasquito? Are you seeing any improvement in Q2 or should I kind of put them all into Q3, Q4?

Speaker 3

Not a significant improvement at either Penasquito or Boise Bay in the second half. They'll be fairly the big kind of step up at Boise Bay is really in Q4 and into next year once they get into the undergrounds there and Penasquito is fairly static across the year.

Speaker 2

Yes. Boise Bay is going to be they're still pulling for open pit material to supply and the underground is substantially higher grade Cobalt for us. And so once that underground does phase in, we should see a pretty rapid uptick in terms of production from Boise Bay.

Speaker 10

Very helpful. Thank you. And then

Speaker 2

Uh-oh. Tandy,

Speaker 1

I don't know, we can't hear you anymore. Operator, do you know if Tanya is still on the line with questions?

Operator

Thank you. Your line is open.

Speaker 2

Hello. Hello. Hello. Yes.

Speaker 10

Okay. I'm back. I didn't know if you wanted to hear me or didn't want to hear me. Anyways here.

Speaker 8

It depends on the question.

Speaker 10

Yes. Okay. Well, it is about transactions. That's why I thought maybe you didn't want to hear me. So maybe if I hate them, I should just ask, I'm always interested in with the volatility in pricing In both gold and other metals, what does the deal environment look like?

Speaker 10

Has it changed from last quarter? I know we had talked about the $150,000,000 to $350,000,000 range level in terms of financing of Development projects. I'm just wondering if that's still the case or are you seeing anything different out there, including the structure of the deal? Yes.

Speaker 6

Good morning, Tanya. Thanks for the question. Yes, we're still seeing opportunities to fall in the $350,000,000 range. Still to be honest with you a very healthy number of opportunities in our pipeline and the majority are development We are starting to see some operating assets as well. So that's a positive.

Speaker 6

The focus for us is always on precious metals, gold, Silver, platinum, palladium, so that's the areas that we're looking at this point in time. And we're actually quite optimistic about the outlook for the remainder of this year. So we're hoping to show you some things as time goes on.

Speaker 10

And when you mentioned operating assets, how do you define that? You just that's the companies that need to fix balance sheets on their operating assets?

Speaker 6

No, I'm talking specifically about assets that are actually operating and if streams could contribute immediately to Wheaton's bottom line.

Speaker 10

Okay. I was just thinking of it from the operator why they would need you. Was it just the fixed balance sheet from their side?

Speaker 2

We don't see a lot of stress balance sheet. So we do see though is a need for funding capital, right? So it's growth Typically either expansions, the stuff we're looking at is either expansions or funding another acquisition into an operating company. And it's Even in with today's equity market, the way it stands for a lot of these smaller companies, even though they've got operations, the streaming Capital from the streaming agreement is still very, very attractive. So we are seeing stuff along that line.

Speaker 10

Yes. It's good to see. Okay. Thank you so much and thank you for taking my question.

Speaker 2

It wasn't our side. You just did it. No, I

Speaker 10

think someone did it too. Get it off.

Speaker 2

Thank you. Yes. We seem to

Speaker 6

have had a few Thank

Speaker 10

you, everyone.

Speaker 2

Yes. You too, Tanya. And thank you for thank you and thanks everyone For dialing in today. In closing, we believe Wheaton is very well positioned to continue delivering value to all of our stakeholders for a number of different reasons. Firstly, by 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 metals space, which has allowed us to consistently return value to shareholders through our dividend policy.

Speaker 2

And lastly, by being a leader amongst Precious Metals streamers in sustainability and by supporting our partners and the communities in which we live and operate. So with that, I'd like to finish off by saying that after nearly 20 years at this company since we've created it, I personally 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.

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Wheaton Precious Metals Q1 2023
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