Wheaton Precious Metals Corp (WPM) 2007 Q1 法說會逐字稿

Good day everyone and welcome to today's Silver Wheaton First Quarter Earnings Conference Call. As a reminder, today's conference is being recorded. At this time, I would like to turn the call over to Peter Barnes for opening remarks. Please go ahead.

Thank you, operator. Good morning ladies and gentleman and welcome to our first quarter earnings call. It has been a very exciting few weeks for Silver Wheaton. We have announced two new acquisitions totaling over US$500 million with no shareholder dilution and now of course, we are announcing earnings for our first quarter.

In terms of the first quarter, we have net earnings of US$24.9 million, or $0.11 a share, an increase of 80% compared with last year. Operating cash flows were US$29.9 million, or $0.14 a share, more than double those of 2006.

Before I handover discussion of our first quarter results to Nolan Watson, our CFO, I want to talk a bit about our recent acquisitions. These acquisitions have transformed our Company. This year, we expect to sell approximately 15 million ounces of silver increasing by over 80% over the next 5 years to 28 million ounces. At current silver prices, this will give us EBIDTA of approximately US$150 million this year and with no further acquisitions our EBIDTA will grow to almost twice that close to US$300 million within 5 years.

Since the end of 2005, we have more than doubled our attributable reserves and resources to over 900 million ounces of silver in the ground. These two acquisitions increased our cash flow per share by 30% for the long term, probably for 20 or more years. Those deals were financed by a combination of cash on hand and $485 million long term debt facility.

At current silver prices without issuing any new shares that debt will be totally repaid by the end of 2009, just two and the half years from now. Even if silver prices dropped to $9 tomorrow and stay there, our debt will be gone by the end of 2010, a fabulous positions to be in. I want to be very clear on this. We will not be issuing any more shares to finance this spectacular growth.

Including investments in companies where we are the largest shareholder we now have our thumbs on the five of the largest 30 silver deposits in the world. No other silver company has more than one, and remember our Company is only two and a half years old.

Over the last 12 months, we built a very strong M&A focused management team. I would put our team up against any other company in the business. We still have very significant growth prospects. Our expectation is that we have positioned ourselves to do a minimum of 2 to 4 accretive transactions every year over the next several years. We are very proud of our accomplishments to date and look forward to delivering further strong growth going forward.

I will now turn it over to Nolan Watson to review our results for the quarter.

Thank you, Peter. Good morning ladies and gentleman. As Peter mentioned Silver Wheaton had a good first quarter as it nearly doubled its net income and more than doubled its operating cash flows during the quarter compared to the same quarter in 2006. This is due to a 25% increase in the number of ounces of silver sold from 2.7 million ounces during the first quarter of 2006 to over 3.3 million ounces during the first quarter of 2007 and it was also due to a 37% increase in the average realized silver price from $9.62 per ounce during the first quarter of 2006 to $13.20 per ounce during the first quarter of 2007. Therefore, our total earnings per share and cash flow per share were $0.11 and $0.14 respectively.

Our cash margin for the quarter was approximately 70% primarily due to the strong silver price and a fixed cash cost of only $3.90 as well as the fact that we do not pay income taxes. With respect to our operating results during the quarter, we acquired and sold nearly 2 million ounces of silver from Luismin generating net earnings of $17.5 million and cash flows of $18.8 million, which is approximately 50% higher than the same quarter last year.

In January 2007, Luismin sold the San Martin mine. Therefore, the results of the Luismin mine and their operations for the three months ended March 31, 2007, including the ore mill, the grade, the recovery and production figures do not include the results of the San Martin mine. But in accordance with the Luismin silver contract, Luismin still purchases all of the silver produced by the San Martin mine and it continues to sell it to Silver Wheaton at $3.90 per ounce. And it will continue to do so over the life of the San Martin mine.

During the quarter, Silver Wheaton acquired and sold approximately 900,000 ounces of silver from Yauliyacu generating net earnings and cash flows of $4.7 million and $8 million respectively. Under the Zinkgruvan contract, the company sold 519,000 ounces during the quarter generating net earnings of $4 million and operating cash flows of $4.8 million. In addition, at the end of the quarter, the company purchased another 70,000 ounces from Zinkgruvan for which the sales were not recognized until the second quarter.

Effective January 1, the company adopted the provisions of CICA Section 3855, which deals with Financial Instruments and Section 1530 which deals with comprehensive income. As a result of adopting these new standards, the company now marks to market the value of its long-term investments including both the shares and warrants held in other companies. As a result of adopting these new standards, the company recorded a non-cash increase of $39.5 million to opening long-term investments and a non-cash increase of $3.3 million to future income tax liability. In addition and in relation to the shares held, which are included in long-term investments, we recognized a non-cash adjustment of $31.1 million which is net of tax, as a one time effect in opening accumulated other comprehensive income. Also we recorded a non-cash increase of $4.9 million to opening retained earnings to recognize the value of the income tax losses that we had not previously recognized and to record the cumulative effect of the change in accounting policies that relates to the warrant held by the company.

During the quarter, G&A expenses for the company were $1.7 million which is net of a non-cash stock based compensation expense of $500,000. This is higher than the same figure in 2006 partly due to increased filing fees and investor relations cost as well as the cost associated with building the management team that we have been fortunate to form over the past year.

For the quarter, the stock based compensation expense relate primarily to the amortization of options granted in prior periods, as well as some amortizations of options granted during the quarter.

Silver Wheaton continues to generate significant pre-cash flows and during the quarter, we invested our cash balance in short-term money market instruments. As a result, the company earned $892,000 in interest. On March 31, the company had cash and cash equivalents of $68.8 million, $57.5 of which was used during April to purchase a 100% life of mine silver production at European Goldfields Stratoni mine.

Also during the quarter, the Company made $3.1 million in strategic investments and on March 31, 2007, we had strategic investments in Bear Creek Mining, Revett Minerals, Sabina Silver, and S&S Silver Corp. These are the combined fair market value of March 31 of approximately $100 million representing significant value for the company.

And that's for the financial summary and I'll now turn it over to Peter.

Thanks, operator we will take questions now.

[OPERATOR INSTRUCTIONS]. We will take our first question from [Leonard Marks]. Please go ahead.

Good morning. It's a long time Wheatie, I have to complement you, on your efforts and congratulations on the performance. I believe a statement was made that there is about $200 million available upon the exercise of the warrants in '09 is that correct?

Yes. About US$180 million in '09 and '10 which is why our debt - part of the reason why our debt gets paid of so quickly, the other reason, of course, is our strong cash flow.

Peter, also has any consideration been given to utilizing the exercising of the outstanding warrants to generate funds by offering a small premium. I realize we do not want a diluted start but perhaps we could work on that $4 Canadian exercise fee.

Yes, we always look at options like that and we would have to be more attractive than just having the bank debts there and of course one of the challenges is that it dilutes the number of shares now [inaudible], so we always watch that to see what makes look sense and we will try and be innovative in financing the Company but certainly we are not going to issue any new shares if it makes sense as it goes forwarded it is something we may think about then.

With that I felt that it would sweeten the balance sheet and as we do have excess money, I was figuring that perhaps the $4.00 exercise, in other words we would put a small premium out there to sweeten the warrants to be exercised.

Yes, though we are always looking at that.

Okay and down stream is there any thought of giving a small dividend similar to what's been given by Goldcorp.

I think ultimately that is where the company may go. We see such a good growth prospects over the next 3, 4, 5 years that we think it makes the most sense to retain the cash generated in the Company to invest in new opportunities. That means we have less share dilution as we continue to grow, so I think at some stage when we maybe level out a bit in our growth, it will make sense to think about dividends but I don't think in the next few years.

Okay, I thought that would attract a lot of neophytes just getting into the DM seeing a dividend producing corporation. Thank you again for your efforts, I have been with Wheaton for a long time and I continue to remain. Thanks again and congratulations.

Thank you.

[OPERATOR INSTRUCTIONS]. And next we will go to [Wallace Winston-Smith]. Please go ahead.

Yes, good morning, Mr. Barnes. Quick question. Over the last six months or so I have not seen very much appreciation in terms of the stock performance in terms of the price per share, could you comment on the go forward basis as to where you see the stock going and what are some of the factors that have led the stock seemingly under perform other stocks within the sector. Thank you.

Yes, I mean you are correct. Since roughly the end of November we have actually underperformed the price of silver and underperformed significantly the other silver stocks and that happened as a result of Goldcorp selling about 7% plus shares into the market. It was unexpected by the market, it was unexpected by us too. And I think the market read that to mean that Goldcorp were potential further sellers. I don't believe they are, they tell us they are not and in fact, in our negotiations on Penasquito one of the big pushes from them is they wanted the abilities to maintain their interest in Silver Wheaton which is at 49% now as we continue to grow. I think its clear to me that Goldcorp are not sellers, I think the market misinterpreted it, they could have probably been better explained to the market but that's where we are. So I think, I hope that the market will now begin to see that they probably aren't sellers and that they are long term holders and I think our share price should start coming back to where it should be. We certainly feel its very undervalued at the moment.

And as a supplement to that, where do you see that actual price being then. I have looked at various analyst reports, they all seem that the mean target exceptionally higher than the current stocks performance level. Would you agree with the analyst and do you have any number on a go forward basis that we can look forward to seeing. Thank you.

Well I mean -- I tell my wife the number, but I am not going to tell everybody on the speaker phone what I think it should be, but I -- let's say -- let's put it this way and I think the analysts are smart people.

Very good, thank you very much for your information, cheers.

Thank you.

Next we will go to John Bridges, please go ahead.

Speaking of the analysts, I don't always feel all that smart. I wondered if you could comment on the Greek acquisition, any particular, you know the challenge as you see between for them to get these other projects up and running, seems to remember TV expense, awful lot of time and got not very far.

Okay I mean, the primary reason that we did the European Goldfields deal was to add on to our current silver sales and at the moment they are producing about 1 million ounces a year and within two or three years they go to 2 million ounces a year from Stratoni, which is close to a 10% increase in our sales now which is meaningful especially at these good silver prices and we think silver is continuing to go higher over the next five years. Ultimately, there is very good exploration potential at Stratoni, ultimately we believe that we are going to get 25 to 30 million ounces just from Stratoni.

In terms of their other assets, we got rights of first refusal not just on the ones they own now but any other assets they acquire during the term of this agreement. TVX did not do a good job of trying to operate in Greece. I mean one of the problems they had is they didn't have a strong local partner and you know, you think that people would have learnt by now that whatever business you are in when you are in a foreign country you need a good local partner. European Goldfields are doing it the right way, they have an extremely strong Greek partner and I think they stand as good a chance as anybody of getting their permits. If they do, we got rights of first refusal on the future silver streams out of them. I believe ultimately they will get their permits.

Is there any sort of dates that we should be looking forward with respect to these permits?

No, I mean, the deal from our point of view isn't focused on those, its focused on Stratoni that's further upsided, if we can do a further silver stream deal on those.

No, no I understand that I was just trying to give myself a few sort of target dates that's all and the tonnage was down a bit at the Luismin?

The tonnage actually wasn't down. What happened is that they sold a small mine, so the tonnage at the main mine San Dimas is where it was in previous quarters but they sold off a small mine but under the agreement we still got the silver from that, so what happens is I have included all the production numbers in the table, the small mine isn't included but in the sales number to us it still is because Luismin buys silver from that other mine and delivered to us at $3.90.

Okay sorry about that. It's been a bit of crazy this morning.

No that's fine.

Thank you very much, good luck.

Okay, thank you.

[OPERATOR INSTRUCTIONS]. And next we will take a question from Richard Wolf. Please go ahead.

I ask you to -- thank you very much for allowing me to listen in on this and to ask this question. I am a average stock holder of common stock and I heard the person mentioned warrants. I have had other stocks with other companies and I never seem to be in the position to be a warrant holder. If in the future you do something with warrants again how do you see average stock holder holding stock from the position to take advantage of that?

Well you can buy the warrants in the market, they trade in Toronto.

Okay thank you.

That's the easiest way and then the other way of course is if you have raised money then you can get some of the private placement through your broker and we issue warrants. I mean last time we did a deal we didn't issue warrants but we will see what happens in the future but the easiest way is just to buy them in the market.

Thank you very much. I appreciate it.

Okay.

I think next we will take a question from Jordi Dominguez. Please go ahead.

Hi, good morning.

Good morning.

A quick question, I am trying to update my model. What was your return on capital this quarter?

Our return on capital this quarter, while it change significantly depending on how you define capital due to changes in the account policy so, I haven't actually calculated that number specifically for Q1.

Okay, I am taking the same trouble, I know exactly how to face it. What is your policy as far as -- give a definition how you are going to roll forward?

Sorry are you referring to...

I [decided] finishing of capital when -- to calculate the returns on capital.

This is a pretty technical question, would you mind talking to Nolan offline at some stage about that?

Yeah I will do, I will give you guys a call.

Okay great thanks.

Thanks a lot.

[OPERATOR INSTRUCTIONS]. And it appears that we have no further questions.

Okay. Great well listen thank you very much for calling in and we look forward to speaking with you again hopefully in the relatively near future when we have something else to talk about. Good bye.