Wheaton Precious Metals Corp (WPM) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Silver Wheaton third quarter results conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Nolan Watson, CFO. Please go ahead, Mr. Watson.

Thank you, operator, and good morning, ladies and gentlemen, and welcome to our third quarter earnings call. I have here with me Peter Barnes, the Company's Chief Executive Officer, and Randy Smallwood, the Company's Executive Vice President of Corporate Development, who, once I go through the financial summary, they'll be able to help answer any questions you may have.

All of the figures I'll be discussing this morning will be in U.S. dollars unless otherwise noted. In addition, some of my commentary may contain forward-looking information. And therefore, you're cautioned that our actual results may differ materially from my conclusions, forecast, or projections. And I'd refer you to the section entitled, "Description of Our Business Risk Factors" in our most recent annual information form on SEDAR, which sets out certain material factors that could cause actual results to differ.

Overall, this quarter marks a significant step in the right direction, with overall mine production increasing 10% from The previous quarter, which is driven primarily by a 36% increase in the production of Luismin from 1.4 million ounces in the second quarter of 2007 to 1.9 million ounces in the third quarter. And this increase was primarily due to a 33% improvement in the average grade mined.

It should be noted, however, that most of the increase in overall production won't be realized until the fourth quarter due to the timing of shipments at Zinkgruvan and Stratoni. And specifically, a total of approximately 250,000 ounces of silver at these two mines just missed the cutoff for recognition in Q3. And therefore, had these ounces been recognized in the third quarter, it would have resulted in sales of approximately 3.4 million ounces. Given this, we do continue to believe that total sales for the year will be approximately 13 million ounces.

Net earnings and operating cash flow for the third quarter of 2007 were $19 million, or $0.09 per share, and $27 million or $0.12 per share, respectively. And that was from the sale of 3.1 million ounces of silver with an average realized price of $12.66 per ounce. This compares to net earnings and operating cash flow of $22 million, or $0.10 per share and $28 million, or $0.13 per share, respectively, from the sale of 3.5 million ounces at $11.86 per share in the same quarter of 2006. The difference between the two quarters was primarily driven by the timing of shipments issued that I previously mentioned.

Our margin for the third quarter of 2007 was 70%, again due to the strong silver price and a fixed cash cost of only $3.90 per ounce. With respect to our operating results during the quarter, in that 1.9 million ounces of silver we acquired and sold under the Luismin contract, we generated net earnings and cash flows of $16 million and $17 million, respectively. And the average silver grade for this period at Luismin San Dimas mine was 381 grams per ton, which approximately equals the average reserve grade of 388 grams per ton.

During the quarter, Silver Wheaton acquired and sold 792,000 ounces of silver from Yauliyacu, generating earnings and cash flow of $4 million and $7 million, respectively. And under the Zinkgruvan contract, we sold 247,000 ounces for the quarter, generating net earnings of $1.6 million and operating cash flows of $2.2 million. And, as I mentioned at the beginning of the summary, sales would have been higher by about 150,000 ounces had the timing of shipments worked in our favor at the end of the quarter. And therefore these sales will be recognized in the fourth quarter.

With respect to the Stratoni contract, the Company purchased and sold 190,000 ounces during the quarter, generating net earnings of $1 million and operating cash flow of $2 million. And this sales figure included only two months' worth of production, as one of the ships leaving the port was temporarily delayed, causing a corresponding 100,000 ounces of sales to be recognized in the fourth quarter.

G&A expenses for the quarter were approximately $2.1 million, and that included $0.6 million of amortization and stock-based compensation, which is a non-cash item.

Also during the quarter, we did close the Penasquito acquisition, which we are very pleased with, especially given the 50% increase in silver reserves announced back in June, which brings Silver Wheaton's 25% share of Penasquito's reserves to 216 million ounces. In addition, 25% of Penasquito's measured indicator resources total another 103 million ounces, while a portion of inferred resources totals another 127 million ounces, and we do believe there's significant exploration potential beyond that.

Anticipated production and sales at Penasquito are expected to begin in less than 12 months, and upon the transaction, we drew $200 million on our seven-year term facility, and we drew $246 million against our $300 million revolving facility. And at September 30, 2007, we had already paid down $11 million on the revolving facility, for a total outstanding debt of $435 million, which we do expect to be able to pay down quite quickly, especially given the strong silver prices.

And that's the financial summary, and now we'll turn it over to you, operator, to open it up for questions.

Thank you. We'll now take questions from the telephone lines. (Operator Instructions.) The first question is from Steven Butler. Please go ahead.

Okay. Just comment on your decision to capitalize the interest expenses for Penasquito against the project.

Sure. This is Nolan again. It's something that we looked at, and obviously discussed with our auditors, and this capitalization of interest is something that's quite common against development projects. And seeing how the project is not going to be up and running for another year, we thought the matching principal just made sense to do so.

Okay. Nolan, can you comment on the lead we're expecting. The question's as much for Goldcorp, but you're obviously in touch with them as to timing of the optimization study for Penasquito. Is that something that we're expecting to have in the November to December time frame?

Steven, it's really from all of your--we're discussing it with Goldcorp. They're still on target for having that out by year end, and I'm sure they'll update next week when they have their quarterlies.

Okay, okay. Thank you very much, guys.

Thank you. The next question is from Hatham Hodaly from Salman Partners. Please go ahead.

Thanks, operator. Steve managed to snatch my first questions, but I do have another, just with regards to San Dimas. Can you talk about the planned expansion there and what we can expect to see here for the next couple of quarters in terms of production contributions here to your account?

Yes, Hatham, it's Randy Smallwood again. We continue, I mean, as you can see, they had a pretty rough quarter in Q2, and there's been quite a change in terms of manpower. There's been a shift in some of the projects, that the people down in Mexico within Goldcorp and shifting to different projects, Penasquito coming on, et cetera. And we think that the team that's in there now is sort of now getting their feet on the ground and getting a handle on that, on San Dimas moving forward.

So I think you can see by the operating results, the tonnage is, the tonnage throughput held about the same, but they're now starting to pull in some better grade from some of the different areas and starting to focus on getting the metal production up, which is of course most important to us. So we see this trend continuing.

They're, some of the exploration development that they've had down there, (inaudible) is starting to get into the deeper reaches of some of the successful veins, and then the, some of the exploration development that's going on is also getting closer to its target and such. And so I think what we're going to see over the next few quarters is continued improvement down there, getting back up to where it was a couple of quarters ago, and then ultimately beyond. The surface infrastructure is nearly complete with respect to that expansion, and now it's a matter of just ramping up the production capacities from underground.

Okay, maybe there's another question on Yauliyacu, just with regards to the outlook. I guess it hasn't really panned out exactly at the production levels you were expecting when you first bought it, at least not yet. I don't think 2008 is supposed to be a better year. Do you see that as being a better year, and I guess, what's your forecast right now for '08? Silver (inaudible) agreement contribution (inaudible)?

Again, one of these managers down at Yauliyacu is lead prices from where they are right now, and the silver does definitely have an affinity towards lead. And so as production shifts more to the lead, which is some of what, I think, we're seeing here in this quarter, the vein-type deposits versus the corporeal to the ore body type ore bodies do carry more lead and more silver. And so we're seeing more of a focus in that direction.

So with respect to expansion and moving that one up, there is a long-term plan that they're fine-tuning down there right now that discusses the concept of increasing production. We're sort of waiting for the final decisions on that, but we do know that they have some surface capacity coming onstream with a neighboring mill site that Glencor owns within the next couple of years. And so we're looking forward to that as being a pretty sure thing coming downstream.

Just one general comment based on this. All the mines right now, as you can imagine, how they do their budget in processes. That's going to take place over the next two or three months, so I think we're going to have a much better idea after Christmas in terms of exactly how each mine is looking for next year. But certainly, as Randy says, Yauliyacu, we've been getting fewer ounces this year than we'd originally expected primarily, of course, because they've been able to mine lower grade areas at these higher zinc prices. But we don't have any concerns that we're not going to get up towards 0.75 million ounce a year average over the long term. I mean, nothing has changed there rather than they've had continued drill success in it. It's only timing as when they mine the material that we're confident is there.

Sure. Maybe just two more quick questions to the person to be with regards to G&A. I see your G&A has actually gone up over $2 million this last quarter. Is that a reasonable number to use going forward, obviously given what we see?

Yes, G&A is relatively stable quarter over quarter, actually, but I think that's reasonable to say is, it's a reasonable number going forward, plus or minus, maybe adding one or two more bodies.

Okay. And I guess the last question is probably to Peter. Peter, with regards to what you're seeing out there for opting agreements, I know the last time we spoke, you said you guys were obviously looking at many different little transactions. Are you more focused on larger opting agreements or smaller opting agreements? What is easier to do right now, and where do you see the near-term catalyst being?

Well, I, obviously we're more focused on, we're most focused on maximizing value, and that's easier done with a few large ones than a lot of small ones, so we are focused very much on larger ones. But a lot of it comes down to timing. I mean, a company may think it's a great model, but they normally need their use of cash in order to do a deal, and I think that's the critical thing in terms of timing. And we're talking to enough companies that we're confident that we are going to see growth over the next year or two, hopefully significant growth. But you can never tell exactly when any particular one opportunity is going to happen. We do look at the ones at the smaller end of the scale as well, but obviously, if we can, if we've got a big one to do, we're going to focus on that.

Great. Thank you.

Thank you. (Operator Instructions.) The next question is from John Duty. Please go ahead.

I thank you. I hope the construction noise in the background still lets me get through, but I wanted to congratulate you on building what's obviously going to be a cash-generating machine here as soon as Penasquito comes online. And I'm wondering what the dividend policy for the Company might be going forward?

That's a good question we get asked a lot. Certainly we do intend to pay a dividend in the future. The only question is when, and I would say that as long as, right now we feel we've got very good growth prospects, and we would rather be reinvesting the cash in increasing cash flow per share, earnings per share by making more acquisitions. I think, though, as we get bigger, when we get to a certain level, we can start paying smaller dividends, and I think as we get larger and larger, we can start increasing the percentage of dividends. Because as you say, we are a cash flow machine, and hopefully, we'll become even more of one. And one of the beauties about Silver Wheaton is that we don't, all of our cash flow is free cash flow. So we don't have to spend it on CapEx or anything else. So yes, I think we will be in a position to start paying dividends, hopefully over the next few years.

Okay, so we might think of it, maybe when Penasquito starts coming online?

Well, Penasquito's going to ramp up, but if we could do one or two big fields, which we're certainly hopeful we can, then I think we could well be in a position in the next year or two where we could start thinking about paying dividends.

All right. Great. Thank you.

Thank you. There are no further questions registered at this time. I'd like to turn the meeting back to Mr. Barnes.

Okay, well, thank you very much, operator. Thank you very much for calling in. As Logan said, we think that this quarter was certainly a step in the right direction from last quarter, and we do see our guidance for this year at 13 million ounces as very feasible. We'll certainly be very disappointed if we don't get there. And yes, we're continuing to work on the growth opportunities as always. So thanks for calling in, and hopefully talk to you soon.

Thank you. Your conference has now ended. Please disconnect your lines at this time. We thank you for your participation, and have a nice day.