Wheaton Precious Metals Corp (WPM) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Silver Wheaton full year results conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Peter Barnes, President and CEO. Please go ahead, Mr. Barnes.

Good morning, ladies and gentlemen, and welcome to Silver Wheaton's fourth quarter earnings call. We have with us Randy Smallwood, Executive VP Corporate Development, and Nolan Watson, our CFO. All figures to be discussed on the call will be in U.S. dollars.

Some of our commentary may contain forward-looking information, therefore you're caution that our actual results could differ materially from our conclusions or projections. I refer you to the section entitled, Description of Business Risk Factors, in a most recent annual information form available on SEDAR, which sets out certain material factors that could cause actual results to differ.

Silver Wheaton had a good fourth quarter with net earnings of almost $25 million or $0.11 per share from the sale of 3.5 million ounces of silver compared to $24 million or $0.11 a share from the sale of a similar amount of silver in 2006.

We generated record cash flows in the quarter of $34.4 million or $0.15 a share, an increase of 15% compared with the same quarter in 2006. In December we signed a binding letter agreement with Augustan Resources to purchase between 45% and 90% of the life of mine silver to be produced at the Rosemont Copper (inaudible) Project in Arizona.

Subject to the finalization of the transaction structure, including tax, Silver Wheaton will pay an upfront cash payment ranging in value from $135 million to $165 million to acquire 45% of the silver production and $240 million to $320 million to acquire 90% of the silver production for the life of mine.

Rosemont is a great deposit and expects to be in production within the next two or three years. We put no money up until the project is fully permitted and full construction financing is in place. Once in production Rosemont should produce about 2.5 million ounces of silver a year.

The year ended December 31, 2007 was our most successful year ever. Silver Wheaton generated record net earnings of $92 million or $0.41 a share, and record operating cash flows of $119 million or $0.54 a share. Every single year since we set the Company up in 2004 we have achieved new records, an achievement of which we are very proud.

During 2007 our stock price was up almost 70%, considerably outperforming our peers and the price of silver. During the year we invested a total of $558 million in new silver purchase contracts, setting us on a path to almost double our silver ounces sold by 2010 to 25 million ounces a year, and boosting our long-term cash flow per share by 40% per annum.

We financed this growth by way of operating cash flow and a bank debt facility without issuing a single share. Subsequent to year-end Goldcorp sold its entire 48% interest in Silver Wheaton on a bought deal basis for cash proceeds of C$1.6 billion. This was the fourth-largest stock sale ever in the history of the Canadian markets. Given that the sale was oversubscribed and completed in only an hour and a half it shows the power of the Silver Wheaton model.

I will now turn it over to Nolan to review our financial results.

Good morning ladies and gentlemen. As Peter mentioned, Silver Wheaton had a strong fourth quarter with net income of $25 million and record operating cash flows of $34 million. And Silver Wheaton also had record sales of $50 million for the quarter, which resulted from the sale of 3.5 million ounces at an average price of $14.18 per ounce. And that compared to sales of $44 million in the fourth quarter of 2006 from sales of 3.5 million ounces at an average price of $12.25 per ounce. Therefore our total earnings per share and cash flow per share were $0.11 and $0.15, respectively.

For the year we also set records for net earnings and operating cash flows, with net earnings of $92 million or $0.41 per share, and operating cash flows of $119 million or $0.54 per share. This compares to our 2006 net earnings of $85 million or $0.40 per share and operating cash flow of $0.50 per share.

Our cash margin for the quarter with over 70%, primarily due to the strong silver price, a low cash cost of only $3.93 per ounce, and our structure in the contracts that we pay zero income taxes. I should also point out that at today's silver price of approximately $18 our cash margin is nearly 80%.

With respect to our operating results, during the quarter we acquired and sold 1.7 million ounces of silver from Luismin, generating net earnings and operating cash flows of $16 million and $17 million, respectively. An average grade of ore milled during the period was 354 grams per tonne, which is about the average reserve grade of 381 grams per tonne.

For the full year Silver Wheaton sold 6.9 million ounces of silver from Luismin, generating net earnings of $63 million and operating cash flow of $66 million. During the quarter Silver Wheaton acquired and sold just over 900,000 ounces from Yauliyacu, generating net earnings and cash flow of $6 million and $10 million, respectively. And as a result for the year, sales from Yauliyacu are approximately 3.5 million ounces resulting in net earnings of $20 million and operating cash flows of $33 million.

Out of the Zinkgruvan contract the Company sold 540,000 ounces during the quarter, generating net earnings and operating cash flows of $5 million. And for the full 2007 year Silver Wheaton sold 1.8 million ounces generating net earnings of $15 million and operating cash flows of $18 million.

And finally, with respect to our silver contracts, under the Stratoni contract the Company purchased and sold 400,000 ounces of silver generating net earnings and operating cash flows of $3 million and $4 million, respectively. And since we acquired the Stratoni silver purchase contract in April of this year, Silver Wheaton purchased and sold approximately bribing 900,000 ounces of silver, resulting in net earnings of $5 million and operating cash flows of $8 million.

G&A expenses for the year were $7 million net of non-cash stock-based compensation expenses of $2.7 million. This is slightly higher than the same figures of 2006, partly due to increased costs of becoming operationally independent from Goldcorp, but also from costs associated with hiring additional members of our acquisitions team. And going forward in 2008 we see G&A expenses hovering around $10 million.

Silver Wheaton continues to generate significant free cash flows, given that we have no capital expenditure contribution requirements. As a result, we're paying down our debt quickly with net debt at December 31 of $410 million. That is the end of the financial summary, and now I will turn it back over to Peter.

In terms of the future, we're budgeting sales of approximately 15 million ounces of silver in 2008, weighted slightly towards the second half of the year as Penasquito kicks in. This will increase to 25 million ounces a year by 2010, almost double our 2007 sales of 13 million ounces, with no CapEx required and assuming no further acquisitions.

Silver prices are looking very strong for the next several years, given that Silver Wheaton has the best leverage to silver prices of any company, this bodes very well. In addition, our future growth prospects have never looked better. And I believe that we can continue to deliver strong accretive deals going forward. Layer on top of all this the fact that the Goldcorp ownership overhang is now gone, and I think our Company fundamentals have never been stronger.

I shall now open it up for questions.

(OPERATOR INSTRUCTIONS). John Bridges.

On Luismin, I just wondered if you had any sort of sense as to what shape of production we should look for from that. I guess you are more focused on that than most of us.

It is Randy Smallwood here. Our last guidance from Goldcorp is that they are continuing to push the development down there. They have come back with their updated forecast going forward, and we feel pretty comfortable with their targets. And so it is again a matter of these taking systems require that ongoing development in Goldcorp is pushing that development through. We're quite -- we think it is on track and moving forward.

Any idea as to the shape of production quarter on quarter this year?

I think the last numbers I saw said it was going to be loaded up a little bit towards the back end. Grades were supposed to climb through the year towards the back end of the year.

Okay.

But not by much. It is pretty smooth profile. It is not too far off.

Then I am interested in your comments on the overhang. I would suspect that it is going to take a month or two for that 48% of your stock to find some more stable holders. Any comment on that?

I think there's another few weeks ahead of us for sure in terms of that that I've got to say that were very happy with the quality of shareholders that got in on this deal. There were new shareholders. I mean, four shareholders took over $500 million worth of this stock. I think a lot of the big holders are going to be long-term shareholders. A lot of them are new. Now that Goldcorp is gone, I think it takes a lot of concerns out of people's minds. For sure there has been some churning in our stock, but it is starting to head in the right direction. And I think, yes, hopefully it is matter of weeks, certainly not months.

Great. Well done guys. With good luck.

Chantal Gosselin.

My first question is regarding the guidance, 2008 guidance. I just wanted to make sure that that was revised for Lundin's revision that they published on the Valentine's Day for their Zinkgruvan mine.

Yes, the Lundin guidance has been sort of factored in. The number from Zinkgruvan itself isn't -- right now we are factoring in about 1.8 million for this year in silver ounces. And that fits in with what they are forecasting going forward.

At Augusta, can you give us some kind of update there, how it is going? Are you still expecting to close the deal at the end of March?

Yes, our last discussions with Augusta is that they are moving forward. I mean the deal, we're going to have to negotiate the final terms of the deal itself. But they're going to make their decision we expect within the next couple of weeks in terms of which pathway they want to take. As detailed in our press release we have several different options for them in terms of the percentages over and then the tax status, which approach they want to take. They expect to make that decision within the next couple of weeks, and then we will move forward towards papering the deal.

Any development on the permitting side?

As I understand everything is moving forward smoothly. I haven't heard anything that is taking it off-track. So things are still looking pretty positive there.

Lee Goring.

Could you comment on what are the strategies of a new competitor in your market, Silverstone, going forward? And how are you going to compete against them?

Sorry? Are you asking us to comment on their strategy?

Obviously they are a new competitor, and they obviously have a strategy to penetrate this market. I assume you must have some idea what they're up to.

I suggest you call in on their conference call when they announce their results. They are the better people to talk to you about it. Listen, we are the market leaders in this. We're about ten times their size. I believe their philosophy is to go off after the small ones that are maybe too small for us. But show me any successful company in any industry that doesn't have competition. We're happy to have competition. We think we have got the best team and the best Company going forward. We are just focused on doing more deals. I suggest you call in on their conference call maybe to chat about how they think they can do.

David Meeker.

Is Ian Telfer still associated with Silver Wheaton or is he a significant shareholder?

No and no. He has not been involved for couple of years now.

Steven Butler.

A couple of questions for you. The guidance for $10 million in SG&A. is that inclusive of some -- and what would be the amount of stock-based compensation, if any, in that forecast for '08?

That is inclusive of stock-based compensation, which the actual amount is yet to be determined. But last year it was a couple of million dollars, and it very well could be around that in 2008.

Could you guys explain, I think there was some booking of deferred or some income taxes on the income statement in the fourth quarter. Any thing that helps explain that, because I know we have generally had a scenario here where Silver Wheaton has been able to structure tax-free status revenues on silver?

It is quite simple actually. We still don't pay any taxes and don't perceive paying any taxes on our silver stream deals. The primary reason that you see future income tax numbers going through there is related to the fact that we have made investments in other companies, and we have done that through our Canadian equity. And we have done well on those investments and we're sitting on gains. So those would be taxed in Canada potentially if we were to sell those investments. Having said that, we do enough loss carryforwards now so that we wouldn't actually pay tax, those are just accounting entries that you are seeing going through.

Appreciate that. Last question I guess as much for Randy. Do you guys envision -- again is a question maybe for Goldcorp, but I forgot to ask it on their conference call last week. But is there thoughts as you discuss with them towards a midyear reserve resource update, because we didn't have one of course as per year end, given that their last update was August? Any thoughts as to whether there may be a midyear update on Penasquito, if you know?

I believe -- I haven't heard anything in terms of that. They are still doing some drilling on that, but I don't think they have a midyear update scheduled. I think right now a lot of focus on that project is just it getting up and going. And so I haven't heard any guidance from them in terms of midyear. I would expect there will probably be something at the end of the year.

Frederick Cohen.

A couple of questions. I was unable to track your full release. Normally I get it -- it is e-mailed to my attention. It is not this morning, and I can't find it on your website, so I would appreciate if somehow it becomes available. Secondly, could you please confirm the amount of silver sold in '07 for the full year?

The full year was 13.1 million ounces.

Okay.

Compared to our guidance of 13 million.

Is there a way of having your full release on your website so it can become accessible?

It will be there momentarily.

(OPERATOR INSTRUCTIONS). Haytham Hodaly.

Just a quick question actually. Steve asked a couple of the questions I had on taxes, G&A, etc. Could you -- and I don't see a break down, but I could be -- I'm looking at a different version of the release as well. I did not get it either. But could you just outline what each of the assets you have could contribute to your guidance for 2008 please?

We're not going to split it out right now because in fact we're still in the process of getting guidance from each of the operations. We think that roughly 15 million ounces in 2008 is good guidance. But until we have heard from each of the operations, we're not going to be second-guessing what they're going to come out with.

I wasn't sure if that was broken down in the full release.

No.

That answers all my question. Thank you.

Maybe one more question, operator, if there is one.

Jed Richardson.

It probably falls in with Haytham's last question. But I was actually asking specifically about Yauliyacu, if you're getting any indication that that operation will start to catch up on, I guess, on the shortfalls of the past couple of years?

We haven't got any guidance yet from them for this year. But certainly Randy can maybe talk a bit about it. Their longer-term plans are to be ramping up production.

Commodity prices are definitely going in our favor down there with respect to a bit more of a bias toward the lead value. As I understand it, we have been down on the property itself. We've got a team actually down the right now visiting the site to get updated as to where things stand. We haven't got their guidance yet for this year. But from all intents and purposes from where it looks we feel pretty comfortable about the shift more towards the [vatas and away from the corpose]. And the vatas of course being more silver rich. We're pretty comfortable with things improving there from where they have been.

There are no further --.

Operator, can I just wrap it up then?

Absolutely.

Listen, thank you everybody for calling in. As we have said, I think overall a very good year for us. The only real hiccup was the Luismin production last year, but we ended up hitting our 13 million ounces guidance, which we're happy with. And certainly we've gotten built-in organic growth going forward. And we hope to be announcing some more silver stream deals over the coming 12 months too. I think all in all very bright prospects for Silver Wheaton. Thanks for calling in.

The conference has now ended. Please disconnect your land at this time. We thank you for your participation.