Wheaton Precious Metals Corp (WPM) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Silver Wheaton's third-quarter results conference call. My name is Brad Kopp, Director of Investor Relations for Silver Wheaton. I'm joined this morning by Peter Barnes, President and CEO; Randy Smallwood, Executive Vice President of Corporate Development; and Gary Brown, our Chief Financial Officer.

Before I turn the call over to Gary, I would like to read Silver Wheaton's forward-looking statement. This conference call contains forward-looking information which may include statements with respect to the future financial performance of Silver Wheaton; the timing and amount of future silver sales; and the future price of silver. Forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Silver Wheaton to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Such factors include, among others, the absence of control over mining operations from which Silver Wheaton purchases silver, and risks related to such mining operation, including risks related to international operations, changes in project parameters, as well as those factors discussed in Silver Wheaton's disclosure documents filed with both the US and Canadian securities regulatory authorities.

Although Silver Wheaton has attempted to identify important factors that could cause actual actions, events, or results to differ materially from those described in the forward-looking statements, there may be other factors that cause actions, events, or results to differ from those anticipated, estimated, or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, you should not place undue reliance on forward-looking statements.

Now I would like to turn the call over to Gary Brown, Silver Wheaton's Chief Financial Officer.

Thank you, Brad, and good morning, ladies and gentlemen. During the third quarter of 2008, Silver Wheaton generated net earnings of $20.2 million and operating cash flows of $26.7 million from the sale of 2.7 million ounces of silver, with an average realized price of $14.50 per ounce. This compares to net earnings and operating cash flow of $19.2 million and $27.1 million, respectively, from the sale of 3.1 million ounces at $12.66 per ounce in the comparable quarter of 2007.

Basic earnings and cash flow per share were $0.09 and $0.12, respectively, for both quarters.

During the quarter, we received CAD120 million from the successful transaction involving the early exercise of two outstanding series warrants, the proceeds from which was used to repay outstanding debt. Subsequent to quarter end, we finalized the terms of a silver agreement with Alexco Resource Corp., under which Silver Wheaton will acquire 25% of the silver produced from Alexco's Keno Hill project located in the Yukon Territories for the life of mine. This represents Silver Wheaton's fourth silver agreement executed in fiscal 2008.

In addition, on Friday the Company announced that it had signed a letter of intent with Augusta Resource Corporation regarding a new silver agreement superseding and discharging any obligations associated with the letter of intent dated December 19, 2007. The new letter expresses both parties' intent to evaluate a potential new silver agreement following Augusta's release of a bankable feasibility study.

Returning to the financial overview for the third quarter of 2008, earnings from operations amounted to $23.5 million or 59.8% of revenue compared to $22.6 million or 57.1% of revenue in the comparable quarter of 2007. This increase in overall margin as a percentage of revenues is attributable to higher silver prices partially offset by an increase in depreciation per ounce from $1.53 to $1.90. The increase in depreciation is attributable primarily to silver flows from the Luismin mines representing a smaller percentage of the overall silver flows.

The average cash cost per ounce increased slightly from $3.90 in Q3 2007 to $3.93 in Q3 2008.

Breaking down the operating results further, during the third quarter of 2008 we sold 1.2 million ounces of silver from Luismin, generating net earnings and operating cash flows of $12.3 million and $12.8 million, respectively. This compared to the sale of 1.9 million ounces of silver in the comparable quarter of the prior year, which generated net earnings and operating cash flow of $16.1 million and $17.2 million, respectively.

I would highlight that approximately 100,000 ounces of silver was produced but not sold to Silver Wheaton during the most recent quarter, with such silver expected to be recognized in Silver Wheaton's fourth-quarter results. The sales from Luismin continue to be lower than expectations, with the average silver grade mine continuing to be lower than the average reserve grade.

Zinkgruvan contributed net earnings and operating cash flows of $3.1 million and $4.5 million, respectively, from the sale of 418,000 ounces of silver in the third quarter of 2008. This represented a 69% increase in the quantity of silver sold from the comparable period of the prior year, in which net earnings and operating cash flow of $1.6 million and $2.2 million were generated from the sale of 247,000 ounces of silver.

Yauliyacu generated net earnings and cash flows of $5.6 million and $8 million in the third quarter of 2008 based on the sale of 691,000 ounces of silver. In the comparable quarter of the prior year, 792,000 ounces of silver was sold, generating net earnings and operating cash flow of $4 million and $6.9 million, respectively.

Stratoni contributed net earnings and cash flow of $1.6 million and $2.6 million, respectively, during the third quarter of 2008 from the sale of 253,000 ounces of silver. This represented a 33% increase in sales volumes from the comparable quarter of the prior year. The decrease in sales volumes compared to Q2 2008 reflects the effect of approximately 90,000 ounces of silver that was produced but not shipped during the quarter, which is expected to benefit the fourth-quarter results.

Silver flows from the Penasquito heap leach operations amounted to 98,000 ounces during the quarter with the sales proceeds being recognized as revenue, as this component of the Penasquito mining operation was considered to have achieved commercial production by Silver Wheaton.

The latest quarterly results also reflect the sale of the first silver flows from our La Negra silver agreement, totaling 58,000 ounces.

Overall, our silver sales for the third quarter of 2008 were approximately 500,000 ounces lower than our expectations, of which approximately 200,000 ounces related to the timing of shipments, as previously noted. Given that, in particular, San Dimas has continued to have disappointing quarters, we have adjusted our guidance for the next 15 months in order to be conservative, with silver flows for the fourth quarter of 2008 estimated at 3 million ounces, increasing for 2009 to 15 million to 17 million ounces.

Corporate costs totaled $3.3 million for the quarter ended September 30, 2008, compared to $3.4 million for the prior year, with increased general and administrative expenses being more than offset by smaller mark to market losses on warrants held, combined with a decrease in future income tax expenses.

G&A expenses for the third quarter of 2008 were $3.5 million compared to $2.1 million for the comparable quarter of 2007, with the increase being primarily due to a $500,000 increase in non-cash stock-based compensation costs and the increased costs from reducing our reliance on Goldcorp's administrative services, including additional staffing requirements. We continue to expect G&A expenses for 2008 will be approximately $13 million, excluding non-cash stock-based comp.

During the quarter, $5.2 million of interest was capitalized for the cost of the Penasquito Mineral Park and Campo Morado silver interest, with an average realized interest rate of 4.4%. As previously noted, the Penasquito heap leach operations have achieved commercial production with the expectation that both Mineral Park and Campo Morado will achieve commercial production during the fourth quarter of 2008.

Penasquito's mill operation is expected to achieve commercial production in 2009. It is important to understand that due to the vast majority of the value associated with the Penasquito silver interest being derived from the silver flows to be generated from the mill operations, interest on all of the currently outstanding debt will continue to be capitalized until the mill operations achieve commercial production.

At September 30, 2008, the total debt outstanding under the Company's term and revolving debt facilities was $380 million, a decrease of $113 million from the prior quarter. The decrease was primarily attributable to the $113 million of proceeds raised during the quarter from a successful transaction involving the early exercise of the two series of outstanding warrants, which was applied again to reduce outstanding debt.

During the quarter, upfront payments of approximately $40 million were made in relation to the La Negra and Campo Morado silver interests, completing our funding obligations in this regard. As at September 30, approximately $192 million of debt was available under the $400 million revolving credit facility, with cash and cash equivalents of approximately $15 million on hand at quarter end.

That concludes the financial summary; and with that, I will turn the call back over to Peter.

Thank you, Gary, and good morning, ladies and gentlemen. In light of these challenging economic times, there are several areas I would like to address before we open it up for questions.

Firstly, we have been getting a lot of questions about the health of the mines from which we get our silver, given the significant decline in many metal prices, particularly lead and zinc. It's important to understand that 85% of our current production comes from only three mines -- San Dimas, Yauliyacu, and Zinkgruvan. Each of these mines has been in continuous production for over 100 years and has already survived through numerous commodity cycles.

Each mine continues to be a low-cost producer; and in fact each is looking to ramp up production over the next few years. We see no change in these plans. They are all very high-quality mines run by good operators and are still profitable at today's commodity prices. The probability of any of them shutting down is extremely low.

Most of our future organic growth, of course, will come from Goldcorp's flagship asset, the Penasquito mine. Once Penasquito is in full production, our share of its silver sales will average almost 8 million ounces a year. Penasquito is a world-class asset by any definition. All in all, then, we're very confident in the continued health of our assets. Certainly Randy is available to answer any questions about specific ones later.

The second matter I would like to discuss is our silver sales going forward. As Gary has mentioned, we have reduced our near-term guidance to 3 million ounces for the fourth quarter, increasing to between 15 million and 17 million ounces in 2009.

The reduction in this guidance is primarily related to San Dimas, which I think as everybody knows has had production hiccups for several quarters now, as well as a conservative outlook on silver deliveries from Yauliyacu. We believe that the worst is now largely behind San Dimas and that they will see some improvements in the relatively near future. Similarly, going forward we anticipate a return to higher-grade material at Yauliyacu. However, we have decided to adopt conservative near-term guidance until such time as we actually do see a recovery at these operations.

Similarly, for Penasquito, we are adopting a more conservative view for our sales rampup to the end of 2009, given there may be a lag between mine production and when we actually get to record a sale. As discussed on Goldcorp's conference call last Friday, the Penasquito mill construction is on time, on budget, which is great news for us.

We are still projecting to get to approximately 13 million ounces of sales a year within five years, assuming no further acquisitions. We believe that San Dimas will achieve the production rampup previously forecast for 2010, although our guidance assumes a more conservative rampup schedule.

Similarly, while we have adopted a near-term conservative sales budget for Penasquito, we remain confident that its prospects are better than ever.

I think it's fair to say that even a few months ago, nobody foresaw what is turning out to be a once-in-a-lifetime upheaval in the global economy. As a result, silver prices have declined drastically, driven primarily by a significant strengthening in the US dollar, probably the exact opposite of what most would have predicted in these economic times.

We are probably more bullish than ever on the price of silver as a result of what is unfolding in the global markets today. While nobody knows how long it will take to get through this crisis, the mid to long-term prospects for the silver market continue to look very promising.

Given the near-term uncertainties in the global economy, our focus will remain on cash conservation and the repayment of debt. Our balance sheet remains strong.

In September, we raised in excess of CAD120 million from the early exercise of warrants, which was fully applied against our debt facility. At September 30, we had net debt of $365 million, which even at a long-term silver price of only $8.00 per ounce would be paid off on time through our operating cash flows. And that is based on our conservative forecast of future silver sales.

At around a $10.00 long-term silver price, we are in full compliance with our debt covenants. Under any silver price scenario above $7.00 an ounce, any concerns on debt covenants would not kick in until mid-2009 at the earliest, which means that we have lots of time on our side to address any issues.

We will obviously closely monitor our debt position; and should the need arise, we have several options available to ensure that our debt covenants remain in good standing. Again though, our view is that silver prices will strengthen over the next six months or so, and that the current environment of depressed silver prices will not persist in the mid to long term.

In terms of looking at new silver stream opportunities, we're very fortunate that we are one of the few mining companies which has a significant growth profile over the next few years even if we make no more acquisitions. Given the current economic environment, maintaining a strong balance sheet and repaying debt as quickly as possible will be our top priority.

We will continue to evaluate silver stream opportunities, however, and will continue to be proactive where we see an opportunity to add long-term value at the same time as deleveraging our capital structure.

Now, we will open it up for questions.

(Operator Instructions) John Bridges, JPMorgan.

Good morning, Peter, everybody. You made reference of Goldcorp's delay in reporting commercial production for obvious reasons. Just wondered what criteria you are using.

Also, what would your accounting policy be with respect to reporting silver production from there? Would your silver announcement be the same as Goldcorp's or would there be some differences?

Hi, John. It's Gary Brown on the line. I'm not sure I understood the first part of your question, but we are going to be evaluating commercial production independent of any of our partners. Really what we look at is whether the asset is available for its intended use. We measure that primarily based upon our understanding of the state of the asset and whether or not silver is flowing from that asset.

So for the Penasquito heap leach side of things -- and again stepping back, we were -- we did take the position that we could bifurcate the two sides of that asset, the heap leach from the mill operations. Given that we've had flows from the heap leach operation, we've taken the position that that has achieved commercial production. We will look for -- the likely trigger for commercial production on the mill operation will be the flow of silver from that side of things.

Does that answer your question, John?

Yes, it's just a bit confusing when one company says it's not commercial and then you said it is, but I can fully understand why that would be.

From our point of view, what we are doing, John, is s we are buying a silver stream. So essentially from our point of view, pretty much as soon as we start getting silver then our silver stream deal is working.

Right.

We expect to get smaller amounts when it is starting up, but that is still part of our stream. So from that point of view -- and any mining company's point of view -- it's a different issue. Because obviously, they are focused on commercial production. That is not so important for us.

And they can't separate their capital for the heap leach from the capital from the mill?

My understanding from Goldcorp's point of view is the heap leach is really almost incidental. I think it is like 4% of the value. So primarily they are not building Penasquito for the heap leach operation; they are building it for the mill.

Right, right. Then as a follow-up, you made mention of reliability at some of the operations. Just wondered what your thought process was with respect to growth going forward, or growth versus quality, and then maybe due diligence policies on new deals.

Okay, I mean, I can throw a few comments in, then see if Randy has got anything to add. Certainly due diligence on new deals has always been extremely important to us. I think the best deals are the ones you don't do versus the ones that you do do most of the time. There's a lot of deals that we have not done.

I would think we probably only do less than 10% of the actual opportunities that we look at. So, due diligence has always been important. It's as important, if not more so, of course, in today's environment.

It's actually interesting. I mean, one of the byproducts if you like from this weakness in current metal prices -- primarily lead and zinc -- is actually, turns into a positive for us. Because you take Yauliyacu for instance, they've been deliberately mining lower-grade ore over the last few years because they could make money at it. They always said that they would move back into the higher-grade ore if metal prices drop down.

Well, that is exactly what has happened; and I think it is highly likely that they will move back into higher-grade ore over the next several months. That is actually positive for us because then we get more silver out of the deal.

And that is fairly typical for any mine that we have deals with. I mean, when times are good, they will mine more marginal stuff because they can't mine it when times are bad. So in fact, in the good times, we actually sometimes get less metal than we otherwise would have expected. But conversely during the tough times, we can get more.

John, it's Randy Smallwood here. The only thing I would add to that is that these times have given us some great opportunities in terms of some of the different growth opportunities out there, just because of the lack of capital elsewhere in this current market regime.

So we are seeing a flurry of activity or opportunities that present themselves going forward. Given that, we can afford to be maybe a bit more selective in terms of any new opportunities or new ventures going forward. So it does give us that sort of hidden benefit also.

Okay, great. I will jump back to the line for now.

Haytham Hodaly, Salman Partners.

Not trying to beat a dead horse, just want to clarify a couple things in my head with regards to Penasquito. Goldcorp indicated that they won't actually declare commercial production until probably late next year at the earliest. Which -- and that they will -- I guess based on that, you will also consider doing the same? Or until you get a decent revenue stream from the silver from the mill, is that what you are saying?

No, I think, we will likely be treating it as having achieved commercial production from the first substantive flows of silver.

Okay. Then at that point in time, you will look at expensing interest rather than capitalizing it?

Correct.

Okay. Just on the mill scenario, I guess just two questions. First, just on the debt. Right now, is all the debt attributable to Penasquito at this point?

Essentially, yes.

The reason I ask is because there is no interest expense whatsoever, which leads me to believe that it was.

Well, you have to sort of get into the mechanics of interest capitalization. Essentially, we subscribe to the US GAAP pronouncement on that, which basically says you attribute debt to preproduction assets first. Given that there's 400 -- we have broken down the allocation between the mill and the heap leach operation such that $475 million of the $485 million was attributable to the mill side of things.

So with that asset being considered to be preproduction and us having $380 million of debt outstanding currently, all of the debt effectively will be allocated to the mill operation.

Okay, no, I understand you there. Just with regards to the heap leach at this point, so you're not really attributing any of the debt specifically to the heap leach and saying, okay, this much should be expensed -- of the interest, pardon me, should be expensed against it, or anything?

What Gary is saying is that under US GAAP, you basically --

You don't have to do that, yes.

Well, you don't; you are not allowed to. It's not even as though you have an option.

Okay. Another question I guess with regards to your forecasted 2009 production of 15 million to 17 million. Can you just -- obviously there is a range there, probably specifically for San Dimas and Yauliyacu.

What is your range for production of San Dimas for '09 and for Yauliyacu? Is it 6 to 8 million for San Dimas? Is Yauliyacu whatever the number is?

Well, okay, a couple of comments here. First of all, our guidance for next year was previously 19 million. What we've done is essentially cut San Dimas back to pretty well where it will end up, we think, this year. A slight improvement, but really nothing to talk about. We've also cut back Penasquito to essentially show one quarter from Penasquito.

We don't want to get into guidance per mine right now, because I think it's important to understand we haven't had budgets from our partners yet. To come up with these numbers, Randy and his team have been out to all the significant assets over the last few months.

We are comfortable, we're extremely comfortable that these are very conservative numbers that we can meet or beat. But I don't think it's the right time to get into guidance by mine because even the mines haven't given us that.

Sure, that's no problem. So the swing, though, however, is with regards to whether Penasquito you use one quarter or more throughout the year; and whether San Dimas meets this year's actual production versus exceeding that. Is that correct?

San Dimas, we are budgeting a small increase for next year, but very small. Based on Goldcorp's conference call on Friday, we think that is pretty conservative.

Penasquito we've already got one quarter production in from the mill; and again, we hope that is pretty conservative.

Okay, and that one quarter of production is in keeping with your likelihood of expensing only one quarter of interest. Is that correct?

Yes, that's correct. Interest follows whenever we record the sales.

Okay. No, that is good. That clarifies it. Thank you.

Steven Butler, Canaccord Adams.

Peter and Gary, good morning; Randy as well. You mentioned, Peter, the $10.00 an ounce, you are in full compliance with debt covenants, which would really be tested, I guess, stressed a bit mid-2009. Can you maybe elaborate there a little bit somewhat for us? Unless you've disclosed these covenants in your more detailed financials.

Yes, the way the covenants work is disclosed in the financials. Again, we've adopted, we think, very conservative sales guidance for next year. The numbers I mentioned earlier are based on that conservative sales guidance. So we hope we are going to do better than that anyway.

But I think the key number to focus on is silver prices would have to average only $8.00 an ounce for the next five years, and even then, we still pay our debt off on time. There is a lot of companies, not just mining companies, which are going to have real debt issues to deal with over the next several years.

I think anybody who have significant discounts in today's silver price for the long term is going to pay their debt off on time, I think they are in very good shape.

Covenants, yes, we are certainly close on the covenant side. But again, we have got -- even worse-case scenario. I mean silver, even if silver only averages $7.00 an ounce for the next several months, eight or nine months, we still have until mid next year to deal with that.

So I think we are in great shape, and we are going to deal with any issues on the covenant side well before they come up.

Peter, can you elaborate maybe a little bit more on versus what we saw in the release on the Augusta Resource announcement, vis-a-vis the now a nonbinding agreement to work towards perhaps a revised deal? Just elaborate a bit more about what is going on there. Because I understand the updated feasibility study may in fact potentially reflect a slight increase in resource; maybe reserve; but --?

Sure. Listen, the change in the Augusta deal, if you like -- yes, you're right. It was a binding deal before. We've been working for quite a few months now in terms of working with Augusta to finalize that. As they said in a news release today, they've got a lot of alternatives for how they would raise the rest of the money required to build the mine.

In the end, when we were talking to them recently, we said, listen guys, we think what makes sense for both sides is -- let's just let this old deal drop for now. And once you have got your updated feasibility study out there, once you've probably got a bit better idea of how you're going to finance the rest of it, let's talk about a silver stream there, which kind of tailored in better potentially with how you're going to do the rest of your money.

So I think certainly both sides are very keen still to do a silver stream deal. But we will be revisit it, and there may be a better way of doing it next year.

And in the context, Peter, I guess as well -- without saying it, in the context of our current spot silver price environment.

Well, I mean potentially; but as you said there's also more reserves and resources there. They will be further down the road in permitting. There's all sorts of things which factor in.

Okay. Thanks very much.

Tony Lesiak, Genuity Capital Markets.

Morning. Peter, I thought you might have been a little more relieved to get out of the Augusta contract. Can you discuss the rationale of entering into a new letter of intent, in the context of having to pay down your debt?

Well, listen, first of all they have got a great asset, which even at much, much lower copper prices than this will do very well once it's in production. I mean, we're not relieved to get out of it. What happens -- as a result of the old deal being cancelled for sure, we have no potential debt overhang in a few years time, if and when they get their permits.

So in the short term, is that a positive from a debt overhang point of view? Yes, it is. But we would like to end up doing a silver stream. I mean, the rationale for doing this primarily is -- let's all wait and see what's going to make the most sense at the right time down the road.

Yes, I mean, it is nonbinding now; but certainly we would like to get a silver stream deal done with them, and they are still keen to do one with us.

Yes, but don't you want to avoid the possibility of forced equity issues? I mean, if you are in breach of your covenants by mid next year, and just kind of wait it out to see how it goes over the next six, nine months before you start structuring $100 million, $200 million-dollar deals here?

Well, we are not going to structure -- yes, I mean, listen. We are not to, I think -- I hope I was clear earlier that our focus nowadays is clearly repayment of debt. We are not going to do any deals over in this environment which is going to make our debt position worse. We are going to do deals if they can help improve our debt position even more.

So yes, you're right. We are not going to do any deal -- I mean, forget whether it's Augusta or not -- if it's stressing where we are now.

Yes, what I am getting at is maybe not looking so much at development deals, but actually looking at producing assets where you are getting silver streams right now, where your coverage ratios might be improved.

Listen, yes, I think we would always have loved to have done producing assets first and foremost. But again, when copper prices were $3.00, lead and zinc were up where they were, and gold was where it was, I mean there were a lot of silver stream deals that weren't ready to be done because people didn't really need cash. So in that environment, it was the more development focused ones which were available, and we took advantage of the good ones.

In this environment, certainly I think there is a lot more producing ones available. Again, the key thing is, I think two things. They've got to be good quality assets, and I think that is one thing we have always been very good at. Then the second thing is we are only going to do them if it helps deleverage our balance sheet versus leveraging it more.

Okay, on that context, maybe you could just talk about what silver price you might be using to evaluate new contracts. Are you looking at spot or the curve, or do you use some other number?

Well, it is certainly not -- historically, we have always used round about $10.00; and we are not going to be using more than that. That's for sure.

Okay. Then just finally a question for Randy. Are you getting nervous at all as to the quality of the inferred resource estimates at San Dimas? They were mining at roughly 230 grams per tonne in the quarter. The reserves are at 380, the inferred is at 324.

Are they seeing a lot more dilution here, or could there be a potential downgrade to the quality of the reserves or resource at year-end?

You know, I was down in San Dimas a couple of months ago and had a good look at it. Then I talked to the -- obviously in touch with the Goldcorp staff operating there.

The main resource value that they are chasing right now is in that Sinaloa Graben. They are developing into that area. They've had some drilling success in terms of confirming some of that resource. It is a matter of just getting the development into there.

The same goes for the deeper zones of the Central Zone, the Central district, the Robertita and Roberta. They are driving that lower tunnel and expect to be breaking through to the first of the veins during the fourth quarter. I think they will get back up into those reserve grades as they are working their way forward.

So everything I've seen so far -- I mean, the Sinaloa Graben is obviously very critical to the expansion plans there. Some success in that area is important, and we are watching it closely. But as it stands right now I don't have any reason -- I haven't seen anything that indicates that it's less than what we expected.

Okay. I mean, my concern would be that they haven't really come out and given us or you an exact date of when they expect to break through and start mining some of these higher-grade blocks.

If it's an access issue, typically wouldn't you have a better handle on the timelines? Or is it something different, where they have to wait to get in there to see if the resource or reserve grades are actually tracking what they were expecting?

Yes, they do have their timelines; it's just a matter of what they have publicly disclosed in terms of meeting those targets. We have seen them, and they will break through; it's just a matter of sort of matching Goldcorp's public disclosure.

Okay.

Remember, San Dimas is a pretty small operation for Goldcorp. I would suspect they don't particularly want a lot of focus on it. They've got bigger mines that they are building or operating; and I think that is where they probably want their shareholder focus.

Okay, thanks very much, guys.

Richard Gray, Blackmont Capital.

Most of my questions have been answered. I just want to get a -- if you get more details on when the payments to Alexco will happen. When do you have to make that first one? And when the will the drawdowns take place?

There is really three tranches of that $50 million. The first $15 million will likely be made before the end of 2008, with the remaining $35 million probably not being disbursed until sometime in 2010.

Okay, that's helpful. Just lastly, what is your stake in Bear Creek now? When did you add those additional shares this quarter?

I think it is pretty much unchanged, so I think we are round about 16%.

Yes, I just want to say, just below 17% I thought was the final number. We don't have the exact number here right now.

Okay. No, that's helpful. Thanks a lot.

Barry Cooper, CIBC World Markets.

Peter, just wondering when you originally negotiated your contracts, I'm sure one of the things that was never considered were deflationary environments. You've got an inflationary escalator in there.

But what happens if we were to get into a massive deflationary environment? Would you be able to participate in that?

And is there any way that costs could go down below $3.90, or is the $3.90 always going to be the floor, excepting for the silver price if it goes below the $3.90 figure?

Listen, I guess we considered deflationary environment; but it's adjusted marginally on most of them. The latest deals we been doing we just have a 1% increase in costs every year. Prior to that, it was half of US CPI with a minimum and a maximum. So I mean obviously, the minimum, I think, is 0.4% each year on the earlier contracts.

So the range is 0.4% to 1.65%, I think, on the earlier contracts. So we -- I mean we don't get a cost decrease; but of course, we've never had a cost increase either, and that's the way we structured it. I can imagine why anybody would want to reduce your costs if they never increased in the first place.

Frankly, I would be surprised if this deflationary environment on mining costs goes on for too long. We'll see. But I think there is going to be a turnaround.

Everybody is being very gloomy on the world economy right now. I would be surprised if two or three years from now it is looking anything like it is now. I think it's going to be looking an awful lot more positive.

I would concur with you, but I don't think too many of us saw some of the events that occurred over the last two months, and we are probably not through all of the skeletons in the closet at this point in time. So we will just have to see.

So I'm just wondering if you are going to maybe change some of those contract wordings and whatnot to perhaps incorporate other events that, prior to, were never considered.

No, I don't -- certainly not on the cost-sharing. I think there's one or two relatively minor things that we will probably put into some of our deals going forwards.

But on the cost side, we are very comfortable with fixed cost. But it isn't just fixed cost; as you mentioned, it is lower of fixed cost and the spot silver price.

So, our deals are structured in a way that we can't lose cash flow. Worst case scenario for us is we are breakeven. I mean there is almost not another mining company or non-mining company in the world that can say that. So I think we are in great position --

Right.

-- structure of our deals.

Right. Okay, thanks a lot.

David Christie, Scotia Capital.

Morning, guys. Most of my questions have been answered as well. Just I was wondering if you could give us any more detail on the guidance for 2009, on a mine by mind basis.

As I said before, David, we haven't had guidance from our partners yet. They are all going through their budgeting processes now. So we don't want to start throwing numbers out mine by mine, because they're not going to be the same as probably three or four months from now.

What we can say is that we feel 15 million to 17 million ounces is extremely conservative. We can also say that assuming worst-case in any one operation, we've probably got upside on others. So that is why we are very comfortable with these numbers.

But we're not going to be giving a split by mine until we've got budgets in from the mines, which is more likely to be early in 2009.

Yes, understood. On Penasquito, you talked about a bit of a delay in getting the silver after it is produced. What is going on there? What is the problem?

At Penasquito? Well, I mean when they start producing silver, probably before they are in commercial production, there is going to be delays. I mean first of all, they've got to ship concentrate off. I mean, especially when you are ramping up a mine.

I thought you were talking about the heap leach portion.

Oh, heap leach? Sorry. Randy, do you want to talk about heap leach?

Sure, (multiple speakers) the heap leach, their silver recoveries are close to what they projected. But they have seen lesser recoveries on the gold side. So it's a matter of delay.

Silver typically does come off the heap a bit slower than gold, and so the adjustments back. We've only downsized the Q4 guidance in that area for Penasquito. But other than that, we do expect the heap leach to move forward as budgeted by Goldcorp.

No, I understand that. I thought you were talking about there is a delay before you guys actually get your silver when it is produced. Okay, that's fine.

No, and that delay relates to next year's delay. It relates to the timing of the payment on concentrate deliveries from the Penasquito, from the (multiple speakers).

Right, yes, I got that. That's fine. On the covenants, you said $10.00 you're fine; and $7.00, is that like the D-Day?

That's what?

That's the big problem? At $7.00, that's when it hits?

Well, at $8.00 long-term silver price, we can pay all our debt off. At $7.00 silver price for the next seven or eight months, then we would have probably an issue on our covenants mid next year. Assuming of course that silver sales are in line with our guidance, and again we think that is pretty conservative guidance.

Okay.

So I guess the message is, we have got a lot of time if there are issues, and who knows. But if there are issues on the covenants, we've got lots of time to deal with them. But certainly we don't see realistically any issues in terms of being able to repay debt.

Thanks, guys.

Hi, operator. We're going to take one more question and then we are going to wrap up the call.

John Bridges, JPMorgan.

Hi, Peter. This is Ankush Agarwal. I just have a follow-up on Mineral Park and Campo Morado. You expect them to reach commercial production in Q4. How much -- how many ounces are you expecting to receive in Q4 from these two?

Again, guidance from individual operations themselves, we don't break that out. They will be stepping up. It's a real tricky -- I mean, when you're going through project startup it's a really tricky number to sort of nail down to a firm figure. So they will be stepping up into that production during Q4.

It's a pretty low number, probably in total --

Under 100,000 ounces.

Under 100,000 ounces.

Okay. Just one more on the share warrants. You have about 28 million outstanding warrants now, so do you expect any of the warrants getting exercised in '09?

Yes, I expect that silver prices are going to be back up to $20 and everybody will be cashing in their warrants like crazy. No; I don't know. Obviously at today's silver prices and share price, I can't see warrants being exercised.

But I think things are going to bounce back. Who knows when? But I think six months from now things are going to be looking a lot better than they are now.

Okay. Thank you very much.

Okay. Well thank you, operator, and thank you, ladies and gentlemen, for calling in.

Thank you. The conference call has now concluded. You may disconnect your telephone lines at this time. We thank you very much for your participation.