Wheaton Precious Metals Corp (WPM) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Silver Wheaton second-quarter results conference call. (Operator Instructions). I would like to remind everyone that this conference call is being recorded today, July 31, 2009 at 11 AM Eastern time.

I will now turn the conference over to Mr. Brad Kopp, Director of Investor Relations. Please go ahead.

Good morning, ladies and gentlemen, and thank you for participating in today's call. I am joined by Peter Barnes, President and CEO; Randy Smallwood, Executive Vice President of Corporate Development; Gary Brown, Chief Financial Officer; and Curt Bernardi, VP Legal.

Before I turn the call over to Peter, I would like to read Silver Wheaton's forward-looking statements. Some of today's commentary may contain forward-looking statements. 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.

We refer you to the section entitled, Description of the Business Risk Factors in Silver Wheaton's annual information form, which is available on SEDAR, and in Silver Wheaton's Form 40-F, which is on file with the US Securities and Exchange Commission.

The annual information form sets out the material risk factors that could cause actual results to differ, including the absence of control over mining operations from which Silver Wheaton purchases silver, risks related to such mining operations, and the risk of a decline in silver prices.

Now I would like to turn the call over to Peter.

Good morning, ladies and gentlemen. I am very pleased to announce another good quarter for Silver Wheaton in which we made strong progress in several key areas.

Firstly, from an operational viewpoint we achieved record attributable production of 4 million silver equivalent ounces at a total cash cost of $3.99 per ounce.

All of our core assets are performing in line with, or ahead of expectations. And despite continued challenges in the global economy, we remain on target to meet our 2009 sales guidance of 17 million to 19 million silver equivalent ounces for the year.

While although during the second quarter our partners produced approximately 1 million silver equivalent ounces more than we sold, this related to timing of shipments from the mines, and we expect these sales to be recorded during the next two quarters. Gary will go into this a bit more during his talk.

I just want to say though that the thing that I always focus on primarily is production. You know, if ounces get produced, they will get sold. If they don't get produced, they are probably not going to be sold. So I am very happy with where we were on the production side. It was actually a bit ahead of where we were expecting.

Secondly, in terms of realizing on our very significant growth targets over the next few years, Goldcorp continued to deliver at Penasquito, where they recently completed construction of the first sulfide process line, And mill commissioning is now underway. We understand that in the next few days they are actually going to be starting to put ore through the mill, which is very exciting for us.

We are still targeting our first silver sales from the new mill by the fourth quarter. The Penasquito mine promises to almost single-handedly boost our silver sales and cash flows some 75% over the next four years.

Finally, we closed the Silverstone acquisition in May, consolidating our position as the world's largest silver streaming company, and one of the world's largest realty companies.

This acquisition was accretive on all key metrics, significantly increasing silver reserves and resources, and boosting annual production levels by approximately 4 million silver equivalent ounces.

Already we are seeing further growth opportunities at these mines, particularly the Minto mine, where they continue to have spectacular exploration success.

These are exciting times for Silver Wheaton. And in terms of new growth opportunities, we remain very well positioned to continue delivering on our strategy of accretive growth. We continue to see good growth opportunities ahead. And with $50 million of cash on hand, and an undrawn $400 million low-cost credit facility, we are in great financial shape.

Now I will turn it over to Gary Brown, our CFO, to review our quarterly results in more detail.

Good morning ladies and gentlemen. Prior to reviewing Silver Wheaton's unaudited interim results for the second quarter at 2009, I would like to remind everyone that all monetary figures discussed are denominated in US dollars, unless otherwise noted.

On May 21, 2009 the Company completed the acquisition of Silverstone Resources Corp., with the business combination being accounted for using the purchase method of accounting. The results of operations relating to the acquired assets, including the silver flows relating to the Cozamin and Neves-Corvo mines, along with the silver and gold flows relating to the Minto mine, are being reflected in the financial statements from the date of acquisition.

As Peter has already highlighted, Silver Wheaton's precious metal interest generated over 4 million silver equivalent ounces of attributable production during the quarter, representing a record for the Company. However, approximately 1 million ounces of this production was not recognized in revenues during the quarter due primarily to the timing of concentrate shipments, primarily relating to the Yauliyacu, Stratoni and Minto mines.

Silver Wheaton generated revenue for the second quarter of 2009 of $41 million from the sale of 3 million silver equivalent ounces at an average price of just over $14 an ounce. This compared to revenue of $50 million in the second quarter of the prior year from the sale of 2.9 million ounces of silver at an average price of $17.35 per ounce.

Net earnings and operating cash flow in the second quarter of 2009 were $18 million and $27 million, respectively, compared with $23 million and $36 million for the second quarter of 2008.

Basic earnings and cash flow per share were $0.06 and $0.09, respectively, for the second quarter of 2009 compared with $0.10 and $0.16 in 2008.

Earnings from operations for the second quarter of 2009 amounted to $23 million, representing a margin of 56% of revenue, compared with $33 million or 67% of revenue for the second quarter of 2008. The decrease in margin, earnings and cash flow relative to the prior year was due to the 19% decrease in the average silver price realized, being partially offset by a 3% increase in the volume of silver sales.

Breaking down the operating results further, during the second quarter of 2009 the Company sold 1.3 million ounces of silver from the Luismin mines, with net earnings and operating cash flows of $12 million and $13 million, respectively. This compared to the second quarter of 2008 during which the Company generated net earnings and operating cash flow of $16 million and $17 million, respectively, from the sale of 1.2 million ounces of silver.

Zinkgruvan contributed net earnings and operating cash flow of $4 million and $5 million, respectively, in the second quarter of 2009 from the sale of 469,000 ounces of silver, representing the third consecutive quarterly increase in volume. In the comparable quarter of the prior year Zinkgruvan generated net earnings and operating cash flow of $7 million and $8 million, respectively, from the sale of 524,000 ounces of silver.

Yauliyacu generated net earnings and cash flows of $4 million and $5 million, respectively, in the second quarter of 2009 based on the sale of 546,000 ounces of silver. This compares to the second quarter of 2008 during which Yauliyacu contributed net earnings and operating cash flows of $7 million and $10 million, respectively, from the sale of 750,000 ounces of silver.

The lower silver sales volume relating to Yauliyacu is attributable to the shutdown of the Doe Run Peru lead zinc smelter, which represented the largest buyer of the concentrate produced at Yauliyacu.

It is important to highlight that silver production at Yauliyacu during the second quarter of 2009 was the highest it has been in the last seven quarters. And is expected that the stockpile of concentrate will translate into increased silver sales over the remainder of 2009.

Due to all concentrate shipments from Stratoni mine during the second quarter of 2009 occurring at the end of the quarter, the conditions required for Silver Wheaton to recognize revenue on the related silver content were not satisfied until after quarter end.

As a result, Stratoni contributed virtually no net earnings or operating cash flow during the second quarter, with the only activity being in relation to provisional pricing adjustments. This compares to the second quarter of 2008 in which Stratoni generated net earnings and operating cash flow of approximately $3 million and $5 million, respectively, from the sale of 344,000 ounces of silver. We expect higher sales in the second half of 2009 relating to the Stratoni mine to compensate for the lack of silver sales in the second quarter.

Silver sales relating to the Penasquito heap leach operations amounted to 130,000 ounces during the quarter, consistent with prior quarter, and contributing net earnings and cash flow of approximately $1 million.

Campo Morado generated net earnings and operating cash flow during the second quarter of $400,000 and $1 million, respectively, from the sale of 92,000 ounces of silver. With silver production at Campo Morado for the first six months of 2009 being significantly higher than silver deliveries, we expect an increase in ounces sold relating to this operation in the second half of this year.

Following the May 21 acquisition date, no silver or gold shipments were made from the Minto mine, and as a result the only activity relating to this operation for the second quarter of 2009 is attributable to adjustments from provisional invoices previously issued. It is important to note that truck transportation of concentrate from the Minto mine is unavailable for certain periods of the year as a result of the freezing and breaking up of the Yukon River, which prevents access to the mine. As a result, silver sales from the Minto mine will -- silver and gold sales from the Minto mine will vary significantly from quarter to quarter.

Silver deliveries from other silver purchase agreements amounted to 173,000 ounces in the second quarter of 2009, contributing net earnings and operating cash flow of $1 million and $2 million, respectively.

The Company is reaffirming its guidance for 2009 with silver sales from existing silver interest forecast to be in the range of 16 million to 18 million ounces of silver, and approximately 17,000 ounces of gold, for total sales of 17 to 19 silver equivalent ounces -- 17 million to 19 million silver equivalent ounces.

G&A expenses amounted to $4.4 million in the second quarter of 2009, representing a 9% decrease from the comparable period of the prior year, primarily attributable to lower stock-based compensation expenses. Excluding non-cash stock-based compensation, we continue to expect G&A expenses to be in the range of $11 million to $13 million for 2009.

Interest cost of $900,000 were capitalized during the second quarter of 2009, primarily to the cost of the Penasquito silver interest, with an average realized interest rate of only 2.3%. This compares to the first quarter of the prior year during which $4.8 million of interest was capitalized to silver interest. The lower amount of interest incurred in the most recent quarter is attributable to a combination of lower outstanding debt levels and lower interest rates.

Penasquito's mill operation is expected to achieve commercial production from Silver Wheaton's perspective in the fourth quarter of 2009, at which time it is expected that interest costs will start to be expensed.

At June 30, 2009 the total debt outstanding under the Company's term loan facility was $150 million, with cash and cash equivalents of $49 million, resulting in net debt of about $101 million. And as Peter has said, we have the full amount of the revolving facility in the $400 million available to us.

With that I would conclude financial summary and open the call up for questions.

(Operator Instructions). Ankush Agarwal, JPMorgan.

I have two questions. Firstly at Minto, given the shipments at Minto will be impacted every year during Q2 and Q4, could you please give us some idea as to what sort of percentages we should be assuming quarter over quarter for the total shipments? I am just looking here for sort of -- some sense on the expected pattern on seasonality.

It is Randy here. Honestly, in this quarter it was 100%. But that was mainly because we took over as of May 21. Usually the breakup and freeze up is a 4 to 6 week period, and so it kind of squeezes in. It depends what part of the quarter, but it is going to be Q2 and an early Q4, or a mid Q4 impact. And like I said, you lose about 4 to 6 weeks of shipping on each side.

So typically it is caught up right afterwards. If it occurs early in the quarter you can catch up the delays before the quarter is over, so it does have an impact as to where the timing is.

Which means would it be fair to assume instead of one-fourth you would only be doing one-eighth for the year in these two quarters, and the balance spills over into the other quarters?

That is probably not too far off. You know, again if the freeze up occurs at the start of the quarter, you'll catch up on the shipments before the end of the quarter, and so you wouldn't see any shift. So it comes down to how -- the timing of the weather.

Okay. So I guess it would remain very lumpy.

Yes.

It would be difficult to predict. Okay. The second question is on Yauliyacu. Could you give us some color on the nature of the concentrate, and if it can be easily shipped and processed to other smelters? And also what steps Glencore is taking?

Having Yauliyacu operated by Glencore is of course a real blessing here, because they are probably one of the best situated companies in terms of managing concentrates around the world, just given their history and their expertise.

With respect to the -- the bulk of the silver that comes out of Yauliyacu is contained in a bulk concentrate, which has got some lead and some copper values. But generally that is where the bulk of the precious metals are.

With that Doe Run smelter still shut down, they are shipping overseas. And once you get it in the tidewater it has got a pretty wide open market in terms of where it goes. So they're hauling it down and it is going outside of Peru. And they made the decision part way through the quarter to -- instead of stockpiling -- to start shipping it overseas. And instead of waiting for the Doe Run smelter to start up again, they started shipping overseas.

When is on tidewater there is several different places that it can be taken to, and Glencore has excellent capacity to handle that.

Great. Thank you very much.

Haytham Hodaly, Salman Partners.

Just more of a strategy question. You are pretty much out of the woods in terms of balance sheet concerns I guess at this point. You are going to be generating over $200 million, $250 million in free cash flows next year. You obviously are looking -- continuing to look for new acquisitions. Is there any potential for you to look at sort of paying a dividend?

I think we're going to look very closely at that over the next year or two. We have made the decision that in these markets, where we think there is some very good opportunities to transform the Company in terms of making a new acquisition, let's see where we go on that over the next six, twelve months before we start deciding on dividends. But frankly I think there is good prospect that we may make a decision to start paying a dividend over the next year or two.

Perfect. Other than that, great results guys. Thank you.

Steve Butler, Canaccord Adams.

Peter, you mentioned in your address that Yauliyacu was the highest production quarter, I guess. Either higher sales quarter or highest production quarter in the last seven quarters, I am not sure either way. But with 4.75 million ounces per year under contract, or at least up to that many ounces per year, do you expect to get there, I guess, at some point if you are still below that level. And why was Yauliyacu so reasonably good in the quarter? Was it tons, was it grade, what explained it?

It is Randy here. Clearly Yauliyacu is a dominant lead zinc operation with good silver credits. And as base metal prices start picking up again -- they are starting to shift -- ramp up. They have been investing a lot in the internal infrastructure. They have rebuilt a couple of the internal shafts and [windes] and trying to improve capacity.

I think the catalyst at the Yauliyacu operation is the Rosario mill, which is essentially in shutdown mode. And with current prices they have put off -- the original plan was to start shifting materials over into the Rosario mill and increase production there. That would be a major catalyst. That has been put in neutral and waiting for better prices to go forward. But they are still focusing within the Yauliyacu operation on improvements. And I think we are going to see some continued gradual improvements as this thing moves forward.

The question to get to the cap number, I think for that it would require the Rosario to come on. And so probably within a year or two.

Okay, thanks. Peter, in your corporate goal of growth towards 30 million ounces of silver I think by 2013, plus gold, is that all from the current portfolio? I assume that there is still some implicit expense or improvement required in the Luismin, but is this all within your known or existing currently owned portfolio?

Yes. We believe we are on target right now to get to roughly 31 million ounces a year by 2013, just from the current portfolio. It doesn't take any dramatic changes in any of the mines to get there, other than of course Penasquito coming on stream and hitting their projections going forward.

I know this, that the Goldcorp is certainly doing everything they can at Penasquito to actually beat their forecasts, which would be great for us. But, yes, we are not assuming any dramatic changes as any of the other operations, other than what is known and what is expected just from what they're doing right now.

Right. I think it states that, Peter, it is sort of stale, but Luismin or San Dimas, when we are down there in December '07 the plans were sort of (inaudible). And you guys put out a press release talking about a potential expansion. And maybe it is now over perhaps a little longer timeline. We haven't heard Goldcorp talk much about it. I didn't ask them yesterday on their conference call about Luismin or San Dimas mill expansion, but I think that is -- is that implicit in some of your assumptions as well?

The mill has the capacity -- it has already expanded. And Randy can talk a little bit about that. The mill was sitting there and you could probably increase capacity through it by up to 50%, Randy?

Yes. There is some minor stuff that has to be finished off in the tail end of the circuit, on the solution side of the circuit, but they have essentially got capacity down at that mill for a well and above what we are right now.

At San Dimas, the issue is development -- is having enough development based on what is going on. And that has always been the challenge down there. They are pushing into that Sinaloa [graven], which is the next key development area. The central block is performing well, but you can only have so many cases in that area on the things that they are working in that area. And the real key to mill expansion down there and to increasing the production is success in the Sinaloa graven.

Right. Okay, thanks very much guys.

(Operator Instructions). There are no further questions at this time. Please proceed.

Okay. Well, thanks very much for calling in and we look forward to speaking with you again next time.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may disconnect your lines.