Wheaton Precious Metals Corp (WPM) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to Silver Wheaton's 2009 year-end results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. I would like to remind everyone that this conference is being recorded on Friday, March 5 at 11 a.m. Eastern Time. I will now turn the conference over to Mr. Brad Kopp, Vice President of Investor Relations. Please go ahead.

Great, thanks, Natasha. Good morning, ladies and gentlemen, and thanks for participating in today's call. I am joined this morning by Peter Barnes, Silver Wheaton's Chief Executive Officer; Randy Smallwood, our President; and Gary Brown, our Chief Financial Officer.

I'd like to bring your attention that some of the commentary on today's call 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.

Please refer 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 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.

Lastly, it should be noted that all figures referred to on today's call are in US dollars unless otherwise noted. Now I'd like to turn the call over to Peter Barnes, our Chief Executive Officer.

Thanks, Brad, and good morning, ladies and gentlemen. The fourth quarter of 2009 was a strong quarter for Silver Wheaton with record earnings, production, sales and cash flows. Production for the quarter was 5.7 million silver equivalent ounces representing an increase of 77% over the fourth quarter of 2008 and a 35% increase over the third quarter this year.

Sales for the quarter were 5.1 million at several silver equivalent ounces representing an increase of 87% over 2008 and an 11% increase over Q3 this year. Sales lapped production by about 11% during the quarter primarily due to the production ramp up at Penasquito and normal shipping delays at a few of the other mines. This resulted in net earnings for the quarter of $50.8 million or $0.15 per share, a new record for the Company, and up very significantly from 2008 when we recorded a loss due to a non-cash write down of investments.

We also realized record operating cash flows for the quarter of $71 million or $0.21 per share, up from $15.4 million a year ago on the back of significantly increased sales volumes and higher silver prices.

Finally, as I touched on before, Penasquito, which is one of our corner stone assets and a significant portion of our growth over the next several years, commenced their first shipments of silver bearing concentrates with preliminary metal grades, recoveries and concentrate quality meeting or exceeding expectations. This is obviously very good news for our company with silver production attributable to Silver Wheaton expected to average 7 million ounces a year for over 20 years once the mine achieves full production levels within the next year or so.

I shall leave it to Gary Brown, our CFO, to review the 12-month financial highlights. But suffice it to say that our strong fourth quarter also led to a record performance for the full year. 2009 was a transformational year for Silver Wheaton in several ways. From an acquisition perspective I believe we pulled off some of our best acquisitions to date, adding another corner stone asset in the Barrick deal and adding low cost quality production of about 4 million ounces a year in the Silverstone acquisition.

From a balance sheet perspective we ended the year in a very strong position with cash on hand of $227 million, no net bank debt and an undrawn $400 million revolving credit facility. Finally, from a market positioning perspective, during 2009 Silver Wheaton clearly solidified its leadership position as the largest of all metal streaming and royalty companies in the world with one of the best growth profiles in the precious metals industry. We remain very well-placed to continue to add shareholder value as we move forward.

Now I'll turn it over to Gary Brown, our CFO, to review our financial results in more detail.

Thank you, Peter, and good morning, ladies and gentlemen. Prior to reviewing Silver Wheaton's unaudited financial results for the three months and year ended December 31, 2009, I would just like to remind everyone that all monetary figures discussed are denominated in US dollars unless otherwise noted.

Silver Wheaton completed 2009 with another very successful quarter generating record levels of silver equivalent production and sales resulting in record levels of revenue, net earnings and operating cash flow on both an outright and a per-share basis, reinforcing the accretive nature of the acquisitions the Company has completed since its inception, including the Barrick and Silverstone acquisitions completed in 2009.

Silver Wheaton's precious metal interests generated 5.7 million silver equivalent ounces of attributable production in the fourth quarter of 2009 representing a 77% increase from the comparable period of the prior year with 20% of this increase being attributable to organic growth with the remainder being attributable to acquisitions completed in the year. As at December 31, 2009 approximately 1 million silver equivalent ounces attributable to Silver Wheaton had been produced by our partners and will be recognized in future sales as they are delivered pursuant to contract terms.

For the fourth quarter of 2009 Silver Wheaton generated revenue of $91 million from the sale of 4.7 million ounces of silver at an average price of $17.63 per ounce and 7,000 ounces of gold at an average price of $1158 per ounce. This represented an increase of over 200% relative to the fourth quarter of 2008 driven by an 87% increase in silver equivalent ounces sold combined with a 68% increase in the average realized selling price.

Silver Wheaton generated net earnings and operating cash flow in the fourth quarter of 2009 of $51 million and $71 million respectively. This compared with net earnings and operating cash flow of $10 million and $15 million for the fourth quarter of 2008 prior to accounting for the effect of the $64 million non-cash write-down on long-term investments recorded in that quarter.

Earnings from operations for the fourth quarter of 2009 amounted to $55 million representing a margin of 61% of revenue compared with $13 million or 45% of revenue for the fourth quarter of 2008. The increase in margin was due to the increase in the average silver prices realized, partially offset by higher cash cost and [depletion] per ounce.

Cash G&A expenses were $3.7 million in the fourth quarter of 2009, up modestly compared to $2.7 million for the comparable period of 2008 with the increase due primarily to increased personnel-related costs. Basic earnings and cash flow per share were $0.15 and $0.21 respectively compared with $0.04 and $0.06 for Q4 2008, again, prior to the write-down on the long-term investments recorded in the previous year.

For the year attributable silver equivalent production was 17.4 million ounces, consistent with the Company's most recent guidance, contributing to sales of 15.8 million silver equivalent ounces, representing an increase of over 40% relative to the prior year. Revenue for 2009 was $239 million compared with $167 million in 2008 with the increase being primarily attributable to increased sales volumes.

Earnings from operations for the year amounted to $134 million representing an increase of 30% over 2008 with the increased revenue being partially offset by higher cash cost and depletion per ounce. Cash G&A expenses for 2009 totaled $13 million compared with $12 million in 2008.

Net earnings were $118 million for 2009 representing a 45% increase compared to the prior year, after adjusting the 2008 figures for the write-down on the long-term investments recorded in the fourth quarter. For 2010 the Company estimates general and administrative expenses to be in the range of $17 million to $19 million, excluding non-cash stock-based compensation. Basic earnings and cash flow per share for 2009 were $0.39 and $0.54 respectively compared with $0.34 and $0.48 in 2008 prior to the write-down of long-term investments.

Breaking down the operating results further, during the fourth quarter of 2009 silver production and sales relative to the Luismin mine totaled 1.3 million ounces, consistent with the prior year and the Company's expectations. For the year production and sales totaled 5.4 million ounces, consistent with prior year.

It is important to note that silver ounces from the Luismin mines accounted for just over one-third of total silver equivalent ounces sold in 2009 compared with almost one-half of silver ounces sold in 2008, highlighting the growing diversification in the Company's asset base.

Zinkgruvan produced 505,000 ounces of silver in the fourth quarter of 2009, representing a 35% increase from the comparable quarter of the prior year, with sales rising by 18% to 357,000 ounces. For the year ended December 31, 2009 silver production and sales relating to Zinkgruvan increased by over 9% to 1.9 million ounces and 1.7 million ounces respectively.

Over 1 million ounces of silver relating to Yauliyacu were sold in the fourth quarter of 2009, exceeding production of 783,000 ounces, with Glencore delivering ounces that had been produced but not shipped in prior quarters. Silver production in the fourth quarter of 2009 was consistent with the comparable quarter of 2008 with ounces sold increasing by 71%.

The concentrate shipments from the Yauliyacu mine have been affected by the shutdown of the Doe Run Peru smelter which have resulted in timing differences between silver being produced by the mine and silver sales being recognized by Silver Wheaton. For the year Yauliyacu produced 3.1 million ounces of silver in 2009, consistent with the prior year, with ounces sold increasing by 9%.

Attributable silver production at Penasquito rose by 167% in the fourth quarter of 2009 relative to the third quarter as a result of the commencement of commissioning activities relating to the mill. The payable ounces of silver produced December 31, 2009 from the milling operation will be recognized in revenue by Silver Wheaton in future periods as the silver content of the concentrates shipped is finalized. Silver sales in the fourth quarter of 2009 amounted to 191,000 ounces, consistent with both Q3 and the comparable quarter of the prior year.

The Minto mine, which was acquired on May 21, 2009 as part of the Silverstone acquisition, produced 89,000 ounces of silver and 8,800 ounces of gold in the fourth quarter of 2009 with total silver equivalent production amounting to 641,000 ounces. This represents an increase of over 130% in silver equivalent production relative to the third quarter of 2009, reflective of the return to normal operations following the de-watering of the pit.

Silver equivalent sales amounted to 496,000 ounces in the fourth quarter of 2009 compared with 694,000 ounces in the third quarter. This volatility in ounces sold is primarily attributable to the freezing and breaking up of the Yukon River which prevents access to the mine for certain periods of the year during which concentrates are stockpiled.

The Cozamin mine, also acquired as part of the Silverstone acquisition, produced 388,000 ounces of silver in the fourth quarter of 2009 with silver sales of 359,000 ounces, consistent with Q3's production and sales figures.

Attributable silver production and sales in the fourth quarter of 2009 from Silver Wheaton's interest in the Barrick mines, which were acquired in September of 2009, amounted to 756,000 ounces and 751,000 ounces respectively, up significantly from Q3 with the prior quarter reflecting only one month's attributable production.

Attributable silver production from other mines, which now include Stratoni and Campo Morado, amounted to 842,000 ounces in the fourth quarter of 2009 with silver sales of 613,000 ounces. This represents an increase of 57% over the aggregate production from these mines in the comparable quarter of the prior year with the increase being primarily attributable to production at the Neves-Corvo mine which was acquired as part of the Silverstone acquisition, combined with the ramping up of operations at Mineral Park.

During the fourth quarter of 2009, $6.6 million of interest was capitalized to the cost of the Penasquito, Barrick and Keno Hill's silver interest. Of this amount $6.1 million relates to interest accreting on the discounted future payments due to Barrick with the remainder being attributable to bank debt, which bore an average interest rate of 1.2% in Q4. For the year $10 million of interest was capitalized of silver interests. The Company expects to capitalize all interest costs until the Pascua-Lama mine achieves commercial production.

In the fourth quarter of the prior year the Company recorded a $64 million non-cash write-down of its long-term investments in its statement of operations. During 2009 these investments increased in value by $47 million with the gain being recognized in a statement of other comprehensive income. For 2009 cash flow from operating activities amounted to $166 million representing a 49% increase from the prior year, reflecting the increased sales volume.

The Company also completed two equity financings in 2009, raising gross proceeds of $518 million with the net proceeds being used to repay all outstanding debt under the revolving credit facility partially fund the initial $212.5 million payment due in respect to the Barrick silver interest and provide additional liquidity to pursue accretive silver stream acquisitions.

At December 31, 2009, the Company had $136 million of debt outstanding on its term debt facility with $29 million of scheduled principal repayments having been made during the year. Overall the Company's cash balance has increased by over $220 million in 2009 with $228 million on hand as at December 31. This cash balance, combined with the $400 million of available credit under the Company's revolving credit facility, positions the Company well to execute on its growth strategy.

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

Thanks, Gary. We've spent the last few minutes talking about where we've come from, now I just want to talk a bit about the future. 2010 promises to be an equally exciting year for Silver Wheaton. Penasquito, our corner stone growth asset for the next several years, is starting to significantly ramp up silver production. Furthermore, as a result of the Barrick and Silverstone acquisitions which closed partway through 2009, our shareholders are now poised to benefit from a full year of production from six high-quality mines.

Within our existing silver stream portfolio we're forecasting silver equivalent production of 23.5 million ounces in 2010, more than a 35% increase compared to 2009. By 2013 annual silver equivalent production is anticipated to increase to over 40 million silver equivalent ounces, more than double our 2009 production levels. Already we've continued on a path of accretive growth with the addition of two new silver streams in early 2010.

We acquired an amount equal to 100% of the life of mine silver and gold production from the Rosemont Project in Arizona and converted a debenture allowing us to acquire an amount equal to 12.5% of the life of mine silver production from a portion of Pan American's Navidad Project in Argentina. These are both very high-quality assets and the Navidad transaction now gives us a stake in three of the top five silver deposits in the world.

With cash on hand of over $227 million at the end of the year, a fully undrawn revolving credit facility in the amount of $400 million, as Gary mentioned, and strong cash flows from operations, we believe we're very well positioned to continue to take advantage of the opportunities that we see out there. Now we'll open it up for questions.

(Operator Instructions). Adam Brooks, Sidoti & Company.

Yes, real quick on Keno Hill, I guess Alexco said yesterday that -- looking for production to begin in 3Q. So I guess the question is, are you baking any of that into your assumption for other line? And given the exploration program they have there, is there upside to your 0.6 million estimate once we ramp up?

Yes, Randy Smallwood here. Yes, we do have some production from Keno Hill, they've had that schedule out for a while, so that is part of our forecast for 2010. That entire Keno Hill district has incredible upside potential and so quite excited to have the drills turning up there. And while I don't know how much upside we could expect in actual 2010 itself, what I'm looking at is the longer-term future of this one, I think they've got great potential.

All right, thank you.

Tony Lesiak, Genuity Capital.

Good morning, everyone. A quick question on the inventory build. Obviously you've produced 2.4 million ounces more than you've sold in the last couple of years. As Penasquito ramps up, how do you see that inventory build starting to reverse?

Tony, it's Gary here. You know, I think it would ramp up -- I think you'll see inventory build at Penasquito over the year even more than where it is currently. I think just as part of normal operations here we're going to have a stockpiling of concentrates whereby we don't recognize the revenue. And so I would expect that there's going to be a build up at Penasquito and we'll probably see some of the other mines where we've got inventory reverse over the next year. But overall I would think that we're going to see a higher amount of inventory over 2010.

Okay. And on Yauliyacu, it looks like the production versus sales has started to normalize there. Can you comment on that and the situation -- and the inventory situation there?

Well, I don't know if you've noticed, but Glencore has decided to fund the restart of that Doe Run Peru smelter just up the highway which is where most of the concentrates were originally shipped. And so just as we're starting to get to a bit of a normal schedule on shipping concentrates out of the country, we'll probably wind up getting a bit of a benefit from having the concentrates now being shipped about 100 kilometers to the west of the -- sorry, to the east of the mine. So I would expect that that's probably going to have a positive impact on us.

Yes, that's probably not going to start until the end of the second quarter I would guess. It could still being choppy before that.

Is there a -- still a plan to expand the production at Yauliyacu? Obviously the technical studies commented on that. Do you know where Glencore's thinking is on that right now?

They're working their way through that. But they have announced that the Rosario mill has moved on. It's actually being shipped or transferred over to another one. So that was one of the areas that we had hoped to see some expansion with some material being shipped just down the valley to the Rosario Mill.

With that gone they are -- well, they have done a pretty significant infrastructure improvement underground there. They've reconditioned a couple of the shafts to improve haulage capacity within the mine itself. And so, it's one we're constantly trying to optimize and improve the site itself. We'll see the benefit of that. But no commitments to any significant expansions there.

Okay. Then just a follow-on. The mine has been operating, on the silver side anyway, below reserve grade. Do you have a sense of when they might be back into some of the higher grade silver ores?

Yes, we're a victim of some exploration success there. They keep on coming up with -- I mean, they've had great exploration success continuing to work down on these veins. Unfortunately they keep on uncovering more of these zinc rich zones. So, until they -- and what winds up happening is they're mining these materials from deeper down, then more lead-silver rich stuff that's closer to the mill will sort of start phasing in.

So I think it's going to be a gradual shift, I don't think it will be a significant change. But you know, the narrower lead-silver rich portions of the ore bodies will gradually play a larger and larger role as the exploration moves deeper here.

Okay, great. And just a final request; if you could break out the other category for 2009 and 2010, maybe if you'd just e-mail it to us that might be the easiest.

Okay, I mean -- yes, the reason we put it in other is because it's not material, and we don't particularly want to get into discussing immaterial amounts. But certainly I think if you can talk to Brad, he can give you at least a flavor for what's in there.

Okay, great. Thanks, Peter.

[Kenneth Kramer], Citigroup Global.

Congratulations on a stellar quarter. Just wondering if there's any consideration of instituting a special or a regular dividend -- cash dividend going forward?

This is Peter Barnes. You know, the approach we've taken so far is that while we see such good growth potential in front of us, we think it makes more sense to continue to build the cash in the Company to utilize in terms of increasing the value per share for shareholders. I mean, to put it in perspective, let's say we started paying $25 million dividend this year, that would reduce our ability to draw on our debt facilities, bank debt facilities by close to $100 million.

So what that means is, if we had another deal to do by paying a $25 million dividend, it means that we've probably got to issue $100 million more of equity on the next deal, which to me doesn't make a huge amount of sense when we see such good growth potential in front of us.

Now as our cash flows -- as our production and cash flows ramp up, and remember, they're going to increase by 35% in 2010 and more than double in the next three years, I think we will be able to do both. And so I think at some stage we will consider putting in place a dividend. But now is not the time.

Thank you.

Haytham Hodaly, Salman Partners.

Thank you, but my question has already been answered.

[John Flanagan], [Fundamental Equities].

Peter, could you characterize the current world supply/demand balance for silver and how you see it for the next couple of years?

Sure. I mean, world demand has obviously fallen as a result of the economic crisis. However -- industrial demand I'm talking about. However, that's been more than made up by an investment demand increase. People wanting some exposure to precious metals because of concern of inflation or whatever going forward.

So, right now the reason the silver price has been doing so well has been the support of investment demand. And we see that increasing again over the next several years. We also see industrial demand coming back. And there are a lot of new applications within industrial demand that we think will come in over the next few years which will also boost that. So overall we're very bullish on silver prices over the next several years.

And secondly, has there been any fallout for Barrick in Chile?

No, our understanding is that none of the mines in Chile really suffered a lot of damage. Barrick's mines are all up in the north of the country, a long way away from where the disaster was.

Thanks.

One more question, please.

David Houghton, BMO Capital Markets.

Good morning, Peter and Randy and Brad. You've got quite a sizable build-up now in your long-term investments on the balance sheet. What are the major things that make that up, Peter?

I mean the three major investments really haven't changed in the last two or three years and that is primarily Bear Creek, which has one of the top 35 silver deposits in the world. And then mines management and --

Revett Mines Management and also Sabina Silver, so there's four sort of principle ones.

So well, yes. So those are the ones that haven't changed at all in the last few years and they are all top 35 silver deposits in the world and we are major shareholders in each.

All right, thank you. And I'd just like to repeat Tony's request for breakout on other, it is getting to be a sizable amount of 3.5 million ounces in 2010. So any assistance in getting clarity on that would be great.

All right. We will do that.

Thank you, Peter.

All right. Well, listen, ladies and gentlemen, thanks again for calling in. And hopefully talk to you soon. Goodbye.

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