Wheaton Precious Metals Corp (WPM) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to Silver Wheaton's 2010 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 call is being recorded on Friday, March 4, at 11.00 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, Janet. And good morning, ladies and gentlemen; thanks participating in today's call. I'm joined today by Peter Barnes, our Chief Executive Officer; Randy Smallwood, our President; and Gary Brown, our Chief Financial Officer.

I'd like to bring to your attention that some 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.

Thanks, Brad, and good morning, ladies and gentlemen. The fourth quarter of 2010 was very strong for Silver Wheaton with record earnings, operating cash flows, attributable production and sales. Attributable production was 6.3 million silver equivalent ounces for the quarter, a new record, giving a total of 23.9 million ounces for the year, a 37% increase from 2009 and slightly ahead of our guidance for the year.

Our average realized silver price for the quarter was a record $26, a 50% increase over the same quarter in 2009 which, when combined with unchanged cash costs, resulted in increased cash margins of 64% reflecting our leverage to the silver price. Operating cash flows for the quarter were a record $125 million, up 76% compared with 2009.

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. 2010 was a tremendously successful year with the Company setting new records in all financial and operating metrics.

In just six years Silver Wheaton has grown its market capitalization to in excess of $15 billion, has become a mainstream financing solution to assist companies of all sizes in achieving their growth goals, and has achieved more attributable silver reserves than any other silver company in the world. Perhaps even more impressive, I'm proud to say that Silver Wheaton now attracts over 30% of all of the investment dollars into the silver space, an unprecedented achievement.

We are especially pleased at the 2010 production ramp up at the first of our cornerstone assets, Goldcorp's world-class Penasquito mine in Mexico exceeded expectations and contributed to Silver Wheaton's peer leading 37% annual production growth. This was particularly timely as silver prices climbed to 30-year highs.

This momentum is expected to continue into 2011 with forecast production growth of another 15% which will result in operating cash flows of over $700 million at current metal prices. Production growth over the next five years is forecast at approximately 80%, which represents one of the strongest growth profiles in the precious metals industry and is driven by the continued ramp up at Penasquito and the forecast 2013 production starts at Barrick's world-class Pascua-Lama project.

To supplement our growth in 2014 and beyond, important transactions were completed in 2010. These include a life of mine precious metal purchase agreement relating to the Rosemont Project in Arizona and converting a debenture allowing us to acquire a portion of the life of mine silver production from the Loma de La Plata zone of the Navidad Project in Argentina. Combined these projects are forecast to increase our long-term silver equivalent production by up to 5 million ounces per annum once in production.

We also acquired a right of first refusal on all future silver streams from one of the most exciting gold discoveries in the last decade, the La Bodega Project in Colombia, and amended the silver purchase agreement relating to the San Dimas mine in Mexico, which should result in lasting benefits to our shareholders including the potential for increased silver production.

With cash on hand of over $400 million, a fully undrawn $400 million revolving credit facility and strong cash flows from operations we remain exceptionally well-positioned to continue growing our silver stream portfolio. Merger and acquisition activity in the mining industry is anticipated to remain robust in 2011 and Silver Wheaton continues to offer an attractive mainstream financing solution to assist companies in achieving their growth goals.

In terms of guidance for 2011, we expect another year of robust growth in attributable production with an anticipated increase of about 15% over our 2010 record to approximately 27 million to 28 million silver equivalent ounces. This will be primarily driven by the continued production ramp up at Penasquito. By 2015, based upon our current agreement, annual attributable production is anticipated to increase by 80% to approximately 43 million silver equivalent ounces, giving Silver Wheaton one of the best growth profiles in the precious metals industry.

Finally, I'm very pleased to report that our Board of Directors have approved an inaugural quarterly cash dividend of $0.03 per common share commencing immediately. The initial quarterly dividend will be paid to holders of record as of the close of business on March 21 with the cash distribution occurring on or about the end of the month.

Our strong growth profile, rapidly increasing cash flows and a business model that consistently results in amongst the highest cash operating margins in the precious metals industry allow Silver Wheaton to implement a sustainable long-term dividend policy at this time. This will not only allow our shareholders to participate in one of the strongest growth profiles in the industry, but it also now gives them the opportunity to also get a dividend yield with a potential to increase over time, further positively differentiating us from the silver ETF.

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, 2010, I would like to remind everyone that all monetary figures discussed are denominated in US dollars unless otherwise noted.

Silver Wheaton completed 2010 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 per share basis, once again reinforcing the accretive nature of the acquisitions the Company has completed since its inception.

Silver Wheaton's precious metal interests generated 6.3 million silver equivalent ounces of attributable production in the fourth quarter of 2010 representing a 10% increase from the comparable period of the prior year with all of this increase being organic in nature. As at December 31, 2010 approximately 2.4 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 2010 Silver Wheaton generated revenue of $150 million from the sale of 5.5 million ounces of silver at an average price of $26.41 per ounce, and approximately 2,600 ounces of gold at an average price of $1,384 an ounce. This represented a 65% increase relative to the fourth quarter of 2009 driven by an 11% increase in sales volume combined with a 49% increase in the average realized selling price.

Earnings from operations for the fourth quarter of 2010 amounted to $111 million representing a margin of 74% of revenue compared with $55 million or 61% of revenue for the fourth quarter of 2009. The increase in margin was due to the increase in the average silver prices with cash operating margin increasing to $22.42 per silver equivalent ounce from $13.66 in Q4 2009.

Cash G&A expenses were $5.1 million in the fourth quarter of 2010 compared to $3.7 million for the comparable period of 2009 with the increase due primarily to increased personnel-related costs. In Q4 2010 the value of warrants held as long-term investments, which are marked to market on a quarterly basis, increased in value by $3 million.

In addition, the Company generated other income of $7 million in Q4 2010 reflecting the $6 million gain on the disposal of the La Negra agreement which was sold back to Aurcana during the quarter. In Q4 2010 the Company recorded a future income tax recovery of $9 million which partially offsets the future income tax expense reflected in other comprehensive income, which arises as a result of the $94 million increase during the quarter in the value of the shares held as long-term investments.

As at December 31, 2010 the Company has recognized the benefit of all future income tax assets. As such, barring a decrease in the value of the shares held as long-term investments, it is likely that any future taxable income relating to the Minto and Keno Hill mines will result in the recording of a future income tax expense.

Silver Wheaton generated net earnings and operating cash flow in the fourth quarter of 2010 of $123 million and $125 million respectively. This compared with net earnings and operating cash flow of $51 million and $71 million for the fourth quarter of 2009. Basic earnings and cash flow per share were $0.35 and $0.36 respectively compared with $0.15 and $0.21 for Q4 2009.

For the fiscal year attributable silver equivalent production in 2010 was 23.9 million ounces, slightly exceeding the Company's guidance and representing a 37% increase relative to 2009. This contributed to sales of 20.5 million silver equivalent ounces representing an increase of nearly 30% relative to the prior year.

Revenue for 2010 was $423 million compared with $239 million in 2009 with the 77% increase being attributable to a combination of a 29% increase in sales volumes and a 37% increase in the average realized selling price. Earnings from operations for the year amounted to $283 million compared to $134 million in 2009 representing an increase of 111%. Cash flow from operations in 2010 amounted to $320 million compared to $166 million in 2009 representing an increase of over 90%.

Operating cash flow per share in 2010 amounted to $0.93 compared to $0.54 in 2009 representing a 72% increase. Cash G&A expenses for 2009 totaled $17 million, coming in at the low end of Company guidance, compared with $13 million in 2009 with the majority of the increase again being related to increased personnel costs. Net earnings were $290 million for 2010 representing a 146% increase compared to the $118 million generated in the prior year with basic earnings per share amounting to $0.84 in 2010 compared to $0.39 in 2009, an increase of 115%.

For 2011 the Company estimates general and administrative expenses to be in the range of $19 million to $21 million excluding stock-based compensation, with a portion of the increase in these expenses being attributable to the Company's heightened commitment to corporate social responsibility initiatives and giving back to the communities in which it or its partners are involved.

Breaking down the operating results further, during the fourth quarter of 2010 silver production and sales relative to the San Dimas mine were 1.6 million ounces and 1.4 million ounces respectively, including 375,000 ounces delivered by Goldcorp pursuant to their obligation to deliver 1.5 million ounces of silver per year until August 6, 2014. This compared to production and sales in the comparable period of the prior year of 1.3 million ounces.

For the year production sales from San Dimas totaled 5.2 million ounces and 5 million ounces respectively including 625,000 ounces of silver delivered by Goldcorp consistent with 2009 levels. For 2011 silver production relating to San Dimas is forecast to be 5.7 million ounces, including the 1.5 million ounces to be delivered by Goldcorp.

Zinkgruvan produced 428,000 ounces of silver in the fourth quarter of 2010, consistent with the prior year, with sales rising by 18% to 421,000 ounces. For the year ended December 31, 2010 silver production and sales relating to Zinkgruvan amounted to 1.8 million ounces with production being consistent with prior year and sales increasing by 9%. Silver production relating to Zinkgruvan for 2011 is forecast to be 1.8 million ounces, consistent with that of 2010.

Silver production and sales relating to Yauliyacu in Q4 2010 were 651,000 ounces and 470,000 ounces respectively, with production decreasing by 17% and sales decreasing by 54% relative to the fourth quarter of 2009. The decrease in production is attributable to the continued mining of lower silver grade zones in the ore body with the decrease in sales being due to the shutdown of the Doe Run smelter and its effect on concentrate shipments.

For the year Yauliyacu produced 2.7 million ounces of silver in 2010, a 14% decrease from the prior year, with silver deliveries decreasing by 45%, with the amount of silver produced but not shipped rising to approximately 700,000 ounces as at December 31, 2010. For 2011 silver production relating to Yauliyacu is forecast to be approximately 2.6 million ounces.

Attributable silver production at Penasquito rose by 186% in the fourth quarter of 2010 relative to the comparable period in the prior year, due to the ramping up of milling operations over 2010 with peak throughput rates of 105,000 tons per day being achieved in the third quarter of 2010. Silver sales relating to Penasquito in the fourth quarter of 2010 were 1.2 million ounces compared to 191,000 ounces in the fourth quarter of the prior year with prior year figures reflecting silver deliveries relating only to the heap leach operation.

For the year attributable silver production relating to Penasquito totaled 3.8 million ounces with silver sales totaling 2.9 million ounces. This compared to silver production and sales in 2009 of 928,000 ounces and 646,000 ounces respectively. With the commissioning of the high-pressure grinding roll circuit during the fourth quarter of 2010 the mill is expected to achieve full capacity of 130,000 tons per day in the near future with attributable silver production for 2011 estimated at 6.8 million ounces.

The Cozamin mine produced 335,000 ounces of silver in the fourth quarter of 2010 with silver sales amounting to 411,000 ounces. For the year silver production and sales relating to Cozamin amounted to 1.4 million ounces in 2010 representing an increase of over 40% from 2009, reflecting a full year's production and sales in 2010 compared to only a partial year in 2009 with Cozamin being acquired as part of the Silverstone acquisition which closed in May of 2009.

For 2011 silver production at Cozamin is forecast to be 1.7 million ounces representing an increase of over 20% from 2010 as the ground stability issues that have hampered silver production in 2010 get addressed.

Attributable silver production and sales in the fourth quarter of 2010 from Silver Wheaton's interest in the Barrick mines amounted to 458,000 ounces and 482,000 ounces respectively, a decrease of over 35% from the comparable period of the prior year with such being due to a combination of lower grade ore and a reduction in tons of ore mined during the most recent quarter.

For the year the Barrick mines contributed 2.6 million ounces of production and 2.5 million ounces of sales, almost tripling the levels from 2009 with the prior year only reflecting four months of production and sales. For 2011 silver production from the Barrick mines is estimated to be 3.6 million ounces.

Attributable silver production from other mines amounted to 1.3 million ounces in the fourth quarter of 2010 with silver sales of 1.1 million ounces. This represents a 27% increase in production and a 57% increase in sales relative to the comparable period of the prior year with the increases being primarily attributable to the commencement of operations at Keno Hill as well as increased production and sales relating to Campo Morado and Mineral Park.

For the year attributable silver production and sales from other mines totaled 4.6 million ounces and 3.5 million ounces respectively, increasing by over 40% relative to 2009 due primarily to improving grades and recoveries at Campo Morado and increased tons raised in recoveries at Mineral Park as they progress towards their phase 2 expansion. For 2011 silver production from other mines is expected to be approximately 4.6 million ounces.

Gold production and sales relating to the Minto mine amounted to 4,130 ounces and 2,562 ounces respectively in the fourth quarter of 2010. For the year about 29,000 ounces of gold was produced resulting in 26,000 ounces of gold sales with the increase over the prior year reflecting a full year's production and sales in 2010 compared to only a partial year in 2009 with Minto having been acquired as part of the Silverstone acquisition which again closed in May of 2009. For 2011 attributable gold production relating to Minto is expected to be approximately 15,000 ounces.

During the fourth quarter of 2010, $4.5 million of interest was capitalized to the cost of the Barrick and Keno Hill silver interests. Of this amount $4.2 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 2010. For the year $24.5 million of interest was capitalized to silver interests with $23.1 million of this amount relating to accreted interest on the future payments due to Barrick.

The Company expects to capitalize all interest costs until the Pascua-Lama mine achieves commercial production. At December 31, 2010 the Company had $107 million of debt outstanding under its term debt facility with $29 million of scheduled principal repayments having been made during the year. Overall the Company's cash balances increased by $201 million in 2010 with $429 million on hand as at December 31. This cash balance combined with the $400 million of available credit on 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. Now we'll open it up for questions, operator.

(Operator Instructions). John Flanagan, Fundamental Equities.

Peter, I'm wondering as the profitability of these arrangements keeps rising and they're so very attractive to you, are you running into any feedback from your contractual arrangements that they're too profitable and that they'd like to make adjustments to the contracts in view of the rising price of silver?

The short answer is no. I mean these are legal agreements and they're life of mine. So I mean the silver price is higher now, but these agreements can go for 30, 40, 50 years and who knows where it may be in -- where it may go over that period. Remember, we don't normally -- we try and make sure that we don't take too much value out of the mines, so even if we're getting all the silver it's not normally a huge proportion of the value coming out of the mine.

So it really isn't a major challenge for them typically. And what I would say is you've also got to remember that the cash we gave them -- sure, maybe it was when silver prices were a lot lower, but probably copper or lead or zinc or gold prices were also a lot lower, and so they used that cash and bought an asset to grow their company. So they've done very well as well.

Yes. A second question. I noticed the deferred tax amount added back into net income for the year, that seems kind of different to me. Could you explain that?

Yes, Gary Brown here. There's a tax -- future income tax liability that gets recorded in conjunction with the appreciation of our long-term investments. And we've got -- at December 31 we've got an accrued capital gain on those investments of about $135 million. So we need to record a tax liability associated with that accrued gain and that gets reflected in other comprehensive income.

We also had a significant amount of non-capital and net capital losses carrying forward that we can use to offset that liability. And as a result, when we recognize the benefit of those loss carry forwards we recognize a tax recovery. The anomaly rises that, one, the expense gets recorded in the other comprehensive income statement while the recovery gets recorded in the statement of earnings.

Okay, thanks.

Haytham Hodaly, RBC Capital Markets.

Good morning, gentlemen. Maybe just to follow-up with a quick comment that Gary just made. On long-term investments, Gary, that $284.5, sorry, you may have gone through that. What is that primarily made of?

Sorry, the $284.5, well we've broken down what makes up the balance of our long-term investments. It's Bear Creek, Revett, mines management and Sabina primarily.

Okay, so the actual increase was primarily just an appreciation of the value of the shares. There was nothing new added then at that point, is that correct?

What do you mean "nothing new added"?

Over the last quarter in terms of positions increase, etc.?

We did make a small investment in addition to the other investments we made during Q4, but it was quite minor.

Okay, fair enough. And then just a question I guess with regards to Cozamin. You mentioned something on taxes, you were going pretty quick. What were you indicating on the taxes from Capstone?

Sorry, Minto I think I said.

Sorry, that's right.

It's the contracts that are based in Canada that will attract Canadian taxes moving forward, because we have, from an accounting perspective, exhausted the benefit associated with our loss carry forward position. At December 31 we've got about $65 million of non-capital losses carrying forward and $35 million of net capital losses carrying forward. And we recognized the benefit of those as a result to offset primarily the accrued gain on our long-term investment position.

And so as we recognize income on Keno Hill and Minto moving forward, that will likely attract an accrual of future income taxes, not a cash impact, but an income statement impact as Canadian income taxes get accrued on that income. And the rate at which that will accrue at is approximately 25%.

I appreciate the clarity on that. Thanks, Gary. Maybe one more question and I'm sure it's at top of mind for many investors. With regards to the dividend, I know we've talked about the different mechanisms for avoiding tax or not paying the tax when the cash is repatriated. What is the status of the agreement between Canada and the Caymans? And how -- if nothing is resolved I guess from that by the time the dividend is going to be paid here in the next month, how do you propose to actually bring in the cash without paying the tax?

Well, the tax information exchange agreement between Canada and the Caymans has been tabled in the House of Commons and it's really just, as I understand it, an administrative procedure to finalize that and ratify it or give effect to it. And that's expected to occur sometime in the near future.

So from that point forward all income generated in the Caymans will be able to be repatriated without tax consequences. But we've got significant cash on hand in Canada. We also are generating cash from the Minto and Keno Hill silver interests. And on top of that we have about $1.5 billion of capital that we can repatriate from the Caymans. So there's really no issue associated with taxes that arise as a result of the dividend declaration.

Excellent. Thanks, Gary.

Dan Rollins, UBS Securities.

Good morning, guys. Two questions. One, just on the $7 million in other income gain you had, could you just break that down, what that consisted of?

Sure, it's primarily the $6 million gain on the sale of the La Negra silver interest back to Aurcana, and about $1.6 million of foreign exchange gains relating to Canadian dollar appreciation over the quarter.

Peter, moving on to the dividend, I guess you probably have a lot of investors who are going to see the dividend now and you won't have to answer any more of those calls asking when you'd start paying one. But a whopping $0.12 gives you about a payout ratio of -- or I guess a dividend ratio of about 20.25%.

You are -- extremely positive cash flow right now, you probably will have over $1 billion if current silver prices stay where they are on the books by the end of the year. What is your thought process on ratcheting up the payout ratio over the next couple years? Do you have a target you'd like to get to say within two to three years?

Well, here's the situation. We've obviously done very, very well for our shareholders over the last six years by doing accretive deals that have created shareholder value. And we believe that there's a lot more growth to come from doing accretive deals for shareholders. So we don't want to be paying out too much in dividends and then having to raise equity to -- necessarily to do deals.

So what we thought is there aren't many companies that are only six years old that start paying dividends and there aren't many growth focused companies that also think about paying dividends, especially when they're so young. We thought if we could give the combination now and, yes, a small yield to start with, I think there is a high potential it can increase.

The beauty of the Silver Wheaton model is that we only have two uses for all the cash flow we create. One is to reinvest it in further accretive growth which of course should mean the share price goes higher or give it back to shareholders in dividends. When we started the Company six years ago we had zero cash flow; this year at today's silver price it's $700 million.

So I think, yes, is it likely that dividends probably increase over time? I think so. And potentially -- I mean, we could be paying much higher dividends in the future because, depending on what the cash flows get to and what the silver price gets to and so forth, we could be generating huge amounts of money in the future.

Okay. And just on the deals, in the past your all-in cost has roughly been I'd say 50% to 60% to 70% depending on the exploration potential of the underlying asset. What are you seeing right now in terms of being able to do an accretive deal right now where copper prices are North of $450, zinc prices are still robust, lead prices are robust, silver is closing on [$35]?

Are you able to -- are you still seeing value in deals or are you actually even seeing people interested in doing deals right now given the fact that investors are willing to line up to do equity deals and there's also a few more financial and non-financial players getting into the space?

You know, since we started this Company we've always been an alternative to debt or equity. People aren't going to go out and do deals for the sake of doing deals, I mean none of our partners have done that so far. They've done a deal when they had a use of cash to either build a mine or to buy something or to buy another company. And they had a use of cash and they didn't have enough cash on hand.

So, do people have more cash on hand now? Yes, but they're also probably looking at bigger deals. So then when they're looking at how they finance it they say, okay, should we finance it with debt, equity or streaming? And I think we have made streaming a real third leg, if you like, in terms of financing. And I think it stands up extremely well to debt and equity.

It was only two or three years ago when some fairly big mining companies almost self-destructed by over leveraging and their metal price, selling price crashed. And I think people still remember that. So I think people -- yes, is debt more available? Maybe. But I don't think in the mining industry you want to over leverage.

And then in terms of equity, most people I talk to still think their equity is cheap and shares are undervalued. I think we stand up very well against the alternatives. And yes, the silver price is up but our share price is up too, which we still see that we can do very accretive deals.

The only question is when do people need money and I guess that's why I'm excited because I see a lot of potential M&A activity in the mining business. I also see a lot of huge CapEx projects being planned over the next few years and that's going to need a lot of money from somewhere.

Okay, just one last question. What do you expect your gain, your net gain after-tax will be on the Ventana shares? Or if you want to give it to me off-line that's fine.

Yes, it's not going to --.

$3 million to $5 million I would guess just roughly.

Yes.

Essentially then what we did is we got the right of first refusal for nothing, right?

Yes, that's fine. Perfect, that's all the questions I have. Thanks.

[David Meeker], private investor.

Thank you. Would you care to comment on potential legal problems that may exist with the Pascua-Lama project?

Yes, it's Randy Smallwood here. I assume when you talk about the legal problems you're talking about the glacier discussions of late?

Yes.

Okay. Barrick operates -- as you know Barrick operates and is constructing the Pascua-Lama project as it's going forward. The glacier laws that were brought in at a federal level within Argentina -- it covers an area that Barrick has spent extensive time and effort managing and reviewing and making sure that they didn't have impact within this area, within this scope.

And so there's been lots of discussion and as they've moved forward the province that Pascua-Lama is located in has just recently passed legislation that sort of clarified and confirmed that Barrick has satisfied all those requirements and isn't having an impact on the asset itself.

The other comment that I would make is that the bulk of the deposit, and in fact the highest elevation portion of the deposit, and the area where there are some glaciers is actually on the Chilean side of the border, it's not within Argentina itself. As you know, the project straddles the border in itself and the bulk of the deposit is actually being mined on the Chilean side whereas the processing and the mill facilities, tailings, etc., are on the Argentinean side of the border.

So we're very comfortable with where things stand and we think that Barrick has done a fantastic job in terms of managing this and providing information to their shareholders and to their other stakeholders including ourselves on how they've managed this going forward. And we have no concerns there at all.

Thank you.

Steven Butler, Canaccord Genuity.

Good morning, guys. A question for your on interest expense. Would you -- any level of interest expense we'd expect to see flow through the financials this year, Peter or Gary?

No, no.

None? Okay, that's fine. Is it because it's relating to -- you can associate it now, Peter, with Pascua or --?

That's correct, yes.

Okay.

Gary actually mentioned earlier and you might have missed it was that all the interest is capitalized and will be capitalized at Pascua-Lama.

Okay. The other question I had was your production guidance obviously excludes reference to any potential inventory sale or gain that may happen throughout the year. Can you maybe shed light on the inventory build up? I think you mentioned 700,000 ounces at Yauliyacu. Maybe just put some context on that. And/or are there some ounces still built up in inventory as well at Penasquito or elsewhere? Thanks.

Steven, I know you've been around the business enough to know that there's always going to be a bit of a working capital issue as production increases and with the silver production increases that we've seen you're going to wind up with inventory increases as we move forward. Penasquito is the biggest example of that in our case and they expect to get to full production capacity by the end of this quarter which is 130,000 tons per day.

There's going to be obviously as you're moving that many tons through that plant you're going to have that much more sort of inventory in process. A bit of the anomaly with us, the abnormal side is the Yauliyacu situation, which is related to that Doe Run smelter being shut down and the fact that Yauliyacu produces a bulk concentrate and the zinc concentrate. The bulk containing both values in lead, copper and the bulk of our silver.

We were just down at the site, just had the team down there, we're actually completing a tactical report, as we do every year on Yauliyacu, and so we do a very detailed one week long site visit and due diligence and we physically put our hands on that stockpiled concentrate that has been built up as Glencore is in the process of looking for sources or looking for places to move that out.

They have committed at Yauliyacu to breaking that bulk concentrate down into a copper concentrate and a lead concentrate. In fact they've already started making the modifications in the mill to produce two separate concentrates. It's not going to mean any additional silver to us and the payable rates are essentially the same.

But once they go through to that the concentrates will be much more marketable in the broad scale because they've just -- I think they've finally come to the conclusion that that Doe Run smelter will not start up and therefore it makes more sense for them in terms of marketing the stuff going forward.

So while they're going through that transition of course they still are producing a bulk con and so it's going to be spotty in terms of deliveries this year. And as they make sales or as they find sources for this bulk con it is marketable, it's a matter of -- when they originally went into this they'd always sort of looked at it from a very short-term perspective. And I think over what we've seen at Yauliyacu with Glencore is a bit more focus on the longer term coming up with a longer-term solution to this.

Okay, thanks, Randy. Gary, just back on the expected 25% accrual for taxation for both Minto and Keno, is that something we should start with in 2011? And at what point do you think there will be some cash taxes implied or payable at those two assets?

Yes, to your first question. I think 2011, again assuming that all other factors remain unchanged, i.e. the biggest one being that long-term investments don't decrease in value. There is likely to be a future income tax expense recorded in 2011 related to those two operations. And to your second question, we don't foresee cash taxes being payable for the foreseeable future.

Okay. Thanks, guys.

Maybe just a couple more questions, operator.

[Jerry Grant] of [Jerry Grant].

Peter, I just want to thank you and your whole staff, such a fine job. And my compliments, just such a fine job. My question, Peter, is there is a lot of buzz about what's going on up in the Yukon. Can you give us any thoughts or any indications of how aggressive you're going to be in looking into the strike up there?

There have been a couple of strikes up there. Is there a specific one you're speaking of?

Well, there's Kaminak, there's ATADF, there's things around Yellow Horse. But it looks like there's a great big arc of gold bearing discoveries that are up there. And I don't know if it's too early to be looking into it, but it was just a thought what you -- how aggressive you're going to be looking up in that area?

Yes, it's Randy Smallwood here. They are all relatively early stage. These are the type of projects that we typically look at from an equity investment perspective. I think up in the Yukon with our deal at Alexco and our deal with Minto and the success that both of those assets have had, and we've got a foundation up in the Yukon as it continues to establish base.

I mean, we like the Yukon, we think there's great potential up in that area and we're watching these new developments with great interest. There's a lot of silver byproduct up in the Yukon when it comes to both the base metal, the copper -- base metal and the gold assets. And so we're keeping our eye on it.

Laddies, thank you. You've have done a fine job. My great compliments to the whole staff.

Thank you.

Matthew O'Keefe, Cormark Securities.

Thanks, operator. Good morning, gentlemen. Obviously showing again a great quarter. I do have a question though regarding future growth. I mean, you've got a great growth profile now, so I guess there's no -- you don't need to do anything, there's nothing pushing you to do anything right away as far as further deals.

But I'm wondering if you've had any -- run into any issue or are finding any more difficulty to do deals in this very high silver price environment. And are you considering or have considered arrangements to offer a deal where your price for silver might rise above the $4 an ounce that we've got with most of your deals right now?

Peter here. Just a few comments. I mean, first of all, as you said, we've got one of the best growth profiles out there, we do no deals. And I think in this environment where metal prices are strong and we're feeling as though they're getting stronger, you've got to be careful about doing deals, you've got to make sure you do the right deals. I think people sometimes get attracted to more marginal assets just because metal prices are high right now.

But our focus is building long-term shareholder value, high-quality assets, strong management. And so we're in no rush to do deals, which I think is a great position to be in. I think people who feel pressured to do something now, they stand a decent chance of making a mistake. So we're in a great position. And do I think there are a lot more opportunities to come? I do.

Again, it needs somebody to have a use of cash, but there's enough people out there looking to build mines or to acquire other companies and working with a company like Silver Wheaton can make a huge difference in that. I mean for instance, if a base metal company wants to buy another base metal company, if they can do a deal with us whereby we pay a premium value for the silver, it helps them buy it on an attractive basis for them. And that's what our business model is all about.

Meanwhile we put in this dividend and -- speaking of what's the worst-case scenario, we'd never do another deal, which I can't believe, I mean we've done 19 in six years. But let's just say worst-case scenario we never do another deal, we still grow 80% in the next five years. And if there are no deals to spend money on we'll start giving more and more of the cash back to shareholders. So your dividend yield is going to increase probably pretty significantly.

That is the worst-case scenario to me. Best case is I think -- is what we expect is that we'll continue growing the Company and also probably continue increasing dividend yield as well. And you're going to get the best of all worlds.

That sounds excellent. And do you have -- I always like to ask this, but do have a silver price forecast or a view that you'd like to share with us?

I don't -- I'll share it with you, I don't know if I'd like to share it with you. But I mean Eric Sprott, who is a very well-known guy, he's saying silver is going through $50 this year; two or three of the banks are saying silver is going through $50 this year. I'm a pretty conservative guy, I've been saying for a while I think silver is going through $50 over the next two or three years. Could it happen this year? Maybe.

I mean it depends on so many things, none of which any of us probably know, can really predict in the short term. But my belief is the US dollar has got to keep on going down. My belief is that inflation is going to become a bigger and bigger issue over the next few years, already in some of the developing countries it's a significant issue. And they're also growing and growing in demand for silver.

You look at China, for instance, and five years ago they were a net exporter of silver of about 100 million ounces a year. I think last year they were a net importer by over 100 million ounces; that is a 200 million ounce swing in demand in China for silver in five years. And the silver market is only 700 million to 800 million ounces. So that's a massive change in demand just from one country.

Great.

So, yes, I'm very bullish on silver prices.

Thanks very much.

Thanks. All right, operator, I think that's the end of the call. Thank you, everybody, for calling in.

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