Wheaton Precious Metals Corp (WPM) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Silver Wheaton's 2012 first quarter 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)

I would like to remind everyone that this conference call is being recorded on Monday, May 14, 2012 at 11.00 AM Eastern Time. I will now turn the conference over to Mr. Brad Kopp, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, Michelle, and good morning, ladies and gentlemen, and thank you for participating in today's call. I'm joined today by Randy Smallwood, Silver Wheaton's President and Chief Executive Officer; and Gary Brown, Senior Vice President and Chief Financial Officer. I'd like to bring to 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 Randy Smallwood, our President and CEO.

Thank you, Brad, and good morning, ladies and gentlemen. Thank you for dialing into our first quarter 2012 conference call. We are very pleased to report that Silver Wheaton had a very solid start to 2012. Strong performance from our portfolio of mines resulted in record quarterly revenues, and we are well on track to reaching this year's forecast production of 27 million silver equivalent ounces. Positive progress continued at our world class corner stone assets, including the Penasquito and Pascua-Lama mines, and Silver Wheaton retains one of the strongest growth profiles in the sector. Relatively modest and more importantly, fixed capital cost commitments will grow our production to 43 million ounces by 2016, which represents a five-year increase of over 65% in silver equivalent production. Today, we also announced our second quarterly dividend of 2012 at $0.09 per share. Our unique dividend policy gives shareholders a significant and sustainable portion of our operating cash flows, and provides direct benefits to our sector leading growth. And lastly, we continue to have an extremely strong balance sheet, which together with the current need for capital from many mining companies, positions us well to execute on our growth strategy of acquiring additional accretive silver stream interests.

In the first quarter of 2012, we achieved production of 6.7 million silver equivalent ounces, and sales reached an all-time high of 6.1 million silver equivalent ounces. This strong first quarter resulted in record revenues for our Company, increasing 26% from Q1 2011 to approximately $200 million. Operating cash flows were in excess of $160 million, representing cash operating margins of an impressive 82%, among the highest in the precious metals industry, and for that sake, the mining industry. It is important to note that our model of essentially fixed cash costs allows us to consistently deliver strong operating margins to our shareholders. This is particularly true in an environment of significant inflationary pressures, both capital and operating, which continues to plague the mining industry, and negatively impact the margins of traditional producers.

While market sentiment is currently negative, in large part due to deteriorating economic conditions around a globe, silver prices remain near historical highs. At current precious metals, (technical difficulty) $600 million in 2012, significant by any standard, and our exceptional organic production growth pipeline should continue delivering robust long-term cash flows to our shareholders. Gary Brown, our Chief Financial Officer, will provide a bit more detail on the financials shortly.

On the dividend, we only began paying dividends early in 2011, and have just announced our sixth consecutive quarterly dividend. Our unique dividend policy distributes 20% of the previous quarter's operating cash flow to shareholders, which amounted to $0.09 per share in the first quarter. While this dividend policy aligns our yield to that of our peers, and offers shareholders a significant portion of our cash flows, it also importantly provides Silver Wheaton with the cash flows it requires to deliver additional long-term production growth through new acquisitions. On the corporate development front, we remain very focused and very confident about the coming year. While challenging global financial markets can prove frustrating as it relates to share price performance, the current environment also affords us very many opportunities to grow our Company, and to continue positioning ourselves as the go-to mining investment for investors seeking silver exposure.

As you are no doubt aware, there continues to be a strong trend of expanding capital needs in the mining industry. However, there is currently limited access to the traditional forms of capital, such as debt and equity. This is particularly true for the junior to mid-sized mining companies out there. In this environment, our streaming model offers a very attractive funding solution for mining companies, and our corporate development team remains extremely busy, pursuing value enhancing acquisitions. With approximately $1 billion in cash on hand, a fully undrawn $400 million revolving credit facility, and strong future operating cash flows, we are exceptionally well positioned to continue growing our portfolio of precious metal streams.

With respect to 2012, Silver Wheaton is on track to achieving another year of record production, climbing to approximately 27 million silver equivalent ounces. Most of this growth will come from Goldcorp's Penasquito mine. Goldcorp successfully commissioned the HPGR supplemental feed system at the Penasquito mine in the first quarter of 2012, and the mine is now clearly on its way to achieving full production capacity of 130,000 tonnes per day. Penasquito this year will become Silver Wheaton's largest contributor of silver production, with forecast attributable silver production of approximately 7 million ounces. Of course, by 2016, our production forecast, our production is expected to increase by 65% to 43 million silver equivalent ounces. Much of this five year growth will come from Barrick's Pascua-Lama mine. Barrick has committed over 70% of its mine construction capital to Pascua-Lama, and pre-stripping is expected to commence during this second quarter of 2012. Pascua-Lama is on its way to starting production by mid-2013, and when it is at full production levels, will deliver 9 million ounces of silver per year to Silver Wheaton, once it begins operations.

So in summary, our first quarter of 2012 was a very strong quarter, showing continued growth. Silver Wheaton has one of the strongest organic growth profiles in the precious metals industry, and we're well on track to achieving our silver equivalent production guidance of 27 million ounces in 2012, and further increasing that all the way to 43 million ounces by 2016. Our cornerstone assets continue to advance as anticipated, with Penasquito forecast to be at full production during this quarter, and with Pascua-Lama on track for the mid-2013 production start-up. We remain focused on growth, and in 2012, we'll continue to vigorously pursue our goal of further expanding our portfolio of high quality income generating assets, and with one of the strongest balance sheets in the industry, we are very well positioned to achieve this goal, further boosting our long-term production levels. Our business model ensures we can guarantee margin delivery in a rising silver price environment, and we firmly believe that we continue to offer the premier investment vehicle for silver and precious metals investors worldwide. With that, I would like to turn the call over to Gary Brown, our Senior Vice President and Chief Financial Officer, to provide a bit more detail. Gary?

Thanks, Randy, and good morning, ladies and gentlemen. Prior to reviewing Silver Wheaton's unaudited financial results for the three months ended March 31, 2012, I would like to remind everyone that all monetary figures discussed are denominated in US dollars unless otherwise noted. Silver Wheaton started 2012 with another strong quarter, marked by record silver equivalent sales volumes and revenue. The Company's precious metal interests generated over 6.7 million silver equivalent ounces of attributable production in the first quarter of 2012, with payable silver equivalent ounces produced but not yet delivered by our partners at the end of the quarter amounting to 4.2 million ounces, consistent with the prior quarter. As pointed out by Randy, first quarter production translated into record sales volumes of 6.1 million silver equivalent ounces, generating $200 million of revenue, 26% higher than the prior year. Earnings from operations amounted to $157 million, compared with $127 million in 2011, with operating margins decreasing by 1%. Cash G&A expenses were $5.9 million in the first quarter of 2012, with the increase from the comparable period of the prior year being primarily attributable to increased charitable donations.

The Company continues to expect cash G&A expenses to be in the $23 million to $25 million range for 2012. In the first quarter of 2012, both net earnings and basic earnings per share increased by 20% to $147 million, or $0.42 per share, compared to the comparable period of the prior year. Similarly, operating cash flow increased by 29% to $164 million, or $0.46 per share, resulting in a dividend to be paid in Q2 2012 of $0.09 per share. During the first quarter of 2012, the value of the Company's long-term investment portfolio of shares and other publicly listed mining and mineral exploration companies decreased by $11 million. Accordingly, a $1.5 million deferred tax recovery was recorded in connection with this unrealized gain. Both the unrealized gain and the deferred tax recovery are reflected in the statement of other comprehensive income.

The operational highlights for the first quarter included the following. Zinkruvan produced 642,000 ounces of silver in the first quarter, 26% higher than was produced in the comparable quarter of the prior year, and 65% higher than was produced in Q4 of 2011. This represents the highest level of silver production from Zinkruvan since the inception of the silver purchase contract in 2004, and is attributable to record milled tonnage levels and improved recoveries. This record level of production translated into the sale of 518,000 ounces of silver, 61% higher than volumes for the comparable period of the prior year, and 22% higher than the prior quarter. Although silver production related to Yauliyacu was down 19% in Q1 2012 relative to comparable period of the prior year, sales volumes more than quadrupled to 497,000 ounces, partially attributable to the production of more marketable copper and lead concentrates, as opposed to the bulk concentrate that was previously produced.

As at March 31, 2012, approximately 1.7 million payable ounces of silver had been produced at Yauliyacu, but not yet delivered to Silver Wheaton, with about 300,000 ounces relating to the bulk concentrate, and the remainder relating to the new copper and lead concentrates. Attributable silver production relating to Penasquito was 1.4 million ounces in the first quarter of 2012, representing a 13% increase from the prior year, with said increase being primarily attributable to the continued ramping up of the sulfide mill. However, silver production was 16% lower compared to the prior quarter, due to the slightly lower mill throughput, combined with lower grades and recoveries from the sulfide ore. Mill throughput in the first quarter was affected by the tie-in and commissioning of the HPGR supplemental system, and planned milling circuit maintenance. Silver sales in the first quarter of 2012 relating to Penasquito amounted to 1.2 million ounces, an increase of over 26% relative to the comparable period of the prior year.

As at March 31, 2012, approximately 1.3 million ounces of payable silver had been produced at Penasquito, but not yet delivered to Silver Wheaton. During the first quarter of 2012, $2.4 million of interest was capitalized at the cost of the Barrick silver interest. Of this amount, $2.2 million relates to the interest accreting on the discounted final payment due to Barrick in the third quarter of 2012, with the remainder being attributable to bank debt, which bore an average interest rate of just over 1% for the quarter. As a reminder, the Company expects to capitalize all interest costs associated with currently outstanding obligations until the Pascua-Lama mine achieves commercial production. Overall, the Company's cash balances increased by $157 million in the first quarter of 2012, comprised of $164 million of cash generated from operations, offset primarily by $7 million of debt repayments.

As at March 31, 2012, the Company had $997 million of cash and cash equivalents on hand, and $71 million of debt outstanding under the term loan facility. This cash balance, combined with the $400 million of available credit on the Company's revolving credit facility, and the anticipation of strong future cash flows positions the Company well to both sustain its dividend policy, while at the same time executing on its growth strategy. That concludes the financial summary, and with that, I turn the call back over to Randy.

Thank you, Gary. Michelle, we'd like to open up the call to questions, please.

Thank you. Ladies and gentlemen, we will now conduct a question-and-answer session.

(Operator Instructions)

Your first question comes from Steve Butler from Canaccord Genuity. Your line is open.

Good morning, guys. Question for you on the CRA tax audit, which is outstanding item, 2005 to 2010 return being, I guess, audited normal course. Can you maybe comment on the nature of that audit again, Gary, and if you have a sense of timing of its completion? Thanks.

Yes. Steve, there really isn't much to update, if anything to update on that front. CRA is auditing our international transactions from 2005 to 2010. It's a normal course audit, and is completely expected. They're in the info-gathering stage of that audit, and we really don't have any way to estimate how long that audit is going to take.

Okay. That's fine. Does this put your acquisitions -- I guess if they're substantial enough, does it put your acquisition strategy on hold a little bit, Randy?

No, not at all. Our business model is very strong. We're not the first people in the mining industry to have offshore activities. So, it doesn't put anything on hold there.

Okay. Thanks, guys.

No problem, Steve. Thanks for calling in.

Your next question comes from Trevor Turnbull from Scotia Capital. Your line is open.

I just had a quick question about the new concentrates that they're producing at Yauliyacu. You've got a copper -- I guess, Glencore is producing, now, a copper and a lead con, and I wondered if you could give us a breakdown, roughly how much of your silver is in each of those?

Yes. There's the original zinc con, which, there's a bit of silver in there, but we rarely get any payable out of that. And then the original bulk concentrate split to the copper concentrate and the lead concentrate. Lead takes about 75% of the silver, copper's about 20% of the silver, and then, like I said, zinc is minimal; it's about maybe 5%, or something like that.

And the guidance that you have, I think, is about 2.5 million ounces for this year. That 2.5 million ounces is applied before the payable, is that right?

Yes, that's right. Before the fees, that's right.

Okay. And then, can you give me a sense -- is there any difference between the payables, say, silver coming out of the lead con, versus out of the copper con?

Well, the lead is, right now, going through spot sales, so, there's not a fixed contract long-term in place, but the payable rates are very comparable between those two, up and around the 90% range. It's pretty typical. The copper, itself, is a pretty decent con. It's moved itself out.

Glencore did a pretty good job during the first quarter in terms of moving that lead out -- that lead concentrate out, so, things are getting better there. As they stabilize -- these are new concentrates for them to be marketing themselves, and I think that's one of the things that they've gone through, right now, is just building that up, and getting more stable. So, we saw pretty good quarter from them, in terms of moving the concentrate through, and we expect that's going to improve as they get longer operating experience behind producing these concentrates.

Yes. It sounds like they don't have a long-term off-take in place on the lead concentrate, but you say they did manage to move the majority of it in Q1?

That's right. Well, the majority of what they've -- they moved more than they produced during Q1, and from all discussions with them, things are looking better and better on that front.

Okay. Great. Thanks, Randy.

Okay, operator, if there's no more questions -- thank you, everyone, for dialing in to our Q1 conference call. And until we talk again, thanks again. Bye.

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