Wheaton Precious Metals Corp (WPM) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by.

Welcome to Silver Wheaton's 2014 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)

Thank you. I would like to remind everyone that this conference call is being recorded on Friday, May 9, at 11 AM Eastern time.

I will now turn the conference over to Mr. Patrick Drouin, Senior Vice President of Investor Relations. Please go ahead, Sir.

Thank you, Operator.

Good morning, ladies and gentlemen, and thank you for participating in today's call. I am 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 assurances that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.

In addition to our financial results cautionary note regarding forward-looking statements, please refer to the section titled, 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 [states] material factors that could cause actual results to differ, including, among others, the absence of control over mining operations from which Silver Wheaton purchases silver, risk 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 Chief Executive Officer.

Thank you, Patrick, and good morning ladies and gentlemen. Thank you for dialing into our first-quarter 2014 conference call.

We are pleased to report that Silver Wheaton has had a solid start to 2014, and we are on track to reaching this year's forecast production of 36 million silver equivalent ounces.

In the first quarter of 2014, production and sales volumes increased year over year, and while silver and gold prices were much lower than they were in the first quarter of 2013, our low-cost structure allowed us to maintain strong cash operating margins. During the first quarter, we also made great progress to some of our key growth assets.

To start with, Primero's San Dimas mine, down in Mexico, completed its expansion to 2500 tons per day during the first quarter. Given the nature of our sharing agreement with Primero, we should realize the full impact of this expansion in 2015 and beyond. At Vale's Salobo mine, the expansion that will double mill throughput capacity to 24 million tonnes per annum, reached 97% completion in the first quarter and is expected to come on stream any day now.

In addition, the Totten mine in Sudbury began producing in the first quarter. Totten is now adding to the gold production we have been receiving from five of Vale's other mines in the Sudbury Camp. And, finally, towards the end of the first quarter, we made our final payment with the silver stream on Hudbay's Constancia project down in Peru. Production is expected to begin in Constancia in the second half of 2014.

All things considered, we see 2014 as a solid step forward for Silver Wheaton as these core assets continue to add significant growth to our production profile. Over the next five years, we forecast production growth of nearly 35%, reaching 48 million ounces in 2018 with the bulk of the growth realized over the next two years.

With respect to the first quarter 2014, our first quarter launched 2014 with substantial year-over-year gains in silver equivalent production and sales volumes. Production was 8% higher than the comparative period last year, coming in at 9 million silver equivalent ounces. Silver equivalent sales volumes were 17% higher than a year ago at 8.1 million ounces. We also maintained a very healthy cash operating margin, with cash flows of nearly [$115] million over the quarter.

Speaking of cash flows, our quarterly dividends continued to deliver 20% of the average cash generated by operating activities in the previous four quarters back to our shareholders. As such, our dividend remains linked to our organic growth profile or our ability to make additional accretive acquisitions and commodity prices. And so, even if commodity prices stay relatively constant, we will see dividend growth as our organic growth comes online over the next couple of years.

In addition, we are implementing a dividend reinvestment program that will be effective for this upcoming dividend. We have received numerous requests from our shareholders for this program and believe it will provide further flexibility and generally make it easier for our investors to increase their exposure to Silver Wheaton. Gary Brown, our Chief Financial Officer, will provide more details on this shortly.

We understand that the volatility of the current market conditions can prove challenging as it relates to share price performance. While Silver Wheaton is not immune to commodity price pressures, our business model is based on the premise of paying low and predictable costs for precious metals production from a diverse portfolio of high quality mines. Our average cash cost in the first quarter of 2014 was $4.57 per silver equivalent ounce, which is easily among the lowest costs in all of the precious metals space.

Furthermore, our first quarter cash operating margin was around 70%, despite precious metals prices being down over 30% compared to a year ago. These numbers once again show that, even in a weak commodity price environment, you can generate some of the highest margin in the industry.

On the corporate development front, our team remains busy pursuing value-enhancing acquisitions and we feel that were still in a good market to add to our portfolio. As streaming becomes more widely understood, we see increasing numbers of both large and small mining companies recognize the flexibility and cost competitiveness of this model.

We certainly believe that it provides an attractive [funding] solution, particularly in this current environment. While we search for new opportunities, we remain focused on strong operating partnerships with high-quality assets that are producing and the lowest half of their respective cost curves, and, rest assured, we will only add new streams that are accretive to our shareholders.

So, to summarize, given that we have a strong track record of accretive growth, more silver reserves than any other silver company in the world, and a robust organic growth profile that we'll be delivering over the next couple of years, we see our current portfolio streaming agreements positioning us well in 2015 and beyond and are excited about the next few years.

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.

Thank you, Randy, and good morning, ladies and gentlemen.

Prior to reviewing Silver Wheaton's unaudited financial results for the three months ended March 31, 2014, I would like to remind everyone that all monetary figures discussed are denominated in US dollars unless otherwise noted.

The Company's precious metal interest generated almost 9 million silver equivalent ounces of attributable production in the first quarter of 2014, 8% higher than production from the comparable period of the prior year, due primarily to higher production levels at Penasquito. Of the overall production, approximately 24% was gold with the remainder being silver. Payable silver equivalent ounces produced but not yet delivered by our partners amounted to 6.3 million ounces as of March 31, 2014, an increase of about 59,000 ounces over the quarter with the largest increase being observed at 777, offset by significant reduction at Yauliyacu.

Silver equivalent sales volumes amounted to 8.1 million ounces in Q1 2014, 77% of which was silver and 23% was gold, representing a 17% increase from Q1 2013 attributable to increased gold deliveries from Sudbury and Salobo, combined with increased silver deliveries from Yauliyacu and Penasquito. Revenue from the first quarter of 2014 amounted to $165 million, representing a 20% decrease from the comparable period of the prior year with the increased sales volume being more than offset by a 31% decrease from the average realized price per silver equivalent ounce sold with such being 2038 during the first quarter.

Earnings from operations for the first quarter of 2014 amounted to $92 million, representing a decrease of 39% relative to the first quarter of 2013, with operating margins decreasing by 18% to 55% in the first quarter of 2014, due primarily to lower commodity prices with higher depletion rates also contributing to margin contraction.

Cash-based G&A expenses were $7.9 million for the first quarter of 2014, representing a decrease of $0.5 million from Q1 2013 with such being primarily attributable to lower expenditures on consulting and donations. The Company continues to expect non-stocked based G&A expenses of $31 million to $34 million for 2014.

Net earnings amounted to $80 million in the first quarter of 2014, compared to $133 million in the comparable period of the prior year, with basic earnings per share decreasing by 41% to $0.22 per share from $0.38 per share with the decrease being primarily attributable to the decrease in commodity prices. Operating cash flow for the first quarter of 2014 amounted to $115 million, compared to $166 million in Q1 2013. This translates into operating cash flow per share of $0.32 and results in a dividend of $0.07 being payable to shareholders of record on May 20, 2014.

I would like to remind shareholders that this is the first the dividend that will qualify for the recently implemented dividend reinvestment plan or DRIP plan, pursuant to which shareholders can elect to have this dividend reinvested in newly issued shares of Silver Wheaton Corp. For this dividend, the Board has elected to offer the shares at a 3% discount to market.

Participation in the DRIP is optional. For registered shareholders, enrollment forms are available on the Company's website. Non-registered or beneficial shareholders should contact their brokers to register for participation in the DRIP.

During the first quarter of 2014, the value of the Company's long-term investment portfolio of shares and other publicly listed mining and mineral exploration companies increased by $8 million, which has been reflected in the statement of other comprehensive income.

The operational highlights for the first quarter of 2014 included the following: Yauliyacu produced 718,000 ounces of silver during the first quarter of 2014, representing a 15% increase from the comparable quarter of the prior year. However, silver sales relative to Yauliyacu amounted to 1.1 million ounces, due to the delivery of approximately 500,000 ounces of payable silver produced in prior quarters. This represented an increase in sales volume of 948,000 ounces, compared to silver sales recognized in Q1 2013.

As of March 31, 2014, payable silver contained in concentrate that has been produced but not shipped relative to Yauliyacu amounted to approximately 1.1 million ounces. Penasquito generated attributable silver production of 2.1 million ounces during the first quarter of 2014, representing an 88% increase from the comparable quarter of the prior year, with such increase being attributable to significantly higher grades and recoveries.

Silver sales for the first quarter of 2014 relative to Penasquito amounted to 1.8 million ounces, representing a 26% increase relative to Q1 2013. And as of March 31, 2014, approximately 1.5 million ounces of payable silver had been produced at Penasquito, but not yet delivered to Silver Wheaton.

Goldcorp has indicated that permitting for the Northern Well Field Project, which was expected to help address the water shortages affecting throughput at Penasquito, has been delayed due to unanticipated additional regulatory requirements. Goldcorp now expects this project to be completed in mid 2015. However, Goldcorp's exploration program at Penasquito continued to define the copper gold sulfite rich scarn ore body located below and adjacent to the diatreme ore body.

In addition, Goldcorp has indicated that it is investigating the potential for producing a saleable copper concentrate at Penasquito, as well as assessing the viability of leeching a pyrite concentrate from the zinc floatation tailings. Successful implementation of these new process improvements has potential to add 4 million to 5 million ounces of silver dore production per year, of which Silver Wheaton would deceive 25%, which would significantly improve the overall economics and add to the mineral reserves of Penasquito.

The 777 gold interest produced 12,800 ounces of gold or 794,000 silver equivalent ounces in Q1 2014, compared to 17,000 ounces of gold in the comparable quarter of the prior year. The reduction was due primarily to lower grades and recoveries. Gold sales relative to 777 amounted to 6300 ounces, or 391,000 silver equivalent ounces, which was 33% lower than sales volumes in Q1 2013, with payable gold produced but not shipped at 777 growing by about 6100 ounces in Q1 2014 to 6900 ounces or 400,000 silver equivalent ounces as of March 31, 2014.

The Sudbury gold interest produced about 6100 ounces of gold or 378,000 silver equivalent ounces in Q1 2014. This represented a 38% reduction compared to Q1 2013, primarily attributable to the mining of lower grade material.

Gold sales relative to Sudbury amounted to 6900 ounces, or 428,000 silver equivalent ounces, compared to 111 ounces in Q1 2013, with the comparable quarter of the prior year reflecting a build up of ounces produced but not shipped. As of March 31, 2014, approximately 11,000 ounces of payable gold, or 700,000 silver equivalent ounces, had been produced but not delivered to Silver Wheaton.

Another significant development relative to Sudbury was Vale's announcement that the Totten mine was officially opened during Q1 2014, which is expected to ramp up to full production in 2016 processing 2200 tons of ore per day.

The Salobo gold interest produced 8900 ounces of gold or 560,000 silver equivalent ounces in the first quarter of 2014, compared with 4700 ounces in Q1 2013 with the increase being primarily attributable to the successful ramping up of the first 12 million tonne per year line, which was operating at an average of 84% capacity during the first quarter of 2014.

However, gold sales relative to Salobo amounted to 10,600 ounces or 664,000 silver equivalent ounces, compared to 720 ounces of gold in Q1 2013, with gold produced but not delivered to Silver Wheaton decreasing by about 2100 ounces during Q1 2014 to approximately 8800 ounces or 568,000 silver equivalent ounces.

Mill throughput capacity at Salobo is currently being expanded from 12 million tonnes per year to 24 million tonnes per year, with second line being 97% complete at March 31, 2014. The second line is expected to be operational during the second quarter of 2014.

Overall, the Company's cash balances decreased by $14 million in the first quarter of 2014, with final payment of $125 million relating to the Constancia silver stream being made during the quarter, and such being largely funded with the $115 million of cash generated from operations during the quarter. As of March 31, 2014, the Company had $82 million of cash and cash equivalents on hand and $1 billion of debt outstanding under the non revolving term loan.

The Company's current cash balance and strong future cash flows combined with the $1 billion of credit capacity available under the revolving credit facility positions the Company well to satisfy it's funding commitments, sustain it's dividend policy, while at the same time providing flexibility to consummate additional accretive precious metal purchase agreements. Lastly, there's been no substantial change in the status of the audit of the Company's taxation years 2005 to 2010 by the Canada Revenue Agency.

That concludes the financial summary. And, with that, I turn the call back over to Randy.

Thank you very much, Gary. Operator, we'd like to open up this call for questions, please.

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

(Operator Instructions)

Andrew Quail with Goldman Sachs.

Good morning, guys. Thank you very much for the update and congratulations on a solid quarter. I've got a few questions.

First one -- Randy, can you talk about the potential upside to Sudbury and what you guys are doing there to maybe increase the stream? I'm not talking this year or next year, but maybe long-term.

Well, I will point out that Sudbury is a 20-year term agreement, so when it comes to exploration and such, they've already got enough reserves and resources to satisfy that 20-year term for us. I think probably the best upside we see there is that there is a continued efficiency discovered in the camp in terms of being able to optimize some of the production. And I know there's been some talk in the past of potentially sharing some processing capacity and stuff like that. So that's probably one of the areas that we would see some potential upside in the Sudbury camp.

That's good.

On your financial position, do you guys sort of -- obviously, you have strong cash flow generation. Are you guys going to use that to pay down debt? Or are you happy with this debt level and create a cash surplus?

Yes. We're happy with this debt level. We'll create a cash surplus and just ultimately work ourselves up to even getting more capacity with the cash flows. The current market is pretty active on the corporate development front, so hopefully we don't build up too much of a cash surplus.

Yes.

And last one, on maybe Salobo. Obviously ramping up given the expansion. What sort of risk -- obviously it's pretty much almost complete -- can that be accelerated before 2016 or 2015? Is that sort of something we can see coming a bit earlier?

Well, because it's basically a parallel line from the first one there's no doubt there's going to be some efficiencies in terms of them ramping up this one. They would have learned from starting up the first line, and so I think that's some of the reason why it was finished off six months ahead of the original schedule. So that's something; coming in ahead of schedule and on budget in this environment is refreshing.

There's no doubt that as they continue to ramp that thing up, there should be some benefit. And our experience is that Vale has always been very good at making their forecast and achieving their objectives and goals, and so we're hopeful. But I can't promise anything.

Thanks very much, guys.

Thank you.

Kevin Chiu with CIBC.

Good morning, guys, and congratulations on a solid quarter.

Thanks, Kevin.

A few questions from me.

So, it looks like Sudbury and Salobo sales actually exceeded production for the first time this quarter. And the inventory of silver produced but not yet delivered was fairly stable. So, going forward, can we assume that this is sort of a normal run rate for inventory build, understanding that there's going to be more production coming from the concentrate assets?

Yes. So, as our production profile grows, as we increase overall production, the produced but not yet sold is basically a function of our production levels. And I'd like to characterize it as somewhere between two to two and a half months' worth of production. And it's going to vary back and forth on a quarter-to-quarter basis. It's very challenging to forecast.

A lot of this comes down to, when does concentrate get shipped from particular mine sites. And the larger the mine site, the more consistent you get the concentrate deliveries, and so assets like Salobo should be getting pretty regular now in terms of how frequently they deliver. But we have to recognize that Salobo is also growing substantially, continually. The first line is, of course, getting close to 100% and the second line starting production any day now, and so it is a bit of a tough one to guess.

The way I like to look at it is, I characterize it as about two to two and a half months of production. So as our production levels increase of the next few years, there will be upward pressure on the -- some growth on the produced but not yet delivered.

Right. Understood.

So, it looks like 777 had a bit of a slower start relative to forecast for the year. Just wondering, is this is a function of the timing of production? And can we expect a pickup in production in the coming quarters? Just looking at some of the historical production, it's been able to hit certainly higher levels.

Yes. They had some issues with stope stability there and had to reschedule into some lower grade areas while they got some stability in place. And so safety, of course, being paramount and first, fully understand them taking that approach. And so they expect to be able to schedule back in some of that higher grade material, but there was some stope stability issues that had forced them to reschedule into some lower grade materials. So, we do think this is sort of a one-off.

Right.

And just final question -- I see you've made your final payment related to the silver stream. Do you have a better sense of the timing of when you might expect to pay the final $135 million related to the gold stream?

Yes. It's going to be June/July -- somewhere in that timeframe. Just talked to David just recently -- David Garofalo at Hudbay -- and he sees themselves on target for that range.

Just a reminder, we do have the option of delivering that one in shares of Silver Wheaton, and so we'll make the decision at that time in terms of how we go forward. But, yes, it's going to be sometime in June or July.

Perfect. Thanks, Randy.

Thanks, Kevin.

John Bridges with JPMorgan.

Hello, Randy. Congratulations on the results. Just got a bit of bookkeeping really.

The capitalized interest -- how much longer do you think you're going to be showing that?

Well, we'll capitalize that to the projects that are currently under development until they start producing effectively. So, the majority of that is being capitalized to Pascua-Lama and Constancia. Constancia is expected to be operational by the end of 2014, so we'll likely stop capitalizing the interest that is being capitalized at Constancia near the end of 2014; and Pascua will continue to capitalize interest until it becomes operational.

So, it really depends on how much debt we've got outstanding and the interest rate that we're bearing on that debt, as to how much is being capitalized. I would remind people that the debt that we're carrying right now is bearing an interest rate of below 2%, so it's a very efficient form of capital for us.

And the rough split between Pascua-Lama and Constancia?

I think you can get that roughly by looking at what our investment is in those two assets. I think it's going to be roughly one-third Constancia, two-thirds Pascua-Lama.

Okay. And then -- I don't know, maybe it's my arithmetic, but was there anything which would cause some disconnect between the reported ounces from 777 and Penasquito this quarter? Or do I just need to look at my arithmetic?

Can you elaborate a bit there? I don't quite understand what you're asking.

The depreciation reported for those (multiple speakers) was looking a little bit out of whack.

Yes. Not sure what -- sorry -- for 777 and Penasquito? Average depletion for Penasquito is about $3 per ounce and average depletion for 777 was $823 of per ounce of gold, which isn't too dissimilar from what the depletion rates were for the prior year.

Okay. Fine. I'll check my arithmetic.

Thanks, guys, and congratulations on the results.

Thank you, John.

Andrew Kaip with BMO Capital Markets.

Good morning, guys. Just one question.

Gary, your range for your corporate expenses, non-stock, is$ 31 million to $34 million. Can you just elaborate on what would push it to the higher end of that guidance?

I guess one of the things that might push us to the higher end of that guidance is consulting and advisory services relative to the CRA audit that's being undergone right now. Right now, there's not a lot of new developments on that front, and we're hopeful that it wraps up relatively soon. But to the extent that it requires advisory services, that could be one item that drives it up. I think it's pretty tight range that we've given there, but could be -- we're trying to be conservative with respect to our estimation of those costs.

Okay. And then just on Yauliyacu: it had a good quarter this quarter. You saw some silver not yet delivered paid out during the quarter. What's your sense of Yauliyacu on a go-forward basis?

It has been somewhat variable. I'm just wondering if you guys are getting the sense that you're going to see more stability in that stream?

Well, we see lots of stability in the stream from a production perspective, and that to me is the most important because the produced not yet delivered will ultimately work its way through the system.

Given that it's owned by Glencore -- Glencore, of course, beyond being a very capable mining company, is also a very capable trading company -- I think its the concentrates that are produced at Yauliyacu will always have a bit more flexibility than we would see the normal simple mining company that doesn't manage their own trading activities. And so I do think it's is going to be something that will have a bit unique to it. Again, from a production perspective, Yauliyacu has done well, and that's the most important number for us. We follow that most importantly and just recognize the fact that it's a unique one.

They do flip back and forth from producing bulk concentrates to producing discrete concentrates depending on what the market, where they feel the best return is in the market space. And the mill's got that flexibility now that they can go back and forth. And I think we're just going to have to -- I'm not going to say live with it because it's a great asset and we're really happy to have it in the portfolio -- I think it's just part of the color of that asset.

All right. Thanks very much.

Thanks, Andrew.

(Operator Instructions)

Dan Rollins with RBC Capital Markets.

Yes. Thanks very much.

I was wondering if you guys could just talk about what you're seeing on the corporate development side. Obviously, we saw a bit of rally in gold and silver early in the year; we started to see some equity being raised; the market seemed to slow down now. Are you seeing -- given the markets are still pretty tight -- are you seeing more people coming back to you now? And more -- a second question would be, how much are you starting to see this advance deposit program starting to gain traction with potential partners?

Yes. Obviously we provide a source of capital that competes with debt and equity, and so the little wake up in the equity market that we had earlier in the year provided a little bit more of an attractive alternative; it provided more of a different alternative for a while. It definitely dried up.

We are busy on the corporate development front. Our challenge, as always, is making sure that we invest in top quality assets -- that being assets that have healthy operating margins. And so we really put a lot of focus into that. We always have and we always will. But there's no doubt things are busy on that front.

The early deposit structure is something that we are seeing quite a bit of interest in. One of the challenges, of course, is that -- and we all know the market is a pretty efficient area with respect to unit quality of projects, and the quality of projects generally do get highlighted in support of the marketplace even in this environment. And so our challenge is finding good projects to invest into. So we do a lot of looking and we're hopeful to close on a few. We definitely do see some good promising projects out there, so we hope to close on a few of those over the next while.

We think it's perfectly suited for this environment. It's pretty well the only way that these guys can raise capital right now without diluting their existing shareholders extensively because of the depressed share prices. And so we do think there are lots of opportunities there and hopefully we'll see more of those type of transactions. Dan, you know me well enough to know that I love the opportunity that we see in that space. I think it's a great long-term opportunity for Silver Wheaton.

Yes, it is. Maybe a followup.

You guys have a great set of assets, very long-life assets. The Salobo transactions sort of shows the cornerstone asset, sort of another anchor as you have in a lot of malls, where you have stores, but it's something to build the company off of, and you have quite a few of those.

Are you still targeting or prefer to target the larger deals just to give you that long-term benefit and stability from those cash flows, and likely a very strong return on equity over 30 or 40 years?

No doubt. As I mentioned earlier on, the first criteria that we have to satisfy is operating margins. We only focus on assets in the bottom half of their respective cost curves. And that generally is the biggest hurdle. Those assets are usually pretty healthy from a cash flow perspective, and so there's got to be a need for capital for other reasons or expansion capital, stuff like that. So, that's the first criteria.

Size is always nice. Geological potential in terms of long life assets is, of course, very attractive for us. We are building for long-term value in this Company. We always have been, always will be; so those are the assets that do find the most appeal. But I tell you, it's got to have the margins. It's not just the scale of the resource or the geological potential; it's got to have healthy operating margins, too.

This is maybe my last question.

Just on the competition you're seeing on the streaming side. Obviously, lately there's been some new players in the space. Some of them are private equity-type vehicles; we've seen some pension funds starting to get active in the space. Are you seeing them directly competing with you right now? Or are they more on the smaller scale of streaming opportunities?

Well, they're definitely looking at the smaller scale. There is one advantage that we have is capacity and is scale. But I tell you, the last four or five months have been very interesting in terms of where streaming has gone from when we started this business model 10 years ago. When you said to look at the number of different ways that streaming has been used, and we, of course, have our ears to the ground and there's all sorts of other interested parties out there. I think it underscores success.

Success always breeds competition and it underscores how strong the model is. There's no doubt there's more interest in this model, in this business style. We still see lots of capacity for that. We do think this is becoming a more attractive means of mine financing. So I think there's still lots of capacity even for the new players that are coming into the space, and still to keep a healthy opportunity set for us.

Perfect. Great quarter and enjoy the weekend, guys.

Michael Gray with Macquarie Capital Markets.

Yes. Good morning, guys.

Just a question on the Penasquito pyrite leech upside. I think I heard it correctly -- 25% of maybe up to 4.5 million ounces of silver once Goldcorp maybe gets a [pre feast] on. Was there any silver associated with the other project potential silver out of the copper stream?

Oh, definitely. Yes. We say copper stream, I think you mean the copper concentrate that they're talking about producing?

Yes.

It's a combination. What they're looking at is producing a copper concentrate, which we see from the Chile Colorado zone has always had higher copper grades than the Penasco zone, so they're shipping production into that space. But they're also seeing some good copper numbers out of this skarn exploration they're doing, and both of those come with healthy silver credit. So, yes it's definitely exciting news for us. The project is maturing into the asset that we've always known that it can be.

Okay. Thanks.

And last question on San Dimas -- 2018 production, looks like you're estimating 6.24 million ounces of silver, whereas the contract's going to be a minimum of 6 million. So would it be fair to say you're being conservative on that front vis-a-vis any future expansions?

Possibly. First off, it's not a minimum of 6 million. What it is, we get 100% of the silver up to 6 million. So, there is no minimum.

Right. Right. Sure.

But at that point we'll be getting 100% of the silver up to 6 million ounces and then after that we share. I got to tell you, Joe Conway and the guys at Primero have done a fantastic job with that asset. It continues to perform. They're investing into the asset and it is delivering great returns.

And so we do see Primero. They are studying further expansion beyond the 2500 tonnes per day. I would stay tuned and listen to what Primero has to say over the next -- I think it's by the end of this year they expect to have some decisions, or maybe early next year. That will definitely increase capacity, the longer term capacity. So we are basing our long-term numbers on that lower number right now.

Okay. Thanks guys.

Thank you, Michael. Last question please, Operator.

Scott Morrison with Dundee Capital.

Good morning and congratulations on the good quarter. Just a housekeeping question for us.

When we look at payable levels in the quarter, they are around 91% to 92%. What do you expect that to be, going forward through this year? And then through 2015, as Salobo and Constancia ramp up?

We would expect that the payable factor will remain about the 90% level.

Okay. That's great. Thank you.

Great.

Well, thank you for dialing in, everyone. Just a couple of closing comments here.

Our first quarter represented a very strong start to what I call a pivotal year for Silver Wheaton with San Dimas expansion, Totten mine coming online, the Salobo mine ready to turn on the switch -- the second line at Salobo ready to turn on the switch any day now -- Constancia coming on towards the end of this year. 2014 is truly a pivotal year for Silver Wheaton. Plenty of catalysts within 2014 and within our current pipeline. And given how bright the environment is out there right now, we do think that there is ample opportunity to continue to grow our portfolio.

One last final reminder -- we have our annual general meeting today here in Vancouver. If anyone is in Vancouver, welcome to come and join us at the Fairmont Waterfront Hotel at 1:00 PM today. So, thanks for dialing in, everyone, and stay tuned.

This concludes the conference call for today. Thank you for participating. Please disconnect your lines.