Wheaton Precious Metals Corp (WPM) 2014 Q3 法說會逐字稿

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

Welcome to Silver Wheaton's 2014 third-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 Wednesday, November 12, at 11.00 AM Eastern time.

I would now like to turn the call over to Mr. Patrick Drouin, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, ladies and gentlemen. Thank you for participating in today's call. I'm joined today by Randy Smallwood, Silver Wheaton's President and Chief Executive Officer; Gary Brown, Senior Vice President and Chief Financial Officer; and Haytham Hodaly, Senior Vice President, Corporate Development.

I'd like to bring to your attention that some of the commentary in 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.

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 and gold 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. Thanks for dialing into our third-quarter 2014 conference call.

The strength of Silver Wheaton's streaming model was once again highlighted in what can only be described as a challenging third-quarter for precious metals. Despite a substantial drop in precious metal prices during the quarter, we continued to generate cash operating margins of over 70% while maintaining one of the highest production levels in the silver industry.

During the quarter, we once again saw excellent progress at two of our key growth platforms, Salobo and Constancia. The Salobo mine reached record production as their expansion continues to ramp up. And construction at the Constancia project keeps moving forward, with the mind remaining on-track to first production any day now.

While our overall production and margins remained strong in the quarter, lower commodity prices did impact two of our smaller assets, Mineral Park and Campo Morado, both of which, we recognized an impairment charge against. Gary Brown, our Senior Vice President and Chief Financial Officer, will provide more detail on this shortly.

Despite this, we remain confident in our portfolio. As a reminder, 86% of our current production comes from mines in the first cost quartile of the respective cost curves. I would challenge you to find a higher-quality portfolio of our size anywhere in the precious metals space or in the mining industry in general.

With respect to the third quarter, our production was 8% lower than the comparative period last year, at a 8.4 million silver equivalent ounces. However, silver equivalent sales volumes were 12% higher than the comparative period last year, coming in at a 8.7 million ounces. Our average realized sale price per silver equivalent ounce was 11% lower than Q3 of 2013.

As mentioned, despite the lower commodity prices, we once again maintained a healthy cash operating margin, with cash flows in excess of $120 million. Speaking of cash flows, our quarterly dividends continue to deliver 20% of the average cash generated by operating activities in the previous four quarters. The dividend remains linked to our ability to make additional accretive acquisitions, commodity prices, and the Company's organic growth profile, which is shaping up nicely with Salobo [doss, or] Salobo II, ramping up and Constancia on the verge of commissioning.

Despite the volatility of the markets, our dividends are sustainable, as evidenced by our third quarterly dividend payment of 2014 of $0.06 per share. In addition, our recently implemented dividend reinvestment program continues to be well received.

Throughout the third quarter, there was a steady downward trend in precious metal prices that continued into the fourth quarter. The trend was generally related to the strengthening US dollar, due to improving economic indicators, as well as the pullback and quantitative easing by the US Federal Reserve.

Despite the near-term downtrend, we remain bullish on precious metals in the longer-term. That being said, given the emergence of our key growth platforms over the next couple of years, we look forward to improving production, cash flows, and as a result, our dividends, even in a flat gold and silver price environment.

On the corporate development front, evidence continues to show that streaming provides an attractive funding solution for both large and small miners, by always improving internal rate of return in any investment. However, because of the current commodity price environment, the focus of most major mid-tier mining companies is on shaving cost structures, with very little capital being invested right now. With this, most of our growth opportunities currently relate to helping existing producers strengthen their balance sheets, assisting in asset acquisitions, or providing support to single asset companies.

Of course, the current weak equity market does open up plenty of opportunities with early deposit structure agreements, as earlier stage single assets need capital to reach that bankable feasibility stage where they can then access the debt markets. But our continual focus on ensuring that we invest into well-managed, high-quality assets, producing in the lowest half of their respective cost curves, means that we will continue to be patient and wait for the right opportunities.

Finally, on a bit of a celebratory note, Silver Wheaton recently marked the ten-year anniversary of streaming, a model that we created in October of 2004 when we signed the very first streaming agreement on the San Dimas mine. Over our first ten years, the Company has grown to have over 20 assets in the portfolio, including such cornerstones as San Dimas, Penasquito, and Salobo. Our streaming model has been adopted across the industry and is now recognized as of valuable way for traditional mining companies to raise funds and crystallize the value of their non-core precious metals production.

Our business model is based on the premise of paying low, predictable costs for precious metal streams from a diverse portfolio of high-quality mines, so any increases in precious metal prices flows directly to our bottom line. Case in point, over our first ten years, Silver Wheaton's share prices climbed over 500%, while the price of silver has rose just under 140%. We are proud of the value that we have created over the first ten years and look forward to further opportunities over the next ten.

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 un-audited financial results for the three months ended September 30, 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 interests generated 8.4 million silver equivalent ounces of attributable production in the third quarter of 2014, 7% lower than production from the comparable period of the prior year, due primarily to lower production from San Dimas and 777, with such being partially offset by increased production from the Yauliyacu, Salobo, and Minto. Of the overall production, approximately 28% was gold, with the remainder being silver.

Payable silver equivalent ounces produced but not yet delivered by our partners amounted to 4.7 million ounces as of September 30, 2014, a decrease of approximately 1.3 million ounces over the quarter, with the largest decrease relating to Yauliyacu. Silver equivalent sales volumes amounted to a 8.7 million ounces in Q3 2014, representing a 12% increase from Q3 2013, attributable to increased silver deliveries relating to Yauliyacu, Penasquito and Minto.

Revenue for the third quarter of 2014 amounted to $166 million, consistent with the comparable period of the prior year, despite an 11% decrease in the average realized silver price -- per silver equivalent ounce sold, with such being $18.98 for Q4 2014. Earnings from operations for the third quarter of 2014 amounted to $82 million, representing a 10% decrease relative to the third quarter of 2013, with operating margins decreasing by 5% to 49% in the third quarter 2014, due to lower commodity prices.

Cash-based G&A expenses were $6.4 million in the third quarter of 2014, representing a 10% decrease from Q3 2013, with such been primarily attributable to a decrease in the expense relating to potential payouts under the Company's performance share unit program. The Company now expects non-stock-based G&A expenses, which excludes expenses relating to the value of stock options granted and PSUs, at the lower end of the previously provided range of $31 million to $34 million for 2014.

During the third quarter of 2014, the Company recognized an impairment charge of $68 million, relating to its silver interests in Mineral Park and Campo Morado. The value of the Mineral Park interest was impaired by $37 million, resulting in a carrying value of nil at September 30, 2014. This impairment was recognized as a result of Mercator, the parent company that wholly owns Mineral Park, filing for bankruptcy during the quarter, combined with the uncertainty associated with the recovery of proceeds from any potential sale of Mineral Park, especially in light of the current low commodity price environment.

The impairment charge relating to Campo Morado amounted to $31 million, resulting in a carrying value of $25 million as of September 30, 2014. This impairment was recognized as a result of the continued deterioration of ore grades associated with the G9 deposit and the uncertainty as to whether any other satellite deposits can be economically processed. This resulted in a reduction of the estimate of future production from Campo Morado, which in turn gave rise to the impairment charge.

It is important to highlight that Mineral Park and Campo Morado represented two of the higher-cost producers in our portfolio. And reinforce that 86% of Silver Wheaton's current production is derived from mines that operate in the lowest quartile of their respective cost curves. It is also important to highlight that the Company has recovered more than its original investment on both of these streams.

Net earnings, adjusted to neutralize the effect of the impairment charges, amounted to $73 million in the third quarter of 2014, compared to $77 million in the comparable period of the prior year. With adjusted basic earnings per share decreasing by 9% to $0.20 per share in Q3 2014, from $0.22 per share in Q3 2013, with the decrease been primarily attributable to the decrease in commodity prices. On adjusted net earnings amounted to $4 million or $0.01 per share for the third quarter of 2014.

Offered and cash flow for the third quarter of 2014 amounted to $120 million, compared to $119 million in Q3 2013. This translates into operating cash flow per share of $0.34 and results in a dividend of $0.06 per share being payable to the shareholders of record on November 26, 2014.

Under the dividend reinvestment plan, the Board has elected to offer shareholders the option of having their dividends reinvested in newly issued common shares of the Company at a 3% discount to market. During the third quarter of 2014, the value of the Company's long-term investment portfolio of shares in publicly listed mining and mineral exploration companies decreased by $24 million, which has been reflected of the statement of other comprehensive income.

The operational highlights for the third quarter of 2014 included the following; San Dimas contributed 1.3 million ounces of silver production and sales, including 125,000 ounces being received directly from Goldcorp, relating to their 40-year commitment to deliver 1.5 million silver ounces per year, which ended on August 6 of this year. This compares to silver production and sales in Q3 2013 of 1.7 million and 1.6 million ounces, respectively, including 375,000 ounces of silver being received from Goldcorp.

The year-over-year reduction in attributable ounces produced relating to San Dimas is due to a combination of the cessation of the supplemental ounces being delivered from Goldcorp and the mining of lower-grade material. The annual threshold of payable ounces produced, above which Primero is entitled to retain 50%, increased from 3.5 million ounces to 6 million ounces, effective August 6, 2014.

The Yauliyacu mine generated attributable silver production of 875,000 ounces during the third quarter of 2014, representing a 37% increase from the comparable quarter of the prior year, with such increase being primarily attributable to significantly higher grades.

Silver sales for the third quarter of 2014, relative to Yauliyacu, amounts to 1.4 million ounces, compared to 13,000 ounces in Q3 2013, with the substantial increase being attributable to higher production and a significant reduction in payable silver ounces produced but not delivered, as compared to a substantial buildup in such during Q3 2013. As of September 30, 2014, approximately 900,000 ounces of payable silver had been produced at Yauliyacu but not yet delivered to Silver Wheaton.

Salobo produced 10,415 attributable ounces of gold, or 718,000 silver equivalent ounces, during the third quarter of 2014, representing a 29% increase from the comparable period of the prior year and a record for the Company. The increased production is due to the continued successful ramping up of the Salobo II expansion of mill throughput capacity from 12 million to 24 million tonnes per annum.

Gold sales relating to Salobo lagged production during the quarter, with 7,180 ounces of gold, or 495,000 silver equivalent ounces, being delivered and sold during Q3, 2014. With gold ounces produced but not shipped increasing by almost 3,000 ounces during the quarter. As of September 30, 2014, approximately 8,000 ounces of payable gold, or 500,000 silver equivalent ounces, had been produced at Salobo but not yet delivered to Silver Wheaton.

The Sudbury gold interest produced [5,000 916,000] (sic - see press release, "5,916") ounces of gold, or 396,000 silver equivalent ounces, in Q3 2014. This represented a 19% reduction compared to Q3 2013, with the decrease being attributable primarily to the mining of lower-grade material.

It is important to note that, given the length of the process associated with producing the final products relating to the Sudbury mines, reported production for the most recent quarter represents an estimate of actual production and will be adjusted once actual production information is available. In this regard, actual gold production for Q2 2014, was 1,387 ounces, or approximately 90,000 silver equivalent ounces, higher than had been estimated in the MD&A for Q2 2014.

As of September 30, 2014, approximately 11,200 ounces of payable gold, or 794,000 silver equivalent ounces, had been produced but not yet delivered to Silver Wheaton, relative to the Sudbury mines.

Overall, the Company's cash balances increased by $94 million in the third quarter of 2014, with the $120 million of cash flow from operations being partially offset by $18 million of dividend payments and $9 million of cash disbursements relating to investment activities. With the latter primarily relating to the Company's investment in the Metates Royalty during the quarter.

It is important to note that the Company did satisfy the $135 million payment obligation to Hudbay, relating to the Constancia gold interest, through the issuance of shares. As this was a non-cash transaction, it does not appear the statement of cash flows.

As of September 30, 2014, the Company had $233 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 its funding commitments, sustain its dividend policy, while at the same time providing flexibility to consummate additional accretive precious metal purchase agreements.

Lastly, there has been no substantial change in the status of the audit of the Company's taxation years 2005 to 2010 by the Canada Revenue Agency.

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

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

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

(Operator Instructions)

Andrew Quail, Goldman Sachs.

Morning Randy, Gary, Patrick, and Haytham. Just a couple questions. First thing, congratulations on a pretty solid quarter.

On the balance sheet, obviously last year, a lot investments -- the debt -- went up. Obviously starting to pay it back and harvest that investment. Is there a level, Randy, that you guys are targeting or that you'd be more comfortable with -- of having debt on the balance sheet?

Yes, Andrew. Right now, we're trading. We monitor our EBITDA, debt-to-EBITDA ratio, and we're trading at about 1.7 times EBITDA. That ratio is about 1.7 to 1.

I wouldn't want that to go much over two on a long-term basis. We're certainly very comfortable with where the debt is today. And as I think we've been pretty clear, to the extent that we consummated a significant transaction -- new transaction -- we would likely look to raise equity in conjunction with that.

Yes, that's great. And that's coming down -- that 1.7 on pretty much most [tables] numbers.

I probably ask you this all the time, but obviously silver has under-performed gold. Can you give us a bit of insight into the portion or the number of gold projects versus silver projects you're looking at currently? And is that changing, given the pricing environment?

Yes, Andrew. You're right. Silver has under-performed on the way down. Silver has always had a much higher [beta], much higher volatility than gold.

That always equates to outperforming on the way up, also, I might point out. So it does go in both directions. And there's no doubt that we have suffered a bit more than the gold space.

In terms of what we're looking at out there, we are from -- silver focused. Although, we like gold assets, and if we see good quality gold assets, we definitely will step in and invest into that space.

The opportunity set that we see right now is probably slightly biased towards the silver side. There's a lot of assets that have both silver and gold as a byproduct, and both can be used with streaming and such. And so when I sit and look at it from that perspective, it's probably a slight bias towards the silver side, versus the gold side.

Yes, great.

And last one -- just obviously, on the long-term growth, you guys have obviously always focused on the 48 million ounces silver equivalent [versus 18 million]. And that implies a couple of expansions at your current streams. Is there something else that has to happen with your current portfolio to get there?

Sure. Well, the key -- most of that will actually be delivered over the next couple of years -- most of that growth.

The only project that's farther out in that timeline before 2018 is, of course, Rosemont, which Hudbay just recently acquired and is working their way through trying to finish it off. That's the only outstanding capital commitment that we have, in terms of achieving that 2018 target.

And of course, we haven't funded that yet. We don't start funding until construction starts on that project.

So hopeful that something moves forward over the next year, with respect to Rosemont. And that we're even more than happy to step up and help Hudbay built that one.

Thanks very much, Randy. Cheers, guys.

Always good talking to you and to you, Andrew. Thanks.

(Operator Instructions)

Cosmos Chiu, CIBC.

Morning Randy, Gary, Patrick, and Haytham. And thanks for hosting the call. Congrats on the ten-year anniversary. Certainly has been a very good ten years.

Thank you, cosmos.

I got a few questions there. Maybe first off, on the write-downs. I read that as part of the settlement of the Mineral Park stream, it sounds like you've decided to forgo any future claims at the asset level. Certainly, you can still make claims at the corporate head office level.

I just want to get a bit more detail on that. I would've thought that you'd want to maintain some kind of claim at the asset level, just in case it gets picked up by a future operator as it would start production once again. And your claim, in terms of the stream, would still be on it. Just want to get some more clarity on that.

Yes, Cosmos. It's Gary, here.

It's a tough call. When you look it, the silver from Mineral Park represented about 4% of overall economics. That mine has a lot of moly credits associated with it. And moly is down below $10, as I understand it, right now. And so it's actually below their average cost of production.

So the chances of that mine being sold for a significant number, in our eyes, is pretty low. And we would likely only be entitled to -- we had security over the silver contained in the ore body and silver produced.

So we were looking at being involved in a very long, drawn out legal process that could have cost us a fair amount of money, with little likelihood of there been any significant proceeds at the end of the day. So we made the call to arrive at the settlement that you just outlined, with -- while we maintain the ability to pursue claim against the parent company.

Of course.

Maybe Gary or Randy, could you maybe talk a little bit about the security on the other streams as well? Are they posting at the asset level? Are they at the corporate level? Maybe a bit more detail on that as well?

Yes, Cosmos. It varies for every asset and for every Company. I mean, security is always [related] to the strength of the partner, the strength of asset. And so it's a broad range that does the full spectrum from down at the asset level, all the way up to the parent level, to parent [guarantees]. Every contract is different, and we assess that risk from that perspective.

I mean, to quickly summarize what Gary just said, in my eyes, we've just cleaned up our portfolio a bit. This wasn't an asset that fit into our target asset portfolio of being in the bottom half of the cost curve. And so I would describe this as cleaning up our portfolio and focusing on those stronger assets.

Yes, of course.

And I certainly understand that, for both Mineral Park and Campo Morado, these are two streams you don't usually give out a lot of details in terms of quarterly productions that report back to your streams. But--

Yes. They -- I mean, combined, they represent 3% of our total production. Mineral Park is 1% of our total production. So these are very small assets.

Yes.

How would you project that? Is Mineral Park pretty much done, in terms of future production? We should still see some contribution coming from Campo Morado, though, right? Is that how I should look at it?

Oh, in terms of -- from our side?

Yes.

Yes. Campo Morado continues to produce, going forward. Nyrstar is continuing to work on trying to improve the metallurgy on those other deposits there.

There's plenty of resource there, it's a matter of just fine tuning that metallurgy and seeing if they can find a way to get it done. And when we had a look at it, we just decided that we had to change the way we were looking at that asset, in terms of future production and felt this was a good time to clean it up.

Of course.

Maybe if I could switch gears a little bit -- looking at your full-year guidance, Randy and Gary, it looks like you've reconfirmed 36 million ounces, at this point in time. You've done about 26 million so far, in the first nine months. Are you still quite comfortable with your full-year guidance, given that it would essentially imply 10 million ounces of silver equivalent in Q4?

Yes. We've got a number of things that are happening, here in the fourth quarter, that are contributing to that. And it should give -- should make our fourth-quarter the best quarter that we've ever had.

Salobo, of course, is continuing to ramp up. San Dimas -- we finished the silver sharing process with Primero, and so we get 100% of the silver production for the fourth quarter from San Dimas. And the asset continues to outperform.

Sudbury itself -- the Totten Mine is coming on. So we continue to get improvements there. And as Gary went into detail during his discussion, we -- it constantly gets upgraded, in terms of actuals versus estimates that are made of the end of the quarter. And so generally, during year-end, they do a better job of getting to the final numbers, or at least tighten that up a bit. So we should be good there.

Constancia, of course, is coming up -- should be turning on the switch any day now. And Veladero has also got some good, high grades coming into it. I just -- when we add it all up, we're still pretty comfortable with that 36 million ounce forecast.

Yes. Of course.

And maybe one last question from me. I saw that in Q3, sales exceeded production by quite a bit. As we all know, usually that doesn't happen until Q4, when operators are trying to catch up. Is there any kind of read-through, in terms of how we should look at Q4, Randy?

Yes. Well, the reason it was so high in Q3 was Yualiyacu. If you remember, we didn't have a lot of sales from the Yualiyacu in Q2. And that -- it just missed.

I think we mentioned it during our last quarterly conference call, that it had been delivered three or four days after the quarter end -- Q2 quarter-end. And so we had a huge drop in Yauliyacu.

It continues to be tough to forecast. I generally say that, in our Company, we should look at produced but not yet delivered as being about two to three months of production. And as our production climbs, that number, itself, will also climb, because it is relative to that. And so it's tough to give better guidance than that.

The one thing I will say is that, traditionally, companies tend to try and squeeze that pipeline a bit and try and move materials out in the fourth quarter just improve year-end results. And we have seen that, traditionally, and so we hope that pressure is still in place for Q4.

Okay, great. Thanks a lot. That's all I have.

Cosmos, always good talking to you.

Garrett Goggin, Gold Stock Analysts.

Hey, guys. Thanks for the call.

A couple questions, one regarding Salobo. What rate is it processing at right now?

It's ramping up. The first line is essentially running at full capacity, at 12 million tons. And then the second line is running at -- sorry, I'm just digging up some numbers.

It was an average of 70% across both lines in Q3.

Yes.

Okay.

So total capacity is 24 million tons per annum right now. And it's running at about 70% of that.

Got you.

And when is it expected to hit the full 24 tons?

Their guidance is towards the end of next year.

Okay. Excellent.

And that adds up. When we look at how long it took them to ramp up the first line and get to the full capacity -- and we know they're going to be better the second time around. There will be lessons learned, in terms of the first ramp up. And so that schedule fits very comfortably with the experience on the first line.

Okay. Good, thank you.

And then Constancia -- that's going to be kicking in pretty soon. What sort of contribution you expected, in terms of gold and silver, from Constancia?

Well, during the start up -- I mean, they don't expect to reach full production until towards the end of next year or latter half of next year. The [Papaconcha] zone is the gold-rich done. And when they bring that in, it will actually bump our gold production from that side.

So for the first -- it takes them a bit to get in that Constancia -- or sorry -- into that [Papaconcha] zone. But from years two to four or five, we will be averaging about 4 million silver equivalent ounces per year from the asset. That's about -- I think it's around 2.5 million ounces of silver, and the rest of it comes from gold.

Okay. Good. That's good color. I appreciate it. Thank you very much for your answers.

Great. No problem, Garrett.

Charles Gibson, Edison.

Good morning, chaps. Thank you, and well done on a right solid quarter.

I wonder if I could just ask two questions.

Thank you.

Not at all.

First one, on -- just picking up on your points, there, when you were answering Cosmos' question about Campo Morado -- is there any scope, do you see, in the light of that, that you might be able to write back some of the impairment? Or, is that not something -- I assume it's not something you anticipate. But does that scope -- does that possibility exist?

That's question one, and if I may, just question two. In your statement, you said that actual gold production in the second quarter was 1,387 ounces higher than had been estimated. This is at Sudbury. And you talk about that in terms of the long process line.

I just wonder, does that mean you will, in effect, be restating your second-quarter results? Or I suppose, put another way, how are you going to account for that when we come to the full-year?

I'll take both of those questions, Charles. It's Gary Brown, here.

With respect to your first question on Campo, the write-down was $31 million. And for sure, to the extent that some of these satellite deposits that they're pursuing turn out to be economical to mine, we could certainly see that -- writing that back up. We wouldn't increase the carrying value for it beyond what we originally had, so we wouldn't have a recovery of more than $31 million if we did that.

With respect to your second question, production is always just an estimate, from our perspective, until we get final numbers from our parties. And Sudbury tends to be one that we -- that the actual production numbers aren't known by the time we release.

So we continually update production. And what -- we don't restate our financials because production has no impact on the actual financial statements themselves. But we do highlight in the quarterly financial review -- in our MD&A -- what the changes are for past production estimates.

Okay. I understand.

If -- yes. On page 14 of our third-quarter report, we've included an analysis of the difference between what we've originally estimated as production and what the actuals were. For Q3, I think, as Randy indicated, we -- for Sudbury, we had three production reports for each of the months -- July, August, and September. But all of those were just estimates from the partner.

We've received no final production reports for Q3, at this point. Traditionally, production from Sudbury has been in the neighborhood of 20% to 30% higher than their estimates.

Okay. Excellent. Thanks very much, indeed.

Thank you, Charles.

Jon Tumazos, John Tumazos Very Independent Research.

Thank you for taking my call. And I think the results are good, all things said. Sometimes, life is a little rougher than others.

Thank you, John.

Over the years, different royalty or streaming companies described their businesses. And I think it's the words of Franco Nevada, your peer, I recall, emphasizing that their royalties or streams are written into the deed and would survive a bankruptcy or enforceable.

And should we read into the various events of the last year, including your own impairments today, that -- well sometimes, the mine economics matter or the parent's economics matter or the legal fees in a couple of different countries between the parents and the subs. The attorneys just charge a lot of money. And it's not always worth the trouble?

Or in effect, that your top five royalties or streams, you would defend to the last. But the little bitty ones -- those attorneys charging $500 an hour just eat you up?

Well, what I would say, the best defense, of course, is making sure that you invest into good-quality assets. And that's what our focus has always been in this.

Now that being said, obviously, Mercator has had some challenges with respect to (inaudible). And so we've gone through this.

And it comes down to a decision on our side. Do we want to fight the fight out, or is it better for us to -- in our eyes, we've done well on this investment. We are ahead of the game, in terms of our original investment back in and out. And we look at this almost, as I mentioned earlier, as a chance to just clean up the portfolio and continue to improve the quality of our asset base on the percentage thing.

So each assets -- and you're correct. I would say that our top five assets, our top five producers, are very long ways away from the risk of any type of issues like this because they are very profitable assets. That -- and so that's the best defense against that.

Thank you.

Great, John. Thanks.

Dan Rollins, RBC Capital Markets.

Yes. Thanks very much. Good morning, guys.

Just a couple quick questions. With respect to the stress testing of Campo Morado asset, can you provide a little clarity on what sort of silver price assumptions and discount rates [seem to be] driving that valuation, if possible?

Yes. We would have been using silver prices in the $16 to $16.50 range for that. And we would have been using a discount rate in the 12% range.

Okay, great. Perfect.

And then maybe, Randy, Haytham -- you recently made an acquisition of the Metates Royalty. Not too sure if this is a one-off type of opportunity, but given a long-term view of the industry, would you look at potentially picking up royalties on projects that have the potential to be developed within the next price cycle or a subsequent price cycle in this current market? Or is it really -- is the Company still really just concentrated on streaming acquisitions?

Yes. The challenge with royalties is scale. And what came with the Metates was developing a relationship with the whole Chesapeake team -- Randy Riefel and his team there -- and a commitment towards being able to help them on a larger scale once that next price cycle hits.

And so we look at this as sort of the first step of an ongoing process. It's a matter of -- when you look at that [size] -- when we look at most royalties, they're just not big enough to add to our balance sheet. So we're quite happy, in terms of taking that step, as long as it reflects the opportunity to grow into something larger.

Perfect.

And then, not too familiar with the -- what the Totten mine is going to produce. But what type of impact do you expect that could have on production -- payable production for you guys (inaudible) steady-state?

Well, it'll continue to ramp up. It's got a bit higher grade, in terms of precious metal grades, -- I'm sorry -- gold grades, relative to the other deposits itself, moving forward. I don't have the numbers here.

That's okay.

Yes. It's just, when you look at the reserve base, it has a bit higher gold grades than everything else in the portfolio. So as it gets added in -- and it is a very gradual ramp up, as a lot of those deeper, underground mines have.

They have to build more and more working faces, which means more sub-level development. And that's a very graduated process. But no doubt, the higher grades that come from that will contribute overall.

Yes. I think that Totten is actually expected to deliver about 9% to 10% of our overall production from Sudbury.

Okay, perfect. Thanks a lot, guys. And congrats on a great quarter.

Thank you, Don.

[John Paul Soto], BMO Capital Markets.

Hi, guys. Congratulations again on a wonderful third-quarter.

Thanks, John Paul.

My question is in regards to the asset highlights. You had mentioned a correction by Goldcorp back from December 31, 2013. I was wondering how you guys see that playing out on your side?

Sorry. How did it play out on our side?

Yes, with regards to the increase there -- the resources and how it's going to effect--

Oh. Well, obviously what -- yes. So Goldcorp went back and [repressed] their reserves, based on updated commodity price and such. And if you remember at the start of this year, had a pretty fair-sized drop in reserves. I think they were from 18-year mine life down to about a 13-year mine life, so in the lower-grade portion.

It was a correction. The original point that came out, there was -- I don't want to describe any more than what Goldcorp described it -- a correction, in terms of one of the tables in their updated report was incorrect.

And when I got corrected, it came in after our year-end, and so -- earlier this year -- and so that's added to some of those. I would look at as being some of those reserves, ultimately, shifted over into the resource base itself and have now been reported on the resource side. As they're working on a number of different -- and for that, to our benefit, we get the benefit of 25% of the silver contained in those updated resources.

Goldcorp continues to work on both the copper concentrate option and the pyrite treatment system, which may go a long ways towards being able to bring in that resource back into a reserve status. And then they've also had additional success and continue to work towards having that northern well field in place, which will mean water isn't a limiting factor anymore in the operation, and that will also help.

They've also had additional exploration success with respect to the deeper skarn mineralization. In fact, now it looks like some of that may be [open-pitable].

So overall, we see the next few years at Penasquito being pretty exciting. This, though, was really just a correction, in terms of the original adjustment that was made in the reserves and not being reflected into resources.

Okay. Thank you so much.

No problem, John Paul.

Michael Gray, Macquarie Capital Markets.

Yes. Good morning, guys.

Just, [I'm] following up on Penasquito. How do you see it contributing to this strong fourth-quarter you're projecting -- 10 million ounces silver equivalent? Is it going to be one of the ones? I didn't hear you mentioned that Gary?

Yes, it continues to improve. We do see continued improvement.

Grades are still a little bit lower for the rest of this year but should be ramping up. Penasquito is going to reach its prime in two to three years -- some of the best grades that they see come out in their mine schedule. That's all laid out in [many of the technical] reports that have been filed on it.

Yes.

So what we is, over the next couple of years, it's going to continue moving forward. We just don't see any bump in grades in the next quarter.

Do you see any opportunities, with respect to the metallurgical projects? According to Goldcorp, they're going to combine the pyrite leach and copper concentrate. Is that -- do you see an opportunity there for Silver Wheaton?

Definitely. The initial estimates that they've got on that was that it will contribute more than 1 million ounces of silver towards us -- about or 1.125 million or 1.25 million ounces of silver -- additional silver production on a yearly basis towards our credit. And so it's definitely something that we're following closely and do hope that they make the right decision in that field.

Okay, thanks.

Michael, thank you very much.

And thank you, everyone, for dialing in. I just want to make a couple of closing comments are.

While we acknowledge that the precious metals space is certainly at a challenging point of the cycle, the cost base of most mining companies leads us to believe that we are near bottom, which is typically the best time to buy a commodity. We continue to believe that Silver Wheaton offers the best option for gaining exposure to precious metals, while also offering tangible, organic growth, which will grow out cash flows and thus, our dividends, even if prices stay at their low levels in the near-term.

So we thank you for your interest in Silver Wheaton, and please stay tuned. We should have a very good fourth quarter.

This concludes today's call. Thank you for participating. Please disconnect your lines.