Wheaton Precious Metals Corp (WPM) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Silver Wheaton's 2015 first-quarter results conference call.

(Operator Instructions)

Thank you. I would like to remind everyone that this conference call is being recorded on Friday, May 8, at 11 AM Eastern time. I will now turn the conference over to Patrick Drouin, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Sharon. 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; 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 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. In addition to our financial results' cautionary note regarding forward-looking statements, please refer to the section entitled, Description of the Business: Risk Factors, in Silver Wheaton's annual information form 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 and including among others fluctuations in the price of commodities, the absence of control over mining operations from which Silver Wheaton purchases silver or gold, and risks related to such mining operations.

Lastly, it should be noted that all figures referred to in 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 2015 conference call.

2015 has started out strong for Silver Wheaton. For the first time in our history, we have produced over 10 million silver-equivalent ounces in one quarter. This record production was driven by the first contribution of gold and silver from the Constancia mine in Peru, along with the acquisition of an additional 25% of gold from the expanding Salobo mine in Brazil. Both of these streams should see further gains over the course of this year. The Salobo mine is currently ramping up production after expanding in mid-2014, and the Constancia mine reached commercial production just last week.

Overall, the first quarter of 2015 represents a strong start to what we believe will be a prolonged period of fully funded organic growth for Silver Wheaton. In the first quarter, we reached record production of 10.4 million silver-equivalent ounces, a 15% increase from the comparative period last year. While the quarterly sales volumes of 7.7 million ounces did not reflect the record production, we recognize that this is simply a timing issue and we fully expect to see increased sales as the year progresses.

Due to weak commodity price markets, our average realized sale price per silver-equivalent ounce was 17% lower than Q1 of 2014. These lower prices obviously impacted our net earnings, as Gary will discuss later. However, despite the low commodity prices, we once again maintained a healthy cash operating margin of around 70%, with cash flows of nearly $90 million.

And while speaking of cash flows, our quarterly dividends continue to deliver 20% of the average cash generated by operating activities from the previous four quarters. Dividends remained linked to commodity prices, our organic growth profile, and our ability to make additional accretive acquisitions. The first quarter was challenging, as silver and gold prices were once again volatile and averaged only slightly above where they were in the previous quarter. Despite this volatility, our dividend policy proved its sustainability, as evidenced by our second quarterly dividend payment of 2015 at $0.05 per share.

On the corporate development front, we're still continuing to focus on finding high-quality, well-managed assets producing in the lowest half of their respective cost curves. On March 2, we acquired an additional 25% of the life-of-mine gold production from Vale's world-class Salobo mine. While production from this additional stream began accruing retroactively to generate first of this year, the impact of sales will not truly be felt until the second quarter as concentrate sales are realized. And with this acquisition, we are well on our path to 43.5 million silver-equivalent ounces of production this year. In 2019, production should achieve 51 million silver-equivalent ounces, with most of that fully funded growth occurring in the next two years.

In the current environment, there is little capital being invested by the industry. Consequently, many of the opportunities under consideration are focused on helping existing producers to strengthen their balance sheets or to assist in asset acquisitions. We already have a strong, fully funded organic growth profile and we recognize that we do not need to do deals simply for the sake of growth. So as we continue to look for new opportunities, we will be ever-vigilant to pursue only accretive acquisitions that benefit all of our shareholders.

In conclusion, we believe that 2015 will be a record year of production for Silver Wheaton. Both Salobo and Constancia are expected to reach full capacity by the end of the year. And we look forward to continued optimization of the San Dimas and Penasquito mines. And finally, we continue to see some very good opportunities to add additional accretive ounces to our existing portfolio.

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, 2015, 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 record attributable silver-equivalent production of 10.4 million ounces in the first quarter of 2015, 15% higher than the production from the comparable period of the prior year, due primarily to higher production from the Salobo mine. Approximately 61% of this production related to silver, with the remainder relating to gold.

Silver Wheaton's sales volumes were lower than expected at 7.7 million ounces in Q1 2015, representing a 5% decrease from Q1 2014, due primarily to an estimated 1.6 million silver-equivalent ounce buildup in precious metals produced by our partners, which will be delivered to Silver Wheaton in future periods. As of March 31, 2015, payable silver-equivalent ounces produced but not yet delivered by our partners amounted to approximately 6.5 million ounces. It is important to remember that we estimate a normal level for ounces produced but not delivered to equate to approximately 2 to 3 months worth of payable production. So our expectation is that this balance will grow over 2015, as both Constancia and Salobo continue to ramp up production.

Revenue for the first quarter of 2015 amounted to $131 million, representing a 21% decrease from the comparable period of the prior year, due to a combination of a decrease in sales volumes and a 17% decrease in the average realized silver-equivalent selling price, which was $16.90 per ounce for Q1 2015, compared to $20.38 per ounce for Q1 2014. Earnings from operations for the first quarter of 2015 amounted to $64 million, representing a 30% decrease relative to the first quarter of 2014, with operating margins decreasing by 6% to 49% in the first quarter of 2015, due to lower commodity prices.

Cash-based G&A expenses amounted to $6 million in the first quarter of 2015, representing a decrease of $2 million from Q1 2014, with such decrease being primarily attributable to lower compensation and legal costs. The Company now estimates that non-stock based G&A expenses, which exclude expenses relating to the value of stock options and PSUs, will be approximately $30 million to $32 million for 2015, slightly lower than previously estimated.

Interest costs for the first quarter of 2015 amounted to $4.1 million, resulting in an effective interest rate on outstanding debt of 1.8%. Of this interest, $2.6 million was capitalized in the Pascua-Lama mineral interests, resulting in $1.5 million of interest being expensed in the calculation of net income.

Other expenses amounted to $2 million for the first quarter of 2015, which reflects the expensing of $1.3 million of debt issue cost relating to the non-revolving term loan, which was fully repaid and terminated during Q1 2015. An income tax expense of $3 million was reflected in the statement of earnings for Q1 2015, with an offsetting deferred tax recovery of $4 million, relating to share issue cost incurred during the quarter being reflected in the statement of shareholders' equity.

Net earnings amounted to $49 million in the first quarter of 2015, compared to $80 million in the comparable period of the prior year, with basic earnings per share decreasing to $0.13 per share, from $0.22 per share in Q1 2014, with the decrease being primarily attributable to declines in commodity prices.

During the first quarter of 2015, the value of the Company's long-term investment portfolio of shares in other publicly listed mining and mineral exploration companies decreased by $8 million, which has been reflected in the statement of other comprehensive income. Operating cash flow for the first quarter of 2015 amounted to $89 million or $0.24 per share, compared to $115 million or $0.32 per share in the first quarter of the prior year.

Based on the Company's dividend policy, the Company's Board has declared a dividend of $0.05 per share, payable to shareholders of record on or about June 2, 2015. 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.

The operational highlights for the first quarter of 2015 included the following: attributable production and sales relative to the San Dimas mine amounted to 1.9 million ounces, representing a 20% increase in production and a 24% increase in sales volumes as compared to the first quarter of 2014. The increase in production is attributable to the mill expansion, which was completed in 2014; combined with the increase in the annual threshold over which Primero retains 50% of any silver produced, which rose from 3.5 million ounces to 6 million ounces, effective August 6, 2014. This was partially offset by the cessation of the supplemental silver deliveries from Goldcorp, which contributed 375,000 ounces of production and sales in the first quarter of 2014.

Penasquito generated attributable silver production of 1.4 million ounces, representing a 29% decrease from the comparable period of the prior year, with such being primarily attributable to the processing of lower grade material. Goldcorp does anticipate returning to higher-grade portions of the open pit throughout 2015. Silver sales volumes relative to Penasquito decreased by 15% relative to Q1 2014, with the payable silver ounces produced but not yet delivered to Silver Wheaton decreasing by approximately 300,000 ounces in the quarter to approximately 600,000 ounces as at March 31, 2015. Goldcorp has stated that a feasibility study in the metallurgical enhancement project was commenced during the first quarter of 2015. This study, which is expected to be complete in early 2016, will assess the potential for producing a salable copper concentrate and the viability of leaching a pyrite concentrate from the zinc floatation tailings. The successful implementation of one or both of these new process improvements has the potential to improve the overall economics and mine life of Penasquito.

The Barrick mines generated attributable silver production sales volumes of over 600,000 ounces, representing an increase of over 112% relative to the first quarter of 2014. This significant increase in production is attributable to the processing of higher grade ore at both Veladero and Lagunas Norte. Other silver interests generated 1.8 million silver ounces of production, representing a 20% decrease from Q1 2014, with lower production from Cozamin due primarily to the processing of lower grade ore and the cancellation of the silver purchase agreement relating to Campo Morado, being partially offset by attributable production from Constancia.

Over 10,000 ounces of attributable gold was produced from the Sudbury mines, which translates to 720,000 ounces on a silver-equivalent basis, representing a 57% increase relative to the comparable quarter of the prior year, due to a combination of the Totten mine ramping up and the processing of higher-grade material. Gold sales relative to Sudbury amounted to over 8,000 ounces, or 572,000 silver-equivalent ounces, representing a 17% increase relative to Q1 2014. The increased sales volume is attributable to the higher level of production, partially offset by an increase in payable gold ounces produced but not yet delivered to Silver Wheaton, which increased by about 1,200 ounces during Q1 2015, totaling approximately 16,000 ounces or 1.1 million silver equivalent ounces as of March 31, 2015.

Salobo produced over 27,000 ounces of attributable gold or 2 million silver-equivalent ounces, an increase of 205% from the comparable quarter of the prior year, with success being attributable to the continued successful ramping up of the second line and the doubling of Silver Wheaton's attributable percentage of gold from 25% to 50%, effective January 1, 2015. The two lines operated at an average rate of approximately 77% of capacity during the first quarter of 2015. Gold sales relating to Salobo amounted to almost 10,000 ounces or 733,000 ounces of silver-equivalent ounces, a decrease of 7% relative to comparable quarters of the prior year, due to a 16,000-ounce buildup of gold produced but not yet delivered to Silver Wheaton during Q1 2015. As of March 31, 2015, payable gold produced at Salobo but not yet delivered to Silver Wheaton amounted to approximately 21,000 ounces or 1.5 million silver-equivalent ounces.

Attributable gold produced and sold relative to the Minto mine amounted to almost 4,000 ounces, or 267,000 silver-equivalent ounces, representing a 34% decrease in production relative to Q1 2014, due primarily to lower throughput and grades. Capstone has stated that the current plan is to continue to process ore from underground operations and lower grade stockpiles until the water use license amendment is received from the Yukon Water Board, which is expected in Q2 2015.

During the first quarter of 2015, the Company amended its revolving facility by increasing the available credit from $1 billion to $2 billion and extending the term by two years, with the new maturity date being February 27, 2020. In addition, certain covenants were amended to provide the Company with additional financial flexibility. The Company used proceeds drawn under this amended credit facility, together with cash on hand, to repay the $1 billion of debt previously outstanding under its non-revolving term loan and terminated that loan.

In addition, on March 17, 2015, the Company closed an equity offering, receiving net proceeds of about $770 million. These proceeds, together with proceeds from drawings under the revolving facility, were used to fund the $900 million upfront payment due to Vale, relative to the transaction whereby Silver Wheaton acquired another 25% of the life-of-mine gold produced from Salobo. In addition, the Company received $25 million from Nyrstar as a compensation for canceling the silver purchase agreement relating to Campo Morado.

Overall, the Company's cash balance has decreased by $220 million in the first quarter of 2015, with the $89 million of cash flow from operations, combined with the $568 million of cash generated from financing activities being offset by $877 million of cash outflows associated with investing activities. As of March 31, 2015, the Company had $88 million of cash and cash equivalents on hand and $800 million of debt outstanding under the $2 billion revolving facility.

The Company's cash position, strong forecast future operating cash flows, combined with available credit capacity under the revolving 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 CRA.

That concludes the financial summary. With that, I'll turn the call back over to Randy.

Thank you, 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)

Michael Gray, Macquarie Capital.

The first question on Penasquito. At the Goldcorp Investor Day, they showed an organic growth slide, for illustrative purposes only, and portrayed the metallurgical enhancement project's -- the potential impact, including startup and mine life. To what extent do you guys have insights to the related PFS detail as -- is it coming into focus, in terms of your medium- and long-term planning and expectations?

It's not part of our forward forecast as it stands right now. And so, it is something that we think does make sense. We have had a look at the numbers, the discussions with Goldcorp, in terms of the cost benefit analysis. We think it does makes sense. We haven't factored that into our forward forecasts. We have stuck with the same production profile that Goldcorp has.

Okay. Would it be fair to say that owning a larger portion of that stream would be an ongoing key objective?

(Laughter) Yes, Penasquito's definitely one of our flagships. There is no doubt. I would say that Penasquito is actually just getting - it's just hitting its stride. We know -- Michael, I know you know these large-scale, low-tonnage operations. They take a while to get fully optimized, but, boy, when they hit stride, they are really profitable. And that is what Penasquito is getting close to. It's sort of reaching its peak.

Okay. Great. And San Dimas, the outset seems to be -- has expanded well, firing lots of cylinders, seems to be new exploration results, higher mill throughput, better recoveries. What is your assessment as to further expansion beyond 3,000, once it gets there in 2016?

Well, beyond 3,000 -- I think because they are only running at a [name-take] capacity of 2,500 tons per day, and they're averaging close to 2,900 tons per day, I know they're going to exceed 3,000 once they get to that sort of name-take capacity of 3,000. They are already just about there without that expansion.

Yes.

San Dimas is continuing to prove that, when you invest into districts such as that whole [priorpeak] to San Dimas region, it generally returns excellent profits. It has great returns. And Primero continues to just move this project forward, continues to invest in the exploration side, continues to do very well on that front.

So, I know the exploration success they have been having, it's definitely going to be something they consider, but we -- again, we haven't even updated our long-term guidance, based on that 3,000 tons per day yet. We're still waiting for that long-term mine plan from their side. And so we're still based on a much lower throughput level than what they're currently achieving. And we haven't even factored in the announced expansion. So, San Dimas is going to continue to be one of our flagships.

Okay. Thank you. Final question, just on Stratoni. I know it is a small contributor. Is it on the radar screen at all? Given El Dorado put in some pretty good exploration results down dip, and it is a carbonate replacement deposit. And maybe, as well, a quick view on your thoughts on investing in Greece these days?

Well, Stratoni has done well, given everything that is going on in Greece and all of the challenges that El Dorado has. I continue to believe Greece will work its way forward, one way or the other. And I think it is investments and assets like Stratoni that help generate value within Greece. And I would call projects like that part of the solution, with the challenges that Greece has right now.

So, we are quite happy with that asset. We have had that one for quite a while, and so we are -- it is one that we are relatively familiar with. We do think it has excellent exploration potential, and we're quite happy to see El Dorado putting a little bit of effort into it.

Okay. Thank you very much.

Thank you, Michael.

(Operator Instructions)

John Bridges, JPMorgan.

Hello, everybody. First, a little clarification on the last question. The result from El Dorado was in the Mavres Petres, which I think is a long strike from Stratoni. Is that included within your royalty deal?

No. That area is -- I can't remember how many kilometers -- I'm going to guess it's about 4 or 5 kilometers to the west. It has been a while since I've looked at the map, but it's somewhere in that range. It is actually just outside the area of the mine itself.

Okay.

And the area of interest for the stream itself.

Right. Thanks for that. And then, I was wondering, why was the payments on the Salobo gold delayed? Presumably that material has already gone through the smelter and is on its way to -- or, perhaps it has been sold already? Is this some sort of agreement between you and Vale as to set payment schedule to bring that into your accounts during this year? Or was it all going to come through in Q2?

Oh no, it will -- our guidance with concentrate -- keep in mind, we get production as of January 1, and that production is material that is passing through the mill as of January 1, right? And so, the production of concentrate -- typically our experience with concentrates is that it takes about two to three months for it to reach its final smelting destination, get processed, and get payback from that.

And so, with respect to the additional production out of Salobo, we are not going to see it, because that started as of production as of January 1. We're not going to see the benefits of sales of that in the first quarter. We will see that hit its stride now in the second quarter, because that is essentially the two to three months that it takes to get concentrate all the way through the whole delivery process and smelting process.

I point out that, traditionally, our first quarters have always been a quarter where we see the produced, but not yet delivered, grow. And one of the reasons for that is that, typically, companies -- our partners -- will push the production and push the pipeline, that concentrate pipeline, in the fourth quarter to try and improve year-end results.

Our guidance is typically that our payable numbers are about 90% of our production numbers. And, if you look back at the last two quarters of 2014, we were well in excess of 90% of payable relative to our production numbers, which was a pretty strong indication, and we fully expected -- there was no surprises here, we fully expected that we would see an increase in that produced but not yet delivered number within the first quarter of 2015. And so, this is not a surprise for us.

And then, the other side I would say, is that when you sit and look at where our growth is coming from, it is coming from Constancia. Well, that produces a copper concentrate. It's coming from Salobo -- again, a copper concentrate. So, we're going to have, yes, another increase in that produced but not yet delivered as our production grows. And with the amount of growth that we have this year, we will see an impact on that produced but not yet delivered. It will climb through the course of this year.

The best guidance that we can give is, again, going back to that two to three months of production. And, with this year, at 43.5 million silver equivalent ounces in production, that is a pretty easy number to calculate, in terms of where we expect to be by the end of this year.

Okay. Great. That is really helpful. I'm getting quite excited about Q2. I' m looking forward to it. Thank you. Good luck.

Yes. It's not just Q2. We've got a lot of growth, all fully funded, coming over the next couple of years here. As we start reaping the benefit of a lot of our investments over the last few years, this is going to be exciting times.

So, I don't see any other questions. I just want to thank everyone for dialing in today. I do want to make a couple of closing comments. This has been a very good start to 2015. We weren't surprised, in terms of the increase. It is expected and it doesn't take much to look at that, when you see our previous balances.

We added more gold from one of our cornerstone assets and reported, of course, record production for the quarter. And again, given our fully funded organic growth profile, this should be the first of many records that we're going to break over the coming quarters and, in fact, the coming years. We continue to believe that Silver Wheaton offers the best option for gaining exposure to precious metal, by offering a proven track record of accretive acquisitions and tangible organic growth.

So, thanks again for dialing in, and stay tuned for more records. It's going to be a good year. Thank you.

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