Wheaton Precious Metals Corp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Wheaton Precious Metals 2024 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad, or you may type in your questions in the Q&A box of the webinar. If you would like to withdraw your question, please press star followed by the number two. Thank you. I would like to remind everyone that this conference call is being recorded on Thursday, August 8, 2024 at 8 a.m. Eastern Time. I will now turn the conference over to Emma Marie, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, ladies and gentlemen, and thank you for participating in today's call. I'm joined today by Randy Smallwood, Wheaton Precious Metals President and Chief Executive Officer, Gary Brown, Senior Vice President and Chief Financial Officer, Hazem Hodole, Senior Vice President, Corporate Development, and Wes Carson, Vice President, Mining Operations. Please note that for those not currently on the webcast, a slide presentation accompanying this conference call is available in PDF format on the presentations page of our website. Some of the commentary in today's call may contain forward-looking statements, and I would direct everyone to review slide two of the presentations which contains important cautionary notes regarding forward-looking statements. It should be noted that all figures referred to on today's call are in U.S. dollars unless otherwise noted. With that, I'd like to turn the call over to Randy Smallwood, our President and Chief Executive Officer.

Thank you, Emma, and good morning, everyone. Thank you for joining us today to discuss Wheaton's second quarter results of 2024. I am pleased to announce that our portfolio of long-life, low-cost assets has delivered another solid quarter, generating $234 million in operating cash flows, resulting in record cash flows of over $450 million for the first half of this year. This performance underscores the effectiveness of our business model in leveraging rising commodity prices while maintaining strong margins. The company has produced over 305,000 gold equivalent ounces year to date, and we are well on track to achieve our 2024 production guidance of 550,000 to 620,000 gold equivalent ounces. The company also remains very liquid with $540 million in cash at our quarter end and a $2 billion undrawn revolving credit facility, which, when coupled with the strength of our forecasted operating cash flows, provides strong flexibility to fund all outstanding commitments as well as the capacity to acquire additional accretive mineral stream interests. Our corporate development team remains actively engaged in evaluating new opportunities and may continue to see a healthy appetite for streaming as a source of capital for the mining industry. In addition, during the quarter, we published our annual sustainability and climate change report. and we are proud to have been ranked among the top 10 in Corporate Night's 50 Best Corporate Citizens in Canada for 2024. As the founders and architects of sustainable streaming, this accomplishment is reflective of our commitment to operating responsibly in all facets of our business. Our performance in the first half of 2024 supports our belief that the strength of our organic growth profile combined with favorable commodity price trends, firmly positions Wheaton as the premier choice for high-quality, long-life precious metals exposure. With that, I would like to turn the call over to Wes Carson, our Vice President of Operations, who will provide more details on our operating results. Wes. Thanks, Randy.

Good morning. Overall production in the second quarter came in higher than expected, driven by strong outperformances at Salobo, Penasquito, and Antamina. In the second quarter of 2024, Salobo produced 63,200 ounces of attributable goal, an increase of approximately 23% relative to the second quarter of 2023, driven primarily by higher throughput. Salobo's strong production in Q2 is attributable primarily to the continued ramp-up of the Salobo 3 expansion, and sustained overall improvements at both Slobo 1 and 2. On June 17th, Vale reported a conveyor fire at Slobo 3, and on July 25th, they announced that plant operations at Slobo 3 had resumed after a 31-day repair period. Vale has maintained their copper guidance for the year, and we anticipate that any impacts to Wheaton's guidance will be minimal, and offset by outperformances in the first half of the year. In the second quarter of 2024, Constantia produced 450,000 ounces of attributable silver and 6,100 ounces of attributable gold, an increase of approximately 7% and a decrease of 18%, respectively, relative to the second quarter of 2023. The decrease in gold production was primarily the result of lower grades due to planned stripping activity in the Papakansha pit, which commenced in the second quarter and is expected to continue through the third quarter of 2024. HUD-BAY has reported that mill ore feed has now reverted to the typical blend of approximately one-third from Apacancha and two-thirds from Constantia, which is expected to continue throughout 2024. In the second quarter of 2024, Penesquito produced 2.3 million ounces of attributable silver, an increase of approximately 30% relative to the second quarter of 2023, primarily due to higher throughput, partially offset by slightly lower grades. Production in the second quarter continued to focus on mining in the Chile-Colorado pit, which contains higher silver, lead, and zinc metal and silver grades than the main Penasco pit. Grades are expected to decrease slightly in the back half of the year as mining moves back into the Penasco pit. On July 31, 2024, Ivanhoe reported that construction of Platte Reef's Phase I concentrator was completed on schedule subsequent to recording. Cold conditioning is started, with water being fed through the concentrator and construction of flat-reef shafts through head heater at approximately 60% complete. An updated independent feasibility study on an optimized development plan for the acceleration of Phase 2 is planned to be completed and published in the fourth quarter of 2024. In addition, a preliminary economic assessment on the Phase 3 expansion is expected to be completed at the same time. with the expansion forecast to increase Plat Reef's processing capacity up to approximately 10 million tons per annum. A Phase III expansion to 10 million tons processing capacity is expected to rank Plat Reef as one of the world's largest platinum group metal, nickel, copper, and gold producers. As mentioned by Randy, with over 305,000 ounces produced year-to-date, the company remains well on track to achieve our annual production guidance this year. Wheaton's estimated attributable production in 2024 continues to be forecast at 325,000 to 370,000 ounces of gold, 18.5 to 20.5 million ounces of silver, and 12 to 15,000 ounces of our GEOs of other metals, resulting in an overall production of approximately 550,000 to 620,000 GEOs. Production is forecast to increase at an industry-leading rate of approximately 40%, to over 800,000 ounces by 2028, primarily due to growth from operating assets, including Salobo, Antamina, Penasquito, Boises Bay, and Marmado. Development projects which are in construction and are permitted, including Blackwater Platte Reef, Goose, Mural Park, Phoenix, Cripamba, and Santo Domingo, and pre-development projects, including Marathon and Copper World, from which production is anticipated towards the latter end of the five-year forecast period. From 2029 to 2033, attributable production is forecast to average over 850,000 ounces of Gulf Cleveland ounces annually for the five-year period. And that concludes the operational overview. And with that, I will turn the call over to Gary.

Thank you, Wes. As described by Wes, production in the second quarter amounted to 147,000 GEOs. a 7% increase relative to the comparable period of the prior year, with higher production from Silobo, Zinc Rubin, and Penosquito being offset by lower production from Sandimass and Constantia, combined with the cessation of production from Algestrel and Minto. Sales volumes amounted to 124,000 GEOs, a 4% decrease relative to the comparable period of the prior year, primarily due to timing of sales resulting from the relative changes in ounces produced but not yet delivered, or PBND, which resulted in a reduction in sales volumes relative to Q2 2023 of over 23,000 GEOs. Strong commodity prices coupled with our solid production base resulted in revenue increasing by 13% to $299 million relative to Q2 2023. Of this revenue, 61% was attributable to gold, 37% to silver, 1% to palladium, and 1% to cobalt. As at June 30, 2024, approximately 128,000 GEOs were in PB&D, representing approximately 2.9 months of table production, a slight increase from the preceding four quarters due to relative differences in timing of sales, but within our guided range of two to three months. G&A expenses amounted to $10 million for the second quarter, and the company continues to anticipate that G&A will total $41 to $45 million for the year, with these figures excluding share-based compensation as well as donations and community investments. On June 20, 2024, Canada's Global Minimum Tax Act, or GMTA, received royal assent and as such the income from our Caymans Islands subsidiaries will be subject to a 15% minimum tax. As we previously messaged, as the global minimum tax is retroactive to January 1st, 2024, the company has recorded two quarters worth of global minimum tax amounting to $51 million in its financial statements for the period ending June 30th, 2024. with $25 million relating to Q1 2024. Going forward, the quarterly tax expense associated with GMT will be recognized in our consolidated financial statements in the appropriate reporting period. Removing the GMT associated with the Q1 2024 earnings and other smaller items, adjusted net earnings amounted to $150 million. with the $7 million increase from the prior year due primarily to the higher gross margin, partially offset by the higher income tax expense relative to the global minimum tax. I believe it is worth pausing here to emphasize that we were able to generate higher adjusted earnings, despite the implementation of a 15% global minimum tax. Quite remarkable. Wheaton continued to deliver robust cash operating margins in the second quarter, resulting in cash flow from operations of $234 million, with a $32 million increase from the prior year due primarily to higher gross margins. As mentioned by Randy, the strength of our second quarter cash flows resulted in cash flows for the first half of the year of over $450 million, representing a new record for Wheaton. Lastly, we declared a quarterly dividend of 15.5 cents per share, a 3% increase from the prior year. During the quarter, Wheaton made total upfront cash payments of approximately $45 million, $25 million of which was relative to the Mineral Park stream, and $10 million of which was relative to the Congrejo stream, with the remaining $10 million relating to the Mount Todd royalty. Additionally, the company made two dividend payments totaling $139 million and disposed of its investment in Hecla Mining Company for gross proceeds of $177 million. When coupled with cash generated from operating activities, our overall net cash inflows amounted to $234 million in the second quarter. of 2024, resulting in cash and cash equivalents at June 30th of $540 million. We believe this cash balance, combined with the strength of our forecasted operating cash flows and the fully undrawn $2 billion revolving credit facility, which was recently extended by an additional year, positions the company exceptionally well to satisfy its funding commitments and provides us with financial flexibility to acquire additional accretive mineral stream interests. That concludes the financial summary, and with that I will turn the call back over to Randy.

Thank you, Gary. In closing, we believe Wheaton is well-positioned to continue delivering value to all of our stakeholders for a number of different reasons. Firstly, by offering our shareholders exposure to our diversified portfolio of long-life, low-cost assets that we believe has one of the best organic growth profiles in the entire mining industry. Secondly, by continuing to generate strong operating cash flows and maintaining low predictable costs, which, when coupled with our leverage to increase commodity prices, result in some of the highest margins in the precious metal space. Thirdly, a pipeline of significantly de-risked development projects, which further supports our impressive organic growth profile of over 40% by 2028. And lastly, our commitment to sustainability and supporting our partners and the communities in which we live and operate. With that, I would like to open the call up for questions, operator.

Thank you. And ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star followed by the number two. We'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Richard Hatch with Barenburg. Please go ahead.

Thanks very much. Yeah, morning, Randy and Simon. Thanks for the call. Just wonder if you might help us a bit with Salobo. Clearly a better quarter, which is really good to see. I just wonder if you might be able to help us a bit as we look at 25, 26, be able to give us kind of broad expectations of grade and such like. I know it's one that's kind of sometimes a bit challenging, but any kind of color there would be super helpful. That's the first one.

I'll let Wes take that one off. Yeah, perfect. Thanks for the question Richard.

We are starting to see a slight drop-off in grades over the next couple of years, so into 25, 26. But with that, we're also seeing the ramp-up of Syllable 3 and really an increase in throughput there. So over the next few years, we do expect a slight increase in production, and we'll see that continue really as Syllable 3 really comes online and comes together. So for the rest of this year, I mean, we see that kind of, kind of flattening of the production, and then as the throughput comes up, once level three, we'll see a better year next year, I think, and into the next couple of years.

Okay, that's really helpful. Thanks. And then just on the business development kind of piece, perhaps for Randy and Haytham, can you just talk a bit about what kind of deals you're seeing at the moment? It feels like the diversifieds have got strong balance sheets not necessarily looking for large sort of ticket sort of transactions at this point but maybe as we go into the next sort of copper cycle that opportunity might present itself but you know just as you're looking down the list of your current BD opportunities are we still kind of mainly focusing on those gold producers and such like, you know, in the mid sort of few hundred million dollar ranges, or are we seeing something, you know, a bit more large scale and such like? Thanks.

I'll let Hayton answer that one.

Thanks for the question, Richard. To put it simply, you know, we've got a number of opportunities that we're actually advancing through the due diligence phase right now. I would say development stage funding is still the focus, although we are seeing a resurgence in some balance sheet strengthening opportunities. The majority of the opportunities we're seeing, it's probably 50-50 between polymetallic opportunities, which have a precious metal byproduct, and actually precious metals companies that have very, very strong margins that are looking for continued growth. So it's a very robust market. I would say the majority of the opportunities fall somewhere between $100 to $700 million in that range, with a couple of those being north of $500 million.

Yeah, I would say, just to add to that, the deal size, the opportunity size, seems to be a little bit bigger than what we've seen in, say, the last year. It seems to be a little bit more of an appetite, and a lot of these projects are actually a lot closer to the production, the construction stage and production. So, you know, I think overall it actually looks a little bit healthier, but it's still very busy on that front.

Okay, very helpful. Thanks a lot for your time. Cheers, Gabriel.

Thank you, Richard.

And your next question comes from the line of Martin Pradier with Veritas Investment Research. Please go ahead.

Thank you. If gold production in second half is similar to first half, you would hit at least the middle of your guidance range for gold and exceed the upper end of the guidance for silver. So the question is, Is gold production expected to be weaker or stronger in the second half versus the first half? And in terms of silver production, if you expect a weaker second half versus first half?

I'll let Wes add some color to that.

Sure. So right now, Martin, we're looking at probably a split of about 52% in the first half of the year and 48% in the second half of the year on an overall basis. We are expecting a weakening in the gold production at Salobo with some of the impact from the fire and really just a lower grade, particularly in the fourth quarter. And then we are, as mentioned on Penasquito, on the silver side, seeing that drop as they move back into the Penasco pit. So overall, as I said, about that kind of 52-48 is about what we're expecting for the rest of this year.

Okay, great. And in terms of Salobo, Is the impact of the fire expected to be around 10,000 ounces in terms of production?

It will be in that range, I would say. We're hoping lower than that, certainly, because they did get things back up and running fairly quickly. It wasn't one of the major conveyors and really just affected the third line, so Slobo 1 and 2 were running through that period. And also during that period, they had some planned maintenance shutdowns during that period as well. So we haven't seen the full results of it yet, but that's in the range, hopefully slightly better than that.

I think it might be worth just talking about the fact that Slobo outperformed a bit in the first half of this year. And I think that fire probably consumed up some of that outperformance. And so from an overall annual basis, it's probably net neutral. But, you know, that outperformance, as I said, was probably eaten up a little bit by the impact of the fire.

Great. Thank you.

And once again, if you would like to ask a question, simply press the star followed by the number one on your telephone keypad. Your next question comes from the line of Tanya Jakoskonik with Scotiabank. Please go ahead.

Oh, good. It's me. Thank you. Good morning, everyone. I just wanted to come back just on the guidance. Thank you for the 5248. But with all these little moving parts in the second half, just want to confirm, I think previously we were looking for fairly even Q3 equal to Q4. Is that something that we should be thinking about given the fire and some of the other grade movements?

Go ahead, Wes.

Yeah, I would say that that is correct. It will be fairly even. I mean, there's a lot of moving parts, as you say, between the quarters there, but it is fairly even between Q3 and Q4.

I think the impacts of the fire are going to Q3, and then we have definitely lower grades scheduled into Q4. And so it's probably going to split up pretty evenly there at this level.

Okay. Well, thank you for that. And I just wanted to ask, Gary, the DDNA forecast for the year, usually we get that in August in terms of depreciation. And sorry, maybe in your information provided there, we just had a number of companies report last night.

Sorry, the question was with respect to what we expect G&A to be?

No, depreciation. G&A.

Tanya, we provide asset by asset depletion numbers in the MD&A. I would suggest looking at what we depleted for Q2 as an indication of what our per ounce depletion will be by asset.

All right, so Q2 is a benchmark going forward. Thank you for that. And then can I just ask, Paisa, I'm just coming back to you on these transactions and opportunities that are out there. It's interesting that we have the 100 to 700 and a couple over 500 million, and you mentioned sort of the development stage or early construction. How does Platinum Palladium fit in right now, given their weak prices? Are those opportunities you're looking at in addition to the gold side, gold silver?

I would say even on, you're right, PGMs, given where PGM prices have gone, there's probably a few opportunities in there that we're also looking at. I would say that we're still looking at the gold components of the PGM, typically. If we're looking at anything else outside of the gold, maybe it's platinum. and only to top up if they need more capital than the gold could provide them. But, you know, we're seeing not just the PGM opportunities, but obviously we're seeing some gold opportunities to people trying to capitalize on the strong commodity price to try and get some additional funding.

Okay. That's helpful. Thank you. And then where would corporate transactions fit in as you look at the states?

So we'll always consider... looking at our peers and seeing if and when it makes sense for us to actually make any type of corporate transaction. I will say that at this point in time, it doesn't make sense to pay a premium on a multiple when I can still purchase streams at or below net asset value.

Yeah, no, I agree. And just as you look at the environment, I mean, I always hear everyone say there's so much out there, there's so much out there. Maybe just give us an idea from like, you know, a timing perspective, because as I said, I've heard so many comments on this, so many deals out there. Like, you know, how long do these deals take to actually do? Like from the time you actually say, okay, we're working on something to actually do your due diligence. I know it's, you know, moment by moment, each one has, you know, a different timeframe, but just so that we can understand from the moment you're saying you're seeing so much to actually completing some of these things. so that we can kind of understand the process. Thank you.

Sure, Tanya. I'm happy to have that as well. So generally speaking, if an opportunity, it depends on whether we're being proactive or reactive. Most of the time we're proactive going out there looking at opportunities. Probably I'd say 20% or 30% of the time right now we're being reactive to opportunities coming in the door. Once an opportunity comes in the door, it takes us usually a couple of weeks to actually do our first pass, most, just to see if it actually makes sense to put a stream on it. If we do that and we find that the asset can actually handle, the margins are solid, the asset can handle the stream, we'll do a deep dive, and that usually takes another couple of weeks. Somewhere along the way, we'll put out an indication of value. Assuming the indication of value is interesting to the counterparty, then we'll head to site. At the same time, we'll start working on term sheets. And once we typically conclude term sheets, we look for exclusivity. Once that exclusivity is obtained, it usually takes about another four weeks to get defendatives in place. So you're talking from start to finish anywhere from, I'd say, six to eight weeks is a typical timeline for a stream?

Okay, thank you for that. I actually thought it was longer, but thank you for that.

Sometimes it takes longer, but usually it has to do with database issues and stuff like that. It's always a matter of having to make sure that we're getting good information in when we're assessing these projects, and so sometimes that does drag on a bit.

Okay. About two months would be something that we should kind of think about.

Yeah, I mean, if you ask our lawyers, they'd rather we said three, but we've done it in four weeks, and it's taken as long as three months. So, yeah, it's probably a good average.

Thank you for the caller.

Pleasure, Penny.

And your next question comes from the line of Ralph Ferfitti with Eight Capital.

Please go ahead.

Thanks, operator. Just one question from me. I did see some re-phasing of the Santo Domingo. upfront payment that came with the updated feasibility study. And I'm just wondering where does that upfront stream payment rank in sort of the project capital spending? Is it sort of peri-pursue with the project financing or is it on project sanctioning? Just wondering how that works.

That money goes in ahead of debt, and so it's in the earlier part of the construction phase. They have to commence construction and move forward, but it does go into the ground before any project debt gets applied to it.

That being said, we have to make sure that they have to ensure that the full funding package is in place and arranged before we would actually provide any capital.

Understood. Gotcha. Thanks for that. Appreciate it. Thanks, Randy. Thanks, Hatham.

Yep.

Well, thank you everyone for your time today. We are pleased to have reported a strong first half of the year. Weakenside quality portfolio of assets, sector leading growth profile and commitment to sustainability provides all of our shareholders, all of our stakeholders with a solid outlook for the future and what we believe to be one of the best vehicles for investing into the gold and precious metal space. And as we celebrate our 20th anniversary throughout 2024, I am sincerely thankful to all of our stakeholders for being part of Wheaton's success. And I look forward to a golden future together.

We look forward to speaking with you all again soon. Thank you.

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