Wheaton Precious Metals Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 15, 2024

There are 10 speakers on the call.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Wissen Precious Metals 2023 4th Quarter and Full Year Results Conference Call.

Speaker 1

Thank you. I would like

Operator

to remind everyone that this conference call is being recorded on Friday, March 15, 2024 at 11 am Eastern Time. I would now like to turn the conference over to Emma Murray, Vice President of Investor Relations. Please go ahead.

Speaker 2

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 Kaithem Hodalei, Senior Vice President, Corporate Development Kurt Bernardi, Senior Vice President, Legal 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 the Wheaton Precious Metals website.

Speaker 3

Some of

Speaker 2

the commentary in today's call may contain forward looking statements, and I would direct everyone to review Slide 2 of the presentation, 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.

Speaker 3

Thank you, Emma, and good morning, everyone. Thank you for joining us today to discuss Wheaton's 4th quarter and full year results of 2023. I am pleased to announce that our portfolio of long life low cost assets delivered another solid quarter, allowing us to meet our annual production guidance achieving 620,000 gold equivalent ounces in 2023. Our strong quarterly performance was underscored by Salobo, which reached its highest production level in the last 4 years. We were very excited to see Vale based metals successfully complete the throughput test for the first phase of the Salobo III expansion project in November, marking a significant milestone that demonstrates increased reliability and continued operational excellence.

Speaker 3

We look forward to further advances as that expansion project continues to ramp up through 2024. In 2023, we also achieved a milestone in our growth strategy with the announcement of a record 8 acquisitions totaling just over $1,000,000,000 in commitments. Haitham will discuss in further detail these recent acquisitions, which include a Silverstream on Waterton's Mineral Park project gold, palladium and platinum streams on Ivanhoe's Platte Reef project, which is our first foray into Africa gold and silver streams on BMC's Koutsikaya project a gold stream on Dalradian's Kernel project and lastly, a royalty on Vista's Mt. Todd project, marking our first foray into Australia. We are excited to welcome our new mining partners and look forward to supporting them as they advance these projects, the largest being Ivanhoe's rapidly advancing Platte Reef project.

Speaker 3

We are very pleased to have Ivanhoe as partners who have had long standing relationships in South Africa and have done an immense amount of work to derisk 1 of the highest grade undeveloped precious metals assets in the world. Each of these acquisitions further diversifies our portfolio in terms of geographic presence and strategic partnerships and once ramped up, our forecast to contribute meaningful production and further strengthen Wheaton's already prominent position as the leader in the sector's growth landscape. Our growth pipeline of development projects was also further derisked in the quarter as Adventas Mining received multiple key permits for the Curipamba project and conveyed that a construction decision is expected within the year. In addition, RIIO II announced that they have received approval of their environmental impact assessment, allowing them to advance the Phoenix project through permitting, financing and into construction activities in 2024. During this quarter, we are also proud to have been recognized as 1 of the world's 100 Most Sustainable Corporations by Corporate Knights, an achievement reflective of our commitment to operate to operating responsibly in all areas of our business and representing the quality of the mining partners that we work with to deliver society its much needed commodities.

Speaker 3

To reinforce our confidence in the sustainability and the growth potential of Wheaton, we are pleased to announce a transition to a new progressive dividend policy. This new approach is marked by an increase to our 2024 annual dividend. Under our new policy, Wheaton's payout ratio is expected to remain the highest within the entire precious metal space. And 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.

Speaker 4

Wes? Thanks, Randy. Good morning. Overall production in the Q4 came in higher than expected driven by strong out performances at both Salobo and Constancia and a steady ramp up at Penasquito, highlighting the strength of our diversified portfolio of long life low cost assets. In the Q4 of 2023, Salobo produced 71,800 ounces of attributable gold, an increase of approximately 89% relative to the Q4 of 2022, driven by higher throughput and higher gold recoveries.

Speaker 4

Salobo reached its highest quarterly production level since 2019 as the ramp up of Salobo III expansion continued to advance and overall improvements were realized at both Salobo I and II. As mentioned by Randy in November, Vale Base Metals reported the successful completion of the throughput test for the first phase of the Slowbro III project with the Slowbro complex exceeding an average of 32,000,000 tons per annum over a 90 period. Under the terms of the agreement, the company paid Slovo $370,000,000 for the completion of the first phase of Slovo III expansion on December 1, 2023. Salobo III is expected to achieve a sustained throughput capacity of 36,000,000 tonnes per annum by the Q4 of 2024. Remaining balance of the expansion payment is dependent on the timing of completion and will be triggered once Vale base metals expands actual throughput above 35,000,000 tonnes per annum for a period of 90 days.

Speaker 4

In the Q4 of 2023 Constancia produced 840,000 ounces of attributable silver and 22,300 ounces of attributable gold, an increase of approximately 28% 112% relative to the Q4 of 2022. Record quarterly gold production combined with strong silver production are a result of significantly higher grades for mining of high grade zones in the Pampacancha deposit and associated higher recoveries. In the Q4 of 2023, Penasquito produced 1,000,000 ounces of attributable silver, a decrease of approximately 41% relative to the Q4 of 2022, primarily due to lower throughput resulting from the labor strike, which began on June 7, 2023 and ended on October 13. Newmont reports that operations have since safely ramped up after the October 13 resolution was reached. Newmont has indicated that Penasquito is expected to deliver higher co product production in 2024 due to higher silver, lead and zinc content in the Chile Colorado pit.

Speaker 4

In the Q4 of 2023, Antamina 1,000,000 ounces of attributable silver, a decrease of approximately 3% relative to the Q4 of 2022 resulting from lower grades due to the mine sequencing. On February 15, 2024, Peru's National Environmental Certification Service for sustainable investments approved after a detailed evaluation process, the modification of the environmental impact study, which allows the extension of Bantamina's reserve mine life in 2028 to 2,030 6. Wheaton's overall attributable reserves and resources saw solid growth across all mineral categories with the most noteworthy being 10% growth in our proven and probable reserves. This was driven by a 12% increase in gold reserves, primarily due to new acquisitions in 2023 combined with the results of a pre feasibility study at Copper World, which now incorporates gold for the first time. Attributable measured and indicated mineral resources also saw good growth at 15% on a GEO basis and overall attributable inferred resources grew by 3%.

Speaker 4

In 2024, Gold Equipment announced production is forecast to be consistent with the levels achieved in 2023. As expected, stronger production from Penasquito and Moises Bay is forecast to be offset by anticipated lower production from Salobo, the suspension of operations at Minto and the halting of production at El Distrell. Wean's estimated attributable annual production is forecast to be 320,000 ounces of gold, 18,500,000 to 20,500,000 ounces of silver and 12,000 to 15,000 gold equivalent ounces of other metals, resulting in production of approximately 550,000 to 620,000 gold equivalent ounces using our updated 2024 commodity price assumptions. Production is forecast to increase at Penasquito as a result of uninterrupted operations and at Voisey's Bay due to the ongoing transition from the Ovoid pit to the underground mines. Production is forecast to decrease slightly at Salobo due to lower grades as per the mine plan, which are expected to be partially offset by increasing throughput as the Salobo III expansion project continues toward completion.

Speaker 4

Historically, Wheaton has provided 5 10 year averages for its long term guidance. However, in 2024, the company has elected to introduce a 5 year target in addition to an annual average for years 6 through 10 with a goal of providing increased granularity and further transparency of our expected growth trajectory. As such, we are forecasting growth of approximately 40% over the next 5 years to over 800,000 gold equivalent ounces by 2028 and averaging over 850,000 gold equivalent ounces per year from 2029 to 2,033. We believe this industry leading 5 year growth profile to be significantly de risked with over 70% of the growth coming from assets that are either operating in construction and or permitted. We expect growth from operating assets to come from Salobo, Antamina, Penasquito, Voisey's Bay and Maramato, with expected growth from development projects including Blackwater, Platte Reefs, Goose, Mineral Park, Phoenix, Curipamba and Santo Domingo.

Speaker 4

That concludes the operations review. And with that, I will turn the call over to Gary.

Speaker 5

Thank you, Wes. As just described, production in the Q4 amounted to 174,000 GEOs, a 13% increase relative to the prior quarter and a 22% increase from the Q4 of the prior year, primarily due to the throughput expansion at Salobo, which achieved the highest quarterly production level since 2019. Relative to the Q4 of 2022, gold production increased 64%, primarily due to out performances at Salobo and Constancia, partially offset by a 21% decrease in silver production, due primarily to the now resolved labor dispute of Penasquito, the divestment of the Yaliyah at Pimpa and the closure of the Minto mine and the temporary suspension of attributable production from Alga Stral. Sales volumes amounted to 162,000 GEOs, a 36% increase relative to the Q3 of 2020 3 and an 18% increase relative to the comparable period of the prior year, with the year over year variance being primarily due to higher production levels being partially offset by relative changes in ounces produced but not yet delivered or PBND. Strong commodity prices coupled with our solid production base resulted in revenue of $313,000,000 and gross margin of $177,000,000 an increase over the comparable period of the prior year of 33% and 46%, respectively.

Speaker 5

Of this revenue, 74% was attributable to gold, 24% to silver, 1% to palladium and 1% to cobalt. As at December 31, 2023, approximately 134,000 GEOs were in PBND and Cobalt inventory, representing approximately 2.5 months of payable production, slightly lower than the preceding quarter and within our expected range of 2 to 3 months. G and A expenses amounted to $9,200,000 for the Q4 of 2023 and total G and A for the year amounted to $38,000,000 slightly below the low end of our original forecast due primarily to lower compensation costs. For 2024, the company expects that G and A expenses will amount to $41,000,000 to $45,000,000 with the anticipated increase from 2023 being attributable primarily to higher marketing and due diligence costs. Adjusted net earnings in the quarter amounted to $165,000,000 with the $61,000,000 increase from the prior year due primarily to the higher gross margin.

Speaker 5

Adjusted earnings per share amounted to $0.36 per share, an increase of 59% over the comparable period of the prior year. Revenue for 2023 amounted to $1,000,000,000 representing a 5% decrease relative to 2022, due primarily to lower gold equivalent sales, partially offset by a 6% increase in the average realized gold equivalent price. Of this revenue, 99% was derived from precious metals, with 65% attributable to gold, 32% to silver, 2% to palladium and 1% to cobalt. Gross margin for 2023 increased 1% from the prior year to $573,000,000 with adjusted net earnings increasing by 6% to $533,000,000 Despite the persistent inflationary environment, Wheaton continued to deliver robust cash operating margins in the 4th quarter, resulting in cash flow from operations of over $242,000,000 an increase of over 40% relative to the Q4 of 2022. During the quarter, Wheaton made total upfront cash payments of approximately $452,000,000 relative to mineral stream interest, including $45,000,000 relative to Blackwater and $370,000,000 relative to the Salobo III expansion, along with dividend payments totaling $67,000,000 Overall, net cash outflows amounted to $287,000,000 in Q4 2023, resulting in cash and cash equivalents at December 31 of $547,000,000 This cash balance combined with the fully undrawn $2,000,000,000 revolving credit facility and the strength of our forecasted operating cash flows positions the company exceptionally well to satisfy its funding commitments and provides us with the financial flexibility to acquire additional accretive mineral stream interest.

Speaker 5

It is worth noting that subsequent to the quarter on February 27, 2024, an additional $450,000,000 was paid to Orion relative to the closing of the acquisition of the Platte Reef and the Kudzakaya streams. As mentioned by Randy, we have transitioned to a new progressive dividend policy marked by an increase in our first quarterly dividend of 2024. The Board has declared a dividend of $0.155 a share payable to shareholders of record on April 3, 2024. To date, the company has now returned more than $2,000,000,000 to investors through dividends, which notably represents more than 50% of the amount of equity ever raised by the company. That concludes the financial summary.

Speaker 5

And with that, I turn the call back over to Haitham.

Speaker 6

Thank you, Gary. The corporate development team was exceptionally busy in 2023, announcing a record eight precious metals transactions on a number of assets and over $1,000,000,000 in commitments, resulting in the addition of multiple top tier assets, adding strong accretive growth to our development project pipeline. I'll take this opportunity to focus on streams relating to 3 new assets that were acquired in November when we entered into an agreement with entities advised by Orion Resource Partners to purchase existing streams on the Platte Reef and Koutsakaya projects along with a new stream that was created on the Kern Alt project for total cash consideration of $525,000,000 The Kern Alt Stream closed in December 2023 with the Platte Reef and Koutsikayas streams closing on February 27, 2024. Ivanhoe's Plattery project is the world's largest undeveloped precious metals project and is currently projected to become one of the lowest cost producers of palladium, platinum, rhodium, nickel, copper and gold globally. For the existing Platter Extreme agreements, Wheaton will receive 62.5 percent of the payable gold and 5.25 percent of the payable palladium and platinum until certain delivery thresholds have been met, at which point the percentage of payable metal will be reduced as set forth in the pre existing agreements.

Speaker 6

Attributable annual production is forecast to average over 21,000 gold equivalent ounces for the 1st 10 years, almost doubling to over 37,000 gold equivalent ounces for years 10 through 2020. Wheaton expects to begin receiving ounces in early 2025. On Slide 8, in addition to Platte Reef, the company also acquired a stream on BMC Minerals' Kudzikaya project, a polymetallic feasibility study stage development project projected to be one of Canada's top producers of zinc and silver and a top 10 copper producer. Wheaton is expected to receive payable gold and silver deliveries ranging from 5% to 7.375% of produced metal for the life of mine with the stage percentages depending on the timing of deliveries. The life of mine attributable production is expected to average 3,900 ounces of gold and over 530,000 ounces of silver per year.

Speaker 6

Moving over to Slide 9. The 3rd stream acquired is newly created gold stream with Daleradian on its Colonel project in Northern Ireland. Wheaton will receive gold production of 3.05 percent, dropping to 1.5 percent for the life of mine after 125,000 ounces of gold has been delivered. Attributable production will equal 4,400 ounces of gold per year for the 1st 10 years of production. We are excited to be partnering with Delradiant and supporting the build of this state of the art modern underground mine.

Speaker 6

In addition to the streams acquired from Orion in the Q4, Wheaton acquired a silver stream on the Mineral Park mine for $115,000,000 which was presented on our last conference call in addition to 1% royalty on Vista Gold's Mt. Todd Gold project for $20,000,000 While 2023 was a record year for corporate development activity at Wheaton, we continue to see strong appetite for streaming capital in the mining space and see opportunities to continue adding accretive acquisitions to our portfolio in 2024. With that, I will hand the call back over to Randy.

Speaker 3

Thank you, Haitham. In summary, 2023 was a very strong year for Wheaton, distinguished by several key highlights. With production of 620,000 gold equivalent ounces, we achieved our annual guidance, generating robust cash flows of over $750,000,000 and distributing record dividends of over $270,000,000 Our pipeline of development projects was further derisked by construction advancements and the receipt of various key permits by our partners, supporting our impressive organic growth profile of over 40% in the next 5 years. We continue to grow our asset base, welcoming 7 new assets into our portfolio, adding further diversification by commodity, operator, region and development stage. Our balance sheet remains one of the strongest in the industry, providing ample capacity to add accretive high quality streams into our portfolio.

Speaker 3

We announced a new progressive dividend policy. And lastly, we continue to demonstrate leadership and sustainability with sector leading ESG ratings and external recognition. So with that, I would like to open up the call for questions. Operator?

Operator

Thank you. Please go ahead.

Speaker 7

Thanks very much. Yes, good morning, Randy and team and thanks for the presentation and congrats on a good set of numbers.

Speaker 3

Thank you.

Speaker 7

Three questions. The first one is just on Salobo. I think perhaps the market sort of struggled a bit to get clarity on select volumes over recent years. And I just wonder whether you can perhaps give us a little bit more color and comfort over the estimates that the market should be using and sort of more reading into this, the comfort you've got over your own guidance given that Celebay is such a core asset. The second one is just on Newmont.

Speaker 7

Obviously, they've come out and said that they want to sell some assets. And I just wonder if you might be able to talk a little bit about whether you're seeing a bit of interesting business development opportunities there, whether you can be part of a funding structure on some companies that are looking to try and do some deals with some non core assets and get some streams on some interesting assets in some good jurisdictions. And then the last one is just funnily enough when I had from an investor today, just talking about Wheaton and it's about the IRR evolution of the streams. So if you were to look at a stream that you would have done at the point of actually doing it and then fast forward 5, 10 years or whatever it may be, can you just talk about the additional value you've created in that IRR as the years have gone by, for example, through exploration upside or whatever that may be? It's just a question I'm just curious to get your views on.

Speaker 7

Thanks.

Speaker 3

Sure, Richard. And we'll hopefully I'll remember all three questions or we will remember all three questions. Start off with Salobo. So Salobo was just finishing off last year their Phase 4 of that pit design and kicking into Phase 5. And as is expected, I mean, these pits are always designed around the higher grade core, and so they're always chasing down.

Speaker 3

And whenever you're starting a new phase, you chase out to the perimeter, which is a little bit lower grades. And so that's what we're looking at is through the course of this year, we're going to see the bulk of it is just going to be the start of mining in Phase 5 as they work their way down. The Phase 5 is expected to last probably about 4 or 5 years. And so what we're going to see is gradually increasing grades again as they work towards the core of the deposit in Phase 5. But I'll make a prediction.

Speaker 3

5 years out from now when they shift over to Phase 6, we'll probably see a bit of a kick over in grade again. Now the reason that the 3rd phase of the expansion was sort of timed to come on this 3rd phase of Salobo was to sort of coincide with this hit in lower grade. And so we will see an offset. It's not as hard as it would have been because we are ramping up this 3rd phase. And so we do expect that they'll be running the operation at its full capacity by the end of this year.

Speaker 3

Their objective is to satisfy the next phase of the expansion test before the end of this year. I'm hoping it happens earlier than expected. They showed really good progress last year. I do think that Vale has taken a little bit of a conservative approach in terms of scheduling that towards the end of this year, but fingers crossed that they can actually get there a little bit earlier. But we will see improved grades over the next 4, 5 years as Phase 5 works its way back down into the core of the ore body.

Speaker 3

And but this is going to be something that's a natural cycle with respect to the open pit. I don't know, Wes, you got anything to add to that?

Speaker 4

Probably the only other thing I would add is just that they do have an optimized stockpiling strategy there where they are building up lower grade stockpiles as they mine ore out of the pit. And we will see that variability over the next several years in grade. But as Randy said, as you get deeper down into the pit in Phase 5 and Phase 6, you will see that grade start to come back up. And really, we're really excited to see that higher throughput coming through and we're really just seeing the beginning of it. As that ramps up over the next year here, we'll see the actual overall production come up with that throughput.

Speaker 3

I think your second question Richard was on Newmont. I don't know, Haitham, you got anything to add on that?

Speaker 6

Yes. Happy to take that question Richard and thank you for the question. Yes, Newmont obviously has indicated that almost half of their portfolio is considered non world class or non Tier 1 and they've indicated that they would look to sell probably 7 of those assets. We have been in discussions not with Newmont but with other parties see if there's interest out there to a way that streaming could actually help fund some of those assets. Now keep in mind, there's only 1 or 2 of those assets that we would consider interesting from a Wheaton perspective given the long mine lives and the resources and reserves that are in place.

Speaker 6

Many of the others are very, very short mine lives and wouldn't really be amenable to a good stream. Yes.

Speaker 3

The other aspect is operating costs and margins. We do focus on 1st and second quartile assets. And so a lot of times when we see opportunities like this, these assets, one of the reasons they are for sale is because they're not very high margin assets. Their costs have climbed up. And so it is something that we're not willing to stretch as far for in terms of doing that, but it's definitely going to be some activity on that front.

Speaker 3

Richard, I think the third question was related to IRR and what kind of an IRR we look at it. One of the huge benefits of this business model is the fact that we have commodity price, pure commodity price exposure. Our costs are defined in the contracts. And so a lot of it comes down to what happens to commodity prices over that period. I think you suggested about 4 or 5 year period.

Speaker 3

We deliver the bulk of that right back to our shareholders in terms of cash flows and profits. And so it's a real key difference in the streaming model versus the traditional mining model where higher prices quite often mean lower grades get processed and costs go up because of that. We don't suffer from that. Our costs actually are defined by our contracts and we still deliver very, very strong margins all the way back up when we see those higher prices. And so I don't know Gary you got some of that.

Speaker 3

We've got a pretty good track record on the IRR side.

Speaker 5

Yes, we do. Richard, like we distill the required returns associated with the opportunities that we're looking at based upon the risks inherent in that opportunity relative to the risks inherent in our existing portfolio. And so we look at how well defined the resources, what the counterparty credit risk looks like, what the political risk looks like, whether we're dealing with the 1st quartile asset or a second quartile and we're really only focused on assets that operate in the lowest half of the respective cost curves. And then we look at whether we're taking development stage risk or whether it's a currently operating asset. And then we look at the ESG track record or what we expect to be the commitment of the counterparty to ESG, high level of ESG practices.

Speaker 5

And we come up with an appropriate discount rate associated with that. When we we also do what we call a post mortem every year, where we look at every deal that we've ever done and we compare how it performed to how we expected it to perform. And when you look at that, we put just over $10,000,000,000 into streams. We've already recovered all of that money. We have an average mine life of rough ruined and probable reserve life of roughly 25 years.

Speaker 5

When you include resources, which our assets have shown a high propensity to deliver on that mine life more than doubles. So when you look at the returns that we've generated on the over $10,000,000,000 We estimate that at being just over 17%. So and that's over a 20 year history. We're celebrating our 20th anniversary. So I think we feel we've been pretty good stewards of capital.

Speaker 7

That's incredibly helpful, Gary. And same thanks. And I just for reference, normally when you would do a deal, if we would see 1 tomorrow, the IRR that the market probably would calculate would be, what, high single digits, low double digits IRR. So really, there's a good, what, 50% upside on return potentially through whether it's commodity price upside or life of mine upside. Is that a good way to think about

Speaker 3

Yes. I mean, it comes down every project is unique, right? Because each project has varying risks. If you're going into small countries, there where you're the only asset running, you assign a higher risk to it and you take that risk when you're going into it. And so you make sure you structure it to protect yourself so you don't have those kind of problems.

Speaker 3

If you the exploration risk, the metallurgical risk, all of those factors come in, the ESG risk, all of those factors come in to what kind of return that we need to satisfy us investing into the project. And as Gary highlighted there, we've got a pretty good track record of making sure that we deliver on those returns.

Operator

Your next question comes from Tanya Jakusconek from Scotiabank. Please go ahead.

Speaker 1

Good morning, everyone. Matt, thank you for taking my questions and thank you, operator, for getting my name right. That's awesome. Yes, I've called Annie and Natasha on 2 other calls, so this is a good one. I have actually 4 questions, if I could.

Speaker 1

So I'm just going to go through them 1 by 1. So the first one, maybe just on the global minimum tax. Just from your interpretation, because my understanding is that if implemented or when implemented in the Canadian government implements it, it would be retroactive back to January 1, 2024. So I just want to understand your view. Would are you seeing it as retroactive going back?

Speaker 1

Or are you seeing it just being implemented when the Canadian government implements it?

Speaker 5

We expect it to be retroactive, Tanya.

Speaker 1

Okay. So we should think of it that maybe you don't pay it in Q1, but if it's implemented in Q2, then you would have it obviously take through the income statement and going forward in Q2 onwards retroactive back to Jan 1st. Would that be a fair way of thinking about it?

Speaker 5

Yes. Like I don't think there's much of a chance of the GMT being enacted by the time that we release our Q1 results. So we'll be very transparent as to what that accrued liability would be expected to be by disclosing it in our MD and A. But we likely will take 2 quarters of GMT reflect 2 quarters of it in our 2nd quarter results. So just keep that in mind.

Speaker 5

Okay. Assuming that the Canadian government enacts it.

Speaker 1

Yes. No, no, no. Okay, that's helpful. Thank you very much for that. My second question has to do with the dividends.

Speaker 1

So I'm just maybe this is for Randy. Randy, just on the dividend policy, you've gone to a progressive dividend. Can you just talk me through why the move? Is it made because your peers have progressive dividends? Is it made like is it just being reviewed once a year and sort of like your peers every year, we sort of have a slight increase?

Speaker 1

And just remind me your minimum cash balance on your balance sheet that you need to run your business so that I can think about what else how I model this dividend going forward?

Speaker 3

Sure. Well, so as a refresher, the previous dividend was it had as a reference a minimum of 30% of our cash flows, the average over the previous 4 quarters. The challenge that we've had with that is that it's one that had a climbing basement. And so we've been actually holding it relatively constant. And to be honest, we're paying currently somewhere around, I think it's 37% of our cash flows.

Speaker 3

And so when we looked at our growth profile coming forward, we realized that with that with the current framework, we actually wouldn't be raising the dividend even though we're going to see some growth. And of course, current commodity prices would accelerate that, but we wouldn't have seen that growth for a couple of years. And we just felt that having been flat for a couple of years, it was time to add some growth. We've had substantive growth in our dividend, peer group leading growth in our dividend over the last 5, 6 years, but it has actually been held flat for a couple of years and we just felt it was time to give it a bump. And so the commitment towards the progressive, the scale, I mean, what we're committing to is that there will be an increase on an annual basis on a go forward.

Speaker 3

The scale of that increase is going to be up to us and up to our Board, and it's going to be subjective to what kind of a cash balance are we looking at right now. In terms of a minimum cash balance, this is a very G and A light company. We don't have much needs. There's a total of 40 employees in the whole company. And so our G and A and as Gary detailed in his numbers, our G and A numbers are very, very small.

Speaker 3

And so and we've got healthy access to very, very attractively priced debt if required. That's all going to only be touched if we with the strong cash flows and with the production growth we've got over the next few years, that's only going to be we're only going to be using that revolver if we're seeing access to larger scale world class streaming opportunities, which we're always hopeful for. But currently, what we've been looking at is stuff that's $500,000,000 or less, which is something that's easily handable with hand we can handle that with our current expected cash flows. And so I don't see any risks on that side at all. The commitment is it's time to it's been flat for close to 2 years now since we've seen a bump up on that and we're and because of that 30% number being well below what we're actually paying in the 37% range, we just looking forward, we didn't see that actually impacting our dividend on a go forward basis.

Speaker 3

And so we just felt it was time to deliver bring some of that growth forward and start giving it even adding more back to what we already delivered to our shareholders. We're already by far the biggest in the entire precious metal space in terms of the percentage of revenue back to shareholders. And so we want to make sure that we continue showing that growth that we have shown for the last 4, 5 years.

Speaker 1

And the minimum cash I should think about on the balance sheet?

Speaker 5

I don't we don't really look at there being a minimum cash balance required on our balance sheet. We've got this 5 year $2,000,000,000 revolving credit facility, which is fully undrawn should we need to access that fund some of the opportunity sets that Haytham will hopefully be bringing in. But when we look at the current commitments that we have outstanding, we don't even see ourselves even with this new dividend policy, we don't see ourselves even accessing the $2,000,000,000 revolving credit facility to fund those commitments over the next 3 years?

Speaker 3

We've shown a strong track record of just adding to that dividend. And so when you keep on talking about the reference to minimum balance, I mean, we're not going to drop the dividend. So we've got a strong enough balance sheet with all the tools that we have at hand and all the growth we have. That's not something that's a concern to us.

Speaker 1

Yes. Okay. Well, I'll continue with Gary then on my next question. Just wanted to review Gary with you just the payments, just to make sure I have all of the payments that you are going to be paying this year. You did mention obviously the $450,000,000 that went out on Feb 27, I think it was the one you mentioned.

Speaker 1

Can you just remind me all of the other ones that are coming so I have them all captured?

Speaker 5

Yes. And I would point you to our the table that we have of our commitments on Page 39 of our MD and A. So you've got the Salobo payment that we is contingent upon Vale achieving the 35,000,000 tonne for annum throughput test, which we think they should satisfy this year. So that's $163,000,000 We expect to start making payments relative to Cundrejos. So we've got about $19,000,000 relative to them.

Speaker 5

We've got about $15,000,000 that we hope to be making to generation mining relative to the Marathon project. Marmato is expected to move forward with the development of the deeper zone. And so we've got $80,000,000 there. We've got the $115,000,000 for the Mineral Park stream. We paid the $450,000,000 relative to Platte Reef and Kuzakaya.

Speaker 5

Phoenix Gold, we would hope they move forward with construction decision later this year. So that's 25,000,000 dollars We've got $17,000,000 that we will pay relative to the Mt. Todd royalty. And that's pretty much everything that we expect this year.

Speaker 3

There is a possibility that Curipamba might move forward a bit. We've got that scheduled in next year. But with the success they've had on permitting and they are considering going into a construction decision. We might see that move forward. That's a great news story.

Speaker 5

And that would be 162,000,000

Speaker 3

dollars Unlikely, we pay all of that, but we might be paying a bit of that here in this year as they if they may go ahead and make a construction decision, which they're seriously looking at.

Speaker 1

Thanks for that. I just want to make sure I have the big ticket ones definitely in the model. And then I just wanted to ask just also on guidance depreciation getting with Q2, but maybe G and A that you usually provide for us. And then also an understanding of the quarterly guidance. Should I be thinking 48.52 1st half, second half?

Speaker 3

Yes. I guess, I mean, from the G and A perspective, what we've got is 41,000,000 to $45,000,000 over the course of the year and spread out evenly across that. In terms of production, there's no doubt that Salobo is a key influence, and they expect to be running that. It's a 90 day completion test to take get that second phase and that's going to be their current schedule has that being satisfied during the Q4, but they're going to have to start that in the Q3 to go forward. And that'll be running at a minimum of 35,000,000 tons per annum.

Speaker 3

Keep in mind, the asset has a capacity 36,000,000 tons per annum. So I would probably lean it a little bit towards you're probably not too far off the 48%, 52%, 48% first half, 52% second half. It might even be 47%, 53%. There's definitely going to be a little bit of a bias towards the tail end of the year, mainly because we Flowbo is ramping up through the course of the year. Capital.

Speaker 3

The other area we're going to see gains over the course of the year is Voisey's Bay on the cobalt side. Every quarter, there's going to be a higher percentage of underground feed satisfying and that stuff is much higher grade than what we're currently using from the open pit.

Speaker 1

Yes. No, I appreciate that. And then my final question maybe for Tatum is again coming back to the transaction activity or the M and A activity out there. I'm just kind of curious whether now are you switching back to focusing on production over development or are you happy to take a mix? So I'm just wondering, again, size wise and development over production, how do you see that in your portfolio?

Speaker 6

Sure. And I think you're right. For the last few years, it has been focused on development. What we've seen is a little bit of focus on balance sheet strengthening by some of the potential diversified and other producers out there. So I think it's probably a fifty-fifty mix I'd say right now.

Speaker 6

50% is probably still looking at development stage opportunities and the other 50% is looking at balance sheet strengthening. I don't want to say balance sheet repair, but people are trying to shore up their balance sheets to be able to add and to increase, acquire, etcetera in this environment. And that's an area that they're coming to us and looking for guidance on. I would say that the majority of the opportunities we're looking at are still sub 300, but as always, there's a couple that are greater than 500 that takes some time to foster. And hopefully, we can get those across the line.

Speaker 6

I'll also add, Tanya, one thing you've got, I mean, 17 years as an analyst, I don't think anybody ever got my name right on a conference call. So you're already up on me there.

Speaker 1

Oh my gosh, that's excellent. Thank you

Speaker 3

so much for taking all

Speaker 1

my questions. I'll give it to somebody else to ask. I could go on for a long time here otherwise. Thank you.

Speaker 3

Okay. Always happy to talk to you, Tanya. Thanks.

Operator

Your next question comes from Brian MacArthur from Raymond James. Please go ahead.

Speaker 8

Good morning and thank you for taking my questions. Can I go back to the GMT? You talked about how you're going to book it, 1st quarter low, 2nd quarter higher. Can you go through on a cash basis when you'll actually make payments? Because you also talk about there's some credits about G and A financing, etcetera.

Speaker 8

And you can just walk through how you think that will evolve over the next few years when you think you'll actually start making cash payments related to the GMT?

Speaker 5

Yes. For the amounts accrued in 2024, we won't actually disperse those until 2026. And I think what we've been guiding people to is you take our non Canadian income and you apply a 15% tax rate to that. So we don't there won't be much like additional deductions. But we will yes, it's income.

Speaker 5

So it does reflect the depletion of the upfront payment.

Speaker 8

So as I roll forward then, if I'm paying my $20.24 on a cash basis in $26,000,000 because I keep going that way that your $25,000,000 will paid in 27, so always like on an 18 months lag or does it get trued up and eventually you start paying on a run rate? I'm trying to figure out whether it's actually just deferred the payment on a lag basis or you actually get full credit and shelter some of the cash upfront?

Speaker 5

Yes. At this point, I think we are operating on the basis that it will be on that kind of 2 year deferral basis or year and

Speaker 3

a half deferral basis. Brian given that it's what I would call a sweep tax, I think it needs to operate like that in a sense to allow any other taxes that have been paid to be sort of deducted off of what that works. I'm just looking at the mechanics of it. But until we see legislation, it's really to be firm on that. But that sounds like it makes sense in terms of them having to wait the subsequent year.

Speaker 3

So they get that 18 month lag before you actually calculate it because it's going to look at whatever as I said, it's like a sweep tax.

Speaker 8

Great. That's very helpful to think about it that way. And the other thing is in the MDA, you talk about how it works in Luxembourg. There's also, I guess, you had stuff in Netherlands and Barbados. Is there anything there that changes going forward?

Speaker 8

I mean, you talked about Cayman and Luxembourg, but it didn't mention the other 2?

Speaker 5

No. I think we've outlined all of the potentially applicable jurisdictions.

Speaker 8

Great. Thanks very much. Sorry to go through tax, but just trying to get this clear on a cash basis is very helpful.

Speaker 3

Yeah.

Speaker 6

Thanks, Brian.

Speaker 3

That's the only question, Brian, on tax? Okay, thanks.

Speaker 8

I don't think we want to do more tax, do

Speaker 5

we? No.

Speaker 8

Thanks.

Speaker 3

Thanks, Brian.

Operator

Your next question comes from John Tumazos from John Tumazos Independent. Please go ahead.

Speaker 9

Congratulations on the Page 39 table laying out the next $2,000,000,000 to invest in such good projects and the good projects you invested in, in 2023. I wish I could shine the shoes of your corporate development guys, maybe they deserve

Speaker 6

But I do like how you think, John.

Speaker 9

So Randy, when I was sitting in the new discoveries seminar last Wednesday at TDAC and a year ago, maybe half of the discoveries I thought weren't discoveries or not documented yet. And maybe one big discovery is Anglo Gold silica Northwest of Vegas, which Aldias and Origin have the royalty on. The East Goldia Cisco has the royalty on. And in the context of sort of not a great stream of new discoveries, your accomplishments in locking up all these deals is even more superhuman. If you can't sustain this pace of deal generation, you're getting bigger and generating so much cash.

Speaker 9

Do you think you'd simply let cash accumulate on the balance sheet or increase the dividend or buyback shares or buy royalties or other royalty companies? What will you do if you can't sustain the deal generation pace? I don't think you're going to lower your quality standards.

Speaker 3

Well, and that's, John, excellent point. And I strongly agree with you. One of the challenges, this isn't a number that's out there, but what we have run into over the last few years is we're putting out a lot less IOVs indications of value. And so for an asset to actually make it to the IOV level for us at Wheaton, it has to show clear standards in terms of operating margins and responsible site and suitable risks all the way across the board in terms of getting to that stage. And I can tell you for the last 4 years, it's less and less and less.

Speaker 3

We're not seeing as many good quality projects out there. And I'm fearful for the industry in the sense that there's just not a lot of risk capital out there. So there's not a lot of exploration and that means there's just not a lot of good new discoveries that we see coming down the pipe. It's getting to be a tighter and tighter market. I think in that space, the number of the success that we had last year where we more acquisitions than ever before, I mean, I just really do hand that to the team in terms of the work that we did on pushing that forward.

Speaker 3

A lot of those transactions were with people or companies that we've worked with in the past. And that really does come down to working on being a partner of choice. It's something that we really strive to be here at Wheaton. And so, I don't know, Haif, you want to add any more on the opportunity set and then I'll come back in and talk about where the cash is going.

Speaker 6

Sure. Thanks, Randy. And good questions, John. I think I will say what you're seeing now, John, in terms of a lack of quality is something we actually saw a few years ago. So about half a dozen years ago, we had a definite focus to try and find the best development stage opportunities that we could actually get involved in.

Speaker 6

And as you saw over the last 5 years, we've got like 14 or 15 development stage opportunities right now that we're actually involved in and there's 3 or 4 of them coming into production here in the next 12 to 24 months. So we did have a time line where we looked and said, okay, let's work on our near term growth, let's work on our medium term growth, let's have some optionality in our longer term growth. And we've accomplished that. So we do think that there's still opportunities out there. There are far and few between.

Speaker 6

You are right. But Randy's comment is exactly right. Building the relationships and getting that repeat business and that's going to be the key going forward is to be a partner for us.

Speaker 3

And with respect to the cash on hand, it's been a pretty consistent message. If we can't put it back into the ground effectively, it goes back to shareholders. I don't see us ever if we ever bump up over $1,000,000,000 cash on hand, that me is a pretty lazy balance sheet. And that's the point that if you ever see a cash balance kicking up at those kind of levels, we'll start ramping up that dividend and start feeding even more of that back to our shareholders. We already lead the entire precious metal space on that front in terms of how much we what percentage we give back to our shareholders, but we can amp that up further.

Speaker 3

And my hope is and what we're always trying to do is manage our existing portfolio and grow it and continue to add quality assets. And that's what we'll keep doing. But we're going to do it for accretive prices. We're not going to frivolously I mean, for us, it's important that we are strong stewards of our shareholders' capital. And so if we can't put it to work effectively, it will go back to shareholders.

Speaker 3

Our first choice is always going to be to grow the dividend. I think it's the best way. It's a commitment on a longer term basis to go out. And so I just think that that's always going to be our first our preferred choice.

Speaker 9

Thank you. And congratulations once again.

Speaker 3

Thanks, John. And thank you everybody. Go ahead.

Operator

I was just going to turn back the call over to yourself. Ladies and gentlemen, this concludes the Q and A portion of today's conference call. I will now turn the call over to Mr. Randy Smallwood for closing remarks.

Speaker 3

Thank you everyone for your time today. As we at Wheaton here celebrate our 20th anniversary here in 2024, I'm just incredibly grateful for the partnerships that we have forged over the years and the strong support of our shareholders. Together, we have provided the industry with an innovative solution to project finance that truly unlocks value for all stakeholders. Wheaton's high quality portfolio of assets, sector leading growth profile and commitment to sustainability provides our shareholders with a solid outlook for the future and is one of the best vehicles for investing into the gold and precious metals space. So as we celebrate our 20th year, I'm just sincerely thankful for all of our stakeholders for their part in our success in Wheaton's success and I do look forward to a golden future ahead.

Speaker 3

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

Operator

This concludes your conference call for today. Thank you for participating. You may now disconnect your lines. Thank you.

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Key Takeaways

  • Wheaton delivered 620,000 gold equivalent ounces in 2023, meeting guidance as Salobo reached its highest production in four years and its Phase III expansion passed critical throughput tests.
  • In 2023 the company closed a record eight transactions totalling over $1 billion to add a silver stream at Mineral Park, gold/palladium streams at Ivanhoe’s Platte Reef and new streams in Africa and Australia, diversifying its portfolio.
  • Fourth-quarter results included 174,000 GEO (up 22% y/y), revenue of $313 million (+33% y/y) and adjusted EPS of $0.36 (+59%), driving Q4 operating cash flow of $242 million (+40%).
  • Wheaton introduced a progressive dividend policy, raising its annual dividend and maintaining the highest payout ratio in the precious-metals sector, with a Q1 2024 dividend of $0.155 per share.
  • The 2024 outlook guides 550,000–620,000 GEO with a five-year growth target of over 40% to more than 800,000 GEO by 2028, underpinned by operating, construction and permitted assets.
AI Generated. May Contain Errors.
Earnings Conference Call
Wheaton Precious Metals Q4 2023
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