Wheaton Precious Metals Corp. (WPM) Gold Forum Americas Conference (Transcript)

Wheaton Precious Metals Corp. (NYSE:WPM) Gold Forum Americas Conference September 19, 2023 2:30 PM ET

Company Participants

Randy Smallwood - President and Chief Executive Officer

Conference Call Participants

Cosmos Chiu - CIBC World Markets

Cosmos Chiu

Great. Next up, we have Randy Smallwood, President and CEO of Wheaton Precious Metals. I was flipping through the pages, trying to find Randy's biography. I'm not sure why. We all know Randy. And I know Randy. So, Randy.

Randy Smallwood

Thank you, Cosmos. And thank you, everyone, for joining us. I guess I've got enough silver hair that you all know who I am. I've been around long enough. So funny, just keeps on getting pointed out more and more.

So President and CEO of Wheaton Precious Metals. There will be some forward-looking statements. I urge you to understand the risks associated with those forward-looking statements.

So let's step back to say, what is or who is Wheaton Precious Metals? What are we delivering? We came up with the streaming business model. And that streaming business model is the foundation of our vision, which is to be the best way to invest into precious metals. And it's through that streaming business model that we really are able to deliver good, strong value to all of our stakeholders.

And I really highlight the fact that it's not just our shareholders that we're supporting. It's our partners and it's our neighbors. They're all equally important in terms of making sure that there's good strong positive benefits to our business practices and such. Of course, the shareholders are who I work for and who I get paid by, but our business doesn't work if we don't have happy partners on the other side. And probably most importantly, especially in today's world, if the neighbors around our operations aren't also supportive of what we and our partners are doing so. So it's a good strong business model that allows us to deliver value to everyone in the entire chain.

That business model, of course, gives our shareholders good access to high quality, long life assets, good strong resources, reserves. One of the unique aspects of Wheaton is that the bulk of our production actually comes from base metal mines, even though we're a precious metals company, and so we get the benefits of much longer reserve and resource lives that are usually associated with those big scale copper assets and lead, zinc assets, base metal lines.

All of that, of course, comes with very predictable costs. They're all defined by our agreement. The capital costs are defined by the upfront payment. And of course, production payments are also defined. So there's no cost surprises to our investors. They know exactly how much our gold is going to cost and how much our silver is going to cost.

And in fact, because we have streams, one of the big advantages of the streaming model, even over the royalty space, is the fact that we have that base production payment, which actually gives us leverage on the commodity price. We pay about $440 per ounce of gold, we pay about $4.50 per ounce of silver. That does give you a bit more leverage. So we will outperform relative to owning bullion or even owning royalties where you just get the raw metal delivered to you.

We've got a good strong dividend that's linked to our cash flows as a reference level. And lots of optionality. A number of projects that aren't even part of our, I say, sector – leading sector being precious metal space – growth profile. We've got a number of other projects that deliver good optionality.

93% of our production comes from assets in the first and second quartile. That's important for two reasons. Anytime there's any type of challenges, if it's floods or earthquakes or pandemics or anything like this, there's always strong incentive by all stakeholders to do their best to get these assets up and running because they're delivering good value to all the stakeholders going forward. So, we've had great success in that.

The second real strong benefit of being invested into the first and second quartile is the fact that it's also where our partners invest the first. These are the most profitable mines for our partners. So they're going to spend the money on the exploration. They're going to spend the money on the expansion studies. And so, it just delivers such a strong sort of asset base for us to go. And of course, that does deliver us 30 years of reserves and a whole bunch of resources after that, reserves and resources coming out of the total over 60 years now. So good, strong, long life, high margin assets.

And as a as I said, a very strong sector leading growth profile. Over the next five years, we actually get just about 50% higher than where we are right now. And it's good solid growth, the bulk of which comes from expansions and grade scheduling in our existing assets, but also some good greenfields developments that we'll be delivering over the next few years.

A good strong balance sheet, zero debt and $829 million cash on hand. We still have a $2 billion revolver available for us if we need it. But we are generating pretty close to $1 billion a year in cash flow and doing a pretty good job of putting it back into the ground. But the task keeps on getting harder and harder as our cash flows continue to increase.

Good, lean, organizational structure. We've got 41 employees total. And so, for a company like this, it's very scalable. I'm proud of the fact that a third of that is technical. We've got geologists, engineers, metallurgists, and social scientists that all contribute to making good decisions in terms of project investments.

So in the last – I guess since 2020, we've committed $1.9 billion over 13 different deals. You can see the scale of deals is definitely smaller than what has been in times past. But there's 13 of them. So we've actually increased the number of them and that's actually delivered to me to good upside for us.

And then ESG, we were the first in the space – in the streaming and royalty space to start investing back into the communities and start doing what I call the right thing, which is making sure that the communities and the neighbors that we have around our partners' operations are sharing in the benefits and getting good, sustainable returns in terms of having these operations and these assets in their neighborhood. And that's been recognized by a number of different rating agencies.

The portfolio, very America centric, mainly because we started off focused off in the silver space, but we definitely have – North America and South America very important to us. A few assets in Europe. It's not to say that we don't look in Africa, we don't look in Australia, we are constantly looking in those jurisdictions, we just haven't found anything that we feel worthy of investing and putting the Wheaton stamp on so far. But we've had great success in the Americas.

What I always like highlighting on this graph is the fact that streaming does work for everyone, the list of partners down the right side of this slide just highlights the fact that the big companies love streaming and, of course, the smaller one. In today's world, the smaller single asset development companies streaming is by far the most attractive source of capital for them. So, that list is going to continue to grow.

I think if there's a slide that differentiates Wheaton from its peers, this is probably one of the best. Again, 93% of our assets come from the first or second quartile. So that's to say that if I'm taking gold from a copper asset, where does that copper asset fit on the worldwide copper cost curve. And to have 93% of our production, when we've got over 20 mines delivering us metal, 93% of our production to the bottom half of the cost curve, I don't think there's another portfolio like this.

The other one is, of course, the reserve life. Again, the extensive exposure to long life base metal assets where we get the precious metals from those base metal assets has given us a very long reserve life, especially in the precious metal space comparatively.

I think this is probably the other slide that really differentiates us from our peers is that we're really quite excited about what we see coming down the path. This year, we're on track to produce somewhere between 600,000 to 660,000 gold equivalent ounces. But over the next five years, as I said, we're climbing close to 50%, we should hit, in 2027, somewhere around 970,000 gold equivalent ounces. And that's ignoring any potential new acquisitions or anything else that may feed in over that period of time. So we are taking Wheaton to a new level that no streaming and royalty company has ever been at, organically getting up to – very close to 1 million gold equivalent ounces per year of annual production by 2027.

Good strong growth. Two-thirds of that growth is actually coming from brownfields expansion. Salobo, of course, supplies about a third of that as they ramp up their line three and restore reliability in line one and line two, and they're making great progress on that.

But in addition, the other third comes from Constancia, Stillwater, Voisey’s Bay, Marmato and Antamina actually has some good grade scheduling that also shows some really good strong growth over this period.

On the Greenfield side, Blackwater Artemis, Steven Dean and that team is doing a great job getting that up and running, should be producing gold by the end of next year.

Of course, Goose was taken over by B2Gold, Clive Johnson and his team, doing a great job moving that forward. That is going to be a district area play. I think they're just getting started there at their 300,000 ounces, but there's such great exploration potential out there. And I think they're getting set up.

And a couple of the other big ones, Santo Domingo and Copper World, again projects that that will deliver some time over this next while and contribute to this sector leading growth profile.

Streaming model, the beauty of it, very strong operating margins, very consistent operating costs. And you can see that we can actually predict with high confidence what our costs are on a per ounce basis going forward, gold at $440 an ounce going forward and silver at just below $5 an ounce going forward. So it's an incredible model that does deliver high confidence, low risk exposure for investors to the precious metal space.

Our balance sheet is strong, as I said. Over $800 million at the end of the second quarter, and we are generating good strong cash flows. We've got a $2 billion revolver available to us. I'm not sure if I see us actually tapping that revolver anytime soon. Just in the fact that on the corporate development front, most of the deals we're looking at are relatively small, $300 million and less. And so, we can easily continue to fund these things just through ongoing cash flow growth.

We will average $1 billion plus over the next few years, of course, depending on what the commodity price is. And then, of course, as I said, because of the streaming model, we actually do have leverage. For a 50% increase in commodity prices, we have a 74% increase in cash flows. So a good, strong balance sheet and lots of lots of challenges in terms of how do we keep putting this money to work effectively and growing the company.

And this is really what it's all about in our business, is trying to make sure that you get good exposure to take advantage of strong movements in commodity prices going forward. And we're very bullish in terms of precious metal prices. And we think that, given the fact that our production profile was going even higher than where we are on this, it just gives us that much exposure to deliver that excess operating cash flow over and above what we were forecasting.

We did pass a hurdle earlier on this year in the sense that we've actually now generated more cash flows than we've actually invested into the ground, as you can see here. And when you consider the fact that, again, the 30 years of reserves in this existing portfolio and another 30 plus years of resources, it's pretty incredible in the fact that we're actually back to cash neutral or cash positive in terms of what we've invested into the ground. And so, it's a good strong track record.

The dividend policy, as I mentioned, we reference it to our cash flows. It's a minimum of 30% of our cash flows. But we establish a basement. So, we won't let it drop from where it is. And every time it bumps up, it stays at that level. And if we see another bump, it'll kick up.

This is probably the area – or, in fact, this is the area, if we can't put the money back into the ground effectively, it's going to go to this. We'll see that 30% climb to 35% to 40% or to 50%. As our company matures, it's really tough to deliver growth because we get to the size, million ounces a year plus of production, our focus will be then to probably shift more – and try and shift more into the yield side and deliver back to our shareholders through the dividend.

I forgot to highlight. One of the things that I am proud of on the bottom graph there is the fact that, on a per ounce produced basis, we deliver more back to our shareholders to the dividend than any other company in the space. And I like highlighting the fact that we are here to give returns back to our shareholders and the dividend is a good example of that.

Sustainability is a core value for us. As you can see, good strong baseline in terms of how we approach it. It's really – the foundation is built on good, strong governance. And looking at the ESG platforms all the way across, we put a lot of effort into working with our partners on the community side to make sure that we deliver good value back and keep positive benefits going back to those neighbors. And of course, all of those. So, it's a good strong foundation that we've used to expand, and it has been top rated.

I'm really proud of the fact that Sustainalytics, we are the top ranked precious metals company. And we actually qualify for the global top 50, which means that this is not just mining or resource centric. This is every industry in the world. To be a resource focused company and rank in the top 50 from an ESG perspective, I'm proud of the fact that we've gotten there.

But this is a story of continuous improvement. We constantly have to work at ways to deliver better. Last year, of course, commitments to the net zero carbon emissions by 2050. Working with our partners, we've got money set aside to help our partners make better decisions when it comes to how they advance and go forward. It's a good strong commitment all the way across.

Our track record, as I said, $9.6 billion invested, but we've now pulled back. $9.8 billion as of the end of our second quarter. So, we are net positive in terms of that. And part of that $9.8 billion, $1.9 billion of that has gone back to our shareholders in the form of the dividends. So good, strong healthy dividend, but space for that to grow as we continue to generate cash flows in excess of $1 billion.

40 years of reserve and M&I resources and, of course, another 20 plus years of inferred resources over and above. So, good, long reserve life, good high ratings on a – because of our dedication and our commitment to sustainably – all this has added up to good 17% average, annualized after tax return from our portfolio back to our investors. And in fact, if you look at how we have performed relative to gold and silver, you can see multiple different periods of time on rolling multi-year returns, we have always outperformed. And so, it's an excellent way to invest into precious metals.

So the last slide, and then we'll get some questions going. Good strong growth, I would say one of the strongest growth profiles in the entire precious metal space. Significant expansion and exploration potential, good strong assets all the way across. I can't underscore the importance of quality – high quality, long life assets, not high quality just for us, but for our partners. Incredibly important. We have to make sure that our partners are healthy.

Of course, predictable costs and great leverage. We are focused on precious metals. More than 95% of our production comes from precious metals. And so, all of this adds up to, in my eyes, and our hope, the best way to invest into precious metals.

So with that…

Question-and-Answer Session

Q - Cosmos Chiu

Randy, any questions coming from the audience? If not, maybe I can kick it off. Global minimum taxes, we've seen, I think, draft legislation now in Canada. Can you maybe touch on global minimum taxes, potential timing, potential impact?

Randy Smallwood

Yeah, global minimum tax. Canada has come out and stated that they will come in effective January 1 of 2024. But we haven't seen a lot of other detail from Canada in terms of how that's going to impact us.

About 90% of our revenue does come from outside of Canada currently. And so, that is the revenue that would be impacted by GMT. By our and most analysts forecasts, it's going to impact our company probably 10% to 12% of our net asset value. That's been well telegraphed and well measured by the market already.

We obviously are watching it closely and waiting for some additional detail to see if there's ways that we can optimize, if there's ways that we can shape. A lot of these assets, of course, we've invested heavily into them, and so are those upfront payments deductible against!? There's a lot of questions that still need to be answered about how it comes in.

So I would think that 10% to 12% is the worst case scenario. But we're – from what I would say, I think it's also been priced into the market that way.

Cosmos Chiu

Another question, if I look at my NAV for Wheaton Precious Metals, Salobo, that's a large component. And then during your presentation, you also talked about Salobo in terms of its contribution to your growth on a go-forward basis. There were, as we all know, some issues, some hiccups in terms of operations at Salobo last year. Could you give us an update in terms of the operations and I believe there's one more payment that you need to make to Vale? Salobo, maybe give us an update on that as well.

Randy Smallwood

Things are going very well at Salobo. We've seen a change in management and we've seen Vale move the base metals division and give it a bit more independence as we've seen some investors come into this space. So I'm happy with that because there's a few other stakeholders that are now expecting performance from Salobo. So we think it's a real positive to have them move forward.

Deshnee Naidoo, the CEO of the base metals division, and I know they've got a different name for it, but for simplicity, the base metals division, she comes from outside Vale and she's bringing in a lot of outside support and expertise to provide that.

One of the challenges with Vale historically has been that they're plucking a lot of their experts from the iron ore operations and they're bringing them into copper operations to try and help move forward. And I think that's had some challenges in the past. So I think Deshnee is doing a great job of pulling in some outside expertise and blending that with the internal expertise that Vale has moving forward. And we can see it in the results.

We've seen constant improvement on a monthly basis ever since about – I think the low for Salobo was probably the tail end of last year and then it's been just continually getting better and better.

I will say that the line 3 expansion is doing quite well. Most of the effort that they have right now is pushing the line 1 and line 2. So, I think by 2025, we will see Salobo running at a very healthy run rate and continued growth on that one. So, I think getting the hook.

Cosmos Chiu

Thanks, Randy.