Wheaton Precious Metals Corp. (NYSE:WPM) Q4 2023 Earnings Call Transcript

Wheaton Precious Metals Corp. (NYSE:WPM) Q4 2023 Earnings Call Transcript March 15, 2024

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Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Wheaton Precious Metals’ 2023 Fourth Quarter and Full-Year Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would like to remind everyone that this conference call is being recorded on Friday, March 15, 2024 at 11:00 AM Eastern Time. I would now like to turn the conference over to Emma Murray, Vice President of Investor Relations. Please go ahead.

Emma Murray: 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; Haytham Hodaly, Senior Vice President, Corporate Development; Curt Bernardi, Senior Vice President, Legal; 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 the Wheaton Precious Metals’ website. Some of the commentary on 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 such 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.

Randy Smallwood: Thank you, Emma, and good morning, everyone. Thank you for joining us today to discuss Wheaton’s fourth 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 four years. We were very excited to see Vale Base 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.

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 eight acquisitions totaling just over $1 billion in commitments. Haytham will discuss in further detail these recent acquisitions, which include a Silver Stream and Waterton’s Mineral Park project gold, palladium and platinum streams on Ivanhoe Platreef project, which is our first foray into Africa, gold and silver streams on BMC’s Kudz Ze Kayah project, a gold stream on Dalradian’s Curraghinalt 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 Platreef project.

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 de-risk one 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 de-risked in the quarter as Adventus Mining received multiple key permits for the Curipamba project and conveyed that a construction decision is expected within the year.

In addition, Rio2 announced that they have received approval of their environmental impact assessment, allowing them to advance the Fenix project through permitting, financing and into construction activities in 2024. During this quarter, we are also proud to have been recognized as one of the world’s 100 Most Sustainable Corporations by Corporate Knights, an achievement reflective of our commitment 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. 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. Wes?

Wes Carson: Thanks, Randy, good morning. Overall production in the fourth quarter came in higher than expected, driven by strong out performances at both Salobo and Constancia and a steady ramp up at Peñasquito, highlighting the strength of our diversified portfolio of long-life low-cost assets. In the fourth quarter of 2023, Salobo produced 71,800 ounces of attributable gold, an increase of approximately 89% relative to the fourth quarter of 2022, driven by higher throughput and higher gold recoveries. 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 Salobo III project with the Salobo complex exceeding an average of 32 million tonnes per annum over a 90-day period.

Under the terms of the agreement, the company paid Salobo $370 million for the completion of the first phase of Salobo III expansion on December 1, 2023. Salobo III is expected to achieve a sustained throughput capacity of 36 million tonnes per annum by the fourth quarter of 2024. The remaining balance of the expansion payment is dependent on the timing of completion and will be triggered once Vale Base Metals expand actual throughput above 35 million tonnes per annum for a period of 90-days. In the fourth quarter of 2023, Constancia produced 840,000 ounces of attributable silver and 22,300 ounces of attributable gold, an increase of approximately 28% and 112% relative to the fourth quarter of 2022. Record quarterly gold production combined with strong silver production are a result of significantly higher grades from mining of high-grade zones in the Pampacancha deposit and associated higher recoveries.

In the fourth quarter of 2023, Peñasquito produced 1 million ounces of attributable silver, a decrease of approximately 41% relative to the fourth quarter 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 Peñasquito is expected to deliver higher co-product production in 2024 due to higher silver, lead and zinc content in the Chile Colorado pit. In the fourth quarter of 2023, Antamina produced 1 million ounces of attributable silver, a decrease of approximately 3% relative to the fourth quarter 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 Antamina’s reserve mine life in 2028 to 2036. 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 prefeasibility 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%.

In 2024, Gold equivalent ounces production is forecast to be consistent with the levels achieved in 2023. As expected, stronger production from Peñasquito and Voisey’s Bay is forecast to be offset by anticipated lower production from Salobo, the suspension of operations at Minto and the halting of production at Aljustrel. Wheaton’s estimated attributable annual production is forecast to be 325,000 to 370,000 ounces of gold, 18.5 million to 20.5 million 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 Peñasquito 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. Historically, Wheaton has provided five and 10 year averages for its long-term guidance. However, in 2024, the company has elected to introduce a five year target in addition to an annual average for years six 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 five years to over 800,000 gold equivalent ounces by 2028 and averaging over 850,000 gold equivalent ounces per year from 2029 to 2033.

We believe this industry leading five-year growth profile to be significantly de-risked with over 70% of the growth coming from assets that are either operating and/or permitted. We expect growth from operating assets to come from Salobo, Antamina, Peñasquito, Voisey’s Bay and Marmato, with expected growth from development projects including Blackwater, Platreef, Goose, Mineral Park, Fenix, Curipamba and Santo Domingo. That concludes the operations review. And with that, I will turn the call over to, Gary.

Gary Brown: Thank you, Wes. As just described, production in the fourth quarter amounted to 174,000 GEOs, a 13% increase relative to the prior quarter and a 22% increase from the fourth quarter of the prior year, primarily due to the throughput expansion at Salobo, which achieved the highest quarterly production level since 2019. Relative to the fourth quarter of 2022, gold production increased 64%, primarily due to outperformances at Salobo and Constancia, partially offset by a 21% decrease in silver production due primarily to the now resolved labor dispute of Peñasquito, the divestment of the Yauliyacu at PMPA and the closure of the Minto mine and the temporary suspension of attributable production from Aljustrel. Sales volumes amounted to 162,000 GEOs, a 36% increase relative to the third quarter of 2023 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 million and gross margin of $177 million an increase over the comparable period of the prior year of 33% and 46%, respectively. 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 two to three months. G&A expenses amounted to $9.2 million for the fourth quarter of 2023 and total G&A for the year amounted to $38 million slightly below the low-end of our original forecast due primarily to lower compensation costs.

For 2024, the company expects that G&A expenses will amount to $41 million to $45 million 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 million with the $61 million increase from the prior year due primarily to the higher gross margin. 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 billion 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 million with adjusted net earnings increasing by 6% to $533 million. Despite the persistent inflationary environment, Wheaton continued to deliver robust cash operating margins in the fourth quarter resulting in cash flow from operations of over $242 million an increase of over 40% relative to the fourth quarter of 2022. During the quarter, Wheaton made total upfront cash payments of approximately $452 million relative to mineral stream interest, including $45 million relative to Blackwater and $370 million relative to the Salobo III expansion, along with dividend payments totaling $67 million. Overall, net cash outflows amounted to $287 million in Q4 2023 resulting in cash and cash equivalents at December 31, of $547 million.

This cash balance combined with the fully undrawn $2 billion 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. It is worth noting that subsequent to the quarter on February 27, 2024, an additional $450 million was paid to Orion relative to the closing of the acquisition of the Platreef and the Kudz Ze Kayah 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 per share payable to shareholders of record on April 3, 2024.

To date, the company has now returned more than $2 billion 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. And with that, I turn the call back over to Haytham.

Haytham Hodaly: Thank you, Gary. The corporate development team was exceptionally busy in 2023, announcing a record eight precious metal’s transactions on a number of assets and over $1 billion 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 three 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 Platreef and Kudz Ze Kayah projects along with a new stream that was created on the Curraghinalt project for total cash consideration of $525 million. The Curraghinalt Stream closed in December 2023 with the Platreef and Kudz Ze Kayah streams closing on February 27, 2024.

Ivanhoe’s Platreef 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 Platreef extreme agreements, Wheaton will receive 62.5% of the payable gold and 5.25% 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. Attributable annual production is forecast to average over 21,000 gold equivalent ounces for the first 10 years, almost doubling to over 37,000 gold equivalent ounces for years 10 through 20. Wheaton expects to begin receiving ounces in early 2025.

On Slide 8, in addition to Platreef, the company also acquired a stream on BMC Minerals’ Kudz Ze Kayah 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. Moving over to Slide 9. The third stream acquired is a newly created gold stream with Dalradian on its Curraghinalt project in Northern Ireland. Wheaton will receive gold production of 3.05%, dropping to 1.5% 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 first 10 years of production. We are excited to be partnering with Dalradian and supporting the build of this state-of-the-art modern underground mine. In addition to the streams acquired from Orion in the fourth quarter, Wheaton acquired a silver stream on the Mineral Park mine for $115 million which was presented on our last conference call in addition to 1% royalty on Vista Gold’s Mt. Todd Gold project for $20 million. 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.

Randy Smallwood: Thank you, Haytham. 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 million and distributing record dividends of over $270 million. Our pipeline of development projects was further de-risked by construction advancements and the receipt of various key permits by our partners, supporting on our impressive organic growth profile of over 40% in the next five years. We continue to grow our asset base, welcoming seven 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.

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. [Operator Instructions] Your first question comes from Richard Hatch from Berenberg. Please go ahead.

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Q&A Session

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

Randy Smallwood: Thank you.

Richard Hatch: 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 Salobo is such a core asset? The second one is just on, on Newmont. 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 and 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 stream. 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 five, 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. Thanks.

Randy Smallwood: 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 corn, so they’re always chasing down. 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 four or five 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. Five 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 third phase of the expansion was sort of timed to come on this third 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 third phase. And so, we do expect that they’ll be running the operation at its full capacity by the end of this year. 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 four, five years as Phase 5 works its way back down into the core of the ore body. 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?

Wes Carson: Yes. 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.

Randy Smallwood: I think your second question, Richard, was on Newmont. I don’t know, Haytham, anything to add on that?

Haytham Hodaly: 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 one, and they’ve indicated that they would look to sell probably seven of those assets. We have been in discussions not with Newmont but with other parties to 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 one or two 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. Many of the others are very, very short mine lives and wouldn’t really be amenable to a good stream.