Wheaton Precious Metals - Q2 2023

Transcript

Operator (participant)

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Wheaton Precious Metals' 2023 second quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a questioning answer session. If you would like to ask a question during this time, simply press star, then one on your telephone keypad. If you would like to withdraw your question, please press star two. I would like to remind everyone that this conference call is being recorded on Friday, August 11, 2023 at 11:00 A.M. Eastern Time. I will now turn the conference over to Mr. Patrick Drouin, Senior Vice President of Investor Relations and Sustainability. Please go ahead, sir.

Patrick Drouin (SVP)

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, and Wes Carson, Vice President, Mining Operations. Please note that for those not currently on the webcast, the slide presentation accompanying this conference call is available in PDF format on the presentation page of Wheaton Precious Metals' website. I'd like to bring to your attention that some of 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 US dollars, unless otherwise noted.

In addition, reference to Wheaton or Wheaton Precious Metals on this call include Wheaton Precious Metals Corp. and/or its wholly owned subsidiaries as applicable. I'd like to turn the call over to Randy Smallwood, our President and Chief Executive Officer.

Randy Smallwood (President and CEO)

Thank you, Patrick, and good morning, everyone. Thank you for joining us today to discuss Wheaton's second quarter results of 2023. I am pleased to announce that our portfolio of long-life, low-cost assets delivered another solid quarter, generating over $200 million of operating cash flow and over $140 million in net earnings. Our strong performance was underscored by significant progress at the recently commissioned expansion at our largest asset, Salobo, the ramp-up of which we expect to continue throughout 2023. Despite operations at Peñasquito being suspended in early June due to a labor dispute, we achieved quarter-over-quarter gold equivalent production growth, highlighting the resilience of our high-quality, diversified portfolio.

Our growth pipeline of development projects was further de-risked in the quarter when Aris Mining received approval of their environmental management plan, which now permits the development of the Marmato Lower Mine. In addition, the acquisition of Sabina was completed by B2Gold, an experienced senior gold producer with a proven track record of successful mine development, who will now be managing and building the Goose project. These projects are among the assets that are forecast to contribute to our impressive organic growth profile of over 40% production growth in the next 5 years. Looking into the remainder of 2023 and assuming the labor dispute at Peñasquito is resolved by the end of the third quarter, we maintain our previously stated production guidance of 600,000-660,000 gold equivalent ounces, albeit with a slightly higher weighting towards gold.

On the corporate development front, we continued to see good momentum, with the addition of a new gold stream on Lumina Gold's Cangrejos project and the expansion of our existing gold stream on Artemis Gold's Blackwater project, both of which are strong development projects that complement our portfolio of high-quality assets. In this environment of high interest rates and increasing demand for metals, our team remains exceptionally busy as we continue to see a healthy appetite for streaming as a source of capital for the mining industry, and we are actively pursuing several new accretive opportunities. During the quarter, we released our annual sustainability report, as well as our inaugural climate change report, demonstrating our continued focus on transparency and delivering value to all of our stakeholders.

I encourage you to take a look at these reports to learn more about Wheaton's approach to sustainability and the programs that we support globally. At our annual general meeting held this past May, we welcomed Jean Hall to our board of directors, bringing her strong skill set to the board and increasing female board representation to over 40%. I would like to thank departing board member, Eduardo Luna, for his contributions during his tenure. I would also like to pay homage to John Brough, who, after resigning as a director in May, sadly passed away just recently. He is and will be dearly missed by all of us at Wheaton. I had the privilege to work with both Eduardo and John since the inception of Wheaton, and I'm immensely grateful for their invaluable guidance and leadership.

I would now like to turn the call over to Wes Carson, our Vice President of Operations, who will provide more details on our results. Wes?

Wes Carson (VP)

Thanks, Randy. Good morning. Overall production in the second quarter came in higher than expected, primarily driven by significant sequential improvement at Salobo. In the second quarter, Salobo produced 54,800 ounces of attributable gold, an increase of 61% relative to the second quarter of 2022. Vale reported production in the quarter was driven by better-than-expected ramp-up of Salobo three, partially offset by planned maintenance activities and additional work on the crushers at Salobo one and two. Vale reports that planned maintenance activities will continue in the second half of 2023, and that the ramp-up of Salobo three is expected to be fully completed in 2024.

During the quarter, Constancia produced 400,000 ounces of attributable silver and 7,400 ounces of attributable gold, a decrease of approximately 28% and 7% respectively, relative to the second quarter of 2022, with a decrease in both metals primarily due to lower throughputs and grades. Hudbay reported that full mining activities resumed at Pampacancha pit in February, and the period of higher planned stripping activities in the Pampacancha pit was completed in June, with higher-than-expected production forecast for the second half of the year. In the second quarter of 2023, Peñasquito produced 1.7 million ounces of attributable silver, a decrease of approximately 17% relative to the second quarter of 2022, due to lower throughput. On June 8, 2023, Newmont Corporation reported that it had suspended operations at the Peñasquito Mine due to a labor dispute.

To date, Newmont has indicated that it is in ongoing discussions with the leadership of the National Union of Mine and Metal Workers of the Mexican Republic, and remains focused on finding a sustainable resolution to the dispute. Due to the delay between production and sales, we expect the impact of Peñasquito's suspended operations will be reflected in our sales results in the third quarter of 2023, resulting in a significant quarter-over-quarter decrease to our reported Peñasquito sales volumes. On June 15, 2023, Artemis Gold announced the approval of the Schedule Two amendment for the Blackwater Mine. Additionally, on July 4, 2023, Artemis announced receipt of the Fisheries Act authorization for development of Blackwater.

These 2 permits represent significant milestones in the development of Blackwater and allow the Artemis team to continue their focus on completing phase 1 construction on schedule and to pour first gold in the second half of 2024. As Haytham will discuss later in the call, we expanded our gold stream on Blackwater in the quarter and have been impressed with Artemis's progress in developing the mine. Further de-risking our growth portfolio, on July 12, 2023, Aris Mining announced that they have received approval from the Regional Environmental Authority in Colombia for their environmental management plan, which now permits the development of the Marmato Lower Mine.

This is a major milestone for Aris Mining, as construction of the lower mine allows for application of both mining methods and improved processing, which is estimated to grow Marmato's gold production fivefold once construction is completed in the second half of 2025. Wheaton's estimated attributable production in 2023 is forecast to be approximately 600,000-660,000 gold equivalent ounces, unchanged from previous guidance, predicated on Peñasquito's restarting production in the end of the third quarter. For the 5-year period ending in 2027, the company estimates that average annual production will amount to 810,000 gold equivalent ounces. For the 10-year period ending in 2032, the company estimates the average annual production will amount to 850,000 gold equivalent ounces.

This includes sector-leading organic growth of over 40%, with an estimated total production for our current portfolio increasing to over 900,000 gold equivalent ounces by 2027. That concludes the operations overview, and with that, I will turn the call over to Gary.

Gary Brown (SVP and CFO)

Thank you, Wes. As described by Wes, production in the second quarter amounted to 148,000 gold equivalent ounces, or GEOs, a 3% increase relative to the first quarter of 2023, and a 5% decrease relative to the comparable period of the prior year. Without performance at Salobo being offset by a 32% decrease in silver production, primarily due to the divestment of the Yauliyacu and Keno Hill Precious Metal Purchase Agreements, combined with the ongoing labor dispute at Peñasquito.

Sales volumes amounted to over 139,000 GEOs, an 18% increase relative to the first quarter of 2023, and a decrease of 16% relative to the comparable period of the prior year, with the year-over-year variance being primarily due to a 6,000-ounce buildup of ounces produced but not yet delivered, or PBND, at Salobo during the most recent quarter, compared to a 16,000-ounce release of PBND in Q2 2022, resulting in a 22,000-ounce swing in sales volumes that is simply driven by the timing of shipments. Strong commodity prices, coupled with our solid production base, resulted in revenue of $265 million and a gross margin of $152 million. Of this revenue, 56% was attributable to gold, 41% to silver, 2% to palladium, and 1% to cobalt.

As of June 30, 2023, approximately 103,000 GEOs were in PBND and cobalt inventory, representing approximately 2.1 months of payable production, which is a level that is consistent with the preceding 4 quarters. G&A expenses amounted to $10 million for the second quarter, and the company anticipates that G&A will amount to $40 million-$43 million for the year. Adjusted net earnings amounted to $143 million, a $7 million decrease relative to the second quarter of 2022. It is worth noting, though, that when comparing the results to the prior year, the estimated impact to net earnings associated with the relative changes in PBND was $18 million, meaning we would have exceeded prior year's net earnings if not for the timing of deliveries....

Despite the persistent inflationary environment, Wheaton continued to deliver robust cash operating margins in the second quarter, resulting in cash flow from operations of over $200 million and a quarterly dividend of $0.15 per share, consistent with the second quarter of 2022. In the quarter, Wheaton made total upfront cash payments of $89 million, consisting of a $31 million payment relative to the Goose project, $45 million relative to the Blackwater project, and $12 million relative to the Cangrejos project. Wheaton also made dividend payments relative to the prior two quarters, totaling $131 million.

As mentioned by Randy, during the second quarter, B2Gold completed its previously announced acquisition of Sabina, and in conjunction with this acquisition, exercised the option to acquire 33% of the stream under the Goose PMPA in exchange for $46 million, resulting in a gain on the partial disposal of the PMPA in the amount of $5 million and generating an IRR of 48%. Overall, net cash inflows amounted to $29 million in Q2 2023, resulting in cash and cash equivalents at June 30th of $829 million. This significant 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 interests.

That concludes the financial summary, and with that, I will turn the call over to Haytham.

Haytham Hodaly (SVP)

Thank you, Gary, and good morning, everyone. The corporate development team remains exceptionally busy evaluating opportunities, and we're excited to have announced two deals in the quarter, both adding strong accretive growth to our development project pipeline. Starting with the Cangrejos project on slide 11, which is the largest primary gold deposit in Ecuador and owned and operated by Lumina Gold. This is a project which currently has more than 20 million ounces of gold and resources and 2.5 billion pounds of copper, not to mention moly and silver, and just recently completed a PFS in April of this year. Per the agreement entered into in May 2023, Wheaton will receive 6.6% of the payable gold, dropping to 4.4% after 700,000 ounces have been delivered for the life of the mine.

In exchange, Wheaton will make an upfront payment of $300 million, the majority going in during construction and ongoing delivery payments equal to 18% of the spot price. Attributable production is forecast to average over 24,500 gold ounces per year for the life of the mine, contributing to our long-term growth profile, which, when coupled with significant exploration potential, makes this a very attractive addition to our portfolio. It's important to note that Lumina Gold has strong community support for the project and no indigenous groups in the area as well. As with any transaction that Wheaton enters into, responsible and sustainable mining practices are paramount, Wheaton looks forward to supporting Lumina, both financially as they construct Cangrejos and with their ongoing comprehensive community engagement efforts. On to slide 12.

On June 14th, Wheaton amended our existing Blackwater Gold Precious Metals Purchase Agreement with Artemis Gold to help them arrive at a fully financed transaction. By expanding the threshold, we created a win-win situation where Artemis continues to get strong cash flows in the early days that allows them to service their debt, while Wheaton gets a stronger for longer profile in a high-quality asset with a strong operating and management team. This revision now entitles us to purchase 8% of the payable gold production until 464,000 ounces have been delivered, an increase from the previous 280,000 ounces, dropping to 4% for the life of the mine. Notably, this threshold will increase should there be a delay in the anticipated timing of deliveries.

In exchange, Wheaton will make an additional upfront payment of $40 million, bringing total upfront consideration to the Blackwater project to $481 million. Since our acquisition of the gold and silver streams on Blackwater in 2021, we've been very impressed with the progress made by the Artemis team in de-risking the project and advancing construction activities, and Wheaton is excited to continue to contribute to the success of Blackwater. That concludes the corporate development overview. With that, I will turn the call back over to Randy.

Randy Smallwood (President and CEO)

Thank you, Haytham. In summary, Wheaton's second quarter was distinguished by several key highlights. We achieved solid three-month revenue, earnings, and cash flow, and declared a $0.15 quarterly dividend. We believe our significant quarter-over-quarter production growth positions us to achieve our previously announced annual guidance of 600,000-660,000 gold equivalent ounces. Our pipeline of development projects was further de-risked, supporting our impressive growth, organic growth profile of over 40% in the next five years. Our commitment to accretive growth was emphasized by the addition of a gold stream on Lumina's Cangrejos project and an expansion of our existing gold stream on Artemis Gold's Blackwater project. Our balance sheet remains one of the strongest in the industry, providing ample capacity to add accretive, high-quality streams into our portfolio.

Lastly, we continue to demonstrate leadership and sustainability with the release of our annual sustainability report, in addition to our inaugural climate change report, demonstrating our continued focus on transparency and delivering value to all stakeholders. With that, I would like to open up the call to questions. Operator?

Operator (participant)

Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you would like to ask a question, please press star, then star on your telephone keypad. If you would like to withdraw your question, please press star two. Your first question is from Brian MacArthur from Raymond James. Please ask your question.

Brian MacArthur (Managing Director)

Hi, good morning. I have a couple of questions. My first question relates to Salobo. It looks like the ramp-up's going fairly well there. I know they need a 90-day period to hit their targets. Do you think that you'll have to make the payment this year? Because I guess January twen- first, is a date where if you, they hit 35 million tons, you make your payment, or is that still something that's more likely to happen next year?

Randy Smallwood (President and CEO)

Well, Brian, good to talk to you. The, we did revise that agreement earlier this year, there is 2 phases to the agreement. Their first step in this is a $32 million level, or sorry, 32 million tons per year throughput rate. Vale has been very, very clear about their intent to satisfy that first phase this year. I, I hope we actually make it. I mean, it's a reflection of the success that they've had in terms of ramping up the third line there. Things are going a bit better than what we expected. We're, we're, we're hopeful that we get to make that payment this year.

Brian MacArthur (Managing Director)

Great! Thanks. My second question relates to another large option you have, that's not in your guidance at Pascua-Lama. Another company made a fairly significant royalty purchase on that asset on the Chilean side recently. Do you have any update on that or, or any read-through for that, from your perspective, given your investment there?

Randy Smallwood (President and CEO)

Yeah, I was pleased to see someone else, you know, agreeing with us in the sense that, and I've said this for a long time, it's the best half-built mine in the world. It is one of the best gold deposits in the world, and it's a, it's a, a deposit that also produces substantial silver. As a refresher, we get 25% of whatever silver is produced from both the Chilean side of that deposit and the Argentinian side of that deposit. I know Barrick continues to advance and, and study and work at it to see if there's a way to move that forward. I know, you know, Mark, agrees with me in the sense that it is a, a true, you know, world-class deposit that would fit into their growth profile very nicely.

Obviously, there's some challenges on the Chilean side with respect to permitting, but I know Barrick is, is, is investing in on the Argentinian side, so it's important that, that our stream does cover both sides, of, of the border, not just the Chilean side, but both sides of the border. So, so we're hopeful. You know, as a reminder, a couple of years ago, we had the opportunity to, to, collapse this stream and get our money back, and we chose not to, because we do believe that this mine will eventually deliver a good, strong, boost in silver production to our own portfolio as it moves forward.

We're just happy to see, not only Barrick continuing to try and strive towards, you know, bringing at least the Argentinian side, forward, also in discussions on the Chilean side. Also to see some of our peers, also investing into this, into the opportunity. I haven't heard Pascua-Lama for a while, so I was pleasantly surprised to hear that it was being brought back into the markets.

Brian MacArthur (Managing Director)

Great. Thanks. Just to remind me, if, if I remember correctly, because you did get some of your original, original money back, it's about $250 million is sort of your, what you've put into this so far. Is that the book value on it now?

Randy Smallwood (President and CEO)

Well, if we, we put in $625 million, back in, in the early... Well, over 10 years ago, but we did receive silver from a number of other Barrick's operations, and so our net investment into this is, is just over $250 million.

Brian MacArthur (Managing Director)

Great. Thanks very much, Randy.

Randy Smallwood (President and CEO)

Thank you, Brian.

Operator (participant)

Thank you. Ladies and gentlemen, once again, please press star one, should you wish to ask a question. Your next question is from Ralph Profiti, from Eight Capital. Please ask your question.

Ralph Profiti (Principal and Equity Research Analyst)

Hi there. Good morning. Randy and Haytham, I'd like to get your thoughts on Ecuador. It's not, you know, with Cangrejos, it's not your first venture into the country, but just wondering how you are sort of factoring in, you know, country risk and country factors into the analysis. Is this sort of like, you know, 100 basis points type of thing when you're looking at, you know, returns analysis on countries that sort of are still developing mining law, mining codes?

Randy Smallwood (President and CEO)

Yeah, you know, it, it is a factor that we, that we always, bring into our own valuations in terms of looking at, country risk. Ecuador is obviously, you know, and even just recently, some, some challenges. However, you know, it does actually have a relatively strong history on the mining side. More recently, there's, you know, successful operations, ongoing right now. Lundin Gold has had great success in the country. So, you know, I think it really comes down to, as in a lot of places around the world, country risk is important, but also community risk is important. That's one of the things that we saw with, with the Cangrejos project, is that it's got strong community support in the area.

That goes a long way towards ensuring that you're gonna get strong support at the federal government or, or national government level in, in places like that. So it is a factor that we feed into our own valuations to, you know, to adjust that. You know, if you look at our portfolio of assets, you can tell that it's a factor that feeds into it, because we don't have a lot of investments in risky jurisdictions because, because, you know, that's how we factor it in. So Ecuador, you know, depending on the project, we're very comfortable in, in certain areas in Ecuador, as, as in any country. It's always, you know, one of the more important things, and I think, you know, society is moving that way....

is making sure you have strong community support.

Gary Brown (SVP and CFO)

Ralph, I would just add to that. You know, I think it's really important to recognize that we don't advance the vast majority of our upfront payments until there's a construction decision made, and, you know, we would expect that that would only be made in, you know, a, a stable political environment.

Ralph Profiti (Principal and Equity Research Analyst)

Yeah, well said. I appreciate that color. We are gonna get a Hudbay Copper World Pre-Feasibility Study in Q3, and this obviously follows on the PEA, and it's looking like a very different project from the original deal that valued the stream there. Just wondering, does, does the, does delivery of the PFS trigger renegotiation in some way on that quantum versus the original stream? Could we see something bigger or smaller, depending on what the PEA looks like?

Randy Smallwood (President and CEO)

Well, look, you know, Hudbay is a, is an important relationship with us. You know, Peter and the team, you know, we, we do a lot with them. Constancia, of course, is, is doing very well for us right now. We've had good, good history with Hudbay, and we intend to continue having good, a good, strong partnership there. The original stream was, of course, focused on the Rosemont deposit, and it had, you know, it had a vision in terms of production rates and stuff like that. Copper World is definitely... I think it looks like it's probably gonna wind up being slightly less, probably around two-thirds of the level of production. One has to remember that those ounces weren't even in the original forecast.

Rosemont is still in the background, waiting to move forward. I think once, once Hudbay proves that Copper World can be operated in a safe and sound, environmentally and socially responsible manner, which, which we know they have the capability of. We've had that experience with them in numerous other locations. Rosemont/Copper World is, is a, you know, is, is a, a very low risk, very high value project for, for that community, for, for the country as a whole. You know, once, once we see that, that pre-feasibility come in, we'll have a, we'll have a good look at it, and then we'll sit down and talk about how we continue to grow our partnership with, with, with Hudbay. I'm not expecting any issues there.

It's a good, strong asset as a whole, and we'll see, we'll see how that moves forward, but we're still waiting for those details, too. I think they're still. You know, Hudbay's got several different options as Copper World comes into play, and they- I think they're still sort of fine-tuning that. That's why they haven't released it yet.

Ralph Profiti (Principal and Equity Research Analyst)

Yeah. Gotcha. Okay, well, thanks, Randy and Gary.

Randy Smallwood (President and CEO)

Yeah.

Operator (participant)

Thank you. Your next question is from Martin Pradier from Veritase Investment Research. Please ask your question.

Martin Pradier (Equity Research Analyst)

Thank you. My question is about the second half for Salobo. How are we seeing it? Do you think it can maintain or increase the production that they had in Q2?

Randy Smallwood (President and CEO)

I'll let Wes take that one.

Wes Carson (VP)

Sure. Yeah, no, thanks for the question. Really, I mean, we're, we're definitely encouraged by what we saw in, in Q2 here and, and them certainly Salobo 3 moving ahead, and then Salobo 1 and 2 seem to come kind of back in line with, with expectations. We're, we're really excited about where things are going for the rest of the year here. There was in the the forecast and kind of the budget for the rest of the year, there was an increase as they brought Salobo 3 online, and we certainly expect them to kind of get in that same kind of vein as, as what we saw in Q2 and, and carry on for the rest of the year.

As Randy said earlier, I mean, the, the more that we can see them getting closer to that expansion payment, the, the better off that, that we're gonna be moving forward.

Randy Smallwood (President and CEO)

We know that their intent is to try and satisfy the first phase of that expansion payment, which is 32 million tons per annum at a run rate. That's a 90-day completion test for that first phase expansion. We know that they're striving towards making sure that that gets satisfied in the second half of this year. There's no doubt that we're gonna see continued growth at Salobo over the course of the year. You know, what's exciting is the potential scale of that growth.

Martin Pradier (Equity Research Analyst)

Where were they in terms of, tons per day in, in Q2? It was running at about 70%.

Randy Smallwood (President and CEO)

Yeah, of, of the total.

Wes Carson (VP)

The 3 lines-

Randy Smallwood (President and CEO)

Three lines.

Wes Carson (VP)

were running at about 70%.

Randy Smallwood (President and CEO)

Yeah.

Wes Carson (VP)

In order to achieve the 32 million tons per annum, they would have to be running it closer to 90%.

Randy Smallwood (President and CEO)

Yeah.

Wes Carson (VP)

Still a ways to go to get to that completion test. Perfect. Thank you. Certainly moving in the right direction.

Randy Smallwood (President and CEO)

Yep.

Wes Carson (VP)

Yeah, Worth noting as well, that, I mean, we were down there in, in April, this, this past April, and, and really, things are moving along extremely well, and that relationship with, with Vale continues to, to improve, and, and really a great group down there that is moving things in the right direction.

Randy Smallwood (President and CEO)

Yeah, I was, I was gonna highlight that 70% is an average over the Q2. It was definitely higher towards the end of that, so-.

Wes Carson (VP)

Absolutely

Randy Smallwood (President and CEO)

... it doesn't seem like that far of a stretch for them. They're pretty comfortable that they're gonna be able to satisfy this.

Martin Pradier (Equity Research Analyst)

Yeah. Perfect. On Cangrejos, is that fully permitted and will be impacted by the claim that on the presidential decree that regulates environmental consultation, which is impacting your other mine, that it seems to be -- well, if there is a claim that is unconstitutional, that presidential decree?

Haytham Hodaly (SVP)

On Cangrejos, you know, the exploration permits have been received. The EIA is obtained for, for the exploration phase, and the environmental baseline studies have been compiled. The exploration investment protection agreement has been signed, but they still need to enter into a construction and production agreement, and Lumina will need to undergo permitting for those operations. In terms of everything that's happening right now with regards to the congressional changes that we've seen there, I think at, at this point in time, it, it doesn't really apply to something like Cangrejos, because it's so far out into the future.

I think, you know, when we look at our profiles, we've got, you know, anywhere between near term is 1-3 years, medium term is 3-5, and longer term is 5-10. This definitely falls into the 5-10-year profile. You know, there's gonna be a lot of changes in Ecuador between now and then, and we expect a lot of the issues that are now, in the, in the limelight to, have been resolved by then.

Martin Pradier (Equity Research Analyst)

Great. Thank you very much.

Haytham Hodaly (SVP)

Thanks, Martin.

Operator (participant)

Thank you. Your next question is from John Tumazos, from John Tumazos Very Independent Research. Please ask your question.

John Tumazos (Owner and CEO)

Thank you for taking my question. Following up on Martin, how many years out is Cangrejos of Lumina Gold? Is it... Did you say 5-10, or could you be precise, 5, 6, 7, 8?

Haytham Hodaly (SVP)

Yeah, I guess it falls into.

John Tumazos (Owner and CEO)

More, and more, more broadly, are you going to target projects that are more than several years out, which is the hardest to finance for the emerging companies, given 5.5% short-term interest rates, tough market for gold stocks, et cetera? It's a great opportunity.

Haytham Hodaly (SVP)

Yeah, thanks for the question, John. To answer your question, Cangrejos falls into the latter part of this decade. It's probably somewhere around 2028, 2029 is when it would actually kick in based on the current profile. The way we structure our transactions is we actually make staged payments, along with the rest of the capital that's being infused into the project. And for, for, like, what we call those? We call those early deposit structures. We commit very little at this point in time, and it gives the company a lot of time to actually go back and actually raise the capital, whether it's debt, equity, private equity, stream, et cetera. You know, we work with our partners to try and help them get across the line.

You know, I think, the longer-term projects really are a view on where we think commodity prices are going longer term. We do think assets that contain both gold and copper, not unlike Cangrejos, which is primarily a gold asset, with about 20% of the revenues coming from copper, will start to be a lot more attractive, not just to the diversified base metal companies, but to a lot of the Precious Metals companies, as you've seen them going through base metals of late.

Randy Smallwood (President and CEO)

You know, I, I think it's important to just have a, a, a cross-section of investments, nearer term and longer term. You know, this isn't an industry where we, we make acquisitions all the time, right? You know, you have to be sensitive to where you think you are in the marketplace. Right now we do see good opportunities in that space and good value. Cangrejos is a project that, that we've, we've admired for quite a while as it's been advanced and moved forward, and we think it's gonna be a good core producer to us. Just to reiterate, you know, what, what Haytham just said, you know, we tend to look at things in sort of near term and then, you know, 1 to 5 years and then 5 to 10.

That's how we give out our production guidance. We don't have Cangrejos contributing in our first 5 years, but we do have it, you know, we expect it to be contributing in our, in our 5 to 10-year period.

John Tumazos (Owner and CEO)

Thank you very much. Congratulations on accessing such a fabulous asset.

Randy Smallwood (President and CEO)

Yes, thank you, John.

Haytham Hodaly (SVP)

Thanks for the call.

Operator (participant)

Thank you. Your last question is from Tanya Jakusconek from Scotiabank. Please ask your question.

Tanya Jakusconek (Managing Director)

Morning. I think it's me from Scotiabank, but anyways, yeah.

Randy Smallwood (President and CEO)

We were chuckling. We missed that news release.

Tanya Jakusconek (Managing Director)

Yeah, I was like, "Okay, I think that's me." anyways-

Randy Smallwood (President and CEO)

Good to talk to you, Tanya.

Tanya Jakusconek (Managing Director)

Yeah, nice chatting with everyone. Thank you for taking my questions. I have about three that I wanted to review, and I'm gonna start with Gary, if I could first. Two for you, Gary. I just wanted to ask, and I asked on the, on the Franco call as well, because the Canadian government has come back with initial commentary and/or, you know, initial commentary on this global minimum tax and the framework. Have you had a chance to look at it and anything that you could add there that, you know, you think we should be aware of?

Gary Brown (SVP and CFO)

Yeah, I mean, we're, we're still in the process of getting through the details. It looks like the proposed legislation is in line with the principles that they'd previously released. Really, we don't see there being any change to our, our, our prior guidance, which is that we, we think that once implemented and assuming that it does get implemented, that it would have application to the income generated by our non-Canadian subsidiaries. And that would, from a NAV perspective, we estimate that that has about an 8%-10% impact on our NAV.

You know, if it had applied, this year, you know, I'd estimate that, the implication would have been that we would have accrued like somewhere in the neighborhood of $35 million-$40 million of tax.

For the first six months, if that gives you some idea?

Tanya Jakusconek (Managing Director)

Yeah, it was more, more than anything, Gary, it was just more, was there anything in there that you saw or read that's anything different from what we have all, you know, been led to believe?

Gary Brown (SVP and CFO)

No.

Tanya Jakusconek (Managing Director)

Was there because some, there wasn't a lot of details on what could be deductibles, et cetera, so I don't know if there was anything in that, that, that, you had some intel on.

Gary Brown (SVP and CFO)

Yeah. so far, it, it doesn't look like, there's any, any difference from, the principles. you know, I, I, I don't, I don't think there's anything, that you would need to adjust.

Tanya Jakusconek (Managing Director)

Okay. Well, thanks for that. Then just on Peñasquito, you know, it, you know, with the timing difference, Gary, what if Peñasquito is down for the entire quarter, so down all of Q3, what do you think we should be thinking about in terms of sales for the quarter from silver, just from Peñasquito for you?

Gary Brown (SVP and CFO)

You know what? I'm going to turn that over to Wes, who's, you know, better positioned to respond to that.

Wes Carson (VP)

Sure, yeah. I mean, we're, we're still expecting that even if Peñasquito is down for the entire quarter, that, that we would come in within our guidance range. We're, we're, we're expecting, I mean, it would certainly have an impact, and it would continue to impact through into, into Q4 if it were down for the entire quarter. There is a delay of about 6 weeks, 6 weeks to 2 months between that kind of production and the and the actual sales.

Randy Smallwood (President and CEO)

Well, specifically in Q3, we would see a sniff of sales.

Wes Carson (VP)

Yeah.

Randy Smallwood (President and CEO)

Because with that six to eight week delay and sort of, the connection between production and sales, obviously, they shut, shut down on, on June eighth, which is, you know, three weeks before the end of the quarter. That does leave some residual sales, revenue that we should see in Q3, but not a lot, as you, as you'd imagine.

Tanya Jakusconek (Managing Director)

All right.

Randy Smallwood (President and CEO)

Definitely, sales will be impacted on that side.

Tanya Jakusconek (Managing Director)

We should think, you know, Randy, minimal sales coming in in Q3, should it be down for the entire quarter?

Randy Smallwood (President and CEO)

That's right.

Wes Carson (VP)

Absolutely.

Tanya Jakusconek (Managing Director)

Okay. No, that's helpful. Thank you. And I, Randy, can I ask you, does this have an impact? Obviously, you look at your dividend, we seeing obviously a free cash flow growing, and, you know, you have that 15% payout. Does this push out your thoughts on, you know, increasing that payout?

Randy Smallwood (President and CEO)

Well, I, I think what is more has an impact is the fact that Haytham keeps on finding good projects to invest into. You know, we've just committed now to Cangrejos, and I can tell you we're very busy on that front, on the corporate development side. You know, I'm, I'm fully expecting that Haytham's gonna deliver a few more ways to invest capital. You know, we've always been about, you know, the, the money, if it's not going into accretive new acquisitions, it's gonna go back to the shareholders. We've got good, strong cash flows. You know, we're seeing outperformance in a number of other assets, and so we're falling into our guidance range.

We're comfortable with our year guidance, the 2023 guidance. You know, to be honest, I think that the strength of the rest of the portfolio is, it hasn't had an impact in terms of how we're thinking on the dividend side. You know, the dividend is a good, strong dividend. I think it, I believe it pays the highest yield in the space, at least amongst the senior streamers. It's a good, strong dividend policy, but, you know, we've got plenty of capacity. We, we can see that in the balance sheet in terms of what we've done, and so I don't think it hasn't had an impact on that front.

I, I think it's probably, if we don't, bump it, it's probably because Haytham keeps on finding great ways to spend it.

Tanya Jakusconek (Managing Director)

Okay.

Gary Brown (SVP and CFO)

Yeah, I think it's important to recognize, you know, we, we've set dividend policy based upon long-term, you know, forecasts, and this is really just a short-term issue in our, our eyes.

Tanya Jakusconek (Managing Director)

Yeah, I was just thinking, you know, whether, you know, should I be thinking about, you know, for 2023, or has it been pushed out sort of into 2024, just because of Peñasquito, you know, short-term blip?

Gary Brown (SVP and CFO)

I wouldn't expect a change in our dividend policy, until 2024 at the earliest.

Tanya Jakusconek (Managing Director)

Earliest. Okay, no, that's helpful. Thank you. If I could just squeeze one more in for Haytham, because he's a money spender. Wanted to circle back, Haytham, with you. I just wanted to you know, come back, and I asked this last quarter, you know, the deal size, because this deal size seems to be, in my opinion, small relative to the size of your company. Are we still looking at that $150 million-$350 million range for, you know, precious metals acquisitions?

Haytham Hodaly (SVP)

Good morning, Tanya, and thank you for the questions. Money spender, I like that. I can tell you that, that we're looking at all ranges. You know, the majority of the stuff probably is still sub $300 million. There are some that are much smaller than that, and we've got a couple that are actually $500 million plus as well. You know, we're aggressively trying to move things forward. We're probably trying to move forward on 15 different opportunities at any given time. We'll see how many of those actually get done by the time we're done.

This is one of the strongest environments for streaming that we've seen, and that's likely attributable to the fact that equity is not there, debt is too expensive, private equity is very expensive, and, and Wheaton treats our counterparties very fairly, try to come up with win-win transactions. You know, we're very excited here over the next little while to try to get some more, more transactions done.

Tanya Jakusconek (Managing Director)

Well, the, the, the plus $500 million dollar ones, Haytham, that you have, that, you said you've got a couple there. Are they, are they gold focused or are they silver?

Haytham Hodaly (SVP)

They are precious metals, focused. I would say they're a combination of gold and silver.

Tanya Jakusconek (Managing Director)

Gold and silver. Okay, not platinum, palladium?

Haytham Hodaly (SVP)

No. No, not... I mean, our, our 90+% probably 95% of our focus is on, on gold and silver these days.

Tanya Jakusconek (Managing Director)

Okay, all right. Still looking at the, the same set, development and operating assets, still both categories?

Haytham Hodaly (SVP)

Yeah, the nice thing is we've got some that are closer to the operating stage, near-term operating stage as well, that will contribute to our overall earnings and cash flows in the near term.

Tanya Jakusconek (Managing Director)

Okay. Okay, great. Thank you so much for answering my questions.

Haytham Hodaly (SVP)

Thank you, Tanya.

Randy Smallwood (President and CEO)

Thank you, Tanya, and thank you everyone for dialing in today. In closing, we believe Wheaton is well-positioned to continue delivering value to all of our stakeholders for a number of different reasons. Firstly, by offering our shareholders exposure to our diversified portfolio of long-life, low-cost assets that we believe has one of the best organic growth profiles in the mining industry. Secondly, by having low and predictable costs, which are resilient to inflationary pressures, resulting in some of the highest margins in the entire precious metal space, which has allowed us to consistently return good value to our shareholders. Lastly, by being a leader amongst precious metal streamers in sustainability, and by supporting our partners and our neighbors in the communities in which we live and which we operate.

With that, I would like to finish off by saying that after nearly 20 years at this company, I have never been more excited about our future prospects. We believe that now is a great time to own more Wheaton. I do look forward to speaking with all of you again soon. Thank you.

Operator (participant)

Ladies and gentlemen, this concludes the conference call for today. Thank you all for participating. You may all disconnect your lines.