Wheaton Precious Metals Corp. (WPM) Q2 2015 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Silver Wheaton's 2015 second quarter 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 Wednesday, August 12, at 11:00 A.M. Eastern Time. I will now turn the conference over to Mr. Patrick Drouin, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, ladies and gentlemen and thank you for participating in today's call. I am joined today by Randy Smallwood, Silver Wheaton's President and Chief Executive Officer and Gary Brown, Senior Vice President and Chief Financial Officer. I would like to bring to your attention that some of the commentary on today's call may contain forward-looking statements. There can be no assurances that forward-looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. In addition to our financial results cautionary note regarding forward-looking statements, please refer to the section entitled Description of the Business Risk Factors in Silver Wheaton's annual information form available on SEDAR and in Silver Wheaton's Form 40-F on file with the U.S. Securities and Exchange Commission. The annual information form and press release from last night set out the material assumptions and risk factors that could cause actual results to differ, including, among others, fluctuations in the price of commodities, differences in the interpretation or application of tax laws and regulations from those taken by Silver Wheaton, the absence of control over mining operations from which Silver Wheaton purchases silver or gold and risks related to such mining operations. Lastly, it should be noted that all figures referred to on today's call are in U.S. dollars unless otherwise noted. Now I would like to turn the call over to Randy Smallwood, our President and Chief Executive Officer.

Thank you, Patrick and good morning, ladies and gentlemen. Thank you for dialing into our second quarter conference call. For the second quarter, Silver Wheaton again achieved record production of close to 11 million silver equivalent ounces. And more importantly for the first time ever, we had silver equivalent sales of over 10 million ounces. The record production and sales were driven by strong results from all of our flagship assets the Salobo, San Dimas and Penasquito mines as well as the first substantive production from Constancia, which achieved commercial production earlier this year. Overall, the first half of 2015 represents a very strong start to what we believe will be a prolonged period of fully funded organic growth for Silver Wheaton. We are proud to be delivering on that growth that we laid out earlier this year and we reiterate our guidance of over 23% production growth in 2015, climbing to 43.5 million silver equivalent ounces for the year. And this growth will continue next year and beyond as we climb to 51 million silver equivalent ounces by 2019, most of which occurs in the next few years and all of which is again fully funded. In addition to this organic growth, we currently see a robust pipeline of very high quality accretive corporate development opportunities. In the second quarter, we had record production of, as I said, close to 11 million silver equivalent ounces, a 29% increase from the comparative period last year. Our sales volume also increased 34% from the previous year to over 10 million ounces for the quarter. Weak commodity price markets, however, affected our average realized sale price per silver equivalent ounce, which was 17% lower than a year ago. These lower commodity prices, obviously, impacted our net earnings, as Gary will discuss later. Despite the lower prices, we once again maintained a healthy cash operating margin of over 70% and operating cash flows of nearly $110 million in the quarter. Speaking of cash flows, our quarterly dividends continue to deliver 20% of the average cash generated by operating activities in the previous four quarters. Our dividends remain linked to commodity prices, our organic growth profile and our ability to make additional accretive acquisitions and despite the volatility of the commodity markets, our dividend policy proves its sustainability, as evidenced by our third quarterly dividend payment of 2015 of $0.05 per share. As most of you already know, just over a month ago Silver Wheaton received a proposal letter from the Canada Revenue Agency, or the CRA, proposing to reassess the company's taxation years 2005 to 2010. Generally a company is taxable in Canada on its income earned in Canada, while non-Canadian income earned by foreign subsidiaries is not subject to Canadian income tax. However, this proposal outlines the CRA's position that the income earned outside of Canada by our foreign subsidiaries should be subject to Canadian tax. This income relates to Silver Wheaton's foreign subsidiaries buying and selling silver and gold in relation to streams on mines that are located outside of Canada. I reiterate, Silver Wheaton is taxable on all metal production from streams on mines within Canada. We believe that our corporate structure is common for Canadian companies operating internationally and is not displayed unique amongst Canadian streaming companies. We intend to vigorously defend our tax filing positions and we do not anticipate any changes to our business operations at this time. I would like to take this opportunity to encourage all of our investors to carefully review both our July 6 press release and the attached Q&A which provide additional information on the CRA proposal. Gary Brown will also provide a bit more detail on this shortly. On the corporate development front, we continue to see many high quality opportunities and believe we are in a strong position to add to our portfolio, given our sector leading cash flows and financial flexibility. We continue to focus on finding high-quality well-managed assets that will deliver, at the very least, reasonable rates of return for our shareholders. That being said, we continue to have a strong fully funded organic growth profile and we do not need to make acquisitions, simply for the sake of growth. In conclusion, there is no doubt that the past few months have been challenging for Silver Wheaton and for the precious metal sector as a whole. While we can't control commodity prices, we can focus on delivering on our growth guidance and on maintaining one of the lowest cost profiles in the industry. And despite the current challenges that we face, we have a very strong portfolio of high quality assets that are delivering. We believe this will be a record year of production for Silver Wheaton. With that, I would like to turn the call over to Gary Brown, our Senior Vice President and Chief Financial Officer to provide a bit more detail. Gary?

Thank you, Randy and good morning, ladies and gentlemen. Prior to reviewing Silver Wheaton's unaudited financial results for the three months ended June 30, 2015, I would like to remind everyone that all monetary figures discussed are denominated in U.S. dollars, unless otherwise noted. The company's precious metal interests generated record attributable silver equivalent production of 10.9 million ounces in the second quarter of 2015, 29% higher than production from the comparable period of prior year. Approximately 66% of this production related to silver with the remainder relating to gold. Silver equivalent sales volumes exceeded 10 million ounces in Q2 2015, representing a 34% increase from Q2 2014 and a new record for the company. As at June 30, 2015, payable silver equivalent ounces produced but not yet delivered by our partners amounted to approximately 6.5 million ounces, virtually unchanged from the balance at the end of the prior quarter. It is important to remember that we estimated normal level for ounces produced but not delivered to equate to approximately two to three months worth of payable production. So our expectation is that this balance may grow over the remainder of 2015, as both Constancia and Salobo continue to ramp up. Revenue for the second quarter of 2015 amounted to $164 million, representing an 11% increase from the comparable period of the prior year with the increased sales volumes being partially offset by a 17% decrease in the average realized silver equivalent selling price, which was $16.38 per ounce for Q2 2015 compared to $19.83 for Q2 2014. Earnings from operations for the second quarter of 2015 amounted to $63 million representing a 15% decrease relative to the second quarter of 2014 with operating margins decreasing by 12% to 39% in the second quarter of 2015 due to lower commodity prices. Cash-based G&A expenses amounted to $6 million in the second quarter of 2015, representing a decrease of $2 million from Q2 2014 with such decrease being primarily attributable to lower compensation costs. The company now estimates that non-stock based G&A expenses which excluded expenses relating to the value of stock options granted and performance share units will be approximately $27 million to $29 million for 2015, slightly lower than previously estimated. Interest costs for the second quarter of 2015 amounted to $3.3 million resulting in an effective interest rate on outstanding debt of 1.7%. Of this interest, $2.5 million was capitalized to the Pascua Lama mineral interests resulting $800,000 of interest being expensed in the calculation of net income. Net earnings amounted to $54 million in the second quarter of 2015 compared with $63 million dollars in the comparable period of prior year with basic earnings per share decreasing to $0.13 per share from $0.18 per share in Q2 2014, with the decrease being primarily attributable to declines in commodity prices. Operating cash flow for the second quarter of 2015 amounted to $109 million or $0.27 per share compared to $103 million or $0.29 per share in the second quarter of the prior year. Based on the company's dividend policy, the company's Board has declared a dividend of $0.05 a share payable to shareholders of record on August 26, 2015. Under the dividend reinvestment plan, the Board has elected to offer shareholders the option of having their dividends reinvested in newly issued common shares of the company at a 3% discount to market. The operational highlights for the second quarter of 2015 included the following, attributable production relative to the San Dimas mine amounted to 1.8 million ounces, representing a 60% increase compared to the second quarter of 2014. The increase in production is attributable to higher throughput due to the mill expansion, which was completed in 2014, but also higher grades and recoveries. In addition, the annual threshold over which Primero retains 50% of any silver produced rose from 3.5 million ounces to 6 million ounces effective August 6, 2014. This was partially offset by the cessation of the supplemental silver deliveries from Goldcorp, which contributed 375,000 ounces of production and sales in the second quarter of 2014. Silver sales relative to San Dimas amounted to 1.3 million ounces, 6% higher than sales volumes for the comparable period of the prior year. The difference between production and sales for Q2 2015 was due to the suspension of Primero's import and export licenses. As at June 30, 2015, approximately 800,000 ounces of payable silver had been produced at San Dimas, but not yet delivered to Silver Wheaton, representing an increase of 500,000 ounces from the prior quarter. As disclosed by Primero on August 6, the import and export licenses have been reinstated and normal course imports and exports have resumed, including the commencement of sales of all inventoried silver. Silver production relative to Yauliyacu amounted to 700,000 ounces for Q2 2015, consistent with production from the prior year. However, silver sales amounted to 800,000 ounces in Q2 2015 compared to 100,000 ounces in the second quarter of the prior year, with the variance being due to changes in payable silver produced but not yet delivered to Silver Wheaton. As at June 30, 2015, approximately 800,000 ounces of payable silver had been produced relative to Yauliyacu, but not yet delivered to Silver Wheaton. Penasquito generated attributable silver production of 1.9 million ounces, representing a 6% decrease from the comparable period of the prior year with such being primarily attributable to the processing of lower grade material. Silver sales volumes relative to Penasquito decreased by 28% or about 500,000 ounces relative to Q2 2014. This reduction in sales was primarily attributable to changes in payable silver ounces produced but not yet delivered to Silver Wheaton, with such having increased by approximately 300,000 ounces in the most recently completed quarter to approximately 900,000 ounces compared to 100,000 ounces reduction in such delivered balances for the comparable period of the prior year. As disclosed by Goldcorp, progress on the construction of the Northern Well Field project was limited due to continued social issues with local communities. According to Goldcorp, the remaining work relative to this project is on hold, but contingency plans are in place for fresh water supply. In addition, Goldcorp has stated that the metallurgical enhancement project continues to demonstrate the potential to significantly enhance overall economics and mine life of Penasquito. During the second quarter of 2015, the pilot plant construction was completed and pilot plant testing commenced. The permit applications related to the metallurgical enhancement project were submitted in May 2015 and the feasibility study remains on track for completion in early 2016. The Barrick mines generated attributable silver production and sales volumes of over 600,000 ounces, more than double the production achieved in the second quarter of 2014. This significant increase in production is attributable to the processing of higher grade ore at Veladero, combined with improved recoveries at Lagunas Norte. Gold production from the 777 mine for the second quarter of 2015 amounted to 6,700 ounces or 500,000 silver equivalent ounces which represent a 43% decrease from Q2 2014, with the decrease being primarily attributable to lower throughput and grades. This lower production resulted in a decrease in gold sales volumes relative to 777 with about 9,500 ounces of gold or 700,000 silver equivalent ounces being sold in Q2 2015 compared with 13,600 ounces of gold or 900,000 silver equivalent ounces in the comparable quarter of prior year. The Sudbury mines produced 8,600 ounces of gold or 600,000 silver equivalent ounces in Q2 2015, representing a 15% increase relative to the comparable quarter of the prior year due to higher throughput, with the Totten mine continuing to ramp up. Gold sales relative to Sudbury amounted to over 12,500 ounces or 900,000 silver equivalent ounces, representing an 86% increase relative to Q2 2014. The increased sales volume is primarily attributable to the decrease in payable gold ounces produced but not shipped during Q2 2015, coupled with the increased production. As at June 30, 2015, approximately 9,900 ounces of payable gold or 700,000 ounces of silver equivalent had been produced relative to the Sudbury mines and not yet delivered to Silver Wheaton. Salobo produced over 27,800 ounces of attributable gold or two million silver equivalent ounces, an increase of 228% from the comparable quarter of the prior year, with such increase being attributable to the continued successful ramping up of the second line and the doubling of Silver Wheaton's attributable percentage of gold from 25% to 50%, effective January 1, 2015. The two lines operated at an average rate of approximately 87% of capacity during the second quarter of 2015. Gold sales relating to Salobo amounted to 32,200 ounces or 2.4 million silver equivalent ounces, an increase of 170% relative to comparable quarter of the prior year, due primarily to the increase in attributable production. As at June 30, 2015, payable gold produced at Salobo but not yet delivered to Silver Wheaton amounted to approximately 14,900 ounces or 1.1 million silver equivalent ounces, a decrease of approximately 6,000 ounces during the second quarter of 2015. Gold production relative to other gold interest amounted to 7,400 ounces or 550,000 silver equivalent ounces during the second quarter of 2015, representing a 43% increase from Q2 2014. This increase was primarily attributable to the continued successful ramping up of the Constancia mine. Gold sales in Q2 2015 from other gold interests increased by 166% due primarily to deliveries from Constancia. As at June 30, 2015, approximately 8,000 ounces of payable gold or 600,000 silver equivalent ounces have been produced relative to other gold interests, but not yet delivered to Silver Wheaton. During the second quarter of 2015, the company generated $109 million of cash flow from operations, repaid $85 million of debt under its revolving facility and dispersed $34 million in dividends. As at June 30, 2015, the company had $72 million of cash and cash equivalents on hand and $715 million of debt outstanding under its revolving facility. With respect to the audit of the company's taxation years 2005 to 2010 by the Canada Revenue Agency or CRA, on July 6, 2015, we received a proposal letter from them. The letter outlines CRA's position that the transfer pricing provisions of the Canadian Income Tax Act relating to income earned by the company's foreign subsidiaries outside of Canada should apply such that the income of Silver Wheaton subject to tax in Canada should be increased for the 2005 to 2010 taxation years by approximately CAD 715 million, representing substantially all of the income earned outside of Canada by the foreign subsidiaries. If the CRA were to issue reassessments of the basis of the proposal letter, we would estimate that this income inclusion would result in federal and provincial tax of approximately CAD 190 million or $145 million at today's exchange rate. The CRA has also suggested that they are seeking to apply transfer pricing penalties of approximately CAD 72 million or $55 million. The proposal does not indicate the amount of interest or other penalties that the CRA may seek to levy. If the CRA issues reassessments on the basis of a proposal letter, we intend to file a notice of objection, at which time, we would be required to pay 50% of the reassessed amount of tax, interest and penalties. At today's exchange rate, this would result in a payment of approximately $100 million, inclusive of tax and transfer pricing penalties, but prior to interest and other penalties that may be included in any reassessment. The company's cash position, strong forecast future operating cash flows combined with the $1.3 billion of available credit capacity under the revolving facility positions the company well to satisfy such potential payment, while at the same time, satisfying its funding commitments, sustaining its dividend policy and consummating additional accretive precious metal purchase agreements. It is important to understand that we strongly believe that Silver Wheaton has filed its tax returns and paid applicable taxes in compliance with Canadian tax law and that we intend to vigorously defend any challenge to our tax filing positions. As such, we have already responded to the proposal letter indicating our strong disagreement with the CRA's proposed position. And with that, I will turn the call back over to Randy.

Thank you, Gary, and operator, we would like to open up the call for questions, please.

[Operator Instructions]. Your first question comes from Dan Rollins with RBC Capital Markets. Please go ahead.

Yes. Thanks very much and congrats on a strong quarter, guys. Just, we have seen a flurry of deals recently in the streaming and royalty space. Obviously you guys haven’t been participating in that. Have any of those deals been deal that you guys were looking at? Or are you looking at other deals with more of the majors on a streaming opportunities?

It’s an active time. I mean, we are looking at everything out there. It's a matter of how far we are willing to stretch on these things. And we do drive and strive towards making sure that we make accretive acquisitions that have a reasonable rate of return. So it is an active time. I can tell you, we have looked at some of those opportunities and we are still very active in that space.

Okay. And have you seen, is the pipeline, since the last call, we have seen the pipeline getting larger now with the pullback in other base metal and commodities as well? Or are they are pretty stable with enough people coming in the door?

No. I would say that the pipeline is actually even better than the last time we talked, Dan.

Excellent to hear. And then barring any new acquisitions or barring the reassessment by the CRA, would it be the company's intent to continue to use the excess cash generated on a quarterly basis to pay down the line of credit?

Yes. I mean, our objective here is to basically keep a balance of zero. We would like to keep money going into the ground, but as money comes in, we will use it to pay down that line of credit.

Which, I would just add, Dan, you have to remember, it’s a revolving facility. So any repayments of that debt does not reduce the capital available to us.

Yes. For sure, for sure. It's just nice to see when the company is paying off $85 million in debt and still can pay a pretty strong dividend. That’s a great thing to see. That’s all I had, guys. Congrats on a great quarter.

Thank you, Dan.

Your next question comes from John Flanaghan with Fundamental Equities in Chicago. Please go ahead.

Gary, what would, I don’t have the statement here, your balance sheet, what is currently roughly the debt to capital ratio? And very comfortable in that you can handle $100 million with the tax [indiscernible] if it comes to that?

I mean, we have got net debt of $643 million. This shareholders equity, as at June 30, was about $4.5 billion. Our market cap is higher than that. So very, very comfortable with the level of debt that we have got. At today's commodity prices, we are generating somewhere around the $400 million mark of operating cash flows. We have very, really only one funding commitments outstanding and that relates to Rosemont. So we are in a very, very strong position relative to our debt.

And when Randy says, all the projects are fully funded, how do you define that?

Sure. John, it's Randy here. We have given our guidance, the $230 million that is committed to Rosemont is subject to Hudbay receiving the permits to start construction on that and then subject to construction commencing. And so because there is no firm schedule in that, it doesn’t represent part of our production forecast. The Rosemont production does not fit into the 43.5 million ounces we expect this year, obviously, but more importantly, the 51 million silver equivalent ounces that we expect by 2019. So the growth that we have outlined in our production forecast is fully funded. There is no capital required to achieve that if Rosemont and we fully expect that Hudbay should be successful in receiving permits and we hope that it will be up and producing by 2019. If that’s the case, the production from Rosemont will be over and above the 51 million silver equivalent ounces that we have forecast.

Got you. And Randy, is there anything new on Barrick's shutdown project in July?

Well, I can tell you that Barrick is making great progress in terms of raising capital to improve their own balance sheet. They have actually had -

I have seen it

Yes. They have had some good success lately. And I have always said, that’s the first step that Barrick has to accomplish before they make substantial moves within Pascua-Lama. So I think that’s their primary focus and it appears they are making good progress in that space. And Pascua-Lama, they are still working on the water treatment plant, the osmosis plant and production. So nothing substantive, mainly because the primary focus within Barrick is improving that balance sheet.

Yes. Thanks a lot.

Appreciate the call, John. Thanks.

[Operator Instructions]. Your next question comes from Michael Gray with Macquarie. Please go ahead.

Yes. Good morning guys. A couple of questions. The first one on San Dimas. In terms of the mine life likely being extended and reserves based on the exploration successes Jessica and Perez. I know that’s not in the resource and reserve statement yet, probably at the end of the year, but maybe a comment on that? Plus Primero is guiding for 2016 to 2017, 6.5 to 7.5 million ounces. Is that consistent with what you guys are forecasting?

Yes. The Jessica vein is a very typical example of what happens in San Dimas. This district has got well over 200 years of continuous mining history in this district and what I always say is, you invest into this mine, it always delivers back in spades and that’s what Primero is experiencing and we are getting some of that benefit. The amount of effort that they are putting into it, it delivers returns like things like the Jessica vein, when it comes in. And so, I am not surprised. It's what we have seen happen there. Obviously, I have known this asset for the last 15 years altogether and 10 years within Silver Wheaton and before that. And this asset always delivers and is continuing to. So no, I am very happy that they are having that progress and I do think there is going to other stories like that as Primero continues to build that up. And so, the fact that their current capacity is rated at 2,500 tons per day, but they are operating close to 3,000. They have already announced a further expansion which they expect to have up and running some time early in 2015 or mid-2016. Their forecast, our forecast are based on that 2,500 tons a day mining plan that Primero supplied to us. And so the upside from those expansions still to be adjusted into our own forecast.

Okay. So their numbers are ahead of yours, given that they have already got the 3,000 tons per day in?

I don’t think they have come out with updated mine plans going forward based on 3,000 per day. Their mine plan going forward is still based on the 2,500 tons per day.

Okay. Fair enough.

They only committed to that earlier this year and they haven’t updated their long-term mine plans yet.

Okay. And just back to the opportunities out there in terms of volume and quality. I get the impression that there could be a number of cornerstone assets coming to the market that maybe once in a cycle type of opportunities, we saw Pueblo Viejo come for a stream. Is that the focus that there could be some assets that are going to come to market that could be cornerstone opportunities for you and that is the robustness of the pipeline you are talking about?

Well, what I would say is that what we have seen is a lot of Tier 1, top tier companies with these Tier 1 assets, they need that capital support and we are seeing it, the streaming business model is getting more and more broadly accepted as a means of raising capital. We have, of course, invented this business model 10 years ago and we have seen it copied widely. Our focus is always making sure that we deliver accretive growth and a reasonable rate of return back to our shareholders going forward. So that’s the way we approach all the opportunities that we have in front of us. That doesn’t mean that we are going to win every competition, but it is a very, very robust opportunity set out there right now and I would say that we are very well positioned, combined with our balance sheet and more importantly our operating cash flow. The capacity that we have in that and the streaming and royalty companies are suffering from the same equity market that the mining industry as a whole is. And so that strong operating cash flow that we have, which is peer group leading by a strong distance and with no commitments in the near-term future, puts us in a very good position to take advantage of some of these opportunities when they come through.

Okay. And the CRA issue is not curbing your enthusiasm in that regard?

No.

Okay. Great. Thanks.

Thank you, Michael.

Your next question comes from Charles Gibson with Edison. Please go ahead.

Randy, Gary, morning and thank you very much and congratulations. I wondered if I could ask two questions, if I may. One, just on the CRA matter that they sent. As I recall, that effectively represents an invitation to enter discussions with them. And I just wonder, have those discussions been entered into? And are they ongoing? Or is it the case that you have received that letter, you have responded to it and now the ball is in their court? So that, first of all, if I may. And then, I just wondered if I could ask, obviously there was an issue of, you impaired some of your assets in the last financial year. Obviously, we have seen that fall in metal's prices this year. Is that a risk? Is it possible there could be more impairments? Or did you impair last to an extent that any further impairment will be a long away?

Thanks, Charles. It's Gary here. I will take those questions in the order that you have posed. We have responded to the proposal letter. We feel that over the five years that they have been reviewing the information and talking to us about the fact that they have everything that they should need to make their decisions. So we have responded. The ball is in their court. And we will wait and see whether or not notices of assessments are issued on the basis of their proposal. With respect to impairment, we did take impairments last year, but commodity prices have continued to decline. We haven’t recorded any this year. We don’t anticipate having to record any. Although with the sustained price drop from these levels, we always have to look at that. So there is no guarantees that there wouldn’t be impairments. We just don’t anticipate them at this point.

Quite understood. Thank you. Can I just follow up on the first issue, the one on the CRA? Would they be good enough to inform you officially if they weren’t going to take it further? Or is it just the fact that you will stop hearing it from them?

I would expect that they would communicate that they were not going to move forward on the basis of their proposal, if that was the decision that they had made.

Excellent. Again obviously you would report that to the market of this opportunity?

Yes.

I guessed as much. Thank you very much.

Thank you, Charles.

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

Good morning.

Hi John.

Many of the stocks we follow gets screwed by governments and some like, say Goldcorp screwed by every government they are in. Concerning your tax dispute, however virtuous or valid your attorneys advise you your position is, are you going to stay in Vancouver with your headquarters, no matter what? And if you lose, is Switzerland, Barbados, Bermuda, Bahamas, what's the next place? It seems like it is easier to leave than litigate.

No. I mean we are a Canadian company. Vancouver is our home and we are very confident in terms of our business structure. And so we fully expect to be able to stay here in Canada. We are very strong believers in that we have followed the law of the land here and followed the standard income tax. So we don’t see that as being a real concern. We don’t spend a lot of time thinking about that. And we definitely haven’t thought about which jurisdiction. That’s not something that’s on our radar.

Thank you.

Thanks, John.

Your next question comes from Tony Lesiak with Canaccord Genuity. Please go ahead.

Good morning. A couple of questions on the Barrick streams, first on Pascua. Are there any provisions in your Pascua agreement to get back to residual on the 625 paid-in, minus the silver delivered earlier, in mid-2020?

No, not earlier than mid-2020. There are obviously some extreme incidents in the contract where that might occur, but we don’t foresee that happening. So earlier than mid-2020 is the targeted date.

Okay. Barrick recently announced a revised closure plan for Pierina and they talked about another three to four years of residual gold production, but they didn’t mention anything on the silver side. Is there any silver production to your account that you know?

Yes, very, very little. But yes, these pads as always had residuals for quite a while and so we continue to receive the silver from Pierina. But it’s a very, very small amount, not even reportable.

So less a couple hundred thousand ounces per annum?

That’s right.

Okay. And then just finally on the potential for larger deals and all these opportunities that you are seeing out there, with the equity markets constrained, you have got the CRA unknown, how comfortable would you be in levering the balance sheet, let's say another billion dollars for another major transaction?

I will have Gary add a comment afterwards, but based on where we stand with respect to operating cash flows and the fact that we do not have any capital commitments, outside of Rosemont, which isn’t part of our forecast going forward and I would love to have that project get up and going, that would be a very happy $230 million that I would love to spend, but without any further capital commitments, I think we have got plenty of capacity on the balance sheet. We are in very healthy conditions. As Gary mentioned early on with the operating cash flows that we have, a good strong capacity to manage that.

Yes. Tony, we have the full $2 billion available to us under our credit facility and so we would be very comfortable accessing that capital, given the strength of our cash flows and especially if we are talking about a deal that’s generating additional cash flows to our account.

Okay. Thanks so much.

Thanks, Tony.

Your next question comes from Dan Rollins with RBC Capital Markets. Please go ahead.

Yes. Just a -up. In the past, we have heard a lot of potentially the streaming companies getting involved with other companies with respect to M&A. Do think this is still valid in today's market? Are you guys looking at potentially partnering with someone to help fund an acquisition where they could put two companies together, while at the same time deleveraging that combined balance sheet of that new pro forma company?

Sorry. Are you saying like --

Like when you making a play where you are funding a portion, like if someone comes and buys another company.

All right. Okay. So in terms of the industry itself. Yes, definitely it represents opportunities. And in this space with valuations where they are, yes, I would say, I am not going to say a large, but a significant portion of what we are looking at right now involves opportunities like that.

Okay. Yes. Because we had heard a lot in the past and just never really seen anything come of it. But it's nice to hear that’s still potentially in the pipeline.

Yes. Again, streaming when it comes to either acquisitions or capital investments, streaming always delivers a dramatically improved internal rate of return. And I think that that’s what's driving most companies when they are looking at that growth. I think the reason you haven’t seen a lot of it right now is that this is a tough market. And I think a lot of mining companies are just trying to make sure they have got good stable foundations in place before they start looking at growth. It's more of a stability period in the industry than it is a growth period in the industry, but there are a few companies out there that already have those good stable foundations and they are looking for opportunities.

Great. Thanks, guys.

Thank you, Dan. And thank you everyone for dialing in. We had a very strong start to 2015, as you are seeing here with record production and sales and given our fully funded organic growth profile, we do look forward to breaking many more production records over the next coming years, coming quarters and years. Continue to believe that Silver Wheaton offers the best option for gaining exposure to precious metals by offering a proven track record of accretive acquisitions and tangible organic growth. So thank you again for dialing in today and we look forward to speaking with you all again soon. Thanks

This concludes this conference call for today. Thank you for participating. Please disconnect your lines.