Wheaton Precious Metals Corp. (WPM) Q4 2016 Earnings Report, Transcript and Summary

Welcome to Silver Wheaton's Year-End 2016 Financial Results Conference Call. [Operator Instructions]. Thank you. I would like to remind everyone that this conference call is being recorded on Wednesday, March 22, at 11 AM 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; Gary Brown, Senior Vice President and Chief Financial Officer; and Haytham Hodaly, Senior Vice President of Corporate Development. I'd like to bring to your attention that some of the commentary in 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 and the risks identified under risks and uncertainties in management's discussion and analysis, both available on SEDAR and in Silver Wheaton's Form 40-F and Silver Wheaton's Form 6-K, both on file with the U.S. Securities and Exchange Commission. The annual information form and Q4 2016 management's discussion and analysis and the press release from this morning, set out the material assumptions and risk factors that could cause actual results to differ including, among others, fluctuations in the price of commodities, the outcome of the challenge by the CRA of Silver Wheaton's tax filings, the absence of control over mining operations from which Silver Wheaton purchases its silver or gold and risks related to such mining operations and continued operation of Silver Wheaton's counterparties. It should be noted that all figures referred to on today's call are in U.S. dollars, unless otherwise noted. Now I'd 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 in to our conference call to discuss our fourth quarter and year-end 2016 results. 2016 was an exceptional year for Silver Wheaton. In August, we completed our third transaction with Vale, adding an additional 25% of the gold from the Salobo mine in Brazil, significantly increasing our gold production. As a result, we achieved record gold production of over 350,000 ounces. And that is in addition to silver production of over 30 million ounces. In 2016, we sold more silver and gold than ever before; specifically, we sold over 28 million ounces of silver and 330,000 ounces of gold. And, furthermore, for the first time in our history, in the fourth quarter, gold sales exceeded 100,000 ounces within a single quarter. The impact of growing sales and higher commodity prices resulted in record revenues of $892 million for the year and operating cash flow of $584 million. And as our dividend policy is linked directly to operating cash flow, so Wheaton's quarterly dividend has increased again and is now at $0.07 per share. 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. The Company's precious metal interest produced 7.6 million ounces of silver and 107,300 ounces of gold in the fourth quarter of 2016. Relative to the fourth quarter of the prior year, this represented a decrease of 26% in silver production and a 48% increase in gold production. The lower silver production was primarily attributable to lower production associated with San Dimas, Penasquito and Antamina; whereas the increase in gold production was primarily due to the 25% increase in the gold interest relative to Salobo, combined with gold production at Minto increasing by nearly 6,000 ounces. Sales volumes amounted to 7.5 million ounces of silver and 108,900 ounces of gold in Q4 2016, representing a 14% decrease for silver and a 68% increase for gold, relative to the fourth quarter of 2015. The decrease in the silver sales volumes was attributable to the decreases in production, partially offset by positive changes in the balance of payable silver produced but not yet delivered to Silver Wheaton. The increase in gold sales volumes which represented the fourth consecutive quarterly record, was attributable primarily to the increase in the Company's interest in gold production from Salobo, as well as the increased production from Minto, coupled with positive changes and payable gold ounces produced but not yet delivered to the Company. As at December 31, 2016, approximately 3.2 million payable silver ounces and 61,700 payable gold ounces had been produced but not yet delivered to the Company, representing a decrease during the quarter of approximately 560,000 ounces of silver and 2,200 ounces of gold. We estimate a normal level for ounces produced but not yet delivered to equate to approximately two months' worth of payable production, with the balances at December 31, 2016, being slightly lower than would be regularly expected. Revenue for the fourth quarter of 2016 amounted to $258 million, representing a 29% increase relative to Q4 2015 due to increased gold sales volumes combined with average selling prices increasing by 15% for silver and 10% for gold. Of this revenue, 49% was attributable to silver sales while 51% related to gold. Gross margin for the fourth quarter of 2016 increased 31% to $93 million. Cash-based G&A expenses amounted to $3 million in the fourth quarter of 2016, representing a $5 million decrease from Q4 2015, due primarily to a large reversal of previously accrued expenses related relating to the Company's outstanding performance share units or PSUs. Interest costs for the fourth quarter of 2016 amounted to $7 million, resulting in an effective interest rate on outstanding debt of 2.09%. All of this interest was expensed in the calculation of net income. This compares to $4 million of interest costs incurred in the prior year, of which only $1 million was expense with $3 million having been capitalized in relation to the Barrick silver interest. During the fourth quarter of 2016, the Company recognized an impairment charge of $71 million relating to its Sudbury gold interest which was driven by a decrease in expected future deliveries as a result of a revision in the mine plan. Net earnings amounted to $11 million in the fourth quarter of 2016 compared to a net loss of net loss of $169 million in Q4 2015, with the loss in the prior year reflecting impairment charges, net of tax effects, amounting to $227 million. After negating the effect of the impairment charges, adjusted net earnings in the fourth quarter of 2016 amounted to $82 million as compared to $57 million in Q4 2015, with the $24 million increase in adjusted net earnings in the most recently completed quarter being primarily attributable to the increased gold sales volumes, higher commodity prices and lower G&A costs. Basic adjusted earnings per share increased 31% to $0.19 compared to adjusted basic earnings per share of $0.14 in the prior year. Operating cash flow for the fourth quarter of 2016 amounted to $175 million or $0.40 per share compared to $133 million or $0.33 per share in the prior year, representing a 20% increase on a per-share basis, once again highlighting the accretiveness of the Company's acquisitions over the past year. Based on the Company's dividend policy, the Company's Board has declared a dividend of $0.07 a share payable to shareholders of record on April 5, 2017. This represents a 17% increase relative to the previous quarter and the second consecutive quarterly increase, highlighting the benefits of the Company's dividend policy to pay 20% of the average operating cash flow generated over the last four quarters. 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. For the year ended December 31, 2016, silver production was virtually unchanged from the prior year, at 30 million ounces, as increased production from Antamina offset decreases in production relative to the Penasquito and San Dimas mines; while gold production increased 46% to 354,700 ounces with the increased being due to the 25% increase in the gold interest relative to Salobo, combined with gold production at Minto increasing by over 24,000 ounces. Revenue for 2016 amounted to $892 million, representing a 37% increase relative to the prior year due to a 63% increase in gold sales volumes combined with average selling prices increasing by 8% for both silver and gold. Of this revenue, 54% was attributable to silver sales while 46% related to gold. Gross margin amounted to $328 million, an increase of 26% relative to 2015, with operating margins as a percentage of sales decreasing to 37% in 2016 from 40% in 2015 due primarily to higher depletion rates associated with the more recently acquired assets, partially offset by higher commodity prices. Cash-based G&A expenses in 2016 totaled $29 million compared to $26 million in 2015, slightly lower than the most recent Company guidance. The year-over-year increase was primarily attributable to higher legal costs relating to the Company's ongoing disputes with the CRA, partially offset by lower PSU expenses. For 2017, the Company estimates that non-stock-based G&A expenses which exclude expenses relating to the value of stock options granted in PSUs, will amount to $33 million to $35 million, with the increase being primarily attributable to a combination of a higher level of distributions relating to the companies CSR programs combined with increased employee-related expenses. After adjusting to neutralize for the effect of the $71 million impairment charge, adjusted net earnings for 2016 amounted to $266 million, representing a 27% increase from adjusted net earnings for 2015, due primarily to the increased sales volumes coupled with the increased commodity prices, with basic adjusted earnings per share amounting to $0.62 in 2016 compared to $0.53 in 2015. Cash flow from operations amounted to $584 million, an increase of 36% as compared to 2015. This translated into operating cash flow per share of $1.36 compared to $1.09 in 2015. The operational highlights for the fourth quarter of 2016 included the following, attributable silver production relative to the San Dimas mine decreased 38% to 1.4 million ounces due to lower throughput and grades. Silver sales volumes in Q4 2016 relative to San Dimas decreased 25% to 1.6 million ounces due to lower production, partially offset by positive changes in payable ounces produced but not yet delivered to Silver Wheaton. On February 15, 2017, Primero announced that unionized employees at the San Dimas mine had initiated a strike action resulting in the complete stoppage of mining and milling activities at the San Dimas mine. Primero has indicated that depending on its duration, the strike could have a negative impact on Primero's 2017 production. For 2017, we anticipate that attributable silver production relating to San Dimas will amount to about 4 million ounces, with the reduction from 2016 being primarily attributable to the effect of the ongoing strike. Our 2017 guidance is based on the strike lasting three months and that San Dimas will otherwise achieve production in line with 2016. Penasquito generated 1.3 million ounces of attributable silver production in Q4 2016, representing a 25% decrease, reflecting the lower throughput and grades attributable to mine sequencing. Silver sales volumes in Q4 2016 relative to Penasquito decreased 39% to 1.3 million ounces due to a combination of lower production and negative changes in payable ounces produced not yet delivered to Silver Wheaton. As disclosed by Goldcorp, the engineering associated with the Pyrite Leach Project was 65% complete by the end of 2016. And a carbon pre-flotation facility is being constructed and is anticipated to be completed in the second quarter of 2018. In addition, Goldcorp has indicated that the Northern Well Field project reached full production capacity during the fourth quarter of 2016 and is expected to satisfy Penasquito's long term water requirements. For 2017, attributable silver production relating to Penasquito is expected to increase to approximately 5.3 million ounces. Antamina generated 1.6 million ounces of attributable silver production in Q4 2016, representing a 34% decrease as compared to Q4 2015. However, it should be noted that the Antamina agreement which was signed in Q4 2015, provided for the delivery of Glencore's portion of silver sold from Antamina to an offtake as at September 30, 2015, meaning that Q4 2015 production included some production from Q3 2015. It is important to also note that the Antamina Silver interest generated almost 7 million ounces of silver production for Silver Wheaton in 2016, 24% above expectations. For 2017, attributable silver production relating to Antamina is expected to once again exceed our original expectations, although we do anticipate a marginal decrease to 6 million ounces. Silver production and sales relative to other silver interests amounted to 2.5 million ounces, with the decrease in production relative to Q4 2015 being attributable primarily to lower silver grades at Zinkgruvan, Cozamin and Veladero. In addition, as per the amendment to the silver stream agreement dated November 30, 2015, production from Yauliyacu was split evenly with Glencore for the entire fourth quarter of 2016 as the mine reached the annual sharing threshold of 1.5 million ounces in the third quarter of 2016. 2017 production from other silver interest is expected to be slightly lower than 2016, at 10.3 million ounces, due primarily to the Cozamin stream coming to the end of its term in April. The Sudbury mines produced 11,000 ounces of attributable gold during Q4 2016, representing a decrease of 19%, attributable primarily to lower throughput and grades. Sales volume relative to Sudbury increased by 63% to 10,200 ounces of gold due to positive changes in gold ounces produce but not yet delivered to Silver Wheaton. Sudbury production was adversely impacted in the fourth quarter of 2016 by operational issues and by mine redesign and remediation work. 2017 gold production relative to Sudbury is expected to amount to approximately 40,000 ounces, with the decrease from 2016 production levels being primarily attributable to the transition to a single furnace. Salobo gold production almost doubled relative to the comparable quarter in the prior year to 71,300 ounces during Q4 2016, with such being primarily due to the increase in the Company's attributable gold interests from 50% to 75%, effective July 1, 2016, coupled with increased throughput. The two 12 million tonne per year lines operated at an average rate of approximately 98% of capacity during the fourth quarter of 2016 with Vale having satisfied the completion tests relative to the second line during the quarter. Sales volume relating to Salobo increased relative to Q4 2015 by 66% to 73,600 ounces of gold in Q4 2016 due to the increased production. For 2017, attributable gold production relative to Salobo is expected to increase by about 15% to approximately 245,000 ounces. Other gold interests generated nearly 22,000 ounces of attributable gold production in Q4 2016, 49% higher than the prior year, primarily due to higher grades at Minto and better recoveries at 777. Sales volumes from other gold interests increased 125% to 21,800 ounces in Q4 2016 due to a combination of production increases and positive changes in gold ounces produced but not yet delivered to Silver Wheaton. For 2017, production from other gold interests is expected to amount to approximately 40,000 ounces of gold, with the decrease relative to 2016 being primarily due to lower production levels at Minto combined with the attributable percentage of gold relative to 777 dropping from 100% to 50%, effective January 1, 2017, as a result of Constancia having satisfied its completion test in 2016. During the fourth quarter of 2016, the Company repaid $152 million on the revolving facility; dispersed $22 million in dividends; and made the second installment, amounting to $2 million, relative to the Cotabambas early deposit agreement. Overall net cash decreased by $1 million in Q4 2016, resulting in cash and cash equivalents at year-end of $124 million. This, combined with the $1.2 billion outstanding under the revolving facility, resulted in a net debt position as at December 31, 2016, of approximately $1.1 billion. The Company's cash position, strong future forecasted operating cash flows, combined with available credit capacity under the revolving facility, positions the Company well to satisfy its funding commitments, sustain its dividend policy, while at the same time providing flexibility to consummate additional accretive precious metal purchase agreements. Finally, there is no material update relative to the Company's ongoing dispute with the CRA. We continue to work diligently with counsel to advance the case as expeditiously as possible, with the expectation that the discovery process will conclude by the end of July of this year. So Silver Wheaton ended 2016 with a very strong quarter, with both silver and gold production exceeding guidance; a record level of gold sales volumes; and the second-highest level of quarterly cash flows ever generated by the Company, resulting in the second consecutive increase in the quarterly dividend. For the year, the Company achieved record levels of gold production, silver and gold sales volumes and revenue. And we exit the year with the financial flexibility to execute on our growth strategy. With that, I turn the call back over to Randy.

Thank you, Gary. Looking forward, Silver Wheaton's estimated attributable silver and gold production is forecast to be 28 million silver ounces and 340,000 gold ounces in the year 2017. Over the next five years, we're forecasting our production to average about 29 million ounces of silver and 340,000 ounces of gold per year. I would like to highlight that this guidance does not include any of the optionality contained within our portfolio. The potential expansion of our flagship asset, Salobo, as well as top-tier development assets such as Pascua-Lama, Rosemont, Navidad, Toroparu and Cotabambas, will add significantly to our annual production once they are developed. On the corporate development front, we're happy to see that streaming is now a major consideration for all miners assessing financing options. We continue to see a number of high-quality accretive opportunities and are excited to finally see some development opportunities where our capital will be invested directly into the ground. With the improvements to project internal rate of return, this is where stream financing makes the most sense. And with, by far, the strongest free cash flows in the entire streaming space, as well as over $100 million per quarter and over $900 million of capacity, we have plenty of firepower for continued investments. It is worth noting that since 2012, we have made over $5.5 billion in upfront payments for new streams and more than doubled our production. Out of that $5.5 billion, the vast majority of that funding came from cash flows. Only about one quarter of it was actually raised with new equity. As always, we continue to focus on acquiring streams that are accretive to our current shareholders and come from high-quality assets producing in the lowest half of their respective cost curves. We have long believed that success should not be measured only in financial metrics. We recognize the need to give back to both our local communities and the communities from which we receive our silver and gold. As such, I'd like to provide an update on Silver Wheaton's corporate social responsibility programs. Specifically, since 2014, we have provided financial support to our partners' social projects in the communities near their mines. Currently we're working with Vale on an initiative to improve the access and quality of primary health care near the Salobo line in Brazil; and with Goldcorp, to improve the educational facilities near the Penasquito mine in Mexico. We have also just recently signed an agreement to help improve the educational system around the Antamina mine in Peru. We believe these projects will provide positive, long term and sustainable benefits to these mining communities, to our partners and of course to the mining industry as a whole. We're working with our partners on several new initiatives that we're looking forward to launching in 2017. We're proud of these programs that we support in the communities around our partners' mines and challenge our peers to make a positive difference as well. It is the right thing to do. And speaking of the right things to do, since 2013 we have seen a marked increase in gold production and our revenue is now almost evenly split between silver and gold. In order to better align our corporate identity with the underlying operations, we're recommending a name change to Wheaton Precious Metals Corp. We believe that Wheaton Precious Metals will better reflect our diverse portfolio of both silver and gold assets while building on the legacy associated with the Wheaton name. We're excited about this new identity and respectfully ask our shareholders to support this proposed change at our upcoming annual general meeting on May 10. In summary, 2016 was a record year for Silver Wheaton on many fronts and marks a milestone in our corporate history. We have 30 high-quality assets in our portfolio and our streaming model has been adopted across and even beyond the mining industry. We're excited about the transition to Wheaton Precious Metals and are confident that the new name will help reinforce our position as a leader in precious metals streaming and better reflect our diverse portfolio of both silver and gold assets. With that, I'd like to open up the call for questions, operator.

[Operator Instructions]. Your first question comes from Jorge Bernstein with Deutsche Bank. Your line is open.

Congratulations on the solid results. Just a quick question here on San Dimas. You gave the pretty explicit guidance for three months. Just wondering, why that specific time frame? And, secondly, if we did see that strike, say, last for six or nine months, could you give us kind of an incremental production impact there of lost ounces for each three months' increase?

Well, our guidance typically for the production for the year, we're basing it off of what the mine produced last year. And so the adjustments that we made, we just assumed about a three-month break. When we look at the past -- the labor history--

So about 1.25 million ounces per quarter, then?

About 1.3 million.

Okay. And you mentioned in your comments as well about a lot of the optionality that you have on projects that have not yet been sanctioned. But particularly Pascua-Lama -- is there any change there around the recent naming of Barrick to have a local executive there? And do you think that project could change your economics to be higher, going forward?

Barrick is -- first off, this is a project that demands further interest -- further investigations on Barrick. And that's one of the reasons Barrick is pushing it forward, it is a very attractive goal project. It's obviously got some hurdles in front of it and Barrick is working their way forward. Their concept is of course to explore the possibility of going underground and perhaps coloring on the Argentinean side. We haven't seen any of the studies; they are still ongoing, on their side. The production in terms of throughput would -- I'm going to hypothesize here -- would be obviously much less than it would be from an open pit. But the grades would actually the substantially higher to justify coming from underground. And so in terms of metal production, I'm not expecting if -- again, the studies that Barrick are completing are nowhere near complete. I think they are looking for third quarter this year or fourth quarter this year. But I would say that even if it goes forward with this potential underground development, from our perspective the metal production would be probably not too much different than what we forecast. But, again, that's based on just my feelings behind the economics that would be driven by an underground development.

Okay. And then just I also sort of meant, just following up from the model that you did with Vale, if there could be an opportunity for you guys to also invest more, renegotiate the terms a little bit for an enlarged investment?

Yes. On an operating basis, it is one of the most -- would be one of the most profitable gold mines in the world and so there's plenty of capacity for an additional stream. Right now, we currently get about 25% of the silver from that mine, once it's up and running. And that would equate -- under the original open pit plan -- that would equate to about 9 million ounces a year over the first five years. There's still plenty of capacity in that asset for an additional stream to help finance that.

Your next question comes from Michael Gray with Macquarie. Your line is open.

A few questions here. First of all, on Sudbury -- appreciate the 20% life of mine production reduction. But can you comment on what tangible exploration upside you see amongst the gold-producing assets in the Sudbury portfolio?

Yes. Vale has just initiated what was described as one of the largest drilling campaigns, from an exploration perspective, in the Sudbury camp. What they have done is gone through and done a very thorough review of their mine plan and taken out some of their marginal tonnes and some of the marginal operations. We saw that they announced the Stobie mine is going to shut down. The Stobie is an old mine that, first off, doesn't produce a lot of gold. It's one of the lowest-grade mines. And then they also had some geotechnical issues with the asset. And so they are undertaking, as I said, one of the strongest exploration campaigns -- exploration drilling campaigns that they've ever run, over the next couple of years. It's initiating this year -- starting this year. So we're hopeful that that produces results. I can tell you that the Sudbury campus had a long history of delivering results every time the drill is turned. But when it comes to that when we have a mine plan that's laid out in front of us, we had to make some adjustments in terms of our own carrying values.

Fair enough. Okay. And on San Dimas, are you able to provide a little bit of color on what your role is as Primero deals with securing new debt, new union negotiations and likely some sort of strategic alternative where you guys sit?

Yes. I'd quite simply describe it as being a supportive partner. We're working with Primero, as we work with all our partners, in terms of trying to help them move forward. Our first responsibility is, of course, to our shareholders and preserving value as well as we can there; and growing value is our objective. But our second responsibility is, of course, to our partners and to the miners themselves. And so we're working very closely with Primero to try and return that mine to where it rightfully belongs which is a very profitable mine with a good long history behind it. And it will have a good future in front of it.

Okay. Thanks. Final question, Randy, KPMG Mining, an accounting firm, surveyed mining executives. The number-one top risk is now the ability to access and replace, reserve some resources; that comes up from number 10 in 2014. Where does this risk feature for you guys? And maybe you could also just comment on the stream opportunity and landscape -- I think you pointed out you are seeing more development opportunities in the pipeline -- but the volume of potential deal scale and whether you are considering increased political risk.

Yes, we've definitely gone through a transition into seeing a few more development opportunities in front of us which is refreshing because this industry needs that. And I can see why that would be ranked the number-one risk is that there hasn't been a lot of reinvestment into the industry over the last four or five years. And unfortunately, this industry requires that reinvestment. Resources get exhausted and so you have to have that. And so there hasn't been a lot of grassroots exploration, a lot of add-ons over a while, so we're definitely seeing a bit more on that. What I will say, though, is that we're not seeing a lot of big opportunities out there. Most of the stuff we're looking at is $500 million or less in terms of streaming value, going forward. And so it is something that -- happy to see the change, because I would like to -- to me, that's where the streaming model works the best is when we're helping people build mines. But it's going to take a few years to catch up for the deficit that we've seen over the last while. And I think that's why you are seeing it identified as a number-one risk.

Your next question comes from Cosmos Chiu with CIBC. Your line is open.

Just a few questions from me here. Maybe first off, on Sudbury; I appreciate that there's been a new mine plan, a 20% decrease in gold production, life of mine. But as you and I know, mine plans always change. So I'm just trying to gauge under what kind of circumstances could that 20% reduction come back? And how often do they actually put out new mine plans?

Well, they update their mine plan every year, so it's an annual update. I think -- and Vale described it themselves -- they have gone through a serious hard look at profitability in the camp. So there was a lot of operations that were relatively marginal, especially when it came to sustaining capital in terms of keeping these going. And that's one of the reasons that they probably scoured the mine plan a bit more thoroughly than in the past. In terms of the potential, it will come down to exploration success; having some success with the drills. Really happy to see Vale's commitment to that in terms of getting the drills going on the property again. And so it is going to take some of that success and that would easily feed in. We've still got 16 years left in this contract, so it's very easy to envision having any exploration success there definitely feed into ultimately production success for us.

And on that, as well, I guess you've clearly run the numbers on the stream agreement at Sudbury. There's been an impairment charge to it. I'm actually kind of surprised that there was an impairment charge at Sudbury before San Dimas. Is it just a function of the fact that Sudbury is capped at 20 years; and San Dimas, on the other hand, is life of mine. And maybe if you can run through the assumptions for San Dimas in terms of the impairment testing as well.

Well, I don't think you need to go much beyond the fact that San Dimas was the first deal that we had done. And so the carrying value of San Dimas is extremely low from an accounting perspective. And, yes, the term transactions do make it more difficult to make up lost ounces and so that did have an impact on our review of Sudbury.

It is -- just to reinforce, it is one of the things that we see in some of the streaming contracts being done by some of our peers, of late. Term contracts do have an elevated level of risk with them, because you don't get the chance. What's worse is they are not even last ounces; they are just deferred ounces. They get pushed out. But if they get pushed out beyond that term, then that's a cost -- that's a real cost and a real risk. So our preference is life of mine agreements. And it is for that reason that a lot of times the metal gets delivered later than expected.

And, Gary, can you remind us once again -- what's the carrying value for the San Dimas stream?

$141 million.

Okay. That's, I guess -- you are right; that's going to be a pretty simple calculation to work out. And then maybe switching gears a little bit on Constancia, I see that 2017 guidance. I'm sure is based on a November mine plan. It is coming off a bit in 2017 in terms of both silver and then, more substantially, gold production. But remind me again, we're at a low point; right? Because thereafter, Pampacancha is going to come in; it's going to improve the grades for gold and silver. Am I correct?

Yes, that's correct. They are advancing towards bringing Pampacancha into production in 2018. It will start feeding in. And the precious metal grades in Pampacancha are substantially higher -- specifically the gold -- substantially higher than in the main orebody, the main Constancia orebody. And so we should see the benefits of that for probably about a 4- to 5-year period.

And that starts in 2018-ish, right?

That's right. Exactly.

And maybe on a wider scope, I see that in the others category, the silver and gold has actually come off as well in terms of guidance for the past two years. And in the sense of talking about optionality, Randy also talked about exploration upside. What's a good number to use in terms of in the other category for silver and gold? Are we at a pretty good number now or should that really go up longer term?

Well we do have some contracts that get reported in there that are term agreements that -- some of which we have inherited and some of the original ones. So we're using the 10 million silver ounces per year and 45,000 gold ounces per year as sort of a line guidance out. But we do have projects like Cozamin which ends in March of this year. The Barrick agreement, where we collect from Lagunas Norte and Veladero -- that does end at the end of March next year, unless there's an extension to that agreement with Barrick. So some of the smaller assets are nearing the end of their life. We recently have done some agreements with Eldorado and Stratoni where we're helping support them do some exploration drilling to add additional life. And if they are successful, we'll bump the production payment to help offset. Given that Eldorado is a gold company, to get them to spend exploration effort on a base metal mine, we were pretty happy to work with them in terms of moving forward. But you've also got Minto nearing the end of its scheduled life and so on. So I think some of these assets have been in our portfolio now for a while. The Company is getting to a point where we're getting some assets that are starting to get mature. Fortunately, all of those are down in the other category. They are the small ones, so they don't have a big impact. And I'm confident that Haytham and his team will be able to continue delivering some replacements for those projects as they come on.

For sure. And maybe one last question for me, Randy, on the name change. Is there going to be a ticker symbol change, as well, you think -- WRM?

WPM, Wheaton Precious Metals.

Yes. All right. And then you talk about 50-50 mix in terms of gold and silver. Is that still a pretty good number to use in terms of what we should expect from Silver Wheaton in terms of a mix on a go-forward basis? And on that as well, Randy, you mentioned that there has been a lot more gold deals in the past several years. Is it just getting harder to do more silver streaming deals?

Most silver comes from lead/zinc operations. And tell me the last time you saw a good lead/zinc operation come onstream, a decent-sized one -- there has been some smaller ones, but there's just not a lot of opportunity in that space. That's one of the reasons we see the zinc market as tight as it is right now in terms of concentrates and I don't see a solution to that. And, unfortunately, that's the area that we get the most of our silver opportunities from. And so the one thing I will say is that most of our optionality in terms of Pascua and Rosemont are silver-dominant. Obviously Pascua is all dominant for our exposure in there and then Rosemont is probably 90% silver or 85% silver and a bit of gold. So if these projects come onstream they would boost the silver side. But I balance that with the fact that when I look at the corporate development portfolio, the opportunities that we see out here right now in terms of potential acquisitions -- it's dominated by gold opportunities. And a lot of that comes from the fact that a lot of gold byproduct is produced at these copper assets. And we're starting to see -- we have, over the last three, four years, a lot of opportunities in that copper space in terms of trying to -- non-core byproduct gold streams. So I would say the acquisitions that we're going to make forward will likely wind up being a bit more gold-centric than silver-centric. But our optionality package is more silver-centric. So it's probably not a bad range. We'll probably bump around that as different things either get acquired or parts of our optionality package come into play.

Your next question comes from Ralph Profiti with Credit Suisse. Your line is open.

Randy, can you share with us your expectations for when we could see the capital put up for Rosemont and Salobo III? And are those still one-time upfront payments?

Yes. So with respect to Rosemont, Hudbay is still waiting for the final permits to come into place. Now, Hudbay Has stated publicly that they would like a solid $3.00 copper market before they make the decision to fully go forward. The way our contract is structured, we would, upon a construction decision and upon them organizing adequate financing for the project and then making that construction decision, we would be feeding capital into that. It's a $230 million upfront payment there that we'd make into that. So there's a few things that still have to happen, even after the permit. They have to get the right copper market to make that decision to go forward. And have their own financing for the entire package in place. And I do know that they've done a lot of pretty advanced -- the advantage of the time it's taken to get this permit has allowed them to do some pretty detailed engineering. So I know that Hudbay is ready to go once they get the right conditions. With respect to Salobo, they are definitely going a lot of work on Salobo III and even exploring Salobo IV. Probably the most exciting aspect of it is the fact that they are being the drills on here in March to finally do some deep drilling. It's the first drilling being done on this project for over six years now. And because before they make any final decisions they want to get a sense of what the true scale of this orebody is. They've done some exploratory work in geophysics that shows some incredible potential to grow well beyond the even 1 billion tonnes of reserves they have there right now. And so now it's time to get the drills in. So they've got some good deep powerful drills that have good depth capacity and they want to get a sense of scale before they make the next decision. Now the way that expansion deal works is that once they make an expansion decision, they actually have to fund it through -- the way our funding works is that we make the payment once the completion test is satisfied. So if and when Vale makes the decision to expand, they will invest the capital and get the expansion up and running. And then we will run a completion test. And the amount that we pay is based on the results of that completion test, both in terms of capacity and time. And so it's a variable scale. I can tell you that the Salobo III concept that they are using right now is an additional 12 million tonnes per annum which equates approximately 30,000 tonnes per day, would take the mine up to about 90,000 tonnes per day. There's plenty of capacity beyond that. And so that is, hence, the concept of exploring, whether it's Salobo IV or whether they should even combine the two into one larger expansion. And so in terms of timing, we wouldn't see -- the earliest it would -- by the time they get through the drilling and get through the decisions in terms of going forward, we wouldn't expect that expansion to take place much earlier than 2021, 2022 at the earliest. And then a completion test has to be satisfied. The range in values, for example, if it was anywhere between 2022 and 2025, it would range in value from $500 million to about $700 million and I'm just approximating here. And that's any time between 2022 and 2025, if it was completed to 36 million tonnes.

Got it. Okay. That's very helpful. The second question, if I may, on the actual dividend policy. Randy, what do you need to see for Silver Wheaton to have a dividend growth component? Do you think this could be a potential differentiator in the story and is that more likely a near term or a long term decision?

Well, I tend to look at our business as having sort of three phases. And one phase is sort of the growth phase which we saw from -- essentially since we created the Company in 2004 through to about 2009. And that's when we have a lot of opportunities and we're feeding development projects and a lot of growth in the whole portfolio and all sorts of investment opportunities into the space. From about 2010 to 2012 is what I call the harvest phase. And that's the time that we turn our focus towards dividends. And it's the time that the market -- the prices are high; I would call the market almost frothy. We don't like making acquisitions at the high part of any type of commodity price cycle. We'd rather sit back, reap the revenues. Those high prices, of course, because of the way our dividend is structured, would deliver directly to our dividend. But that's also the times that we consider whether 20% is where we want to be or if we can get up to 30% or 40% or even higher than that, in terms of a percentage of operating cash flow. The third phase that I talk about is kind of the balance sheet repair phase. And it's after that peak cycle when we spend. And that's what I would describe as what we've done over the last three years is making investments to help companies repair their balance sheet. I do believe that right now we're starting to enter another growth phase. We're starting to see projects and investment into the ground, going forward and so I'm hoping that we see another cycle like we saw from 2004 to 2009. What that implies is as long as we've got opportunities into the ground, I think the best return for our shareholders is to continue expanding our own portfolio and pushing that forward. But there does come a time when the market doesn't deliver those opportunities. And that's the time that we then turn and start returning more of our cash flow back to our shareholders in the form of a dividend.

Your next question comes from John Tumazos with John Tumazos Very Independent Research Company. Your line is open.

Could you give us an update, please, on the Canadian tax issues? We know these bureaucrats and accountants and attorneys always take a long time.

I've provided that, John. Unfortunately, these processes are relatively slow moving. We're in the discovery phase right now. The primary part of that discovery phase is slated to -- or scheduled to be completed by the end of June. There may be undertakings from that primary portion of the discovery phase. But those undertakings need to be completed by the end of July. We can then set a court date at our -- based upon our best guess, at this point, that court date will probably be sometime mid-2018. Then you've got the court process which is likely to be a two- to four-month process. And then you need to give the judge time to render a decision. So we probably don't have a court rendered decision before 2019.

Your next question comes from John Wolfson with Eight Capital. Your line is open.

I just wanted to circle back on the five-year guidance. So I think, last year, when we had spoken, the plant had not included Pampacancha. And I just wanted to confirm that the guidance for the five years does include Pampacancha and that you are expecting metal to flow to you guys in 2018, as you mentioned earlier on the call?

That's correct. Yes. We've got the updated guidance now as part of our forecast. And that came with an updated mine plan from Hudbay that has the Pampacancha starting to feed into the plan during the 18.

Okay. That sounds great. And then I'm not sure if you are able to provide any additional details or at least relative numbers on specific assets over those five years. I think historically the Company has talked about over the prior five-year period something on the order of 300,000 ounces at Salobo and 45,000 to 50,000 ounces at Sudbury. I guess how have you seen that change, if you are able to comment on that?

I think we're more in the 230,000 to 240,000 ounce level over that five-year term from Salobo and -- but you're right on the Sudbury assets.

Okay. I'm sorry -- for Salobo, that would be the 100% basis?

Sorry, that's -- we only get 75%; right?

Yes. Okay. So it sounds like the production forecasts are a little bit higher at Salobo and you are still comfortable with that range for Sudbury, it sounds like.

I think Sudbury because of the -- and I described that in one of the earlier questions there -- I think if you want to talk over the next five years, if they have some exploration success -- the nice thing about Sudbury is that some of the stuff they are working on is extensions. There's a good chance that exploration success can have an impact on production within the next five-year period. And so it can be converted into reserves and mined within that five-year period. You are at an active mine site if you are testing extensions on existing orebodies. And so I'm excited about the fact that Vale -- not only do they have the drills going at Salobo -- although we won't see a change in the operating plans from the drills there. But the drills at Sudbury may have an impact on the production out of Sudbury over the next five years. They should definitely have an impact over the rest of the term.

And I think historically you guys have also talked about the positive grade reconciliation. Is that still potential upside or is this a little bit tempered now?

Sorry, say that again? I missed that.

Sorry, historically I think you talked about there being -- I think it was roughly about 20%--

In terms of the grade reconciliation at Sudbury, we still see that. We still see that. And so you have to understand, when we value these assets, we value it based on what we believe in. We own our decisions. And so even when it comes to this write-down, we've made our own adjustments -- we've done the write-down based on what we believe is going to happen. But we have to respect what our partners are feeding us, to a certain extent. And so there is still a positive grade reconciliation. It largely comes from the fact that large portions of the Sudbury camp don't have gold assays in the exploration drilling. And so we still do see that; it is different for different deposits. It really depends on when they were drilled. Obviously now anything that's got more current, more recent drilling on it, they do assay for gold. And so it depends on which orebodies come into play -- that's the main area that we see it. But the other side, I would say, is that our experience with Vale has been that they are a very good, very conservative partner in their forecasting. And they've easily got the best track record in our portfolio, especially on a longer term basis, in terms of delivering on what they forecast.

Got it. And then two sort of quick questions, are you able to comment for San Dimas, after 2017, what you think more stable output would look like there?

You know, historically, that mine, it all depends -- the correlation to investment into the mine and return has always been very, very strong there. So it's going to take some reinvestment. But that mine has traditionally stayed at 6 million ounces of silver or above, for most of its life. It's been as high as -- I think it peaked at 11 million ounces in 2004/2005. So it's got -- I think it comes down to how much money gets reinvested into that mine and put back in. It has a very impressive track record of delivering returns on that investment, but that investment has to happen first.

Okay. And then last one. At Yauliyacu, there was a pretty significant improvement in the reserve grade. I'm just wondering if you guys are expecting any sort of upside, just based on how that agreement is structured. And how the metal flows to you -- is there any sort of ability for you guys to capture that grade improvement?

Definitely.

And, Josh, if you remember, that's one that we converted to a life-of-mine; from a term agreement to a life-of-mine agreement and made some modifications in terms of the production payments to compensate Glencore for that. We see the long term -- that mine has got close to 200 years of operating history on it. It's some very, very continuous strong structures that are hosting the ore bodies -- the high sulfidation systems. And every once in a while, they have to step back and do a drilling campaign to sort of firm up a few more years of reserves. And that's what Glencore has just done here. I think some of that may have been as a result of the fact that we've modified our agreement to incentivize them towards pushing this effort in; and so stepping up their own investment into the project is now paying off for us. That's one -- these old, underground mines rarely have more than 5 to 10 years of reserves in front of them. But, boy, when you have mines that have an operating history like San Dimas, like Zinkgruvan, like Yauliyacu, this is what happens is they go through surges of exploration to sort of expand the reserve base. And then they will build on that and move their way forward. And a couple more years down the road, we'll see another sort of drilling campaign to push up that reserve base again. And that's what we're seeing is the benefits of that effort on Glencore's side.

Well thank you, everyone, for dialing in today. Silver Wheaton is on track for another strong year of production and sales here in 2017. We continue to believe that Silver Wheaton offers the best option for gaining exposure to precious metals for a number of different reasons. Firstly, we have some of the highest margins in the precious metals space; secondly, through our portfolio of long-life, low-cost streams; thirdly, by offering a proven track record of accretive acquisitions; and, finally, by delivering our shareholders optionality measured in ounces, not acres. We do look forward to speaking with all of you again and perhaps soon as Wheaton Precious Metals. Thank you very much for calling in, everyone.

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