Wheaton Precious Metals Corp. (WPM) Q2 2019 Earnings Report, Transcript and Summary

Good morning, my name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Wheaton Precious Metals Corp. Second Quarter Results. 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] I would now like to turn the call over to Mr. Patrick Drouin. Please go ahead.

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, Chief Executive Officer and President; Gary Brown, Senior Vice President and Chief Financial Officer; 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 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 Wheaton's Form 40-F and Wheaton's Form 6-K, both on file with the U.S. Securities and Exchange Commission. These documents together with the Q2 2019 MD&A and the 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, the absence of control over mining operations from which Wheaton purchases precious metals, and risks related to such mining operations and the continued operations of Wheaton's counterparties. It should be noted that all figures referred to on today's call are in U.S. dollars, unless otherwise noted. In addition, reference to Wheaton or Wheaton Precious Metals on this call include Wheaton Precious Metals Corp and/or it's wholly-owned subsidiary subsidiaries as applicable.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 joining us today to discuss Wheaton's second quarter results of 2019. The first half of 2019 has provided a solid start to the year and I am pleased to report we delivered strong operating results from our diversified portfolio of high quality assets. In the second quarter of 2019 we produced over 100,000 ounces of gold and over 4.5 million ounces of silver. From a cash flow perspective, Wheaton generated nearly $110 million of operating cash flow and declared a quarterly dividend of $0.09 per common share in line with our minimum target set for 2019 by the Board of Directors. Looking forward, we are currently on-track for record annual gold production and we have reconfirmed our gold equivalent production guidance for the year.With that I'd like to turn the call over to Gary Brown, one of our Senior Vice President and our Chief Financial Officer, who will provide more details on our results. Gary?

Thank you, Randy and good morning ladies and gentlemen. The company's precious metal interests turned in a solid second quarter performance despite operations being suspended at Penasquito for a large part of the period.Production for the second quarter of 2019 amounted to 162,000 gold equivalent ounces, comprised of 101,000 ounces of gold, 4.8 million ounces of silver, and 5,700 ounces of palladium. Relative to the second quarter of the prior year this represented an increase of 11% in gold production, and a decrease of 19% in silver production. The increase in gold production was due primarily to the new streaming agreements relative to the San Dimas and Stillwater mines coupled with higher production at Sudbury, partially offset by lower production at the other gold interests including Minto which was placed in the care and maintenance in October of 2018. While the decrease in silver production was primarily due to the termination of the San Dimas silver stream, effective May 10, 2018 and reduced production at Penasquito resulting from an illegal blockade which began on April 29 and ultimately was resolved in late June.Sales volumes amounted to 90,000 ounces of gold, 4.2 million ounces of silver, and 5,300 ounces of palladium in the second quarter of 2019, representing an increase of 3% for gold and a decrease of 29% for silver relative to the second quarter of 2018. The increase in gold sales volumes was due to the higher production levels, largely offset by negative changes in the balance of payable gold produced but not yet delivered to Wheaton. The decrease in the silver sales volumes was attributable to the lower production coupled with negative changes in the balance of payable silver produced but not yet delivered.As at June 30, 2019 approximately 81,000 payable ounces of gold, 3.3 million payable silver ounces and 4,500 payable palladium ounces had been produced but not yet delivered to the company, consistent with what we would expect to be normal levels. Revenue for the second quarter of 2019 amounted $189 million, representing an 11% decrease relative to Q2 2018, primarily due to the decrease in the silver sales volumes. Of this revenue, 63% was attributable to gold, 33% was attributable to silver and 4% was attributable to palladium. Gross margin for the second quarter of 2019 decreased 23% to $67 million due to the lower sales volume combined with higher depletion rates associated with the ounces coming from San Dimas.Cash-based G&A expenses amounted to $11 million in the second quarter of 2019, virtually unchanged from Q2 2018, interest costs for the second quarter of 2019 amounted to $12 million resulting in an effective interest rate on outstanding debt of 4.25% as compared to $6 million of interest costs at an effective rate of 3.44% incurred in Q2 2018. During the second quarter of 2019, Cobalt 27, which has a stream relative to Voisey's Bay having similar terms to our Voisey's Bay cobalt interest announced that they had agreed to a proposed acquisition by Pala Investments. Based on information available to us we have estimated that the price paid by Pala for Cobalt 27's Voisey's Bay stream was significantly lower than the original purchase price which we have concluded represented an indicator of impairment relative to our Voisey's Bay cobalt interest. As a result, we have recognized an impairment charge of $166 million relating to the stream during the second quarter.The net loss amounted to $125 million in the second quarter of 2019 compared to net earnings of $318 million in Q2 2018. After negating the effect of the impairment and other items that are non-recurring in nature, adjusted net earnings in the second quarter of 2019 amounted to $45 million compared to adjusted net earnings of $72 million in Q2 2018, with the decrease being primarily the result of lower sales volumes relative to Penasquito which was negatively affected by the illegal blockade in the quarter, lower margins relating the San Dimas due to the conversion of the Stream from the silver stream to a gold stream, lower gold sales volumes relative to Salobo due to timing of shipments and higher finance costs. Basic adjusted earnings per share decreased 38% to $0.10 compared to $0.16 per share in the prior year.Operating cash flow for the second quarter of 2019 amounted to $109 million or $0.25 per share compared to $135 million or $0.31 per share in the prior year, representing a 19% decrease on a per share basis, with the decrease being attributable primarily to lower revenue and higher interest costs. Based on the company's dividend policy. The company's Board has declared a dividend of $0.09 per share payable to shareholders of record on August 23rd, 2019. 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 2019, the company continues to estimate the non-stock based G&A expenses, which excludes expenses relating to the value of stock options and PSUs will amount to $36 million to $38 million. The operational highlights for the second quarter of 2019 included the following, Salobo generated 67,000 ounces of attributable gold production in Q2 2019 virtually identical to Q2 2018, while gold sales volumes in Q2 2019 decreased 18% to 58,000 ounces resulting from timing differences in gold ounces produced, but not yet delivered to Wheaton. In the second quarter 2019 Performance Report, Vale reported that the ongoing expansion at Salobo continues to progress with the completion of earthworks in the crushing and flotation plants in the quarter . Attributable gold production relative to Sudbury in Q2 2019 amounted to 9,000 ounces. While sales amounted to [ph]8300 [/ph] ounces, an increase compared to Q2 2018 of 39% and 89% respectively with Q2 2018 production having been negatively impacted by the temporary shutdown of the Coleman mine.Attributable gold production relative to Constancia in Q2 2019 amounted to 4500 ounces while sales amounted to 4,400 ounces an increase compared to Q2 2018 of 40% and 103% respectively, reflecting the receipt of 2000 ounces of gold compensation for the delay in accessing the Pampacancha deposit. Attributable gold production relative to San Dimas in Q2 2019 amounted to 11,500 ounces, while sales amounted to 10,300 ounces an increase compared to Q2 2018 of 101% and 175% respectively, as the current period represented the full quarter's production while production in Q2 2018 only included production from May 18 onwards, that being the date the contract came into effect.The other gold interests generated 4,800 ounces of attributable gold production in Q2 2019, a decrease compared to Q2 2018 of 36% primarily due to the Minto mine being placed into care and maintenance during October of 2018. Attributable silver production relative to Penasquito in Q2 2019 amounted to 698,000 ounces. While sales amounted to 912,000 ounces, a decrease compared to Q2 2018. The 45% and 41% respectively. Production in the second quarter of 2019 was adversely impacted by an illegal blockade which began April 29. On June 17, Newmont announced that it was ramping up operations at Penasquito following the lifting of the blockade and the establishment of a dialogue process sponsored by the national government, they also stated that shipments from the mine have resumed and the mine used the downtime during the 49-day suspension of operations to bring forward maintenance on a variety of systems and equipment.Attributable silver production relative to Constancia in Q2 2019 amount of 511,000 ounces a decrease compared to Q2 2018 of 8%, while sales amounted to 478,000 ounces, an increase of 15%. The decrease in production was primarily the result of lower grades in the quarter, attributable silver production relative to the other silver interests in Q2 2019 amounted to 2.3 million ounces. While sales amounted to 1.7 million ounces, an increase compared to Q2 2018 of 6% to 9% respectively. With the increase being driven primarily by higher production from the Zinkgruvan and I'll just throw mines, partially offset by lower production at Yauliyacu.During the second quarter of 2019, the company repaid $88 million on the revolving facility and made dividend payments totaling $64 million, which represented dividend payments for two quarters. Overall net cash decreased by $39 million in Q2 2019 resulting in cash and cash equivalents at June 30th of $87 million. This combined with the $1.1 billion outstanding under the revolving facility resulted in a net debt position as at June 30th of $1 billion. The company's cash position strong forecasted future operating cash flows combined with the available credit capacity. End of 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.With respect to the implementation of the settlement agreement with the CRA, we did receive reassessments for the 2005 through to the 2017 taxation years, which were consistent with the company's expectations reinforcing the strength of the agreement that was executed in December of last year.That concludes the financial summary. And with that, I turn the call back over to Randy.

Thank you, Gary. As already mentioned our gold equivalent production guidance remains unchanged. Highlighting the benefits of our diversified and balanced portfolio. In 2019, we expect to see continued strong results from our gold operations, offsetting the impact of the lower silver production seen in the first half due to the temporary shutdown at Penasquito as Gary has already discussed. As such, we still expect to [indiscernible] produce gold equivalent ounces in 2019. But we have updated the mix of precious metals production, specifically Wheaton now expects to produce approximately 385,000 ounces of gold, up from 365,000 ounces originally forecast due to stronger than anticipated production from Salobo, and 22.5 million ounces of silver, down from 24.5 million ounces, again, as a result of the temporary issues at Penasquito.Forecast production of palladium from Stillwater in 2019 remains unchanged at approximately 22,000 ounces. We continue to expect steady growth from our portfolio such that over the next five years, inclusive of 2019. We expect to produce on average 750,000 gold equivalent ounces annually. I would like to remind everyone that Wheaton currently does not include any production in our five-year forecast from Barclays Salobo III, ongoing expansion or Hudbay's Rosemont project. It should be noted that Hudbay recently announced that the US District Court issued a ruling vacating and reminding the Final Record of Decision for the Rosemont project. The ruling prohibits Hudbay from proceeding with construction at this time. Hudbay believes the project conforms to federal laws and regulations and will appeal the decision. As a reminder Wheaton has not made any upfront payments to date, relative to the Rosemont project.And as far as the Salobo Expansion, Vale continues to make excellent progress, reporting that they have concluded the earthworks in the crushing and plant areas during the second quarter. Given their progress to date and assuming construction continues at the same pace, we do expect the expansion will begin contributing to our production profile towards the end of our five-year guidance period. Our organic growth profile continues to be very strong. Even so, on the corporate development front, we remain focused on adding additional production from high quality accretive opportunities. Wheaton's sector-leading cash flow, coupled with the available credit under our revolving facility, provides ample capacity for continued investments. As always, we will remain disciplined and continue to focus on acquiring streams that are accretive to our current shareholders and come from long-life assets producing in the lowest-half of the respective cost curves.In summary, the first half of 2018 has provided a solid start to the year and we are on track for record annual gold production. And as our revenue is derived from a diversified production profile of 100% precious metals, we provide significant leverage to not only gold, but silver and palladium as well. We believe our production remains founded on the highest quality portfolio of precious metal streams in the industry, underpinned by very low cost mining operations, such as Salobo and to Antimena [ph] and Stillwater.And so with that, I would like to open up the call for questions. Operator?

[Operator Instructions] Your first question comes from Cosmos Chiu from CIBC. Your line is open.

Hi, thanks Randy and Gary for a very thorough presentation. I guess my first question is on the guidance here. Good to hear that it's been maintained. But if I look at, if my mathematics is correct and sometimes it isn't first half, you've done about 329,000 ounces and that would imply a 10% increase in the second half. Could you remind us in terms of which streams will be contributing to the increase in the second half?

Well, we continue to see growth on the Blitz project at Stillwater, so we'll see production in the palladium side climb up there and gold from Stillwater itself going forward. We see continued full operations at Penasquito through the course of the year, we did have a two month shutdown through that a whole process. Salobo continues to surprise to the upside. And then the other one that's performing nicely and it seems a nice upgrade, the San Dimas. First Majestic is getting in. They're getting their hands dirty, they've got a good strong operating team on site and we're confident that First Majestic has got some continued upside opportunities on the San Dimas slide, we're seeing that in terms of what they've been able to do.

Okay. But I guess, maybe more specifically, maybe on a few of these assets, on Penasquito, the blockade has now been cleared. So should we expect a normal quarter in Q3 closer to the 1.2 million, 1.5 million ounces of a normal quarter?

1.2 to 1.5 seems light for me, I don't have the hard numbers in front here, but that seems a little bit light on our side, I think we're higher than that on a quarterly basis. I think we’re up to 2 million ounces. We have to remember Cosmos, that where they are getting into much higher grade material. And if you do over the next 2 to 3 years, actually over the next 4 years, sees the highest precious metal grades that it's ever seen. And so, it's the highest grade portion, that's a little bit biased towards silver at the front end, which is of course important to us and then the gold grades climb up very nicely over the next few years after that. And so, we do see continued growth there. And so, it's definitely up over 2 million in a normal quarter of production from -- Penasquito should see much higher than 2 million ounces, a quarter to our credit.

Thank you. So it should be a normal quarter starting in Q3?

It should be. I mean, on the sales side, there might be still some hangover coming through in terms of deliveries, but the production -- again with the startup it should be pretty good.

Yes, maybe on Salobo you know earlier on during 2019. When we talked about 2019 guidance, we were told to be careful in terms of the Salobo first half grade. It could be lower. Clearly it didn't really happen. I just want to make sure that there is no surprises, that these potentially lower grades will impact the second half.

We haven't seen any evidence of it. And in fact, everything we've seen points towards the positive and so we've had our guidance --

So, what happened, Randy?

I'm just going to say that, in our experience with Vale and the Salobo operations, they are very conservative group, they've been able to deliver. They are very refreshing asset in our portfolio, in terms of being able to consistently outperform our own expectations. And so it continues to perform, it continues to do well. We've seen it as being a relatively -- when we did the original due diligence of this project back in 2013, we saw upside potential in terms of their great estimation methods and their performance and we thought they were being a little bit too harsh on their dilution estimates in the combination of that is continued to deliver extra value back to us and our shareholders.

And Cosmos, it's Patrick here in.

Hi, Patrick.

Hi, Cosmos, Q1 is typically the rainy season obviously, in Brazil and sometimes it will limit access to certain portions of the ore body, which we were anticipating. I think Vale with forecasting that they wouldn't get into some of the higher grade material in Q1 because of weather. They were able to get into higher grade material which pushed Q1 up. So we don't see any reason why they shouldn't be accessing good orr for the rest of the year.

Okay. And then, I guess Hudbay, earlier today talked about I guess some issues at the port in Peru, a buildup of concentrate at Constancia, do you see any risk in that, it's not your biggest stream, but have you factored into your guidance?

We haven't to date. It hadn't had a lot of impact on the Hudbay side. Those protests aren't related to the Constancia project. But, it is the same port facility that Hudbay currently uses, and so we haven't seen any impact to that. We're confident that they'll work their way through that.

And we wouldn't expect that to affect production, it may affect the timing of shipments.

So It won't impact your production, but it might impact your sales.

It might.

Yes, okay. Maybe switching gears a little bit, looking at the income statement here. It will clearly take a write-down on the Voisey’s Bay cobalt stream. Could you tell us what price did you use in terms of calculating the realizable value and how does that compared to spot price today?

While the updated valuation is reflective of today's market, the price that we, use the original price, it was somewhere between today's price and the spot price at the time. It was well below the spot price.

It is actually laid out in the financial statements, Cosmos, we used $14.83 cobalt.

Per pound. Okay.

Yes, on the new valuation. Yes.

Is that spot today. Sorry, I don't have the spot price in front of me for cobalt?

The cobalt market has got a lot of different spot prices and so it's reflective of the spot market today, and I just want to point out, we don't see any production from that asset until 2021 and obviously prices haven't done as well as palladium have for us. But, and we are seeing production from Stillwater. So, I still think we're careful on that front definitely. But, but 2021 is still a ways off before we see any production. From the Voisey's Bay mine, the project is moving forward well, and I am still very optimistic about that asset delivering good value for us and our shareholders.

Yes. And talking about the spot market, I'm by no means an expert in cobalt, but I'm reading that Glencore is talking about shutting down their mine in the Congo. Have you looked into in, does that really take off a lot of supply in terms of cobalt and have you seen any kind of impact? I know it's only been about 2 days. Have you seen any kind of impact on the spot price based on what Glencore is saying?

It definitely will now, they've said they're shutting it down, but it isn't shutdown currently. It represents about 20% of worldwide cobalt production. So, one of the things that we found attractive about the Voisey's Bay investment, was the fact that so much of it is controlled by Glencore and so much of it is coming out of the Congo. And I think those two attributes means that production coming from outside of the Congo and in good stable jurisdiction with a good strong operating partner, I believe that this product, that our product, will differentiate itself from that perspective. Yes, it will definitely have an impact, but it's not going to have an impact immediately because of the mine is still producing. It is a scheduled shutdown in terms of some time here in the near-term future and when that happens, when you taken up 20% of that supply side, there is no doubt that that should have an impact on pricing. I mean should be nicely for when we start receiving cobalt.

Yes, for sure. And then I guess, on the write down once again, certainly the sale of Cobalt 27 was a trigger point in terms of precious metals needing to test for impairment. Correct me if I'm wrong, but under IFRS, unlike your good old Canadian GAAP, you can actually write back up any impairments. And then from that perspective maybe, Gary, what could be a potential trigger point in terms of a potential write-up in case cobalt prices come back up?

I think that the EBIT is likely, but as to a write up is, a recovery in cobalt prices that we viewed as being sustained.

There is no time limit. Are you can write it up at any time. It's not like you got a year before you write it back up.

No, but again we want to. The last thing I want is these accounting pronouncements to drive anomalies in our income statement. So, I wouldn't want to write it back up. If we just saw one quarter of cobalt price recovery and be comfortable that that was a sustained price increase.

Yes. And maybe one last quick question if I may. 4.25% interest in Q2 2019, that seems kind of high, Gary. As we mentioned last year, I think you had a three handle to and I think what we talked about this earlier when you first put the line of credit in place or even had a load to handle to it. Could you remind us how does it reset the interest rate and given the credit markets today? Should we be expecting a lower interest rate in Q3 and Q4?

You have to remember the interest on our debt is driven by LIBOR, and LIBOR has increased significantly over the last year and a half. It's now reversing that and that's primarily what driven the increase in our interest rate. And yes, I would expect that with LIBOR dropping, that the interest rate in future quarters, assuming that doesn't reverse, will be lower than it was in Q2.

Yes, an addition to that, the reason that it climbs up is that we invested $900 million into the industry last year, in terms of expanding our own production profile. These cash flows, we're not put them back into the ground, they [indiscernible] against that revolver. We did that $100 million of investments in 2018 without issuing a single share. So absolutely zero dilution to our shareholders from that perspective. So, still a very wise source of capital for us.

Of course, thanks. Those are all the questions I have. Thanks, Randy, Gary and Patrick and have a good weekend.

Your next question will come from Michael Jalonen from Bank of America. Your line is open.

Randy, just a question on Pascua-Lama, you may have seen Barrick's press release on July 30th, when Mark Bristow was visiting the site and-or that region. And with respect to Pascua-Lama, you said, the focus is going back to basics in order to review the original project parameters and define the future potential. I guess a couple of questions. Does that mean gold looking at heap leaching Pascua-Lama, has may be gone by the wayside? And, just wondering what your thoughts were, what Mark thinking here going back to basics. So you're going to finish the rest of the mill, I guess.

Well, yes, I'm happy that Mark has taken the reigns of Barrick. Pascua past seems to be a continued focus item of his and every time he’s done in South America it's a topic of discussion and even beyond that, we do believe it's a great project that will do really good things for Barrick's production profile in the future. And those are the type of assets, I think he uses the phrase Tier 1, it's definitely a Tier 1 asset in terms of its potential. From the heap leaching side, I’ve never really felt that this deposit leans towards that direction. I think it's especially when you've got a mill that is the first line substantively built in the second line close to half built on that mill facility, those investments do have some value in terms of making a decision on how to go forward. Obviously the big challenges on the Chilean side, but what I am happy to see and they saw reiterated again in that news release and in the discussions from Barrick. And I've heard it from Barrick in direct discussions with them is that they are committed to Chile. They've got not only Pascua on the Chilean side, but they've also got a lot of other assets in Chile. And so they want to find a way to make it work. And this is a mine that can be built and it can be built well, and it can have minimal impact and we're comfortable that it will work its way forward.And happy to see that Mark sees the same quality in this asset, as he has taken the reins in Barrick, as I have been for a long time, have long called it the best half-built gold mine in the world and I still believe that. And the fact that it is half built makes it even that much more attractive to them, in terms of being able to go forward, you do have the beauty of all the investment that's been put into the ground there already. Giving you a head start in terms of actually bringing that asset on and so, I do think that it reflects some really hidden value in our own portfolio and look forward to the day that that it gets there. His additional focus on the Argentinean side or the Barrick teams focus on I find intriguing because to be honest, the bulk of the focus in the past has been on the Chilean side and that is where the bulk of the currently defined reserves are. But, we also capture any of that optionality on the Argentinean side, so, happy to see it still a topic of conversation in their side.

Okay. Well, thank you for that.

Thank you, Mike. Have a good weekend.

And your next question will come from Ralph Profiti from Eight Capital. Your line is open.

Thanks everyone. Just one question from me, Randy, if I may. It's on deal flow. Significant bifurcation right, between base metal prices and these higher gold and silver prices, would you expect to see that translate into less streaming opportunities for base metals and more for gold going forward? Is it already happening in the pipeline that you see? And, what are the opportunities for you to actually do something before year end, say for example?

I'm going to let Haytham take that one. Thanks for the question. Just to give you a bit of an overview on where we're at, it's been a very busy quarter with a number of new opportunities. We’re looking at the fall into the [indiscernible] to the $300 million range. Yes, we are seeing a lot of opportunities where silver and gold are a byproduct, which is exactly what you want to see for streaming. Given the nature of these types of opportunities that we're seeing, which are mostly expansion and development stage opportunities, we wouldn't be required to put up a lot of capital in the near term. We do a lot of due diligence on these assets, before we actually decide to move down the path. We would hope that we'd be able to close, one of the few transactions for the end of this year, but I can tell you we're very cautious to add only the best highest-quality assets into our portfolio. So, if it doesn't happen it’s probably because the assets weren't Wheaton type assets.

If I just add to that, I personally have never ever said objectives for our teams in terms of making acquisitions, just because I don't want to have that pressure on. We're a company that, with the organic growth profile that we've got, with our strength of our current assets on a go-forward basis, we don't need to make acquisitions, we can be patient, we can't wait. I am hopeful that we do continue to grow by investing back into the ground and get some of that accretive value for our shareholders. At the same time, it's not something that I don't want to sit down hard boundaries for that. And so, and then getting back to your comment on the divergence between base metal prices and precious metal prices and the fact that the bulk of our precious metals does come from the base metal side, you're right. There's not a lot of investment into that base metal side right now, and so it does limit some of those opportunities. Now what I will say is that the split between silver and gold, we tend to get gold from our copper assets and we tend to get silver from our lead-zinc assets and there is so little investment in the lead-zinc side. And so, we will ultimately -- as even though I'm a bit more bullish on silver, I think there are better fundamentals behind the price of silver. It's a very small market and when I look at what Haytham and his team are working on from a commodity perspective, it is very, very heavily biased towards gold streams, from either copper assets or even gold streams on developing gold assets or precious metal assets, gold and silver assets, but there is definitely a very heavy bias towards gold. I predict that will continue to grow that whole gold exposure side within this company.

I agree. Yes, understood. Appreciate your responses. Thank you.

Thank you, Ralph.

Your next question comes from Chris Terry from Deutsche Bank. Your line is open.

Hi guys, thanks for taking my questions. I have a few, in terms of the non-development projects you have, you talked about Rosemont Pascua-Lama, just wondering what you're seeing in terms of the other development options? Which ones are making some progress or if you could just comment on what's getting you excited within the potential development options? Thanks.

Yes, we've got a few of the early deposit investments that we've made, which was earlier stage assets that are still approaching feasibility and permitting, and it's a pretty attractive form of financing. Unfortunately, we're a pretty picky team when it comes to investing and so we turned down many more opportunities than what we have. But the one that stands out probably in terms of looking forward or moving forward is the Sandspring asset to approve. They've had some renewed focus on that, they have updated a Preliminary Economic Assessment, PEA, it looks like this project is going to be moving forward. They've attracted some investors that saw the same quality in this asset that we saw several years ago, in terms of moving that one forward. And so, and then the other asset, that I think it looks very promising, is the Keno Hill asset.It's the Birmingham, so it's a bit incredibly high grades and Alexco is looking forward to moving that thing. We've seen indications of support for the mining industry from the Yukon government from position of permitting and hoping that they step up and give a broader permit that allows Alexco some freedom in terms of how they operate that asset, they say that asset. There are a number of different veins there and I think that's what Alexco really needs, is some flexibility on the site, through the permitting process, so that it gives them the freedom to move that project forward the way it should be. Keno Hill is probably a nice little hidden surprise that we don't have in our current schedule right now [indiscernible] from Sandspring, I think will look very promising. I take this time to just reiterate that we do not include any of the Salobo Phase III expansion in our current production profile. And that is a 50% increase in mill throughput capacity. Now, they will be chasing some lower grade material there. So we don't expect it to be an immediate 50% increase in gold production for us, but it's going to be a very healthy increase in gold production and that is not part of our current production profile, the five-year guidance that we put out, and yet, we could see that production is coming in as early as 2022. And so I do really think that there is some upside potential there, on the development side.

Okay, thanks. Thanks, Randy. And maybe one for Gary. Just in terms of the net debt level overall, just to give you the flexibility to be able to do deals, et cetera. Just an update on where you would like to see that. I guess said it's obviously still at comfortable levels, but do you want to say it at $500 to $1 billion, that type of range. Just if you could comment a little bit on the progression of where you want that number to sit. Thanks.

Yes, look, I don't have a target there. We are generating $500 million to $600 million of operating cash flow at current commodity prices here. And, so I'm extremely comfortable with where the debt level is. If we were to look at closing acquisitions here, I'd certainly be comfortable drawing down on the revolver to consummate those transactions. And just as a reminder, we've got a $2 billion revolver and we're drawn to the tune of about $1 billion at the end of Q2. So, we've got $1 billion of capacity there. I would be very comfortable drawing fully on that if this acquisition has drove that.

And Chris, I'll let Merrill add one more thing, given the nature of the opportunities we're seeing, little upfront capital is actually required as any spending would be staged throughout the development timeline, which is typically over one to three years and that allows us to continue our focus on repaying Wheaton's debt.

Okay, thanks for that. And then for you, Haytham. Just a question in terms of the timing of these potential deals. Do you think we need to see the divestments from the majors happen first, and that is to flush through before other companies within commit to projects or is it to come before that? Thanks.

Well, I think you've got to look at what's in the pipeline right now and the opportunities we're seeing at this point in time are primarily development stage, so a lot of the majors that are looking to develop or even expand their existing base metal operations, are looking for ways to improve the internal repair project and a stream always improves the internal rate of return approaching. So from our perspective, we look at a number of these opportunities every year, we make sure we do a deep dive on each one, to make sure we understand the opportunity, before we make any kind of commitment. I do think there is going to be some additional streaming opportunities over the next 12 months. I can tell you we're seeing more opportunities now than we've seen over the last six months before this quarter.

Okay, thanks. And then the last one from me, just in terms of the guidance overall in GEO terms, I think on the first question you were going through the assets that lift into the second half, from a production side. So, just thinking about the conversion or the assumptions you've made on silver to gold ratio. Will you update those as we go through the year? I think you've kept those at the previous rate and spot obviously changed a little bit, just if you can comment on that. Thanks.

I mean, when we come out with a forecast based on a conversion ratio, we're not going to try and take advantage or disadvantage from changes in the conversion ratio, we'll maintain that consistently in terms of our guidance for the course of the year. So the 6-90, the updated 6-90 still maintains. I think it was 81.3 conversion ratio. Even though we're seeing a different ratio right now, that was the number that we originally used and we're not going to let that have an impact on measuring our performance in terms of delivering that 690,000 gold equivalent ounces

And it also uses a one-to-one gold to palladium ratio, which we know is not bad either.

Okay, thanks for that. Thanks guys, good luck.

Thank you. Thank you, Chris, and thank you everyone for dialing in today. In closing, we believe Wheaton is well positioned to continue to deliver value to our shareholders for a number of different reasons.Firstly, by having low and predictable cost that results in not only some of the highest margins in the entire precious metal space, but also sector-leading operating cash flows. Secondly, through our steady organic growth profile over the next few years and a proven track record of accretive quality acquisitions, thirdly by offering our shareholders exposure to some of the best mines in the world through our high quality portfolio of long life, low cost assets, and lastly, by being a leader amongst precious metal streamers in sustainability and supporting our partners and the communities in which we live and operate. I do look forward to speaking with you all again soon. And thank you very much for dialing in today.

Thank you, everyone. This will conclude today's conference call. You may now disconnect.