Wheaton Precious Metals Corp. Q4 FY2020 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Wheaton Precious Metals 2020 Fourth Quarter and Full Year Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I would like to remind everyone that this conference call is being recorded on March 12, 2021 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, Wheaton Precious Metals’ President and Chief Executive Officer; Gary Brown, Senior Vice President and Chief Financial Officer; and Haytham Hodaly, Senior Vice President, 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 Risk and Uncertainties in Management Discussion and Analysis for the year ended December 31, 2020, both available on SEDAR and in Wheaton's Form 40-F and Wheaton's Form 6-K, both available on EDGAR. These documents 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, impacts on Wheaton or mining operations from which Wheaton purchases precious metals as a result of an epidemic, the continued ability of Wheaton's counterparties to satisfy their obligations on their precious metal purchase agreements, and the impact of any ongoing audits by CRA. 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 joining us today to discuss Wheaton's fourth quarter and year-end results of 2020. I do hope everyone has been keeping healthy and safe since our last quarterly conference call. As we near the one-year mark of the COVID-19 pandemic, our top priority at Wheaton remains the welfare of our employees, our mining partners, and the communities in which we operate. Despite the challenges posed by this pandemic, 2020 was a very productive year, and we were successful in delivering value back to our shareholders on so many fronts. I am pleased to announce that in 2020, Wheaton's high-quality portfolio of assets generated revenue of over $1 billion and operating cash flow of over $765 million, both records for the company. Given Wheaton's innovative dividend policy, this strong cash flow has resulted in a 30% increase to our minimum quarterly dividend relative to last year. In addition, we were pleased to execute on our growth strategy amounting to accretive transactions in 2020, on the Marmato mine located in Colombia and the Cozamin mine located in Mexico.

Thank you, Randy, and good morning, ladies and gentlemen. The company's precious metal interests produced 178,800 gold equivalent ounces in the fourth quarter of 2020, comprised of 93,100 ounces of gold, 6.5 million ounces of silver, and 5,700 ounces of palladium. Relative to the fourth quarter of the prior year, this represented a decrease of 4% on a gold equivalent basis, with lower production at Salobo and 777 resulting from the temporary suspension of operations at each mine site being partially offset by the mining of higher-grade material at Antamina. On a gold equivalent basis, sales volumes decreased 3% in line with the lower production levels. As at December 31, 2020, ounces produced but not delivered, or PBND, amounted to approximately 133,000 gold equivalent payable ounces, representing approximately 2.2 months of payable production. This amount of PBND is consistent with the average PBND balance of approximately 139,000 gold equivalent ounces over the preceding four quarters. Revenue for the fourth quarter of 2020 amounted to $286 million, representing a 28% increase relative to Q4 2019, primarily due to a 33% increase in the average realized gold equivalent price, partially offset by the 3% decrease in sales volumes. Of this revenue, 57% was attributable to gold, 39% to silver, and 4% to palladium. Gross margin for the fourth quarter of 2020 increased 69% to $162 million, once again highlighting the leverage our business model provides to increasing precious metal prices. Cash-based G&A expenses amounted to $8 million in the fourth quarter of 2020, representing a decrease of $2 million from Q4 2019, primarily due to lower accrued costs associated with performance share units, or PSUs, which was partially offset by higher charitable donations, with the company donating nearly $1 million relative to the previously announced $5 million community support and response fund related to the COVID-19 pandemic. Interest costs for the fourth quarter of 2020 amounted to $1 million, resulting in an effective interest rate on outstanding debt of 1.2% as compared to $8 million of interest costs and an effective interest rate of 3.62% incurred in Q4 2019, with the average outstanding debt balance decreasing 39% during the most recently completed quarter and being 63% lower than it was in the fourth quarter of 2019. Net earnings amounted to $157 million in the fourth quarter of 2020, more than double that generated in Q4 2019. Basic adjusted earnings per share increased 101% to $0.33, compared to $0.17 per share in the prior year. Operating cash flow for the fourth quarter of 2020 amounted to $208 million, or $0.46 per share, compared to $132 million, or $0.29 per share in the prior year, representing a 57% increase on a per share basis.

Thank you, Gary. We are pleased to reiterate our 2021 and long-term production guidance previously announced in February. For 2021, Wheaton’s estimated attributable production is forecast to range between 370,000 to 400,000 ounces of gold, 22 million to 24 million ounces of silver, and 40,000 to 45,000 gold equivalent ounces of cobalt and palladium, amounting to total gold equivalent production of approximately 720,000 to 780,000 ounces. In 2021, gold production is forecast to increase, mainly driven by growth at Salobo, San Dimas, and Constancia. Silver production is forecast to increase as additional ounces from Cozamin and Kino Hill are expected. Palladium production is expected to remain stable in 2021, and for the first time, we have cobalt production from the Voisey’s Bay mine, with our first shipments having already been received in February. Looking forward, we anticipate steady organic growth building over the next five years, with gold equivalent production averaging 810,000 ounces per year, growing to 830,000 ounces per year over a 10-year time horizon. Average production over the next five years and 10 years is expected to increase primarily due to continued production growth from Salobo, Constancia, Peñasquito, and Stillwater, as well as incremental ounces from the Marmato, Cozamin, and Voisey’s Bay streams. While Hudbay’s progress on the Rosemont project appears promising, production from Rosemont is not included in Wheaton's five-year guidance but is reflected in the 10-year forecast. Lastly, although Barrick continues to advance a comprehensive review of the Pascua-Lama project and Pan American continues advancing discussions on Navidad, without any framework on timing, Wheaton does not currently include any production from these projects in its long-term forecast.

Thank you, ladies and gentlemen. We will now conduct a question-and-answer session. Your first question comes from Tyler Langton with JP Morgan. Please go ahead.

Yeah. Good morning. Thanks for taking my question. Just maybe starting with Salobo. I know you mentioned sort of you're expecting higher production sort of this year. Can you just talk a little bit about the profile you expect for this year and the next couple of years, it's kind of maybe relative to sort of the more normal levels that we saw in 2019?

Sure, Tyler. And thanks again for picking up coverage of Wheaton, appreciate having you on board and joining the team or the family. On the Salobo, it's all very exciting what we see over the next few years at Salobo. Obviously, I think they're about 60%, 68% mechanically completed the end of the year on the Phase 3 expansion. And that's expected to turn on the switches sometime in 2022. They're hopeful to sort of get the completion test satisfied on that third phase of expansion by the end of 2022. As I said, a 50% increase in throughput, the current practice at the mine site is that they stockpile lower grade material in common with a lot of the large open pit copper mines around the world. They stockpile lower grade material and focus on processing higher grade material through the mill; that's current practice. They haven't made a final decision yet as to their approach once the third phase opens up. Economically, it makes sense for a stockpiled approach, and in fact, we've got some incentives provided to continue to hopefully push Vale down that path in terms of continuing the stockpiling approach. But they haven't made that decision yet. So, it's a little bit tough for us to give an accurate forecast over the next few years in terms of how Phase 3 is going to impact production. Our approach in our production forecast is that we've assumed that they're not going to stockpile that. We're going to push things through. So, we think that's a pretty conservative approach. We think it has an inverse conservative aspect to our own production forecast for 2022 and beyond. Because economically, we do think it does make sense for them to continue this stockpiling approach in setting aside lower grade materials and pushing higher grade materials through the mill. A particular excitement, though, on top of that is back in December, Vale again announced the Phase 4 expansion. It's the first time that they've discussed it publicly. We've had obviously discussions with them extensively on this, but they've discussed it or released it publicly. That would involve another increase in capacity, which would take it from 90,000 tonnes per day up to 120,000 tonnes per day. Expectations are that they would have that up and running by 2027. So, lots of activity at Salobo, lots of growth at Salobo. The resource, we have released our updated resources, and you can see the growth on that side. So, this deposit continues to deliver for us.

Okay. That's helpful. And then just switching to sort of M&A. I mean, you mentioned some of the pipeline remains robust. Can you just talk a little bit about sort of the types of deals you're seeing in terms of size and whether it's more base metal producers looking to do precious metal streams, or on the precious metal side, just any color there will be great.

Tyler, I'm going to let Haytham answer that one. He leads our corporate development front. So Haytham, you're on the line?

Sure. Thanks, Ryan. And good morning, Tyler. How are you?

Yup, morning.

Just to give you a bit of an overview, it's been pretty busy since the new year started, lots of new opportunities to look at. They're primarily development stage opportunities that fit into a lot into our early deposit structure, which we've done a few times. And that's where we take precious metals as a byproduct from a basement mine. These types of opportunities, obviously, are where streaming works best. There are also some opportunities that focus on balance sheet repair, and so expansion stage opportunities as well, where streaming can actually fund some of those expenses. The fact that streaming is being considered for all these areas actually further highlights the competitive cost of capital streams provide. There are some royalty factors out there that we've seen in the past, but I can tell you, there’s nothing that made sense from a Wheaton perspective, in large part because of their size or because they come with a significant amount of non-precious metal revenues. We're going to continue to focus on the larger, I would say development stage and expansion stage opportunities we're seeing right now.

I would just add that what we're seeing is a lot of base metals growth, base metal companies with the kick-up in copper prices and other base metals, there's a lot of companies that are now looking at putting back into the ground. So, that's probably the biggest change. And then, of course, a lot of those assets have precious metal byproduct streams that will provide a good competitive source of capital to help these companies grow.

Great, thanks so much.

Your next question comes from Ralph Profiti, Eight Capital. Please go ahead.

Good morning, everyone. Thanks for taking my questions. Randy, I just had one and I wanted to come back to Salobo. And the potential for Phase 4. Should we be thinking about that as sort of more of an underground operation, perhaps even moving to a block cave? Or is this just sort of a systemic, extra 12 million tonnes per annum being tacked on? And then I guess the second question is, when you think about that incremental investment that Wheaton would be inclined to pursue. Should we just sort of take the old agreement, which would come in around say $900 million contribution?

Yeah, so I mean, I actually personally believe that there is potential for block cave ultimately, but I can tell you that the reserves that we have within open pit at Salobo are going to be — the Phase 4 expansion would be related to expansion of open pit operations; that wouldn't be related to any, any of the block cave side. But there's no doubt that the long-term potential for underground operations at Salobo does exist; it’s just we still got I think 20-plus 30-plus years of reserves in front of us, even with the expansion throughput there. I think it'll be an open pit for a very, very long time. And Phase 4 is related to open pit production. And then, sorry, second part of the question. The reality is Vale has one opportunity to ask us for payment, and we would expect that they would ask us for payment on the completion of phase 3, and that's a payment of somewhere in the neighborhood of — assuming that they complete — satisfy the completion test in 2022, of $570 million to $670 million, and that’s the last of our contingent payments related to Salobo. So if they expand to Phase 4, there is no additional payment that Wheaton would make.

Yeah, just to reiterate, it’s a one-time option that Vale have to collect an expansion payment. And so it’s their choice as to collect it at the end of Phase 3 or reserve it till the end of the Phase 4. The payment, of course, increases with scale, but decreases with time. We fully expect them to be exercising that one-time option at the end of the phase, once they satisfy the completion test on Phase 3.

I got it. Much clearer now. Okay. Thanks very much.

Great, Ralph. Thanks.

Your next question comes from Josh Wolfson, RBC Capital Markets. Please go ahead.

Hey, Josh.

Thanks, hi, good morning. Continuing on the theme at Salobo here, with this next opportunity on the stockpiling is there any sort of timeline that you can provide in terms of when we could expect an update and just maybe from a technical perspective, is there anything to prevent the company from making this decision at a later date versus before the expansion is finished?

Well, so the driving from a critical timeline perspective, the only real difference at the site itself would be a bit of surface preparation, but it’s the mobile equipment fleet size that would have to be adjusted. In my experience, all that takes is 1800 Caterpillar Komatsu both find a way to get that. So, that’s not critical, that doesn’t take a lot of time to make adjustments to in terms of the size of the mobile fleet. But obviously, the slightly larger mobile fleet is going to be stockpiling some of the material versus feeding it all to the mill. It just means more material being moved on a daily basis. So, that’s kind of the critical path coming from the other end. We have the updated resource which is now public. But, we don’t have the updated reserve yet because we haven’t actually made the final decision as to what plan is going forward. But the fact that the resource is in place means it’s really a matter of their engineering teams, their technical teams, the entire group sort of coming down to that position. We’re, of course, hopeful that it happens sometime in the first half of this year and we’re confident that it will be sometime this year.

Okay, fits here. And along the other operations for Vale, for Voisey’s Bay could you provide an update on how that operation will, I guess, ramp up or look like over the course of this year, given you’re going to get on the open pit material but the end we’re ramping up and then a follow-on question to that historically one of the opportunities cited has been maybe cobalt marketing just given the jurisdiction of the asset operates in. And if you have any views on that today with the production commencing, that would be an interest?

Sure. Okay. Well, let's start off with the actual asset itself. You're correct. I mean, the underground was delayed primarily due to some suspensions in production that they had on site last year, as a result of the pandemic. In a weird way, it’s a little bit of a positive for us, because material that would have been mined last year was pushed into this year, but it has delayed the start of the underground. For us, it’s not really a ramp-up because the production levels are pretty consistent from open pit to underground in terms of the material. So, we're getting pretty good production flows already from the open pit. And as of January 1st, irrespective of whether it comes from open pit or underground. As the underground does come into play, it'll obviously offset, and we've got the open pit there as a dampening device to make sure that we have been consistent production from the pit itself. So, things are looking good there. From the marketing side, I can tell you, we went through a product marketing request for proposals, and we had very, very strong interest in our product. We ultimately did select a marketing agent that is working through. This is a product that's well known, it's been produced for a long time, and so there is great high demand for the cobalt from Voisey's Bay. We're pretty happy with what we've seen in terms of — we've now seen our first sales and we're pretty happy with the way that's handling. The recent pricing action in cobalt and some of the challenges that we've seen elsewhere around the world from other production has really sort of timed itself very well for us to start receiving our cobalt production here. This is a new product for us, and it's a new method of marketing for us in terms of being a bulk product versus story or precious metals. We're really looking at these first couple of years as an opportunity to learn more about this market and see if there are ways we can further optimize it.

Great, thank you.

Thanks, Josh.

Your next question comes from Cosmos Chiu from CIBC. Please go ahead.

Hi. Thanks, Randy, Gary, and team. Great to see the dividend increase here. Maybe my questions are on the two new acquisitions here. Maybe first off on my Marmato. I see that the first payment is $34 million, second payment is $4 million, but they have not been paid yet. I'm just wondering, the timing in terms of that payment. And then also, when would you start receiving production from that asset? Is it when you pay that first payment? And then, as a follow-on, I'll ask those questions later on.

Great. Appreciate the little bit of pile of questions at a time. So, yeah, no, the payments haven't been made yet because there are some tenure issues that had to be clarified down there. That is in process. It looks like it's going to be happening very, very soon here right now. Yes, we will get a bit of production from the upper zone, which is currently in production. It does date back to July 1st, so we will get a bit of an inventory of production that has built up over that time, once the payment is made.

July 1st, date back.

Yeah. So, date back to July 1st. So, it’ll be a nice little bump. But that's not the reason with Marmato. The reason was in Marmato is for that lower dethrones. All it takes is a good look at the drilling results that the companies achieve there. We're actually really excited about the geological potential and where we think that project can go. When you look at the new management team coming in, there is a long history of being able to build from projects like this. So, we're pretty excited about that project.

And Cosmos, just to make sure you're aware. We've not built any production yet, even though it accrues back to July 1st. We've not built any production in 2024 Marmato. Nor have we for foreclosed a debt; those will both be chewed up in Q1 once payments are made.

Okay, yes, that was actually my follow-up question regarding when we expect to see slightly higher production for both Marmato and Cozamin. Since the full payment for Cozamin has already been made, we anticipate that production will begin in Q1, and Marmato might also start in Q1.

As long as we do make that payment, we do anticipate. I can tell you we're all prepped to make that payment. It's just a question of getting the final T's crossed, I's dotted. So as long as that happens in the next few weeks, yes. And Cozamin is accrued as of December 1st, so it's not as long.

For sure. And then, I don't think I saw that in the MD&A. But again, I don't think it's huge, Randy. But how much have you sort of factored in, in terms of 2021 guidance from these two assets here, or is that something that you can share with us?

Those are both factored in. We did include Marmato. Again, Marmato is very small until we get to the deep zone, as Randy alluded to. Cozamin that we certainly did that acquisition in December, that we announced it. That would be certainly included in 2021. I can tell you, though, we did use a conservative approach. We do think Capstone may not in 2021, but further on will grow production. So, we think there's upside there for sure in the five and 10-year guidance. But it is in our current guidance. Some of the initiatives that Capstone's got underway and Cozamin will definitely improve production numbers there. So, we expect to see that coming over the next couple of years.

And Randy, could you remind us in terms of the timing of the deep zone at Marmato, potential timing?

I think it's 2023. But Haytham, you're on the line, do you have that?

Yeah, you bet. I think it is late 2023, early 2024, is the expected timing.

Great. And then maybe another stream here, Keno Hill I'm seeing that the mills started commissioning in November 2020. Just given the timing and then concentrate and whatnot, when should we start expecting contribution from that stream? And to your knowledge, how is the startup going?

So, the startup was a little bit challenged, mainly because of COVID risk management. October, November, there was a second wave that sort of came through. There was an increase in restrictions, and that definitely made the start-up challenging for them in terms of getting staff in there safely, and making sure that they were maintaining high-risk management protocols; that made it a little bit more challenging for them to get it up and running smoothly. But they were successful in getting first production through. That’s a concentrate for us that gets shipped off. We're hopeful that as we seem to be coming out of this second wave, things will lighten up a bit for Electrico in terms of getting it up to full speed. They are getting some good, very impressive grades out of the underground. So, things do look very promising from that front. We fully expect that coming spring, they should be getting closer and closer to full production levels.

Yes. So, Cosmos, we didn't book any production in 2020 for Keno Hill. But you'll see a start to accrued production starting probably in the first quarter. I don't see any reason why we wouldn't have production in the first quarter.

Great. Thanks, Patrick. And then maybe one more question here. In Q4, usually, producers like to catch-up sales versus production. I guess we didn't really see it in Q4 2020 this year, maybe due to COVID-19 impact. Any insight in terms of when that might reverse in terms of sales exceeding production in a later quarter? Is that going to be in Q1, Q2 — any kind of insight there at this point in time?

Well, you're right; last year, because of the expansions in the second quarter and into part of the third quarter in some places — sorry, first quarter and into the second quarter in some places, it had a bit of an odd effect to normal produce but not yet sold. But we expect the numbers are not too far off of where we average on a quarterly basis. We do expect it to normalize. It’s always been our experience that the fourth quarter is the one where sales get pushed, because everyone squeezes the sort of the inventory pipeline to try and boost year-end results. So, that’s usually the incentive for it. That’s one of the reasons why we typically do see that in the fourth quarter. I would hazard a guess that, once we get back to normal levels, which I think we are pretty close to right now, it’s probably not going to be until the fourth quarter again that we see something like that, Cosmos, probably, again, the incentive to just make the year-end results look a little bit better is a continual objective.

Thanks again, Randy, Gary, Patrick, and Haytham. And those are the questions I have. Everyone stay safe and have a good weekend.

Your next question comes from Brian MacArthur with Raymond James. Please go ahead.

Good morning. There’s a lot of — good morning, there’s a lot of talk in the industry about rate of return on streams going forward. So, I'm just kind of curious with your sell down of First Majestic, how you think about the rate of return on what I would call the standard math May 2018 deal, because when I sort of look at this, you put out $220 million. I've got my math right and correct me if I'm wrong, you got $94 back already in cash. But now you've also sold 151 million shares, give or take a First Majestic and you have more to go and you still have the stream? So, do you count or do you look at that sale of First Majestic when you do those rate of return calculations? I'm just curious how you philosophically think about that, given the significance of the First Majestic position?

Look, philosophically I look at it as we had an opportunity to do the stream, close him in with Capstone, and one of the ways to pay for that was to sell out of the shares of First Majestic and sort of put that money back into Silver in the ground, and that pulls them in, which is a good long-life asset. We're strong supporters of First Majestic and what they're doing in San Dimas. We think that that asset is perfectly suited for First Majestic. I think some of the initiatives that they've got underway are just going to make that asset even stronger than what it currently is now. They’ve got some good strong focus on putting first drill holes into the ground, which is always the first requirement in terms of making sure you’ve got the exploration potential and the resources that convert to reserves. But also, just the continued optimization of the mill, improvements in terms of throughput and recovery rates and investing back into it. San Dimas is, even after this morning, San Dimas is First Majestic flagship. It’s always going to be a core focus of their investment. We were comfortable shareholders and supportive shareholders of them. But we saw an opportunity to also stay focused, and we're also very, very bullish on silver. But we’re very comfortable with that. So, in terms of rate of return, Gary.

Yeah. Look, Brian, you have to realize we view the San Dimas restructuring that we did back in 2018 as a very successful transaction, and a real win-win transaction. One that has benefited First Majestic, who has done a wonderful job with the asset with the exploration success that they’ve had. But the original stream, we received — the current stream, and the current stream, we modified the stream so that we were getting about 60% of what we were previously getting, and the 40% that we gave up, we received $151 million of First Majestic shares. You have to take that into account. So, we got $370 million, and then the Gold Corp gave us $10 million to get rid of their guarantee relative to that asset. So, we received $380 million for the original stream. Now, we’ve received $156 million so far on December 31, 2020 in proceeds from selling the First Majestic shares, and we had about $100 million of First Majestic shares at year end. So, let’s call it $260 million, relative to our original valuation of $151 million. So, we’ve generated as of December 31, 2020 about a 70% return on the First Majestic shares, and that’s reflective of the fantastic job that First Majestic has done with San Dimas. That combined with, you have to remember, we are dealing with about a $1,200 gold price environment when we consummated that deal. With gold being up over 40% since then, the combination of those two things has resulted in a very significant return. On the stream, we have received over $94 million to date on the amended stream. The mine life there has been extended significantly with the exploration success that First Majestic has had. I think that was a very successful restructuring, and we're very happy with the way that asset is performing.

Great, thanks. So maybe just a second question on the Voisey’s Bay deal, technically and with all this talk about marketing, and as you've mentioned, it’s a premium product. Is the reference, what is actually the reference price for the cobalt price that you're going to get post-marketing? I mean, if we get into a situation where you had a two-tiered market or something, it is technically — I just can't remember, is it technically defined to reference a certain price? Or is there some potential?

Yeah, Brian, we currently have an agency agreement where we sell it with block prices over the period. Obviously, we monitor the spot market prices, but each block that gets sold is assigned a price at the time of the transaction itself, on a go-forward basis. So, there’s a number of different reference points out there, or reference prices out there. Obviously, we monitor that and our agent monitors that in terms of how that moves forward, but it’s not directly related to those agency prices. It’s just there for reference.

Yeah, Brian, it’s going to be difficult because there used to be metals bullets but I think they may have changed their name. The reference was most applicable LME; isn’t a great proxy, but what the LME price, if you look at that will give you a proportional or directional movement. You can look at LME and see LME prices have gone from mid-teens to well into mid-20s. So, over the past, until late 2020, just as we were starting to sell our first product, we’ve made our first sale; pricing had very much improved. But as far as an exact number, it’s going to be tough to forecast other than a directional move from LME, unfortunately.

Right. But just so I’m clear, if there is a philosophical discussion out there in the market that cobalt from Canada might be worth more than cobalt from, let’s say, places in Africa. It would be a negotiated thing. If clients wanted to pay a premium for the stuff from Canada, it would be negotiated price in reference to your agency that technically you would get a premium if you could do that. That existed in the market. It's not like it's a cast-in-stone reference point anything?

Exactly. It's a unique product that comes from Voisey's Bay, and it has been in the marketplace for a long time. There are people that really like this product and they're the ones that are stepping up. Our first sale happened to someone that has been using Voisey's Bay cobalt for a long time, and it was for a good price.

Great, thank you all for answering all my questions.

Thank you, Brian.

Your next question comes from Richard Hatch from Berenberg. Please go ahead.

Thanks very much. Good morning, management and team, and congrats on better detailed numbers. I got a few questions. The first one just Voisey's Bay, I wonder if he might just be able to put a bit more meat on the bones of what you could potentially kind of realize in terms of production levels, just on the various meals. I appreciate, it’s quite difficult necessarily to have a full picture there. But would you be able to give us any kind of stare on the various sort of three and four expansion, what that could take production levels to?

Well, what I can tell you is the amount of tonnes that each one of those expansions relates to. Currently, the mine is running at around a 60,000 tonne per day capacity. The Phase 3 will take it from 60,000 to 90,000 tonnes per day. The Phase 4, the proposed Phase 4, it's not definite yet by any means. But it sure looks like it’s shaping up to be another 30,000 tonnes per day. So, it will take the mine ultimately from currently 60,000 tonnes per day to 120,000 tonnes per day, which still, when you look at copper mines around the world, is not the largest in the world by any means; that’s a pretty normal operating rate. In fact, it’s very similar to what we see at Peñasquito where there’s even higher strip ratios. Now the question is, what grade do they choose and stockpiling? It’s very tough. We know that currently, right now, they stockpile lower grade material. They have been ever since they started up back in 2012, and setting aside lower-grade material and building up a low-grade stockpile that will ultimately at the very end of the mine life be processed through the mill. They are doing that. It’s easy for us to forecast; in fact, that's what we’ve included in our long-term forward forecasts, assuming that they process all ore mined through the mill and do not stockpile and stop stockpiling. We feel that’s a very conservative base case; we feel there's definitely outside of over and above that. However, the quantum of the amount of material that they stockpile, if they keep on using the same practices they have right now, would imply that there's a possibility of some of a 50% increase this time around. It’s just not going to be like that. Typically, when you scale up in terms of capacity, throughputs, any crossover grades for stockpiling will drop a bit as you adapt to that higher capacity to the mill. It's a very broad spectrum of possible results. It’s very flexible on their side. What I can again reinforce is the fact that not only do we feel it makes economic sense for the continued stockpiling, but there is a pretty healthy incentive, as Gary mentioned earlier on, but it's a $100 million incentive over and above their expensive payment if they commit to continuous stockpiling program and focus on higher grade materials through the mill. The combination of stronger economics plus that incentive, we do hope that they make the decision, but in the end, it’s Vale’s decision as to their approach there. I just wish I could give you more guidance on that, but I can't.

No. That’s helpful. Just a quick one on Rosemont. Randy, you mentioned that you push that into your long-term guidance? When do you have that coming online in your new numbers?

Well, we haven't come on about six years now. But we actually think Hudbay is making good progress on their discussions with, in terms of the appeal of that decision. In fact, Hudbay’s own guidance is that they expect to announce or hopefully get to a decision point sometime here within the next couple of months. There’s about a 2.5 to 3-year build time on happy, and there is a reasonable chance that they could move forward. Even if they're not successful in appealing the recent decision, they do have the opportunity to try and shift the operations on the privately owned land and move forward, which would be a smaller scale operation that really doesn’t make sense. But sometimes you are forced to do things that don’t make sense in order to get around these challenges. They are definitely making good progress on that front. We’re confident that they'll be successful. In that event, there's a pretty good chance it’ll come with it our five-year guidance, but we just felt again to be on the conservative side, we’re confident they’ll get there. But even if it wasn’t the five years, we probably wouldn’t see it until the fifth year that five-year guidance. It really is, it’s something that's going to be out. I think there's a good chance it’ll be six years old, seven years old. We’ve got sort of supplying production through the six years — six to 10 of the 10-year guidance.

Cool. Okay, just quickly on the dividend. I mean, spreadsheet dividend tight, again, grade CVO increasing, I suppose, you've got a balance sheet that's going to move into net cash in Q1. Where's your head at in terms of giving it a material hike? My numbers, maybe you're in a 5% to 6% free cash flow yield, 1%, 1.5% dividend yield so maybe the stakes have to give it a bit more of a push. Do you think you’d give it another year or two and see whether deal shape out just to give yourself that extra firepower? Or do you think we could expect to see dividends pushed a bit higher for 12-months?

Well, it’s important to keep in mind that we do average our dividend over the previous four quarters of cash flows. As we see this organic growth that we've just discussed over the next few years, we know that there's going to be upward pressure on this dividend by virtue of the fact that we do tie it to our cash flows. If we see some renewed strength in precious metal prices, that’ll also put upward pressure on that dividend. So, it's naturally going to be there. Richard, I can tell you that we're focused on trying to add to our portfolio. If we're successful, no, we only do it into accretive. If it’s high quality, we’re very, very selective; our hit rate is about one in a hundred in terms of projects that we look at versus ones where we close on. We are very, very selective about what we invest in. Our objective is to continue growing the company with ounces in the ground. If we’re not successful, that means that you're right, this year, we're going to build up an incredible, curvy, strong cash balance on the balance sheet. That’s not where I’d like to be. Given the end of this year, if we haven't made any other significant acquisitions in terms of putting money back into the ground, then we will definitely be entertaining the potential of increasing the payout ratio from 30% to possibly as high as 40% or 50%. I don't see it jumping to 50; the next natural step would be 40. But that’s only going to come when we have the cash to give back to our shareholders. We’re not going to borrow to give back to our shareholders. We will borrow to acquire ounces in the ground, but our focus is on growing the company. But if we can't see good opportunities to grow the company, then the money will come back to our shareholders.

Yeah, special dividend in consideration or not.

Unlikely, but time will tell if we start to get too large of a balance sheet. If we have too much cash on hand, those things can be done, likely this year.

Okay, thank you. And my absolute last one is just that. If you were to look at the kind of pipeline to deals with the moment, and I guess one of the other guys touched on it a bit earlier on. But looking at the pipeline at the moment, how confident are you that there’s ones that have kind of — the pen is kind of hovering over the paper? Or is it the case of there’s still quite a lot of work to do before we kind of see these slow on deals?

Just to answer that question, Richard, I would say, we probably have 10 to 12 $100 million to $300 million opportunities in the pipeline that we're constantly looking at, and that we hope to be able to get a couple of those across the line. How confident am I? I think we're going to do everything we can to make sure that we add, do accretive transactions. I’m fairly confident we’ll be successful in 2021.

That's helpful. Thanks for your time, guys. Much appreciated.

Thank you, Richard. One more question, please.

Your last question comes from Trevor Turnbull, Scotiabank. Please go ahead.

Trevor, good to hear you.

Good to say. Randy, and forgive me for the ultimate last syllable question. Could you just maybe briefly talk a little bit about the relationship between the copper and the gold? And how, if you're going to see sustained higher copper prices, does that work towards Vale making a decision either one way or the other on the stockpiling issue in terms of the expansion?

There's no doubt it has an impact on that because they get 100% of the copper revenue and about 25% of the gold revenue. The higher copper prices will definitely incentivize them to push that forward. There is, on a more global corporate basis down there, Vale has a very continual message that every time you ever see them present, they are constantly focused on trying to expand their presence in base metals. They have a lot of exposure to iron ore, and it’s a continual message that the expectation is to try and double the contribution from the base metals division of Vale. Salobo 4 is continually referenced. I was at a panel discussion around this week at the BDAC where it was referenced. We do think that stronger copper prices provide more incentive for them to go down this path and try to reap some of the benefits of these copper prices today.

And sorry, so just on the simplest level, higher copper grades correlate with the higher gold grades. So, it all works in the same direction.

It’s beautiful that way, isn’t it?

Yeah. All right. Thanks, Randy.

Thank you, Trevor. And thank you everyone. In closing, we do believe Wheaton is very well positioned to continue delivering value to our shareholders for a number of different reasons. Firstly, by having low and predictable costs that result in some of the highest margins in the entire precious metal space, resulting in very strong operating cash flows. Secondly, through our steady organic growth profile and proven track record of accretive quality acquisitions. Thirdly, by offering our shareholders exposure to some of the highest quality mines in the world through our portfolio of long-life low-cost assets. Lastly, by being a leader amongst precious metal streamers in sustainability through initiatives such as our CSR fund and strong support of our partners and the communities in which we live and operate. I do look forward to speaking with all of you again soon. Stay healthy. Stay safe. Thank you.

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