Earnings Call Transcript - WPM Q2 2023

Operator, Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Wheaton Precious Metals 2023 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the 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 Friday, August 11, 2023, at 11:00 AM Eastern Time. I will now turn the conference over to Mr. Patrick Drouin, Senior Vice President of Investor Relations and Sustainability. Please go ahead, Sir.

Patrick Drouin, Senior Vice President of Investor Relations and Sustainability

Thank you, operator. Good morning, ladies and gentlemen, and thank you for participating in today's call. I'm joined today by Randy Smallwood, Wheaton Precious Metals' President and Chief Executive Officer; Gary Brown, Senior Vice President and Chief Financial Officer; Haytham Hodaly, Senior Vice President, Corporate Development; and Wes Carson, Vice President, Mining Operations. Please note that, for those not currently on the webcast, the slide presentation accompanying this conference call is available in PDF format on the Presentations page of the Wheaton Precious Metals website. I'd like to bring to your attention that some of the commentary on today's call may contain forward-looking statements and I would direct everyone to review Slide 2 of the presentation, which contains important cautionary notes regarding forward-looking statements. It should be noted that all figures referred to on today's call are in U.S. dollars unless otherwise noted. In addition, reference to Wheaton or Wheaton Precious Metals on this call includes Wheaton Precious Metals Corp. and/or its wholly owned subsidiaries as applicable. Now, I'd like to turn the call over to Randy Smallwood, our President and Chief Executive Officer.

Randy Smallwood, President and CEO

Thank you, Patrick, and good morning, everyone. Thank you for joining us today to discuss Wheaton's second quarter results of 2023. I am pleased to announce that our portfolio of long-life, low-cost assets delivered another solid quarter, generating over $200 million of operating cash flow and over $140 million in net earnings. Our strong performance was underscored by significant progress at the recently commissioned expansion at our largest asset, Salobo, the ramp-up of which we expect to continue throughout 2023. Despite operations at Peñasquito being suspended in early June due to a labor dispute, we achieved quarter-over-quarter gold-equivalent production growth, highlighting the resilience of our high-quality, diversified portfolio. Our growth pipeline of development projects was further de-risked in the quarter when Aris Mining received approval of their environmental management plan, which now permits the development of the Marmato Lower Mine. In addition, the acquisition of Sabina was completed by B2 Gold, an experienced senior gold producer with a proven track record of successful mine development, who will now be managing and building the Goose Project. These projects are among the assets that are forecast to contribute to our impressive organic growth profile of over 40% production growth in the next five years. Looking into the remainder of 2023, and assuming the labor dispute at Peñasquito is resolved by the end of the third quarter, we maintain our previously stated production guidance of 600,000 to 660,000 gold-equivalent ounces, albeit with a slightly higher weighting towards gold. On the corporate development front, we continue to see good momentum with the addition of a new gold stream on Lumina Gold's Cangrejos Project and the expansion of our existing gold stream on Artemis Gold's Blackwater Project, both of which are strong development projects that complement our portfolio of high-quality assets. In this environment of high interest rates and increasing demand for metals, our team remains exceptionally busy as we continue to see a healthy appetite for streaming as a source of capital for the mining industry, and we are actively pursuing several new accretive opportunities. During the quarter, we released our Annual Sustainability Report, as well as our Inaugural Climate Change Report, demonstrating our continued focus on transparency and delivering value to all of our stakeholders. I encourage you to take a look at these reports to learn more about Wheaton's approach to sustainability and the programs that we support globally. At our Annual General Meeting held this past May, we welcomed Jean Hall to our Board of Directors, bringing her strong skill set to the board and increasing female board representation to over 40%. I would like to thank departing board member Eduardo Luna for his contributions during his tenure, and I would also like to pay homage to John Brough, who, after resigning as a director in May, sadly passed away just recently. He is and will be dearly missed by all of us at Wheaton. I had the privilege to work with both Eduardo and John since the inception of Wheaton, and I'm immensely grateful for their invaluable guidance and leadership. I would now like to turn the call over to Wes Carson, our Vice President of Operations, who will provide more details on our results.

Wes Carson, Vice President of Operations

Thanks, Randy. Good morning. Overall production in the second quarter came in higher than expected, primarily driven by significant sequential improvement at Salobo. In the second quarter, Salobo produced 54,800 ounces of attributable gold, an increase of 61% relative to the second quarter of 2022. Vale reported production in the quarter was driven by better-than-expected ramp-up of Salobo 3, partially offset by planned maintenance activities and additional work on the crushers at Salobo 1 and Salobo 2. Additionally, Vale reports that planned maintenance activities will continue in the second half of 2023 and that the ramp-up of Salobo 3 is expected to be fully completed in 2024. During the quarter, Constancia produced 400,000 ounces of attributable silver and 7,400 ounces of attributable gold, a decrease of approximately 28% and 7% respectively relative to the second quarter of 2022, with a decrease in both metals primarily due to lower throughputs and grades. Hudbay reported that full mining activities resumed at Pampacancha pit in February and the period of higher-planned stripping activities in the Pampacancha pit was completed in June, with higher-than-expected production forecast for the second half of the year. In the second quarter of 2023, Peñasquito produced 1.7 million ounces of attributable silver, a decrease of approximately 17% relative to the second quarter of 2022 due to lower throughput. On June 8, 2023, Newmont Corporation reported that it had suspended operations at the Peñasquito mine due to a labor dispute. To date, Newmont has indicated that it is in ongoing discussions with the leadership of the National Union of Mine and Metal Workers of the Mexican Republic and remains focused on finding a sustainable resolution to the dispute. Due to the delay between production and sales, we expect the impact of Peñasquito's suspended operations will be reflected in our sales results in the third quarter of 2023, resulting in a significant quarter-over-quarter decrease in our reported Peñasquito sales volumes. On June 15, 2023, Artemis Gold announced the approval of the Schedule II amendment for the Blackwater mine. Additionally, on July 4, 2023, Artemis announced receipt of Fisheries Act authorization for the development of Blackwater. These two permits represent significant milestones in the development of Blackwater and allow the Artemis team to continue their focus on completing Phase I construction on schedule and to port first gold in the second half of 2024. As Haytham will discuss later in the call, we expanded our gold stream on Blackwater in the quarter and have been impressed with Artemis' progress in developing the mine. Further de-risking our growth portfolio, on July 12, 2023, Aris Mining announced that they have received approval from the Regional Environmental Authority in Colombia for their environmental management plan, which now permits the development of the Marmato Lower Mine. This is a major milestone for Aris as construction of the lower mine allows for the application of bulk mining methods and improved processing, which is estimated to grow Marmato's gold production five-fold once construction is completed in the second half of 2025. Wheaton's estimated attributable production in 2023 is forecast to be approximately 600,000 to 660,000 gold equivalent ounces, unchanged from previous guidance, but predicated on Peñasquito's restarting production at the end of the third quarter. For the five-year period ending in 2027, the company estimates that average annual production will amount to 810,000 gold equivalent ounces, and for the 10-year period ending in 2032, the company estimates that the average annual production will amount to 850,000 gold equivalent ounces. This includes sector-leading organic growth of over 40%, with an estimated total production for our current portfolio increasing to over 900,000 gold equivalent ounces by 2027. That concludes the operations overview, and with that, I will turn the call over to Gary.

Gary Brown, Senior Vice President and CFO

Thank you, Wes. As described by Wes, production in the second quarter amounted to 148,000 gold equivalent ounces, or GEOs, a 3% increase relative to the first quarter of 2023 and a 5% decrease relative to the comparable period of the prior year, with performance at Salobo being offset by a 32% decrease in silver production, primarily due to the divestment of the Yauliyacu and Keno Hill precious metal purchase agreements, combined with the ongoing labor dispute at Peñasquito. Sales volumes amounted to over 139,000 GEOs, an 18% increase relative to the first quarter of 2023, and a decrease of 16% relative to the comparable period of the prior year, with the year-over-year variance being primarily due to the 6,000-ounce buildup of ounces produced but not yet delivered, or PBND, at Salobo during the most recent quarter, compared to a 16,000-ounce release of PBND in Q2 2022, resulting in a 22,000-ounce swing in sales volumes that is simply driven by the timing of shipments. Strong commodity prices, coupled with our solid production base, resulted in revenue of $265 million and a gross margin of $152 million. Of this revenue, 56% was attributable to gold, 41% to silver, 2% to palladium, and 1% to cobalt. As of June 30, 2023, approximately 103,000 GEOs were in PBND and cobalt inventory, representing approximately 2.1 months of payable production, which is a level that is consistent with the preceding four quarters. G&A expenses amounted to $10 million for the second quarter, and the company anticipates that G&A will amount to $40 to $43 million for the year. Adjusted net earnings amounted to $143 million, a $7 million decrease relative to the second quarter of 2022. It is worth noting, though, that when comparing the results to the prior year, the estimated impact to net earnings associated with the relative changes in PBND was $18 million, meaning we would have exceeded prior year's net earnings if not for the timing of deliveries. Despite the persistent inflationary environment, Wheaton continued to deliver robust cash operating margins in the second quarter, resulting in cash flow from operations of over $200 million and a quarterly dividend of $0.15 per share, consistent with the second quarter of 2022. In the quarter, Wheaton made total upfront cash payments of $89 million, consisting of a $31 million payment relative to the Goose project, $45 million relative to the Blackwater project, and $12 million relative to the Cangrejos Project. Wheaton also made dividend payments relative to the prior two quarters, totaling $131 million. As mentioned by Randy, during the second quarter, B2 Gold completed its previously announced acquisition of Sabina, and in conjunction with this acquisition, exercised the option to acquire 33% of the stream under the Goose PMPA, in exchange for $46 million, resulting in a gain on the partial disposal of the PMPA in the amount of $5 million, and generating an IRR of 48%. Overall, net cash inflows amounted to $29 million in Q2 2023, resulting in cash and cash equivalents at June 30 of $829 million. This significant cash balance, combined with the fully undrawn $2 billion revolving credit facility and the strength of our forecasted operating cash flows, positions the company exceptionally well to satisfy its funding commitments and provides us with the financial flexibility to acquire additional accretive mineral stream interests. That concludes the financial summary, and with that, I will turn the call over to Haytham.

Haytham Hodaly, Senior Vice President, Corporate Development

Thank you, Gary, and good morning, everyone. The corporate development team remains exceptionally busy valuing opportunities, and we're excited to have announced two deals in the quarter, both adding strong accretive growth to our development project pipeline. Starting with the Cangrejos project, which is the largest primary gold deposit in Ecuador, and owned and operated by Lumina Gold, this is a project which currently has more than 20 million ounces of gold in resources and 2.5 billion pounds of copper, not to mention moly and silver, and just recently completed a PFS in April of this year. Per the agreement entered into in May 2023, Wheaton will receive 6.6% of the payable gold, dropping to 4.4% after 700,000 ounces have been delivered for the life of the mine. In exchange, Wheaton will make an upfront payment of $300 million, the majority going in during construction, and ongoing delivery payments equal to 18% of the spot price. Attributable production is forecast to average over 24,500 gold ounces per year for the life of the mine, contributing to our long-term growth profile, which, when coupled with significant exploration potential, makes this a very attractive addition to our portfolio. It's important to note that Lumina Gold has strong community support for the project and no Indigenous groups in the area as well. As with any transaction that Wheaton enters into, responsible and sustainable mining practices are paramount, and Wheaton looks forward to supporting Lumina both financially as they construct Cangrejos, and with their ongoing comprehensive community engagement efforts. On to the next point, on June 14, Wheaton amended our existing Blackwater Gold Precious Metals Purchase Agreement with Artemis Gold to help them arrive at a fully financed transaction. By expanding the threshold, we created a win-win situation where Artemis continues to get strong cash flows in the early days that allows them to service their debt while Wheaton gets a stronger-for-longer profile in a high-quality asset with a strong operating and management team. This revision now entitles us to purchase 8% of the payable gold production until 464,000 ounces have been delivered, an increase from the previous 280,000 ounces, dropping to 4% for the life of the mine. Notably, this threshold will increase should there be a delay in the anticipated timing of deliveries. In exchange, Wheaton will make an additional upfront payment of $40 million, bringing total upfront consideration for the Blackwater project to $481 million. Since our acquisition of the gold and silver streams on Blackwater in 2021, we've been very impressed with the progress made by the Artemis team in de-risking the project and advancing construction activities, and Wheaton is excited to continue to contribute to the success at Blackwater. That concludes the corporate development overview, and with that, I will turn the call back over to Randy.

Randy Smallwood, President and CEO

Thank you, Haytham. In summary, Wheaton's second quarter was distinguished by several key highlights. We achieved solid three-month revenue, earnings, and cash flow, and declared a $0.15 quarterly dividend. We believe our significant quarter-over-quarter production growth positions us to achieve our previously announced annual guidance of 600,000 to 660,000 gold equivalent ounces. Our pipeline of development projects was further de-risked, supporting our impressive organic growth profile of over 40% in the next five years. Our commitment to accretive growth was emphasized by the addition of a gold stream on Lumina's Cangrejos project and an expansion of our existing gold stream on Artemis Gold's Blackwater project. Our balance sheet remains one of the strongest in the industry, providing ample capacity to add accretive, high-quality streams into our portfolio. And lastly, we continued to demonstrate leadership and sustainability with the release of our Annual Sustainability Report in addition to our Inaugural Climate Change Report, demonstrating our continued focus on transparency and delivering value to all stakeholders. So with that, I would like to open up the call to questions. Operator?

Operator, Operator

Your first question is from Brian MacArthur from Raymond James. Please ask your question.

Brian MacArthur, Analyst

Good morning. I have a couple of questions. My first question relates to Salobo. It looks like the ramp-up is going fairly well there, and I know they need a 90-day period to hit their targets. Do you think that you'll have to make the payment this year, because I guess January 1 is a date where if they hit 35 million tons, you make your payment, or is that still something that's more likely to happen next year?

Randy Smallwood, President and CEO

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

Brian MacArthur, Analyst

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

Randy Smallwood, President and CEO

Yeah, I was pleased to see someone else agreeing with us in the sense that, and I've said this for a long time, it's the best half-built mine in the world. It is one of the best gold deposits in the world, and it's a deposit that also produces substantial silver. So as a refresher, we get 25% of whatever silver is produced from both the Chilean side of that deposit and the Argentinian side of that deposit. I know Barrick continues to advance and study and work at it to see if there's a way to move that forward. I know Mark agrees with me in the sense that it is a true world-class deposit that would fit into their growth profile very nicely. Obviously, there's some challenges on the Chilean side with respect to permitting, but I know Barrick is investing on the Argentinian side, so it's important that our stream does cover both sides of the border, not just the Chilean side, but both sides of the border. So we're hopeful. As a reminder, a couple of years ago, we had the opportunity to collapse this stream and get our money back, and we chose not to because we do believe that this mine will eventually deliver good, strong boost in silver production to our own portfolio as it moves forward. And we're just happy to see not only Barrick continuing to try and strive towards bringing at least the Argentinian side forward, but also in discussions on the Chilean side, but also to see some of our peers also investing in the opportunity. So I haven't heard Pascua for a while. So I was pleasantly surprised to hear that it was being brought back into the markets.

Brian MacArthur, Analyst

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

Randy Smallwood, President and CEO

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

Brian MacArthur, Analyst

Great, thanks very much, Randy.

Randy Smallwood, President and CEO

Thank you, Brian.

Operator, Operator

Your next question is from Ralph Profiti from Eight Capital. Please ask your question.

Ralph Profiti, Analyst

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

Randy Smallwood, President and CEO

Yeah, it is a factor that we always bring into our own valuations in terms of looking at country risk. Ecuador has obviously, even just recently, some challenges. However, it does actually have a relatively strong history on the mining side. More recently, there are successful operations ongoing right now. Lundin Gold has had great success in the country. And so I think it really comes down to, as in a lot of places around the world, country risk is important, but also community risk is important. That's one of the things that we saw with the Cangrejos project is that it's got strong community support in the area, and that goes a long way towards ensuring that you're going to get strong support at the federal government or national government level in places like that. It is a factor that we feed into our own valuations to adjust that. If you look at our portfolio of assets, you can tell that it's a factor that feeds into it because we don't have a lot of investments in risky jurisdictions because that's how we factor it in. And so, Ecuador depending on the project, we're very comfortable in certain areas in Ecuador, as in any country. It's always one of the more important things, and I think society is moving that way, is making sure you have strong community support.

Gary Brown, Senior Vice President and CFO

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

Ralph Profiti, Analyst

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

Randy Smallwood, President and CEO

HUDBay is a significant partner for us. We have a strong working relationship with Peter and his team. Currently, Constancia is performing well for us. Our history with HUDBay has been positive, and we aim to maintain a strong partnership moving forward. The original stream focused on the Rosemont deposit with specific production goals in mind. Copper World seems likely to have a production level that is approximately two-thirds of that, but it's important to note that those production ounces were not part of the initial forecast. Rosemont is still an ongoing prospect, and once HUDBay demonstrates that Copper World can be operated responsibly and safely, we believe they will succeed as they have in other projects. Rosemont and Copper World represent a low-risk, high-value opportunity for both the local community and the country, and we are eager to review the pre-feasibility results. After that, we will discuss how to expand our collaboration with HUDBay. I do not foresee any issues; overall, it's a solid asset. We are looking forward to seeing how things progress and are awaiting further details. HUDBay has various options as Copper World develops, and they are still refining their plans, which is why there has been no release yet.

Ralph Profiti, Analyst

Yeah, got you. Okay, well, thanks, Randy and Gary.

Operator, Operator

Your next question is from Martin Pradier from Veritas Investment Research. Please ask your question.

Martin Pradier, Analyst

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

Randy Smallwood, President and CEO

I'll let Wes take that one.

Wes Carson, Vice President of Operations

Sure. Yeah, no, thanks for the question. Really, we're definitely encouraged by what we saw in Q2 here, and Salobo III moving ahead, and then Salobo I and Salobo II seem to come kind of back in line with expectations. We're really excited about where things are going for the rest of the year here. And there was in the forecast and kind of the budget for the rest of the year, there was an increase as they brought Salobo III inline, and we certainly expect them to kind of get in that same kind of vein as what we saw in Q2 and carry on for the rest of the year. As Randy said earlier, I mean, the more that we can see them getting closer to that expansion payment, the better off that we're going to be moving forward.

Randy Smallwood, President and CEO

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

Martin Pradier, Analyst

What would they be in terms of tons per day in Q2?

Gary Brown, Senior Vice President and CFO

It was operating at about 70%, with three lines affecting the vote, so in order to reach 32 million tons annually, they need to operate closer to 90%. There is still some work to be done to reach that completion test, but it’s a step in the right direction. It's also worth mentioning that we were there this past April, and things are progressing very well. Our relationship with Vale continues to strengthen, and there is a great team there that is driving things forward.

Randy Smallwood, President and CEO

Yes, I was going to highlight that 70% is an average over Q2. It was definitely higher towards the end of that. So it doesn't seem like that far of a stretch for them. They're pretty comfortable that they're going to be able to satisfy this.

Martin Pradier, Analyst

Perfect. Is Cangrejos fully permitted, and how is it affected by the claim regarding the presidential decree on the regulated environmental consultation, which is also impacting your other mine? It appears there is a claim that the presidential decree is unconstitutional.

Haytham Hodaly, Senior Vice President, Corporate Development

So on Cangrejos, the exploration permits have been received. The EIA is obtained for the exploration phase and the environmental baseline studies have been compiled. The exploration investment protection agreement has been signed. But they still need to enter into construction and production agreements, and Lumina needs to undergo permitting for those operations. In terms of everything that's happening right now with regards to the congressional changes that we've seen there, I think at this point in time, it doesn't really apply to something like Cangrejos because it's so far out into the future. I think when we look at our profiles, we've got anywhere between near term is one to three years, medium term is three to five, and longer term is five years. This definitely falls into the five-year to ten-year profile. So there's going to be a lot of changes in Ecuador between now and then, and we expect a lot of the issues that are now in the limelight to have been resolved by then.

Martin Pradier, Analyst

Good. Thank you very much.

Operator, Operator

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

John Tumazos, Analyst

Thank you for my question. Following up on Martin, how many years out is Cangrejos of Lumina Gold? Did you mention five to ten years? Can you be specific, is it five years, six years, seven years, or eight years? More generally, will you be targeting projects that are several years out, which are the hardest to finance for emerging companies, considering the short-term interest rates at 5.5% and the challenging market for gold stocks? It seems like a great opportunity.

Haytham Hodaly, Senior Vice President, Corporate Development

Thank you for the question, John. To answer your inquiry, Cangrejos is expected to start in the latter part of this decade, likely around 2028 or 2029, based on its current profile. We structure our transactions with stage payments, which means we make limited commitments at this stage while the rest of the capital is being raised for the project. This approach, referred to as early deposit structures, allows us flexibility to secure funding through various means, including debt and private equity. We collaborate with our partners to facilitate their success. Furthermore, we believe long-term projects align with our outlook on commodity prices. We anticipate that assets containing both gold and copper, such as Cangrejos—which is primarily a gold asset with approximately 20% of its revenues from copper—will become increasingly attractive to both diversified base metal companies and precious metal firms, especially as some have recently ventured into base metals.

Randy Smallwood, President and CEO

I think it's important to just have a cross-section of investments near term and longer term. This isn't an industry where we make acquisitions all the time, right? You have to be sensitive to where you think you are in the marketplace. But right now, we do see good opportunities in that space and good value. Cangrejos is a project that we've admired for quite a while as it's been advanced to move forward. We think it's going to be a good core producer for us. But just to reiterate what Haytham just said, we tend to look at things in sort of near term and then one to five years and then five to ten, that's how we give out our production guidance. And we don't have Cangrejos contributing in our first five years, but we do have it expected to be contributing in our five- to ten-year period.

John Tumazos, Analyst

Thank you very much and congratulations on accessing such a fabulous asset.

Randy Smallwood, President and CEO

Yes. Thank you, John. Thanks for the call.

Operator, Operator

Thank you and your last question is from Tanya Jakusconek from Deutsche Bank. Please go ahead.

Unidentified Analyst, Analyst

Good morning. I think it’s Smede from Scotiabank. But anyways.

Randy Smallwood, President and CEO

We were chuckling. We miss that news release.

Unidentified Analyst, Analyst

Yes, like okay. I think that's me. Anyway...

Randy Smallwood, President and CEO

Good to talk to you, Tanya.

Unidentified Analyst, Analyst

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

Gary Brown, Senior Vice President and CFO

Yes. We're still in the process of getting through the details, but it looks like the proposed legislation is in line with the principles that they previously released. So really, we don't see there being any change to our prior guidance, which is that we think that once implemented, and assuming that it does get implemented, that it would have application to the income generated by our non-Canadian subsidiaries. From a NAV perspective, we estimate that this has about an 8% to 10% impact on our NAV. If it had applied this year, I would estimate that the implication would have been that we would have accrued somewhere in the neighborhood of $35 million to $40 million of tax for the first six months if that gives you some idea.

Unidentified Analyst, Analyst

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

Gary Brown, Senior Vice President and CFO

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

Unidentified Analyst, Analyst

Okay. And then just on Peñasquito with the timing difference. Gary, what is Peñasquito's down for the entire quarter, so down all of what do you think we should be thinking about in terms of sales for the quarter from silver just from Peñasquito?

Gary Brown, Senior Vice President and CFO

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

Wes Carson, Vice President of Operations

We still expect that even if Peñasquito is down for the entire quarter, we will remain within our guidance range. While it will certainly have an impact, this will also carry over into Q4 if we experience a complete shutdown for the quarter. There is typically a delay of about six weeks to two months between production levels and actual sales.

Randy Smallwood, President and CEO

So specifically in Q3, we would see a sniff of sales because with that six to eight-week delay in sort of the connection between production and sales. Obviously, they shut down on June 8, which is three weeks before the end of the quarter. So that does leave some residual sales revenue that we should see in Q3, but not a lot, as you'd imagine. Definitely, sales will be impacted on that side.

Unidentified Analyst, Analyst

So we should think, Randy, minimal sales coming in, in Q3, should it be down for the entire quarter.

Randy Smallwood, President and CEO

That's right.

Unidentified Analyst, Analyst

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

Randy Smallwood, President and CEO

I believe what significantly matters is that Haytham continues to discover promising investment opportunities. We've recently committed to Cangrejos, and I can assure you that our corporate development team is actively engaged on that front. I fully anticipate that Haytham will present additional avenues for deploying capital. Our primary focus has always been on generating returns. If we’re not investing in value-accreting acquisitions, we’re returning capital to our shareholders. Our cash flows are robust, and several of our other assets are performing well. We're within our guidance range and feel confident about our 2023 forecast. Honestly, the strength of the rest of the portfolio hasn’t influenced our approach to dividends. Our dividend remains strong, and I believe it offers one of the highest yields among senior streamers. Our dividend policy is solid, and we're in a position of strength, as evident in our balance sheet. I don’t think this has affected our decision-making in that area. If we don’t raise it, it’s likely because Haytham continues to uncover excellent investment opportunities.

Gary Brown, Senior Vice President and CFO

I think it's important to recognize we've set dividend policy based upon long-term forecast. And this is really just a short-term issue in our eyes.

Unidentified Analyst, Analyst

I was wondering if I should focus on 2023, or has it been pushed to 2024 due to a temporary setback?

Gary Brown, Senior Vice President and CFO

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

Unidentified Analyst, Analyst

Okay. No, that's helpful and if I could just squeeze one more in for Haytham because he's a money spender. Well, I wanted to circle back, Haytham with you. I just wanted to just come back and I asked this last quarter, the deal size because this deal size seems to be, in my opinion, small relative to the size of your company, but are we still looking at that $150 million to $350 million range for precious metal acquisitions?

Haytham Hodaly, Senior Vice President, Corporate Development

Hi, good morning, Tanya. Thank you for the questions, money spender, I like that. I can tell you that we're considering all sizes. Most of the opportunities are likely still under $300 million, with some even smaller and a few exceeding $500 million. We're actively pursuing around 15 different opportunities at any given time. We'll see how many of those actually get completed. This is one of the strongest environments for streaming that we've experienced, likely due to the absence of equity, high debt costs, and the elevated expense of private equity. Wheaton aims to treat our partners fairly, striving for mutually beneficial deals. So, we are very enthusiastic about the prospect of closing more transactions in the near future.

Unidentified Analyst, Analyst

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

Haytham Hodaly, Senior Vice President, Corporate Development

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

Unidentified Analyst, Analyst

Gold and silver, not platinum palladium.

Haytham Hodaly, Senior Vice President, Corporate Development

No, no, no. Our 90-plus percent, probably 95% of our focus is on gold and silver these days.

Unidentified Analyst, Analyst

Okay. All right. And still looking at the same site development and operating assets for both categories?

Haytham Hodaly, Senior Vice President, Corporate Development

Yes. I believe we have some projects that are approaching the operating stage, which will positively impact our earnings and cash flows in the near term.

Unidentified Analyst, Analyst

Okay. Great. Thank you so much for answering my questions.

Randy Smallwood, President and CEO

Thank you, Tanya, and thank you, everyone, for dialing in today. In closing, we believe Wheaton is well positioned to continue delivering value to all of our stakeholders for a number of different reasons. Firstly, by offering our shareholders exposure to our diversified portfolio of long-life, low-cost assets that we believe has one of the best organic growth profiles in the mining industry. Secondly, by having low and predictable costs which are resilient to inflationary pressures, resulting in some of the highest margins in the entire precious metal space, which has allowed us to consistently return good value to our shareholders. And lastly, by being a leader amongst precious metal streamers in sustainability and by supporting our partners and our neighbors in the communities in which we live and operate. So with that, I would like to finish off by saying that after nearly 20 years at this company, I have never been more excited about our future prospects. We believe that now is a great time to own more Wheaton. I do look forward to speaking with all of you again soon. Thank you.

Operator, Operator

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