Earnings Call Transcript - WPM Q2 2022

Operator, Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Wheaton Precious Metals 2022 Second Quarter 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 12, 2022 at 11:00 a.m. 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 presentation 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. I should note 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 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 Chief Executive Officer

Thank you, Patrick, and good morning, everyone. Thank you for joining us today to discuss Wheaton's second quarter results of 2022. I am pleased to say that our portfolio once again delivered solid revenue, earnings, and cash flow in the first half of 2022, as Gary will discuss later. This solid performance reflects the resiliency of the streaming model to inflationary pressures currently being felt across the global economy and especially amongst the traditional miners. In fact, our average cash cost per gold equivalent ounce actually decreased in the first half of 2022 relative to the first half of 2021. While we continued to actively pursue a number of new opportunities in the second quarter, we also showed our willingness to strategically identify opportunities both inside and outside of our portfolio that create value for our shareholders. To that end, in the quarter, we announced the proposed termination of the Keno Hill stream for $135 million, which, when completed, will ultimately result in an absolute return on our Keno Hill investment of over 300%. However, the termination of the stream, combined with severe weather events at Stillwater, and lower-than-expected throughput from Salobo have resulted in Wheaton having to lower its 2022 production guidance. Wes will provide more information later in the call. Despite this, given our strong balance sheet, liquidity available for investment, the production growth at our key producing assets and our diverse development portfolio, we are on track to generate sustained, long-term production and strong growth over the next four years. Lastly, we once again demonstrated our leadership in sustainability and value creation for all stakeholders by publishing our third annual sustainability report and announcing a sustainability-linked element in connection to the renewal of our existing undrawn $2 billion revolving credit facility. I would now like to turn the call over to Gary Brown, our Senior Vice President and Chief Financial Officer, who will provide more details on our results.

Gary Brown, Senior Vice President and Chief Financial Officer

Thank you, Randy, and good morning, ladies and gentlemen. The Company's precious metal interests produced 163,000 gold equivalent ounces or GEOs in the second quarter of 2022 comprised of 68,000 ounces of gold, 6.5 million ounces of silver, 3,900 ounces of palladium and 136,000 pounds of cobalt. Relative to the second quarter of the prior year, this represented a decrease of 15% on a gold equivalent basis, primarily due to lower production at Salobo. On a gold equivalent basis, sales volumes were only 3% lower relative to Q2 2021 with changes in ounces produced but not delivered or PBND, largely offsetting the lower production levels. As at June 30, 2022, approximately 123,000 GEOs were in PBND, in addition to cobalt inventory amounting to 10,700 GEOs with the combined figure of 133,000 GEOs, representing approximately 2.4 months of payable production. This is approximately 24,000 GEOs lower than the average over the preceding four quarters. Revenue for the second quarter of 2022 amounted to $303 million, representing an 8% decrease relative to Q2 2021 due to a 5% decrease in the average realized gold equivalent price combined with the lower sales volumes. Of this revenue, 52% was attributable to gold sales, 43% silver, 2% palladium and 3% cobalt. Driven by the lower realized prices and sales volumes, gross margin for the second quarter of 2022 decreased 11% to $162 million. However, worthy of note is the 1% decrease in the average cash cost per GEO, highlighting the resiliency of our business model to the inflationary pressures being experienced across the mining industry. G&A expenses amounted to $10 million in the second quarter of 2022 and donations and community investment expenses amounted to an additional $1 million with a combined figure of $11 million being virtually unchanged from Q2 2021. For 2022, the Company continues to estimate that G&A expenses will amount to $41 million to $42 million while donations and community investments are estimated to amount to an additional $6 million to $7 million. Stock-based compensation amounted to $2 million in the second quarter of 2022, representing a decrease of $6 million relative to the comparable quarter of the prior year, primarily due to the differences in crude costs associated with PSUs. Net earnings amounted to $149 million in the second quarter of 2022 compared to $166 million in Q2 2021. Basic adjusted earnings per share decreased 8% to $0.33 compared to $0.36 per share in the prior year. Operating cash flow for the second quarter of 2022 amounted to $206 million or $0.46 per share compared to $216 million or $0.48 per share in the prior year, representing a 5% decrease on a per share basis. Based on the Company’s dividend policy, the Company’s Board has declared a dividend of $0.15 a share payable to shareholders of record on August 26, 2022. 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 1% discount to market. During the second quarter of 2022, the Company made dividend payments relative to the prior two quarters totaling $117 million, invested $15 million relative to Marmato, and acquired $3 million of long-term equity investments. Overall, net cash inflows amounted to $72 million in Q2 2022, resulting in cash and cash equivalents at June 30th of $449 million. Recently, the Company added a sustainability-linked element to its revolving credit facility, underscoring the Company’s commitment to ESG initiatives. In addition, the term of the revolving facility was extended to July 18, 2027. The capacity provided by the undrawn $2 billion revolving credit facility, combined with the strong forecasted operating cash flows, positions the Company very well to satisfy its funding commitments and sustain its dividend policy, while at the same time, having the flexibility to consummate additional accretive precious metal purchase agreements. That concludes the financial summary.

Wes Carson, Vice President, Mining Operations

Thanks, Gary, and good morning. Overall production in the second quarter came in lower than anticipated with lower-than-expected performance from Salobo and Stillwater, partially offset by stronger-than-expected production from Constancia, Peñasquito and Antamina. In the second quarter, Salobo produced 34,000 ounces of attributable gold, a decrease of approximately 39% relative to the second quarter of 2021 due to lower throughput and grades. Mine movements saw its continued improvement throughout the quarter. However, concentrate production was negatively impacted by process plant performance due to delays in the ramp-up after planned maintenance shutdown and additional corrective maintenance. Vale expects further maintenance work to continue in the second half of 2022 with a focus on improving the overall operational performance at both the mine and process plant, ultimately resulting in improved production through the remainder of the year. Vale also reported that fiscal completion at the Salobo III mine expansion was 95% at the end of second quarter. In addition, they began commissioning activities at the primary crushing and stockpile areas during the quarter. In the second quarter, Stillwater mines produced 2,200 ounces of attributable gold and 3,900 ounces of attributable palladium, a decrease of approximately 27% for gold and 26% for palladium relative to the second quarter of 2021. Regional floods impacted the Stillwater operations on June 13, 2022, including damage to multiple bridges and the access road to the Stillwater mine. Access to the East Boulder mine and the Columbus metallurgical facilities remained intact and both facilities continued full operations during the flooding events. Operations at the Stillwater mine, which accounts for 60% of the mine production from the Stillwater operations, resumed production on July 29, 2022, once safe access to the mine has been restored. Production at the Stillwater mine is expected to return to normal levels by the fourth quarter. During the quarter, the Voisey's Bay mine produced 136,000 pounds of attributable cobalt, a decrease of approximately 64% relative to the second quarter of 2021, primarily due to lower grades during the ongoing transitional period between the depletion of the Ovoid open pit and the ramp-up to full production of the Voisey's Bay underground project. The Voisey's Bay underground mine extension, which includes development of two new underground mines, Reid Brook and Eastern Deeps, was 74% physically complete at the end of the second quarter. Reid Brook underground continues our production for development during the quarter, and Vale has indicated that Eastern Deeps is expected to start up in the second half of 2022. Given the proposed sale of the Keno Hill PMPA, lower production from Stillwater due to severe weather, as well as lower-than-expected production from Salobo, Wheaton is lowering production guidance. Wheaton's estimated attributable production in 2022 is now forecast to be 300,000 to 320,000 ounces of gold, 22.5 million to 24 million ounces of silver, and 35,000 to 40,000 gold equivalent ounces of other metals, resulting in production of approximately 640,000 to 680,000 gold equivalent ounces. For the five-year period ending in 2026, the Company now estimates that average production will amount to 820,000 gold equivalent ounces and for the 10-year period ending in 2031, the Company now estimates that average annual production will amount to 870,000 gold equivalent ounces. That concludes the operations overview. And with that, I’ll turn the call back to Randy.

Randy Smallwood, President and Chief Executive Officer

Thank you, Wes, and thank you, Gary. In summary, while not without its challenges, Wheaton recorded a solid quarter distinguished by several key highlights. We achieved strong quarterly revenue, earnings, and cash flow and declared a $0.15 quarterly dividend. We enhanced our financial flexibility, which positions us well for future accretive growth. And lastly, we once again showed our leadership in sustainability by implementing a sustainability-linked credit facility and by being recognized as one of the Best 50 Corporate Citizens in Canada by Corporate Knights. So with that, I would like to open up the call for questions. Operator?

Operator, Operator

Thank you. The first question comes from Trevor Turnbull of Scotiabank. Please go ahead.

Trevor Turnbull, Analyst

Yes. Thanks, Randy. I just wondered if you could talk a little bit about the changes to the 5- and 10-year guidance. I realize they’re relatively small in the grand scheme of things and somewhat attributable to the adjustment on that termination of Alexco stream and then the mine changes that came out recently here on Stillwater. But I wondered if there was any other contributing factors that caused you to adjust those longer-term outlooks.

Randy Smallwood, President and Chief Executive Officer

I’ll let Wes provide more details, but I want to begin by mentioning that the decrease in production at Salobo this year significantly affects the 5- and 10-year averages. Remember, 2022 is included in that average. This undoubtedly impacted production levels. Additionally, the sale of Keno and the revised mine plan from Stillwater are factors to consider. We're also beginning to understand the production outlook for Copper World and Rosemont. Although Rosemont is projected to provide a significant total increase in production, initial output is expected to be lower than originally planned, especially in the Copper World area. This reduction has influenced the long-term forecast. Wes, do you have anything to add?

Wes Carson, Vice President, Mining Operations

Yes. The only other two minor ones where there was a change in Tor Peru as well and where that fits into the production profile and the new plans they came out with, and then Phoenix being pushed out as well. We’re the only two other minor ones. But overall, really, I mean, the main thing was the change to this year and then the Keno Hill stream were the two major ones.

Trevor Turnbull, Analyst

Okay. That’s great color. I hadn’t thought about the impact of this year’s Salobo numbers. But, I appreciate that, and thank you.

Operator, Operator

Thank you. The next question comes from Adam Josephson of KeyBanc. Please go ahead.

Adam Josephson, Analyst

Randy, good morning to you and everyone else. Thank you for addressing my questions. Wes, I have a follow-up regarding your previous answer. Could you provide some details on how much of the reduction over 5 and 10 years is specifically attributed to this year’s production in comparison to the other factors you mentioned?

Wes Carson, Vice President, Mining Operations

Yes. Approximately 30% of it would come from this year.

Randy Smallwood, President and Chief Executive Officer

For the 5 years.

Wes Carson, Vice President, Mining Operations

Yes, for the year. And then for the 10 years, it’s half of that. So, yes.

Adam Josephson, Analyst

Got it. Okay. And then this year, it seems like the reduction in Salobo was about 50, which is part of the 70,000-ounce decrease. Randy, is that accurate, or am I missing something?

Randy Smallwood, President and Chief Executive Officer

It's in that general range. We've clearly experienced reduced production at Stillwater due to recent flooding, which will affect our output. Additionally, Voisey's Bay is slightly behind schedule with its underground operations, resulting in lower cobalt production from there. While silver production remains largely on track, we've encountered setbacks with gold at both Stillwater and Salobo, as well as with cobalt and palladium from Stillwater and Voisey's Bay.

Wes Carson, Vice President, Mining Operations

The number from Salobo is just over 40,000. We expect improvements in Q3 and Q4, as Q2 was quite challenging.

Adam Josephson, Analyst

And how much of the total is from Stillwater?

Wes Carson, Vice President, Mining Operations

Let me check here.

Randy Smallwood, President and Chief Executive Officer

I mean, out of the 70,000 and between 40,000, let’s call it about 15,000 to 20,000.

Adam Josephson, Analyst

And related to the 5- and 10-year, Randy or Wes, how much would you say Stillwater is? Just can you go into more details about the updated mine plan and the impact that that’s having on your view of what the long-term production that you will be?

Wes Carson, Vice President, Mining Operations

Stillwater is relatively small in the long term, likely just a couple of thousand ounces off for each of the 5-year and 10-year plans. They are still working on increasing production over the next few years, and while there is some impact from the Blitz ramp-up, it is not significant within the larger context.

Randy Smallwood, President and Chief Executive Officer

Yes. The one number on the 10-year guidance that is impacted is, of course, Rosemont shifting over to copper. That actually has a reasonable impact for the first five years. Again, it’s a good news story because those are all ounces that weren’t even part of our original plan. And so, we’ll be seeing that production. We’re confident that ultimately the full Rosemont will get built and will be operated. However, with the new guidance that we’ve seen in our discussions with Hudbay as they’re moving that project forward, that actually has a pretty big impact on our 10-year guidance. It doesn’t affect our 5-year guidance as much because it only comes on near the end of that period. But on the 10-year guidance, that’s actually one of the biggest contributors to the change.

Adam Josephson, Analyst

Regarding Salobo, what is your level of confidence that Salobo III will begin operations as expected in the fourth quarter? Additionally, how confident are you that the team understands their operational issues and knows how to address them, especially in light of the challenges faced since the pandemic?

Randy Smallwood, President and Chief Executive Officer

I'll let Wes provide additional details. We've just completed our first site visit in several years, and it's crucial to be physically present rather than relying on virtual tours to truly understand operations and build confidence in their capabilities. Wes will elaborate further, but I want to emphasize that one reason we invest in the most profitable mines globally is the strong incentive from Vale to address issues. There have been significant management changes aimed at resolving these challenges. However, we must remember the pandemic's impact on operations, particularly since Brazil was heavily affected by COVID-19. Efforts to mitigate the pandemic's effects at the site also influenced productivity and our progress. Wes, would you like to add more?

Wes Carson, Vice President, Mining Operations

Sure. Yes. So, I was down on site with a technical team in the early part of June. So, really quite recently set up well to really give us more confidence in the rest of this year and the ramp-up of Salobo III. We were down there for four days in total. We got a good review of the entire site. We have a great relationship with Vale as being our largest partner, and they’re always incredibly transparent with us in walking through exactly what the challenges are. And as Randy said, I mean, there have been quite a few changes at the site. They’ve recognized what the issues are around the maintenance that have really been contributed to by COVID, particularly and also all the way back to the fatalities they had back in 2020. They’ve struggled to kind of get things back in line through that period. But very strong confidence now as they’ve got things figured out. I think Salobo III is looking great. I mean, you could certainly see walking around the site there. I mean the 95% completion is there. They will get things going by the end of the year here. It’s going to take some time to ramp it up though and actually get it up to full capacity. And I think the mine is in great shape to be able to feed all three lines into next year.

Randy Smallwood, President and Chief Executive Officer

It's important to note that during the initial phase of the mine, it took approximately 24 months to achieve full capacity on the first line, while the second line reached full capacity in about 18 months. As progress continues, we expect improvements in this process. Therefore, we anticipate reaching full capacity comfortably by the end of 2023 or early 2024.

Wes Carson, Vice President, Mining Operations

One of the great things about walking through at the Salobo III project there was just all of the improvements they’ve made from learnings on Salobo I and II. They’ve added in a bunch more kind of redundancies in there to help with availability. They spent a lot of time on making sure that that Salobo III line is kind of the best they can. It’s also worth noting that it is a completely separate line, right, from the primary crusher all the way through. So, there’s no impact on Salobo I and II and how they run when they start up Salobo III. So, there isn’t any of the tie-ins or anything that you need to do with that. It’s actually a completely separate line.

Adam Josephson, Analyst

I appreciate that from both of you. Wes, just to clarify one thing on the impact of Salobo on your long-term guidance, aside from your lower production expectation for this year, have your longer term Salobo production expectations changed based on the problems they’ve had, or are those the same as they were before, and the only impact on 5- and 10-year is the 40,000-ish lower ounces this year?

Wes Carson, Vice President, Mining Operations

Yes. It’s just the production this year that we’ve lowered. We’re still very confident in the long-term guidance that they have and then that we provided previously.

Adam Josephson, Analyst

I appreciate it. And Randy, just one last one on jurisdictional issues, specifically in South America. How, if at all, has your outlook changed in terms of your willingness or reluctance to invest in many of those countries for perhaps obvious reasons?

Randy Smallwood, President and Chief Executive Officer

Yes, political risk is a challenge. A country like Chile, which for decades has been one of the best investing jurisdictions in the world, is suddenly proving very challenging due to the number of permits being rejected recently by the new government. I believe this will ultimately impact foreign investment in the mining sector there. Just look at their state miner, Codelco, and the lack of capital it has for developing its projects. This will have a significant negative impact on Chile. It’s essential to find assets robust enough to withstand changes in taxation, which we see happening globally, including in Canada with frequent tax increases. Therefore, I emphasize the importance of seeking first and second quartile assets that offer high profitability for all stakeholders, including governments for taxes and communities for income. We must ensure we focus on these assets, as they are best equipped to manage pressures such as rising taxes, increased royalties, permitting challenges, and the associated costs. This highlights the need to concentrate on assets capable of delivering essential products to society despite these challenges.

Adam Josephson, Analyst

Just one last one. In terms of the discount rate that you would apply to a country like Chile, can you give us any rough sense of how that might have changed based on what’s happened over the past year or so?

Randy Smallwood, President and Chief Executive Officer

Yes, it's slightly higher than it used to be. The situation is very dynamic. We have a team that evaluates political risk, and the numbers are always subject to change. What I share with you today may be different tomorrow and was likely different yesterday. When we consider a project, we assess both the current state of a country and where we anticipate it will be. In the streaming industry, our investments are for the entire life of the mine. Unless we receive a very attractive offer for an existing stream, these are long-term investments. Therefore, political risk is crucial for us, and we dedicate significant resources to evaluating it. I can confirm that the political risks in Chile have increased our risk profile, leading us to be less willing to invest in Chilean opportunities compared to a year or two ago.

Operator, Operator

Thank you. The next question comes from Ralph Profiti of Eight Capital. Please go ahead.

Ralph Profiti, Analyst

Randy, if we can stay on the theme of Chile. Are you involved in sort of the mitigation plan at Phoenix with the partner Rio2, just given your growing ESG competence and how that’s become a focus for the company? And would you be open to part of their strategy, which is to seek alternative financing and whether that be through a renegotiated stream or other capital investment means?

Randy Smallwood, President and Chief Executive Officer

Well, we’re definitely in touch with them. I’ll let Haytham provide a bit of color here. But obviously, it’s an asset that we like. We think it’s an asset that’s got good optionality and good growth potential. But ultimately, it’s got to get up and running in the first place. And so, there’s no doubt that we’re in discussions with Rio2 on that one. And Haytham, I don’t know if you want to add some color?

Haytham Hodaly, Senior Vice President, Corporate Development

Yes, thanks for the question, Ralph. Regarding Phoenix specifically, we are currently in discussions with them to determine the type of capital needed in the near future and explore ways to meet those capital requirements. Whenever our partners face challenges, we are always ready to assist them and assess the best approach for their situation, especially considering the politically motivated decisions in Chile. It’s important to proceed carefully as we navigate this regime for at least the next couple of years.

Ralph Profiti, Analyst

Yes. Fair enough. I appreciate that. Gary, can I ask you a question on the sustainability-linked facility? And whether or not, Gary, this opens you up to exposure on third-party ESG scores, right? And does the potential rate that undrawn amounts sort of go beyond emissions targets and the parity goals and whether or not you run the risk of sort of environmental stewardship on things may be somewhat not in your total control.

Gary Brown, Senior Vice President and Chief Financial Officer

There are three key performance indicators related to the sustainability-linked aspect of our revolving credit facility. The maximum change in the drawn pricing based on achieving those targets is 5 basis points, either increasing or decreasing by that amount. One of the targets is connected to our partners’ commitments to reducing greenhouse gas emissions. Therefore, if you take 5 basis points and divide it by 3, you get down to approximately 1.6 basis points. We expect to see improvements in our baseline KPIs in this area, which means the downside risk is minimal. We believe there is a greater chance of decreasing our borrowing costs in this context. Patrick?

Patrick Drouin, Senior Vice President of Investor Relations and Sustainability

Yes. Ralph, I’ll just add, the only KPI that ties us to external rating agencies, one based on our S&P rating. The added disclosure that we had in our last sustainability report that came out in which we were actually quantifying our Scope 3 investment, GHG emissions and whatnot as well as a number of other targets that we have put in place in that report. We strongly believe that that score will be going much, much higher. So, it isn’t overly concerning to us because, again, of the work we’re doing in the added disclosure that we’ve already put into place that should be reflected in the next round of scoring by S&P.

Randy Smallwood, President and Chief Executive Officer

And Ralph, I’d just add one more thing. We can’t hide behind our partners. There’s a lot of companies in this space that have done that for years, but we are responsible for the investments that we make and for the partners we have. And obviously, we don’t control them. But, we have to do everything and we have to take ownership in terms of the fact that they are our partners on a go-forward basis. And so, we do everything to try and help them be better. And I think that’s one of the things that really differentiates streaming is that focus on the relationship.

Operator, Operator

The next question comes from Charlie Rothbarth of Berenberg. Please go ahead.

Unidentified Analyst, Analyst

Could you comment on the available capital you highlighted in your presentation? In the current pricing environment, how are you considering the streams and are they becoming more accessible to you at this time?

Randy Smallwood, President and Chief Executive Officer

I’ll let Haytham answer that one.

Haytham Hodaly, Senior Vice President, Corporate Development

Sure. Thanks for the question, Charlie. We’re continuing to see a number of smaller streaming opportunities, most of them falling into the sub-$300 million range. And they’re primarily development stage opportunities, not unlike what you’ve seen over the last couple of years. My team is currently working through a number of due diligence processes. And to put things in perspective, we’re usually looking at about 10 to 12 opportunities at any given point in time. And hopefully, we can narrow it down to one or two high-quality assets that meet our requirements over the next 12 months, if all goes well. Now, keep in mind that we do have strong organic growth, especially given the success we’ve had on entering into these streaming transactions over the last 24 months. So, we will be able to put some cash towards that, but we will continue to look for ways to deploy our cash, but it has to be accretively over the next little while.

Randy Smallwood, President and Chief Executive Officer

Yes. I would add that any companies that have existing operations have done relatively well in terms of commodity prices and therefore cash flow, internal cash flows. And not a lot of need for outside capital for the ones that have existing operations. And so, it just continues to focus our development set onto development companies, single asset development companies that are building mines and helping fund that. And there’s definitely a healthy demand for that.

Unidentified Analyst, Analyst

Could you please remind me if your assumptions regarding commodity prices going forward are significantly different from those used for this year? I am considering the current cobalt sell-off and your $33 per pound assumption for 2022.

Randy Smallwood, President and Chief Executive Officer

Sorry. Are you asking about gold equivalent ounces and the production forecast?

Unidentified Analyst, Analyst

Yes, I do.

Randy Smallwood, President and Chief Executive Officer

Yes. We kept them identical to make sure it was an apples-to-apples comparison. So, the conversion into gold equivalent ounces for the forecast is exactly the same as it was at the start of this year.

Patrick Drouin, Senior Vice President of Investor Relations and Sustainability

But to be clear, when we look at new opportunities, we evaluate them in terms of the current spot price.

Randy Smallwood, President and Chief Executive Officer

Yes, it’s a very fluid number. I’ve been in this business for over 30 years now and I still can’t predict the price of gold for tomorrow. It’s always a function of the spot price of the day. That’s what drives valuation whenever we’re exploring new opportunities.

Unidentified Analyst, Analyst

Okay, understood. Sorry, to be clear, the pricing used for this year are the same for the 5- and 10-year GEO calculation?

Randy Smallwood, President and Chief Executive Officer

Correct. Yes.

Wes Carson, Vice President, Mining Operations

Yes. We set those numbers once a year just so that they stay consistent. So, they’re set kind of when we put out our original guidance, and we keep them same for the year.

Operator, Operator

Thank you. The next question comes from Lawson Winder of Bank of America Securities. Please go ahead.

Lawson Winder, Analyst

Thank you for today’s update and for the insights you’ve shared regarding the long-term guidance. That has been very helpful. I was wondering if you could provide a bit more information about yesterday’s update from SSW, specifically regarding gold. When you first announced that stream, the expectation was for approximately 14,000 ounces per year of gold once it reached its run rate. Do you have any sense of how significantly that figure has changed?

Wes Carson, Vice President, Mining Operations

Yes. Overall, it hasn’t changed significantly. So, I mean, it does ramp up as the Blitz project comes on. But over the next year or two is really where the main impact is as the project has been slowed down slightly. But it’s not a significant impact on gold, particularly, so.

Randy Smallwood, President and Chief Executive Officer

The Blitz project and other improvements are taking longer to implement, and the flood events this year have further complicated the timeline.

Lawson Winder, Analyst

Yes, of course. Okay. Thanks for that color. On cobalt, so in the other metals category, was there any change to the longer term outlook for cobalt?

Wes Carson, Vice President, Mining Operations

There was a slight drop in the long-term outlook on cobalt just really because of Voisey’s Bay and some of the challenges there with the project and kind of getting those undergrounds up and running. So, primarily, 2023 dropped down a little bit. So, that affected the other metals for the 5- and 10-year.

Lawson Winder, Analyst

And then, I’m just trying to true up my model for Copper World, Rosemont. So in your prior guidance, what year were you assuming for a start-up of Rosemont? And now in your current guidance, what are you assuming for a start-up for Copper World?

Randy Smallwood, President and Chief Executive Officer

We have a very small amount of production expected from Copper World at the end of the 5-year guidance, and we think it will remain in that range. They are still finalizing details on the Hudbay side, so we are waiting for more clarity. This is our best guess, projecting that it is over 4 years before we see any production, but the amount is quite limited. The real production is expected to come in years 6 to 10 for Copper World. If they succeed with permitting, particularly on the federal side concerning the Rosemont part of the project, it could lead to changes in the mining plan that would allow additional production from Rosemont. Therefore, the plan is quite dynamic. Hudbay is working on finalizing things at the moment. However, we noticed enough of a change in the indication regarding early production from Rosemont that we decided to remove it from the 10-year guidance.

Wes Carson, Vice President, Mining Operations

It’s similar place to where it was in the previous guidance we put out earlier this year as well. So, the actual timing of it hasn’t changed. It’s more the actual volumes that changed because of the new plan that they put out.

Lawson Winder, Analyst

Okay. Got it. That’s outstanding. Thank you for the help with that. And then, finally, I just wanted to talk about Keno Hill. Thanks for providing the IRR. 335% is pretty remarkable and hard to argue with. But I know that was an asset you guys were excited about. And with a much better capitalized operator coming in, I’d be curious to get your thoughts on whether it was even close in terms of the potential return on having that asset actually wrap up and produce its full capability versus the return you realize from selling it?

Randy Smallwood, President and Chief Executive Officer

We needed to assess the balance between continuing our investment in the project and deciding if it was worth backing out. We've supported this project for nearly 14 years since the original deal, but it hasn't been able to deliver results. The jurisdiction presents challenges, and we recognize that Hecla has stronger capabilities with their teams operating at Greens Creek in Alaska, which is relatively close. We determined that allowing Hecla to move the project forward was the best decision. We had many discussions about whether to maintain our investment, but ultimately, we focused on where we could achieve the best return. It would have taken a considerable amount of time to recover the $135 million invested in that project. Therefore, we decided it was best to step aside and let Hecla take over.

Operator, Operator

The next question comes from Brian MacArthur of Raymond James. Please go ahead.

Brian MacArthur, Analyst

I’d like to revisit the outlook for Salobo in a different way. I notice that your expected payment for next year remains unchanged, but you're guiding towards a payment range of $550 million to $650 million to reach 36 million tons. My first question is, do you still plan to make the payment next year? My second question is whether you anticipate a slower ramp-up, leading you to pay towards the lower end of that range due to the new outlook for Salobo. Lastly, could you explain how the scaling works, particularly over the 90 days, what targets need to be met versus what needs to be paid, and how that impacts your payment strategy?

Randy Smallwood, President and Chief Executive Officer

That's a great question, Brian. Clearly, Vale has some work ahead of them. The expansion payment is based on the overall performance of the site, not only Line 3, which is an important detail to consider. Currently, as we've observed and are reporting, Line 1 and Line 2 are not meeting expectations. Therefore, there is significant work needed to reach the full payment. As you know, the metrics are determined by both time and total throughput levels, rather than just those of Line 3. I'm hopeful and would love for us to be able to make that full payment, as that would indicate that all three lines are operating effectively. However, Vale does have some challenges to address in this area. You’re right; this is probably a conservative outlook considering Line 1 took two years to reach full capacity and Line 2 took 18 months. With the 90-day completion test in mind, we need to factor in an additional quarter of production to meet the testing requirements. There is a good possibility that the expansion payment may not occur until 2024, although we are optimistic about it being made next year. However, they need to successfully ramp up production to those expected levels. The test requires hitting 90% of throughput capacity, which presents a challenge, but they are still working towards that. Do you have anything you would like to add?

Wes Carson, Vice President, Mining Operations

It is slightly higher than 90% on that one. They actually need 35 million to reach that total of 35 million.

Randy Smallwood, President and Chief Executive Officer

Right. $35 million to show the $36 million capacity.

Brian MacArthur, Analyst

I apologize, but just to clarify, of the $36 million, it was $35 million that triggered that matrix. It seems that the same principle applies moving forward. For example, if they only reach $32 million next year, they could choose to just proceed with that amount. However, is there a possibility that it might be more advantageous for them to wait, aiming for $38 million and extending the timeline to two years, so they wouldn’t have to make a payment for another two years or something similar?

Randy Smallwood, President and Chief Executive Officer

It’s a one-time trigger. They decide when to start the test, and then we wait for the next 90 days to see the results. At the end of that period, we compensate them based on their performance over those 90 days. However, it’s a one-time trigger, and they only have one opportunity to take action. While they wait, there has been talk about Salobo IV, but Vale has made no commitments. They might choose to wait and complete Salobo IV before proceeding. This could be several years away, but the increased throughput capacity would enhance the numbers. Ultimately, it’s their decision on when to move forward. We expect they might satisfy it sometime next year, although there’s a possibility it could be delayed until 2024. I would be eager to make this payment because it would indicate that they have addressed these issues, allowing Salobo to regain its status as the best asset in our portfolio.

Operator, Operator

The next question comes from Adam Josephson of KeyBanc. Please go ahead.

Randy Smallwood, President and Chief Executive Officer

Adam, welcome back.

Adam Josephson, Analyst

Thanks, Randy. I didn’t ask you enough questions earlier, obviously. Haytham, would you mind indulge me on where you’re seeing most of your opportunities? Is it from precious metals mines? Is it base metals mines? And any shift you’ve seen of late along those lines?

Haytham Hodaly, Senior Vice President, Corporate Development

Yes. The majority of the opportunities we’re seeing have been precious metals from base metal mines. There are some development projects out there that are more precious metals focused but have very, very strong margins that are considering precious metal streams as well. But there’s also opportunities if we wanted to, to consider taking precious metal streams and a tiny bit of base if it helps a bit. But at this point in time everything we’re looking at is precious metals focused.

Adam Josephson, Analyst

I understand your point. Randy, in previous months or years, you've indicated that you believe silver prices could potentially decouple from gold, especially considering the expected long-term opportunities for silver. However, we haven't observed that happening yet. Have you changed your perspective on this? Do you still anticipate that silver might decouple from gold eventually? Any insights on this would be appreciated.

Randy Smallwood, President and Chief Executive Officer

The fundamentals remain unchanged. Silver functions as a precious metal, providing both a store of value and a measurable value similar to gold, but it offers much more. Silver is essential in high-efficiency electronics, which are increasingly important in today's world. It conducts electricity better than any other noble metal, making it crucial for maximizing battery life, efficiency, processing power, and solar power generation. Additionally, silver has antibacterial properties that surpass those of other noble metals, making it valuable for water purification systems and health applications. Considering the global challenges we face in becoming more efficient and reducing waste, silver will play a larger role in ensuring we utilize energy as effectively as possible. Silver shares attributes with precious metals and, while it isn't as widely accepted as gold, many in society view it as a store of value. The industrial demand for silver is growing increasingly vital. Although silver has underperformed compared to gold, the majority of silver production comes from lead-zinc mines, and new mines of this type are not being established. This situation will affect overall silver production, creating supply constraints against a backdrop of rising demand. The metrics strongly indicate that this situation cannot be overlooked.

Adam Josephson, Analyst

All right. I appreciate that. And just one last one, Randy. In terms of the guidance you gave, obviously, you guys give current year, 5-year, 10-year average. You have some peers that give 5-year and current year, you have some peers that give just the current year and nothing more. And I think Dave said, look, we only have so much visibility into the future, and so we just don’t necessarily think giving 10-year average guidance is appropriate given what visibility we have or don’t have. And so, just given all these projects that you’ve had moving around, delayed, et cetera, have you given any consideration of perhaps just giving I don’t know, current year and 3-year or current year and 5-year as opposed to going out as far as you do, given whatever visibility you have?

Randy Smallwood, President and Chief Executive Officer

Adam, while data measured at a specific point in time is significant, the ongoing trends are equally important. By providing 10-year guidance, we emphasize a consistent upward trajectory, indicating our strength for the next decade. Although we've seen a recent decline in overall performance, the growth trajectory remains unchanged from what it was a year ago or six months ago, when we last updated our guidance. This stability is a crucial aspect of our portfolio that I want the investing community to recognize. Our shareholders already appreciate it. We have substantial long-term growth potential in our portfolio, with nearly 40 years of proven and probable reserves and measured and indicated resources, joined by another 19 years of inferred resources. No other portfolio offers this level of longevity. It's essential to include this in our production forecasts. We are confident in our future, although changes will occur, particularly as we pursue acquisitions over the next decade. What matters is that our 10-year average guidance is stronger than our 5-year guidance, and that remains unchanged. Our growth trajectory is as robust as ever. This is crucial to understand, especially in the precious metals industry, where many do not provide long-term guidance due to negative trends or gaps filled through acquisitions or aggressive spending on organic growth. Our portfolio is different; it doesn't reflect those challenges. I want to emphasize that a key benefit of our streaming business model is that it allows precious metal investors access to long-lasting base metal operations by investing in noncore byproduct precious metals. This gives us a unique position within the precious metals sector, enabling us to offer extended reserve and resource life. We are confident in our 10-year guidance, and it's vital for investors to be aware of this.

Adam Josephson, Analyst

Thanks so much, Randy. I really appreciate all your answers to my questions.

Randy Smallwood, President and Chief Executive Officer

Thanks, Adam. And thank you, everyone, for dialing in today. In closing, we believe that we are very well positioned to continue delivering value to all of our stakeholders for a number of different reasons: firstly, by having low and predictable costs, which when coupled with leveraged, increase in commodity prices, result in some of the highest margins in the entire precious metals space; secondly, by offering our shareholders exposure to our diversified portfolio of long-life, low-cost assets and the strong organic growth embedded within it; thirdly, by returning value to shareholders through our unique cash flow-linked dividend policy; and lastly, by being a leader amongst precious metal streamers in sustainability and by supporting our partners and the communities in which we live and operate. I do look forward to speaking with you all again soon. Until then, please stay healthy and stay safe. Thank you.

Operator, Operator

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