Wheaton Precious Metals Corp. (WPM) Earnings Call Transcript & Summary

Yes. I mean obviously the conversion to electric which will happen, it's well on its way. I converted many years ago and I'm a strong believer in ultimately going to electric mobility. That's going to have an impact in terms of catalyst demand for internal combustion engines. However, increasing environmental standards and then the propensity for hybrid technology and stop-start engines also increase the demand on a per unit basis for platinum and palladium to act as catalysts. And so the combination of those factors, we still see good strong demand for 10 to 20 years I would say in the platinum and palladium space. And there's a lot of other aspects that both of those metals play into in terms of improving environmental performance on a number of different fronts. If people move down the hydrogen side, there's going to be a demand there and so on and so. And the other side of it I would say is that there's not a lot of those deposits out there. And so the ongoing what I call geological inflation, which is it's tougher and tougher to find those deposits, that will also provide some support for [ brazing ].

With that theme of battery metals, you have some cobalt in your portfolio. There also aren't a lot of cobalt deposits out there either. Lithium deposits, however, I mean there are quite a few and we've seen the lithium price collapse recently and perhaps that market becomes more rational and perhaps there is a need for stream financing at some point maybe not today. But is lithium something that's appealing to you?

Lithium is actually one of the most common minerals on the planet and I've felt that anything on the lithium side right now is really an infrastructure issue as opposed to a supply-demand issue. And so I will say that we've spent just about 0 time considering lithium outside of looking at the fundamentals of the market for lithium and saying I don't know if that works. Cobalt on the other hand generally produces a byproduct and a lot of it comes again from very challenging jurisdictions, very challenging locations. Now we're not out hunting cobalt. But when Vale comes knocking on our door and asks if we're willing to help them up in Voisey's Bay with a little bit of cobalt and as we looked at it, we realized that it's a unique opportunity that we felt worked well. When I sit and look at Voisey's Bay and the track record of production there; relatively new operation, relatively recently permitted, good strong community support; I would call it the cleanest greenest cobalt being produced on this planet right now and provenance is an issue and it's going to become more and more of an issue as society has higher, higher expectations about knowing the impacts of the products that they're consuming. And Voisey's Bay will always compare very, very well to the rest of the cobalt industry. So it was an asset that we invested into with an existing partner with Vale. We're not looking for cobalt opportunities, but if we have situations like that, we would definitely consider it. Lithium, we just didn't see it as being to us putting a stream on that, it's a bulk material. I hate to say it, it's going to eventually become just like iron ore in terms of moving that forward. We're just not interested in bulk materials.

Fantastic perspective. I wanted to ask you 1 more thing about deal, it's more about deal structure. So historically and when you and Wheaton created the streaming concept, it was a fixed base escalated ongoing payment. That's now evolved to it seems like a preference for a percent of the payable metal. What are you seeing the demand from your operator partners? Do they want a percent of payable metal or they want the base escalator that certainty in terms of what they're receiving?

So it's a fixed price versus a fixed margin is really the 2 options there and just about all of our recent streams have been based on a fixed margin, which means we get somewhere around 80% operating margins on this metal as it's being delivered to us. The advantage to this is that, and we saw this back in 2011, 2012, streaming is set up so that we have a production payment that helps offset the cost of actually producing that metal as it's delivered to us. And those operating costs include the taxation burden that exists in the countries where the metal is being mined as it should be. That's where the tax should be paid on these metals. And the advantage of the fixed margin, what we saw in 2011, '12, '13 when we saw gold prices first pop up to $2,000 an ounce and silver prices pop up to $48, we were more of a solar company back then, but popped up to $48 an ounce was the tax burden for our partners dramatically climbed and it was actually starting to have an impact on some of our partners in terms of economics and. because we had that fixed payment, we didn't see that offset. And so the huge -- the big advantage of the fixed margin is that as commodity prices climb, the production payment will also climb with it albeit at a much slower rate, but it will climb to provide that extra support. During periods of high commodity prices, it will provide that extra support again. It helps our partners be stronger. Our overlying mantra within Wheaton is that the stronger our partners are, the stronger we are. So we're always looking for ways to ensure that our partners have access to that strength and keeps them sort of fiscally healthy. So it's something that's very important for us. It's something that we support and just about every transaction we've done in the last while has been fixed margin. That being said, probably about 70% to 80% of our current production still has that fixed production payment on a per ounce basis with typically just a 1% accelerator per year that will push that forward. So it still dominates our portfolio, but any of the new streams we're doing are based on fixed margins.

I'd like to canvas the audience and see if there are any questions. I see there's 1 here in the front row. So we'll get you a microphone right away.

It's related about the projects that we have on the table and I have 2 questions, if I may. The first one is how those projects has changed in the last 10 years in terms of grade risks and so on? And the second question is related, if you have seen an increase in the number of projects due to the reduction in the funding in the capital risk companies, venture capital and so on?

Well, there's no doubt. I mean we created the streaming model back in 2004 so next year is going to be our 20th year. We really spent probably the first 8 or 10 years trying to convince people that streaming was an effective source of capital. And so I would say that what we're seeing now is a broad acceptance in terms of streaming is a very competitive source of capital. If you're a single asset -- I mean in today's market if you look at today's environment right now in the mining industry, the single asset development companies are typically trading at substantive discounts to their net asset value; 0.2x, 0.3x net asset value. You see it across the board. It's just not -- we just haven't seen the -- and there's no doubt that that's a higher risk aspect of resource investing is in that space and we just haven't seen those risk investors come back into the space. I mean we need some good success stories to deliver on that and they will come. We've seen some great stories out of this. But currently with those kind of discounts, equity financing, issuing shares is incredibly expensive to the existing owners. As I like to highlight, streamers: we are the new long-term investors, right? In today's marketplace right now, you hear a lot of the operators complain about the fact that you just don't see that long-term investment that people are in and out and they're flipping and following and those index investors are chasing. Well, streamers, we are long-term investors. We invest into these assets and our funding is not based on the value of the equity. It's based on the value of the metal. And so it's incredibly attractive for a company that has a substantive gold and copper resource like Lumina for us to purchase our interest in there based on the value of the contained metal and we're paying net asset value for that -- close to net asset value for that because we're willing to take the upside of commodity price and exploration success and be there as a long-term partner all the way forward. And so you compare that to issuing more equity out at such a substantive discount. So streaming has really become, pardon the pun it's way overused, but it's mainstream. There's not a single CFO in today's world that doesn't consider streaming at that stage. Now ideally you don't have to issue equity capital. If you've got enough operating cash flow internally to fund that growth and access to some reasonably priced debt, then you typically don't go down the equity side in terms of issuing a portion of your project's value, your company's value and try and raise that capital. And so that's why in today's world, most of what we're looking at is these development stage projects, single assay companies and making sure that we come up with structures that sort of support them and their efforts to deliver value to their shareholders. So I hope that answers the question.

That was an awesome answer, Randy. We don't have a lot of time. I just wanted to touch on growth because I mean you guys stand out in the sector for your growth particularly for your size. So you're planning to grow your top line GEO production 40% over the next 5 years. Maybe just speak to some of the upside and downside risks around that?

Yes. So this year we should be doing somewhere around 630,000 gold equivalent ounces, which is a slight increase over last year. But I can tell you the next 5 years are incredibly exciting. Our company has never been stronger than it is right now. We've got an incredibly strong balance sheet and it's close to $1 billion cash on hand, access to a $2 billion revolver that we can use whenever we need to. We could easily access over $3 billion in equity if we needed it right now -- sorry, in cash right now if we needed it. Our growth at 630,000 ounces by 2027 will be very close to 1 million gold equivalent ounces per year production and 2/3 of that growth is actually coming from assets that are already operating right now; Salobo, Antamina, Penasquito, Stillwater, Voisey's Bay. They have all got substantive growth over the next 4 or 5 years in terms of their overall production and so it actually works out to about 50% increase in production. And adding on assets like we just did with Cangrejos and Lumina, we'll just keep that profile going on a go-forward basis. And so very exciting times. As I said in the first quarter, this is the first quarter of many quarters where every quarter is going to be better than the last one. And there's bound to be a bit of volatility in there, but it's just consistent across our portfolio. The next 4 or 5 years is going to be incredibly exciting for Wheaton.

With that, thank you, Randy. I think we'll conclude it. Thank you, everybody, for your attention and time today. And join me in thanking.

Thank you.