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. [Operator Instructions] 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: 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 include 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: 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 and despite operations at Peñasquito being suspended in early June due to a labour 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 labour 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 skillset 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?
Wes Carson: Thanks, Randy. Good morning. Overall production in the second quarter came in higher than expected, primarily driven by significant sequential improvement at Solobo. In the second quarter, Solobo 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 Solobo 3, partially offset by planned maintenance activities and additional work on the crushers at Solobo 1 and Solobo 2. Additionally, Vale reports that planned maintenance activities will continue in the second half of 2023 and that the ramp-up of Solobo 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.
Metals, Industry, Steel
Photo by Francisco Fernandes on Unsplash
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 08, 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 suspended operations will be reflected in our sales results in the third quarter of 2023, resulting in a significant quarter-over-quarter decrease to 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 04, 2023, Artemis announced receipt of Fisheries Act authorization for 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 application of bulk mining methods and improved processing, which is estimated to grow Maramato'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 Penosquito's restarting production in 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 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: 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, without 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 at 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, totalling $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: 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 on Slide 11, 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 Slide 12; 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: 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?
