Wheaton Precious Metals Announces Q2 2017 Results; Declares 43% Dividend Increase
VANCOUVER, Aug. 10, 2017 /CNW/ - Wheaton Precious Metals™ Corp. ("Wheaton Precious Metals" or the "Company") (TSX:WPM) (NYSE: WPM) is pleased to announce its results for the second quarter ended June 30, 2017. All figures are presented in United States dollars unless otherwise noted.
In the second quarter of 2017, Wheaton Precious Metals increased the percentage of cash flow used for the dividend distribution calculation from 20% to 30%, resulting in an increase to the quarterly dividend of over 40%.
SECOND QUARTER HIGHLIGHTS
- Attributable production in Q2 2017 of 7.2 million ounces of silver and 78,100 ounces of gold, compared with 7.6 million ounces of silver and 71,200 ounces of gold in Q2 2016, with silver production having decreased 5% and gold production having increased 10%.
- On a silver equivalent basis1 and gold equivalent basis1 attributable production in Q2 2017 was 12.9 million silver equivalent ounces ("SEOs") or 176,600 gold equivalent ounces ("GEOs"), compared with 12.9 million SEOs or 172,600 GEOs in Q2 2016, with SEO production being virtually unchanged and GEO production having increased 2%.
- Sales volume in Q2 2017 of 6.4 million ounces of silver and 72,000 ounces of gold, compared with 7.1 million ounces of silver and 70,800 ounces of gold in Q2 2016, with silver sales volume having decreased 11% and gold sales volume having increased 2%.
- On a silver equivalent basis1 and gold equivalent basis1, sales volume in Q2 2017 was 11.6 million SEOs or 159,200 GEOs, compared with 12.5 million SEOs or 165,900 GEOs in Q2 2016, a decrease of 7% and 4%, respectively.
- As at June 30, 2017, payable ounces attributable to the Company produced but not yet delivered4 amounted to 4.2 million payable silver ounces and 52,900 payable gold ounces, representing an increase of 0.2 million payable silver ounces and 2,000 payable gold ounces during the three month period ended June 30, 2017.
- Revenues of $200 million in Q2 2017 compared with $212 million in Q2 2016, representing a decrease of 6%.
- Average realized sale price per ounce sold in Q2 2017 of $17.09 per ounce of silver and $1,263 per ounce of gold with the sale price of silver having decreased 1% while the sale price of gold was virtually unchanged compared to Q2 2016.
- Net earnings of $68 million ($0.15 per share) in Q2 2017 compared with $60 million ($0.14 per share) in Q2 2016, representing an increase of 12%.
- Operating cash flows of $125 million ($0.28 per share2) in Q2 2017 compared with $134 million ($0.31 per share2) in Q2 2016, representing a decrease of 7%.
- Cash operating margin2 in Q2 2017 of $12.58 per silver ounce sold and $870 per gold ounce sold, representing a reduction of 1% per silver ounce sold while the cash operating margin2 per ounce of gold sold was virtually unchanged as compared with Q2 2016.
- Average cash costs2 in Q2 2017 were $4.51 and $393 per ounce of silver and gold, respectively.
- Declared quarterly dividend of $0.10 per common share, representing an increase of 43% relative to the previous quarterly dividend.
EVENTS SUBSEQUENT TO THE QUARTER
- On August 10, 2017, the Company announced that it has signed a non-binding term sheet with Desert Star Resources Ltd. ("Desert Star") to enter into an Early Deposit Precious Metals Purchase Agreement for the Kutcho project located in British Columbia.
"Wheaton Precious Metals continues to generate strong operating margins from its portfolio of low-cost assets, resulting in close to $250 million in cash flow in the first half of 2017," said Randy Smallwood, President and Chief Executive Officer of Wheaton Precious Metals. "We are confident in our ability to continue to grow the Company by adding new high-quality streams to our portfolio, and we will remain disciplined and only do transactions that are accretive to our shareholders. As a result of our sector-leading cash flow as well as ample access to capital to finance acquisitions through our revolving credit facility, we have taken the step today to increase the amount of capital we return to our shareholders with a significant increase to our dividend."
Revenue was $200 million in the second quarter of 2017, on sales volume of 6.4 million ounces of silver and 72,000 ounces of gold. This represents a 6% decrease from the $212 million of revenue generated in the second quarter of 2016 due primarily to an 11% decrease in the number of silver ounces sold, partially offset by a 2% increase in the number of gold ounces sold.
Costs and Expenses
Average cash costs2 in the second quarter of 2017 were $4.51 per silver ounce sold and $393 per gold ounce sold, as compared with $4.46 per silver ounce and $401 per gold ounce during the comparable period of 2016. This resulted in a cash operating margin2 of $12.58 per silver ounce sold and $870 per gold ounce sold, a decrease of 1% per silver ounce sold while the cash operating margin2 per ounce of gold sold was virtually unchanged as compared with Q2 2016. The decrease in the cash operating margin was primarily due to a 1% decrease in the average realized silver price in Q2 2017 compared with Q2 2016.
Earnings and Operating Cash Flows
Net earnings and cash flow from operations in the second quarter of 2017 were $68 million ($0.15 per share) and $125 million ($0.28 per share2), compared with $60 million ($0.14 per share) and $134 million ($0.31 per share2) for the same period in 2016, an increase of 12% and a decrease of 7%, respectively.
At June 30, 2017, the Company had approximately $77 million of cash on hand and $953 million outstanding under the Company's $2 billion revolving term loan (the "Revolving Facility").
Second Quarter Asset Highlights
During the second quarter of 2017, attributable production was 7.2 million ounces of silver and 78,100 ounces of gold, respectively, representing a decrease of 5% and an increase of 10%, as compared with the second quarter of 2016.
Operational highlights for the quarter ended June 30, 2017, based upon counterparties' reporting, are as follows:
In the second quarter of 2017, Salobo produced 57,500 ounces of attributable gold, an increase of approximately 61% relative to the second quarter of 2016. This growth was primarily due to the acquisition of an additional 25% of attributable gold from the Salobo mine in the third quarter of 2016. According to Vale S.A.'s ("Vale") second quarter of 2017 production report, production was positively impacted mainly due to higher feed grades and stronger plant performance in the second quarter.
In the second quarter of 2017, Peñasquito produced 1.5 million ounces of attributable silver, an increase of approximately 71% relative to the second quarter of 2016. According to Goldcorp Inc.'s ("Goldcorp") second quarter of 2017 MD&A, higher production at Peñasquito was primarily due to higher grade ore as a result of mine sequencing in Phases 5 and 6, and higher mill throughput as the second quarter of 2016 included a prolonged period of planned and unplanned maintenance.
According to Goldcorp, the Pyrite Leach Project ("PLP") achieved construction progress of 14% and engineering progress of 94% by the end of the second quarter of 2017. Major procurement activities are nearing completion, material and equipment is arriving on site and major works contractors have mobilized to site. Earthwork activities are now complete, concrete works are underway, and mechanical works installation has commenced and is ramping up. Construction of the PLP is expected to be completed by the end of 2018. The Carbon Pre-flotation Project ("CPP") is also being constructed, which will allow Peñasquito to process ore that was previously considered uneconomic, including significant amounts already in stockpiles. CPP earthworks are substantially complete and the concrete works are underway. The mechanical works contractor is mobilizing and will ramp up in the third quarter of 2017.
In the second quarter of 2017, Antamina produced 1.9 million ounces of attributable silver, an increase of approximately 11% relative to the second quarter of 2016. The increase was primarily the result of higher grade ore being processed in the quarter, partially offset by lower silver recovery.
In the second quarter of 2017, San Dimas produced 1.0 million ounces of attributable silver, a decrease of approximately 39% relative to the second quarter of 2016. According to Primero Mining Corp.'s ("Primero") second quarter of 2017 MD&A, production during the quarter was impacted by a strike related to the renegotiation of the Collective Bargaining Agreement, with a phased restart of operations commencing on April 22, 2017. Primero further reports that mill throughput was affected by a 13-day suspension of milling activities in mid-June following the failure of an anchor block affixed to one of eight cables supporting the tailing suspension bridge; however, mining operation continued uninterrupted during this time, and all ore was stockpiled at the mill site. Full plant operations reportedly resumed on June 24, 2017, and the ore stockpile was fully processed by the mill in July.
According to Primero, despite seeing initial improvements in relations with unionized workers following the resolution of the San Dimas strike in the second quarter, the situation degraded in July 2017 with the negotiation of the 2016 annual workers' bonus (''PTU Bonus''), and as a result, the site experienced a significant work slowdown in July. While the PTU Bonus negotiation was reportedly resolved on July 29, 2017, Primero believes that labour disruptions may continue to adversely affect the profitability of the San Dimas mine. Primero is maintaining its previously disclosed production guidance but believes that production will track toward the lower end of the range. Primero also notes that despite significant investment at San Dimas, exploration efforts have not identified large replacement veins for the depleting Roberta and Robertita veins, and that without new large veins coming into production or changes to the operating environment, mining rates above 1,800 tonnes per day may not be possible.
Primero has indicated that it believes that at lower production rates, it is unable to carry on a sustainable operation at San Dimas while complying with its obligations, including under the Silver Purchase Agreement. Primero has indicated that it believes that the San Dimas mine life will become significantly shorter as a result of Primero's inability to invest in exploration and development, unless revisions to the Silver Purchase Agreement are made. The Company is prepared to consider reasonable alternatives towards a sustainable solution, but there can be no assurance that an acceptable solution will be achieved.
As previously announced, Primero has initiated a strategic review process. As noted in Primero's second quarter of 2017 MD&A, Primero has received a number of proposals from interested parties regarding a potential acquisition of the San Dimas operation. The process is ongoing but there can be no certainty that these discussions will result in a resolution acceptable to all stakeholders, including the Company.
In the second quarter of 2017, Vale's Sudbury mines produced 7,000 ounces of attributable gold, a decrease of approximately 53% relative to the second quarter of 2016. According to Vale's second quarter of 2017 production report, production was impacted due to the scheduled rebuild and expansion in capacity of Furnace #2 and the three-week scheduled maintenance in June for all surface operations. The scheduled maintenance in all surface operations happens every 18 months. Vale notes that Furnace #2 was off-line for the entire second quarter and will resume operation in the third quarter, during which the Sudbury smelter complex will transition to the new single furnace flowsheet and will commence operating as a single furnace operation in the fourth quarter. Finally, as Vale announced in March 2017, the Stobie mine was placed on care and maintenance at the end of May.
In the second quarter of 2017, Constancia produced 0.5 million ounces of attributable silver and 2,300 ounces of attributable gold, a decrease of approximately 30% and 50% for silver and gold production, respectively, relative to the second quarter of 2016. The decrease in production was primarily the result of the processing of lower grade ore as expected in Hudbay Mineral Inc.'s ("Hudbay") mine plan.
In the second quarter of 2017, total Other Gold attributable production was 11,200 ounces, a decrease of approximately 29% relative to the second quarter of 2016. The decrease was driven primarily by lower attributable production at 777 and lower production at the Minto mine, which was impacted by sequencing changes to support a mine life extension.
In the second quarter of 2017, total Other Silver attributable production was 2.3 million ounces, a decrease of approximately 13% relative to the second quarter of 2016. The decrease was driven primarily due to lower production from Cozamin as the Cozamin silver purchase agreement expired on April 4, 2017.
Development Update – Rosemont
As per Hudbay's June 7, 2017 news release, the U.S. Forest Service has issued the Final Record of Decision for Hudbay's Rosemont Project. The other key federal permit outstanding is the Section 404 Water Permit from the U.S. Army Corps of Engineers. As per the precious metals streaming agreement, Wheaton Precious Metals International Ltd. will provide a payment of a $230 million deposit upon achievement of certain milestones in exchange for an amount equal to 100% of the life of mine silver and gold production from Rosemont3.
Produced But Not Yet Delivered 4
As at June 30, 2017, payable ounces attributable to the Company produced but not yet delivered⁴amounted to 4.2 million payable silver ounces and 52,900 payable gold ounces, representing an increase of 0.2 million payable silver ounces and 2,000 payable gold ounces during the three month period ended June 30, 2017. Payable silver ounces produced but not yet delivered increased primarily as a result of increases related to the Antamina, San Dimas, and Yauliyacu silver interests, partially offset by a decrease related to the Peñasquito silver interest. Payable gold ounces produced but not yet delivered increased primarily as a result of an increase related to the Salobo interest, offset partially by a decrease related to the Minto gold interest. Payable ounces produced but not yet delivered to the Wheaton Precious Metals group of companies are expected to average approximately two months of annualized production but may vary from quarter to quarter due to a number of mining operation factors including mine ramp-up and timing of shipments.
Detailed mine-by-mine production and sales figures can be found in the Appendix to this press release and in Wheaton Precious Metals' consolidated MD&A in the 'Results of Operations and Operational Review' section.
Events Subsequent to the Quarter
Wheaton Precious Metals has announced that it has signed a non-binding term sheet with Desert Star to enter into an Early Deposit Precious Metals Purchase Agreement (the "Kutcho Early Deposit Agreement") for the Kutcho project located in British Columbia (the "Kutcho Project"). Under the terms of the proposed Kutcho Early Deposit Agreement, the Company will be entitled to purchase 100% of the silver and gold production from the Kutcho Project until 51,000 ounces of gold and 5.6 million ounces of silver have been delivered, at which point the stream will decrease to 66.67% of silver and gold production for the life of mine. Based on the Prefeasibility Study Technical Report on the Kutcho Project, British Columbia dated July 31, 2017, and current spot commodity prices, the proposed stream would represent less than 10% of the revenue generated by the project.
Under the proposed Kutcho Early Deposit Agreement, the Company will pay a total cash consideration of $65 million (subject to certain customary conditions including the acquisition of the Kutcho Project by Desert Star) plus an ongoing production payment of 20% of the spot silver and gold price. Of the $65 million total upfront amount, $7 million will be advanced to Desert Star on an early deposit basis, which will be used for purposes of funding a definitive feasibility study, environmental study and impact assessment, and other related documents (collectively, the "Feasibility Documentation"). Following receipt of the Feasibility Documentation and receipt of permits and construction commencing, the Company may then advance the remaining deposit or elect to terminate the Kutcho Early Deposit Agreement. If the Company elects to terminate, the Company will be entitled to a return of the portion of the $7 million paid less $1 million payable upon certain triggering events occurring. The Company will be required to make an additional payment to Desert Star, of up to $20 million if processing throughput is increased to 4,500 tpd or more within five years of attaining commercial production.
Wheaton Precious Metals has also agreed to participate in up to 14% of a Desert Star equity financing to a maximum of Cdn$4 million, where the funds are to be used for the acquisition of the Kutcho Project. The entering into of the Kutcho Early Deposit Agreement is subject to the completion of the acquisition of the Kutcho Project by Desert Star, the negotiation and completion of definitive documentation and certain other typical conditions and approvals. There can be no assurance that the Kutcho Early Deposit Agreement will be completed on the terms set out in the non-binding term sheet or at all.
Third Quarterly Dividend
The third quarterly cash dividend of US$0.10 will be paid to holders of record of Wheaton Precious Metals common shares as of the close of business on August 25, 2017, and will be distributed on or about September 8, 2017.
Under the Company's dividend policy, the quarterly dividend per common share will be equal to 30%, up from 20% in previous quarters, of the average cash generated by operating activities in the previous four quarters divided by the Company's then outstanding common shares, all rounded to the nearest cent.
The declaration, timing, amount and payment of future dividends remain at the discretion of the Board of Directors. This dividend qualifies as an 'eligible dividend' for Canadian income tax purposes.
Dividend Reinvestment Plan
The Company has previously implemented a Dividend Reinvestment Plan ("DRIP"). Participation in the DRIP is optional. For the purposes of this third quarterly dividend, the Company has elected to issue common shares under the DRIP through treasury at a 3% discount to the Average Market Price, as defined in the DRIP. However, the Company may, from time to time, in its discretion, change or eliminate the discount applicable to Treasury Acquisitions, as defined in the DRIP, or direct that such common shares be purchased in Market Acquisitions, as defined in the DRIP, at the prevailing market price, any of which would be publicly announced.
The DRIP and enrollment forms are available for download on the Company's website at www.wheatonpm.com, accessible by quick links directly from the home page, and can also be found in the 'investors' section, under the 'dividends' tab.
Registered shareholders may also enroll in the DRIP online through the plan agent's self-service web portal at: https://www.canstockta.com/en/InvestorServices/Investor_Information/Issuer_List/IssuerDetail.jsp?companyCode=1501.
Beneficial shareholders should contact their financial intermediary to arrange enrollment. All shareholders considering enrollment in the DRIP should carefully review the terms of the DRIP and consult with their advisors as to the implications of enrollment in the DRIP.
This press release is not an offer to sell or a solicitation of an offer of securities. A registration statement relating to the DRIP has been filed with the U.S. Securities and Exchange Commission and may be obtained under the Company's profile on the U.S. Securities and Exchange Commission's website at http://www.sec.gov. A written copy of the prospectus included in the registration statement may be obtained by contacting the Corporate Secretary of the Company at 1021 West Hastings Street, Suite 3500, Vancouver, British Columbia, Canada V6E 0C3.
Wheaton Precious Metals' estimated attributable silver and gold production in 2017 is forecast to be 28 million silver ounces and 340,000 gold ounces. Estimated average annual attributable silver and gold production over the next five years (including 2017) is anticipated to be approximately 29 million silver ounces and 340,000 gold ounces per year. As a reminder, Wheaton Precious Metals does not include any production from Barrick's Pascua-Lama project or Hudbay's Rosemont project in its guidance.
From a liquidity perspective, the $77 million of cash and cash equivalents as at June 30, 2017 combined with the liquidity provided by the available credit under the $2 billion Revolving Facility and ongoing operating cash flows positions the Company well to fund all outstanding commitments and known contingencies as well as providing flexibility to acquire additional accretive precious metal stream interests.
Webcast and Conference Call Details
A conference call and webcast will be held Friday, August 11, 2017, starting at 11:00 am (Eastern Time) to discuss these results. To participate in the live call, please use one of the following methods:
|Dial toll free from Canada or the US:||888-231-8191|
|Dial from outside Canada or the US:||647-427-7450|
|Live audio webcast:||www.wheatonpm.com|
Participants should dial in five to ten minutes before the call.
The conference call will be recorded and available until August 18, 2017 at 11:59 pm (Eastern Time). The webcast will be available for one year. You can listen to an archive of the call by one of the following methods:
|Dial toll free from Canada or the US:||855-859-2056|
|Dial from outside Canada or the US:||416-849-0833|
|Archived audio webcast:||www.wheatonpm.com|
This earnings release should be read in conjunction with Wheaton Precious Metals' MD&A and Financial Statements, which are available on the Company's website at www.wheatonpm.com and have been posted on SEDAR at www.sedar.com.
Mr. Neil Burns, Vice President, Technical Services for Wheaton Precious Metals, is a "qualified person" as such term is defined under National Instrument 43-101, and has reviewed and approved the technical information including information on mineral reserves and mineral resources disclosed in this news release.
Wheaton Precious Metals believes that there are no significant differences between its corporate governance practices and those required to be followed by United States domestic issuers under the NYSE listing standards. This confirmation is located on the Wheaton Precious Metals website at http://www.wheatonpm.com/Company/corporate-governance/default.aspx