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Executives

Dave Harquail - President and CEO of Franco Nevada

Tony Jensen - President and CEO of Royal Gold

Gary Brown - SVP and CFO of Silver Wheaton

Analysts

Tanya Jakusconek - Scotiabank

Silver Wheaton Corp. (SLW) Scotiabank Mining Conference 2013 December 3, 2013 1:10 PM ET

[No presentation session for this event].

Question-and-Answer Session

Tanya Jakusconek - Scotiabank

Okay. So we are going to start on the panel. So just again we are on the royalties and streaming companies. I will ask our panel participants specific question and I will open it up for questions from the audience at the end. I am just going to introduce our panel members Dave Harquail, President and CEO of Franco Nevada; Tony Jensen, President and CEO of Royal Gold; and Gary Brown, Senior Vice President and CFO of Silver Wheaton.

So I am going to start with the questions. The first question is actually just for David. Can you describe the difference between a classic royalty and a streaming structure and what are the advantages and disadvantages of each.

Dave Harquail

Okay, happy to do it. Royalties have been around forever they are on about just about every mining property that’s out there as a result you have often very lots of small interest and royalty interests in properties is a good secondary market for them. And often they are generally registered on title to the property themselves specially in North America and Australia so it really ranks ahead of any project debt or any other claims on the properties they tend to be very secure, you have effectively constitutional property rights protection for your interest and you have a royalty right on a property.

Streams our good friend here at Silver Wheaton pioneers that, it’s a very much new instrument in terms of it’s very well suited for larger mine financing participations in projects it can be also structured very tax efficiently. I think in terms of now our company to getting more involved in mine financing and larger investments streaming has a lot of benefits for those types of transactions.

Franco Nevada, we try to prefer actually the royalty space just because we like to have little interest in loss to mines when you have the small interest you don’t get bothered too much. And also if there is a bankruptcy we really don’t need to have to get involved. We just are comfortable that someone else who comes along will respect our royalty in managing that asset going forward.

Tanya Jakusconek - Scotiabank

Okay. Our next question is for Tony what are the main steps involved in completing these two types of transactions?

Tony Jensen

Well we are going to be listening very, very closely to our counter parts and find out what were expense for them often the streams can be more tax efficient and so we want to understand those aspects of the business. And once we have understood that, we want to take a look at the property the people and also the host country. In all of those three things you have got really be there or you can have two out of three, you have to have all of those things.

Next we would, and that will be a cursory type of look at all three of those elements. And then we probably enter into the term sheet. And once the term sheet would be negotiated and the principal terms understood between the parties then we would unleash due diligence.

And we look at all aspects of the property, just like one equity owner would look at a property. We very much have a long standing interest on the property, we have to get a right from the first point of view. So after all of that is taking place we would enter into definitive documentation, all of this process is probably somewhere around 30 to 60 day process depending on the asset.

Tanya Jakusconek - Scotiabank

Okay. Thank you, Tony. And next question’s to Gary. Can you discuss the recent announcement that streaming deals will now be reviewed as that by S&P ratings agency and the implications to both companies involve in streaming transactions?

Gary Brown

Yeah. The implications there, I mean I think our view is that S&P got it wrong. I think S&P missed the flexible nature of the form of capital that we are bringing to the table there is no minimum payments or delivery requirements, the only deliver into this concepts to the extent you actually produce the first metal associated with the contract. And so I think -- and there is no imputed interest rate in the contract. So I think that S&P missed the true nature. We had tried to engage in a dialogue with S&P, we have understood that we are coming out with this, assessment and even within their internal ranks, we understand that there was discrepancy as to how they should be treated.

If you read the preannouncement they basically said that the stream needs one of five characteristics that will be treated as that. The first of those five characteristics was the streaming be done in [lieu] of borrowing. And I think it’s pretty aggressive to know anything done was done in lieu of borrowing as that that would catch equity in lot of cases as well.

So we think that got it wrong. We’re looking for opportunities to open dialogue with them to see if there are things that we could do to a few of them on the treatment of metal streams as that. And we think that there is good opportunity to do something along those lines without materially changing the commercial nature of the contracts. As far as implications of this preannouncement on our business I don’t it’s going to have a huge impact, I think it could have an impact on companies that have S&P ratings and feel that they are on cost of certain rating, and they’re looking at equity versus metal streaming.

But I think that most companies will at the end of the day look at and recognize the flexible nature of the form of capital that we’re bringing in the table and we’ll continue to subscribe to it.

Tanya Jakusconek - Scotiabank

Okay. Thank you. So the next couple of questions that I'm going to ask for all three companies. So I'm going to start with, can you discuss how you assess risk in terms of entering a new country, a new project and partnering with a new operator. I'm going to start with David.

Dave Harquail

For us, we're essentially in the royalty business looking at the land and we're digging a very long term perspective. And so our number one assessment is there are going to be enough resources or geological prospectively that other people put risk money into the properties that we have in underlying interest. So our first assessment is this a property of merit other people will spend money. We're not so concerned about the operator any particular time, because our philosophy is good properties always end up in stronger hands and we have a prospective that, loss and own an interest in the property through multiple ownerships.

In terms of the new country or new environment, our number one thing is tenure. And we have a contract that will spend multiple decades. And so it's very difficult for us to go into places like Russia or China, if we're going to rely on according of law in those countries. Because generally royalties are essentially a property right and we're not sure we can force property right for the longer term. But we can go into countries where we're dealing with a western operator in new jurisdictions, where we can have a contract either North America or the UK or Australia, where we know we'll get good contractual rights of protection.

So, our focus is not so much the traditional how does the operator look today or how does the country look today. We're taking a very long term perspective that as long as we can maintain our rights over several decades. We should do well.

Tanya Jakusconek - Scotiabank

Okay. Gary?

Gary Brown

Yeah. I mean, I agree with David. The primary thing that we're doing is investing in a resource. And so we spend a lot of time upfront assessing the potential of that resource and we are only looking at investing in high quality resources and we measure quality by where that resource the extraction of that resource will fall from a cost perspective and we’re looking only to invest in mines that will fall in the lowest half of their respective cost quartile.

So we have our own internal technical team that we will deploy made up of mining engineers, metallurgists and geologists to assess that resource. And once we get comfortable with that resource the exploration potential and the cost associated with exploiting that resource. Then we look at political risks associated with the country that the mine’s located in and we will consult various sources to assess that political risk component including talking to entities like EBC to get a sense of what their political risk insurance coverage would be for that region. Then we look at lifecycle stage of the asset.

So are we talking about a producing asset or are we talking about something that’s under development and do we need to take into account development risk. And then we look at counterparty credit risk at the end of the day and assess the exposure we’ve got from that perspective. And we use all of those assessments to come up with what we feel is appropriate discount rate that we would apply in valuing that streaming opportunity.

Tanya Jakusconek - Scotiabank

And then operator, do you have a view on that?

Gary Brown

Sorry do I have a view on?

Tanya Jakusconek - Scotiabank

On the operator.

Gary Brown

Well, again we are looking at assessing primarily the resource itself and we are not looking and investing in resources that can fall into any operators hands in the exploited on a very cost efficient basis.

Tanya Jakusconek - Scotiabank

Okay, Tony.

Tony Jensen

I don’t think there is a significant amount, more than I can add to David and Gary with regard to that question, what we do to our diligence is very, very similar. We have people in our company that have operated mines for decades and certainly those folks are deployed to the asset to look at that and make sure that we are comfortable with it as well.

I would say that we have about somewhere around 80% of our reserves and revenue probably closer to 90% of reserves and revenue in Canada, United States, Mexico and Chile. And we are very, very comfortable with those countries and obviously we will continue to look well in those areas. And we think that is highly impossible particularly when you look at where the world’s copper is located. And one of our good opportunities is to stream the precious metals off of those falling metallic deposits.

So we don’t think we have to go largely where prices continue to grow our company. And we would like to come back and talk a little bit about size and entry as well, when we think about putting our money at risk. When we are doing large transactions, $100 million and above we really have to comfortable with the operator, we have to be comfortable in the country and the property. And we can't wait around for the next operator to get a right, those things have to be done right away. So I guess that would be a bit of a distinction that we really want to make sure what’s comfortable right from day one. And we went to walk away from some assets and we like the country and we like the asset itself, but we just didn’t have the patience to wait around for the management team to be put together to last the next decade. So I think that’s one distinction I would draw.

Tanya Jakusconek - Scotiabank

Okay. Thank you. Next question for all three companies again, what is the biggest challenge you see your company facing in 2014? So, I’ll start with Gary first.

Gary Brown

Yeah. I think that the biggest challenge is really finding good projects to invest in. We've been incredibly busy over the last 12 months on the corporate development side of things, having evaluated over a 100 different opportunities that have come into our door. The vast majority of those don’t meet our [motto]. And so, we've passed on them. So I think that's going to be the biggest challenge in 2014.

Tanya Jakusconek - Scotiabank

Okay. Tony?

Tony Jensen

I would echo Gary’s comments. We have been sending a bit of the next message to the marketplace that this is probably a market where we've seen the most business opportunities that we've ever seen, since I’ve been with the company over a decade. And yet we have to be very, very careful when we deploy our capital. Capital is hard to combine; we don’t want to use that purposelessly.

And so, a lot of the weaker opportunities come out earlier in the cycle. And so it’s important for us to be patient and wait for the ones that do make sense for us. And we really want to invest in properties that are attractive in this price environment, lower, since need be.

So I would too think that finding quality projects to invest in is extremely important for us and bit challenging. The other thing is the gold price volatility where we see gold moving around quickly one direction or another; it’s hard to get it footing to price a transaction. And for us, it’s better that the gold price is a bit stable. And we look at this price environment as an opportunity for us to continue to layer on new pieces of business.

If you allow me to change the question slightly and say what's the most important catalyst over the next 12 months to Royal Gold, I would say the commissioning and successful ramp up of Mt. Milligan, which is a project in British Columbia operated by Thompson Creek. We just are at the front end of receiving gold from that property. And I think it's going to be our largest revenue source ramping up and perhaps making up as much as 50% of our gold equivalent ounce production in the very near term.

Tanya Jakusconek - Scotiabank

David?

Dave Harquail

In terms of I guess the biggest concern I would have is that liquidity is really dried up for the gold industry. And I think a lot of people come to us and say can you finance our project and make a go forward? And actually $1,200 gold is not a lot of projects that make sense. So most of the things were working on right now are projects that are kind of half bill, there is enough equity. And so we can be there to get them over the hump or the projects that we're saying okay, we can do that but we don't want to be the major backstop, we need to have another participant. And it's actually very hard now to get other money into a project.

So, a lot of the feeling we're getting is this is kind of déjà vu. We this kind of post reacts, on the ‘98 to 2001 year, where the industry was effectively going into liquidation mode. Now, there was no Greenfield development. And the other thing that started happening is people stopped drilling. And that's not very good for a royalty property owner, because we really like to see some expansion of reserves and resources over time in our properties. And if no one is spending risk money on the properties, it’s dead money.

So, I think we got the next year, I think we're going to have enough projects that we can show some growth in the company. But a year out from now, if the gold price hasn’t improved, I don't think we can do more royalty deals, because it's dead money. And I think at that point, we have to start looking at doing other things, such as the old [triangle]did and that's buying distressed debt or buying direct interest in properties where we can buy participating when the industry eventually turns around. So, I think the challenge is we might have to change mode and tactics much as we did in the last crisis.

Tanya Jakusconek - Scotiabank

So, thank you. Another question for all three companies: what do you think the market is not properly valuing in your company? So, why don’t I start with Tony?

Tony Jensen

Well that’s a very easy question to answer. I think we have a couple of growth assets that are completely, well, largely out of the price of our stock at the present time that being Mt. Milligan and Pascua-Lama. I think there is a bit of a wait and see attitude on Mt. Milligan. The industry has had trouble ramping up projects. And we’re very comfortable with the construction and the build and the team that’s running Mt. Milligan. And we think that’s going to be a very reasonable ramp up, something that could take 12 months to 18 months won’t surprise me at all. But that is probably the largest component of value that I don’t think is fully realized. And it will be soon. Again, the revenue is starting to flow now and we’d expect it to build substantially in the first and second quarter of next calendar year.

Pascua-Lama, I didn’t hear Jamie Sokalsky’s speech but I don’t if he addressed Pascua-Lama but obviously that’s a piece of business we have $400 million of capital into. And I think that’s been largely discounted and waiting for another day. But [Tonia], I took interest with your piece that you put out this morning where Real Gold was one times NAV and some of our competition is here on the table is rated at 1.6 times NAV in the current marketplace.

Tanya Jakusconek - Scotiabank

I got you….

Tony Jensen

So I rest my case.

Tanya Jakusconek - Scotiabank

Okay. I will pass it over to David, then for next.

Dave Harquail

In terms of I think all of our companies, people always challenge. We always talk to them and they say you always look so expensive compared to the operating companies. And absolutely we’re different asset class because I ask them what multiple do you pay for gold ETS, what’s the price to earnings, what’s paid NAV? And really you are paying an infinite ratio for gold ETS because you are paying 40 basis points every year, just for the privilege to owning gold and the phase that will never go on you.

And I think what this sort of asset class and between our companies, we can deliver an alpha to gold or silver that’s superior than owning a gold ETS. We can pay you a dividend while you’re waiting and we give you very high correlation to the commodity. And so I think we are actually dirt cheap compared to any other commodity ETS out there because we can do less risk in the operating company and we can pay you why you are waiting for the commodity to turn.

So I think what is not appreciated is we really are a separate asset class. I think in terms of the relative multiples, I guess Tony you just like me better.

Tony Jensen

Got to be at home.

Tanya Jakusconek - Scotiabank

Okay, Gary, (inaudible) follow after this one?

Gary Brown

Yeah. So, I think I’d echo Tony’s comments with respect to Pascua. I think our view is that Pascua will be a world class mine someday and we are very excited about the asset being in our portfolio. I think when you look at what happened on the back of Barrick announcing the suspension of construction there to Silver Wheaton; we dropped about $2 per share immediately following that. And we’ve got about 357 million shares outstanding. We lost roughly $700 million worth of value in that moment. And I do a lot of work attributing market value to the different assets that we have on our balance sheet and prior to that drop I had the value at pass about a $1 billion in our portfolio.

And so now, I think that the market is valuing at about 300 million which is about the present value of the worst case scenario for us. And again the way we structured that deal was to protect ourselves against development risk by receiving 100% of the silver from three currently operating assets until the end of 2016 and then at the end of 2017 now we’ll have an option to demand the remainder of our $625 million back.

So we received through the end of Q3 about $250 million worth of value from the sale over silver delivered from the three currently operating mines. And we expect that that will be about $350 million that we've received by the end of 2016. So that would mean that we've -- our worst case scenario would be demanding back our $275 million at the end of 2017. So that was the $100 million that we would receive between now and the end of 2016 amounts to about $300 million on a present value basis.

So I think the market is valuing the Pascua asset on a worst case scenario. And I again reiterate that Silver Wheaton strongly believes that that will be a world-class asset at some point and put about 0% chance of us demanding back our money at the end of 2017.

So I think that's one big one. I think that the Vale deal that we did earlier this year is under appreciated. I think hopefully the market is now seem at both the Sudbury and Salobo assets have outperformed market expectations, even drive home that we are -- those assets are better than advertised just as we've been saying since we consummated that deal.

And then the third thing I think is the overhang associated with the tax audit that's currently taking place. I think the market has valued us as though all of our international profits can be subject to Canadian taxes. And I don't think that reflects our view that there is not significant risk associated with Canadian taxes being assessed on our international profits. So I think those are the three big items that are under appreciated in our portfolio.

Tanya Jakusconek - Scotiabank

Okay. Another question for all three companies again. What differentiates your company as a quality stock to own? So, who wants to start, David?

David Harquail

I think we did this one with your panel before…

Tanya Jakusconek - Scotiabank

I know.

Dave Harquail

The last, so I think the three of us would differentiate this. I'm the only one that doesn't have the royalty as Pascua. I also like to add, we've got a great Board, I think they really know the business between Pierre Lassonde, Louis Gignac, Graham Farquharson and we just had a Tom Albanese. So, it's a great mining Board really understand investments. And I think also, it's our philosophy. And I guess we are happy the way on grade investments. The [Dieter Royalty] I bought 16 years ago. So, we've just been getting our first checks on that one, but for a $2 million investment I'm very happy to wait 16 years. And we really believe that the success in this business is having a really long term focus and then having more ounces found on properties that you already own. And there is a much better wealth creation technique than trying to financially engineer yourself on a deal and depend on a commodity price going up.

So we like that focus, we like the long term interest in properties. And we are committed to it. We've been doing it, the same team, most of us since 1985 and we just continue doing that.

Tanya Jakusconek - Scotiabank

Gary?

Gary Brown

Well, I think the first thing would be scale. When you look at the size of Silver Wheaton we are bigger than the other two players combined. And then you look at our liquidity and there is over $200 million of our stock that trade hands every day. And that liquidity gives us really efficient access to capital and allows investors to take significant positions and liquidate those positions without moving the market. So I think the scale sets us apart.

I think also we are a silver focused precious metal streaming company. So 75% of our revenues currently are derived from the sale of silver as opposed to Royal and Franco who are focused on the gold side of the equation. And we still believe there is a lot of runway in the silver space, looking at our current portfolio growing to about 42.5 million ounces of silver production under contract by 2017. That only represents about 6% of the byproduct silver market. So we still believe there is a lot of opportunity for us to grow in the silver space.

And then I think I would also reiterate that we’ve got a very, very strong technical team made up of geologists, mining engineers and metallurgists that have made very, very good decisions in the past. And at the same time I think we’ve been a very, very disciplined group where we went for about 2.5 years without having done a new deal which I think just proves that we are not interested in growing at reasonable cost.

Tanya Jakusconek - Scotiabank

And Tony?

Tony Jensen

Well, I had four thoughts until Gary started speaking and he gave me one more. Let me actually come to your first point first and talk about scale as well. We’re the smallest; we have $3 billion market capital there about today. And it also can be quite an advantage. We can do deals that don’t have to be $1 billion or $1.5 billion deals to be material. We have critical mass; we have access to capital. All these things are very, very important to be able to complete in this place. But we can do $100 million or $250 million or $300 million deal and still have a material benefit to our company.

The four items that I was thinking about earlier are the first embedded growth. We have this embedded growth at Mt. Milligan, that’s just down the doorstep. And I think if you look at the public materials that all three of us have published, we have about 15% CAGR between now and 2017. And I think that outpaces my two other fine companies that are on the table here today.

Secondly, I’d say financially robust. We have about $1 billion of liquidity that is available to us. We have uncommitted cash flow that is coming in each and every day. And we are able to continue to service our dividend like we closed that, now we’re at just about 2% yield, paying about 35% of trailing 12 month operating cash flow.

And for all of this, I would also say that this is an attractive market environment. We saw that it’s challenging to find good quality assets, but we are lucky to be in an environment, where people need our capital as an alternative to debt and equity. And I think that is very compelling thing for all of our companies.

And then finally just coming back to the point where we think that we’re extremely favorably positioned on a price point, buy wonderful companies that some are, sometimes the companies are higher valued at times and lower valued at other times. And I think we’re just in a point right now we’re once this growth that normally comes to the floor, we’re going to see that turnaround as well.

Tanya Jakusconek - Scotiabank

So we’re turning to our final question for all three companies again. Can you describe your company today and where do you see your company three years out, so Tony why don’t you start?

Tony Jensen

I think we built this company so far on royalties and we were -- we created some of those royalties ourselves through exploration properties and the like and we've also acquired portfolios of royalties and a lot of that low hanging fruit now is collected. We've bought several royalties from Rio Tinto and BHP and [Banco] Gold, just in Barrick, we bought 72 assets from Barrick. A lot of those now have been collected under these companies that you see here in front of you.

So I think as we go forward, you’re going to see us becoming more and more stream-oriented, we've been creating, financially creating these opportunities as a very good business for us we go forward.

I’d also like to say that this is a highly flexible tool. If you really listen carefully to the needs of the industry and you are able to manipulate this royalty in stream financial product in a number of different ways, things like bonding there is countries who require cash bonding. We can provide a royalty in place of that bond essentially the royalty access a replacement for the principle overtime. And we can provide that cash upfront instead of the company providing that cash just a simple example of many different things that we can do.

So I would agree with David in his earlier comments that as we go forward, the market is certainly going to change, it’s going to [metamorphose]. We have seen that happened over just my tenure here at Royal Gold, streams, financial engineering those things were really not the main stream years ago than they are today. There will be other products in the future that I'm sure we’ll have to adapt to.

Tanya Jakusconek - Scotiabank

Okay. David?

Dave Harquail

As I mentioned, it's going to depend a lot in the market. So if the gold market comes back and bought deals get active again and there is risk money for exploration, its business is usual. Continue to grow the royalty portfolio. And this year we've done 23 royalty deals and then adding to it. As I expressed, if the risk capital isn't there, then what we'll be doing is exhausting the decent royalty opportunities by next year. And then we'll have to look at what our alternatives are.

And as I mentioned we've been through it before, the 1999 to 2001 period, we became -- what happened these types of companies become financially the strongest players in the marketplace and they became king makers. And we ended up making a lot of money for our shareholders ultimately by merging our company, a number of our assets with Newmont Mining.

I don't expect to merge with Newmont again, Tanya. But I think what it is our shareholders are going to have a lot more options to make money even in a bear market. And so I like sort of the position we're in. Things get back to usual, we've got a great business model, if things go bad I think we still have some options to make money for our shareholders and get a good outcome.

Tanya Jakusconek - Scotiabank

And on the [oil] side, David just…?

Dave Harquail

Oil side, we do that at 20% of our business, I think in the last couple of quarters, the investors has been very happy the oil assets that we bought in 2012 are performing spectacularly well for us. And they have got a 40 year term attached to them. My only problem is oils doing two wells have gotten up to about 26% of my revenues we call those the Hollywood problems, some things perform too well. And so our ambition right now is to get a bunch more gold deals and revenue deals near-term, because we like to keep that balance closer to 80% precious metals and we can get there pretty quickly.

Tanya Jakusconek - Scotiabank

Okay, Gary.

Gary Brown

Yeah. I mean we expect to have about 33.5 million silver equivalent ounces of production under contract in 2013 and that grows by about 27% to 2017 organically as Salobo and Sudbury ramp up operations and Rosemont and Constancia come online. We do see this environment is being very conducive to us adding to that portfolio and growing further. We have been as I think I outlined earlier busier than we ever have been in my tenure at the company and see there being a lot of great opportunities out there for disciplined growth that will create additional shareholder value.

I think in three years time, we will have a lot more clarity on Pascua-Lama. And again we believe that that will be a world class mine and close to production at that point. We are going to be focused on -- continue to be focused on silver, but we will layer gold in when we feel that we can create value by doing such. And we still see a lot of opportunity in that space not looking at diversifying out of the previous metal space at all.

Tanya Jakusconek - Scotiabank

Okay. So those were the [prepared] questions for the panel, I am going to open it up to questions from the audience. Are there any questions? Maybe I have a question and I am going to ask a question on just the tax saving structure that are set out and delivery in time that some of you may take your product in time. Maybe you can just each one of you tell us where you take your products in time and where some of your revenue goes through some of the tax saving structures? I’ll start with Tony.

Tony Jensen

Okay. So, we run our international business to [switch on], and it was tax treaty between United States and [Switzerland] we feel very comfortable with that structure. We have that company in place for about two or three years now. And we have not yet taken any delivery, we only have two streaming contracts for entire portfolio, Mt. Milligan and (inaudible) we just are now starting to take delivery of Mt. Milligan. So we will take that into Europe. Physical delivery is very important to us. And then we will manage that gold as we see whether we store it or sell it in what kind of timing we do that. So that’s how we manage our international business.

Tanya Jakusconek - Scotiabank

And David?

Dave Harquail

We’re mostly a royalty company, we have about 245 mining assets, six of them we’ve structured as streams because that worked better with the companies that are our counterparts and only three of them that we put offshore and the only one that we have offshore, two in South Africa because they were the gold leading deals that we bought.

And in the Cobre-Panama deal which hasn’t started yet, we haven’t put our money into it yet that will be structured through our Barbados office. But we do take gold in time actually a lot of our royalties that set our options for instance, Detour, Tasiast, Goldstrike. We take gold physically at the refinery. And one of the reasons is because this shows that we’re an active company, we’re not (inaudible) for U.S. tax investor purposes and gives us a little ability to time our sales as well for the gold. So, and at some point we might even start accumulating gold that’s getting delivered to us from some other sites.

Tanya Jakusconek - Scotiabank

Gary?

Gary Brown

Yeah. We use a wholly-owned Caymans subsidiary to make the investments in mines that are not located in Canada and we’ll use the Canadian parent company as the contracting party for mines that are located in Canada. In all cases we take delivery of silver or gold in generally credit form. The counter party has an obligation to deliver credits to a London-based metal [account] that we have.

And we -- there is a tax information exchange agreement between the Caymans in Canada such that all profits generated after January 01, 2011 in the Caymans can be repatriated back to Canada without any further tax implications at the profits generated in the Canadian parent company will ultimately be subject to Canadian taxes, but the profits generated in the Caymans won’t be.

Tanya Jakusconek - Scotiabank

And taking it in time is that something you do or...?

Gary Brown

Well, we take it generally in credit form. So taking it in paper form means that we can either sell it immediately or we can store it in paper form or we can have it immediately converted to actual bullion. We have generally sold the credits as we receive them.

Tanya Jakusconek - Scotiabank

Okay. I’ll move to the audience if there is any other question, maybe just to finish off just on M&A side, we’ve talked a little bit about the opportunities in today’s environment maybe we can just circle back to each of the panel’s secret and just look at is gold the main focus, I know Dave historically we've also looked at other metals including oil and gas and so forth. So maybe just where you are seeing your opportunities, the commodity focus and maybe just size of deals, I know Tony mentioned anywhere between $100 million or $300 million sort of size range? We’ll start with David.

Dave Harquail

Well, M&A I would think of corporate and that we're not focused on at all. We're into asset deals and getting interest in properties that's our ideal. And in terms of portfolio mix, we always wanted to be longer-term 80% precious metals. There is lot for sale, that's very tempting right now in oil and gas especially in Western Canada, but we just can't do it. We've ordered to get some more gold deals in our belt. So you can see on selling, we're looking at bunch of gold deals right now, I think a number of them are actionable near-term. And I want to get the revenues at least back to closer to 80% precious metals.

We do include platinum and palladium mostly from mines in Montana with Stillwater or with KGHM and Sudbury. We like those we consider them precious metals, because they are measured by the ounce in terms of corner price. And they are doing very well for us as well. But it's business as usual and I guess only do I ever see any reason for consolidating the royalty space or streaming space it makes no sense when we're all so busy. So, I think we’d only consider something like that once we start running out of phase into our space.

Tanya Jakusconek - Scotiabank

And then nobody had talked about size of deals previously in 150 to 350 or….

Dave Harquail

Yeah. Actually I have done deals where André Gaumond he is going to do a session on royalty, smaller royalties, I think tomorrow. And so we split royalties for less than a $1 million. And so what we like is again, if there is a resource on it I’m comfortable at some point, someone is going to develop that. There are some projects along that plan -- the role going in Northern Quebec, that's once the road is there it's inevitable someone is going to come and develop those properties. You can buy them cheaply today why not and we have an interest in land cost nothing to hold it and eventually someone is going to spend the risk capital to drill it out and develop it. So I would buy anything moving if it’s associated with land and the long-term tenure, I am very happy to wait. We call those are pennies on a dollar type investments.

Tanya Jakusconek - Scotiabank

And on the upper-end [date] because we were asked whether $1 billion is something we look forward to?

Dave Harquail

Yeah. Not near-term, I think I know everyone speculating what’s going to happen, everybody has been looking at it, but only trouble is when you are dealing with super large deals you are using dealing with less motivated parties that have multiple options and they are doing lots of things to try eliminate that upside or not optionality on the deals they want to put caps in terms of number of years or they want you to pay for extension.

And in our mind when you are taking the risk on a property ever getting developed or working properly you should have the upside open ended. And so generally we are finding there is more traction to get optionality with mid tier companies and smaller deals so are ideal because we are not sure how long their market will last for the gold industry. The longer it last, the cheaper the deals get.

And so we are kind of saying okay we look to average out, we got it basically $1 billion in cash we got the most net cash of any gold company in the world right now and let’s sort of say our deals right now they might actually -- if we waited they might be cheaper, but my nightmare is that gold takes off tomorrow and I haven’t deployed enough capital.

So we are kind of going to average out over the next year. And we think deals -- the little deals you don’t talk about, but the deals from 50 million up we have to talk about. So we do see half a dozen deals between $50 million to $300 million averaged over the next year, we should do pretty well. And so I don’t know if it will exactly play out like that maybe something absolutely compelling, but I can tell you we have put out in the past term sheets bigger than a billion we feel very comfortable with the capacity. We just don’t feel we need to do that right now given the amount of choices out there.

Tanya Jakusconek - Scotiabank

Gary?

Gary Brown

As I said earlier, we see a lot of opportunity to grow in this environment with equity markets having dried up significantly for lot of mining companies and that maybe available to some those, but it’s available to generally or trying to do the opposite and delever their balance sheet. So our form of capital being a flexible is perfectly suited for this environment. And so we do see lots of opportunities to grow. We are not strain from precious metal space, we see a lot of opportunity in the silver space and there are still opportunities in the gold space that we think we can capitalize on. The value of those opportunities ranges from maybe $250 million upfront payment set the low-end to $1 billion transactions. There are still a couple of chunky billion dollar deals out there.

We don’t feel like we need to move the needle on every transaction. We can’t make, we are happy to do -- in fact probably happy to do five 1 million ounce a year deals than one 5 million ounce a year transaction just because of the diversification of that gives us in our portfolio. But there are some sizable transactions out there that we are pursuing. We have current balance sheet flexibility to consummate deals at the lower-end without having to raise any additional capital. We did one of the $1 billion deals that we see out there. We inevitably would combine that with our bought deal equity raise.

Tanya Jakusconek - Scotiabank

And just quickly Tony, at gold or silver something….

Tony Jensen

Very much focused on gold, we have 80% precious metal right now, about 75% gold only. As we look forward that's going to raise pretty significantly as both Mt. Milligan and Pascua-Lama come on board, they are both gold only. We don’t layer in other metals or other commodities because we want to throttle to in 80-20 or 70-30 kind of thing. We were focused only on the precious metals side. We think U.S. the investor a much better diversify as we will ever be of your portfolio.

So we are very much focused on that, Tony I just I’d like to clarify earlier, clearly seeing that $100 million to $300 million can still be material for us. We’re really focused on assets that are material to the company. And the smaller things we've done a few different smaller ones that they have generally been easy to do, we know the people that come off the street, they are quick to do, but we’re not going to tie our resources up in doing that.

And we've seen some chunky deals in the marketplace as well. If we got up above where we are at Mt. Milligan, we have almost $800 million into that asset. We think some kind of diversification scheme would be appropriate there. We just don’t want to put too much wealth in one asset, but very much focused on gold.

Tanya Jakusconek - Scotiabank

Okay. Well, thank you very much for our royalty speakers.

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Source: Silver Wheaton's Management Presents at Scotiabank Mining Conference 2013 (Transcript)
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