Silver Wheaton's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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Silver Wheaton Corp. (SLW) Q4 2013 Results Earnings Conference Call March 21, 2014 11:00 AM ET


Patrick Drouin - Vice President, Investor Relations

Randy Smallwood - President and CEO

Gary Brown - SVP and CFO


Andrew Quail - Goldman Sachs

Alex Terentiew - Raymond James

Chris Lichtenheldt - Dundee Capital Markets

John Tumazos - John Tumazos Independent Research

Dan Rollins - RBC Capital Markets


Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Silver Wheaton's 2013 Year End 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 this call is being recorded on Friday, March 21 at 11 A.M. Eastern Time.

I will now turn the conference over to Mr. Patrick Drouin, Vice President of Investor Relations. Please go ahead.

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; Silver Wheaton's President and Chief Executive Officer; and Gary Brown, Senior Vice President and Chief Financial Officer.

I'd like to bring to your attention some of the commentary in today’s call may contain forward-looking statements. There can be no assurances that forward-looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements.

Please refer to the section entitled description of the business risk factors in Silver Wheaton’s Annual Information Form, which is available on SEDAR and in Silver Wheaton’s Form 40-F on file with the U.S. Securities and Exchange Commission.

The Annual Information Form sets out the material risk factors that could cause actual results to differ including the absence of control of our mining operations from which Silver Wheaton purchases silver, risk related to such mining operations and the risk of a decline in silver prices.

Lastly, it should be noted that all figures referred to on today’s call are in U.S. dollars unless otherwise noted.

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, ladies and gentlemen. 2013 was another strong year for Silver Wheaton, as we had our best year ever of silver and gold production, which increased for the fifth consecutive year to a record 35.8 million silver equivalent ounces.

Sales also reached 30 million ounces for the first time in Silver Wheaton's history. 2013 also represented perhaps our best year ever in terms of acquisition growth as we capitalized on the low commodity price environment.

In the first quarter of 2013, we bolstered our immediate and near-term growth profile by acquiring gold streams from Vale’s producing and expanding Salobo and Sudbury mines. And in November we continued the trend as we added a gold stream on HudBay’s Constancia Project, which will contribute to our production beginning in late 2014.

Also in November, we created an innovative new agreement, our first early deposit gold stream with Sandspring Resources on a Toroparu Project down in Guyana. This project should add to our longer term growth profile.

These transactions once again provided well-needed funding for our operating partners while providing our shareholders with increased exposure to precious metals production from high quality, high potential mines and projects in politically stable jurisdictions around the world.

Silver Wheaton now forecasts production of 36 million silver equivalent ounces in 2014 and by 2018; we expect to increase by nearly 35% to 48 million ounces of silver equivalent production from our current portfolio.

Overall, 2013 was a good year for Silver Wheaton in terms of production, sales, and acquisition growth. It was also a good year for us in terms of reserves and resources. As of December 31, 2013, our silver equivalent reserves increased by 4% and our combined reserves and resources were up by over 9% last year.

Our 2013 fourth quarter also broke production records with an all-time quarterly high of 9.7 million silver equivalent ounces. Silver equivalent sales were a solid 8 million ounces, but this was 13% lower than in the fourth quarter of 2012, mainly due to a significant increase in produce but not yet delivered ounces at both the Penasquito and Minto Mines.

As a result of weaker commodity prices and lower fourth quarter sales, operating cash flows were substantially lower than when compared to the fourth quarter of 2012.

As mentioned, Silver Wheaton's annual 2013 production increased for the fifth consecutive year to 35.8 million silver equivalent ounces, with record sales of 30 million ounces. We were pleased to receive the first full year of silver and gold production from the 777 mine in 2013 and to receive immediate production from our Salobo and Sudbury acquisitions.

In February of 2013, we acquired 25% of the life of mine gold production from Vale's Salobo mine, the largest copper deposit ever found in Brazil, along with 70% of the gold production from Vale's Canadian Sudbury Mines for a 20-year term.

These agreements provided us with immediate cash flow and I believe they epitomize our policy of investing in low cost, high quality assets.

While it was a very good environment for acquisitions, there were some distinct challenges in 2013 as precious metal prices came under significant pressure throughout the year. Silver Wheaton's average realized silver equivalent price of $23.48 per ounce was 24% below the previous year, directly impacting revenue earnings and cash flow.

While Silver Wheaton was not immune to the significant fall in precious metal prices in 2013, we maintained a strong cash operating margin of around 80% due to our relatively fixed and very low cash cost structure.

And it is also worth noting that despite the weakness in precious metal prices, in 2013 Silver Wheaton annualized dividend increased 29% over 2012 to a total of $0.45 per share, primarily as a result of our low costs and innovative dividend policy linking dividends to operating cash flows.

In addition, we have just announced the implementation of a Dividend Reinvestment Program that will be effective for our second dividend of this year. We received numerous requests for this program and believe it will provide further flexibility and generally make it easier for our investors to increase their exposure to Silver Wheaton.

Gary Brown, our Chief Financial Officer will provide more detail in our financials shortly.

Looking forward to 2014 and beyond, we are very positive on the organic growth embedded within our current portfolio. We see 2014 as a pivotal year for Silver Wheaton, as a number of new mines and expansions are scheduled to come on line.

While we’re forecasting only marginal growth in 2014, the expansions of the San Dimas, Salobo and Sudbury operations mid-year, as well as the startup of the Constancia project later in the year, bode well for our production profile in 2015 and beyond.

In 2018, we’re expecting production of 48 million silver equivalent ounces, representing about a 35% growth from 2013 numbers. This growth is driven primarily by the expansions and startup at San Dimas, Salobo, Sudbury, and Constancia as well as the expected commissioning of the Rosemont project in Arizona.

It is worth noting that our 2018 forecast does not include any contribution from the Pascua-Lama or Toroparu projects. Once in operation, Pascua-Lama and Toroparu combined should contribute almost 10.5 million silver equivalent ounces annually for the first five years of operations. We’re very excited to have the upside of these assets in our portfolio.

It is worth highlighting that this growth is organic and does not account for any additional acquisitions of silver and/or gold streams. However the current market continues to be full of opportunity. The attractiveness of streaming has never been better as miners and developers of every shape and size are now appreciating the flexibility and cost competitiveness of the model.

In 2013, we consummated deals with one of the largest diversified miners in the world as well as with a single asset junior developer, with a market cap well under $50 million.

Our corporate development team continues to be busier than ever reviewing a number of opportunities and identifying high quality assets that fit our criteria of being in the lower half of the respective cost curve.

As always, finding the opportunity is only the first step and we will only add new streams to our portfolio as long as they are accretive to our shareholders.

Over the next five years, Silver Wheaton has very strong organic growth production profile of almost 35% and the optionality of Pascua-Lama and Toroparu. To complement this organic growth, we will continue searching for additional accretive opportunities with strong operating partners.

So, in summary, with our commitment to remain 100% pure precious metals, combined with a robust organic growth profile and a strong track record of accretive growth, we believe Silver Wheaton offers the premier investment vehicle for precious metals investors worldwide.

With that, I'd like to turn the call over to Gary Brown, our Senior Vice President and Chief Financial Officer to provide a bit more detail. Gary?

Gary Brown

Thank you, Randy, and good morning ladies and gentlemen. Prior to reviewing Silver Wheaton's unaudited financial results for the three months ended December 31st, 2013 and the audited results for the year ended December 31st, 2013, I would like to remind everyone that all monetary figures discussed are denominated in U.S. dollars unless otherwise noted.

The company's precious metal interest generated record attributable silver equivalent production of over 9.7 million ounces in the fourth quarter of 2013, 17% higher than production from the comparable period of the prior year, due primarily to higher production from Penasquito combined with production from the Sudbury and Salobo gold interests which were added to the portfolio in 2013. Approximately 75% of this production related to silver with the remainder relating to gold.

Silver equivalent sales volumes amounted to 8 million ounces in Q4 2013, representing a 13% decrease from Q4 2012 with such decrease being primarily attributable to a buildup of 1.1 million silver equivalent payable ounces of silver and gold that had been produced by our partners, but not delivered to Silver Wheaton in Q4 2013. That compared to a reduction of approximately 1.4 million silver equivalent ounces in such balances in the comparable period of the prior year.

Payable silver equivalent ounces produced, but not yet delivered by our partners amounted to approximately 6.4 million ounces as at December 31st, 2013, with the most significant increases in the quarter being attributable to Penasquito and Minto.

Revenue for the fourth quarter of 2013 amounted to $167 million, representing a 45% decrease from the comparable period of the prior year with a 13% decline in sales volumes being compounded with a 33% decrease in the average realized silver equivalent selling price to $21.03 per ounce for the most recent quarter.

Earnings from operations for the fourth quarter of 2013 amounted to $90 million, representing a 54% decrease relative to the fourth quarter of 2012 with operating margins decreasing by 21% to 54% due to lower commodity prices.

Cash-based G&A expenses were $4.9 million in the fourth quarter of 2013, representing a decrease of $2.7 million from Q4 2012, with the decrease being primarily attributable to lower donations and personnel costs with the latter being primarily attributable to a reversal of previously accrued expenses relating to performance share units, or PSUs during the most recent quarter.

Interest costs for the fourth quarter of 2013 amounted to $4.4 million resulting in an effective interest rate on outstanding debt of 1.7%. Of this interest $3.2 million was capitalized in the Pascua-Lama and Constancia mineral interest, resulting in an interest expense reflected on the income statement of $1.2 million.

Other expenses were just under $1 million for the fourth quarter of 2013, which was primarily attributable to standby fees on the revolving credit facility, which was largely undrawn for the quarter.

Net earnings amounted to $94 million in the fourth quarter of 2013 compared to $178 million in the comparable period of the prior year, with basic earnings per share decreasing by 48% to $0.26 per share from $0.50 per share with the decrease being attributable to the combination of lower sales volumes and decreased commodity prices.

Operating cash flow for the fourth quarter of 2013 amounted to $125 million or $0.35 per share compared to $254 million or $0.72 per share in the fourth quarter of the prior year.

Based on the company's dividend policy, whereby the dividend is based on 20% of the average operating cash flow generated for the prior four quarters, the company's Board has declared a dividend of $0.07 a share payable to shareholders of record on April 4th, 2014.

The company's recently implemented dividend reinvestment plan will not apply to this dividend, but will apply to the next dividend expected to be declared relative to the company's results for the first quarter of 2014.

During the fourth quarter of 2013, the value -- the company's long-term investment portfolio of shares and other publicly listed mining and mineral exploration companies decreased by $18 million, which has been reflected in the statement of other comprehensive income.

For the year ending December 31st, 2013, the company achieved record levels of silver equivalent production of just under 36 million ounces, 22% above that achieved in the prior year and 7% above company guidance.

This contributed to record sales of 30 million silver equivalent ounces representing a 10% increase relative to the prior year, despite silver equivalent ounces produced by our partners, but not yet delivered to Silver Wheaton increasing by approximately 2.6 million ounces with the most significant increases during the year relating to Yauliyacu, Sudbury, and Salobo.

Revenue for 2013 amounted to $706 million compared with $850 million in 2012 with the 17% decrease being attributable to a 24% decrease in the average realized selling price, partially offset by increased sales volumes.

Earnings from operations decreased by 33% to $423 million with margins falling to 60% of revenue in 2013 from 74% in 2012, due to a combination of lower commodity prices and higher depletion rates attributable to the recently acquired gold interests.

Cash flow from operations decreased by 26% to $534 million compared to $719 million in 2012. This translated into operating cash flow per share of $1.50 compared to $2.03 in 2012.

Cash G&A expenses in 2013 totaled $27 million, representing an increase of less than $3 million from 2012. However, G&A expenses were significantly less than company guidance, primarily due to a combination of accrued expenses relating to performance share units and donations being lower than planned.

In 2013, the company contributed approximately $3 million in support of a number of charitable causes as part of our corporate social responsibility program. In this regard, significant local contributions were made to the BC Children's Hospital capital campaign, the St. Paul's Hospital Inner City Youth Mental Health Program and the street to home foundations affordable housing project.

We also direct funding to help support the communities in which our partners operate; including a non-profit organization based in Mexico City called Pro Niños that provides housing and access to education and job training to local homeless children.

For 2014, the company estimates the cash based G&A expenses, excluding expenses relating to PSUs, will amount to approximately $31 million to $34 million, with the increase from 2013 being largely attributable to increased personnel costs combined with the company's heightened commitment to corporate social responsibility initiatives and giving back to the communities in which we and our partners operate.

Net earnings for 2013 amounted to $375 million, representing a 36% decrease from 2012 with such decrease being attributable to the decline in commodity prices with basic earnings per share amounting to $1.06 in 2013 compared to $1.66 in 2012.

It is worth noting that no impairment charges were recorded during 2013, despite a drop in silver and gold prices of 38% and 29% respectively, highlighting the strength of the assets underlying our portfolio of precious metal streams.

The operational highlights for the fourth quarter of 2013 included the following; attributable production in sales relative to the San Dimas mine amounted to 2 million and 2.1 million ounces of silver respectively during the fourth quarter of 2013, including 375,000 ounces received from Goldcorp with production representing a 17% increase relative to comparable period of the prior year driven by the processing of higher grade ore.

Mill capacity at San Dimas is currently being expanded from 2,150 tons per day to 2,500 tons per day and is expected to be commissioned during the first quarter of 2014. Yauliyacu produced 687,000 ounces of silver during the fourth quarter of 2013, 12% higher than the comparable quarter of the prior year due primarily to higher mill throughput.

Silver sales relating to Yauliyacu amounted to 674,000 ounces compared to 1.1 million ounces in the fourth quarter of 2012, with prior year sales volumes reflecting the shipment of approximately 600,000 ounces of silver produced in prior quarters.

As of December 31st, 2013 there was approximately 1.5 million ounces of payable silver contained in concentrate that has been produced but not shipped relative to Yauliyacu.

Penasquito generated attributable silver production of 2 million ounces during the fourth quarter of 2013, representing a 42% increase from the prior year with such increase being attributable to a combination of higher mill throughput and the processing of higher grade material, with the mill running at an average of about 106,000 tons per day during Q4 2013.

Silver sales for the fourth quarter of 2013 relative to Penasquito amounted to 1.4 million ounces compared to 1.6 million ounces in Q4 2012 with payable silver ounces produced, but not delivered to Silver Wheaton growing to approximately 1.6 million ounces as at December 31st, 2013, an increase of over 400,000 ounces in the quarter.

With respect to the water availability at Penasquito, Goldcorp has stated that the Northern Well Field project is progressing on schedule and is expected to be operational in the fourth quarter of 2014.

The 777 mine generated attributable silver equivalent production of just under 1 million ounces during the fourth quarter of 2013 comprised of 14,000 ounces of gold and 130,000 ounces of silver; a 20% decrease from the comparable quarter of the prior year due primarily to the processing of lower grade material as a result of temporary limitations and paced backfill availability and requirements for ground support in the higher grade zones.

Silver equivalent sales from 777 amounted to 1.1 million ounces in Q4 of 2013, compared to 1.8 million ounces sold in Q4, 2012, with the decrease being attributable to the combination of lower production and the sale of approximately 600,000 silver equivalent ounces in Q4, 2012 that have been produced in prior quarters.

Attributable gold production and sales related to the recently acquired Sudbury gold interest amounted to almost 7,000 ounces during the fourth quarter of 2013 over 400,000 ounces on silver equivalent basis, with production being slightly lower than the prior quarter due to the processing lower grade material and sales being consistent with prior quarter.

Payable gold produced, but not yet delivered to Silver Wheaton relating to Sudbury amounted to approximately 12,000 ounces or 738,000 silver equivalent ounces as at December 31, 2013.

The Salobo gold interest produced over 10,000 ounces of attributable gold during Q4, 2013, or 629,000 silver equivalent ounces, an increase of 25% from the prior quarter due to a combination of higher throughput grades and recoveries, with such being attributable to the continued successful ramping up of milling operations.

This reflects production from the first 12 million ton per year line, which was operating at about 75% capacity for Q4, 2013. Gold sales relating to Salobo amounted to 6,900 ounces or 434,000 sliver equivalent ounces with payable gold produced, but not yet delivered to Silver Wheaton, increasing to approximately 11,000 ounces or 650,000 silver equivalent ounces as at December 31, 2013.

The company’s net debt position decreased by approximately $76 million in the fourth quarter of 2013 to $904 million, primarily attributable to $125 million of operating cash flow, being partially offset by $32 million of dividend payments and the $13.5 million investment in the early deposit transaction relating to Sandspring resources being made during the quarter.

As at December 31, 2013, the company had $96 million of cash and cash equivalents on hand and $1 billion of debt outstanding relating to the non-revolving term loan.

The company’s cash position with strong forecast future operating cash flows combined with the $1 billion of available credit capacity under the revolving facility positions the company well to satisfy it's funding commitments, sustain it's dividend policy, while at the same time, providing flexibility to consummate additional accretive precious metal purchase agreements.

Lastly, there has been no substantial change in the status of the audit of the company’s taxation years 2005 to 2010 by the CRA.

That concludes the financial summary. And with that, I turn the call back over to Randy.

Randy Smallwood

Thank you, Gary. Operator, we'd like to open up the call for questions, please.

Question-and-Answer Session


Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. (Operator Instructions) And our first question comes from Andrew Quail with Goldman Sachs. Your line is open.

Andrew Quail - Goldman Sachs

Randy, Gary, Patrick, thanks very much for the update this morning. A couple of questions. First, that final payment of $135 million on Constancia, when do you guys expect that to be paid?

Randy Smallwood

It's going to be somewhere around the middle of this year. I just want to remind you, we do have the option of paying that in shares versus cash.

Andrew Quail - Goldman Sachs


Randy Smallwood

So, we'll make that decision at the time, but it will be sometime around the middle of this year.

Andrew Quail - Goldman Sachs

And just want to -- thanks, thanks. I just want to clarify that your liquidity position is about $1.1 billion, which is the facility and $100 million in cash.

Gary Brown

That's ignoring the cash flows from operations that are being generated, which at current commodity prices, should be somewhere in the $500 million to $600 million range.

Andrew Quail - Goldman Sachs

And one more for you, Gary. So on that -- so that -- obviously that production that’s not yet delivered, we consider it -- obviously expect -- obliviously it is a timing issue. Is that -- we obviously expect that in Q1. Do we expect this as to sort of roll over into Q2 at all?

Gary Brown

Right. I mean, I can tell you that our first week of Q1 was pretty good. So we just missed. Some of that came through just after the end of the quarter.

Andrew Quail - Goldman Sachs

Okay. And lastly, guys. On the order, is that the company audit that there's no update. Is there anything else you guys can give on that at all?

Gary Brown

There really is nothing to provide. We continue to lack clarity in CRA's position and wait for them to give us some indication as to where they are standing on that. And there's really no firm timeline that has been provided to us with respect to when they will conclude this audit.

Andrew Quail - Goldman Sachs

Thanks very much, guys.

Randy Smallwood

Great, Andrew. Thank you.


Your next question comes from Alex Terentiew with Raymond James. Your line is open.

Alex Terentiew - Raymond James

Hi. Good morning, guys. I just got a couple of questions, mainly on Sudbury here. Over the past year, I guess, because we only had it for a year. In Q1 to Q3 the gold produced ounces had been revised upwards by about 1 -- accumulated amount of about [1.8000] (ph) ounces. Can you give us a bit of color on what's causing that? And have sales with those additional ounces been picked up in Q4, or should we see them received in 2014?

Randy Smallwood

We'll see an increase. As we bring on -- I mean, most of the additions that we had last year were concentrate producers and concentrate producers will always build our produced, but not yet sold. And so, we will see that normalize. And that's what we saw through 2013 with the addition of both Sudbury and Salobo coming on-stream. That is going to build our produced, but not yet delivered numbers.

It will normalize, but that being said, as Salobo continues to ramp up its productions, it's just got that much more material moving through the pipeline as we say the pipeline between the mill and the smelters itself. And so, I think a good way of looking at it is just looking at the assets that we have. The produced concentrates versus those that produce Dory; and the concentrates will always add to that. And as we have ramp ups in production and increases expansions at those one of the produce concentrates, we will see growth in that number.

Alex Terentiew - Raymond James

Okay. I guess -- sorry. I guess my question was more like so for looking at Q3, for example, Sudbury last quarter you reported 5.575,000 ounces of gold. This year, I mean, in your statements announced yesterday, Q3 was changed to 7.341 ounces. I guess is Sudbury just giving you that numbers.

Randy Smallwood

Yes. Because…

Gary Brown

Sudbury is -- there is a reconciliation on Sudbury.

Alex Terentiew - Raymond James


Gary Brown

But we go back, because Vale is a bit of a unique situation because some of the product goes all the way through. They own smelting and refining facilities. And so, it takes quite a while, when we saw that at the start of the year it takes quite a while for it to work its way through the whole process. But then they do a back reconciliation that stretches for more than a quarter. So Sudbury is one of the more complicated assets in our portfolio from that. And we wind up having to do a back reconciliation with -- when I say we it's actually Vale that does it -- and we have to adjust our numbers to match what Vale comes up with.

Alex Terentiew - Raymond James

Okay. That makes sense. Thanks. Just one more question then on Sudbury, you noted a declining trend in production due to declining grades. Are those declining grades in-line with what you guys were expecting? And is there any change to plan or any risk to the higher production post 2015 that you're expecting?

Randy Smallwood

No. We haven't seen anything there. Taunton is coming on-stream will help. It does have higher precious metal grades, so it will help on that basis.

Alex Terentiew - Raymond James

Okay. Great. Thank you.


Your next question comes from Chris Lichtenheldt with Dundee Capital Markets. Your line is open.

Chris Lichtenheldt - Dundee Capital Markets

Good morning. Thanks for the call. So just a question on your long-term outlook. You had guided to I think 48 million ounces of silver equivalent for 2018.

Randy Smallwood


Chris Lichtenheldt - Dundee Capital Markets

If we look at the, sort of, your last numbers in your presentation, you'd recently guided to 2017 guidance of 42.5 million. So it's a pretty significant tick up from 2017 to 2018. Just wondering if you can talk a little bit about what are the big step ups there?

Gary Brown

Sure. There's four contributors to that growth. The first one, of course, is Penasquito is scheduled to have a very good -- it supposed to be into some high grades through that period. And so, we should see better production from Penasquito than what we have seen.

Rosemont, of course, is going to come on-stream and will be contributing it, were scheduled before but as it ramps up it will definitely be contributing more from that basis. The other one that I think most people may not be accounting for is the Pampacancha zone at Constancia. The bulk of the gold value in the entire Constancia asset or operation comes from the Pampacancha zone, which is going to be mined early.

And so, this gold stream that we've done -- that we've just recently completed on the Constancia project, the bulk of that value will be delivered in the first few years of operations as Pampacancha is mined and processed through. So we will see a nice positive on the first few years of Constancia production. And that's -- its going to have one of its best years of production in 2018.

And then Salobo itself continues to ramp up as the second line comes on-stream this year and continues to move forward. And as they work their way down into the core of the ore body, we're going to see no continued production both -- increases in production both from slightly higher tonnages as they continue to optimize going forward, and also better grades. So the combination of all those assets really contributes to that growth.

Chris Lichtenheldt - Dundee Capital Markets

Okay, great. Thanks. Good. In general, do you expect sort of production growth each year between now and sort of 2017?

Gary Brown

2015 is going to be a very exciting year for us because Constancia is coming on at the end of this year, and so we should see pretty close to a full year's commercial production next year. Now it is producing a concentrate so there's going to be again a bit of a build up in inventory in produced, but not yet delivered.

And then, we see the expansions, of course. Salobo starting their second line in the middle of this year. It's going to take a while for that to reach 100% production, but it will be stepping up in 2015 itself going forward.

And you see San Dimas with its continued expansions. The success that Primero has had down there is very promising. I mean in 2013 it was still our largest producer. So it’s a pretty impressive asset and they continue to invest into that asset. And it always delivers on investment until we're seeing a benefit of that one forward.

So 2015 will be a nice year of growth for Silver Wheaton. And then I'd say the next step is of course Rosemont coming on-stream. And all depending on the permit, but we feel it's about a two-year construction period from the point the permits received and financing gets put in place, and so that will also be a nice little boost.

Chris Lichtenheldt - Dundee Capital Markets

Okay. Thanks. And just one last question actually, we talked about -- you talked about before a couple of times the -- through the pipeline building up on new assets as the sliver works it's way through. Has there ever been consideration given to structuring deals that you start picking up ounces at the back-end right from day one to sort of avoid the lag that can last several quarters?

Gary Brown

Sorry. So you are suggesting that we would just tie up to production and take delivery on whatever is produced irrelevant of what comes out of the smelter at the end?

Chris Lichtenheldt - Dundee Capital Markets

Well, no. I guess I'm saying because I think the way I understand the deals were if you sign a new deal in Vale you don't get ounces from day one because you have to work -- they work their way out of the mine through the entire milling process through to the smelter which can take a fair bit of time. So you have sort of a lag of I guess several quarters for all that 'pipeline' builds up. Could you structure deal so that you can start participating in ounces from day one somehow?

Gary Brown

We have to, yeah. I mean, we have to have a sort of a control point and we prefer to have the control point at the mill itself in terms of what gets process through the mill itself going forward. And that way we can assess and monitor progress.

So I think that that's the best point because that's -- if you start trying to chase concentrate thing, they can get sold all over the world. Dory gets sold all over the world, right. So the one point that you can actually most accurately measure what's being produced at any mining operation is the point that it enters and enters into the mill and in process. So that's the best way to manage these contracts.

Chris Lichtenheldt - Dundee Capital Markets

Okay. That makes sense. Thanks a lot.

Gary Brown

Thanks Chris.


Your next question comes from John Tumazos with John Tumazos Independent Research. Your line is open.

John Tumazos - John Tumazos Independent Research

Congratulations on the improvement in net debt and not getting impaired.

Randy Smallwood

Thank you.

John Tumazos - John Tumazos Independent Research

In terms of the Sandspring Resources, new investment and other early stage projects that might come in the future, what is your criteria for the timetable that you expect production to -- and your revenue to arrive?

Silver Wheaton hasn't done any better or worse, but you've gotten nicked with Pas qua and Rosemont delays. Royal Gold has done Seabridge and recently bought a piece of El Morro, which don't look like they are in the next five years. And increasingly, we're little sensitive to having projects that have got a common stream in a reasonable time horizon.

Randy Smallwood

Yeah, John, the general structure and I look through each of those assets you listed off. I mean something like Rosemont where it is subject to permitting delays. We haven't contributed any capital for that, and will once construction starts. So the delays haven't cost Silver Wheaton shareholders in the sense that we haven’t actually contributed capital into that project going forward.

Now Sandspring, which is -- what you started off with in the Toroparu Project, what we look at there is a very small investment, but the optionality of being able to increase it up to represent 10% of the gold production from that asset when it gets to that stage.

And so, we think that mechanism is strong. What we essentially do is defer the bulk of the value, the largest portion of the value of our investment until the point when we have a better idea after the timing of the production, so to speak, the construction and subsequent production from those mines itself.

And so, our focus is still to try and tie the bulk of our investments at the construction stage on these development type projects. What we see with this early deposit structure that we completed with Sandspring is a way to get our foot into the door. We think it works very well in today's market.

When I look at the junior explorers and developers out there, they are not getting a lot of market support in the -- with respect to their share prices. So they're not interested in issuing shares at these prices.

And this is, I would argue, probably the only way for them to get financing to build these projects, to get these projects to the feasibility stage at which point then they can make a construction decision and that's when we will step in with the bulk of our value.

So for a very small portion upfront it's enough to get Sandspring over the hurdle and into -- get to the bank of a feasibility stage, but it also gives us the optionality of being a participant and start supporting them through the construction stage itself. And so, just -- we do really try and put a focus on making sure that most of our investment is tied at the construction stage or later.

John Tumazos - John Tumazos Independent Research

Could you walk us through the phases and decisions points in the Toroparu Project? And roughly how many years from your revenue do you think it is right now?

Randy Smallwood

Well, sure. The first phase, of course, is our commitment to them and supplying them $13.5 million to -- that's an assessment. That's what they need to complete the feasibility study, which they expect to have by the end of this year.

So we, of course, had a good look at the project and try and identify what risks there are in the project. Still we're very comfortable with the work that's been done on the project. We think Sandspring has done a great job from that perspective. And that a lot of the risk has been taken out of, it may not be detailed yet in a feasibility study, but they've done some very good work on both the reserves, the resource, the metallurgy and the processing side.

So our next decision is at the stage that they complete the bankable feasibility study, they then begin sourcing other sources of financing and get to the point of making a construction decision. Whether that happens next year, whether that happens two years from now, it will be entirely dependent on the price of gold. I think that's the key trigger point or key decision point in terms of what drives that going forward.

But we don't put any further money in until they make that decision. And once they make that decision, we will step up and well we'll have the option to review the whole thing. We're pretty confident that we will be stepping up and contributing towards those capital expenses to get that build going forward.

So it's really, sort of, a two-step process. It's a small portion of the upfront payment and delivered at this stage. It means that they did not have to issue shares and dilute their current shareholders, which is who we all work for.

They didn't have to dilute those current shareholders with any type of a very expensive financing. They get to the point where the company should be valued on the value of the project which at a bankable feasibility stage is much higher confidence level in terms of what the value of that project is.

And hopefully that's going to be enough for them to -- we believe this project -- given the right gold prices at that stage, we believe this project will be financeable at that stage and we will be happy to step-up and contribute our portion of it going forward. And it's as I said a two-step process that gives us great optionality for what I would argue very little exposure up front.

John Tumazos - John Tumazos Independent Research

Thank you.

Randy Smallwood

Thank you, John.


(Operator instructions)

The next question comes from Dan Rollins with RBC Capital Markets. Your line is open.

Dan Rollins - RBC Capital Markets

Yes. Thanks very much. Gary just wondering if you might be able to provide some insight into when you could end up paying cash taxes on your Canadian-based streams given your -- the loss carry-forwards on your corporate G&A?

Gary Brown

At current prices we're probably not -- and with the interest that we're paying now, we're reducing Canadian tax base. So, it really is dependent upon commodity prices, but I'd estimate it's somewhere in the neighborhood of 2017-2018 before we're paying cash taxes.

Dan Rollins - RBC Capital Markets

Okay, perfect. That's very helpful. And then Randy wonder if you might be able to provide a little bit of color on Yauliyacu, the ominous Yauliyacu that always seems to produce more than it’s sold. Understand they keep switching over the blend and the concentrate mix there. How much -- how many ounces do you currently have in inventory or produced but not sold from Yauliyacu, do you have that number handy?

Randy Smallwood

No, sorry, I don't have that number handy.

Gary Brown

Yes, it’s about 1.5 million ounces.

Randy Smallwood

Thanks Gary.

Dan Rollins - RBC Capital Markets

Any clarity on when we might be able to see anything that'd come through?

Randy Smallwood

Sorry, what was that?

Dan Rollins - RBC Capital Markets

Do you have any clarity -- is Glencore giving you any sort of clarity or guidance of when we could see those ounces starting to come through the balance of the bottom line?

Randy Smallwood

I think what you're going to see at that asset, you have to remember this is Glencore, which has plenty of experience in trading commodities and concentrates and such. And so I think that Glencore and then you go back and look at the scale of Glencore and the size of Glencore, this operation probably doesn't suffer from needing to move concentrates out to pay the bills, etcetera.

And so I think Glencore is very opportunistic, in terms of when they move these concentrates and I think we're just going to continue to see a very volatile trading and delivery schedule around Yauliyacu.

Some quarters it will be very low and -- because they've seen the right opportunity and moved on it, other opportunities it will -- other quarters it will build up. And so I just -- we've just gotten used to it.

The thing is it produces both an attractive bulk concentrate and attractive individual concentrates and so they are a company that's got extensive trading networks around the world and sometimes they see better opportunities for both of those style of concentrates, so we just patiently wait.

We know that it will eventually get delivered. The asset is a good asset, but it’s been operating for close to 200 years now continuously. So, we continue to see promise there and see that it will eventually deliver those ounces, but I do think that it's going to be something that's going to kick around anywhere between close to zero on some quarters and other quarters could be up as high as 1.5, 2.

Dan Rollins - RBC Capital Markets

Okay. That's perfect. And then just maybe with respect to the Vale streams, how have the payable levels sort of matched to your expectations and sort of the timing of the difference between production and sales? Is that sort of tracking online with what you had anticipated going into the deal relative to where we are a year later?

Randy Smallwood

Yes, in terms of payables or metallurgical recovery? Metallurgical recoveries are slightly better than what we expected. Payables are on target.

Dan Rollins - RBC Capital Markets

Okay, perfect. That's great guys. Thanks a lot and have a great weekend.

Randy Smallwood

Thank you very much, Dan. And thank you, operator. 2014 will be an exciting year for Silver Wheaton, as we begin to bear the fruit of some of our recent project investments.

As mentioned, we’re looking forward to seeing expansion San Dimas, Sudbury, Salobo come on line as well as startup of Constancia later this year. Also quite excited about the opportunities we’re seeing on -- for further acquisitions. This is a ripe environment right now and with the recent strength in silver and gold in the face of a stronger U.S. dollar, we believe our future is quite bright. So, thank you for dialing in everyone and stay tuned.


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

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