Wheaton Precious Metals Corp

TSX:WPM

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Wheaton Precious Metals 2021 First Quarter Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Friday, May 7, 2021, at 11:00 AM Eastern Time. I will now turn the conference over to Mr. Patrick Drouin, Senior Vice President of Investor Relations. Please go ahead.

[Patrick Eugene Drouin, Senior Vice President of Investor Relations]

Thank you, operator. Good morning, ladies and gentlemen, and thank you for participating in today's call. I am joined today by Randy Smallwood, Wheaton Precious Metals' President and Chief Executive Officer; Gary Brown, Senior Vice President and Chief Financial Officer; and Haytham Hodaly, Senior Vice President, Corporate Development. Please note for those not currently on the webcast, the slide presentation accompanying this conference call is available in PDF format on the Events page of the Wheaton Precious Metals website. I'd like to bring to your attention that some of the commentary on today's call may contain forward-looking statements. 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. Slide 2 of this presentation and our financial results contain important cautionary notes regarding forward-looking statements and I would direct everyone to review those notes in connection with the presentation as well as the risk factors set out in Wheaton's Annual Information Form, management's discussion and analysis for the year ended December 31, 2020 and in Wheaton's Form 40-F.It should be noted that all figures referred to on today's call are in U.S. dollars, unless otherwise noted. In addition, that reference to Wheaton or Wheaton Precious Metals on this call include Wheaton Precious Metals Corp and/or its wholly owned subsidiaries as applicable. Now I'd like to turn the call over to Randy Smallwood, our President and Chief Executive Officer.

[Randy V. J. Smallwood, President, CEO & Director]

Thank you, Patrick, and good morning, ladies and gentlemen. Thank you for joining us today to discuss Wheaton's first quarter results of 2021. I do hope everyone has been keeping healthy and safe since our last quarterly conference call. I'm pleased to announce that in the first quarter of 2021, Wheaton's high quality portfolio of assets generated record breaking revenue, of over $320 million and operating cash flow of over $230 million. Given Wheaton's innovative dividend policy, this strong cash flow has resulted in a 40% increase to the quarterly dividend relative to Q1 of 2020, marking the third quarterly dividend increase in a row. In addition, we continue to execute on our growth strategy, closing the previously announced stream on the Cozamin Mine, located in Mexico and announcing a new stream on the Santo Domingo project located in Chile. Both assets are owned by Capstone, a company, we are very pleased to re-partner with, as they grow these exceptional assets. Haytham will provide more details on our corporate development activities later in this call. Our organic growth profile continues to advance with Hudbay, announcing that they are on track to achieve production from the Pampacancha deposit in -- at the Constancia mine in the second quarter. Two of our development projects transitioned into operating mines in the first quarter with Wheaton receiving silver from Alexco's Keno Hill and cobalt from Vale or Vale's of Voisey's Bay. Lastly, our confidence in our ability to deliver continued long-term organic growth from our portfolio led us to introduce 10-year production guidance for the first time in addition to our usual 1- and 5-year forecasts. I will provide more details on our growth profile later in this call, but I would first like to turn the call over to Gary Brown, our Senior Vice President and Chief Financial Officer, who will provide more details on our results. Gary?

[Gary D. Brown, Senior VP & CFO]

Thank you, Randy, and good morning, ladies and gentlemen. The company's precious metal interests produced 190,400 gold equivalent ounces in the first quarter of 2021, comprised of 77,700 ounces of gold, 6.8 million ounces of silver, 5,800 ounces of palladium and 1.2 million pounds of cobalt, with Q1 representing the first period that the company had reportable cobalt production from the Voisey's Bay stream.The cobalt production in the first quarter of 2021 includes some material produced at the Voisey's Bay mine from prior periods as the company is entitled to any cobalt processed as of January 1, 2021. Relative to the first quarter of the prior year, this represented a decrease of 2% on a gold equivalent basis with lower production at Salobo being attributable to lower throughput and grade due to unplanned maintenance during the quarter, being partially offset by the first reported production relative to cobalt. On a gold equivalent basis, sales volumes were virtually unchanged as the decrease in production was offset by 4,200 gold equivalent ounce decrease in ounces produced but not delivered, or PBND, in Q1 2021. As at March 31, 2021 ounces in PBND amounted to approximately 136,000 gold equivalent payable ounces, representing approximately 2.3 months of payable production. This amount of PBND is consistent with the average PBND balance of approximately 140,000 gold equivalent ounces over the preceding 4 quarters. Revenue for the first quarter of 2021 amounted to $324 million, representing a 27% increase relative to Q1 2020, due to the increase in the average realized gold equivalent price. Of this revenue, 41% was attributable to gold sales, 54% silver, 4% palladium and 1% cobalt. Driven by the increase in commodity prices, gross margin for the first quarter of 2021 increased 42% to $175 million. Cash-based G&A expenses amounted to $11 million in the first quarter of 2021, representing a decrease of $1 million from Q1 2020 primarily due to lower accrued costs associated with the performance share units or PSUs.The company continues to estimate that nonstock-based G&A expenses, which exclude expenses relating to the value of stock options and PSUs, will amount to $42 million to $45 million for 2021. During the first quarter of 2021, the company fully repaid its outstanding debt under its revolving facility, with interest cost during Q1 amounting to only $200,000, resulting in an effective interest rate on outstanding debt of 1.17% as compared to $6 million of interest costs at an effective interest rate of 3.03% incurred in Q1 2020. Net earnings amounted to $162 million in the first quarter of 2021, a 71% increase compared to $95 million in Q1 2020. Basic adjusted earnings per share increased 54% to $0.36 compared to $0.23 in the prior year. Operating cash flow for the first quarter of 2021 amounted to $232 million or $0.52 per share compared to $178 million or $0.40 per share in the prior year, representing a 30% increase on a per share basis. Based on the company's dividend policy, the company's Board has declared a dividend of $0.14 a share, payable to shareholders of record on May 21, 2021, a 40% increase from the comparable quarter of 2020, and 8% increase from the prior quarter and the third consecutive quarterly increase, highlighting the participation that the company's unique dividend policy provides to increasing commodity prices. Under the dividend reinvestment plan, the Board has elected to offer shareholders the option of having their dividends reinvested in newly issued common shares of the company at a 1% discount to market. During the first quarter of 2021, the company repaid the $195 million which had been outstanding on the revolving facility, invested $150 million relative to the Cozamin stream and $4 million relative to the Brewery Creek royalty, with these cash outflows being partially offset by proceeds from the sale of First Majestic shares generating proceeds of $112 million and $5 million from the exercise of stock options. Overall, net cash decreased by $2 million in Q1 2021, resulting in cash and cash equivalents at March 31 of $191 million and no outstanding debt. That concludes the financial summary. And with that, I will hand the call over to Haytham for an update on corporate development.

[Haytham Henry Hodaly, Senior Vice President of Corporate Development]

Thank you, Gary. And thank you all for joining us today. I'm sure by now, you've all had a chance to go through the economics on our newest stream on Capstone Santo Domingo IOCG Project located in Chile and hopefully, you as excited as we are on this one. As you can see from the attached slide, we've entered into a gold stream on a polymetallic asset and that's exactly when streaming works best, as you're taking precious metals out of a company that's getting a base metal valuation and getting a re-rating within Wheaton, which we're also able to share with our partner in our acquisition price and that ensures a win-win scenario. It's a life-of-mine stream on 100% of the gold, dropping to 2/3 of the gold after a certain threshold ounce number has been delivered, with an 18% production payment that increases to 22%, once the upfront deposit is reduced to 0. The total stream deposit is $290 million, $30 million of which was paid on April 21, with the remainder to be paid during construction. It's a fully permitted project and assuming everything keeps moving forward at the planned pace, it could be contributing as early as 2024. We also see significant upside with potential for increased throughput and a cobalt circuit, which would actually increase our overall gold reserves down the road. This project is a long-life asset with low operating cost falling in the first cost-quartile, that will continue to contribute to the high quality of our existing streaming portfolio. In addition, I'd like to give you a bit of an overview on streaming opportunity landscape. Needless to say we've been quite busy. Lots of new precious metals streaming opportunities to look at, with the majority falling, I would say, into the $100 million to $300 million range. Primarily development-stage opportunities that fit into our early deposit structure, where we're taking precious metals as a byproduct from a base metal mine, and as I said just a little while earlier, this type of opportunities we're streaming works the best. To a lesser extent, there is a few opportunities that are focused on funding expansions, not much these days in the way of balance sheet repair, but strong commodity prices tend to fix that for a lot of companies. The fact that streaming is considered for all of these areas further highlights the competitive cost of capital and flexibility that streams can provide relative to other financing options. There've also been some royalty packages in the past and we do take the time to look at these packages, but none have made sense from a Wheaton perspective, in large part because of their size or because they come with a significant amount of non-precious metals revenues, and we are continuing to focus on precious metals streams. I would also note that the valuation for these royalty packages are often ridiculous as junior up and coming royalty and streaming companies tend to overpay regardless of quality just to build scale in an effort to get the higher valuations. Thankfully, we can continue to focus on high-quality streaming assets. All in all, we're very optimistic that we can continue to deploy our cash flows to accretively add quality streams in the current environment. Thank you, everyone, and over to you, Randy.

[Randy V. J. Smallwood, President, CEO & Director]

Thank you, Haytham. We are pleased to reiterate our 2021 and long-term production guidance previously announced in February. For 2021, Wheaton's estimated attributable production is on track to produce between 370,000 to 400,000 ounces of gold, 22.5 million to 24 million ounces of silver, and 40,000 to 45,000 gold equivalent ounces of other metals being cobalt and palladium, amounting to total gold equivalent production of approximately 720,000 to 780,000 ounces. As our strong development pipeline continues to deliver organic growth, I would like to highlight a few assets to watch for, as we look towards the rest of 2021. As I mentioned at the beginning of the call, in April, Hudbay achieved a significant milestone, as they completed the final land user agreement for the Pampacancha deposit at Constancia. Hudbay has commenced development activities in the open pit and the first production is expected in the second quarter of 2021. At Salobo, Vale has reported that physical completion of the Salobo III expansion was at 73% at the end of the first quarter and remains on track for start-up in the first half of 2022. And lastly, we closed our previously announced stream on Aris Gold's Marmato Mine last month and advanced the initial upfront payment of $34 million for 6.5% of the gold and 100% of the silver produced at -- from the mine. We expect to record our first production from Marmato with our second quarter results, which will include a catch-up from the effective date of the stream back in July 1 of 2020. In summary, Wheaton recorded a strong first quarter distinguished by several key highlights. We achieved record revenue and declared a record quarterly dividend, which was the third consecutive dividend increase in a row. Our commitment to accretive growth was emphasized by the announcement of a new stream on the Santo Domingo Project located in Chile, where we are pleased to once again be working with our partner, Capstone. While our portfolio continues to remain heavily weighted to precious metals, Wheaton received an inaugural cobalt production from Vale's Voisey's Bay mine, which we consider to be one of the most sustainable sources of cobalt in the world. Wheaton has always strived to be a sustainability leader and we were honored to be recognized by external rating agencies for our performance in this area with sector-leading scores. We look forward to updating the market on our journey in our second annual sustainability report, which will be published later this month. And lastly, we believe our portfolio continues to deliver ample opportunity for organic growth, the benefits of which we expect to see from assets such as Constancia, Keno Hill and Voisey's Bay here in 2021. So with that, I would like to open up the call for questions. Operator?

[Patrick Eugene Drouin, Senior Vice President of Investor Relations]

Operator, we're ready for questions. Operator?[Technical Difficulty]

[Randy V. J. Smallwood, President, CEO & Director]

We appear to have lost connectivity with the operator and so -- but I'm not sure if everyone else can hear us. So I'm just going to summarize because we're not getting any questions here. I just want to thank everyone for dialing in today. In closing, we believe Wheaton is well positioned to continue delivering value to our shareholders for a number of different reasons. Firstly, by having low and predictable costs, which coupled with leverage to increasing commodity prices result in some of the highest margins in the entire precious metal space.

[Patrick Eugene Drouin, Senior Vice President of Investor Relations]

Sorry. Randy, I hate to do this to you, but if we could -- actually there is a few questions coming on via email that maybe we can go ahead and answer despite the technical difficulties with the operator.

[Randy V. J. Smallwood, President, CEO & Director]

Sounds good.

[Patrick Eugene Drouin, Senior Vice President of Investor Relations]

The first one comes from Jackie at BMO and she's asking if we could please talk about cobalt sales as they were below production in the quarter and perhaps we can also again elaborate a bit more on the strong production we saw in cobalt as well.

[Randy V. J. Smallwood, President, CEO & Director]

Sure. So with respect to any new stream as it comes on, there's always going to be a bit of a working inventory build. And typically, in most of our precious metals mines, we guide toward 2 to 3 months' worth of production from each asset depending on whether it's a doré product or whether it's a copper concentrate. Now what happens is we do have several assets that are very vertically integrated, the Sudbury is one that we've had for many, many years now where the finished product that goes through the smelters and it is a finished product that we receive. And it's the same now with Voisey's Bay cobalt. It is not only mined at the Voisey's Bay operation, but it's now -- it's processed through the smelter out at Long Harbour, which means that the period that it's in process is a much longer period because it gives a touch of vertically integrated operation. So our guidance would be that we expect to have about 4 to 5 months' worth of working inventory in process. Now the way the contract was structured with Vale is that anything that was in work-in-progress as of January 1 is to the credit of Wheaton. And so we stepped into this contract with acquiring not only the actual production from Q1 but also the working inventory that was in the system. And being winter time, it was likely a bit of a higher inventory than normal just because of shipping them in winters through that area. And so all in all, it means a much higher working inventory at the site itself and that's what we've reported, is the higher production. The sales, of course, as we took over ownership of this stuff in inventory, we had to fill up the sales end of it and start. We have our own warehouses and our own sales agency. And so we had to -- our first sales didn't happen until the -- near the end of that first quarter. That's why sales are so much lower than the overall inventory. But with respect to Voisey's Bay, we will continually build up or we'll continually have probably about 4 to 5 months' worth of production and sort of a working inventory in process.

[Patrick Eugene Drouin, Senior Vice President of Investor Relations]

All right. We're going to -- we're just going to go with this format. Michael Jalonen has reached out and asked us for the thoughts on Barrick's successful drilling so far at Lama, including the Penelope pit, and whether or not you had thoughts as to whether we are entitled to that material as well.

[Randy V. J. Smallwood, President, CEO & Director]

Yes, we get 25% of whatever silver is produced from any of that area in the Pascua and the Lama side of the border. And so we recognize that as exploration potential. We did the original transaction, but we never really felt that we were going to see production from that. The Pascua-Lama deposit is definitely a core focus area, but with the Penelope and other regions around Lama having capacity to deliver upside value, it further reinforces why we wanted to keep the stream. Even though we had the option to collapse the stream and get our money back from Barrick, we chose to keep it. This is an asset that we are confident will eventually deliver metal to us and in one form or another, it sounds like it will be coming.

[Patrick Eugene Drouin, Senior Vice President of Investor Relations]

Another question coming in, Randy. As far as the discussions on Pampacancha with Hudbay, if we can provide any additional color on that as far as the penalty payments that were to be due coming at the end of the second quarter?

[Randy V. J. Smallwood, President, CEO & Director]

Well, look, Wheaton has long prided itself on being a partner in our streaming agreements and Hudbay is, of course, a very important partner for us from 777 all the way through to Constancia, and ultimately to Rosemont. And so we will work with them. I mean we do have to preserve, but the reason we have these measures in place, these penalty payment mechanisms in place is to protect our own shareholders and the value that we've delivered. But we will work with Hudbay, we are in discussions with them to find a way that will deliver good solid value to not only preserve the value that we have but also work and provide some support to Hudbay and so that's a discussion that's in process.

[Patrick Eugene Drouin, Senior Vice President of Investor Relations]

I'm just going to, sorry, ask one more time. Is the operator on the line currently? Okay. I appreciate the emails coming in. We'll stick with the questions as they are coming in and I appreciate, analysts, you rolling with us on this technical issue we're having.

[Operator]

I'm here. Your first question is from Tyler Langton from JPMorgan.

[Tyler J. Langton, Research Analyst]

It is with Salobo, I think, Randy, maybe last quarter you had talked about that you're hopeful that they might be close -- that Vale might be close to making a decision on whether they would stockpile the low-grade ore maybe sometime in the first half of this year. Just kind of any updates or thoughts there?

[Randy V. J. Smallwood, President, CEO & Director]

Yes. And this relates to the mining plan for the Phase 3 as the Phase 3 comes in, what portion of the ore will they stockpile versus feeding through the mill, what grade profile do they choose to move forward. It is an active discussion. We've been in talks with them, they haven't made any final decisions yet. And so we're continuing to work with Vale to see which direction it should go. It's quite clear that in the copper industry worldwide in large-scale open pits, there's a lot of economic sense and especially in today's price environment, there's a lot of economic sense in moving some of the higher-grade products forward and stockpiling low-grade materials. It makes strong sense in every copper operation in the world. And so we're hopeful that Vale does choose that path or can choose to continue on that path. That's what they're doing right now with the first 2 phases. Again, we're just waiting for a final decision out of that group.

[Tyler J. Langton, Research Analyst]

Okay. And then just one more additional question on Salobo. I guess I think in the release, you mentioned that production was just impacted by lower throughput. I guess there are some changes in the maintenance routines. Is this just largely be behind them going forward, just how to think about that?

[Randy V. J. Smallwood, President, CEO & Director]

It was really -- they basically had to go through a bit of a safety reset on the maintenance side because of a couple of incidents that they had in the fourth quarter of last year and something that we strongly, strongly support. Net 0 harm is always an objective that we want all of our partners to strive for and it is exactly what Vale is striving for. And so they had to go through a bit of a reset in the maintenance side, and what -- where this had an impact really was equipment availability during the first quarter. They're definitely better than they were at the start of the year. They definitely have improved, but there is still some progress to be made. Again, it has to be done safely and we're in full support of that, but there may still be some residual impacts into the second quarter. The advantage of -- the opportunity here is to in terms of making sure again that all the operations are run with net 0 harm.

[Operator]

Your next question comes from the line of Ralph Profiti from Eight Capital.

[Ralph M. Profiti, Principal]

Randy and maybe Haytham, when I look across the Wheaton stream portfolio, the vast majority of term exposure is life of mine and -- however, I'm seeing more and more transactions happening in the market with these buyback options on the part of the operator, and I'm just wondering would you say that that's a characteristic that you're seeing in some of the corporate development activities that you're looking at, are you open to those types of deals? And I guess my second question is, would you carry a higher investment threshold when you look at those types of deals given the potentially lower optionality?

[Randy V. J. Smallwood, President, CEO & Director]

Haytham, I'll let you answer that one.

[Haytham Henry Hodaly, Senior Vice President of Corporate Development]

Sure, you bet. Thanks for the question, Ralph. And just to answer your question, yes, we are seeing a lot more buybacks at least by our competitors. Buybacks are appropriate for certain sized companies. For junior companies that are building and have a strong potential for an acquisition opportunity where they are going to be acquired, we see that as pretty important to them. What you've seen in our transactions in the past is we've offered buybacks in the event of a change of control, but in that buyback, we do tend to get some pretty reasonable returns. If we're looking at buybacks without a change of control, we really are quite opposed to that, unless we're getting a return that's well, well above our typical returns for these streaming opportunities. And our typical return, I believe, is somewhere around 17%. So we'd be looking for something between 25% and 30% if we're going to do something to that effect. But again, we're opposed to that. We're really pushing on these life of mine contracts with buybacks for these junior companies and these early deposit structures only in the event of change of control, Ralph.

[Ralph M. Profiti, Principal]

And then if I can just maybe have a follow-up. Rosemont, Hudbay is talking about sort of alleviating some of the permitting on federal lands by going sort of with a smaller footprint on non-federal lands. Just wondering if you have sort of any early indications of what that could mean. And if the footprint and the scale of the project changes, how does that impact the $230 million contingent payment? Was that based on a certain output and throughput?

[Randy V. J. Smallwood, President, CEO & Director]

Yes, I'll take that one, Ralph. First off, it will have an impact. It's not so much the actual operation itself, the deposit itself, so mining will still be along the lines. Where it has an impact is where do you store your country rock or your waste rock disposals and where do you stockpile your tailings. And that's going to have an extra cost to it if you're limited in terms of that. And so you always hate if an operation is going to go forward -- I mean, I'm a believer we should always try and make these things as efficient as we can and costs like that, all they do is drive up the impact of these operations, and you're just only getting the same benefit. And so it just makes sense from all perspectives, from any sustainability perspective, anything along those lines to make sure that we do this as efficiently as we can. And so I'm hopeful that they are successful in terms of being able to do it on a best-design basis, irrespective of federal lands or not. But so the deposit itself, those extra costs will obviously have an impact in terms of cut-off grades and stuff like that, but the deposit itself has very, very high margins. And so, therefore, it shouldn't be -- I wouldn't expect any significant impact at all actually. And in fact, I would say that some of the exploration success that they've had in the area will be a very, very pleasant addition too from a value perspective. We've always felt there was good, strong exploration potential there and it just hasn't been explored because it's been in a -- tied up in a permitting process for such a long time. Nobody likes the variability of exploration success and what kind of an impact that might have, but this is now looking even -- we're starting to see evidence of that exploration potential. With respect to the actual contract itself, we have -- because it's a development contract where we're funding construction, there'll be completion tests and certain levels of production that has to be attained, standard format for our construction funding contracts.

[Operator]

Your next question comes from the line of Jackie Przybylowski from BMO Capital Markets.

[Jackie Przybylowski, Analyst]

And I just wanted to ask a follow-up to the question that Patrick read already. On cobalt, sorry to go back to this, but can you just give me an idea, just because I'm trying to fine-tune my model, is the production that you reported for Q1 cobalt from Voisey's Bay, is that something that we would expect to see sort of on a steady-state run rate? Do you think that's indicative of where cobalt should be going forward?

[Randy V. J. Smallwood, President, CEO & Director]

No, it's actually light for a steady-state run rate, mainly because we had to get our own systems in place in terms of warehousing and build up with the agency agreement that we have, build up an inventory, and start having our first sale. So our first sale didn't actually occur until near the end of the first quarter. When you look at the overall production and you see -- I mean, again, the way we typically run these things is I mean, we've given our guidance in terms of production on a per year basis. This is going to require about 4 to 5 months' worth of working inventory. So if you just take a little bit less than half of that annual production number, that's what we'll probably wind up having in a working inventory basis from Voisey's Bay. And it is going to be -- it is going to have some -- a bit more variability than what we've had or volatility than what we've in some of our other materials, mainly because these are lump-sum sales, we tend to sell a block of cobalt at a time. And so depending on whether it happens before quarter end or after quarter end, it's going to have a bit of an impact. So we will have some volatility in terms of these sales numbers out of Voisey's Bay. But I think that if you sort of blur your eyes a bit, I would set aside about 4 to 5 months' worth of the share of annual production, keep that as a working inventory, and then of course our annual production should be about -- I am sorry our quarterly production should be about 1/4 of our estimated annual numbers.

[Gary D. Brown, Senior VP & CFO]

Yes, Jackie, maybe I'll just add some additional color there. This was the first quarter that we were entitled to cobalt from Voisey's Bay. And we're entitled to anything that had been processed but not sold. That was sitting in inventory as at January 1, 2021. So there is probably 4-plus months of production that had been, that was sitting in inventory at January 1. So our production run rate that is attributable to us is estimated at about 400,000 pounds a quarter.

[Jackie Przybylowski, Analyst]

That's really what I was -- what I have been modeling. So the production number that you reported surprised us, I guess on the, positive side. So just wondering if we were just way low on production. Maybe if I can just ask one other question. Your results for Q1, it looks like at least in my numbers and from what I can see the consensus numbers as well was a little bit lighter than expectation on gold and a little stronger on silver, and it seemed like it kind of worked out to being kind of net-net, but I noticed you haven't changed your guidance, are you expecting that ratio to reverse and gold will strengthen going forward from here?

[Randy V. J. Smallwood, President, CEO & Director]

Well, gold of course, Salobo is a very important part of our gold production. Salobo, though there is a bit of a safety reset, that's still in process there, and Vale is taking that very seriously, as they should. And so that's unlikely to be made up. You can't process more tonnes through the mill, the mill has only get a certain amount of capacity. And so with the lower production in the first quarter, we'll climb back up to the regular run rate as these new safety measures are fully embraced and everyone -- and it returns back to normal operating rates. And so I don't think -- we'll probably not see some of that gold production that we missed in the first quarter, but fortunately, we had Peñasquito step up and deliver on the silver side as an offset. I mean it's -- again, the benefit of how diversified our portfolio is that when we have one asset weak to have it made up elsewhere, has done very well for us.

[Operator]

Your next question comes from Cosmos Chiu from CIBC.

[Cosmos Chiu]

But maybe my first question is on costs. I noticed that cash costs in Q1 was $6.33 per ounce for silver higher than last quarter, in part due to this others category, which was $9.41 per ounce. Could you maybe talk a bit more about that? Is that Alexco? And what should we expect for the remainder of 2021?

[Randy V. J. Smallwood, President, CEO & Director]

Well, Gary, you want to chime in?

[Gary D. Brown, Senior VP & CFO]

Yes, I mean from a cash cost perspective, that's certainly the primary driver of the increase in the silver cash costs. And it's just a mixture. You've also got streams like Antamina, where we're paying a percentage of spot. So as spot prices increase, so does our production payment.

[Randy V. J. Smallwood, President, CEO & Director]

It's a combination across. And we do also have some other contracts where we have incentives for production and higher production payments for higher production levels and that would also feed into some of those contracts. And so it's a combination of all of the above.

[Cosmos Chiu]

And then maybe a quick question here on Santo Domingo. Hopefully, you're kind of monitoring the situation in Chile. I guess they're talking about higher taxes, who isn't, but is this keeping you up at night, Haytham, or how should we look at it? Would you like to make a comment on the potential impact?

[Randy V. J. Smallwood, President, CEO & Director]

Yes, I'll pass in a word there first and then Haytham can add in if you want. But it's one of the reasons that we do focus on first quartile. We focus on assets that have the capacity to handle impacts like this and still be profitable for all the stakeholders, including governments and communities and the likes. And so that is an incredibly important aspect of our investment. I think it's something that really we try and differentiate ourselves here at Wheaton in terms of focusing on this. The bottom half of the respective cost curve, Santo Domingo is our first quartile producer. That being said, we are seeing this around the world. As you alluded to there, what government isn't trying to raise tax revenues to try and fund the programs that they're all having to implement around the world. And so again this is something that we're used to seeing. I mean some of the increases in Chile are quite surprising in terms of the scale and the difference, and you do get concerned that it's going to have an impact on other investments into the country versus other countries and if perhaps this is going to make countries like Peru or Ecuador or Colombia even more attractive from that perspective. So it's something that you do monitor, but again, it really reinforces the importance of having good, strong operating margins, so that we can handle stuff like this and still deliver positive value to all stakeholders. So Haytham, you want to add anything to that?

[Haytham Henry Hodaly, Senior Vice President of Corporate Development]

No, you hit the nail right on the head there, Randy. I think the only thing I would say is, this is a -- as Randy said in terms of cost quartile, first cost quartile asset, payback on this based on the economics at the time were less than 2 years. So this is a phenomenal project. It's a fully permitted copper, iron ore, iron oxide copper-gold project. If you look at what they're doing in terms of overall costs to reduce costs, they've entered into this agreement with Puerto Abierto on the ports there working on an agreement to replace iron pipeline with rail options. So there's so many different cost savings and this project is really only getting better. So it's unfortunate that everyone is trying to get their own extra little bit of tax, but I can tell you this project stands on its own.

[Cosmos Chiu]

Of course. Maybe one last question here. As we've heard from silver producers, silver operators, it's much harder to make acquisitions on silver deposits and as we've seen, a lot of silver producers are diversifying and acquiring gold assets. Is that the same case in terms of the royalty and streaming business? Are you finding it harder to make acquisitions in silver versus gold, or is that not really the case?

[Randy V. J. Smallwood, President, CEO & Director]

Well, there's definitely a bias. Silver tends to be a more common byproduct from lead-zinc operations and we haven't seen a lot of investment into the zinc space of late. We still haven't seen a big kick up. I mean focus on gold, or sorry, the focus on the copper that we can focus on copper and even nickel to that extent, tends to have more of a gold byproduct than it does to the silver byproduct. And so we are seeing more gold than we are silver. It is, to me, one of the factors that does make silver so attractive is the fact that there's just not a lot of growth coming into the space. And I agree, it seems to be a natural progression that all silver companies eventually become precious metals' companies because they just [indiscernible] if they can't find enough opportunities to grow in the silver space and still stay focused on the silver and it kind of highlights that. And so yes, we definitely have a bias towards gold in our corporate development portfolio. I will highlight that in our optionality portfolio, we are very heavily silver bias. Obviously Pascua-Lama, Rosemont is dominant silver production, Navidad is dominant silver production. So it's a -- the optionality will deliver us some good, strong silver growth over the next few years as we continue to add other opportunities that will probably tend to be more gold focused.

[Operator]

Your next question comes from Puneet Singh from Industrial Alliance.

[Puneet Singh, Analyst]

You talked a little bit about it on the last conference call, it did look like you got a premium in the first quarter on the realized cobalt price. Can you give us an update on the marketing side of it and how that's progressing?

[Randy V. J. Smallwood, President, CEO & Director]

Sure. So the cobalt from Voisey's Bay, of course, is all produced at Long Harbour, so it's got good clear provenance all the way down. We have entered into an agency agreement. So we have a representative that markets this product. The representative is, of course, very familiar with the product. They've been marketing it now for about the last 5 or 6 years. And so it is a preferred product that goes out to market. There is a clientele that understands the product and understands what it's best used for. And so in a sense, we've been able to take advantage of some of the learnings of the previous and we sort of wrap that into our own portfolio, into our own actions now. We're -- this is a bit of a -- as this is -- it's a new product for us and so there's going to be a bit of a learning curve for us. We are studying it and trying to find ways to even deliver more value as we can. Again, our belief behind the quality of the production from Voisey's Bay with a partner like Vale and with an asset like Voisey's Bay, this is a product that should stand out in the cobalt space as a preferred product for anything out there that -- and especially given how important provenance is, we're really happy bringing this product into our portfolio.

[Operator]

Your next question comes from Richard Hatch from Berenberg.

[Richard James Hatch, Analyst]

Just a quick one. On Pampacancha, can you give us any kind of steer as to how we should or could think about those extra deliveries, or is it just a case that we have to kind of wait and see how the discussions go with Hudbay? I appreciate it's pretty small, but just kind of getting into the bones of it.

[Randy V. J. Smallwood, President, CEO & Director]

Sorry, I mean Pampacancha is expected to be producing by here in the second quarter of this year. I think you might be referencing the penalty payments, sorry?

[Richard James Hatch, Analyst]

Exactly. Yes. Sorry, if I wasn't clear, that's exactly, yes.

[Randy V. J. Smallwood, President, CEO & Director]

Yes. And so we did, given the challenges that Hudbay was facing, especially in the pandemic and trying to sort of work forward with the community down there, but having all the restrictions on the pandemic, we did give them a 6-month waiver and extended the -- some of the deadlines in terms of -- in support of their challenges of trying to work their way through the pandemic and move it forward. They have finally been successful, but it was a bit later than expected. And I mean, I can't give any more color because we're still in discussions with them. So there hasn't been any final decisions. But we are -- we do intend to be supportive of Hudbay, they are a good, strong partner of ours. They are a partner that recognizes the value of streaming in terms of helping them build their company and what we can actually deliver as a partner with theirs. And so I can't go into any other detail other than the fact that we are in discussions with them to find a way. It is interesting, there is higher payable rates for the Pampacancha zone than there is for the main Constancia pit, just because of the higher precious metal grades, it gets better recoveries. And so that there is all sorts of opportunities. They've also acquired some additional land in the area, there is lots of opportunities to discuss and work together. Our intent, as always, is to come up with a solution that not only preserves value for our shareholders, but also delivers value to their shareholders and find a way to make sure that it's a win-win situation. And until we finalize those discussions, there is no more detail to provide because we just don't know what the final number is going to be.

[Richard James Hatch, Analyst]

Understood. No worries. And then just on -- can I just ask one follow-up? I mean we talked about this last quarter just on dividends. You sold down your First Majestic shares, got another $112 million in the bank, moved to net cash, appreciate -- completely appreciate that with the rising commodity price and the way the dividend policy is kind of placed is a natural rising dividend payment just due to the nature of the policy and the way that commodity prices move. But net cash balance sheet, where is your thought process on kind of raising that dividend and pushing it even higher? I mean is this still the case that we wait to the second half of the year, see how the business development plays out and then consider it, or is there any other sort of change of view there, or is it kind of steady as she goes?

[Randy V. J. Smallwood, President, CEO & Director]

Well, it's -- I mean, before the end of this year, it will still be steady as she goes. We have entered into a number of contracts where we're actually drip feeding into construction as these projects go into construction, and so there will be some cash going out the door. And then Haytham, as he described earlier on is, he and his team are incredibly busy on the corporate development front. There is a lot of base metal interest in the world right now. With copper prices and nickel prices doing what they're doing, there is a lot of interest in sort of funding and investing into growth in that space. I would say the base metal industry has really woken up from a slumber, a long slumber and is now really focused on how do they grow. And I can't highlight how much value a stream delivers to a base metal asset when you're looking to build or expand. The amount of capital that we contribute versus the share of revenue that we take away will always improve the project's internal rate of return. And we always deliver a higher value for those precious metals that we're purchasing than what they're being valued in those companies portfolios. And so it just is -- it's such a positive. And we really saw that I think quite strongly in Capstone share performance once we announced the Goldman deal back in December. It's just -- it's the best way equity to provide equity financing for these projects going forward. So we do see a really big opportunity set right now on the corporate development front. I challenged Haytham, and so far he's doing a pretty good job of stepping up to it in terms of spending the money as fast as it's coming in, but we'll see. Obviously, we'll build up a bit of a war chest, but we don't want anything to get too big. I would expect that next year if we haven't made any significant investments and we're still well to the positive from a cash balance, then we will be giving some serious consideration to what that dividend -- whether that --whether the dividend stays at 30% of cash flow or whether it climbs to 40% or 50% or whatever. We'll sort of see as it goes. But our primary objective is to continue looking for accretive acquisitions and put that money back into the ground, and what I call the best vault of the world is ounces in the ground.

[Gary D. Brown, Senior VP & CFO]

And Richard, if I can just add to that. We have really ceded our organic growth profile ignoring what Haytham and team are evaluating right now. So we've got the Rosemont development project, Santo Domingo now, we've got the deep zone at Marmato, the Salobo expansion. And so if you look at the payment profile associated with that, we've got about $1.6 billion of payments that come due in those projects, either get completed or start moving forward. So we always take all that into account when making capital allocation decisions.

[Richard James Hatch, Analyst]

Congrats on a very good quarter once again.

[Operator]

Your next question comes from the line of Matthew Murphy from Barclays.

[Matthew Murphy, Analyst]

Just not to beat a dead horse on the cobalt, just checking the guidance. Does the guidance that you put out include the work-in-process material that you inherited before -- from pre-2021.

[Randy V. J. Smallwood, President, CEO & Director]

I will admit that we underestimated it. We expected some, but we didn't think it was going to be that much. So it's definitely biased towards -- it looks good for cobalt production this year. Well, thanks everyone for dialing in and your patience in terms of some of the technical difficulties, at least on that side it's kind of nice that we have multiple forms of technology here, and we were able to get some questions in from email. So look, I just want to -- it was a good strong quarter. We believe that we are very well-positioned to continue delivering value to our shareholders, number of different reasons, low and predictable costs, leverage to increasing commodity prices and some of the highest margins in the entire precious metal space. Our portfolio, we believe, is some of the highest quality mines in the world, a good long-life, low-cost assets that will deliver value for a very, very long time, reinforced with our 10-year guidance we put out. The strength of our dividend policy, unique, linked to our cash flows and we're going to see continued strength there, especially as we see the organic growth and commodity prices providing support for that. We're going to see continued strength on the dividend side. And sustainability, something that's incredibly important for us. We work with our partners on a continual basis to try and make sure that combined, we as a partnership deliver the best product we can for all the stakeholders, including the communities, including the governments, including everyone else, that gets benefits from these efforts. And so it's just the right thing to do.And so with that, thank you, everyone, for your patience in terms of working through the technical, and I do look forward to speaking with all of you again soon, hopefully sometime very soon face-to-face. Fingers crossed. Thanks again.

[Operator]

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