Wheaton Precious Metals Corp

TSX:WPM

Earnings Call Transcript 2019-Q2

[Operator]

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wheaton Precious Metals Corp. second quarter results. [Operator Instructions]I would now like to turn the call over to Mr. Patrick Drouin. 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'm joined today by Randy Smallwood, Wheaton Precious Metals' Chief Executive Officer and President; Gary Brown, Senior Vice President and Chief Financial Officer; Haytham Hodaly, Senior Vice President of Corporate Development.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.In addition to our financial results cautionary note regarding forward-looking statements, please refer to the section entitled Descriptions of the Business Risk Factors in Wheaton's Annual Information Form and the risks identified under Risks and Uncertainties in Management's Discussion and Analysis, both available on SEDAR and in Wheaton's Form 40-F and Wheaton's Form 6-K, both on file with the U.S. Securities and Exchange Commission.These documents, together with the Q2 2019 MD&A and the press release from last night, set out the material assumptions and risk factors that could cause actual results to differ, including, among others, fluctuation in the price of commodities, the absence of control over mining operations from which Wheaton purchases precious metals and risks related to such mining operations and the continued operations of Wheaton's counterparties.It should be noted that all figures referred to on today's call are in U.S. dollars unless otherwise noted. In addition, reference to Wheaton or Wheaton Precious Metals on this call includes 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 second quarter results of 2019. The first half of 2019 has provided a solid start to the year, and I am pleased to report we delivered strong operating results from our diversified portfolio of high-quality assets. In the second quarter of 2019, we produced over 100,000 ounces of gold and over 4.5 million ounces of silver. From a cash flow perspective, Wheaton generated nearly $110 million of operating cash flow and declared a quarterly dividend of $0.09 per common share, in line with our minimum target set for 2019 by the Board of Directors. Looking forward, we are currently on track for record annual gold production, and we have reconfirmed our gold equivalent production guidance for the year. With that, I'd like to turn the call over to Gary Brown, one of our senior vice presidents and our 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 interest turned in a solid second quarter performance despite operations being suspended at Peñasquito for a large part of the period. Production for the second quarter of 2019 amounted to 162,000 gold equivalent ounces comprised of 101,000 ounces of gold, 4.8 million ounces of silver and 5,700 ounces of palladium. Relative to the second quarter of the prior year, this represented an increase of 11% in gold production and a decrease of 19% in silver production. The increase in gold production was due primarily to the new streaming agreements relative to the San Dimas and Stillwater mines coupled with higher production at Sudbury, partially offset by lower production at the other gold interests, including Minto, which was placed into care and maintenance in October of 2018. While the decrease in silver production was primarily due to the termination of the San Dimas silver stream effective May 10, 2018, and reduced production at Peñasquito resulting from an illegal blockade, which began in April 29 and ultimately was resolved in late June.Sales volumes amounted to 90,000 ounces of gold, 4.2 million ounces of silver and 5,300 ounces of palladium in the second quarter of 2019, representing an increase of 3% for gold and a decrease of 29% for silver relative to the second quarter of 2018. The increase in gold sales volumes was due to the higher production levels, largely offset by negative changes in the balance of payable gold produced but not yet delivered to Wheaton. The decrease in the silver sales volumes was attributable to the lower production coupled with negative changes in the balance of payable silver produced but not yet delivered.As at June 30, 2019, approximately 81,000 payable ounces of gold, 3.3 million payable silver ounces and 4,500 payable palladium ounces had been produced but not yet delivered to the company, consistent with what we would expect to be normal levels. Revenue for the second quarter of 2019 amounted to $189 million, representing an 11% decrease relative to Q2 2018 primarily due to the decrease in the silver sales volumes. Of this revenue, 63% was attributable to gold, 33% was attributable to silver, and 4% was attributable to palladium.Gross margin for the second quarter of 2019 decreased 23% to $67 million due to the lower sales volume combined with higher depletion rates associated with the ounces coming from San Dimas. Cash-based G&A expenses amounted to $11 million in the second quarter of 2019, virtually unchanged from Q2 2018. Interest costs for the second quarter of 2019 amounted to $12 million, resulting in an effective interest rate on outstanding debt of 4.25% as compared to $6 million of interest costs at an effective rate of 3.44% incurred in Q2 2018.During the second quarter of 2019, Cobalt 27, which has a stream relative to Voisey's Bay, having similar terms to our Voisey's Bay cobalt interest, announced that they had agreed to a proposed acquisition by Pala Investments. Based on information available to us, we have estimated the price paid by Pala for Cobalt 27's Voisey's Bay stream was significantly lower than the original purchase price, which we have concluded represented an indicator of impairment relative to our Voisey's Bay cobalt interest. As a result, we have recognized an impairment charge of $166 million relating to this stream during the second quarter.The net loss amounted to $125 million in the second quarter of 2019 compared to net earnings of $318 million in Q2 2018. After negating the effect of the impairment and other items that are nonrecurring in nature, adjusted net earnings in the second quarter of 2019 amounted to $45 million compared to adjusted net earnings of $72 million in Q2 2018, with the decrease being primarily the result of lower sales volumes relative to Peñasquito, which was negatively affected by the illegal blockade in the quarter; lower margins relating to San Dimas due to the conversion of the stream from the silver stream to a gold stream; lower gold sales volumes relative to Salobo due to timing of shipments; and higher finance costs.Basic adjusted earnings per share decreased 38% to $0.10 compared to $0.16 per share in the prior year. Operating cash flow for the second quarter of 2019 amounted to $109 million or $0.25 per share compared to $135 million or $0.31 per share in the prior year, representing a 19% decrease on a per-share basis, with the decrease being attributable primarily to lower revenue and higher interest costs. Based on the company's dividend policy, the company's Board has declared a dividend of $0.09 per share payable to shareholders of record on August 23, 2019. 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 3% discount to market. For 2019, the company continues to estimate that non-stock-based G&A expenses, which exclude expenses relating to the value of stock options and PSUs, will amount to $36 million to $38 million. The operational highlights for the second quarter of 2019 included the following. Salobo generated 67,000 ounces of attributable gold production in Q2 2019, virtually identical to Q2 2018, while gold sales volumes in Q2 2019 decreased 18% to 58,000 ounces, resulting from timing differences in gold ounces produced but not yet delivered to Wheaton. In the second quarter 2019 performance report, Vale reported that the ongoing expansion at Salobo continues to progress with the completion of earthworks in the crushing and floatation plants in the quarter.Attributable gold production relative to Sudbury in Q2 2019 amounted to 9,000 ounces, while sales amounted to 8,300 ounces, an increase compared to Q2 2018 of 39% and 89%, respectively, with Q2 2018 production having been negatively impacted by the temporary shutdown of the Coleman mine. Attributable gold production relative to Constancia in Q2 2019 amounted to 4,500 ounces, while sales amounted to 4,400 ounces, an increase compared to Q2 2018 of 42% and 103%, respectively, reflecting the receipt of 2,000 ounces of gold as compensation for the delay in accessing the Pampacancha deposit. Attributable gold production relative to San Dimas in Q2 2019 amounted to 11,500 ounces, while sales amounted to 10,300 ounces, an increase compared to Q2 2018 of 101% and 175%, respectively, as the current period represented a full quarter's production while production in Q2 2018 only included production from May 18 onwards, that being the date the contract came into effect. The Other gold interests generated 4,800 ounces of attributable gold production in Q2 2019, a decrease compared to Q2 2018 of 36% primarily due to the Minto mine being placed into care and maintenance during October of 2018. Attributable silver production relative to Peñasquito in Q2 2019 amounted to 698,000 ounces, while sales amounted to 912,000 ounces, a decrease compared to Q2 2018 at 45% and 41%, respectively. Production in the second quarter of 2019 was adversely impacted by an illegal blockade, which began April 29. On June 17, Newmont announced that it was ramping up operations at Peñasquito following the lifting of the blockade and the establishment of a dialogue process sponsored by the national government. They also stated that shipments from the mine have resumed, and the mine used the downtime during the 49-day suspension of operations to bring forward maintenance on a variety of systems and equipment. Attributable silver production relative to Constancia in Q2 2019 amounted to 511,000 ounces, a decrease compared to Q2 2018 of 8%, while sales amounted to 478,000 ounces, an increase of 15%. The decrease in production was primarily the result of lower grades in the quarter. Attributable silver production relative to the Other silver interests in Q2 2019 amounted to 2.3 million ounces, while sales amounted to 1.7 million ounces, an increase compared to Q2 2018 of 6% and 9%, respectively, with the increase being driven primarily by higher production from the Zinkgruvan and Aljustrel mines partially offset by lower production at Yauliyacu.During the second quarter of 2019, the company repaid $88 million on the revolving facility and made dividend payments totaling $64 million, which represented dividend payments for 2 quarters. Overall, net cash decreased by $39 million in Q2 2019, resulting in cash and cash equivalents at June 30 of $87 million. This, combined with the $1.1 billion outstanding under the revolving facility, resulted in a net debt position as of June 30 of $1 billion. The company's cash position, strong forecasted future operating cash flows, combined with the available credit capacity under the revolving facility, positions the company well to satisfy its funding commitments, sustain its dividend policy while, at the same time, providing flexibility to consummate additional accretive precious metal purchase agreements. With respect to the implementation of the settlement agreement with the CRA, we did receive reassessments for the 2005 through to the 2017 taxation years, which were consistent with the company's expectations, reinforcing the strength of the agreement that was executed in December of last year. That concludes the financial summary. And with that, I turn the call back over to Randy.

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

Thank you, Gary. As already mentioned, our gold equivalent production guidance remains unchanged, highlighting the benefits of our diversified and balanced portfolio. In 2019, we expect to see continued strong results from our gold operations, offsetting the impact of the lower silver production seen in the first half due to the temporary shutdown at Peñasquito, as Gary has already discussed. As such, we still expect to produce 690,000 gold equivalent ounces in 2019, but we have updated the mix of precious metals production. Specifically, we now expect to produce approximately 385,000 ounces of gold, up from 365,000 ounces originally forecast due to stronger-than-anticipated production from Salobo; and 22.5 million ounces of silver, down from 24.5 million ounces, again, as a result of the temporary issues at Peñasquito. Forecast production of palladium from Stillwater in 2019 remains unchanged at approximately 22,000 ounces. We continue to expect steady growth from our portfolio such that over the next 5 years, inclusive of 2019, we expect to produce, on average, 750,000 gold equivalent ounces annually. I would like to remind everyone that Wheaton currently does not include any production in our 5-year forecast from Vale's Salobo III ongoing expansion or Hudbay's Rosemont project. It should be noted that Hudbay recently announced that a U.S. district court issued a ruling vacating and remanding the final record of decision for the Rosemont project. The ruling prohibits Hudbay from proceeding with construction at this time. Hudbay believes the project conforms to federal laws and regulations and will appeal the decision. As a reminder, Wheaton has not made any upfront payments to date relative to the Rosemont project.And as far as the Salobo expansion, Vale continues to make excellent progress, reporting that they have concluded the earthworks in the crushing and plant areas during the second quarter. Given their progress to date and assuming construction continues at this same pace, we do expect the expansion will begin contributing to our production profile towards the end of our 5-year guidance period. Our organic growth profile continues to be very strong.Even so, on the corporate development front, we remain focused on adding additional production from high-quality accretive opportunities. Wheaton's sector-leading cash flow, coupled with the available credit under our revolving facility, provides ample capacity for continued investments. As always, we will remain disciplined and continue to focus on acquiring streams that are accretive to our current shareholders and come from long-lived assets producing in the lowest half of the respective cost curves.In summary, the first half of 2019 has provided a solid start to the year, and we are on track for record annual gold production. And as our revenue is derived from a diversified production profile of 100% precious metals, we provide significant leverage to not only gold but silver and palladium as well. We believe our production remains founded in the highest-quality portfolio of precious metal streams in the industry, underpinned by very low-cost mining operations such as Salobo, Antamina and Stillwater. And so with that, I would like to open up the call for questions. Operator?

[Operator]

[Operator Instructions] Your first question comes from Cosmos Chiu from CIBC.

[Cosmos Chiu]

I guess my first question is on the guidance here. Good to hear that it's been maintained. But if I look at -- if my mathematics is correct, and sometimes it isn't, first half, you've done about 329,000 ounces. And that would imply a 10% increase in the second half. Could you remind us in terms of what -- which streams will be contributing to the increase in the second half?

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

Well, we continue to see growth on the Blitz project at Stillwater, so we'll see production on the palladium side climb up there and gold from Stillwater itself going forward. We see continued -- like full operations at Peñasquito through the course of the year. We did have a 2-month shutdown through that whole process. Salobo continues to surprise to the upside. And then the other one that's performing nicely and has seen some nice upgrades is San Dimas. First Majestic is getting in there, getting their hands dirty. They've got a good, strong operating team on site, and we're confident that First Majestic's got some continued upside opportunities on the San Dimas side. We're seeing that in terms of what they've been able to do.

[Cosmos Chiu]

Okay. I guess maybe more specifically then maybe on a few of these assets. Peñasquito, the blockade has now been cleared. So should we expect a normal quarter in Q3 closer to the 1.2 million, 1.5 million ounces of a normal quarter?

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

1.2 million to 1.5 million seems light for me. I don't have the hard numbers in front here for our credit, but that seems a little bit light on our side. I think we're higher than that on a quarterly basis. I think we're up a few million ounces...

[Gary D. Brown, Senior VP & CFO]

Yes, we are. And you have to remember, Cosmos, that we're -- they're getting into much higher-grade material.

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

And Peñasquito over the next 2 to 3 years -- or I should say over the next 4 years, sees the highest precious metal grades that it's ever seen. And so it's the highest-grade portion. It's a little bit biased towards silver at the front end, which is, of course, important to us. And then the gold grades climb up very nicely over the next few years after that. And so we do see continued growth there. And so definitely up over 2 million -- a normal quarter of production from Peñasquito should see much -- higher than 2 million ounces a quarter to our credit.

[Cosmos Chiu]

Okay. So it should be a normal quarter starting in Q3.

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

It should be. I mean on the sales side, there might be still some hangover coming through in terms of deliveries. But the production, again, with the start-up, it should be pretty good.

[Cosmos Chiu]

Yes. Maybe on Salobo. Earlier on during 2019, when we talked about 2019 guidance, we were told to be careful in terms of Salobo first half grade. It could be lower. Clearly, it didn't really happen. I just want to make sure that there's no surprises, that these potentially lower grades won't impact the second half.

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

We haven't seen any evidence of it. And in fact, everything we've seen points towards the positive. And so we've had our guidance...

[Cosmos Chiu]

So what happened, Randy?

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

I'm just going to say that in our experience with Vale and the Salobo operations, they're a very conservative group. They've been able to deliver. They're a very refreshing asset in our portfolio in terms of being able to consistently outperform our own expectations. And so it continues to perform, continues to do well. We've seen it as being a relatively -- when we did the original due diligence on this project back in 2013, we saw upside potential in terms of their great estimation methods and their performance. And we thought they were being a little bit too harsh on their dilution estimates, and the combination of that has continued to deliver value -- extra value back to us and our shareholders.

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

And Cosmos, it's Patrick here. Q1 is typically the rainy season, obviously, in Brazil. And sometimes, it will limit access to certain portions of the orebody, which we were anticipating. And I think Vale was forecasting that they wouldn't get into some of the higher-grade material in Q1 because of weather. They were able to get into more higher-grade material, which pushed Q1 up. So we don't see any reason why they shouldn't be accessing good ore for the rest of the year.

[Cosmos Chiu]

Okay. And then at Constancia, I guess Hudbay earlier today talked about, I guess, some issues at the port in Peru a build-up of concentrate at Constancia. Do you see any risk in that? It's not your biggest stream, but have you factored that into your guidance?

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

We haven't. To date, it hasn't had a lot of impact on the Hudbay side. Those protests aren't related to the Constancia project, and so -- but it is the same port facility that Hudbay currently uses. And so we haven't seen any impact to that, and we're confident that they'll work their way through that.

[Gary D. Brown, Senior VP & CFO]

And we wouldn't expect that to affect production. It may affect the timing of shipments.

[Cosmos Chiu]

So it won't impact your production, but it might impact your sales.

[Gary D. Brown, Senior VP & CFO]

It might.

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

Yes.

[Cosmos Chiu]

Okay. Maybe switching gears a little bit, looking at the income statement here. Clearly, you had to take a write-down on the Voisey's Bay cobalt stream. Could you tell us what price did you use in terms of calculating the realizable value? And how does that compare to spot price today?

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

Well, the updated valuation is reflective of today's market. The price that we used there originally -- priced at -- was somewhere between today's price and the spot price at the time. It was well below the spot price at the time.

[Gary D. Brown, Senior VP & CFO]

It's actually laid out in the financial statements, Cosmos. We used $14.83 cobalt.

[Cosmos Chiu]

Per pound? Okay.

[Gary D. Brown, Senior VP & CFO]

Yes. On the new valuation, yes, yes.

[Cosmos Chiu]

Is that spot today? Sorry, I don't have the spot price in front of me for cobalt.

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

The cobalt market's got a lot of different spot prices, and so it's reflective of the spot market today. And I just want to point out we don't see any production from that asset until 2021. And obviously, prices haven't done as well as palladium have for us, but -- and we are seeing production from Stillwater. So I still think we're -- on that front, definitely, yes. But 2021 is still a ways off before we see any production from the Voisey's Bay mine. The project is moving forward well, and I am still very optimistic about that asset delivering good value for us and our shareholders.

[Cosmos Chiu]

Yes. And talking about the spot market. I'm, by no means, an expert in cobalt. But I'm reading that, I guess, Glencore is talking about shutting down the Mutanda mine in the Congo. Have you looked into it? Like does that really take off a lot of supply in terms of cobalt? And have you seen any kind of impact? I know it's only been about 2 days. Have you seen any kind of impact on the spot price based on what Glencore is saying?

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

It definitely will. Now they've said they're shutting it down, but it isn't shut down currently. It represents about 20% of worldwide cobalt production. So it is one of the things that we found attractive about the Voisey's Bay investment was the fact that so much of it is controlled by Glencore and so much of it is coming out of the Congo. And I think those 2 attributes means that production coming from outside of the Congo and in good, stable jurisdiction with a good, strong operating partner, I just -- I believe that this product -- that our product will differentiate itself from that perspective. But yes, it will definitely have an impact, but it's not going to have an impact immediately because the mine is still producing. It has a scheduled shutdown in terms of -- sometime here in the near-term future. And when that happens, when you tighten up 20% of that supply side, there's no doubt that, that should have an impact on pricing. And I mean it will be nicely -- when we start receiving cobalt.

[Cosmos Chiu]

Yes, for sure. And then I guess on the write-down once again. Certainly, the sale of Cobalt 27 was a trigger point in terms of Wheaton Precious Metals needing to test for impairments. Correct me if I'm wrong, but I think under IFRS, unlike your good, old Canadian GAAP, you could actually write back up any impairments. And then from that perspective, maybe, Gary, what could be a potential trigger point in terms of a potential write-up in case cobalt prices come back up?

[Gary D. Brown, Senior VP & CFO]

I think that would be the impetus. The likely impetus to a write-up is a recovery in cobalt prices that we viewed as being sustained.

[Cosmos Chiu]

And there's no time limit, right? You can write it up at any time. It's not like you're going to wait a year before you write it back up.

[Gary D. Brown, Senior VP & CFO]

No. But again, like we'd want to -- the last thing I want is these accounting pronouncements to drive anomalies in our income statement. So I wouldn't want to write it back up if we just saw one quarter of cobalt price recovery. I'd want to see and be comfortable that, that was a sustained price increase.

[Cosmos Chiu]

Yes. And maybe one last quick question if I may. 4.25% interest in Q2 2019. That seems kind of high. Gary, as we mentioned last year, I think you had a 3% handle to it. And I think when we talked about this earlier, when you first put the line of credit in place, they even had a low-2% handle to it. Could you remind us, like how does it reset the interest rate? And given the credit markets today, should we be expecting a lower interest rate in Q3 and Q4?

[Gary D. Brown, Senior VP & CFO]

Yes. You have to remember, our -- the interest on our debt is driven by LIBOR, and LIBOR has increased significantly over the last 1.5 years. It's now reversing that. And so that's primarily what's driven the increase in our interest rates. And yes, I would expect that with LIBOR dropping, that the interest rate in future quarters, assuming that doesn't reverse, will be lower than it was in Q2.

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

Yes. And in addition to that, I mean the reason it climbs up is that we invested $900 million into the industry last year in terms of expanding our own profile -- or our own production profile. And as these cash flows, if we're not putting them back into the ground, they chew against that revolver. And so it's -- we did that $900 million of investments in 2018 without issuing a single share, so absolutely 0 dilution to our shareholders from that perspective. And so still a very wise source of capital for us.

[Operator]

Your next question will come from Mike Jalonen from Bank of America.

[Michael Jalonen, Managing Director]

Randy, just a question on Pascua Lama. You may have seen Barrick's press release on July 30 while Mark Bristow was visiting the site and -- or that region. And with respect to Pascua Lama, he said the focus is going back to basics in order to review the original project's parameters and to find the future potential. I guess a couple of questions. Does that mean Shandong Gold looking at heap leaching Pascua Lama has maybe gone by the wayside? And just wondering what your thoughts were, what Mark's thinking here going back to basics. Is he going to finish the rest of the mill, I guess?

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

Well, yes, I mean it's -- I'm happy that Mark and his -- as he's taken the reins of Barrick, Pascua seems to be a continued focus item of his. Every time he's down in South America, it's a topic of discussion and even beyond that. We do believe it's a great project that will do really good things for Barrick's production profile in the future. And those are the type of assets -- I think he uses the phrase Tier 1. It's definitely a Tier 1 asset in terms of its potential. From the heap leaching side, I've never really felt that this deposit leans towards that direction. I think it's -- especially when you've got a mill that is -- a first line substantively built and the second line close to half built on that mill facility, I mean their -- those investments do have some value in terms of making the decision on how to go forward. Obviously, the big challenge is on the Chilean side. But what I'm happy to see, and I saw that sort of reiterated again in that news release and in the discussions from Barrick, and I've heard it from Barrick in direct discussions with them, is that they are committed to Chile. They've got not only Pascua on the Chilean side, but they've also got a lot of other assets in Chile. And so they want to find a way to make it work. And this is a mine that can be built, and it can be built well, and it can have minimal impact. And we're comfortable that it will work its way forward. And so happy to see that Mark sees the same quality in this asset as he's taken the reins at Barrick, as I have been -- for a long time, I've long called it the best half-built gold mine in the world and still believe that. And the fact that it is half built makes it even that much more attractive to them in terms of being able to go forward. You do have the beauty of all the investment that's been put into the ground there already, giving you a head start in terms of actually bringing that asset on. So I do think that it reflects some really hidden value in our own portfolio and look forward to the day that it gets there. His additional focus on the Argentinian side -- or the team -- the Barrick team's focus on it, I find intriguing because, to be honest, the bulk of the focus in the past has been on the Chilean side, and that is where the bulk of the currently defined reserves are. But we also capture any of that optionality on the Argentinian side. So happy to see it's still a topic of conversation on their side.

[Operator]

And your next question will come from Ralph Profiti from Eight Capital.

[Ralph M. Profiti, Principal]

Just one question for me, Randy, if I may. It's on, really, deal flow. There's significant bifurcation, right, between base metal prices and these higher gold and silver prices. Would you expect to see that translate into less streaming opportunities for base metals and more for gold going forward? Is it already happening in the pipeline that you see? And what are the opportunities for you to actually sort of do something before year-end, say, for example?

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

I'm going to let Haytham take that one.

[Haytham H. Hodaly, Senior Vice President of Corporate Development]

Ralph, thanks for the question. Just to give you a bit of an overview on where we're at, it's been a very busy quarter with a number of new opportunities. We're looking at the fall into the, call it, $100 million to $300 million range. And yes, we are seeing a lot of opportunities where silver and gold are a by-product, which is exactly what you want to see for streaming. Given the nature of this type of opportunities that we're seeing, which are mostly expansion, development-stage opportunities, we wouldn't be required to put up a lot of capital in the near term. We do a lot of due diligence on these assets before we actually decide to move down the path. We would hope that we'd be able to close 1 or 2 transactions before the end of this year. But I can tell you, we're very cautious to add only the best, highest-quality assets into our portfolio. So if it doesn't happen, it's probably because the assets weren't Wheaton-type assets.

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

If I just add to that, I mean we -- I personally have never ever set objectives for our teams in terms of making acquisitions just because I don't want to have that pressure on. We're a company that, with the organic growth profile that we've got, with the strength of our current assets on a go-forward basis, we don't need to make acquisitions. We can be patient. We can wait. And so although I'm hopeful that we do continue to grow by investing back into the ground and get some of that accretive value for our shareholders at the same time, it's not something that I -- I don't want to set down hard boundaries for that. And so -- and then getting back to your comment on the divergence between base metal prices and precious metal prices and the fact that the bulk of our precious metals does come from the base metal side, you're right, there's not a lot of investment into that base metal side right now. And so it does sort of limit some of those opportunities. Now what I will say is that the split between silver and gold, we tend to get gold from copper assets, and we tend to get silver from our lead/zinc assets. And boy, there's so little investment on the lead/zinc side. And so we will -- ultimately, even though I'm a bit more bullish on silver, I think there's better fundamentals behind the price of silver. It's a very small market. And when I look at what Haytham and his team are working on from a commodity perspective, it is very, very heavily biased towards gold streams from either copper assets or even gold streams on developing gold assets or precious metal assets, gold and silver assets. But there's definitely a very heavy bias towards gold. And I predict it will continue to grow that whole gold exposure side within this company.

[Operator]

Your next question comes from Chris Terry from Deutsche Bank.

[Christopher Michael Terry, Research Analyst]

I have a few. In terms of the nondevelopment projects you have, you talked about Rosemont, Pascua Lama. Just wondering what you're seeing in terms of the other development options, which ones are making some progress. Or if you could just comment on what's getting you excited within the potential development options.

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

Yes. We've got a few of the early deposit investments that we've made, which was earlier-stage assets that are still approaching feasibility and permitting. And it's a pretty attractive form of financing. Unfortunately, we're a pretty picky team when it comes to investing, and so we turned down many more opportunities than what we -- than we have. But the one that stands out probably in terms of looking forward or moving forward is the Sandspring asset, Toroparu. It's -- they've had some renewed focus on that. They've updated -- I think it's a preliminary economic assessment, a PEA, that it's come out with. It looks like this project's going to be moving forward. They've attracted some investors that saw the same quality in this asset that we saw several years ago in terms of moving that one forward. And so -- and then the other asset that I think looks very promising is the Keno Hill asset. It's the Bermingham -- sorry, I was trying to remember the name of the vein. The Bermingham zone, incredibly high grades. And so Alexco is looking forward to moving that thing. We've seen indications of support for the mining industry from the Yukon government from a position of permitting and hoping that they step up and give a broader permit that allows Alexco some freedom in terms of how they operate that asset or -- I'd say that asset. There's a number of different veins there. And I think that is what -- what Alexco really needs is some flexibility on the site through the permitting process so that it gives them the freedom to move that project forward the way it should be. And so Keno Hill is probably a nice little hidden surprise that we don't have in our current schedule right now. Toroparu from Sandspring, I think, will look very promising. I'd take this time to just reiterate that we do not include any of the Salobo Phase 3 expansion in our current production profile, and that is a 50% increase in mill throughput capacity. Now they will be chasing some lower-grade material there, so we don't expect it to be an immediate 50% increase in gold production for us. But it's going to be a very healthy increase in gold production, and that is not part of our current production profile, the 5-year guidance that we put out. And yet we could see that production coming in as early as 2022. And so I do really think that there's some upside potential there on the development side.

[Christopher Michael Terry, Research Analyst]

Okay. And maybe one for Gary. Just in terms of the net debt level overall, just to give you the flexibility if you ought to do deals, et cetera. Just an update on where you'd like to see that. I guess it's obviously still at comfortable levels, but do you want to see it at $500 million to $1 billion net debt, that type of range? Just if you could comment a little bit on the progression of where you want that number to sit.

[Gary D. Brown, Senior VP & CFO]

Yes. Look, I don't have a target there. We are generating $500 million to $600 million of operating cash flow at current commodity prices here, and so I'm extremely comfortable with where the debt level is. If we were to look at closing acquisitions here, I'd certainly be comfortable drawing down on the revolver to consummate those transactions. And just as a reminder, we've got a $2 billion revolver, and we're drawn to the tune of about $1 billion at the end of Q2. So we've got $1 billion of capacity there. I would be very comfortable drawing fully on that if acquisitions drove that.

[Haytham H. Hodaly, Senior Vice President of Corporate Development]

And Chris, I want to -- it's Haytham here. I'll add one more thing. Given the nature of the opportunities we're seeing, little upfront capital is actually required as any spending would be staged throughout the development time line, which is typically over 1 to 3 years, and that allows us to continue our focus on repaying Wheaton's debt down.

[Christopher Michael Terry, Research Analyst]

Okay. And then for you, Haytham. Just a question in terms of the timing of these potential deals. Do you think we need to see the divestments from the majors happen first and that has to flush through before other companies will then commit to projects? Or can it come before that?

[Haytham H. Hodaly, Senior Vice President of Corporate Development]

Well, I think you've got to look at what's in the pipeline right now. The number -- the opportunities we're seeing at this point in time are primarily development stage. So a lot of the majors that are looking to develop or even expand their existing base metal operations are looking for ways to improve the internal rate of return of the project. And a stream always improves the internal rate of return of a project. So from our perspective, we look at a number of these opportunities every year, and we make sure we do a deep dive on each one before we -- to make sure we understand the opportunity before we make any kind of commitment. I do think there's going to be some additional streaming opportunities over the next 12 months. I can tell you we're seeing more opportunities now than we've seen over the last 6 months before this quarter.

[Christopher Michael Terry, Research Analyst]

Okay. And then the last one for me. Just in terms of the guidance overall in geo terms, I think on the first question, you were going through the assets that lift into the second half from a production sense. So just thinking about the conversion or the assumptions you've made on silver-to-gold ratio, will you update those as we go through the year? I guess you just -- I think you've kept those at the previous rate, and the spot's obviously changed a little bit. Just if you can comment on that.

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

Yes. No, I mean when we come out with a forecast based on a conversion ratio, we're not going to try and take advantage or disadvantage from changes in that conversion ratio. We'll maintain that consistently in terms of our guidance for the course of the year. So the 690,000 -- the updated 690,000 still maintains. I think it was 81.3 conversion ratio. 81.3 conversion ratio. Even though we're seeing a different ratio right now, that was the number that we originally used. And we're not going to let that have an impact on measuring our performance in terms of delivering that 690,000 gold equivalent ounces.

[Haytham H. Hodaly, Senior Vice President of Corporate Development]

And it also uses a 1:1 gold-to-palladium ratio, which we know is not right either, so...

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

Thank you, Chris, and thank you, everyone, for dialing in today. In closing, we believe Wheaton is well positioned to continue to deliver value to our shareholders for a number of different reasons: firstly, by having low and predictable costs that result in not only some of the highest margins in the entire precious metals space but also sector-leading operating cash flows; secondly, through our steady organic growth profile over the next few years and a proven track record of accretive quality acquisitions; thirdly, by offering our shareholders exposure to some of the best mines in the world through our high-quality portfolio of long-life, low-cost assets; and lastly, by being a leader amongst precious metal streamers in sustainability and supporting our partners and the communities in which we live and operate. I do look forward to speaking with you all again soon, and thank you very much for dialing in today.

[Operator]

Thank you, everyone. This will conclude today's conference call. You may now disconnect.