Wheaton Precious Metals Corp

TSX:WPM

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, ladies and gentlemen, thank you for standing by. Welcome to Wheaton Precious Metals' 2020 Second Quarter Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Thursday, August 13, 2020, at 11 a.m. Eastern Time. I would now like to 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'm 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. 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 Description of the business Risk Factors in Wheaton's annual information form and the risk identified under risks and uncertainties in Wheaton's annual MD&A 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, and in addition, Wheaton's MD&A for the 3 months ended March 31, 2020, available on SEDAR and Wheaton's Form 6-K filed May 7, 2020, with the U.S. Securities and Exchange Commission. These documents together with the Q2 2020 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, fluctuations in the price of commodities, impact on Wheaton ore mining operations from which Wheaton purchases precious metals as a result of an epidemic, including the COVID-19 pandemic, risk related to mining operations from which Wheaton purchases precious metals, the continued ability of Wheaton's counter-parties to satisfy their obligations under precious metal purchase agreements and the impact of any material change in fact largest jurisprudence in the CRA Settlement. 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 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 second quarter results of 2020. Before I begin, I would like to start off by saying that I hope everyone has been keeping healthy and safe since our last quarterly conference call. At Wheaton, our top priority remains the health and safety of our employees, our partners employees, and the communities in which we operate. We continue to follow guidance from local health authorities on best practices to reduce the spread of COVID-19. I will provide further details on Wheaton's response to COVID-19 and the impacts on our partner mining operations after Gary discusses our second quarter results. On that note, I am pleased to report that Wheaton delivered solid results in the first half of 2020, generating over $500 million in revenue and nearly $330 million in operating cash flow. While production in the second quarter was impacted by temporary shutdowns of some operations, sales volumes remained strong and resulted in a record 322,000 gold equivalent ounces being sold in the first half of 2020. So now I'd like to turn the call over to Gary Brown, 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 140,100 gold equivalent ounces in the second quarter of 2020, comprised of 88,600 ounces of gold; 3.7 million ounces of silver; and 5,800 ounces of palladium. Relative to the second quarter of the prior year, this represented a decrease of 16% in gold equivalent production with gold and silver production decreasing by 12% and 24%, respectively, while palladium production was virtually unchanged.The decrease in gold and silver production was primarily the result of the impact of COVID-19, with operations at 6 mines being temporarily suspended for a portion of the second quarter and an increased level of absenteeism occurring at Salobo as a result of the pandemic.While production levels decreased during the quarter, sales volumes were very strong, being augmented with the delivery of ounces produced in prior periods. Specifically, the balances of gold and silver ounces produced but not delivered, decreased by almost 31,000 gold equivalent ounces during the quarter. The resulting gold equivalent sales volume amounted to 156,000 ounces in the quarter, representing an increase of 6% relative to the second quarter of 2019. As at June 30, 2020, approximately 123,000 gold equivalent payable ounces had been produced but not yet delivered to the company, compared to an average balance of over 142,000 gold equivalent ounces over the preceding 4 quarters. With the lower levels of production during Q2 and the reduced levels of ounces produced but not delivered as at June 30, we do anticipate sales to be impacted during the third quarter of 2020 as the balance of ounces produced but not delivered returns to more normal levels. Revenue for the second quarter of 2020 amounted to $248 million, representing a 31% increase relative to Q2 2019, primarily due to a 24% increase in the average realized gold equivalent price, coupled with a 6% increase in sales volumes. Of this revenue, 64% was attributable to gold sales, 32% was attributable to silver and 4% was attributable to palladium.Driven by the weighted average increase in commodity prices of 24%, gross margin for the second quarter of 2020 increased by 85% to $124 million, highlighting the leverage our business model provides to increases in precious metal prices.Cash-based G&A expenses amounted to $20 million in the second quarter of 2020, representing an increase of $10 million from Q2 2019, with the increase being primarily related to higher accrued costs associated with the performance share units, or PSUs and higher charitable donations, with the company donating $2 million relative to the previously announced $5 million community support and response fund relative to the COVID-19 pandemic.Interest cost for the second quarter of 2020 amounted to $3 million, resulting in an effective interest rate on outstanding debt of 1.97%, as compared to $12 million of interest cost at an effective interest rate of 4.25% incurred in Q2 2019, with the average outstanding debt balance decreasing by almost 40%.Net earnings amounted to $106 million in the second quarter of 2020 compared to a net loss of $125 million in Q2 2019, with the 2019 results reflecting a $166 million impairment charge on the Voisey's Bay Cobalt stream. After negating the effect of the 2019 impairment and other items that are nonrecurring in nature, adjusted net earnings in the second quarter of 2020 more than doubled to $97 million compared to adjusted net earnings of $42 million in Q2 2019. Basic adjusted earnings per share increased 131% to $0.22 compared to $0.09 per share in the prior year. Operating cash flow for the second quarter of 2020 amounted to $152 million or $0.34 per share compared to $109 million or $0.25 per share in the prior year, representing a 38% increase on a per share basis. Based on the company's dividend policy, the company's Board has declared a dividend of $0.10 a share payable to shareholders of record on August 27, 2020. 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. For 2020, 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 $40 million to $43 million for 2020. During the second quarter of 2020, the company repaid $75 million on the revolving facility and made dividend payments totaling $83 million, which represented dividend payments for 2 quarters, with these cash outflows being partially offset by proceeds from the exercise of stock options in the amount of $11 million. Overall, net cash increased by $5 million in Q2 2020, resulting in cash and cash equivalents at June 30 of $132 million. This, combined with the $641 million outstanding under the revolving facility, resulted in a net debt position as of June 30 of $509 million. The company's cash position, strong forecast future operating cash flows, combined with 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. 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. The company is keeping up-to-date on developments surrounding COVID-19 and has taken steps to protect the health and safety of our employees and the community as well as measures to minimize any risks or impacts to our business. I will now provide a general update on our guidance, corporate development activities and community initiatives. With regard to guidance, we are providing a revised 2020 production forecast to reflect the previously announced temporary suspensions at 6 of our mining partners operations due to government restrictions focused on reducing the spread of COVID-19. The impacted operations were the Constancia, Yauliyacu, San Dimas, Los Filos, Peñasquito and Antamina mines, all of which have since resumed operations. The revised gold and silver production forecast for 2020 now range from 365,000 to 385,000 ounces of gold; 21.5 million to 22.5 million ounces of silver; and the forecast for palladium production remains unchanged at 23,000 to 24,500 ounces of palladium. Despite disruptions to production in the first half of the year, our revised guidance has only been reduced by 5% on a gold equivalent basis, and now ranges from 655,000 to 685,000 gold equivalent ounces in 2020. Wheaton's long-term production forecast remains unchanged at 750,000 gold equivalent ounces per year on average between the years 2020 and 2024. I will note that the revised 2020 and long-term forecasts do assume that operations will continue throughout the remainder of this year without any major interruptions. On the corporate development front, we remain active. In the second quarter, we signed a nonbinding term sheet with Caldas Gold Corp. to purchase 6.5% of the gold production and 100% of the silver production from the Marmato Project located in Colombia. The strength and potential upside of this project was especially apparent during our on-site due diligence trip, which was conducted prior to travel restrictions being put in place, and we look forward to finalizing this deal in the very near future and partnering with Caldas, as they develop and grow Marmato. As can be seen, Wheaton continues to be very active on corporate development opportunities despite the travel limitations. We may be locked down, but we are not locked out of growing our high-quality portfolio of assets and plan on putting some of our strong cash flows back into the ground. At Wheaton, our success is not only measured in terms of financial results and accretive acquisitions, but also in our ability to make a difference within our own communities, in that regard, during the quarter, we established a dedicated $5 million fund to help address the impacts of COVID-19, more than doubling our normal budget for community support. To date, the fund has helped to provide food security, medical services and supplies and economic opportunities to those in need. The majority of these funds are dedicated to the communities around our mining partners operations and not only help to alleviate the near-term impacts of the pandemic, but also leave positive sustainable benefits. To date, we have funded over $2 million in various initiatives at the Salobo, San Dimas, Constancia, Sudbury, Stillwater, 777, Voisey's Bay, Aljustrel, Zinkgruvan, Neves-Corvo and Stratoni mines. We continue to work with our partners to identify additional programs that support their COVID-19 relief efforts. Now more than ever, we must come together to help support our communities and make a positive impact. In summary, despite the temporary shutdowns of some operations, the first half of 2020 was a very strong start to the year with record gold equivalent ounces sold. We recognize that COVID-19 will have an impact on our production and sales volumes, but we believe the impact will not be overly significant, as indicated by our minor revision to guidance. As already mentioned, we reduced our guidance for 2020 by only 5%, which should be put in context to the current market for precious metals, which year-to-date has seen gold and silver prices up by over 25% and 40%, respectively. Given the bullish precious metals markets, the strength of our business model and our high-quality portfolio of assets, we remain confident that we can continue to create sustainable value for our stakeholders. Not only that, but we remain optimistic that we will be able to continue growing the company and add additional production from long-life assets producing in the lowest half of their respective cost curves. And while we are well positioned to grow our portfolio, should there be any accretive opportunities, our top priority is the health and safety of our employees and the communities in which we and our partners operate. So with that, I would like to open the call up for questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Cosmos Chiu with CIBC.

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

Hello, Cosmos?

[Cosmos Chiu]

Sorry, I was muted. First off, congratulations on a very solid Q2, all things considered. And good to see that you have established a $5 million CSR fund to give back to the community. Maybe my first question is on timing. Some of the disruptions were in Q2, could you -- you kind of touched on it, but could you remind us in terms of the impact on production and sales in Q3? And maybe, Gary, could you remind us when do you record production? And when would you record sales? For example, if a concentrate is being produced at Salobo, the difference in terms of timing between production at the mine and when would you record production and then thereafter sales.

[Gary D. Brown, Senior VP & CFO]

Yes. So the -- all 6 of the operations that were temporarily suspended in Q2 are back up and running now. And so we don't anticipate a significant flow-through of any type of production issues in Q3 or Q4. But we do anticipate that there -- so when do we record production, we record production when a final product is produced by our partners. So in the -- whether it be in the form of concentrate or in the form of dore. And so that's the production recognition point. And then on the sales side of things, generally, what will happen is we recognize sales when that final product gets sold by our partners. And we get the delivery of the silver or gold credits or payment if we've taken ownership of the precious metal content contained in concentrate. As I outlined earlier, when we look at sort of our average balance of produced but not delivered, we think a more normal level is sort of in the 140,000 to 145,000 gold equivalent ounces. We're at 123,000 ounces at the end of June. So we certainly would expect that those will build up over the next -- likely over Q3. So you've got a 20,000 ounce kind of buildup of produced but not delivered ounces. So we should see production return to more normal levels in Q3, but sales will probably be light in the neighborhood of that 20,000 ounce gold equivalent ounce range.

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

Yes. I think, Cosmos, if I could just add, I think that produced but not yet delivered is really the best measure of it, we typically have about 2.5 months' worth of production tied up in that. And every asset is different, whether it produces dore or concentrate, there's always different time lines between production and sales. But on average, we seem to carry about 2.5 months of produced but not yet delivered. Right now, we're at about 2 months and so worth of production tied up in that, which -- that should normalize during the third quarter and get back, of course, assuming everyone is able to maintain good operations through the rest of the year.

[Cosmos Chiu]

Yes. For sure. Maybe switching gears a little bit. And Randy, you kind of touched on this in terms of deal pipeline. As you said, it still remains robust. But I guess, my question is, now gold is about $2,000 an ounce or it was. Silver is at almost $27 once again. Are you finding it harder to price these deals in the sense that a producer is asking for these deals to be priced at spot prices? Are you willing to pay these spot prices? And is the current sort of bullish environment a bit of a hindrance in terms of consummating some of these deals?

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

Yes, there's no doubt it's going to make things a little bit more expensive, but we're still very bullish in terms of precious metal prices. We do think there's a lot of upside in precious metals, especially in the context of the rest of the world and where precious metals sit as a store of value against such a challenging backdrop. But there's no doubt it's going to increase cost. The one thing I would say is that relatively rapid moves up like this, we tend to reference more, and I know a lot of our potential partners tend to reference more some of the long-term numbers, which have gone up a bit, but nowhere near as much as the short-term spot prices. And so we continue to push our way forward. It's kind of -- there's no bad answer here because if we don't consummate because of high prices, well, I can tell you that we are making very good profits off of our existing portfolio. And so one or the other is still very positive for our company with production profiles and the organic growth that we already have in our portfolio, if higher prices generate a frothy market, and we've always said there's times to buy and times not to buy, the challenge is recognizing those times not to buy and to sit back and reap or harvest the benefits of our existing portfolio. And so we're quite happy with these higher prices because we have such a strong portfolio, and we've already got such good organic growth over the next 4, 5 years and some great optionality and some assets that even look more attractive at these prices and even incentivize our partners to continue advancing those. So I think either way is a good solution. If we can't afford the new deals, that just means that we're going to be generating substantive cash flows and that disappears pretty fast.

[Cosmos Chiu]

Yes, for sure. And Randy, could you maybe comment on the potential size of these deals, as we saw Caldas Gold was a bit smaller, $100 million-ish. You've been quoted in the media in terms of saying that upwards to $1 billion -- over $1 billion. Could you comment on the potential size of some of these deals?

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

Yes. We still see assets or opportunities there. They're -- these all require -- especially stuff of that size, it all requires a good -- I don't know, the right word is a fermentation period in terms of getting these projects to the -- over the line. And so we continue to work on that front. I will say that the strength in commodity prices may have reduced some of the demand on that side. We have seen that across the board even on the base metal side. And so -- but we still see opportunities where we think streaming is the best source of capital and a very competitive source of capital for these projects as they go forward. And so we'll continue working on them. And there are opportunities up in that scale.

[Cosmos Chiu]

And one last question, if I may. Taking a step back here, clearly, silver prices have outperformed all commodities in Q2. And it's always good to hear what you have to say about silver, Randy. How do you look at it now? Clearly, the gold/silver ratio has contracted from 110:1 to closer to 73:1 nowadays. Are you still very bullish on silver? Are you more bullish on silver than, say, others? And does this change how you run your business?

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

Well, then the fact that silver becomes a bigger portion of our revenues and which isn't a bad thing, we have about 30%, 35% of our current revenues coming from silver. But actually, at today's prices, it might even be up as much as 40%. The -- I've always said and been pretty clear on this that silver always lags gold, but then it outperforms. And I think we're just starting to see the start of that outperformance. If you go back and look at every upward, every bull market in precious metals prices, gold always moves first and then silver, silver lags, silver lags, silver lags and then silver moves. And when silver moves, it has incredible volatility. And of course, good volatility in an upward market is always a real positive. And so I think we're just seeing the start of that. The fundamentals have long been strongly in favor of silver. Just because of even extra fundamentals over gold, it does represent a precious metal in a store of value, but it's got some good industrial applications, especially in today's world. And so we are strong believers in silver, and quite happy to see it strengthening as it has.

[Operator]

Our next question is from Ralph Profiti with Eight Capital.

[Ralph M. Profiti, Principal]

Randy, I have 2 specifically on the Caldas transaction, please. Firstly, I'm trying to get a sense of where you see the attractiveness of the upside here? Should we be thinking about this as sort of a scalable mine? Or is it juicier on the exploration side? It already looks to be a pretty compelling IRR just based on the PEA. I'm trying to get a sense of how it gets better.

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

Yes. I'll -- I mean, I'll toss a few words in here, but then I'm going to ask Haytham to share his thoughts. This is the kind of asset that just it's a strong system. It's got a long history of artisanal gold production. And then the whole system has sort of been taken over. There's an upper zone that's currently in production. So we will see a bit of production once the deal closes. And I believe the reference data is as of July 1. So we'll get a bit of a benefit in the third quarter here. And -- but the deep resources and some of the deeper drilling is just showing some incredible potential and is very similar to some other systems that we've seen down in the Colombia, Ecuador area that Wheaton has invested into in the past. We've seen some really good benefits, as you dive down into these structurally controlled systems and you see everything coalescent, one nice strong ore body. So some of the deeper drilling looks very promising. I don't know, Haytham, if you want to add anything to that?

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

Yes. Listen, I think you've hit the nail right on the head there. We view this as a very scalable operation for starters. As Randy said, there's the upper zone, and then there's the MDZ, Marmato Deep Zone. The upper zone, it's small. It will provide immediate production as of July 1, and probably, you won't even notice it. But when you kick into the Marmato Deep Zone on a combined basis, if you're looking at, it's mostly gold, but we look at things as gold or silver equivalent, it will generate over 1 million silver equivalent ounces, call it, and you can back that out as what it looks like on gold when -- within the next 2 to 3 years, so -- on an annual basis. So what we've seen on the deeps is some incredible exploration upside that just continues to trend, not just at depth, but also the extensions to the existing ore body. And we do feel that if the company is looking to continue to grow through other avenues, there's definitely potential for the stream to be scaled higher. There's an incredible amount of margin there, especially at current commodity price. We thought there was a lot of margin at much lower prices, so we're ecstatic at these levels.

[Ralph M. Profiti, Principal]

Okay. And maybe as a follow-up, because it is more of a structural question. It appears as though these attributable step-downs in terms of the exposure there, both in gold and silver, they don't happen within the PEA. I'm just wondering, firstly, is that deliberate structure part of the deal? And are they mutually independent of each other, meaning that if gold production outperforms the silver production, you can have different timing of when that step-down occurs?

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

So to answer that question, I guess, I'll say, yes, on the latter one, they are mutually independent of each other. On the first question, yes, the step-downs are -- we factor a lot of exploration upside. We look and see where the extensions of the upside are. And we factor that into our valuation, obviously, because they're so far out and they get a higher discount rate associated with them. We're not paying a huge amount for them, but we do feel that it's fair to our partners for us to be paying something for them, and that's why you see those drop-downs happening after the PEA ounces.

[Operator]

Our next question is from Richard Hatch with Berenberg.

[Richard James Hatch, Analyst]

Congrats on a very strong set of numbers. Just the first one on the dividend. I appreciate you nudged it up. But just can you perhaps talk a little bit about your thought process on returns to shareholders. As we look out over the next couple of years, obviously, gold and silver price are cyclical, but performing very well at the moment, so generating good free cash flow. And just how you balance that in your own mind around additional investment and deleveraging?

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

Sure. So I'll start with the dividend. And we do have a bit of a unique dividend structure where we have a reference point, reference as a percentage of our cash flows, and that is averaged over the previous 4 quarters. But right now, our reference is 30% of cash flows. That is our target. We call it our basement. We established that essentially every -- at the start of every year, by looking at 30% of our cash flows, what percentage shall we return to shareholders through the dividend. And so for this year, we established a basement, a hard basement of $0.10 per share through the calendar year of 2020. Now I say it's a basement because if we see stronger commodity prices or increases in production, obviously, our cash flow will increase. And if that drives the return of 30% back higher than $0.10, then we will pay that higher number. So there is a natural correlation or natural connection to our cash flows, again, averaged over the previous 4 quarters. So this recent uptick in commodity prices won't have an immediate effect on the dividend, but it will definitely start putting upward pressure on how our dividend is calculated. And I would estimate by the fourth quarter/first quarter of next year, we're going to see an increase in how that dividend is estimated. Now that 30%, as I said, is just a reference target that we use, and it really comes down to the fact that we still see good opportunities to continue growing our company with accretive acquisitions. And in my eyes, our objective is always to try and continue growing and expanding the company with accretive, and I put accretive in bold with quotation marks around it, acquisitions, making sure that they are accretive to us. Whenever we make acquisitions, we always tested as to do they make more sense for us to make this acquisition versus buying our own stock back or other uses of capital. And it has to be the most attractive use of capital for us. And so we continue to push that forward. So our first preference, of course, is to make new acquisitions. If we can't make acquisitions, then we just strengthen our balance sheet with that cash flow, whether we're on the debt side of the equation as we currently are. The one thing that makes our company a bit unique is the use of debt. We're very comfortable because of the strength of our business model and the quality of our assets with debt as a very cheap and short-term source of capital that definitely goes away. We're not big fans of issuing shares. I'm proud of the fact that we haven't actually exercised any of our ATM over the last quarter and half. It's there to help us grow the company. It's not there to just strengthen the balance sheet. Our cash flow is strong enough to do that. So priority is, obviously, dividend first, investing back into the ground with what's left and ultimately building up the balance sheet. And if we wind up with excess cash flow or a strong balance sheet, then we look at increasing that dividend rate to 40% or 50%, which is the longer-term view.

[Gary D. Brown, Senior VP & CFO]

I don't know that I could add anything to that. I think that articulates our philosophy very well. We don't view debt as a permanent tranche of our capital structure, but we will use it in order to consummate deals given the strength of our assets and given the strength of the operating cash flow that we generate. And we will -- where we can create the most value for our shareholders is by consummating these accretive deals. So we certainly would look to repay debt, which based upon current commodity prices is repaid by Q1 of next year and then build up a war chest to pursue these opportunities that we're seeing come to fruition here. So we -- one thing we don't want to do is have a whole bunch of idle cash sitting on our balance sheet that we don't have a reasonable expectation of being able to reinvest in the ground, as Randy puts it. And so we will keep our finger to the pulse of that 30% payout moving forward. Although given the opportunity set we have in front of us, I don't think we'd anticipate that changing anytime in the immediate future.

[Richard James Hatch, Analyst]

Incredibly detailed. And my second question is more broadly, if you're looking back over sort of the last cycles that we've seen in the precious metal space, if you're comparing the number of accretive transactions that you could potentially do, how do the current sort of opportunity set lay versus previous cycles that we've seen? And are you seeing more or less same number? Would you be able to -- can you quantify that?

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

Yes, I'll comment here and then get Haytham to add some color. We are -- there's no doubt that when commodity prices are low, that's the best time. That's typically when -- I mean, our company is a source of capital for the mining industry. That's what our business is. And so when commodity prices are low, it's typically when the demand for capital and sources of capital outside of other areas is highest. And so that generally does create the best opportunities for us. And as we see stronger commodity prices, generally, there's not as much demand, but it is a market that's still streaming itself. I mean one of the big advantages that a stream does on any type of a project is it dramatically improves the internal rate of return of those projects. And so as I like to say, a stream is a way to take a good mine and make it a great mine. From a shareholders -- from an operating company shareholders' perspective, the return on capital has dramatically improved if a stream is used as part of the financing. And so I think there's always a market for streaming. Obviously, there's better markets and lesser markets, but there's always going to be a demand for streaming. So Haytham, I don't know if you want to talk about current versus past?

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

Sure. I mean, obviously, the higher commodity prices change who the actual streaming candidates are. Right now, as an example, we've been spending a lot of time looking at new opportunities that fall into the sub-$400 million or $500 million categories from a stream perspective, primarily development stage opportunities that fit into early deposit structure as well as like expansion straits, streaming opportunities. When base metal prices are strong, we typically have two things happen. One, you have less base metal companies looking to stream because they're generating strong cash. And based all prices are weak, you typically have stronger interest from the base metal producers. Now we've got precious metals prices up, you're seeing two things. One, because precious prices are up so much more than base metal prices, they're looking at precious metal streaming as a way to improve their overall balance sheet. But also, you're seeing primarily precious metals companies also looking at ways, given the fact that their margins are 50% or 60%, which are very, very strong margins in the current environment. We've also seen some royalty packages come out, and -- but there's nothing that makes sense from a Wheaton perspective there in large part because of their size and because they come with a significant amount of nonprecious metal revenues, which we're not really interested in at this point in time. There are some -- also some larger opportunities that we've been fostering, I'd say, for as long as a decade. We continue to view this streaming business as relationship driven. And so we build relationships, we go to sites. We may go to sites 1, 2 or 3 times over the last decade on certain assets to the point where it makes sense finally for them to stream and for us to stream. And that gives us a significant advantage knowing what's happened in the past, it definitely helps you predict what's happening in the future. So from our perspective, every single environment is actually conducive to streaming. It just depends on who is streaming at that point in time. Hopefully, that answers your question.

[Operator]

Our next question is from Trevor Turnbull with Scotiabank.

[Trevor Turnbull, Analyst]

Yes. Randy, I just had a really kind of nuanced question on the dividend. It was good to hear that there is potential for that formula to actually work its way higher in the future. I guess what I was curious is, if any of these larger deals that have been in the pipeline do come to fruition, is there any chance that you would ever modify the dividend policy in light of having a big deal kind of in front of you that you needed cash for?

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

No. No. We've been pretty clear on that front. And that 30% of cash flow is -- we don't really see -- with our business model, the strength of the business model and the quality of the assets that we have, I find it very unlikely that we would ever have to put -- reach into the dividend to try and fund our opportunities. We just have such strong cash flows, such strong capacity on so many fronts. It's one of the reasons we put the ATM in place. Earlier, it's basically another tool in the -- or another arrow in the quiver in terms of being able to source capital, if required. We just -- we've got so much capacity when we look out there that I don't see -- I mean, I see the dividend staying at that level or ultimately climbing. And as I've said, many times, I don't have a problem envisioning our dividend ultimately climbing to 50%, 60% of cash flows as we continue to grow. I'd like to see the company up over 1 million gold equivalent ounces before we start getting into those kind of dividend rates. But I just think that there's a point where, especially depending on what precious metal prices are doing, where it's going to be very tough for us to put the -- all that cash back into the ground. And so the next place -- next best place for it to go is into the dividend.

[Operator]

Our next question is from Jackie Przybylowski with BMO Capital Markets.

[Jackie Przybylowski, Analyst]

I just wanted to ask if you had any update. I know that the deal that you guys signed with Caldas Gold back in June is contingent, I guess, on finishing site visits or due diligence. And I was wondering if you'd had any opportunity to do any of that yet? Or sort of what the timing is, if anything's changed? I know travel restrictions are just pretty difficult, but is that -- is it still difficult for you guys to do right now? Or is it getting better?

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

Well, just to clarify, we've already been to that site. We got the site visit in just ahead of all the travel restrictions. And so we have been down to site and have satisfied all those requirements on the Caldas Marmato Project. I'll let Haytham take the rest of that question because he's the one that manages that entire aspect of it.

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

Sure. Thanks, Randy. Good morning, Jackie. Yes, from -- as Randy said, we visited that site in mid-December, right before Christmas. So we managed to get there. We spent a few days on-site and managed to get all the technical due diligence out of the way. We also, in order to get us comfortable, engaged certain consultants in certain areas, and we walked away very, very comfortable from that transaction. So our entire technical due diligence was complete and the asset passed with flying colors. In terms of the transaction closing, really, we're just finalizing some legal due diligence, which everything seems to be going well. Hopefully, as Randy mentioned earlier in his presentation, this will be happening very soon.

[Jackie Przybylowski, Analyst]

And another question just on Salobo III. I know in the release yesterday, you noted that Vale is still expecting to complete the expansion at Salobo in the first half of 2022. And I was just wondering if you guys had a view on whether that's on track or not? It seems like it's still a pretty aggressive target at this point. Is that doable in your view?

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

Yes, there's -- the guidance that we've had back from Vale at Salobo, is they've had -- obviously had to go through some restrictions with respect to contractors on site. But they've sort of identified the critical path that's required to sort of achieve that target, and they still feel that they're on track to achieve that target. There's no doubt that there has been some efforts or some of the work that has been pushed back, but it's not part of the critical path, and they feel that they can catch up and still maintain that target. So they're hopeful to turn on the switches in 2022. It is a 90-day completion test before we'd have to fund anything. So at the earliest, we'd be funding towards the end of 2022 or early 2023. As it drops year-over-year, you know there's going to be a real strong drive on their side to try and satisfy that completion test before the end of 2022. It has a big impact on the actual expansion payment that we're making to them. So I feel that Vale is going to try and do everything they can to get it done in 2022 and satisfy the completion test within that calendar year, so far the guidance we've had is, it is on track. Well, thank you, Jackie, and thank you, 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 that result in some of the highest margins in the entire precious metals space and strong operating cash flows. Secondly, through our steady organic growth profile and proven track record of accretive quality acquisitions. Thirdly, by offering our shareholders exposure to some of the highest quality mines in the world through our portfolio of long-life, low-cost assets. And lastly, by being a leader amongst precious metal streamers in sustainability through initiatives such as the CSR Fund and supporting our partners and the communities in which we live and operate. I do look forward to speaking with you all again very soon, stay healthy, stay safe, and thank you.

[Operator]

This concludes today's conference call. Thank you for participating, and please disconnect your lines.