Wheaton Precious Metals Corp

TSX:WPM

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Wheaton Precious Metals' 2018 Third Quarter Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Thursday, November 15 at 11:00 a.m. Eastern Time. I will now turn the conference over to Mr. Rory Quinn, Director, Investor Relations. Please go ahead.

[Rory Quinn]

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 Curt Bernardi, Senior Vice President, Legal. 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 assurance 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 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. The Annual Information Form, Q3 2018 Management's Discussion and Analysis 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, the outcome of the challenge by the CRA of Wheaton's tax filings, the absence of control over mining operations from which Wheaton purchases silver or gold and risks related to such mining operations and the continued operation 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, references 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, Rory, and good morning, ladies and gentlemen. Thank you for dialing into our conference call to discuss the third quarter results of 2018. I am pleased to report that Wheaton continues to deliver solid results from our portfolio of high-quality assets, which has been steadily growing since the beginning of this year. In the third quarter of 2018, Wheaton completed the acquisition of a precious metal stream with Sibanye-Stillwater and received first production of both gold and palladium from the Stillwater and East Boulder mines, which are already exceeding our expectations. With this latest stream and another strong quarter from Salobo, we had record gold production and sales volume for the first 9 months of 2018, and operating cash flow of almost $370 million. And with 3 quarters now behind us, Wheaton is currently on track to exceed production guidance for the year. Gary Brown, one of our Senior Vice Presidents and our Chief Financial Officer, will now provide more details on our results. Gary?

[Gary D. Brown, Senior VP & CFO]

Thank you, Randy, and good morning, ladies and gentlemen. Prior to reviewing Wheaton's unaudited financial results for the 3 months ended September 30, 2018, I would like to remind everyone that all monetary figures discussed are denominated in U.S. dollars, unless otherwise noted. The company's precious metal interests produced 5.7 million ounces of silver, 101,600 ounces of gold and 8,800 ounces of palladium in the third quarter of 2018. Relative to the third quarter of the prior year, this represented a decrease of 25% in silver production and an increase of 7% in gold production, with the decrease in silver production being primarily due to the termination of the San Dimas silver stream effective May 10, 2018; the expiry of the streaming agreement relative to the Lagunas Norte, Veladero and Pierina mines on March 31, 2018; and lower production at Peñasquito. The increase in gold production was due primarily to the new streaming agreements relative to the San Dimas and Stillwater mines, partially offset by lower production at Sudbury, Salobo and other gold interests. Sales volumes amounted to 5 million ounces of silver, 89,200 ounces of gold and 3,700 ounces of palladium in the third quarter of 2018, representing a decrease of 13% for silver and an increase of 8% for gold relative to the third quarter of 2017. The decrease in the silver sales volumes was attributable to the decreased production, partially offset by relative changes to payable silver produced but not yet delivered to Wheaton. The increase in gold sales volumes was attributable to a combination of increased production and positive changes in the balance of payable gold produced but not yet delivered to Wheaton. As at September 30, 2018, payable ounces produced but not yet delivered, otherwise referred to as PBND, to the company amounted to approximately 4.5 million silver ounces, 77,100 gold ounces and 4,700 palladium ounces. We estimate a normal level for ounces produced but not delivered to equate to approximately 2 months' worth of payable production for silver, 2 to 3 months for gold and 3 months for palladium, with the balances for gold and palladium at September 30 being consistent with this expectation and silver being slightly higher than expectation.Revenue for the third quarter of 2018 amounted to $186 million, representing a 9% decrease relative to Q3 2017, primarily due to lower commodity prices, with realized silver and gold sales prices decreasing by 12% and 6%, respectively. Of this revenue, 40% was attributable to silver, 58% was attributable to gold and 2% was attributable to palladium. Gross margin for the third quarter of 2018 decreased 30% to $58 million, with the decrease being primarily driven by the lower commodity prices, coupled with a higher cost per ounce sold. The increase in per-ounce costs are primarily the result of the termination of the silver stream at San Dimas, which was originally acquired in 2004, with the new gold stream having depletion rates which are more reflective of the current commodity price environment. However, it is worth noting that cash operating margins continued to be very robust at 66% of revenue despite the drop in commodity prices. Cash-based G&A expenses amounted to $7 million in the third quarter of 2018, virtually unchanged from Q3 2017. Interest cost for the third quarter of 2018 amounted to $12 million, resulting in an effective interest rate and outstanding debt of 3.61% as compared to $6 million of interest costs at an effective interest rate of 2.75% incurred in Q3 2017. Net earnings amounted to $34 million in the third quarter of 2018 compared to $67 million in Q3 2017, resulting in basic adjusted earnings per share of $0.08 compared to $0.15 per share in the prior year. Operating cash flow for the third quarter of 2018 amounted to $108 million or $0.24 per share compared to $129 million or $0.29 per share in the prior year, representing a 16% decrease on a per-share basis due primarily to the decline in commodity prices. Based on the company's dividend policy, the company's board has declared a dividend of $0.09 a share, payable to shareholders of record on November 30, 2018. 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. The operational highlights for the third quarter of 2018 relative to the third quarter of the prior year included the following: attributable silver production relative to the Peñasquito mine decreased 36% to 1 million ounces, which Goldcorp states is the result of a planned transition to lower-grade ore from stockpiles during 2018, with the third quarter production being further impacted by a reduction in mill throughput as much harder low-grade stockpiles were processed during commissioning of the Carbon Pre-flotation Plant, which is a component of the Pyrite Leach Project. Goldcorp also reported that the construction of the Pyrite Leach Project has been completed, with pre-commissioning activities, together with area-based commissioning, having commenced and commercial production being expected in the fourth quarter of 2018. Silver sales volumes in Q3 2018 relative to Peñasquito increased 12% to 1.2 million ounces, with lower production levels being offset by positive changes in silver ounces produced but not yet delivered to Wheaton. Attributable silver production relative to Antamina in Q3 2018 amounted to 1.5 million ounces, while sales amounted to 1.3 million ounces, a decrease of 15% and 13%, respectively, with the decrease being consistent with expectations and due to lower silver grades resulting from mine sequencing in the open pit, with more copper-zinc ore and less lead-rich ore being mined in the quarter. Attributable silver production relative to the other silver interests in Q3 2018 amounted to 2.4 million ounces, while sales amounted to 1.9 million ounces, a decrease of 4% relative to production and an increase of 13% relative to sales, with the decrease in production being primarily due to the expiry of the Lagunas Norte, Veladero and Pierina streams at the end of March, partially offset by the restart of deliveries relative to the Aljustrel stream during the second quarter of 2018. Attributable gold production relative to Salobo in Q3 2018 amounted to 68,600 ounces, while sales amounted to 65,100 ounces, a decrease of 6% and 3%, respectively, with the decrease in production being consistent with expectations and attributable to the mining of slightly lower-grade ore related to mine sequencing. During the quarter, Vale announced the approval of the Salobo III copper project, a brownfield expansion, which, if completed as proposed, would increase processing throughput capacity from 24 million tonnes per year to 36 million tonnes per year. Based on Vale's disclosure relating to the size and timing of this expansion, we estimate that an expansion payment of between $550 million to $650 million would become payable by Wheaton in 2023. Attributable gold production relative to Sudbury in Q3 2018 amounted to 6,000 ounces, while sales amounted to 2,600 ounces, a decrease of 30% and 21%, respectively, with the decrease in production being primarily due to Sudbury's annual scheduled maintenance shutdown, which last year occurred during the second quarter rather than the third quarter. Attributable gold production relative to Constancia in Q3 2018 amounted to 3,300 ounces, while sales amounted to 3,000 ounces, an increase of 31% and 35%, respectively, with the increased production being primarily due to record mill throughput and higher grades. Attributable gold production relative to the new gold stream at San Dimas amounted to 10,600 ounces, while sales amounted to 9,800 ounces. Relative to the gold equivalent production attributable to the previous silver stream in Q3 2017, this represents a decrease of only 23%, which, given that the restructured stream was expected to reduce attributable production by about 50%, is a very positive result. According to First Majestic, silver equivalent production in Q3 2018 increased by 90% relative to the prior quarter due to increased throughput at some of the lower-grade stopes that were deemed uneconomical under the old streaming agreement have now become economical under the new streaming agreement, validating that the restructured stream is operating as intended. Attributable gold and palladium production volume relative to the recently acquired streaming agreement at Stillwater amounted to 6,400 and 8,800 ounces, respectively, while sales volumes amounted to 2,100 ounces and 3,700 ounces, respectively. The attributable production from Stillwater for Q3 2018 reflects gold and palladium that was produced in prior quarters, with Wheaton having the rights to the attributable production for which an offtaker payment is received after July 1, 2018. Attributable gold production and sales relative to the other gold interests in Q3 2018 amounted to 6,700 ounces, a decrease of 41% relative to production and 32% relative to sales, primarily due to the mining of lower-grade material at Minto, which Capstone has announced was placed into care and maintenance in October. During the third quarter of 2018, the company repaid $28 million on the revolving facility, made dividend payments of $34 million, made an upfront cash payment of $500 million to Sibanye-Stillwater relative to the newly acquired gold and palladium stream at the Stillwater mine, which was partially funded by drawing down $452 million from the revolving facility. We also received $48 million from the disposal of the investment in Arizona mining, representing a $34 million gain on this investment. Overall, net cash increased by $27 million in Q3 2018, resulting in cash and cash equivalents at September 30 of $119 million. This, combined with the $1.4 billion outstanding under the revolving facility, resulted in a net debt position as at September 30, 2018, of approximately $1.3 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 commitment, sustain its dividend policy while at the same time providing flexibility to consummate additional accretive precious metal purchase agreements. Finally, there is no material update relative to the company's ongoing dispute with the CRA. However, of note, on September 26, the Tax Court of Canada ruled unequivocally in favor of Cameco in its dispute with the CRA. While it is important to understand that these tax cases are complex and very fact-specific, we are very encouraged by the court's decision, and although it has been appealed, sets a very positive precedent. As a reminder, the Tax Court has scheduled the Wheaton trial to commence in mid-September of 2019, with the trial process set to be conducted over a 2-month period. And we continue to work diligently with counsel to advance the case as expeditiously as possible. 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. Wheaton has been very active on the corporate development front this year. In the third quarter of 2018, we completed the acquisition of a precious metal stream from Sibanye-Stillwater for a fixed percentage of gold and palladium production from the Stillwater operations in Montana. We made an upfront payment of $500 million and started receiving deliveries of both gold and palladium from the Stillwater operations as of July 1, 2018. As one of the lowest-cost palladium mines globally with a very long reserve life and excellent exploration potential, the Stillwater operations do fit very well within our portfolio. We've also been very pleased with the price performance of palladium since we announced the deal, climbing almost 20%. It certainly has been an outperformer amongst the precious metals. With regard to potential new acquisitions, we continue to look at numerous opportunities that would be accretive to our portfolio. The current pipeline of opportunities is mainly related to funding growth and development projects that are generally of a smaller scale than most of our recent acquisitions, but we are optimistic that we should be successful in some of these smaller streams. And given our strong cash flow and balance sheet, we have ample capacity for additional growth. And with regard to production, we have reconfirmed both our 2019 and 5-year guidance. At the beginning of the year, Wheaton's 2019 estimated annual production was forecast to be approximately 355,000 ounces of gold, 22.5 million ounces of silver and with the Stillwater acquisition, 10,400 ounces of palladium, all totaling over 650,000 gold equivalent ounces. After 3 quarters into the year, it appears we will exceed this production guidance. Estimated average annual attributable production over the next 5 years, including 2018, is anticipated to be approximately 385,000 ounces of gold, 25 million ounces of silver, 27,000 ounces of palladium, and of course, starting in 2021, 2.1 million pounds of cobalt per year, all of this totaling approximately 750,000 gold equivalent ounces per year. And beyond our 5-year guidance, we look forward to the Salobo expansion recently announced by Vale. As proposed, the expansion would increase throughput capacity from 24 million tonnes of ore per annum to 36 million tonnes of ore per annum once fully ramped up. Start-up is scheduled -- is currently scheduled for the first half of 2022, with an estimated 15-month ramp-up period. As part of the original gold purchase agreement with Vale and based on Vale's disclosure relating to the size and timing of the Salobo expansion, Wheaton estimates an expansion payment of between $550 million to $650 million once the completion test is satisfied, which would likely be made sometime in 2023. In summary, I believe our production remains founded on the highest-quality portfolio of precious and specialty metal streams in the industry, underpinned by very low-cost mining operations, such as Salobo, Antamina and Peñasquito. On the corporate development front, our focus continues to be precious metals and on delivering disciplined growth that is both accretive to our current shareholders and comes from high-quality assets. In addition, we are encouraged by the recent decision out of the Tax Court of Canada regarding Cameco's tax filings, and I assure you, we will continue to push towards a timely resolution of our own case. So with that, I would like to open up the call for questions. Operator?

[Operator]

[Operator Instructions] Your first question today comes from the line of Ralph Profiti of Eight Capital.

[Ralph M. Profiti, Research Analyst]

Two, if I may, Randy, one on the CRA and the other on Salobo. So firstly, the Cameco appeal by the CRA did not appeal on the basis of the Crown's sham argument, okay, which was, I think, a key variable in the relative win. Are you aware in the discovery process whether Wheaton's case would have included the sham argument on the part of the Crown?

[Curt Domenico Bernardi, Senior VP of Legal & Corporate Secretary]

Ralph, this is Curt Bernardi. Yes, sham has not been alleged and is not part of the case against Wheaton at all.

[Ralph M. Profiti, Research Analyst]

Okay. I appreciate that. Randy, coming back to the Salobo payment. In 2023, it implies that this is going to be sort of a onetime bullet payment. Is that kind of the case that I'm reading it right? Or is there the potential to be sort of phased-in along the lines of CapEx and sort of over a number of quarters?

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

Well, it's actually better than that. It's upon completion of the -- or satisfying the completion test. And so we don't actually fund it during the construction period. We fund it at the end once they've satisfied the completion test. And so we don't provide any capital until they've actually achieved full production of that expansion. And it is a onetime option. They can only exercise it once. And so they have to make the choice as to whether when they choose to exercise it if there's potential for a fourth base of expansion, which could possibly happen. They may have to reconsider whether they want to continue on or exercise it. It's a onetime option.

[Operator]

Your next question comes from the line of John Tumazos of John Tumazos Very Independent.

[John Charles Tumazos, President and Chief Executive Officer]

Concerning the debt level and the Vale payment, it looks like you've got 4 years of future cash flow spend. Should we assume that you're going to be quiet on the deal front given the debt level and the Vale lump sum in 2023? Or how should we, I guess, view your dealmaking? Do you think you're going to go out there and spend 4 more years of cash flow, for example? Or [indiscernible] with some financing?

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

Yes. We're quite comfortable. If you sit and look at the -- first off, the Vale expansion, of course, we don't make that payment and we're already receiving in 2022 based on the current parameters. We'd start receiving cash flow -- additional cash flow from that expansion as they ramp up Salobo. And so there is a good offset there in terms of immediate production once that payment is made. To be honest, I would say and I mentioned it in my comments, the deal set that we're looking at out there right now is a much smaller set. We see very few opportunities over $300 million in size. Most of them are in the $100 million to $200 million size range. There's just not a lot of companies putting money in the ground right now. There's lots of people exploring the concept, but with the current commodity price environment out there, we're just not seeing a lot of investment into the ground. And most of the opportunities we're looking at are quite small. And given that size, scale, we don't see any issues at all with our capacity. We are still generating very strong cash flows. Going forward, we have great growth coming out of our current portfolio over the next 3 to 4 years. Peñasquito is going to see some of the best years it's ever seen over the next 3 to 4 years, and that's going to dramatically add strength to our own balance sheet going forward. And so you have to understand, I mean, this is a foundation year, and we've got good, strong, solid core growth within our current operations. Over the next 3, 4 years, it's going to add some real value. And so we're very comfortable with the balance sheet the way it stands right now. We've always been very clear that we're much more comfortable using debt than issuing equity. And we're comfortable with this space in terms of where we are and don't see any need to be concerned on that front. We're still very busy on the corporate development front.

[Gary D. Brown, Senior VP & CFO]

John, if I can just add to that, at current commodity prices, which I view is quite depressed, but even assuming just those commodity prices, we'll fully repay our current debt by the end of 2022.

[John Charles Tumazos, President and Chief Executive Officer]

I understand that. I don't want to be an expert in Canadian tax law, but you, Franco and Cameco all have these challenges. If in a worst-case tax ruling, how much more would that increase your liabilities?

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

The current reassessment is for just under -- I think it's CAD 395 million for the years 2005 to 2010. Of course, if that was applied on a go-forward basis, but we haven't been reassessed for 8 subsequent years after that. And so given the strength of the Cameco decision and the differences in the fact set, we are even more confident in our position going forward. And as Gary mentioned and as I mentioned, we are doing everything we can to push this forward to a resolution as fast as we can. I think the strength of that decision that Cameco received is something that's worth noting. It was a very strongly worded decision in Cameco's favor and, again, makes us feel very comfortable with our position.

[John Charles Tumazos, President and Chief Executive Officer]

I know Canada is better than Guatemala or some other places.

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

Yes, it is.

[Operator]

[Operator Instructions] Your next question comes from the line of Michael Fairbairn of Canaccord Genuity.

[Michael Fairbairn, Associate of Metals and Mining]

Just a question on Salobo, if I can. Have you guys been given any indication from Vale as to how the mine plan might change going forward other than increasing the throughput? Are they looking at accelerating grade? Or is there any potential for additional resource conversion with the increased throughput?

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

We haven't -- there definitely is. And in fact, there's a deep drilling campaign underway, and they just brought on a second drill rig to expand that capacity. They're doing a bunch of infill drilling on inferred resources right now, and they're doing a deep drilling campaign. They've just finished off their first hole, had some pretty nice results down there -- or down on the deep program. So I have no doubt that over the next couple of years, there will be some not only resource conversion, but exploration potential into resources then ultimately reserves. So there's no doubt that's coming over the next couple of years. With respect to the mine plan going forward and the expansion, they haven't finalized that yet. That's the reason that we have a range of between $550 million and $650 million when we estimate the cost. There's several different scenarios in terms of high-grade, a focused high-grade campaign versus something that has a bit lower grade, and so that has an impact on what kind of a payment that we make on the expansion. And so that hasn't been decided yet, and to be honest, I don't think it's going to be decided until probably somewhere around 2022. It's going to have a lot to do with what the price of copper is at that time and their own capacity. So having the processing throughput capacity, the only variable that comes into how you focus on high grade or not is whether you bring in more mobile equipment into that open pit and there's plenty of capacity. That pit is currently only producing about 60,000 tons per day through the mill. We know there's many copper operations around the world, open pits, that produce substantially more with much higher strip ratios. And so there's plenty of capacity left in that open pit to have a focused high-grade campaign. But in reality, I don't think Vale will make that decision until closer to 2021, 2022, especially with respect to a final decision.

[Michael Fairbairn, Associate of Metals and Mining]

Okay. And then maybe one more if I could, on the actual payment. I think I remember reading that Vale had estimated that the payment would be between $600 million and $700 million. Do you know what the difference between what they're estimating and what you're estimating would be driven by there?

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

Yes. I think that when they looked through it, they estimated to be up and running. There is a timing process or a timing factor that contributes to this. And as I said, they were going to be starting up in 2022. We think that it's a 15-month ramp-up for them to get to the levels of production, and they have to do a 90-day completion test. So we -- and our own estimate is we feel that they won't be satisfying that completion test until 2023. If it's going to be a 15-month ramp-up with first production in 2022, I just don't see how they can satisfy the completion test in that. And so by pushing it out to 2023, it knocks the number down slightly.

[Operator]

Your next question comes from the line of Michael Gray of Macquarie.

[Michael J. Gray, Gold Analyst]

A couple of questions. First of all, on Stillwater. As you alluded to, you can exceed guidance, it looks like, this year. Was that on conservative estimates on your part? Or was there a specific mining surprise to the upside?

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

I would say that there was -- because we had a hard start date of July 1, we wound up capturing some material in processes. So that definitely helped the cost. So I don't see us outperforming to this degree on a continual basis. But Michael, I know you've been to this project. I think there's all sorts of potential for this to continue going and doing well. And so we're very bullish about this asset.

[Michael J. Gray, Gold Analyst]

Okay. Appreciate that color. And then can you provide your thoughts on recent sector consolidation we're seeing with Randgold's combination and then Pan American and Tahoe? Is this what the sector needs? And then also, could you comment on the potential as it relates to potential attractive noncore assets becoming available and streaming opportunities?

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

Well, there's no doubt. As noncore assets do come up, and we've had discussions with potential partners in terms of helping fund acquisitions through using a streaming arrangement. And so there's no doubt that whenever we see increased M&A activity, there's usually a need for capital as part of that, whether it's to put into the distressed asset or whatever -- the newly acquired asset or whether it's to help fund that acquisition. And so we have seen an increase in activity on that side. I think the market kind of shapes itself. And so when we see commodity prices as low and companies trading at such lows, what it does is open up opportunities. I've been quite intrigued at the Barrick-Randgold merger just in the sense that there was no premium paid. It was essentially a merger of equals and yet very successfully received, I think, by the market as a whole. And it just shows that there is some value in synergy that doesn't require some of the premiums that we've seen elsewhere. So it is something that I think the market kind of shapes itself. And right now, with commodity prices and with companies -- the valuations that the companies are trading at, it does open up opportunities to try and gain some value back through synergies and combining portfolios of assets.

[Operator]

Your next question comes from the line of Dan Rollins of RBC Capital Markets.

[Dan Rollins, Head of Global Mining Research and Analyst]

Randy, I wonder if you could just clarify a comment you made on the Salobo sort of grade profile. I think you mentioned there might have been a payment. If there is a lower-grade campaign, it will change the payment structure. Could you -- maybe I misheard it. Or if I did hear it right, can you explain that a little bit more in detail for us?

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

Yes. We have 2 different matrices set up: one that's based on a focused, high-grade mining campaign with an aggressive low-grade stockpiling procedure; and then we have a second matrix that is focused on, I would say, low grade. It's on -- it shifted. So there's not as much material going to a low-grade stockpile, which means that the ore -- lower-grade ore would be processed through the mill. And so the intent was to try to incentivize Vale to focus on high-grade materials. So that's why we have these 2 different matrixes that we have in the agreement, one that's -- and there's some detail in there that's sort of -- is tied on the grades that go through the mill, and there's a period, a term -- I don't want to get too much detail, but there's a term clawback afterwards so that we ensure that there's focus on the chosen approach to mining. And so the range, as I said, is $550 million to $650 million. That is the same no matter when in 2023. As I mentioned, our numbers are coming from the 2023 year. So the $550 million reflects the low-grade option. The $650 million reflects the high-grade option. If Vale commits to a high-grade mining campaign, where they push more the low-grade material into a stockpile and save that for later, which, of course, would mean an increase in the mining fleet capacity because you still have to move that low grade. It is an open pit, and so it has to be moved and stockpiled. So they would have to make a bit of an extra investment into a mobile fleet capacity. But that would allow them to shift higher grades into the mills and through the processing circuit. We reward them for that commitment by adding an extra -- essentially, it's close to $100 million difference. And so that's the scenario. We recognize that we wanted to incentivize them to maximize metal production as early as possible. And that's why the matrices were set up that way.

[Dan Rollins, Head of Global Mining Research and Analyst]

Okay, perfect. And then I know the matrix has probably evolved as you've done the additional deals at Salobo. But is there a sort of a rough gold price assumption that, that matrix is sort of based on for the economics there? I'm assuming it's not at $100 gold price for now.

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

Well, yes, the matrix was in the very first -- if you remember, Salobo was 3 different agreements, right? The first one, in 2013; the second one, in 2015; the third one, in 2016. So the gold price each time we expanded our stream there from 25% to 50% and now 75% of the gold production, each time we expanded the stream, we had to adjust the matrix to reflect that. And so the matrix at each one of those phases was based on the gold price market at the time we did those phases. If I was to average it out, I would say it was probably somewhere on the high side of $1,200 -- like just over $1,200 per ounce was sort of used as the overall average valuation for the matrix. And then there's other factors that came into play in terms of the development risk side of it and stuff like that even though our payment doesn't come until after the completion test is done.

[Dan Rollins, Head of Global Mining Research and Analyst]

Okay. And the completion test phase a 90% throughput or 100%?

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

It's not 100%. We'd never do that to any of our partners. 100% is a very tough completion test to satisfy for anyone at a certain stage. I can't remember the specifics on this completion test. It's typically 80% to 90% is what we look at. Again, this completion test would also be -- because of the grade factor, would also be -- would be a function on grade being pushed through over that period of time, too, right? So this one does have a little bit more complexity because of the 2 different matrices.And operator, we'll end the questions there. I just want to thank everyone for dialing in today. Wheaton is well on track to exceed both our 2018 and 5-year production guidance with additional potential for both near and longer-term production growth. At San Dimas, First Majestic looks to have operations back on track, as shown by this quarter's strong production results. They've done a good job there. In addition, we are excited to see what Peñasquito can deliver now that the Pyrite Leach Project has been commissioned and the operation returns to processing high-grade ore, as I would say, some of the highest-grade ore that mine has ever seen. The next 3 to 4 years out of Peñasquito will be very, very exciting. At Stillwater, we're very pleased with the initial quarter results and look forward to decades more production from this incredible asset. And speaking of longer term, we do look forward to the proposed capacity expansion of Salobo and the added gold production we can expect in the near future from this world-class asset. Lastly, given the recent decision from the Tax Court of Canada, an unequivocal win for Cameco, we continue to be confident in our business structure and tax filing position and remain committed to advancing this case as expeditiously as possible. With this positive news, a strong growth profile going forward, and optionality measured in ounces, not acres, we believe Wheaton is well positioned to be the best option for investing into and gaining exposure to precious metals. We do look forward to speaking with you again soon. Thank you.

[Operator]

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