Wheaton Precious Metals Corp

TSX:WPM

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Wheaton Precious Metals Year-end 2017 Fiscal Results Conference Call. [Operator Instructions] Thank you. I would like to remind everyone that this conference is being recorded on Thursday, March 22, at 11 a.m. Eastern Standard Time. I would now like to turn the conference over to Mr. Patrick Drouin, Senior Vice President of Investor Relations. Please go ahead, sir.

[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's 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 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 6K, both on file with the U.S. Securities and Exchange Commission.The Annual Information Form Q4 2017 Management Discussion and Analysis and the press release from last night set out the material assumptions and risk factors that could cause the actual results to differ, including among others, fluctuations in the price [indiscernible] the 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; completing new streaming transactions 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. Now I'd like to turn the call over to Randy Smallwood, our President and Chief Executive Officer.

[Randy V. J. Smallwood, Co]

Thank you, Patrick, and good morning, ladies and gentlemen. Thank you for dialing into our conference call to discuss our 2017 fourth quarter and year-end results. I am pleased to report that Wheaton Precious Metals continues to deliver strong financial results from our portfolio of high-quality, low-cost assets. In 2017, we exceeded our guidance, producing over 28 million ounces of silver and over 350,000 ounces of gold. From a sales perspective, we achieved record gold sales volume, with 337,000 ounces of gold sold, in addition to 24.6 million ounces of silver sold. We continue to generate strong operating margins, resulting in sector-leading cash flow of $540 million in 2017 with revenue up over $840 million.As a result of our dividend policy, which is linked directly to operating cash flow, we paid out a record level of dividends in 2017, with $145 million distributed back to our shareholders. We now provide the highest dividend yield in the precious metals streaming space.And finally, in January of this year, we announced the proposed restructuring of the San Dimas streaming agreement, in conjunction with the proposed acquisition of Primero Mining by First Majestic. We believe this restructured streaming agreement will result in a stronger, more sustainable operation at San Dimas. And given First Majestic's long history of operating in Mexico and expertise in mining narrow-vein underground deposits, we look forward to many successes with our new partner.Gary Brown, one of our Senior Vice Presidents and our Chief Financial Officer, will now provide more detail -- more details on our results. Gary?

[Gary D. Brown, CFO and Senior VP]

Thank you, Randy, and good morning, ladies and gentlemen. Prior to reviewing Wheaton's unaudited financial results for the 3 months ended and the audited results for the year ended December 31, 2017, I'd like to remind everyone that all monetary figures discussed are denominated in U.S. dollars unless otherwise noted. The company's precious metal interests had a solid fourth quarter, producing 7.2 million ounces of silver and 96,500 ounces of gold, resulting in Wheaton's full year 2017 guidance being exceeded. Relative to the fourth quarter of the prior year, this represented a decrease of 5% and 14% in silver and gold production, respectively, with the lower silver production being primarily attributable to the expiration of the Cozamin contract, while the lower gold production was due to 777 in Minto, with the company's attributable percentage of gold production from 777 decreasing from 100% to 50%, effective January 1, 2017.Sales volumes amounted to 7.3 million ounces of silver and 94,300 ounces of gold in the fourth quarter of 2017, representing a decrease of 3% and 13% for silver and gold respectively, relative to the fourth quarter of 2016. The decrease in silver sales volumes was attributable primarily to lower production from San Dimas and Antamina, combined with the expiration of the Cozamin agreement. The decrease in production was partially offset by positive changes in the balance of payable silver produced but not yet delivered to Wheaton. The decrease in gold sales volumes was attributable to the decreased gold production.As of December 31, 2017, approximately 4.5 million payable silver ounces and 79,500 payable gold ounces had been produced but not yet delivered to the company, representing a decrease during the quarter of 0.7 million payable silver ounces and 3,200 payable gold ounces. We estimated normal level for ounces produced but not delivered to equate to approximately 2 months' worth of payable production for silver and 2 to 3 months for gold, with the year-end balances being consistent with this expectation.Revenue for the fourth quarter of 2017 amounted to $243 million, representing a 6% decrease relative to Q4 2016 with the lower gold sales volumes being partially offset by a 6% increase in the average realized gold price. For the latest quarter, revenue was split evenly between silver and gold. Gross margin for the fourth quarter of 2017 increased 2% to $95 million, attributable primarily to increased gold prices combined with lower depletion rates.Cash-based G&A expenses amounted to $8 million in the fourth quarter of 2017, representing an increase of $5 million from Q4 2016 due primarily to a large reversal of previously accrued expenses relating to the company's outstanding performance share units, or PSUs during Q4 2016.Interest costs for the fourth quarter of 2017 amounted to $6 million, resulting in an effective interest rate on outstanding debt of 2.8% as compared to $7 million of interest costs at an effective rate of 2.09% incurred in Q4 2016. During the fourth quarter of 2017, the company recognized an impairment charge of $229 million relating to its silver interest in Barrick's Pascua Lama project, arising from the Chilean government's sanctions requiring the closure of existing infrastructure on the Chilean side of the project and Barrick's reclassification of open pit reserves to resources.The net loss amounted to $138 million in the fourth quarter of 2017 compared to net earnings of $11 million in Q4 2016, with the net earnings in the prior year reflecting $71 million of impairment charges. After negating the effect of the impairment and other items that are nonrecurring in nature, adjusted net earnings in the fourth quarter of 2017 amounted to $82 million, virtually unchanged from Q4 2016. Basic adjusted earnings per share was also virtually unchanged from the prior year, at $0.19.Operating cash flow for the fourth quarter of 2017 amounted to $165 million or $0.37 per share compared to $175 million or $0.40 per share in the prior year, representing a 6% decrease on a per-share basis. 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 April 6, 2018, representing a 29% increase from the dividend declared relative to the comparable period of the prior year. 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 the year ended December 31, 2017, silver and gold production exceeded company guidance, although both experienced expected decreases relative to 2016. The 6% decrease in silver production was attributable primarily to various operational issues experienced at San Dimas during 2017, combined with the expiry of the Cozamin contract early in Q2 2017, being partially offset by a 20% increase in silver production from Peñasquito. The 3% year-over-year decrease in gold production was attributable primarily to the reduction in the company's share of the gold production from 777 combined with the lower production from Minto due to the processing of lower-grade material as a result of mine sequencing changes to support mine life extension. These factors were offset by a 16% increase in gold production from Salobo due primarily to the increase in the company's share of gold production from Salobo from 50% to 75% effective July 1, 2016.Revenue, which was evenly split between silver and gold during 2017, amounted to $843 million, representing a 5% decrease relative to the prior year. The decrease was primarily attributable to lower silver sales volumes with record gold sales volumes of over 337,000 ounces being achieved for the year. Gross margin amounted to $337 million, an increase of 3% relative to 2016 with operating margins increasing to 40% in 2017 from 37% in 2016, due primarily to lower depletion rates. Cash-based G&A expenses in 2017 totaled $30 million, virtually unchanged from 2016 and slightly lower than the most recent company guidance.For 2018, the company estimates that non-stock-based G&A expenses, which exclude expenses relating to the value of stock options granted and PSUs, will amount to $34 million to $36 million, with the increase from 2017 being primarily attributable to increased employee-related expenses and charitable contributions. After neutralizing for the effect of the $229 million impairment charge and other nonrecurring charges, adjusted net earnings for 2017 amounted to $277 million, representing a 4% increase from adjusted net earnings for 2016, due primarily to the lower depletion charges, partially offset by lower sales volumes.Basic adjusted earnings per share amounted to $0.63 in 2017 compared to $0.62 in 2016. Cash flow from operations amounted to $539 million, a decrease of 8% as compared to 2016, with the decrease being primarily the result of the lower silver sales volumes. This translated into operating cash flow per share of $1.22 compared to $1.36 in 2016.The operational highlights for the fourth quarter of 2017 compared to the fourth quarter of 2016 included the following. Attributable silver production relative to the San Dimas mine decreased 7% to 1.3 million ounces, primarily due to lower throughput, partially offset by higher grades. Silver sales volumes in Q4 2017 relative to San Dimas decreased 17% to 1.3 million ounces, primarily due to lower production, coupled with negative changes in payable ounces produced but not yet delivered to Wheaton.As previously announced on January 12, 2018, in conjunction with the proposed acquisition by First Majestic of Primero, Wheaton has agreed to terminate the existing San Dimas silver purchase agreement with Primero and enter into a new precious metals purchase agreement with First Majestic. Under the new agreement, Wheaton will be entitled to 25% of the gold production plus an additional amount of gold equal to 25% of the silver production converted to gold at a fixed gold-to-silver exchange ratio of 70:1. Additionally, Wheaton will pay $600 per ounce of gold delivered. As part of the transaction, in addition to the new stream, Wheaton International will receive 20.9 million First Majestic common shares, and the transaction is expected to close before the end of April.For 2018, under the assumption that the new agreement takes effect during the second quarter, we anticipate that attributable silver production relating to San Dimas will amount to about 1 million ounces, representing production for the first quarter, and that attributable gold production will amount to approximately 30,000 ounces, representing production for Q2 through Q4.Attributable silver production relative to Peñasquito in Q4 2017 amounted to 1.6 million ounces, while sales amounted to 1.5 million ounces, an increase of 18% and 21%, respectively. Goldcorp has indicated that the improved results were driven by the implementation of a new management operating system and better ore delivery to the primary crusher. Goldcorp also reported that the construction of the Pyrite Leach Project was 62% complete by December 31, 2017, and is expected to commence commissioning in the fourth quarter of 2018, 3 months ahead of schedule. For 2018, attributable silver production relating to Peñasquito is expected to increase to approximately 6.5 million ounces. Antamina generated 1.5 million ounces of attributable silver production in Q4 2017, a decrease of 8%, primarily due to lower grades and throughput, partially offset by higher recoveries.Silver sales volumes in Q4 2017 relative to Antamina increased 19% to 1.8 million ounces, with the increase being due to positive changes in silver ounces produced but not yet delivered to Wheaton. For 2018, attributable silver production relating to Antamina is expected to decrease to 5.3 million ounces due to the mining of lower-grade material. Attributable silver production and silver sales volumes relative to the other silver interests in Q4 2017 amounted to 2.2 million ounces, a decrease of 13% relative to production and 11% relative to sales, with the decreases being primarily due to the expiry of the Cozamin agreement on April 4, 2017. 2018 production from other silver interests is expected to be approximately 6.9 million ounces, with the decrease being primarily related to the cessation of the company's entitlement to silver from the Lagunas Norte, Veladero and Pierina streams per the terms of the silver purchase agreement with Barrick.Attributable gold production relative to Salobo in Q4 2017 amounted to 76,200 ounces, while sales amounted to 71,700 ounces, a decrease of 2% and 3%, respectively, due primarily to slightly lower grades and recoveries, partially offset by higher throughput. During the quarter, the 2 12 million tonne per year lines once again operated in excess of capacity. For 2018, attributable gold production relative to Salobo is expected to be approximately 240,000 ounces, a decrease of approximately 9% relative to 2017.Attributable gold production relative to Sudbury in Q4 2017 decreased 4% to 8,600 ounces due to lower throughput, while sales increased 18% to 12,100 ounces due to positive changes in gold ounces produced but not yet delivered to Wheaton. 2018 gold production relative to Sudbury is expected to decrease slightly to approximately 33,000 ounces.Attributable gold production relative to Constancia in Q4 2017 amounted to 2,900 ounces, while sales amounted to 2,000 ounces, a decrease of 6% and 41%, respectively. The decreased production was consistent with Hudbay's plan to process lower-grade ore in 2017, while the decrease in sales simply reflects a buildup of gold produced but not yet delivered to Wheaton in Q4 2017, relative to a decrease in such balances during the fourth quarter of 2016.For 2018, attributable gold production relative to Constancia is expected to increase by about 70% to approximately 17,000 ounces, as Hudbay expects to begin mining the Pampacancha deposit in the second half of 2018, which has significantly higher gold grades than what is currently being mined. However, should the mining of the Pampacancha deposit be delayed, Wheaton will be entitled to an increased portion of the gold produced by Hudbay.Attributable gold production sales relative to the other gold interests decreased by approximately 60% in Q4 2017, amounting to 8,800 ounces and 8,600 ounces, respectively. These decreases were expected and are primarily attributable to 2 factors: first, Wheaton's distributable percentage of gold relative to 777 decreasing from 100% to 50% effective January 1, 2017, as a result of Hudbay successfully satisfying the completion test relating to Constancia; and second, lower throughput and processing of lower-grade material at the Minto mine as the result of mine sequencing changes implemented to support the mine life extension. For 2017, production from other gold interests is expected to amount to approximately 35,000 ounces with the decrease relative to 2017 being primarily due to lower production levels at Minto. During the fourth quarter of 2017, the company repaid $84 million on the revolving credit facility, dispersed $33 million in dividends, invested $3 million in Kutcho common shares and advanced $16 million to Kutcho in exchange for a convertible debenture. Overall, net cash increased by $29 million in Q4 2017 resulting in cash and cash equivalents at December 31 of $99 million. This, combined with the $770 million outstanding under the revolving credit facility, resulted in a net debt position as at December 31, 2017, of approximately $671 million. For the entire year, the company generated $539 million of operating cash flow, repaid $423 million of debt and distributed $122 million of dividends, net of the dividends that were reinvested in common shares under the company's Dividend Reinvestment Plan. The company's cash position strong forecasted future operating cash flows combined with available credit capacity under the revolving credit 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.Finally, with respect to the company's ongoing dispute with the CRA, we continue to work diligently with counsel to advance the case as expeditiously as possible, with initial discovery being largely complete as of the current date. The company continues to believe that it has filed its tax returns and paid applicable tax in compliance with Canadian tax laws and intends to vigorously defend itself in court. That concludes the financial summary, and with that, I'd turn the call back over to Randy.

[Randy V. J. Smallwood, Co]

Thank you, Gary. So looking forward, we are pleased to provide the updated 1 year and long-term production guidance. 2018 marks a transition year as we anticipate the new stream at San Dimas coming online in the second quarter as well as Goldcorp completing construction of the Pyrite Leach Project in the fourth quarter. We believe that this growth should partially offset the end of the compensation silver from Barrick relating to Pascua Lama.So for 2018, Wheaton's estimated attributable silver and gold production is forecast to be approximately 22.5 million silver ounces and 355,000 gold ounces, and we see strong organic growth building over the next 5 years. Our current portfolio of producing assets are forecast to average approximately 25 million silver ounces and 370,000 gold ounces per year over the next 5 years.I would like to highlight that this guidance does not include an additional annual 350,000 gold equivalent ounces of optionality already included in our portfolio, such as the expansion at the -- the potential expansion at the Salobo mine or Hudbay's Rosemont project coming into production.Nor does our guidance account for future acquisitions, and on the corporate development front, we remain very busy. There are several high-quality accretive opportunities that we are pursuing related to both operating and development assets. And with the strongest free cash flow in the entire streaming space at well over $100 million per quarter and over $1.3 billion of current capacity, Wheaton still has plenty of firepower for continued investments. As always, we will remain disciplined and focus on acquiring streams that are accretive to our current shareholders and come from high-quality assets producing in the lowest half of their respective cost curves.At Wheaton, we have long believed that success should not be measured only by acquisitions and financial metrics. We also recognize the importance and need to give back to the community. As such, I'd like to provide an update on our corporate social responsibility programs. Since 2014, we have provided financial support to our partner CSR projects in the communities near the mines from which we receive silver and gold. We are proudly the first in the precious metals streaming space to initiate such programs, which now span 4 countries with 6 different partners.In 2017, we launched a new educational initiative near the Antamina mine and a sustainability initiative near the Constancia mine. And at Salobo, we continue to work with the Vale Foundation to support several programs focused on health and community engagement. And to date, we have been very pleased with the results of these initiatives, and we believe these programs will provide positive long-term and sustainable benefits to these mining communities and to our partners. We challenge our peers to make a positive difference as well because it's the right thing to do.In summary, 2017 exceeded our expectations. Our production remains founded on the highest-quality portfolio of precious metal streams in the industry, underpinned by very low-cost mining operations such as Salobo, Antamina and Peñasquito. With this portfolio, Wheaton produces more metal, generates more cash flow and now delivers the highest yield in the streaming space.But we are not done growing as we remain very optimistic about our ability to capitalize on the favorable corporate development environment and to add additional top-tier assets to our portfolio. And finally, we will not lose sight of the importance of being good, responsible corporate citizens.So with that, I would like to open up the call for questions. Operator?

[Operator]

[Operator Instructions] And your first question is from John Tumazos from John Tumazos, Very Independent Research.

[John Charles Tumazos, President and Chief Executive Officer]

Could you review your acquisition criteria?

[Randy V. J. Smallwood, Co]

Sure, John.

[John Charles Tumazos, President and Chief Executive Officer]

I think your silver -- world silver output fell 9% or 10% last year. And it's obviously a lot harder to replace silver agreements when the whole pool is getting smaller.

[Randy V. J. Smallwood, Co]

Yes, that's correct, John. The most important thing for us is, when it comes to acquisition criteria, is the underlying cost of producing the core product. Keep in mind that we're investing into typically a noncore byproduct from these assets. And so if it's a copper mine, where we typically get our gold from, or a nickel mine, where we typically get our gold from, we want to see where that mine fits within the copper cost curve on a worldwide basis. And we're only seriously interested in the assets that are in the bottom half of those respective cost curves. Now in the silver side, of course most silver comes from lead-zinc mines. And yes, I'm very bullish on silver. I just wish we had more silver opportunities in front of us. Because as you've mentioned, and we have seen this, world silver production is dropping. We haven't seen serious investment into that space for a very long time and we've had some pretty significant producers get close to the end of their life and shut down. And so we're seeing less and less silver being produced on a worldwide basis and yet the demand is climbing, especially in the industrial side. But again, most of the silver comes from lead-zinc operations. And hopefully with a bit of the recovery that we've seen in lead-zinc prices here recently, we're going to start seeing some more investment into that space. There just hasn't been even a lot of exploration on that side so I don't see anything transforming that rapidly. There's a few promising projects, but that's nowhere near enough to satisfy what I see as an ever-growing deficit in silver production.

[John Charles Tumazos, President and Chief Executive Officer]

So if we were to take the zinc market as an example, there's the restart of the Century mine. There's 2 new mines of Vedanta, there's the mine of MMG and then there's at least 10 zinc mine restarts. Is it fair to conclude that you wouldn't look at any of the zinc mine restarts for a silver stream because most of those mines being restarted are not in the bottom half of the cost curve?

[Randy V. J. Smallwood, Co]

Yes, it's -- when we sit and look at it, they're not in the bottom half of the cost curve. We would -- we will always look at these assets to consider whether we go forward with it, but our preference, what we stretch for or what we reach for are the ones in the bottom half of the cost curve. Now a lot of those mines that you listed off actually don't have a lot of -- it's not so much silver tied to the zinc, it's silver tied to the lead. And so if they're not big lead producers, the strong correlation in these assets is actually to lead. And so assets like Century don't produce a lot of byproduct silver.

[Operator]

Your next question comes from Dan Rollins from RBC Capital Markets.

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

Randy, I was just wondering if you could provide a little bit of color on the 2018 guidance. And more importantly, just sort of how you've put out your expectations for the first year at San Dimas with the gold coming there. And then San Dimas itself coming off a bit of a transitional year in 2017 and then under the new ownership. Are you being a little conservative on the estimates for this year and then getting to that sort of 40,000 to 45,000 ounces a year starting in 2019?

[Randy V. J. Smallwood, Co]

Yes, I think -- I mean, we're basically taking Primero's guidance and taking it out. The transaction hasn't closed yet, and so -- the one beautiful aspect about San Dimas is it's a type of asset that exploration success can convert into production very rapidly. I can speak from times past where over 30% of the tonnage that was processed in a particular year wasn't even classed as a reserve at the start of the year. And so it's a mine where exploration success does transmit to production success very, very rapidly. And so here's what I can tell you, is that First Majestic is very excited about getting in on this asset. And I can tell you, there's already a transition team in place and things are working relatively well down there. And so we're quite excited about having them sort of go full on this thing. But in terms of the guidance going forward, we had to sort of stick -- First Majestic has not released any guidance yet, and so we have to stick with what Primero has released. And I am confident that we should see some successes there.

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

Okay, perfect. And then maybe Haytham, Randy talked about some of the opportunities you're seeing out there. I'm just wondering if you might be able to put a probability on the chances of getting one of those deals over the line this year and then maybe the probability of actually maybe getting 2 over the line, if I could put you on the spot, sir.

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

Yes. No problem, Dan. Thank you for the question. With regards to this year, this year -- I mean it started out slow. January was a slow month, and now what we're seeing in February-March is a fairly robust pipeline of opportunities. We currently have about 10 opportunities we're looking at. At least 6 of those opportunities we could realistically see streaming transactions over the next 12 months. And I think, in total, if we looked over the next 12 to 24 months, there's probably $2 billion to $3 billion worth of streaming transactions. We would hope that we'd be successful in a number of those. That being said, I think there's a very strong possibility of getting 1 to 2 transactions done if not more this year. And I'll add something to that and I'll add, whereas we've historically seen streaming as a way to repair balance sheets of producing assets, what we're seeing now is, and Randy kind of touched on this earlier, is a fairly equal mix of development and expansion funding opportunities as well as some balance sheet repair opportunities. And we would also look at, obviously, ways [indiscernible] that the earlier stage ones to employ our early deposit structure whenever possible, so -- we're pretty excited about 2018.

[Operator]

Your next question comes from Steven Butler from GMP Securities.

[Steven Howard Butler, MD of Equity Research & Gold Analyst]

Question for you on Salobo guidance, Randy, 240,000 ounces down '18 versus '17. Is this based on attaining the adjusted mill throughput of 24 million tonnes per year as the base case? Or is it also based on maybe a grade profile?

[Randy V. J. Smallwood, Co]

Yes, it's -- I mean, it's -- achieving throughput rate we've done very well. But it's basically a grade profile as they're working their way through -- there's not a lot of variance in this deposit, but there are areas that are a little bit lower grade and so it's working their way through. I will say that in our experience, Vale has always been able to deliver their forecasts. And so we're -- it's the one asset that never disappoints.

[Steven Howard Butler, MD of Equity Research & Gold Analyst]

Yes, for sure. It's been pretty good, Randy, for sure. Did it exceed guidance on nameplate because of softer ore or any other reason this year?

[Randy V. J. Smallwood, Co]

Every time I've seen a mill, when an expansion gets completed and it starts running at nameplate, then what happens is people start focusing on optimization and start finding ways to do it just a little bit better, and the fine-tuning of the process. And so I think it's going through that process. I know we've had a number of visits to the site this year, and we've just been very impressed with the Vale team in terms of their ability to keep on finding ways to do things better.

[Steven Howard Butler, MD of Equity Research & Gold Analyst]

And Randy, what's the likelihood that Salobo enters into sites on a mill expansion this year or into next? What's your timing look like?

[Randy V. J. Smallwood, Co]

Well, their -- the Vale Investor Day laid out a target for making a decision on -- with respect to a Salobo expansion before the end of this year or by the end of this year. And they've got an overall corporate commitment to try and increase their exposure to base metals up to 30% from the current, I think they're around the 16% to 17% range, somewhere between 15% and 20% at least. And so there's a real commitment, and I can tell you I have spent time with senior management here just recently at Vale. And that is a real commitment on their side, and Salobo is their flagship. It's again, one of the reasons I continue to reinforce the importance of investing into the assets that are in the bottom end of the respective cost curves because it's the first place that our partners go back and reinvest into. And we'll, of course, get the benefits of this. Salobo has got a reserve life that's well over 40 years. I think it's 46 years out right now, and it hasn't been drilled off at that. Probably one of the more exciting aspects of where Salobo is right now is the fact that we've got drills back in the property for the first time since 2003, drilling some deep exploration holes to try and find out how big this ore body really is, and things look very promising. And so there's definitely some real capacity there to increase it. I mean, the current run rate right now is about 60,000 tonnes per day, which if you know anything about the copper world, that's a relatively small copper -- open pit copper mining operation. And so there's all sorts of capacity there for further increases.

[Operator]

Your next question comes from Brian Macarthur from Raymond James.

[Brian Macarthur, MD & Head of Mining Research]

I was just hoping to go through the Pascua Lama situation. If you decide on June 30, 2020, to terminate it, it says you'd get a portion of the original upfront cash payment of $625 million. Does that portion mean you get a discount off $625 million less the $364 million you've collected? Or how does it actually work? What's that portion mean? Is it a big number, a small number? Or how does that actually work?

[Randy V. J. Smallwood, Co]

The original payment was $625 million, Brian. And what happens is, the value of the silver that we receive today gets knocked off of that. And so essentially, we'd be in the 2...

[Gary D. Brown, CFO and Senior VP]

Well, we've received $364 million at the end of December. We've still got one quarter to receive. So we'd -- let's say that we get another $5 million, $6 million, we'd be at $370 million that we would have received. So we -- we'd be able to demand back $255 million in that environment from Barrick, if they have not completed Pascua Lama by the middle of 2020.

[Brian Macarthur, MD & Head of Mining Research]

Right. So there's no additional -- sorry, there's no additional discount off that, right? It's just a straight mathematical equation.

[Randy V. J. Smallwood, Co]

Yes, there's no time value impacts or anything like that, it's just a straight mathematical equation. And of course, it is our option. It's up to us as to whether we choose to do that or not. The deposit -- and I still strongly believe in the quality of the asset. I do think that it will, at some time in the future, be a very, very profitable gold mine for someone. Barrick is definitely working their way forward. It remains a focus of attention for Barrick. And when it does, 25% of the silver will represent a very, very attractive asset for us.

[Brian Macarthur, MD & Head of Mining Research]

Yes, great. Understood. I'm just making sure that worst-case scenario, that effectively that $255 million discounted, and everything else is -- option value on that is a fair way to look at it now.

[Randy V. J. Smallwood, Co]

That's right, yes. Thank you, Brian, and thank you, everyone, for dialing in today. We do believe that Wheaton offers the best option for gaining exposure to precious metals for a number of different reasons: firstly, by having low and predictable costs resulting in some of the highest margins in the precious metals space, the entire precious metals space; secondly, through our portfolio of long-life, low-cost assets and proven track record of accretive acquisitions; thirdly, by now delivering the highest yield in the streaming space; and finally, by delivering our shareholders optionality measured in solid ounces, not acres. We do look forward to speaking with you again soon. Thank you

[Operator]

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