Wheaton Precious Metals Corp

TSX:WPM

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Wheaton Precious Metals 2020 Fourth Quarter and Full Year Results Conference Call. [Operator Instructions] Thank you. I would like to remind everyone that this conference call is being recorded on March 12, 2020, at 11 a.m. Eastern time. I will now turn the conference over to Mr. Patrick Drouin, Senior Vice President of Investor Relations. Please go ahead.

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

Thank you, operator. Good morning, ladies and gentlemen, and thank you for participating in today's call. I'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 risks identified under Risks and Uncertainty, Management's Discussion and Analysis for the year ended December 31, 2020, both available on SEDAR and in Wheaton's Form 40-F and Wheaton's Form 6 K, both available on the EDGAR. These documents and the press release from last night set out material assumptions and risk factors that could cause actual results to differ, including, among others, fluctuations in the price of commodities, impacts on Wheaton or mining operations from which Wheaton purchases precious metals as a result of an epidemic, risk related to mining operations from which Wheaton purchases precious metals, the continued ability of Wheaton's counterparties to satisfy their obligations on their precious metal purchase agreements and the impact of any ongoing audits by CRA. 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, President, CEO & Director]

Thank you, Patrick, and good morning, ladies and gentlemen. Thank you for joining us today to discuss Wheaton's fourth quarter and year-end results of 2020. I do hope everyone has been keeping healthy and safe since our last quarterly conference call. As we near the 1-year mark of the COVID-19 pandemic, our top priority at Wheaton remains the welfare of our employees, our mining partners and the communities in which we operate. Despite the challenges posed by this pandemic, 2020 was a very productive year, and we were successful in delivering value back to our shareholders on so many fronts. I am pleased to announce that in 2020, Wheaton's high-quality portfolio of assets generated revenue of over $1 billion and operating cash flow of over $765 million, both records for the company. And given Wheaton's innovative dividend policy, this strong cash flow has resulted in a 30% increase to our minimum quarterly dividend relative to last year. In addition, we were pleased to execute on our growth strategy, announcing 2 accretive transactions in 2020 on the Marmato mine located in Colombia and the Cozamin mine located in Mexico. Our confidence in our ability to deliver continued long-term organic growth from our portfolio has also led us to introduce 10-year production guidance for the first time, in addition to our usual 1- and 5-year forecasts. I will provide more details on our growth profile later in this call, but I would first like to turn the call over to Gary Brown, 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 interest produced 178,800 gold equivalent ounces in the fourth quarter of 2020, comprised of 93,100 ounces of gold, 6.5 million ounces of silver and 5,700 ounces of palladium. Relative to the fourth quarter of the prior year, this represented a decrease of 4% on a gold equivalent basis, with lower production at Salobo and 777 resulting from the temporary suspension of operations at each mine site, being partially offset by the mining of higher-grade material at Antamina. On a gold equivalent basis, sales volumes decreased 3%, in line with the lower production levels. As at December 31, 2020, ounces produced but not delivered, or PBND, amounted to approximately 133,000 gold equivalent payable ounces, representing approximately 2.2 months of payable production. This amount of PBND is consistent with the average PBND balance of approximately 139,000 gold equivalent ounces over the preceding 4 quarters. Revenue for the fourth quarter of 2020 amounted to $286 million, representing a 28% increase relative to Q4 2019, primarily due to a 33% increase in the average realized gold equivalent price, partially offset by the 3% decrease in sales volumes. Of this revenue, 57% was attributable to gold, 39% to silver and 4% to palladium. Gross margin for the fourth quarter of 2020 increased 69% to $162 million, once again highlighting the leverage our business model provides to increasing precious metal prices. Cash-based G&A expenses amounted to $8 million in the fourth quarter of 2020, representing a decrease of $2 million from Q4 2019, primarily due to lower accrued cost associated with the performance share units, or PSUs, which was partially offset by higher charitable donations, with the company donating nearly $1 million relative to the previously announced $5 million community support and response fund related to the COVID-19 pandemic. Interest cost for the fourth quarter of 2020 amounted to $1 million, resulting in an effective interest rate on outstanding debt of 1.2%, as compared to $8 million of interest cost at an effective interest rate of 3.62% incurred in Q4 2019, with the average outstanding debt balance decreasing 39% during the most recently completed quarter and being 63% lower than it was in the fourth quarter of 2019. Net earnings amounted to $157 million in the fourth quarter of 2020, more than double that generated in Q4 2019. Basic adjusted earnings per share increased 101% to $0.33 compared to $0.17 per share in the prior year. Operating cash flow for the fourth quarter of 2020 amounted to $208 million or $0.46 per share compared to $132 million or $0.29 per share in the prior year, representing a 57% increase on a per share basis. Based on the company's dividend policy, the company's Board has declared a dividend of $0.13 per share, an increase of 8% compared to the prior quarter, payable to shareholders of record on March 26, 2021. 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. Relative to 2021, the company is setting the dividend floor at $0.13 per share, a 30% increase from the floor that was established relative to 2020, highlighting the continued strength of the company's operating cash flows and the benefits of the company's unique dividend policy, whereby dividend distributions are targeted at 30% of operating cash flow. During the fourth quarter of 2020, the company repaid $293 million on the revolving facility and made dividend payments of $47 million, with these cash outflows being partially offset by the proceeds from the sale of First Majestic shares in the amount of $113 million. Overall, net cash outflows amounted to $17 million in Q4 2020, resulting in cash and cash equivalents at December 31 of $193 million. This, combined with the $195 million outstanding under the revolving facility, resulted in a net debt position as at December 31 of only $2 million. For the year ended December 31, 2020, production on a gold equivalent basis met the company's revised guidance and was within 2% of the original guidance, despite the various shutdowns in the second quarter resulting from the COVID-19 pandemic. Despite the pandemic, sales volumes were virtually unchanged relative to 2019, primarily due to relative changes to the ounces produced but not delivered. Revenue for the year amounted to a record $1.1 billion, the first time in the company's history that we have broken the $1 billion mark. Of this revenue, 60% was attributable to gold sales, 36% to silver and 4% to palladium. On a gold equivalent basis, average realized commodity prices rose by 28% in 2020, leading to an increase in gross margins of 69%. Cash-based G&A expenses in 2020 amounted to $60 million, representing an increase of $11 million from 2019, with the increase being primarily related to higher accrued cost associated with the PSUs and higher charitable donations. For 2021, the company estimate that nonstock-based G&A expenses, which exclude expenses relating to the value of stock options and PSUs, will amount to $42 million to $45 million. Interest cost for 2020 amounted to $12 million, a decrease of $33 million relative to 2019, resulting in an effective interest rate on outstanding debt of 2.03%. Basic adjusted earnings per share increased 106% to $1.12 compared to $0.54 per share in the prior year. Cash flow from operations amounted to $765 million, an increase of 53% as compared to 2019, primarily due to the higher commodity prices. This translated into operating cash flow per share of $1.71 compared to $1.12 in 2019. Having ended 2020 in a neutral net debt position, the capacity provided by the $2 billion revolving credit facility, combined with the strong forecast operating cash flows, positions the company very well to satisfy its funding commitments and sustain its dividend policy, while, at the same time, having the 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. We are pleased to reiterate our 2021 and long-term production guidance previously announced in February. For 2021, Wheaton's estimated attributable production is forecast to range between 370,000 to 400,000 ounces of gold, 22 million to 24 million ounces of silver and 40,000 to 45,000 gold equivalent ounces of cobalt and palladium, amounting to total gold equivalent production of approximately 720,000 to 780,000 ounces. In 2021, gold production is forecast to increase, mainly driven by growth at Salobo, San Dimas and Constancia. Silver production is forecast to increase as additional ounces from Cozamin and Keno Hill are expected. Palladium production is expected to remain stable in 2021, and for the first time, we have cobalt production from the Voisey's Bay Mine, with our first shipments having already been received in February. Looking forward, we anticipate steady organic growth building over the next 5 years, with gold equivalent production averaging 810,000 ounces per year, growing to 830,000 ounces per year over a 10-year time horizon. Average production over the next 5 years and 10 years is expected to increase primarily due to continued production growth from Salobo, Constancia, Peñasquito and Stillwater as well as incremental ounces from the Marmato, Cozamin and Voisey's Bay streams. While Hudbay's progress on the Rosemont project appears promising, production from Rosemont is not included in the Wheaton 5-year guidance but is reflected in the 10-year forecast. And lastly, although Barrick continues to advance a comprehensive review of the Pascua Lama project, and Pan American continues advancing discussions on Navidad, without any framework on timing, Wheaton does not currently include any production from these projects in its long-term forecasts. On the corporate development front, despite travel restrictions, our team was busier than ever in 2020, announcing 2 new streaming agreements and reviewing numerous other opportunities. We quickly adapted to the new environment and developed alternative methods for due diligence, allowing us to continue to thoroughly review potential new acquisitions. We were pleased to add 2 high-quality assets to our portfolio, a silver and gold stream on the Marmato project located in Colombia and a silver stream on the Cozamin mine in Mexico, which we are welcoming back into our asset base after our previous stream at Cozamin ended in 2017. We believe both these projects demonstrate strong upside potential and will provide our shareholders with further opportunities for organic growth.Our corporate development pipeline remains robust. And looking ahead, we will continue to focus on acquiring accretive precious metal streams that complement our high-quality portfolio. The importance of delivering shareholder value while minimizing our impact and supporting our local communities was never more evident than in 2020. And as a streaming company, we recognize that the stronger our partners are, the stronger we are. So to support our mining partners and local communities, we launched a $5 million fund to help address and alleviate the impacts of this pandemic, which more than doubled our existing community investment budget. At the end of 2020, over $3 million of that has been -- had been deployed in support of initiatives with our mining partners and frontline organizations, including food banks, shelters and hospitals. Wheaton has always strived to be a sustainability leader in the precious metals streaming space, and this year, we significantly increased our disclosure around ESG risk management through the release of our inaugural sustainability report. We were honored to be recognized by several ESG rating providers for our performance in this area with sector-leading scores. Most recently, Wheaton was ranked by Sustainalytics as the top precious metals company and perhaps, more impressively, in the global top 50 out of over 12,000 companies across all sectors. As we look forward, our work in this arena will only grow in importance. While we are proud of the steps we have taken thus far, we recognize that sustainability is a journey, and we are as committed as ever to constant and continual improvement and ensuring that we leave a positive impact. In summary, despite the unprecedented challenges of this year, Wheaton has emerged stronger than ever with a sustainable foundation and a very promising future. We achieved both record revenue and cash flow levels, and exceeded the midpoint of our production guidance for the ninth consecutive year. For the first time, we introduced 10-year production guidance, demonstrating our belief in the steady, long-term expected organic growth from our portfolio. We listed on the London Stock Exchange in order to broaden our investment base to those looking for exposure to precious metals and to provide another point of entry for new internationally based shareholders to invest in Wheaton. With our value-creating business model, commitment to operating responsibly and focus on high-quality assets, we continue to provide investors with what we consider to be the best vehicle for investing into precious metals. And finally, on the backdrop of global uncertainty, I consider it our privilege, our responsibility as good corporate citizens to continue to provide support where it is needed the most. It is times like these when assisting our most vulnerable is of the utmost importance. It is simply the right thing to do. So with that, I'd like to open up the call for questions. Operator?

[Operator]

[Operator Instructions] Your first question comes from Tyler Langton, JPMorgan.

[Tyler J. Langton, Research Analyst]

Maybe just starting with Salobo, I know you mentioned sort of you're expecting higher production sort of this year. Can you just talk, I guess, a little bit about the profile that you expect for this year and the next couple of years just kind of maybe relative to sort of the more normal levels that we saw in 2019?

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

Sure, Tyler, and thanks again for picking up coverage of Wheaton. Appreciate having you on board, joining the team or the family. Salobo. Salobo, it's all very exciting what we see over the next few years at Salobo. Obviously, I think they're about mid-60%, 68% mechanically completed at the end of the year, on the Phase 3 expansion, and that's expected to turn on the switch sometime in 2022. And they're hopeful to sort of to get the completion test satisfied on that third phase of expansion by the end of 2022. And so as I said, a 50% increase in throughput. The current practice at the mine site is that the stockpile lower-grade material, common with a lot of the larger open pit copper mines around the world, they stockpile lower-grade material and focus on processing higher-grade material through the mill. That's current practice. They haven't made a final decision yet as to their approach once the third phase opens up. Economically, it makes sense for a stockpiled approach. And in fact, we've got some incentives provided to continue to hopefully push Vale down that path in terms of continuing the stockpiling approach, but they haven't made that decision yet, so it's a little bit tough for us to give an accurate forecast over the next few years in terms of how Phase 3 is going to impact production. Our approach in our production forecast is that we've assumed that they're not going to stockpile, that we're going to push things, too. So we think that's a pretty conservative approach. We think it has a -- it infers a conservative aspect to our own production forecast for 2022 and beyond because, economically, we do think it does make sense for them to continue the stockpiling approach in setting aside lower-grade materials and pushing higher-grade materials through the mill. Of particular excitement, though, on top of that is the -- back in December, Vale, again, announced the Phase 4 expansion. It's the first time that they've discussed it publicly. We've had obviously discussions with them extensively on this, but they've discussed it or released it publicly, and that would involve another increase, an equal increase of capacity, which would take it from 90,000 tonnes per day up to 120,000 tonnes per day, and expectations are that they would have that up and running by 2027. And so lots of activity at Salobo, lots of growth at Salobo. The resource -- we have released our updated resources, and you can see the growth on that side. And so this deposit just continues to deliver for us.

[Tyler J. Langton, Research Analyst]

Great. No, that's helpful. And then I guess, just switching to sort of M&A. I mean, you mentioned sort of that the pipeline remains robust. Can you talk a little bit about sort of the types of deals you're seeing in terms of size and whether it's more base metal producers looking to do precious metal streams or on the precious metal side? Just any color there would be great.

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

Tyler, I'm going to let Haytham answer that one. He leads our corporate development front. So Haytham, you're on the line.

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

Sure. Thanks, Randy. Just to give you a bit of an overview, it's been pretty busy since the new year started, lots of new opportunities to look at. They're primarily development stage opportunities that fit into a lot of our early deposit structure, which we've done a few times, and that's where we take precious metals as a by-product from a base metal mine. These types of opportunities, obviously, is where streaming works best. There's also some opportunities that focus on balance sheet repair and some expansion stage opportunity as well, where streaming can actually fund some of those expansions. The fact that streaming is being considered for all these areas actually further highlights the competitive cost of capital the streams provide. But there are some royalty packages out there that we've seen in the past. But I can tell you this, nothing that made sense from a Wheaton perspective in large part because of their size or because they come with a significant amount of non-precious metal revenues. We're going to continue to focus on the larger, I would say, development stage and expansion stage opportunities we're seeing right now.

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

I would add that what we're seeing is a lot of base metal growth, base metal companies with a kickup in copper prices and other base metals. There's a lot of companies that are now looking at putting back into the ground, and so that's probably the biggest changes. And then, of course, a lot of those assets have precious metal byproduct streams that will provide a good competitive source of capital to help those companies grow.

[Operator]

Your next question comes from Ralph Profiti, Eight Capital.

[Ralph M. Profiti, Principal]

Randy, I just had one, and I wanted to come back to Salobo and the potential for Phase 4. Should we be thinking about that as sort of more of an underground operation, perhaps even moving to a block cave? Or is this just sort of a systemic extra 12 million tonnes per annum being tacked on? And then I guess, the second question is when you think about that incremental investment that Wheaton would be inclined to pursue, should we just sort of take the old agreement, which would come in around, say, $900 million contribution?

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

Yes. So I mean, I actually personally believe that there is a potential for blockade ultimately, but I can tell you that the reserves that we have within open pit at Salobo are going to be -- the Phase 4 expansion would be related to expansion of open pit operations. It wouldn't be related to any of the block cave side. But there's no doubt that long-term potential for underground operations at Salobo does exist. Just we've still got, I think, 20-plus, 30-plus years of reserves in front of us, even with the expansion throughput there. And so I think it will be an open pit for a very, very long time, and Phase 4 is related to open pit production. And then -- sorry, the second part of the question?

[Gary D. Brown, Senior VP & CFO]

The reality is that Vale has one opportunity to ask us for payment, and we would expect that they would ask us for payment on the completion of Phase 3, and that's the payment of somewhere in the neighborhood of -- assuming that they complete -- satisfied the completion test in 2022 of $570 million to $670 million, and that's the last of our contingent payments related to Salobo. So if they expand to Phase 4, there's no additional payment that Wheaton would make.

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

Yes. And just to reiterate, it's a onetime option that Vale has to collect an expansion payment, and so it's their choice as to collect it at the end of Phase 3 or reserve it till the end of Phase 4. The payment, of course, increases with scale, but decreases with time. And so it's -- we fully expect them to be exercising that onetime option at the end of the phase -- once they satisfy the completion test on Phase 3.

[Operator]

Your next question comes from Josh Wolfson, RBC Capital Markets.

[Joshua Mark Wolfson, Analyst]

Continuing on the theme with Salobo here. With this next opportunity on the stockpiling, is there any sort of time line you can provide in terms of when we could expect an update? And just maybe from a technical perspective, is there anything to prevent the company from making this decision at a later date versus before the expansion is finished?

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

Well, so the driving -- from a critical time line perspective, the only real difference at the site itself would be a bit of a surface preparation, but it's the mobile equipment fleet size that would have to be adjusted. And in my experience, all that takes is 1 (800) Caterpillar or Komatsu. They'll find a way to get that. And so that's not a critical -- that doesn't take a lot of time to make adjustments to in terms of the size of the mobile fleet. But obviously, they need a slightly larger mobile fleet if they're going to be stockpiling some of the material versus feeding it all to the mill. It just means more material being moved on a daily basis. And so that's kind of the critical path coming from the other end back. We have the updated resource, which is now public, but we don't have the updated reserve yet because they haven't actually made the final decision as to what plan is going forward. But the fact that the resource is in place means it's really a matter of their engineering teams, their technical teams, their -- the entire group sort of coming down to that decision. We're, of course, hopeful that it happens sometime -- the earlier the better just because it gives us that much more clarity on a go-forward basis, and we've definitely dangled the incentives there from the difference in the expansion payments that we make. And so we're hopeful that it's sometime in the first half of this year. We're confident that it will be sometime this year, but it should be in the first half of this year.

[Joshua Mark Wolfson, Analyst]

Okay. Good to hear. And along the other operations for Vale. For Voisey's Bay, could you provide an update on how that operation will, I guess, ramp up or look like over the course of this year given you're going to get some of the open pit material, but the underground will be ramping up? And then a follow-on question to that. Historically, one of the opportunities cited has been maybe cobalt marketing just given the jurisdiction that the asset operates in. And if you have any views on that today with production commencing, that would be of interest.

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

Sure. Okay. Well, let's start off with the actual asset itself. So you're correct. I mean, the underground was delayed mainly as a result of some suspensions in production that they had at the site last year as a result of the pandemic. In a weird way, it's a little bit of a positive for us because materials that would have been mined last year was pushed into this year, but it has delayed the start of the underground. For us, it's not really a ramp-up because the production levels are pretty consistent from open pit to underground in terms of the materials, so we're getting pretty good production flows already from the open pit. And it's, as of January 1, irrespective of whether it comes from open pit or underground. And so as the underground does come into play, it will obviously offset -- and we've got the open pit there as a dampening device to make sure that we have good consistent production from the pit itself. So things are looking good there. From the marketing side, I can tell you, we went through a product marketing request for proposals, and we had very, very strong interest in our product. We ultimately did select a marketing agent that is working through. This is a product that's well known. It's been produced for a long time, and so there's great high demand for the cobalt from Voisey's Bay. And so we're pretty happy with what we've seen in terms of -- we've now seen our first sales, and we're pretty happy with the way that's handling. The recent pricing action in cobalt and some of the challenges that we've seen elsewhere around the world from other production has really sort of timed itself very well for us to start receiving our cobalt production here. And so it's -- this is a new product for us, and it's a new method of marketing for us in terms of being a bulk product versus [ story ] or precious metals. And so we're really looking at these first couple of years as an opportunity to learn more about this market and see if there's ways we can further optimize it.

[Operator]

Your next question comes from Cosmos Chiu from CIBC.

[Cosmos Chiu]

Randy, Gary and team, great to see the dividend increase here. Maybe my questions are on the 2 new acquisitions here. Maybe first off on Marmato, I see that the first payment is $34 million, second payment is $4 million, but they have not been paid yet. I'm just wondering, the timing in terms of that payment. And then also, when would you start receiving production from that asset? Is it when you pay that first payment? And then as a follow-on, the -- I'll ask those questions later on.

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

Great. I appreciate the limited pile of questions at a time. So yes, no, the payments haven't been made yet because there was some tenure issues that had to be clarified down there, and that is in process. It looks like it's going to be happening very, very soon here right now. And yes, we will get a bit of production from the upper zone, which is currently in production. It does date back to -- I can't remember which date, but dates back to last year. And so we will get a bit of an inventory of production that has built up over that time once the payment is made. The real -- sorry, go ahead, Haytham.

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

July 1, dates back.

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

July 1, yes. So dated back to July 1. So it would be a nice little bump. But it's not -- that's not the reason we're in Marmato. The reason we're in Marmato is for that lower deep zones, and all it takes is a good look at the drilling results that the company has achieved there. We're actually really excited about that geological potential and where that project -- where we think that project can go. And then when you look at the new management team coming in, there's a long history of being able to build from projects like this. And so we're pretty excited about that project.

[Gary D. Brown, Senior VP & CFO]

And Cosmos, just to make sure you're aware, we've not booked any production yet. Even though it accrues back to July 1, we've not booked any production in 2020 for Marmato, nor have we for Cozamin. That -- those will both be trued up in Q1 once payments are made.

[Cosmos Chiu]

Okay. Yes, that was actually my follow-on question in terms of when -- so it's going to be in Q1 that we see slightly higher production for both likely in Marmato and also Cozamin because Cozamin, you've made the entire payment already, so that's coming in, in Q1. But Marmato, maybe Q1 as well.

[Gary D. Brown, Senior VP & CFO]

As long as we do make that payment. We do anticipate -- I can tell you we're prepped to make that payment. It's just a question of getting the final Ts crossed, Is dotted. So as long as that happens in the next few weeks, then yes. And Cozamin is accrued as of December 1, so it's not as long.

[Cosmos Chiu]

Yes, for sure. And then I don't think I saw that in the MD&A. But again, I don't think it's huge, Randy, but how much have you sort of factored in, in terms of 2021 guidance from these 2 assets here? Or is that something that you can share with us?

[Gary D. Brown, Senior VP & CFO]

Those are both factored in. We did include Marmato. Again, Marmato is very small until we get to the deep zone, as Randy alluded to. Cozamin, though, we certainly had -- we did that acquisition in December that we announced it, so that would be certainly included in 2021. I can tell you, though, we did use a conservative approach. We do think Capstone, maybe not in 2021, but further on, we'll grow production, so we think there's upside there for sure in the 5- and 10-year guidance. But it is in our current guidance.

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

Some of the initiatives that Capstone's got underway at Cozamin will definitely improve production numbers there. So -- and we expect to see that coming over the next couple of years.

[Cosmos Chiu]

And Randy, could you remind us in terms of the timing of the deep zone at Marmato, potential timing?

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

I think it's 2023, but Haytham, you're on the line. Do you have that?

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

Yes, you bet. I think it is late 2023 or early 2024 is that you expect the timing.

[Cosmos Chiu]

Great. And then maybe an other stream here. Keno Hill, I'm seeing that the mill started commissioning in November 2020. Just given the timing and then concentrate and whatnot, when should we start expecting contribution from that stream? And to your knowledge, how is the start-up going?

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

So the start-up was a little bit challenged mainly because of COVID risk management. October, November, there was a -- the second wave sort of came through, and so there was an increase in restrictions. And then it definitely made the start-up challenging for them in terms of getting staff in there safely and making sure that they were maintaining high-risk management protocols. That definitely made it a little bit more challenging for them to get it up and running smoothly, but they were successful in getting first production through. It's a concentrate for us that gets shipped off, and so we're hopeful that as we seem to be coming out of this second wave and that things lighten up a bit for Alexco in terms of getting it up to full speed, they are getting some good -- very, very impressive grades out of the underground. And so things do look very promising from that front. But -- so we fully expect that come spring, they should be getting closer and closer to full production levels.

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

Yes. So Cosmos, we didn't book any production in 2020 for Keno Hill, but you'll see it start to accrue production starting probably in the first quarter. I don't see any reason why we wouldn't have production in the first quarter.

[Cosmos Chiu]

Great, Patrick. And then maybe one more question here. In Q4, usually, producers like to catch up sales versus production. I guess, we didn't really see it in Q4 2020 this year maybe due to COVID-19 impact. Any insight in terms of when that might reverse in terms of sales exceeding production in a later quarter? Is it going to be in Q1, Q2? Any kind of insight there that you know of at this point in time?

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

Well, and you're right. Last year, because of the suspensions in the second quarter and into part of the third quarter in some places -- sorry, first quarter and into the second quarter in some places, it had a bit of an odd effect to those normal produced, but not yet sold. But we expect the numbers. They're not too far off of where we average on a quarterly basis, and so we do expect it to normalize. It's always been our experience that the fourth quarter is the one where sales gets pushed because everyone squeezes the sort of the inventory pipeline to try and boost year-end results, and so that's usually the incentive for it, and that's one of the reasons why we typically do see that in the fourth quarter. So I would hazard a guess that once we get back to normal levels, which I think we are at pretty close to right now, it's probably not going to be until the fourth quarter, again, that we see something like that. Cosmos, probably, a gain, the incentive to just sort of make the year-end results look a little bit better is a continual objective, right?

[Operator]

Your next question comes from Brian MacArthur, Raymond James.

[Brian MacArthur, MD & Head of Mining Research]

There's a lot of talk in the industry about rate of return on streams going forward, so I'm just kind of curious, with your sell-down of First Majestic, how do you think about the rate of return on what I would call the San Dimas May 2018 deal? Because when I sort of look at this, you put out $220 million. If I got my math right, and correct me if I'm wrong, you got $94 million back already in cash. But now you've also sold 151 million shares, give or take, of First Majestic and you have more to go, and you still have the stream. So do you count -- or do you look at that sale of First Majestic when you do those rate of return calculations? I'm just curious how you philosophically think about that given the significance of the First Majestic position?

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

Look, philosophically, I look at it as we had an opportunity to do the stream at Cozamin with Capstone, and one of the ways to pay for that was to sell all of the shares of First Majestic and sort of put that money back into silver in the ground in -- at Cozamin, which is a good long-life asset. We're strong supporters of First Majestic and what they're doing at San Dimas. We think that, that asset is perfectly suited for First Majestic. And I think some of the initiatives that they've got underway is just going to make that asset even stronger than what it currently is now. They've got some good strong focus on putting first off drill holes into the ground, which is always the first requirement in terms of making sure you've got the exploration potential and the resources that convert to reserves, but also just the continued optimization of the mill and improvements in terms of throughput and recovery rates and investing back into it. San Dimas is -- even after this morning, San Dimas is First Majestic's flagship, and so it's always going to be a core focus of their investment.We were comfortable shareholders and supportive shareholders of them, but we saw an opportunity to also stay focused. And we're also very, very bullish on silver, but we -- we're very comfortable with that. So in terms of rate of return, Gary?

[Gary D. Brown, Senior VP & CFO]

Yes. Look, Brian, you have to realize, we view the San Dimas restructuring that we did back in 2018 as a very successful transaction and a real win-win transaction, one that has benefited First Majestic, who's done a wonderful job with the asset, with the exploration success that they've had.But the original stream, we received the current stream. And the current stream, we modified the stream so that we were getting about 60% of what we were previously getting. And for the 40% that we gave up, we received $151 million of First Majestic shares. And so you have to take that into account, right? So we got $370 million, and then the gold court gave us $10 million to get rid of their guarantee relative to that asset. So we received $380 million for the original stream.Now we have received $156 million so far on -- as at December 31, 2020, in proceeds from selling the First Majestic shares, and we had about $100 million of First Majestic shares at year-end, so let's call it, $260 million relative to our original valuation of $151 million. So we've generated, as at December 31, 2020, about a 70% return on the First Majestic shares, and that's reflective of the fantastic job that First Majestic has done with San Dimas. And that, combined with -- you have to remember, we were dealing with about a $1,200 gold price environment when we consummated that deal. So with gold being up over 40% since then, the combination of those 2 things has resulted in a very significant return.On the stream, the -- we have received 90 -- over $94 million to date on the amended stream, and the mine life there has been extended significantly with the exploration success that First Majestic has had. So that, I think, was a very successful restructuring. And we're very happy with the way that, that asset is performing.

[Brian MacArthur, MD & Head of Mining Research]

Great. And maybe just a second question. On the Voisey's Bay deal, technically, and with all this talk about marketing, and as you've mentioned, it's a premium product, is the reference -- what is actually the reference price for the cobalt price that you're going to get post marketing? I mean, if we get into a situation where you had a 2-tiered market or something, is it technically -- I just can't remember. Is it technically defined to reference a certain price? Or is there some potential...

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

Yes. Brian, we have -- we currently have an agency agreement where we sell it with -- at block prices over the period, right? And so obviously, we monitor the spot market prices, but each block that gets sold is assigned to price at the time of the transaction itself on a go-forward basis. So there's a number of different reference points out there or reference prices out there. And obviously, we monitor that, and our agent monitors that in terms of how that moves forward. But it's not directly related to those agency prices. It's just there for reference.

[Gary D. Brown, Senior VP & CFO]

Yes. Brian, it's going to be difficult because there's -- it used to be metals bulletin, but I think they may have changed their name. With the reference, it was most applicable. LME isn't a great proxy. But what the LME price, if you look at that, will give you a proportional or directional movement. And you can look at LME, and you can see LME prices have gone from mid-teens to well into mid- 20s. So over the past -- into late 2020. So just as we were starting to sell our first products, and we've made our first sale, pricing had very much improved. But as far as an exact number, it's going to be tough to forecast other than the directional move from LME, unfortunately.

[Brian MacArthur, MD & Head of Mining Research]

Right. But just so I'm clear, if -- I mean, there is a philosophical discussion out there in the market that cobalt from Canada might be worth more than cobalt from, let's say, places in Africa. It would be a negotiated thing, and if clients wanted to pay a premium for these stuff from Canada, it would be negotiated price through your agency that, technically, you would get a premium if you could do that, and that existed in the market. It's not like it's a cast in stone reference point to anything.

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

Exactly. It's a unique product that comes from Voisey's Bay, and it's got -- it has been -- it's in the marketplace. It's well known in the marketplace, and so there's people that really like this product. And they're the ones who are stepping up. Our first sale happened to someone that has been using Voisey's Bay cobalt for a long time, and it was for a good price. So...

[Operator]

Your next question comes from Richard Hatch from Berenberg.

[Richard James Hatch, Analyst]

Congrats on a very good set of numbers. I've got a few questions. First one just on Salobo, I wonder if you might just be able to put a bit more meat on the bones of what you could potentially kind of realize in terms of production levels just on the various mills. I appreciate it's quite difficult to necessarily have a full picture there, but would you be able to give us any kind of color on this sort of steer on the various sort of 3 and 4 expansion, what that could take production levels to?

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

Well, what I can tell you is the amount of tonnes that each one of those expansions relates to. Currently, the mine is running at around a 60,000 tonne per day capacity. The Phase 3 will take it from 60,000 to 90,000 tonnes per day. And the Phase 4 -- the proposed Phase 4, it's not definite yet by any means, but it sure looks like it's shaping up. It will be another 30,000 tonnes per day, so I'll take the mine ultimately from currently 60,000 tonnes per day to 120,000 tonnes per day, which, still, when you look at copper mines around the world is -- large open pit copper mines around the world is not -- it's not the largest in the world by any means. That's a pretty normal operating rate and, in fact, very similar to what we see at Peñasquito, where there's even higher strip ratios. So now the question is, what grade do they choose in stockpiling, and it's very tough. I mean, we know that, currently, right now, they are stockpiling lower-grade material. They have been ever since they started up the mine back in 2012, and setting aside the lower-grade material and building up a low grade stockpile, which will ultimately, at the very end of the mine life be processed through the mill, and they are doing that. And so current production levels sort of do reflect the stockpiling approach.Now we know that if -- it's easy for us to forecast. And in fact, that's what we have included in our long-term forward forecast is, assuming that they process all ore mine through the mill and not -- and do not stock piling and stop stockpiling, and we feel that, that's a very conservative base case of which we feel there's definitely upside over and above that. However, the quantum of the amount of material that they stockpile, if they keep on using the same practices they have right now, you would imply that there's a possibility of some -- of a 50% increase this time around, but there's -- it's just not going to be like that. Typically, when you scale up in terms of capacity throughputs, any crossover grades for stockpiling will drop a bit as you sort of adapt to that higher capacity to the mill. And so it's just -- it's a very broad spectrum of possible results that I just -- it's tough for us to put any more guidance on it, other than the fact that we're confident that it will be higher than what we've got in our forecast. But the quantum hire really does come down to how much material they decide to set aside in the stock piling campaign and how much material they decide to move through the mill. And it is an entire spectrum of results that's very flexible on their side.What I can, again, reinforce is the fact that not only do we feel that makes economic sense for them to continue stockpiling, but there is a pretty healthy incentive. As Gary mentioned earlier on, about $100 million incentive over and above their expansion payment if they commit to continuous stockpiling program and focus on high-grade materials through the mill. And so the combination of strong economics -- stronger economics, plus that incentive, we do hope that they make the decision. But in the end, it's Vale's decision as to their approach there. And I just wish I could give you more guidance than that, but I can't.

[Richard James Hatch, Analyst]

No, that seemed helpful. Just a quick one on Rosemont. When do you -- you mentioned that you pushed that into your long-term guidance. When do you have that coming online in your numbers?

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

Well, we have it coming on about 6 years out, but that's -- we actually think Hudbay is making good progress on their discussions with -- in terms of the appeal of that decision. And in fact, Hudbay is on guidance is that they expect to announce or hopefully get to a decision point sometime here within the next -- I think it's a few months, actually -- within this year, definitely. And so given that, there's about a 2.5- to 3-year build time on Hudbay, and there's a reasonable chance that they could move forward. Even if they're not successful in appealing the recent decision, they do have the opportunity to try and shift the operations on to privately owned land and move forward. It would be a smaller scale operation. It really doesn't make sense. But sometimes, yes, we are forced to do things that don't make sense in order to get around these challenges. But they are definitely making good progress on that front, and we're confident that they'll be successful. And in that event, there's, we think, a pretty good chance it will come within our 5-year guidance, but we just felt, again, to be on the conservative side. We're confident they'll get there. But even if it was in the 5 years, we probably wouldn't see it until the fifth year of that 5-year guidance. And so it really is something that's going to be out. And I think a good chance it will be 6 years out, 7 years out. And so we've got sort of supplying production through the 6-year -- 6 to 10 of the 10-year guidance.

[Richard James Hatch, Analyst]

Cool. Okay. And just quickly on the dividend. I mean, great to see dividend hikes again. Great to see the yield increasing, and I suppose you've got a balance sheet that's going to move into net cash in Q1. Where are you head out in terms of giving a material hike? I suppose if I look at my numbers, we're on a 5% to 6% free cash flow yield, 1.5% on dividend yield, so maybe the states could give it a bit more of a push. Do you think you give it another year or 2 and see where the deal shape out just to give yourself that extra firepower? Or do you think we could expect to see dividends push a bit higher to 12 months out?

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

Well, it's important to keep in mind that we do average our dividend over the previous 4 quarters of cash flow, and so as we see this organic growth that we've just discussed over the next few years, we know that there's going to be upward pressure on this dividend just by virtue of the fact that we do tie it to our cash flows. And if we see some renewed strength in precious metal prices, that will also put upward pressure on that dividend. And so it's naturally going to be there.Richard, I can tell you that we're focused on trying to add to our portfolio. And if we're successful, now we only do it if it's accretive and if it's high quality. We're very, very selective. I can tell you that our hit rate is about 1 in 100 in terms of projects that we look at versus ones that we close on. And so we are very, very selective of what we invest into, but our objective is to continue growing the company with ounces in the ground. And if we're not successful, that means that, you're right, this year, we're going to build up an incredibly strong cash balance on the balance sheet, and that's not where I'd like to be. And what that means is that given -- at the end of this year, if we haven't made any other significant acquisitions in terms of putting money back into the ground, then we will definitely be entertaining a -- the potential of increasing the payout ratio from 30% to possibly as high as 40% or 50%. I don't see it jumping to 50%. It would be -- the next natural step would be 40%, but that's only going to come when we have the cash to give back to our shareholders. We're not going to borrow to give back to our shareholders. We will borrow to put -- to acquire ounces in the ground, but our focus is on growing the company. But if we can't see good opportunities to grow the company, then the money will come back to our shareholders.

[Richard James Hatch, Analyst]

Yes. Is special dividend under consideration or not?

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

Unlikely, but time will tell. If we start to get too large of a, I mean, balance sheet, if you get too much cash on hand, then there's -- those things can be -- it's unlikely this year.

[Richard James Hatch, Analyst]

Okay. And my absolutely last one is just for Haytham, right? If you were to look at the kind of the pipeline for deals at the moment, and I guess one of the other guys touched on it a bit earlier on, but if you were to look at the pipeline at the moment, how confident are you that there's ones that kind of -- the pens is kind of hovering over the paper? Or is it the case that there's still quite a lot of work to do before we kind of see news flow on deals?

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

Just to answer that question, Richard, I would say we probably have 10 to 12 $100 million to $300 million opportunities in the pipeline that we're constantly looking at and that we hope to be able to get a couple of those across the line. How confident am I? I think we're going to do everything we can to make sure that we add -- do accretive transactions. And I'm fairly confident we'll be successful in 2021.

[Operator]

Your last question comes from Trevor Turnbull, Scotiabank.

[Trevor Turnbull, Analyst]

Randy, and forgive me for the ultimate -- or last Salobo question. Could you just maybe briefly talk a little bit about the relationship between the copper and the gold? And how -- if you're going to see sustained higher copper prices, does that work towards Vale making a decision either one way or the other on the stockpiling issue in terms of the expansion?

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

Well, there's no doubt it has an impact on that because they get 100% of the copper revenue and about 25% of the gold revenue, so the higher copper prices will definitely incentivize them to push that forward. There is -- on a more global corporate basis down there, Vale has a very continually -- every time you ever see them present, they're constantly focused on trying to expand their presence in base metals. They have a lot of exposure to iron ore, and they're -- it's a continual message that the expectation is to try and double the contribution from the base metals division of Vale.And Salobo, Salobo 4 is continually referenced. I was at a panel discussion around this week. We're at the PDAC where it was referenced. And so we do think that stronger copper prices even provides more incentive for them to go down this path and try and reap some of the benefit of these copper prices today.

[Trevor Turnbull, Analyst]

And sorry, so just on the simplest level, higher copper grades does correlate with the higher gold grades, so it all works in the same direction.

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

It's beautiful that way, isn't it?Thank you, Trevor, and thank you, everyone. In closing, we do believe Wheaton is very 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, resulting in very 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 our CSR fund and strong support of our partners and the communities in which we live and operate.I do look forward to speaking with all of you again soon. Stay healthy, stay safe. Thank you.

[Operator]

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