Wheaton Precious Metals (WPM) Q3 2021 Earnings Call Transcript

Wheaton Precious Metals (WPM -1.12%)
Q3 2021 Earnings Call
Nov 05, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Wheaton Precious Metals 2021 second quarter results conference call. [Operator instructions]. I would like to remind everyone that this call is being recorded on Friday, November 5, 2021 at 11:00 a.m.

ET. I will now turn the conference over to Mr. Patrick Drouin, senior vice president of investor relations. Please go ahead.

Patrick 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; Haytham Hodaly, senior vice president, corporate development; and Wes Carson, vice president of mining operations. Please note that for those not currently on the webcast, the slide presentation accompanying this conference call is available in PDF format on the presentations page of the Wheaton Precious Metals website.

I'd like to bring to your attention that some of the commentary in today's call may contain forward-looking statements. And I would direct everyone to review Slide 2 of this presentation, which contains important cautionary notes regarding forward-looking statements. 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 Smallwood -- President and Chief Executive Officer

Thank you, Patrick. And good morning, ladies and gentlemen. Thank you for joining us today to discuss Wheaton's third quarter results of 2021. I am pleased to announce that Wheaton's diversified high-quality portfolio continues to deliver strong results, including record revenue, earnings, and cash flow for the first nine months of 2021.

In the third quarter of 2021, we produced approximately 86,000 ounces of gold, 6.4 million ounces of silver, 5,100 ounces of palladium, and 370,000 pounds of cobalt. From a financial perspective, Wheaton generated over $200 million of operating cash flow and $268 million of revenue in the third quarter. Given our strong underlying financials, Wheaton remains committed to returning capital to shareholders and declared a $0.15 dividend, representing a 25% increase relative to the third quarter of 2020. We continued to execute on our growth strategy, signing a nonbinding term sheet with Rio2 in connection with the Fenix Gold project located in Chile, a transaction we expect to close in the coming weeks.

And we are actively trying to put our strong balance sheet to work, looking at a number of precious metals streaming opportunities. Strong production in the first nine months of the year has allowed us to tighten the range of our production guidance, which is now 735,000 to 765,000 gold equivalent ounces, in line with the midpoint of our original guidance. Lastly, following ratings updates in this quarter, we are pleased to announce that Wheaton's demonstrated leadership in ESG continues to be met with sector-leading scores, including a AA rating from MSCI and a No. 1 ranking in the precious metals space by Sustainalytics.

I would now like to turn the call over to Gary Brown, our senior vice president and chief financial officer, who will provide more details on our results. Gary?

Gary Brown -- Senior Vice President and Chief Financial Officer

Thank you, Randy. And good morning, ladies and gentlemen. The company's precious metals interests produced 184,900 gold equivalent ounces in the third quarter of 2021. Relative to the third quarter of the prior year, this represented a 2% increase in production on a gold equivalent basis, with increased attributable production relative to Penasquito, Constancia, and San Dimas being offset by lower production from Salobo and Sudbury.

In contrast to the increased production, sales volumes were 9% lower due to the timing of shipments, resulting in the balances of ounces produced but not delivered, or PBND, growing in the most recent quarter. As at September 30, 2021, approximately 151,000 gold equivalent payable ounces were in PBND, in addition to inventory amounting to 488,000 pounds of cobalt or 4,800 gold equivalent ounces, with the combined figure of 156,000 gold equivalent ounces representing approximately two and a half months of payable production. This amount of PBND and inventory is approximately 20,000 gold equivalent ounces higher than the average balance of 136,000 gold equivalent ounces over the preceding four quarters. Revenue for the third quarter of 2021 amounted to $269 million, representing a 12% decrease relative to Q3 2020, primarily due to the lower sales volumes coupled with a 4% decrease in the average realized price.

Of this revenue, 45% was attributable to gold, 49% to silver, 5% to palladium, and 1% to cobalt. Driven by the lower sales volumes and prices, gross margin for the third quarter of 2021 decreased 14% to $151 million. Cash-based G&A expenses amounted to $12 million in the third quarter of 2021, representing a decrease of $8 million from Q3 2020, primarily due to lower accrued costs associated with the performance share units or PSUs. The company currently estimates that non-stock-based G&A expenses, which exclude expenses relating to the value of stock options and PSUs, will amount to 42 to $44 million for 2021.

Net earnings amounted to $135 million in the third quarter, compared to $150 million in Q3 2020, with the 10% decrease being primarily the result of the buildup in PBND. Basic adjusted earnings per share decreased 10% to $0.304, compared to $0.338 per share in the prior year. Operating cash flow for the third quarter of 2021 amounted to $201 million or $0.45 per share, compared to $228 million or $0.51 per share in the prior year, representing a 12% decrease on a per share basis, with the decrease being once again the result of the buildup in PBND. The company's board has declared a dividend of $0.15 a share payable to shareholders of record on November 22, 2021.

And 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. During the third quarter of 2021, the company made a dividend payments of $57 million, invested $5 million in long-term equity investments, and made a $1 million advance to Panoro for the Cotabambas project early deposit precious metals purchase agreement. Overall, net cash inflows amounted to $137 million in Q3 2021, resulting in cash and cash equivalents at September 30 of $372 million. The company's $2 billion revolving credit facility remains undrawn and fully available as at September 30, 2021, giving the company almost $2.4 billion of immediate liquidity, which, when combined with the unaccessed $300 million ATM program and 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 metals purchase agreements.

That concludes the financial summary. And with that, I'd turn the call to Wes Carson, VP of mining operations. Wes?

Wes Carson -- Vice President, Mining Operations

Thanks, Gary, and good morning. Overall production in the third quarter was consistent with expectations with continued strong production from Penasquito, Antamina, and Constancia, offset by lower-than-expected performance from Salobo and Sudbury. In the third quarter, Salobo produced 55,200 ounces of attributable gold, a decrease of approximately 13% relative to the third quarter of 2020, with throughput being affected by the implementation of additional safety and maintenance protocols and grade decreasing in line with expectations. On October 22, Vale announced the resumption of copper concentrate production at Salobo.

Production had been halted for 18 days due to a fire on one of their main conveyors. Other activities, including mine and maintenance operations continued as usual during this period. Vale also reported that physical completion of the Salobo three mine expansion was 81% at the end of the third quarter and continues on track for start-up in the second half of 2022. Vale's Sudbury mines produced 500 ounces of attributable gold in the third quarter, a decrease of approximately 88% relative to 2020.

This was primarily due to lower throughput as operations at the mine were suspended as a result of a labor dispute, which lasted from June 1st through August 9th. Vale announced on August 3rd that a new five-year collective bargaining agreement had been ratified with mine workers. Also during the quarter, Constancia produced 0.5 million ounces of attributable silver and 8,500 ounces of attributable gold, an increase of approximately 21% and 126% respectively relative to the third quarter of 2020. The increase in both silver and gold production was primarily due to higher grades resulting from the commencement of ore production from the Pampacancha satellite deposit and the increase in fixed recoveries on attributable gold from 55% to 70%.

And finally, the Voisey's Bay underground mine extension, which includes developments of two new underground mines, Reed Brook and Eastern Deeps, was 70% physically complete at the end of the third quarter. Reed Brook produced its first ore in June, and Vale has indicated that Eastern Deeps is expected to start up in '22. Moving to the next slide. Wheaton's estimated attributable production in 2021 is now forecast to be approximately 735,000 ounces to 765,000 gold equivalent ounces, in line with previous guidance of 720,000 to 780,000 ounces and maintaining the midpoint of 750,000 ounces.

However, given the strong performance at Penasquito, Antamina, and Voisey's Bay offset by lower-than-expected production at Salobo and Sudbury, Wheaton is adjusting the production mix by metal as per the table shown on the slide. Longer-term guidance remains unchanged at an average production of 810,000 ounces for the five-year period ending in 2025, and 830,000 ounces for the 10-year period ending in 2030. That concludes the operations overview. And with that, I'll turn the call back to Randy.

Randy Smallwood -- President and Chief Executive Officer

Thank you, Wes. In summary, Wheaton recorded a solid third quarter, distinguished by several key highlights. We achieved record nine-month revenue earnings and cash flow and declared a $0.15 quarterly dividend. Our commitment to accretive growth was emphasized by the signing of a nonbinding term sheet with Rio2 for a new stream on the Fenix Gold project, a strong development project, which we look forward to welcoming into our portfolio of high-quality assets.

And our technical teams have been very active, visiting a number of potential new precious metals streaming opportunities as we strive to put our strong balance sheet to work. We narrowed our annual production guidance range from 735,000 to 765,000 gold equivalent ounces, in line with the midpoint of our original guidance. We were honored to once again be recognized by external rating agencies for our ESG performance with sector-leading scores. And lastly, we believe our portfolio continues to deliver ample opportunity for organic growth.

the benefit of which we expect to see from assets such as Salobo, Voisey's Bay, and Constancia. So with that, I would like to open up the call for questions. Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions]. Your first question comes from Tyler Langton from JPMorgan. Please go ahead.

Tyler Langton -- JPMorgan Chase and Company -- Analyst

Good morning, Randy, and thanks for taking my question. Maybe just starting with Salobo, I guess sort of your production I guess from 2020 and then 2021 was just impacted by sort of COVID and the mine maintenance issues. Do you think is 2022 shaping up to be a more normal year? Or it could be the first part of the year still be a little weak as some of these issues carry over? Just kind of any color there would be helpful.

Randy Smallwood -- President and Chief Executive Officer

Well, I'll let Wes add in a bit. But what I would say is 2022, of course, Salobo 3 will be starting up toward the end of 2022. And so I do expect that to be a next phase of growth coming into production at Salobo. So I do expect good strength there.

In terms of the normal course operating issues, all the intentions, well, I'll let Wes actually comment.

Wes Carson -- Vice President, Mining Operations

Sure. Yes. I'd say that -- I mean the issues that they were having earlier in the year this year were really kind of solved by August of this year. And we saw that the mine production get back up to really normal levels.

And unfortunately kind of September and the fire in October, there were some issues sort of more on the plant side. But really with those solved now, we see things kind of coming back online in the fourth quarter here. And really no issues going into 2022, and I think really a push to get things back online and then back on track.

Tyler Langton -- JPMorgan Chase and Company -- Analyst

OK. That's helpful. And then just kind of on deals, are you seeing I guess with sort of the recent inflationary pressures and then I guess especially within the precious metals deals, are those pressures kind of making some projects less viable, or people just sort of take a fresh look at them? I'm just kind of interested in sort of if you're seeing anything on that front.

Randy Smallwood -- President and Chief Executive Officer

Well, I mean I think the inflationary pressures probably are best represented in the mining industry by the commodity prices that we're seeing out there. And so that's driving a lot of investment into the space. And so I would actually say that a lot of the opportunities we're looking at are coming into fruition because of the higher commodity prices. Now that's ultimately going to wind up catching its way back into the cost of the consumables and the infrastructure and such.

And there's no doubt, and even on the labor side, we are seeing cost pressure around the industry itself. But I would say, in the current state of the industry right now, the higher commodity prices have actually opened up a bit of an opportunity set here in terms of people looking for funding for new projects. And I would highlight that especially on the green metals side, the amount of copper opportunities and nickel opportunities that we're seeing where we are looking at funding the precious metals to help build these green metal-focused operations, getting the precious metals by-product of these things, we're just seeing a lot of interest in that space. And so a big number of projects.

I don't know, Haytham, do you want to add anything?

Haytham Hodaly -- Senior Vice President, Corporate Development

No, I think you hit the nail right on the head there, Randy. It's basically higher commodity prices are driving a lot of the opportunities, because you're seeing a lot of these development stage opportunities look for funding. And so the majority of the opportunities we're seeing right now are call it sub-$300 million streaming operations where we're taking precious metals out of a nonprecious metals company.

Tyler Langton -- JPMorgan Chase and Company -- Analyst

OK. So it seems that it's more sort of base metal with precious metals streams, as opposed to sort of pure precious metals projects?

Haytham Hodaly -- Senior Vice President, Corporate Development

Yes, that's correct.

Randy Smallwood -- President and Chief Executive Officer

Definitely.

Tyler Langton -- JPMorgan Chase and Company -- Analyst

All right. That is it for me. Thank you so much.

Randy Smallwood -- President and Chief Executive Officer

Thanks, Tyler.

Operator

Your next question comes from Ralph Profiti from Eight Capital. Please go ahead.

Ralph Profiti -- Eight Capital -- Analyst

Good morning. Thanks for taking my questions. Randy, firstly on San Dimas, I'm seeing sales come in slightly below production. And I'm just wondering how much of that is First Majestic's strategy of holding back some silver production into Q -- or some silver sales into Q4 as sort of this speculative strategy.

Are they telling you that's sort of something that's one-off? And is Wheaton OK with that strategy? Or would you sort of go so far as to maybe create some offsetting hedging transactions that nullify that timing risk?

Randy Smallwood -- President and Chief Executive Officer

Well, I think it's a pretty small amount. And so we would never -- we're not a fan of doing any hedging around the quarter and to sort of take that risk on. When we've seen what's happening -- and Keith's done this in times past, and sometimes it works and sometimes it doesn't. We're strong believers in sort of working the market, the current market, not trying to shape it.

And so not a strong supporter of doing that, but at the same time, First Majestic has the freedom to do that if they want. I think when we look at First Majestic and their track record at San Dimas, it just -- it's a record of continuous improvement. Ever since they've taken over the asset, it continues to deliver. And so I think when it comes to San Dimas, we're more excited about the potential to fill in that mill.

It's now got capacity of close to I think it's 3,000 tonnes per day. And they're not operating at that level yet. And so we are seeing a lot of investment in that space. And so we haven't seen any serious impact on that front in terms of holding back, but Wheaton will stay on top of that.

Ralph Profiti -- Eight Capital -- Analyst

OK. And I wanted to ask a follow-up on topical theme of global minimum tax. And just wondering if internally, you've run sort of worst-case scenarios on what that could mean to potential valuation and such. I just -- just for a frame of reference, I sort of get to a 7, 8% impact on a worst-case scenario of 15% effective today.

I'm just wondering, is that sort of realistic? Or am I out to lunch?

Randy Smallwood -- President and Chief Executive Officer

I'll let Gary take that one.

Gary Brown -- Senior Vice President and Chief Financial Officer

Yes. I think, Ralph, it's very difficult to estimate what the impact would be, given all the uncertainties that arise -- that surround the potential implementation of the global minimum tax. But if the legislation was to be enacted such that it applies in 2023, if our contracts would not qualify for the additional deduction for tangible assets, and if our loss carryforward position that is available in Canada to offset Canadian income for tax purposes, then I would say that you're in the right ballpark with your estimate. But I would highlight that this global minimum tax is going to have very broad global application.

And I can make a pretty sound case for that additional costs being passed on to consumers at the end of the day, which is going to drive inflationary pressures up, which bodes well for precious metals prices.

Randy Smallwood -- President and Chief Executive Officer

Yes, I'd just highlight the number of ifs that Gary mentioned in that. There's a lot of ifs that have to be satisfied, and the lack of clarity in terms of what's coming. So we definitely remain on the watch and observing it, but yes, there's a lot of ifs.

Ralph Profiti -- Eight Capital -- Analyst

Yes. Those are all good points, guys. Thanks very much.

Randy Smallwood -- President and Chief Executive Officer

Thanks, Ralph.

Operator

Your next question comes from Cosmos Chiu from CIBC. Please go ahead.

Cosmos Chiu -- CIBC World Markets -- Analyst

Thanks Randy and team, and happy Friday. Maybe my first question is on Voisey's Bay. Could you remind me, I guess in the MD&A, you mentioned there's 488,000 pounds held in inventory by Wheaton, and then also 638,000 pounds produced but not sold. What's the difference here, the inventory pounds? Is that -- are you holding it for a higher cobalt price? Is that how that works? Could you remind me how sales work again at Voisey's Bay?

Randy Smallwood -- President and Chief Executive Officer

Well, I'll start, and maybe Wes might have some additional color. But we recognize production prior to the cobalt rounds actually being delivered to our warehouse. So you do have a differentiation between produced but not delivered and actual inventory. Then I would also just say that cobalt selling activity is very seasonal.

And what you'll tend to see is that the fall of every calendar year is what is referred to as the mating season, where cobalt buyers look to enter into longer-term committed supply arrangements. And so we we've been quite active this fall in that type of activity. So you would see generally I think moving forward, a buildup of inventory leading into the third quarter of every calendar year.

Wes Carson -- Vice President, Mining Operations

Yes, I think the one other thing to add is I mean the difference between that inventory and the PBND is really that we record inventories starting at the processing plant at Voisey's Bay. And then there's a lag between there and it goes through the Long Harbor facility and then over to Rotterdam. So -- and then we actually record the inventory once we get into the warehouse in Rotterdam. So there is that lag in there, which is the difference between those two numbers.

Randy Smallwood -- President and Chief Executive Officer

It's -- Cosmos, it's -- this is a new commodity for us, and it's a bit of a -- it's an industrial commodity, albeit in higher and higher demand. And to be honest, holding it into this fourth quarter has proven profitable for us just by looking at cobalt prices. So it's actually worked out well. But it does have unique characteristics in terms of how you fill those needs.

There is a seasonality to the demand. And we basically held it in our warehouses to take advantage of that demand, that increase in demand.

Cosmos Chiu -- CIBC World Markets -- Analyst

For sure. Maybe a follow-up here, to be honest with you, looking a few years back when you first did the Voisey's Bay deal, it was met with a bit of skepticism at that point in time. But in hindsight, it's looking pretty smart. If I do a quick Google search, cobalt prices have done pretty well of late, as you mentioned.

I believe $58,000 per tonne. I guess my first question is twofold. Maybe first off, Randy, any comment on the cobalt price? And should we -- and as you talked about, there's a lot of seasonality. Like when we price this, what cobalt price should we be using? And then secondly, I think you kind of mentioned it earlier as well, but a lot of interest these days in these green metals in terms of anything that's related to EVs and things like that.

Any appetite in terms of adding to that exposure? Because I think earlier during the conference call, Gary mentioned that cobalt is only 1% of revenue. Any kind of desire or appetite to increase that maybe even say, lithium?

Randy Smallwood -- President and Chief Executive Officer

Well, a lot of questions there, Cosmos, but I'll do my best. So first off, the Voisey's Bay cobalt was a very unique opportunity for us, and that's why we stay. We are a precious metals-focused company, first and foremost. But Voisey's Bay is operated by Vale, a very important partner of ours.

And when we had to look at that site, the Voisey's Bay operation, the Long Harbour processing facility, it produces the cleanest, greenest, most environmentally sound, most socially responsible cobalt in the world. The Hydromet facilities at Long Harbour, which processes -- and it's a dedicated facility that only processes Voisey's Bay, so it's not being contaminated with anything, any cobalt or any production from anywhere else. This is unique within the cobalt world, and we think that this deserves special recognition. And so it's one of the reasons that we stepped into the contract in the first place.

Now in terms of the market, I really think the cobalt market is just getting started. The demand, you don't have to look too far to have a look at some of the demand figures that are being estimated with respect to -- especially with respect to electric vehicles. And Cosmos, you know me well enough, I've been driving electric for 10 years now, and I'll never go back. It's just better, period, on so many aspects.

And so we know the world is shifting in that direction. The demand figures are astounding in terms of the amount of cobalt that's going to be needed over the next while. And so the only way that, that gets satisfied is commodity price. And we are very bullish on cobalt prices.

So we do look at unique opportunity. We look at every opportunity out there. We like to understand what's happening in the world around us. And so we never ever ignore any opportunity that comes through.

We've successfully avoided any oil and gas investments. It's not something that we're interested in. We just don't think it's the right direction to go. And we haven't gone after what I would call base metals.

However, specialty metals like cobalt do sometimes warrant some special review. I do reiterate, we are focused on precious metals. That is what we think we're good at, and that's what we want to deliver to our shareholders' portfolios. And I think we've got a great track record on that front.

But we will look at every other opportunity out there. And the green metals, again, and I mentioned it in one of the earlier questions, a lot of the projects that we're looking at funding are green metals projects. And we're in there buying the precious metals by-product from these copper mines and the zinc mines and nickel mines. And so there's definitely a real push in that direction.

And I think we're well positioned to not only take advantage of it with our existing portfolio, but to continue to put our balance sheet back to work on this and grow in that space.

Cosmos Chiu -- CIBC World Markets -- Analyst

Great. Maybe switching gears a little bit and turning to Salobo. Good to hear that Salobo 3 is still on track to come in the second half of 2022. But I noticed in the MD&A that progress was a bit slow during the quarter.

It was 77% complete at the end of Q2, 81% complete at the end of Q3. I would imagine that's in part due to COVID-19 measures, in part due to maybe even the conveyor fire at -- for the conveyor belt during the quarter. I guess my question again is twofold. Number one, is that -- is my understanding correct? And number two, should we expect better progress, maybe Q4 and certainly into 2022? And since I have Wes here, maybe you can talk to what are some of the key sort of critical components, critical paths that they still need to achieve to get to that second half 2022 target?

Randy Smallwood -- President and Chief Executive Officer

Wes?

Wes Carson -- Vice President, Mining Operations

Sure. I would say that -- I mean, the perceived kind of slowdown in progress there, I mean it's just kind of the nature of these projects as you get close to the end. It will -- that progress will appear to slow down a little bit, just because there's sort of more difficult components of it that they're starting to tie in. Really no impact from the conveyor fire.

It's actually a totally separate line from Salobo 3. So that's one of the advantages of actually getting Salobo 3 up and running here is that because that conveyor fire happened, they actually lost the first two lines. So once Salobo 3's up and running, they will be able to run that line completely separately. So overall here, I mean they did delay the overall -- last quarter, they delayed from H1 to H2 next year.

So we did see that kind of pushback. That really is the impact, I think, from COVID that we've seen over the last kind of 18 months here. But overall, certainly well on track to move things in. I mean they've got -- a lot of the mechanical tie-ins are done, a lot of the tie-ins to existing infrastructure done already.

So a lot of it now is really just kind of getting things kind of finished off with the last kind of, I mean, all your piping and cables and all that stuff that really is kind of the final tie-ins. So we got a great update every month on their progress there, and it is moving along extremely well.

Randy Smallwood -- President and Chief Executive Officer

And, Cosmos, I would just highlight that Vale really bounced back very quickly from that conveyor absolutely by far.

Wes Carson -- Vice President, Mining Operations

Yes, it was a lot faster than they were even expecting. So I mean to do it in 18 days was really quite impressive.

Cosmos Chiu -- CIBC World Markets -- Analyst

Great. Thanks again for all the questions I have. Happy Friday.

Randy Smallwood -- President and Chief Executive Officer

Thanks, Cosmos.

Operator

[Operator instructions]. Your next question comes from John Tumazos from John Tumazos Independent Research. Please go ahead.

John Tumazos -- Independent Research -- Analyst

This is John. Good morning. When Tesla reported earnings, they said something about changing their standard vehicle to a lithium iron phosphate composition. I guess that means no nickel or cobalt, despite performance questions.

And I apologize, I didn't take enough chemistry or physics classes a very long time ago, and I don't understand all these battery sciences. It would seem like there's a little risk to the battery metals where the lithium looks like it's going to happen, and they're going to need the copper wires whatever the battery composition is. Should we expect more cobalt or stuff in that direction, first? And then just conceptually, I know your name is precious metals. But aluminum is very green, and 60% of it comes from coal.

So the supply could very well go down, but the plastic bottles going away and the PVC siding is going away in construction. And aluminum is better than steel in vehicles. The EVs are all aluminum. So I think aluminum is just fabulous.

Iron ore depletes on three different axes. There's lower output of coal and copper and nickel by the big base metals companies. And it doesn't look like China is going to produce more as much as they used to. So do we think that there's a possibility that you could consider other materials that are depleting very rapidly or have supply risks? The gold funds sort of go out of business as potential customers of ours.

So we look at cash flow. And we think any cash flow is precious, not just precious metals.

Randy Smallwood -- President and Chief Executive Officer

Well, let me --

John Tumazos -- Independent Research -- Analyst

I asked as many questions as Cosmos, I'm sorry.

Randy Smallwood -- President and Chief Executive Officer

Well, let me start with the cobalt. Drifting of cobalt in batteries has long been -- it's normal. It's one of the highest-cost component of cobalt -- or sorry, of batteries out there. And so we're not surprised.

The -- again, I'm a geologist, which does involve a bit of chemistry, but I'm not a chemist. But I'm going to tell you that cobalt, the main purpose of cobalt in batteries is to stop them from burning up, is -- and every time we see people push toward trying to reduce the amount of cobalt in batteries, you start running into overheat issues. And I do know that there's a lot of engineering in every battery application to try and control the heat, especially during recharge. And one of the ways that batteries are effective is to be able to recharge them rapidly.

That's how they work their way into the workforce as a replacement for internal combustion. So although we expect continued thrifting, I think the increase in demand is substantially -- we're talking magnitudes higher than the impacts of thrifting on a per unit basis that we're going to see in cobalt. And to be honest, I think the drive toward thrifting is going to continue, because the only way we see that gap between supply and demand being met is with higher cobalt prices. And so we definitely would expect that.

On the aluminum side, I agree with you. There's no doubt that aluminum is much more the metal of the future. Aluminum is generally a bulk product that's produced on its own. It's not a by-product.

Our niche, I think where we're the best at, is acquiring noncore by-products from primary base metal producers. It's one of the reasons we haven't stepped into the iron ore space also is it's just not something that works for us in terms of trying to unlock hidden value within some of these things. And so I don't see us stepping into the aluminum space, but I agree with you, aluminum is -- definitely should be considered a green metal. One of the challenges, of course, is the amount of energy that aluminum requires in terms of processing and such.

But the world is getting better at that slowly, but definitely getting better at that. So it's definitely not an area that we're focused on.

John Tumazos -- Independent Research -- Analyst

So VINCO or Asysco can have those wins?

Randy Smallwood -- President and Chief Executive Officer

Yes, they can.

John Tumazos -- Independent Research -- Analyst

I'm kidding though, Randy.

Randy Smallwood -- President and Chief Executive Officer

Yes, they can, John. So yes, we're, as I said, focused on precious metals. Happy to look at other opportunities. When we see unique ones that stand out, like the Voisey's Bay cobalt stream, then we'll step into that.

But our real focus still is on the precious metals side. We do think that there's -- in the face of all these strong commodity prices, those are ultimately going to deliver inflation. And I think in the face of what I see as an inflation wall hitting us, there's no better time to be in precious metals. And I think that gold and silver are going to play a very important role in terms of preserving value through the coming years here.

John Tumazos -- Independent Research -- Analyst

Thank you. I apologize for being a little goofy with my questions.

Randy Smallwood -- President and Chief Executive Officer

Thanks, John.

Operator

Your next question comes from Adam Josephson from KeyBanc. Please go ahead.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Good morning. Thanks for taking my questions.

Randy Smallwood -- President and Chief Executive Officer

Yes. Thanks, Adam.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Yes. Randy, just along somewhat similar lines to Cosmos and John on this precious metals versus other topic, I mean you've limited yourselves to streams as opposed to royalties, and really precious metals as opposed to anything else aside from cobalt. I just -- and I know precious metals is your area of expertise. I know precious metals multiples are higher than others.

But why do you think you're not unnecessarily limiting yourselves by not looking at some of these other markets, not looking at royalties? I mean there's a lot of competition in the precious metals streaming industry. And I presume that's why some of your peers are looking elsewhere. So why are you not kind of thinking along similar lines that hey, maybe we really ought to expand our horizons here?

Randy Smallwood -- President and Chief Executive Officer

Well, Adam, first off, we haven't limited ourselves to streams. I think the strength of the streaming model itself is what's limited to streams. Companies don't do new royalties. They'll trade around existing royalties, and we always look at existing royalties.

But streams are just better, and even the existing -- the traditional royalty companies recognize that. And that's why everything new that they've done is stream focused. And so it's not that we've limited ourselves to streams. It's just that that's the opportunity set that we've seen out there.

And so the other side to that is I'm a strong believer that we should -- instead of forcing a diversity -- a diverse portfolio and a blend of materials, if you want exposure to iron ore, I can give you a long list of iron ore royalty companies that give you the same risk profile as a streaming company but are focused on iron ore. If I -- if you want exposure to oil and gas, I can give you a long list of oil and gas royalty and streaming companies, -- I won't actually name any royalty companies that will give you that exposure. For me to -- for us at Wheaton to actually start putting together a blend of those commodities is to force every single one of our shareholders to get exposure to that. And I really do think that -- and perhaps there's some comfort in that from shareholders that want someone to sort of manage that diversity.

But I actually think that if I look down our shareholder list, there's quite a different appetite for what that diversity is. And I think it's actually much better in the hands of our investors and our shareholders to divide what that -- to decide what kind of diversity they want exposure to. And so that's really the core focus now. And with respect to the competition, we've had no problem finding precious metals streams.

We've done -- the scale is a bit smaller right now than it has been. It is a cyclical market. We will see times when big opportunities come in. But even though the scale is smaller right now, the quantity is dramatically higher.

And so I can tell you that our legal team has never been busier in terms of the number of contracts, the number of deals that we're working on. We're not seeing a shortage of opportunities in the precious metals space. What we are seeing a shortage of is the number of high-quality precious metals streaming opportunities, but it's not a -- but there's not an overall shortage. Now I think our balance sheet sort of might imply that.

The fact that we're strongly positive and have no debt says that maybe we're not putting the money to work as fast as it's coming in. Trust me, we're striving to do that. And I just am a strong believer that when it comes to the diversity, I think that's better left in our shareholders' hands versus us coming up with some magic mix that will sometimes shine well for you as it has recently for some of our peers. But at the same time, it actually dramatically lowers your exposure whenever you see a strong move within the precious metals space.

And so we're comfortable staying in this focus and have a win. Haytham, I thought you want to add something.

Haytham Hodaly -- Senior Vice President, Corporate Development

Thanks, Randy. And, Adam, I think you implied that we don't look at royalties. We do look at royalties. So there's two different types of royalties.

There's royalties that already exist, which we definitely look at. But what we find is that there's so much competition in smaller companies trying to get scale to drive a revaluation that it becomes ridiculous and it makes way more sense for us to focus on streams at that point. Now we'd never look to actually specifically create a royalty over a stream, because the counterparty always realizes that the stream is much more attractive. Because if they structure it properly, they can receive a similar upfront value and get a production payment when the ounce of gold, silver, platinum plating, whatever it happens to be, is produced and delivered.

So the stream structure is also more attractive because outside of Canada, it actually allows the mining company, which is best capable of managing its taxes, to do so in the host country that it's in. So there are royalties. There are existing royalties and there are new royalties. We just find that it always makes more sense to look at and do streams instead.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

I appreciate that. On the topic of Salobo and Vale, obviously, they're a terrific partner. But obviously, the recent disruptions at Salobo just highlight precisely how much exposure you have to that asset and to that counterparty. Are you inclined to try to diversify yourself along those lines just to limit company risk, and perhaps trade at a higher multiple, given your lower concentration along those lines?

Randy Smallwood -- President and Chief Executive Officer

Well, if your biggest asset is your best asset, that's not a bad thing. Like Salobo is by far in terms of operating margins, it's just a good strong asset on so many fronts. And so there's no doubt it is also our biggest asset. That's the whole effort in terms of diversifying it.

It's going on and looking for new opportunities. And so Haytham and his team are constantly looking to lower that percentage of Salobo by continuing to add growth. We're not going to cut back on Salobo just because the asset is very healthy, very strong. Salobo 3 is coming on stream next year.

Salobo 4 has been talked about by Vale. We think it's inevitable that Salobo 4 will come along just by -- all you have to do is look at the way Salobo 3 was laid out. It just begs for the fourth line to be added. And so we're confident it's going to happen eventually.

And so we're quite comfortable having Salobo as a core asset in our franchise. Wes, you want to add something?

Wes Carson -- Vice President, Mining Operations

Sure. And it's also worth highlighting just the strength and diversity of our portfolio is the reason that even with Salobo having these challenges this year, we're still well on track. So all of our other assets have performed extremely well this year and we're -- so that concentration has not hurt us. So -- and we've seen really a great performance from some of the other assets in Penasquito and Antamina, Constancia, Voisey's Bay.

They've all done extremely well this year. So I think that diversity really shines through.

Randy Smallwood -- President and Chief Executive Officer

But I assure you, we're doing everything we can to try and minimize Salobo by adding further assets. So --

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Sure. And one last one just on silver. Silver prices have been -- have gone nowhere of late, as have gold prices. And I'm just wondering if you think there will be a time in the foreseeable future, Randy, at which silver prices will move independently of gold prices, given you've pointed out the different supply demand fundamentals in those two markets? Or is there no reason to expect them to diverge at any point in the foreseeable future, in your mind?

Randy Smallwood -- President and Chief Executive Officer

Well, they should. And in my eyes, silver should catch up. It still is trading, on a relative basis to gold, below where it should be. And then when you look at the fundamentals, and I've said it before and I'll say it again here, the fundamentals behind silver are even stronger than that of gold.

And so we should see that. Again, the focus around the world, and listening to everything coming out of COP26 in Glasgow, Scotland right now is about being more efficient. And the one aspect that silver, one attribute that silver delivers is the highest efficiency in terms of moving energy around circuit boards, around solar panels, around -- it is -- it -- electricity, energy moves through silver better than any other metal, even better than copper. Silver has stronger antibacterial tendencies or qualities than even copper.

And so the demand is only going to get stronger for silver on the industrial applications side. And then as a store of value against inflation, silver also does play a role in that space. And so the fundamentals are there. And yes, I would expect -- history has long shown and -- that silver always outperforms in a strong market.

I do think that we're still coming off a bit of a pandemic bump in terms of precious metal prices. But boy, all you have to do is look at a 25- or 30-year graph to understand that we are in a long uptrend in precious metals, and no doubt right alongside money supply. And I don't see that trend ending any time soon. And so silver will get its time in the sun.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Thank a lot, Randy.

Randy Smallwood -- President and Chief Executive Officer

Thank you, Adam.

Operator

Your next question comes from Richard Hatch from Berenberg. Please go ahead.

Richard Hatch -- Berenberg Bank -- Analyst

Yes. Thanks very much, and good morning, and thanks for the time. Just first just to say, congrats on keeping sort of disciplined capital allocation and not sort of pushing after multiple deals and sort of destroy shareholder value. So well done for keeping your powder dry and waiting for the right deal.

Just a couple of points or question. The first one, Gary, just I wonder if you might be able to give us a hand just to think about how that PBND unwinds, particularly from a Salobo standpoint into Q4 and maybe into Q1? And then just kind of still on Salobo, have you sort of -- what's the kind of recent and latest mood music in terms of that large sort of payment that you've got to pay to Vale in terms of sort of out on the street, obviously the decision on whether to put high grade through. It would be appreciated if you've got any color on that. And then just a point of clarification on the minimum tax question.

Gary, is it kind of the mid- to sort of high single-digit percentage point tax rate that you're thinking of? Just for clarity.

Randy Smallwood -- President and Chief Executive Officer

Yes, OK. So the PBND clear out, we generally see our partners look to flush out concentrate and dore leading into the year-end, calendar year-end. So we generally would expect that PBND would be reduced at December 31. We've seen volatility in that in the past, so it's very difficult to estimate with any type of certainty.

But suffice it to say that we would expect that PBND would decrease leading into December 31. The second question was the payment relative to Salobo 3, I think. With the pushout of the ramping up to the second half of next year of that line, that new line, we would expect that Vale would satisfy the completion test that gives rise to the payment in 2023 now. So we estimate that the payment we will make relative to that would be in the range of 550 to $650 million, and that payment would be made in 2023.

And then I wasn't sure what the question --

Richard Hatch -- Berenberg Bank -- Analyst

On the tax, yes, on just the -- you got asked a question earlier about the global minimum tax. And the number I think was 7% was banded around. But I just wanted to clarify, is that your assumed tax rate would imply --

Randy Smallwood -- President and Chief Executive Officer

Yes, we're assuming -- yes, from a tax rate perspective, we're assuming a 15% global minimum tax rate.

Gary Brown -- Senior Vice President and Chief Financial Officer

But in terms of the impact, and I think that was the question that he asked.

Randy Smallwood -- President and Chief Executive Officer

Well, I think what we --

Gary Brown -- Senior Vice President and Chief Financial Officer

There's so many ifs.

Randy Smallwood -- President and Chief Executive Officer

This question that had been asked by Ralph was that he had estimated the impact to be 7 to 8%, and I confirm that with all of uncertainty associated with the calculation. Again, when will it be implemented, requiring legislation to be passed, which we all know can be a very challenging and time-consuming process. Whether we qualify for the additional deduction on the tangible assets side of things, which would dramatically mute the impact of this on our business, and whether we can utilize the loss carryforward position that we have in Canada to -- that's otherwise available to offset Canadian income. But that estimate that was put out there is in the ballpark of what we would expect with a 15% GMT.

Richard Hatch -- Berenberg Bank -- Analyst

OK. Thanks for your help.

Randy Smallwood -- President and Chief Executive Officer

Thanks, Richard.

Operator

Your next question comes from Puneet Singh from iA Capital. Please go ahead.

Puneet Singh -- iA Capital Markets -- Analyst

Good morning. Yesterday on the Hudbay call, they were talking about the opportunity to reprocess their tailings in Flin Flon. I thought that was interesting. Just wondering if your triple seven contract will cover any metals recovered from that in the future?

Haytham Hodaly -- Senior Vice President, Corporate Development

Yes, it is. Those are included in the current contract. So we have had some initial discussions with Hudbay on that. But there would be kind of further discussions required depending on how they decide to progress that.

Puneet Singh -- iA Capital Markets -- Analyst

OK. That's interesting. And is that usually something that you build into your other contracts, too? So if another operator went down that route, you would also benefit in the future?

Randy Smallwood -- President and Chief Executive Officer

Yes, Puneet. The contracts are all life of mine. And so they're -- this is all product that's contained within the area of interest that we signed the contract on. And so yes, it gets captured into it.

We don't talk about tailings much because there's not a lot of exploration upside in tailings. But there's no doubt that as demand increases -- and for that matter, I know one of the driving forces behind the tailings at Flin Flon is in terms of environmental treatment and cleaning them up even further. I think that's something that the industry is going to get better at in terms of making sure that we extract as much value out of this product as we can. And with higher prices and the costs and challenges of building new facilities, it's only going to make it more attractive.

So yes, that does come in a life-of-mine contract.

Puneet Singh -- iA Capital Markets -- Analyst

OK. It's good from an ESG perspective and benefits your shareholders as well. So good to see. Thanks.

Randy Smallwood -- President and Chief Executive Officer

Yes. And thank you, everyone, for dialing in today. That was a good, healthy question-and-answer period. In closing, we believe Wheaton is very well positioned to continue delivering value to all of our stakeholders for a number of different reasons.

Firstly, by having low and predictable costs, which when coupled with the leverage to increase in commodity prices, result in some of the highest margins in the entire precious metals space. Secondly, by offering our shareholders exposure to some of the highest quality mines in the world, through our diversified portfolio of long-life, low-cost assets. Thirdly, by returning value to shareholders through our unique cash flow-linked dividend policy, And lastly, by being a leader among precious metals streamers in sustainability and by supporting our partners and the communities in which we live and operate. I do look forward to speaking with you all again soon.

Until then, please stay healthy and stay safe. Thank you.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Patrick Drouin -- Senior Vice President of Investor Relations

Randy Smallwood -- President and Chief Executive Officer

Gary Brown -- Senior Vice President and Chief Financial Officer

Wes Carson -- Vice President, Mining Operations

Tyler Langton -- JPMorgan Chase and Company -- Analyst

Haytham Hodaly -- Senior Vice President, Corporate Development

Ralph Profiti -- Eight Capital -- Analyst

Cosmos Chiu -- CIBC World Markets -- Analyst

John Tumazos -- Independent Research -- Analyst

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Richard Hatch -- Berenberg Bank -- Analyst

Puneet Singh -- iA Capital Markets -- Analyst

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