Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Wheaton Precious Metals 2019 Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. I would like to remind everyone that this conference call is being recorded on Friday, November 15 at 11 am Eastern Time. I would now like to turn the conference over to Mr. Patrick Drouin, Senior Vice President of Investor Relations. Please go ahead.
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 Haitham Hodale, Senior Vice President, Corporate Development. I'd like to bring to your attention that some of the commentary in today's call may contain forward looking statements. There can be no assurances that forward looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements.
In addition to our financial results cautionary note regarding forward looking statements, please refer to the section entitled Description of the Business Risk Factors in Wheaton's Annual Information Form and the Risk and Inter Fund under Risk and Uncertainties in management's discussion and analysis, both available on SEDAR and in Wheaton's Form 40 F and Wheaton's Form 6 ks, both on file with the U. S. Securities and Exchange Commission. These documents together with the Q3 2019 MD and A and the press release from last night set out the material assumptions and risk factors that could cause actual results to differ, including among others fluctuations in the price of commodities, the absence of control over mining operations from which Wheaton purchases precious metals and risks related to such mining operations and the continued operations of Wheaton's counterparties. It should be noted that all figures referred to on today's call are in U.
S. Dollars unless otherwise noted. In addition, reference to Wheaton or Wheaton Precious Metals on this call include Wheaton Precious Metals Corp and or its wholly owned subsidiaries as applicable. Now I'd like to turn the call over to Randy Smallwood, our President and Chief Executive Officer.
Thank you, Patrick, and good morning, ladies and gentlemen. Thank you for joining us today to discuss Wheaton's Q3 results of 2019. I am pleased to report that we delivered another solid quarter from our diversified portfolio of high quality assets. In the Q3 of 2019, we produced over 100,000 ounces of gold, 6,000,000 ounces of silver and 5,000 ounces of palladium. From a cash flow perspective, Wheaton generated over $140,000,000 of operating cash flow and declared a quarterly dividend of $0.09 per common share in line with our dividend policy set for 2019 by the Board of Directors.
This quarter highlights the strength of Wheaton's business model and our ability to generate strong cash flows, particularly in an environment of rising commodity prices. Throughout the quarter, we saw gold and silver prices increase by an average of 17% over the previous year, while our cash flow and net earnings increased by over 30% and 100% respectively. Looking forward, we are still currently on track for record annual gold production. However, we have updated our guidance for the year to reflect outperformance at Salobo and the production interruptions at Penasquito. With that, I'd like to turn the call over to Gary Brown, Senior Vice President and Chief Financial Officer, who will provide more details on our results.
Gary?
Thank you, Randy, and good morning, ladies and gentlemen. The company's precious metal interests produced 185,000 gold equivalent ounces in the Q3 of 2019 comprised of 104,200 ounces of gold, 6,100,000 ounces of silver and 5,500 ounces of palladium. On a gold equivalent basis, this was consistent with the Q3 of the prior year with increased silver production being offset by a decrease in gold and palladium production. The decrease in gold and palladium production was due primarily to lower reported production at the Stillwater mines, where reported production in the Q3 of 2018 included some material processed in prior periods. Gold production was also impacted by lower production at the other gold interests, including Minto, which was placed into care and maintenance in October of 2018, with these decreases being partially offset by higher production at Salobo and San Dimas.
The increase in silver production was primarily due to higher grades at Penasquito. Gold equivalent sales volumes for Q3 2019 amounted to 155,000 ounces, consistent with the Q3 of the prior year with the increases in sales of gold and palladium being partially offset by lower silver sales volumes. As of September 30, 2019, approximately 85,500 payable gold ounces, 4,200,000 payable silver ounces and 4,200 payable palladium ounces had been produced but not yet delivered to the company, representing an increase during the quarter of 4,300 payable gold ounces and 700,000 payable silver ounces, while payable palladium ounces decreased by 300 ounces. The volume of ounces produced but not delivered were consistent with what we would expect to be normal levels. Revenue for the Q3 of 2019 amounted to $224,000,000 representing a 20% increase relative to Q3 2018, primarily due to a 22% increase in the average realized gold price and a 15% increase in the average realized silver price.
Of this revenue, 62% was attributable to gold, 35% silver and 3% palladium. Gross margin for the Q3 of 2019 increased by 65% to $96,000,000 primarily due to the increase in commodity prices. Cash based G and A expenses amounted to $13,000,000 in the Q3 of 2019, representing an increase of $5,000,000 from Q3 2018, with the increase being primarily related to increased accruals relative to the outstanding performance share units, or PSUs, during Q3 2019. For the 2019 fiscal year, the company has reduced its estimate of the total non stock based G and A expenses, which excludes expenses relating to the value of stock options, restricted share units and PSUs to be in the range of $33,000,000 to $36,000,000 Interest costs for the Q3 of 2019 amounted to $11,000,000 resulting in an effective interest rate on outstanding debt of 4.02% as compared to $12,000,000 of interest costs at an effective interest rate of 3.61% incurred in Q3 2018. During the Q3 of 2019, Chesapeake Gold Corp.
Exercised its option to reacquire 2 thirds of the Metatus royalty for $9,000,000 resulting in a gain on disposal of $3,000,000 Net earnings amounted to $76,000,000 in the Q3 of 2019 compared to $34,000,000 in Q3 2018. After negating the effect of the gain on disposal of the Metasas royalty and other items that are nonrecurring in nature, adjusted net earnings in the Q3 of 2019 amounted to $73,000,000 more than double that of Q3 2018, with the increase being primarily the result of higher commodity prices. Basic adjusted earnings per share doubled to $0.16 compared to $0.08 per share in the prior year. Operating cash flow for the Q3 of 2019 amounted to $142,000,000 or $0.32 per share compared to $108,000,000 or $0.24 per share in the prior year, representing a 33% increase on a per share basis. Based on the company's dividend policy, the company's Board has declared a dividend of $0.09 a share payable to shareholders of record on December 4, 2019.
Under the dividend reinvestment plan, the Board has elected to offer shareholders the option of having their dividends reinvested in newly issued common shares of the company at a 3% discount to market. The operational highlights for the Q3 of 2019 included the following. Salobo generated 73,600 ounces of attributable gold production in Q3 2019, an increase compared to Q3 2018 of 2%, while gold sales volumes in Q3 2019 relative to Salobo decreased 3% to 63,100 ounces, resulting from negative changes in gold ounces produced but not yet delivered to Wheaton. Attributable gold production relative to Sudbury in Q3 2019 amounted to 6,600 ounces, while sales amounted to 7,600 ounces, an increase compared to Q3 2018 of 2% and 197%, respectively, with the increase in the sales being the result of positive changes in gold ounces produced but not yet delivered to Wheaton. It is worth highlighting that throughput at the Sudbury mines is typically lower than the Q3 as a result of planned maintenance shutdowns occurring in the summer months.
Attributable gold production relative to Constancia in Q3 2019 amounted to 5,200 ounces, while sales amounted to 4,700 ounces, an increase compared to Q3 2018 of 42% 59%, respectively, reflecting the receipt of 2,000 ounces of gold as compensation for the delay in accessing the Pampacancha deposit. Attributable gold and palladium production relative to the Stillwater mines decreased by 49% 38% to 3,200 ounces and 5,500 ounces, respectively, as production in the Q3 of 2018 included some material processed in prior periods. The other gold interests generated 4,300 ounces of attributable gold production in Q3 2019, a decrease compared to Q3 2018 of 36%, primarily due to the Minto mine being placed into care and maintenance during October of 2018. According to Pembridge's news release dated October 16, 2019, milling operations at Minto recommenced on October 10, 2019. Pembridge states that the mill will operate on 2 weeks on, 2 weeks off schedule until sufficient development has been achieved underground to enable a higher monthly processing capacity.
Attributable silver production relative to the Penasquito mine increased 93% to 2,000,000 ounces resulting from the mining of higher grade material. Though production in the Q3 of 2019 was significantly better than in Q3 2018, it was adversely impacted by an illegal blockade, which began on September 15 with mining operations not resuming until October 22. Attributable silver production relative to Antamina in Q3 2019 amounted to 1,200,000 ounces, while sales amounted to 1,100,000 ounces, a decrease compared to Q3 2018 of 13% and 21%, respectively, with the decreased production levels being decrease in grade due to mine sequencing in the open pit. Attributable silver production relative to the other silver interest in Q3 amounted to 2,200,000 ounces, while sales amounted to 1,700,000 ounces, a decrease compared to Q3 2018 of 12% and 11%, respectively, with the decrease being driven primarily by lower production from the Algestrout mine. During the Q2 of 2019, the company repaid $82,000,000 on the revolving facility and made dividend payments totaling $33,000,000 with these cash outflows being partially offset by proceeds from the exercise of stock options, the disposal of long term equity investments and the partial disposal of the Metatus Royalty Agreement, generating $38,000,000 of cash inflows in total.
Overall, the company's net debt position was reduced by $146,000,000 during the Q3 of 2019, with the balance as of September 30 being $862,000,000 The company's cash position, strong forecast future operating cash flows, combined with available credit capacity under the revolving facility, positions the company well to satisfy its funding commitments, sustain its dividend policy, while at the same time providing flexibility to consummate additional accretive precious metal purchase agreements. That concludes the financial summary. And with that, I turn the call back over to Randy.
Thank you, Gary. For the remainder of 2019, we expect to see continued strong results from our gold operations, offsetting the impact of the deferred silver seen in the 1st 9 months of the year due to temporary shutdowns at Penasquito, as Gary has already discussed. So as such, we now expect to produce approximately 390,000 ounces of gold, up from the 385,000 ounces that was forecast last quarter due to stronger than anticipated production from Salobo. Attributable silver production has been adjusted to approximately 21,000,000 ounces of silver down from 22,500,000 ounces to reflect the production interruptions at Penasquito. The forecast production of palladium from Stillwater in 2019 remains unchanged at approximately 22,000 ounces.
We continue to expect steady growth from our portfolio such that over the next 5 years inclusive of 2019, we expect to produce on average 750,000 gold equivalent ounces annually. I would like to remind everyone that Wheaton currently does not include any production in that 5 year forecast from Vale's Salobo III ongoing expansion, the Hudbay's Rosemont project or the recently restarted Minto mine. With respect to the Slovo expansion Vale has confirmed that it continues to advance ahead of schedule with physical completion of the expansion now at 27%, including the completion of the concrete foundations for the mill and the primary crusher bases and the arrival to site of the first loads related to the long distance conveyor belt. Given their progress to date and assuming construction continues at the same pace, we expect the expansion at Salobo could begin contributing to our production profile as early as 2022. Our organic growth profile continues to be very strong.
On the corporate development front, we remain focused on adding additional production from high quality accretive opportunities. Wheaton's sector leading cash flow coupled with available credit under our revolving facility provides ample capacity for continued investments. As always, we will remain disciplined and continue to focus on acquiring streams that are accretive to our current shareholders and come from long life assets producing in the lowest half of their respective cost curves. In summary, there were some challenges with silver production in the 1st 9 months of 2019 with the interruptions at Penasquito. However, with the mine safely back to full operation and Newmont's expectation of achieving higher grades, we look forward to a much stronger Q4.
And on the gold side, we are very pleased. We continue to be very pleased with the out performances of our gold assets, resulting in increased guidance and we are on track for record gold production in 2019. As our revenue is derived from a diversified production profile of 100 percent precious metals, we provide significant leverage to not only gold, but silver and palladium as well, which bodes well in an environment of increasing commodity prices as we've seen in this past quarter. We believe our production remains founded on the highest quality portfolio of precious metal streams in the industry, underpinned by very low cost mining operations such as Salobo, Antamina and Stillwater. And so with that, I'd like to open up the call for questions.
Operator?
Thank you. Your first question comes from the line of Ralph Profiti with 8 Capital. Please go ahead.
Good morning. Thanks for taking my questions. 2 of them, if I may. Randy, I know that CSR is a big part of the Wheaton strategy. Can you talk a little bit about sort of the community relations work you've done ahead of Phase 3 expansion at Salobo?
And when do you think we can hear more details from Vale on the project scope and are they currently working on some details that may impact stream deliveries?
Okay. So I'll take the first part of that. We've had a long relationship at Salobo with Vale and we orchestrate that through a partnership with the Vale Foundation. And so there's been a number of different programs in the area of Salobo, improvements to health facilities. I know we supported a health clinic in one of the local villages there.
We've also initiated some small business enterprise support for some of the local communities that were there were some changes in terms of train scheduling and stuff like this. And so we provided some support to promote small business development and help supply in that. And so it's been a very active program. Obviously, Salobo is a very important asset for us. And so we've done quite a bit of work on that side.
Sorry, Ralph, what was the second part of the question? You talked about some changes?
Well, are they currently working on sort of scope details, right, that I know it's just that step up to the 12,000,000 tons per year step up, but are there changes around the mine plan, the print or the actual production plan when you get down to the metal level that may impact how Wheaton is approaching Phase 3 stream deliveries?
Yes. Okay. And one of the reasons that we don't include the Phase 3 deliveries is that they haven't selected a final mine plan at Salobo. They have the option of continuing their current practices, which is to stockpile low grade material or to switch over to a mining practice that would take all the ore and process it through the mill at the same time and not build up a low grade stockpile. They don't have to make that decision until probably 2021 because the only impact is the different sized mobile fleet.
If they're going to be stockpiling low grade material, it means they're overall moving more material, which means they're going to need a slightly larger mobile fleet. Last I've checked all that takes is 1800 Caterpillar and you can have that equipment there relatively quick. And so that's not a decision that they've finalized yet and it's one of the reasons we haven't been able to give firm guidance in terms of what we see coming forward. Typically, the range in additional production for us is going to be somewhere between if they go with the full feed from the and not do any stockpiling, they'd probably see a bump of about 50,000 to 60,000 ounces of gold per year. If they go to a stock plant, if they maintain current practices and go with a low grade stockpiling procedure, we would probably see somewhere in the area of 100,000 to 110,000 ounces of additional gold production per year.
And so it's that range. We're probably not going to get a firm decision from them until as I said, 2021, I would think. They're still going through and doing optimization studies to try and determine what works the best for them. We were hopeful that they do take the stockpiling approach. It's what they currently do at the site that it's proven very effective at this site in terms of moving metal production forward.
It's proven effective at many sites around the world in terms of that. And so but that's a decision that just hasn't been made yet on the valet side. And so we're monitoring that and give guidance as we get guidance on that.
Got it. Yes, very helpful. On Constancia, we've heard from Hudbay on Pampacancha ore in 2020 that hasn't changed and the 8,000 ounces payment that hasn't changed either. Is there a comment you can make on what happens if Pampacancha ore doesn't come in until say late 2020 or not in 2020 at all? Any disclosures around helping us on what those delayed payments might look like?
Yes, Ralph, it's Gary here. We have the option to demand an 85,000 ounce of gold payment, which would be delivered over, I believe, it's a 12 month period. But so and that's to return the capital that we deployed relative to the Pampacancha pit. But at this point, it still looks like they're going to be in the Pampacancha pit sometime next year.
Yes. I mean, it's Randy here. Our partnership with Hudbay is an important one. We've done a lot of work with them on different projects and such. And so we're supportive in terms of their efforts to move this thing forward.
They are making progress slowly, but they are making progress. They are moving forward on it. And so we will work with Hudbay through this and see where we get. But we get compensated until the end of 2020. And then at that point, we have an option to either cash, get compensation back or work with Hudbay.
But it's our choice.
Got it. Yes, very helpful. Thanks everyone.
Thank you, Ralph.
Your next question comes from the line of Alex Honchak with CIBC. Please go ahead.
Hey guys, thanks for taking my question. Just a quick one. Can you provide some guidance on sort of the longer term plan with the equity investment portfolio? Particularly I saw that 1st Majestic is now down below 10% in the quarter. Any guidance on your plans there would be great.
Thanks.
Well, we're very impressed with what First Majestic has done at San Dimas since they've taken over. They've had great exploration success. And so we are long term supporters of First Majestic and look forward to watching them bring the San Dimas back to its former glory in terms of performance. And so I can tell you we have moved slightly below 10%. It's sort of more of a strategic decision just to get to the point.
But we are long term support of the First Majestic Sandemas. It's an incredible asset. As I'm sure you know, Alex, I've had a very long history with that asset even before Wheaton Precious Metals. And I know how well it can perform when you've got a motivated team that is investing into the ground there and First Majestic has done an incredible job to date. It's very refreshing to see and I think that we, the market and investors out there still haven't seen the full benefits of that investment from First Majestic side.
And so yes, we're long term supporters on that front.
Okay. That sounds good. Thanks a lot.
Thank you, Alex.
Your next question comes from the line of Charles Gibson with Edison. Please go ahead.
Good morning and thank you very much. And if I may, congratulations on your quarter. I wonder if I could ask just on your silver guidance of $21,000,000 for 2019. And I couldn't help noticing you look like you've already produced 16,500,000 ounces. So that would imply 4,500,000 in the 4th quarter, which is quite a step down from the 3rd quarter production wise.
And I just wonder is that all attributable to Penasquito? Is that something else or is that your natural conservatism?
It's our natural conservatism. We don't like missing our production guidance. And so as things like this, we obviously the shutdowns, the deferrals that we've seen from Penasquito as they work their way through this, we're hopeful that Newmont has got it resolved to in finality not going to happen again. But having 2 shutdowns within the first 3 quarters of this year, we decided to stay a little bit on the conservative side. I agree.
We've got by my calculations, all we have to do is produce 4,400,000 ounces in this quarter, which if you consider if everything runs smoothly through that, we should not have any problems at all on that front. And so I'm confident, but when we put out our production guidance, it is a number that we are confident on. And we just felt $21,000,000 was the right number. I'm comfortable that we will at least achieve that.
Charlie, at the margin as well, we do have with the Yayaku sharing mechanism in place. They've hit the threshold. So we would expect to see slightly less production from Yali as well.
Understood. Thank you very much.
Thank you, Charles, and thank you everyone for dialing in today. In closing, we believe Wheaton is well 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. Secondly, through our steady organic growth profile over the next several years, improving track record of accretive quality acquisitions. Thirdly, by offering our shareholders exposure to some of the best mines in the world through our high quality portfolio of long life low cost assets and lastly, by being a leader among precious metal streamers in sustainability and supporting our partners and the communities in which we live and operate.
I do look forward to speaking with you all again. Thank you.
This concludes today's conference call. Thank you for participating. Please disconnect your line.