Wheaton strikes US$500 million PGM deal

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Sibanye-Stillwater’s Stillwater Mine in Montana. Source: Sibanye-Stillwater.

Wheaton Precious Metals Corp. [WPM-TSX, NYSE], already the world’s leading silver streaming company, said Monday July 16 that it has agreed to purchase a fixed percentage of gold and palladium production from Sibanye-Stillwater’s [SBGL-NYSE, SGL-JSE]  East Boulder and Stillwater mines in Montana.

Wheaton said it will make ongoing payments equal to 18% of the prices of spot gold and palladium until it reaches a US$500 million advanced payment target. After the target has been reached, Wheaton will boost the payment to 22% for the delivery of precious metals.

Under its streaming agreements, Wheaton makes upfront payments and in return it purchases a fixed percentage of the future silver and/or gold production from a mine at a predetermined price. In many cases, these agreements are for the life of the mine.

For example, Wheaton’s agreements cover 75% of the gold production from the Salobo Mine in Brazil over a projected 40-year lifespan.

The East Boulder and Stillwater mines are located about 12.2 km apart. Both are shallow to intermediate level underground platinum group metal (PGM) mines. PGM production began in 1986 and has largely been uninterrupted.

On Monday, Wheaton said it will buy all of Stillwater’s gold production for the life of the mine and initially receive 4.5% of the total palladium production until 375,000 ounces has been delivered to Wheaton. That amount will decrease to 2.25% until 550,000 ounces has been delivered and then 1% thereafter for the life of the mine.

Wheaton shares fell slightly on the news, easing 0.59% or $0.17 to $28.78. The 52-week range is $29.93 and $23.18.

Wheaton is paying cash from its $2 billion revolving line of credit.

At first glance, Scotiabank analyst Trevor Turnbull noted that the deal appears positive and demonstrates Wheaton’s ability to get deals done in a competitive environment.

“Besides adding to its gold production, Wheaton is getting some palladium that equates to about 3.5% of revenue at spot prices,” Scotiabank said.

As a result, Wheaton’s overall gold equivalent production increases about 6%.

For the 10 years starting in 2019, estimated production from the Montana operations is forecast to average 14,500 ounces of gold and 29,000 ounces of palladium annually, or 37,000 ounces of gold equivalent per year.

Declared current reserves at Stillwater are sufficient to support mining activity until 2041. However, Wheaton sees significant exploration upside at the site. The company said significant exploration exists both regionally and at depth below current mineral reserves and resources

Optimism is based in part on a 12.2-km undeveloped mineralized section between the currently producing Stillwater and East Boulder mines. Each mine has its own milling and concentrator infrastructure on site.

“What mainly attracted us to this opportunity was the quality and size of the J-M Reef deposit, coupled with the ongoing expansion of the Blitz Project,” said Wheaton President and CEO Randy Smallwood. “There are over 12 kilometres of undeveloped mineralization associated with the J-M Reef between the two currently production mines,” he said.

The mines produce from the J-M Reef, the world’s highest grade PGM deposit. The Blitz Project, which is adjacent to (and part of) the Stillwater Mine, started production in 2017 and is expected to reach full production in 2021.

“With a mine life extending well into the foreseeable future, we believe Stillwater will be one of Wheaton’s foundational assets for many years to come,” Smallwood said.

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