What Are Wheaton Precious Metals’ Key Sources of Revenue?

by Trefis Team
Wheaton Precious Metals
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Wheaton Precious Metal (NYSE: WPM) has historically been a silver streaming company and had been drawing close to 75% of its revenue from its silver streaming operations. However, the company has recently been diversifying into gold, to benefit from the price appreciation of the yellow metal, largely driven by its investment demand. The company’s largest streaming agreement with Vale (Salobo mine) should remain the driving factor for its revenue in the upcoming years.

The precious metal streaming business essentially provides a source of funding to traditional mining companies, with companies such as Wheaton providing upfront payments (which account for a portion of the capital expenditure for the construction or expansion of a mine) to traditional miners, in return for rights to precious metals produced as by-products from these mines. Precious metal streaming as a source of capital is most attractive in times of downturns in the prices of base metals (which usually coincide with periods of slowing economic growth). Tapping additional sources of capital is often difficult and costly for mining companies during downturns in commodity prices, particularly as these companies are usually highly leveraged. A case in point is Wheaton’s deal with Vale for the gold produced at the company’s Salobo copper and gold mine. This deal was struck during the tenure of the commodity downturn experienced between 2012-2016. The original deal for 25% of the life of mine gold produced at the Salobo mine was established in 2013 when copper prices stood at levels of around $7,000 per metric ton. Wheaton Precious Metal acquired additional interests totalling 75% of the life of mine gold production from the Salobo mine over the course of 2015 and 2016, a period over which Vale was looking to lower its debt burden amid falling copper prices.

Salobo contributed approximately 28% to Wheaton’s revenue in 2016 and is expected to contribute ~37% to the company’s revenue in 2017 and 2018. (2017 results are due to be released in March ’18) Additionally, we believe a plausible upside remains for the revenue from Salobo to increase even further with the latest price rise experienced for gold. Salobo has also remained a major proxy for the fall in output from Vale’s Sudbury mines.

Although base metal prices do not directly impact Silver Wheaton’s operations, a significant proportion of the company’s streaming agreements are signed with base metal miners that produce silver or gold as a by-product. Subdued base metal prices create conditions conducive to the signing of more streaming agreements. However, since base metals are experiencing price highs since the second-half of 2016, this is expected to remain detrimental for Wheaton in the upcoming year. Nevertheless, we expect the company to post a 5% rise in revenue in 2018, supported by higher silver and gold prices.

Further details of our analysis are outlined in our interactive platform.

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