Randy Smallwood
President and CEO
Wheaton Precious Metals
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View from the Top

Streamer Sticking To Its Specialty

Mon, 10/22/2018 - 13:20

Q: What is your outlook for the San Dimas project after the acquisition of Primero Mining by First Majestic?
A: San Dimas was the first streaming agreement, not only for Wheaton Precious Metals, but in the world. We took a lot of value, so we needed to shrink the size of the streaming agreement on the asset. When Primero Mining was having difficulties, we sought a mutually beneficial process in which this asset was sold to a company that could take over Primero and pay us to reduce the streaming agreement. We terminated the original streaming agreement with Primero and agreed to a new streaming agreement with First Majestic, which included 25 percent of the gold and 25 percent of the silver paid in gold equivalent at a fixed exchange rate.
The challenge of the previous streaming agreement was that Primero Mining was greatly focused on the gold-rich areas. We have significantly improved the restructured streaming agreement to maximize the potential of the asset. We think the partnership with First Majestic will be very positive as the operator is excited about what San Dimas has to offer. Wheaton Precious Metals has a great deal of mining industry expertise. First Majestic is a company that has great respect for the capabilities of the domestic mining industry and we are confident it will have great success at San Dimas.
Q: What characteristics do you look for in projects for streaming agreements?
A: We look for healthy operating margins; the mine has to be profitable after the stream is in place. We are taking some of the value of the mine so if our partners are not happy, we are not happy. We have to make sure that when we make this investment our partners will be happy on an operating basis and will keep investing in growing the mines. We typically limit exposure to less than 20 percent and on average we have 10 percent of the revenue tied to our stream. It has to have good margins so our partners are healthy and prosperous and we can profit from this prosperity when they reinvest in the asset.
Q: What are Mexico’s main advantages in comparison with other mining jurisdictions in which you work?
A: I think Mexico is a country in which anyone in the mining industry will feel most at home. It has a welcoming environment from an industry perspective. Mining in Mexico is well-accepted socially. Mexican society and culture recognize the value that mining delivers.
Our focus is silver and gold. Mexico is one of the biggest silver producers in the world and has a healthy gold production too. It has always been among our Top 3 countries to invest in but the challenge is finding quality assets and funding partners. Also, the lack of exploration activity has been difficult. But I think Mexico has done reasonably well compared to other mining jurisdictions in terms of maintaining a decent exploration pipeline. We do not have exact numbers of how much we will be investing in the country but I am certain we will pursue any quality opportunities that we find in Mexico.
Q: What are the main factors driving Wheaton Precious Metals’ portfolio?
A: Silver prices have definitely reached a peak. As most silver comes from lead-zinc mines, the rise of lead prices is stimulating exploration. As 60 percent of silver is produced from base metals mines, if we do not see investment in base metals, the supply of silver will be affected. If supply is cut down, the price of this commodity will go up. I think that in the near and long term the price of silver will rise. Gold is a very important part of our company; our revenues consist of 55-60 percent gold income and the rest is from silver. If the silver industry picks up, we will be more than happy to step up our participation in silver streaming. At the moment, about two-thirds of our opportunities are gold-focused. I do not think we will venture in other base metals, as we try to keep our business model as simple as we can. We seek high-quality and long-life assets with high revenue margins to deliver the best exposure to precious metals to our clients. We are sticking to our specialty.