In a March 31 research note, CIBC analyst Cosmos Chiu reported that Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) released an updated technical report for the Salobo copper-gold project in Brazil. "The update reiterates the Salobo gold stream's position as Wheaton's cornerstone asset and a key driver for the company's near-term production growth outlook," he commented. Wheaton holds a 75% gold stream there.
Chiu pointed out the changes between the previous technical report in 2017 and the recently updated one. The new report updated the mine plan, which now outlines an increase in average annual gold production through 2024 of about 330,000 ounces versus 300,000 ounces previously.
The plan also calls for annual throughput expansion at the Salobo III mill to 36 from 24 million tons and the processing of lower-grade material to feed the mill. However, Chiu indicated, "Additional upside exists if Salobo proceeds with a higher cut-off grade strategy, which would bring higher grade material forward in the production plan."
Given the mill expansion, which is expected to be finished in 2022, Salobo's open-pit operations now are expected to end sooner, in 2044 versus 2045, and the duration of stockpiling will decrease, to 7 years from 12.
The updated technical report also reflected that 292 million tons of reserves at the mine were reclassified as Probable from Proven "due to back analysis of drill spacing data," wrote Chiu.
Once the new processing line is completed at Salobo, Wheaton is obligated to make an expansion payment, the amount of which will depend on the completion date, the expansion size and the copper cutoff grade. Wheaton now estimates the payment will be around $570 million, but, Chiu noted, if the mine plan calling for the higher cutoff grade gets implemented, it would be more like $670 million.
Finally, CIBC expects that during 2020 Wheaton will consider additional asset acquisitions, particularly since the recent weakness in base metals prices creates opportunities for buying byproduct streams.
CIBC has an Outperformer rating and a US$36 per share target price on Wheaton, whose stock is trading now at about US$29.39.[NLINSERT]
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Important Disclosure Footnotes for Wheaton Precious Metals Corp. (WPM.N)
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