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In 'Good Transaction,' Royalty Company Acquires Gold Stream at Chile Project
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A CIBC report discusses Wheaton Precious Metal's acquisition of a gold stream at Santo Domingo.

In a March 25 research note, CIBC analyst Cosmos Chiu reported that Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) agreed to purchase from Capstone Mining a gold stream on future production from its Santo Domingo copper-iron-gold project in Chile for $290 million.

"This is a good transaction for Wheaton Precious Metals, furthering the relationship with a known partner in Capstone Mining at an asset that is projected to be first quartile in terms of production costs," Chiu wrote.

He explained that with the stream, Wheaton Precious Metals will get 100% of the payable gold production from Santo Domingo up to 285,000 ounces (285 Koz). After that, the company's percentage drops to and remains at 67% for the remainder of the mine's life. Wheaton Precious will make ongoing payments equal to 18% of the spot gold price until the value of gold delivered (less the cumulative payments) equals the upfront $290 million payment. Then its payments will increase to 22% of the spot gold price.

With the stream, Chiu indicated, Wheaton Precious Metals will receive an estimated 35–40 Koz annually for the first full five years and an estimated 25-30 Koz for the first full 10 years.

Capstone is targeting 2024 as the first full year of production with initial mine construction expected to commence in late 2021.

Chiu noted that the "Santa Domingo project is a first-quartile copper-iron gold project and Chile’s only fully permitted greenfield project."

Chiu relayed that as for the deal terms, of the total $290 million concession for the stream, Wheaton Precious Metals is to pay $30 million upon transaction close and pay the rest during project construction, subject to certain conditions. One of those is Capstone obtaining financing to cover total expected capital expenditures; according to Capstone, it needs $800 million.

"We calculate an acquisition cost valued at less than 1x price:net asset value and 7x price:cash flow (based on first five years of attributable production), which are favorable metrics, especially considering the upside potential at the asset, which hasn't had any exploration drilling since 2011," commented Chiu.

As for Wheaton Precious Metals' financial standing, Chiu noted, the Canadian company had, at year-end 2020, $193 million in cash and about $1.8 billion available via its revolving credit facility.

CIBC has an Outperformer rating and a $65.60 per share target price on Wheaton Precious Metals, the current share price of which is about $38.99.


1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures from CIBC, Wheaton Precious Metals Corp., Company Update, March 25, 2021

Analyst Certification:
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Potential Conflicts of Interest:
Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets Corp./Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers.

In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets Corp./Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon.

Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

Important Disclosure Footnotes for Wheaton Precious Metals Corp. (WPM.N)
• 2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from these companies in the next 3 months: Wheaton Precious Metals Corp.

For important disclosure footnotes for companies mentioned in this report that are covered by CIBC World Markets Inc., click here: Disclaimers & Disclosures.

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