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.[NLINSERT]
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Disclosures from CIBC, Wheaton Precious Metals Corp., Company Update, March 25, 2021
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Important Disclosure Footnotes for Wheaton Precious Metals Corp. (WPM.N)
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