Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Wheaton Precious Metals Stillwater Acquisition Conference Call and Webcast. An accompanying presentation for the acquisition is available on the company's website. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would like to remind everyone that this conference call is being recorded on Monday, July 16th at 11:00 A.M. Eastern Time. I will now turn the conference over to Mr. Patrick Drouin, Senior Vice President of Investor Relations. Please go ahead.
Thank you, operator. Good morning, ladies and gentlemen, and thank you for participating in today's call. I'm joined today by Randy Smallwood, Wheaton Precious Metals President and Chief Executive Officer, Haytham Hodaly, Senior Vice President of Corporate Development, and Gary Brown, Senior Vice President and Chief Financial Officer. I'd like to bring to your attention that some of the commentary in today's call may contain forward-looking statements. There can be no assurances that forward-looking statements will prove to be accurate, as actual results in future events could differ materially from those anticipated in such statements. In addition to our financial results cautionary note regarding forward-looking statements, please refer to the section entitled Description of the Business Risk Factors in Wheaton's annual information form.
The press release from this morning set out the material assumptions and risk factors that could cause actual results to differ, including, among others, fluctuation in the price of commodities, the absence of control over mining operations from which Wheaton purchases precious metal, and completing new stream transactions and risks related to such mining operations. It should be noted that all figures referred to on today's call are in US dollars, unless otherwise noted. Finally, we will be referring to a presentation on today's call that is available on the company's website at www.wheatonpm.com. Now, I'd like to turn the call over to Randy Smallwood, our President and Chief Executive Officer.
Thank you, Patrick, and good morning, ladies and gentlemen. Thank you, everyone, for dialing into our conference call on short notice in order to discuss the Stillwater acquisition announced earlier this morning. Wheaton has obviously been very busy on the corporate development front, pursuing low-cost, long-life assets to add to our high-quality portfolio, and Stillwater marks our second successful acquisition of 2018. We are very excited to add another producing asset to Wheaton's portfolio, especially one of the caliber of Stillwater, which is expected to contribute both production and cash flow for decades to come. We are pleased to welcome a new partner to Wheaton, Sibanye-Stillwater. If I turn to the presentation, and we'll start off on slide four, we of course provide an overview of this transaction on slide four.
Stillwater represented an attractive opportunity to acquire both gold and palladium from one of the lowest cost, highest margin platinum group metals mines in the world. Unlike the vast majority of PGM mines, Stillwater is located in a very low political risk jurisdiction, specifically Montana in the U.S. While palladium is a new precious metal to our streaming interests, we believe it has strong fundamentals on both the supply and demand basis, which Haytham will discuss shortly. The stream will not only add immediate production, but also longer-term production growth. For the next 10 years, production is forecast to average approximately 14,500 ounces of gold and 29,000 ounces of palladium per year, which, for context, is approximately 37,000 gold equivalent ounces per year.
In addition, this stream adds decades of gold and palladium production, as the existing mine plan has 24 years based on reserves, along with significant inferred mineral resources, as well as, what I would describe, incredible exploration potential that could extend its life well beyond that. Finally, I would like to highlight that the upfront payment will be made using available funds under the existing revolving credit facility, which Gary will discuss in more depth later in this call. With that, I would like to turn the call over to Haytham Hodaly, Senior Vice President of Corporate Development at Wheaton, to provide more details. Haytham?
Thank you, Randy, and good morning, everyone. As I've done before, I will assume you all have the slides in front of you and will just point out some of the highlights on each slide and leave plenty of time for questions at the end. I'll turn you to slide five, the transaction overview slide. The takeaway from this slide is that we get 100% of the gold produced for the life of the asset and have a 4.5% palladium stream which declines once certain thresholds are met. For that, we're paying $500 million upfront and 18% of spot for both gold and palladium to start until we get all of our original investment back, then 22% thereafter.
Turning to slide six, we have fixed payable rates as we usually do to reduce our risk and also have a completion test, which gives us some comfort for the development of the Blitz project. Our stream is guaranteed by the parent company and certain subsidiaries. Our area of interest is on all patented and unpatented claims. Turning over to slide number seven, the corporate overview slide. The takeaway here is that the Stillwater assets are the best way to get low jurisdictional risk and low cost PGM exposure with excellent exploration and expansion upside. I'll point out that Stillwater is continuing to focus on improving the balance sheet and further enhancing its focus on safety through the use of digital technology, which we are happy to have committed some funding to. Slide eight, the social license and environmental.
The key point is that there is a legal agreement between Stillwater and the local NGOs, which governs the transport of employees and equipment along the roads, which works because of the strong relationship that's been established there. Turning to slide nine, the asset overview. We have a stream on two producing mines and one development project with strong growth potential. As you can see from the long section on the bottom, the mineralization is traced over a continuous length of 32 kilometers. We're very excited about the potential upside here. Slide 10 is an overview of the Stillwater Mine. It's an underground mine that's been operating since 1986 with strong reserves and excellent potential for further reserve expansion.
Slide 11 highlights the Blitz development project, which is currently ramping up and should be in full production by 2021 to 2022, with ore to be processed at the soon-to-be-expanded Stillwater concentrator. Turning to slide 12. This is an overview of the East Boulder Mine that's been operating since 2002, again, showing significant potential for expansion of additional resources to reserves. Turning to slide 13, the PGM cost curve. This slide shows that the Stillwater and East Boulder Mines fall into the lowest cost quartile. The bar chart to the right clearly shows that the reserves and resources will be sufficient for decades of mining. Turning to slide 14, shows Wheaton's area of influence, which covers all patented and unpatented claims in red and blue respectively, along the 45-kilometer strike length of the J-M Reef.
Slide 15 shows the combined asset overview. The takeaway from this slide is that the attributable stream to Wheaton, as Randy mentioned earlier, is approximately 14,500 ounces per year for gold and 29,000 ounces per year of palladium on average over the first 10-year period. What's key is that stays strong even over a 20-year period, and we believe this will continue to go for much longer than that. Slide 16 provides an overview of palladium. The takeaways from this slide are that palladium mine supply is highly concentrated in riskier jurisdictions as a byproduct, which could make it more susceptible to supply disruptions. Palladium demand is expected to stay strong as it is integral to lowering emissions in gasoline-powered automobile engines, including hybrids. I'll now pass it over to Gary Brown, our CFO, to go through the next few slides.
Thanks, Haytham. I'm on slide 17. Here, we're just highlighting that we will satisfy the upfront payment through drawing down on our revolving credit facility. When you look at what we have available under that facility, we had, prior to drawing down, about $900 million drawn on a $2 billion facility. This will add another $500 million to that. We'll be at about $1.4 billion net debt, which leaves us about $600 million of available capacity. You can see by looking at the right-hand side of that chart on page 17, that we're generating about $600 million of operating cash flow annually at current commodity prices. We repay that debt by about the middle of 2022. Flipping over the page to page 18, this just shows how robust capability we have of satisfying the financial covenants under our revolving credit facility. We really have two financial covenants.
One, that we need to maintain our net debt to tangible net worth at below 0.75. You can see that we're at about 0.33 following the consummation of this transaction. The other financial covenant is that we need to maintain a minimum interest coverage ratio of greater than three times, and you can see that we are well above that. We can comfortably service this debt. Flipping over the page to page 19, this really just drives home how accretive this transaction was. It will represent about 4.4% of Wheaton's enterprise value. You can see that on all measures, production per share, payable ounces per share, cash flow per share, and reserves and resources per share, this transaction is very accretive for us and our shareholders. With that, I will turn the call back over to Randy.
Thank you, Gary. I'm going to turn everyone to slide 21, which is, of course, the global map of our operations and development projects. You can see that this acquisition now brings us to 20 operating mines and 9 development projects. You can also see how well Stillwater fits in with our mix. It's located in a very low political risk jurisdiction and again, one of the lowest cost platinum group metal mines in the world. On slide 22, with this latest acquisition, you can now see that Wheaton now not only has a solid growth profile, but also one of the most diversified production bases that it's ever had, or is the most diversified production base.
You can see our average production over the next 5 years is going to be 385,000 ounces of gold per year, 25 million ounces of silver per year, and with palladium starting, of course, as of July 1st, we'll average on an annual basis 27,000 ounces per year. Cobalt at 2.1 million pounds per year starting in 2021. That's good, solid production growth on scheduled assets. That, of course, doesn't include anything from Rosemont, from potential expansions at Salobo and other operations going forward, all sorts of optionality. I'd like to call 2018 a good foundation year. We've got good, strong growth coming forward, both in our scheduled production and the optionality of upside from some pretty attractive projects that we're confident will move forward sometime here in the near term.
We do look forward to this Stillwater acquisition contributing, of course, to production and cash flow even to our third quarter results here in 2018. Finally, on slide 23, summarize why we're excited about this transaction. First off, again, the Stillwater asset is, I would argue, one of the best assets in the platinum group metal space. When you combine that with its low political risk jurisdiction, it definitely fits well within our high-quality portfolio of low-cost, long-life mines. This asset, of course, adds decades to our production in cash flow. The exploration potential here is the lowest risk exploration potential I have seen in a very long time in this industry. It adds nicely to our growth profile going forward. We think there's all sorts of opportunities with this asset to continue growing itself and deliver that right back to us and our shareholders.
With that exploration upside, a 45-kilometer strike length on this system with multiple points of access gives it all sorts of opportunity to take that exploration upside and turn it into good, solid production. This, of course, as Gary highlighted, is accretive immediately to earnings and cash flow all the way across the board, and it does add palladium to our portfolio, so it diversifies our production portfolio. I'm happy to report that this asset delivers another solid foundation asset to our portfolio. With that, operator, I'd like to open up the call to questions.
Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you would like to ask a question, please press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. There will be a brief pause while we compile a Q&A roster. Our first question comes from the line of Cosmos Chiu from CIBC. Your line is open.
Good morning, Randy, Gary, Haytham, and Patrick, and thanks for the call. A few questions from me here. Maybe first off, can I ask about the security that you have on the stream? It sounds like you have it at the corporate level and certainly somewhat at the subsidiary level as well, but not at the asset level. Can you maybe talk a bit more about that and how this one might differ, or is it the same as, say, some of your other streams, say, Salobo?
Sure, Cosmos. I'll take that. It's Haytham here. We do have certain guarantees, obviously, as we indicated throughout the presentation. We don't have specific security on the asset in the event of liquidation, but we do have certain trigger events that allow us to protect our stream, as we do with all our streaming transactions going forward. We're fairly comfortable with the strength of our guarantees here.
Mm-hmm. How does it compare to Salobo? Can you remind me? I forget the kind of security you have on Salobo.
Well, we wouldn't have security on Salobo, Cosmos. It's similar to what we would have put in place with Vale. We've got guarantees from Sibanye, the parent company, as well as the Stillwater Group. We've placed debt restrictions on both of those entities, and we've further included a reduction in the production payment should Sibanye's leverage ratio rise above certain thresholds to further protect that. I think it's important to highlight that post the confirmation of this stream, Sibanye's balance sheet strengthened quite significantly. Their leverage ratio should drop to about 1.7 times. They have a target of a 1 times leverage ratio. Certainly based on our analysis, there's a real tangible way for them to get there.
Cosmos, if I could just sort of summarize that.
Yes. Mm-hmm.
Every jurisdiction, every asset, every partner is different. I don't think everything is identical. What I can assure you is that we are very comfortable with the position we have through this. It is very similar to what we have at Salobo, but there's always going to be slight differences based on either the asset, the jurisdiction, or the partner.
Mm-hmm. Okay. I guess your stream would come after some of the debt that Salobo has. Given your analysis, given the situation, you're comfortable with the different covenants and the protections that you've put in place?
Sorry, that Salobo has?
Stillwater.
Oh, Stillwater.
Yeah. Sorry, Stillwater. I'm getting confused here.
All of the debt that Sibanye has is unsecured debt. The stream obligation would rank pari passu with that.
Oh, yeah?
Yeah. I would report you back to the cost curve, and looking at this asset, it's a good, strong asset.
Mm-hmm. Yeah.
I'll add one more thing, Cosmos, is that this is two producing assets and a third one that's already started production. The risk we have in the near term is very low.
Yeah. Good. Yeah, that would bring me to my next question. I see that Stillwater is a lower cost producer. I also know that currently there's already another royalty in place, Franco-Nevada royalty on it. Could you maybe talk about the potential overlap? Is there an overlap? I believe there's an overlap in terms of the two royalties. Have you looked into it in terms of, is Stillwater, the asset itself, strong enough to pay? I believe they'll be paying $38 million a year to Wheaton Precious Metals. I believe they generated about 20, or they paid about over $20 million to Franco-Nevada last year on their royalty.
Yeah, Cosmos, it's Randy here. First off, we don't receive cash from them. We receive gold and palladium. Obviously, that gold and palladium has value, which is pretty close to what you've just described. When we test these assets, we test them with all possible costs. That's part of our due diligence process, and we see plenty of capacity in this asset to handle both the royalty to Franco and the stream to us.
Is there an overlap? I believe theirs is on East Boulder, Stillwater, and also Blitz.
There's definitely an overlap because our stream covers all of the properties. I'm not sure that their royalties do actually cover all the properties. They cover the ones that are in production right now, there definitely is an overlap because our stream covers the entire property package.
I'll just add one thing. Keep in mind, the NSR, that gets paid in cash, so they're not getting actual ounces of production, whereas we actually, as Randy mentioned earlier, get physical gold and palladium credits.
Cosmos, I would add that as Blitz ramps up here, that based on our analysis, the margins here are north of 50%. This asset is very capable of servicing the stream and the royalty without any challenges.
Delivering profit back to Sibanye.
Mm-hmm. Yeah. I guess, in terms of that Blitz, the construction here, I believe there's a completion test. I was on a Sibanye call. I believe it's a 6-year completion test, and potentially if they don't deliver, then $147 million could come back to Wheaton Precious Metals. Could you maybe talk a bit about that on your conference call?
Sure. What we typically have with completion tests, and in this specific scenario, I guess, is we have certain requirements for infrastructure that have to be completed on surface and underground, as well as certain throughput rates that have to be accomplished. For example, for this one, it's 3,100 tons per day for 45 days by the end of 2022. When the company mentioned maximum exposure, I believe, of $147 million, that's if they completely fail the completion test. What we typically do is we have a % of design capacity, then we have a gross up provision, and then we have a pro-rata return of the upfront deposit. The $147 is the absolute maximum exposure if this thing shuts down right now and never produces an ounce.
Mm-hmm. That's likely not going to happen, right? Because I think they also mentioned that two-third of the CapEx has already been spent on Blitz. I guess Wheaton Precious Metals has put those triggers in place just to make sure that you're protected, given how important Blitz could be and is to the future of the operation.
That's right. Blitz accounts for less than a third of the value, if you look at what they've already said that they're expecting to produce from Blitz this year, they're already expecting 40,000 to 50,000 ounces of gold from Blitz this year alone.
Maybe one last question from me here, if that's okay. Using your numbers that you've given to us, Haytham, 14,400 ounces in terms of gold and 28,000 ounces of palladium attributable to Wheaton Precious Metals in the first 10 years. Is that before or after your 99% and 99.6% payable factor?
That's contained metal.
Contained metal, okay. That's after. No, that's before. That's pretty good. Okay.
That's after payability. That's correct.
Yeah. Okay. Based on, I've used your numbers and I appreciate that the deals are accretive to cash flow and since you're using cash. I don't know if I'm correct, but I calculate an IRR for the transaction of about 4%-5%. Is that comparable to what you've calculated based on spot, is that sufficient as a return?
We actually calculate a higher rate of return than that. I can tell you, Cosmos, I mentioned it during the call, the exploration potential on this asset, this J-M Reef is a 45-kilometer continuous zone of mineralization. I would have to encourage everyone to understand that anything that's reported as an inferred resource, even the exploration potential on this asset, this is going to be the lowest risk inferred resource you've ever seen. The continuity of this system is incredible. We've got 32 kilometers of identified mineralization all the way along this whole zone that shows that it's economic and robust along the entire 32-kilometer strike length. Then along each end adds up to 45 kilometers of total distance. I really do think that you have to treat that exploration potential, that upside.
We use the comments in here that we expect this to be delivering metal to us for decades. I'm not thinking about two decades or even three decades. We're talking decades. This is a mine that will be producing metal for a very long time. This is a life of mine agreement on an asset that we think is in a very strong jurisdiction that political risk would come out. I do think that it would be I would encourage everyone to understand that there's a lot of value in longevity here.
Great. Thanks, Randy. Good answers. Thanks for the call.
Cosmos, this is Patrick. Let me just clarify. The production numbers we're quoting are in concentrate. They are not pre-payability. You do have to factor in the payability side.
Multiply that. I got you.
Yeah.
Okay. Thanks, Patrick.
Again, if you'd like to ask a question, please press star and the number 1 on your telephone keypad. Our next question comes from the line of Marco Strobel from Macquarie Capital. Your line is open.
Good morning, Randy and team. Just a quick question.
Hey, Marco
on any expansion potential given the long mine life. Is the current constraint the mining itself, or is it the processing side of things? You did mention there was going to be, or there's an expansion on the way in the plant itself.
That's right. The actual constraint right now is processing, and that's why the Stillwater plant is actually being expanded. We see a potential for further expansion at East Boulder. No, there is a significant amount of potential. Mining is not a constraint at this point.
What will be the total processing capacity, post-expansion of the plant?
Depends on which one you're talking about. If you're looking at throughput rates at each of Stillwater and Sibanye, you're talking roughly 2,750 tons per day is what it's been running at for Stillwater, and East Boulder has been running around 2,400 tons per day. We see potential for Stillwater and Blitz to get to about 1.4 million tons per year, and East Boulder to get to about 600,000 tons per year.
Excellent. A question on the infill drill program. What's the current size of the program they're running given the high level of inferred resources that can be converted across?
Right now, they're mainly focused on developing out the Blitz project. That's their main focus. They've got clear targets at Blitz, and they're also looking at the East Boulder deeper program. That tends to be their focus. They've got enough in front of them right now with those two projects, rather than looking at the infill between the current two operating mines. We do think that's a later life kind of thing, probably mid-2020 before they really start addressing that. They'll have Blitz up and running and better handle on East Boulder deep.
Okay. That inferred resource is primarily in between, in that gap that you guys discussed earlier?
Yeah, there's a gap. It's wide open at depth and wide open on both ends along strike too. Again, just reinforcing the potential of this operation or this asset, this deposit, to be delivering metal for a very long time.
Okay, excellent. Thanks for that.
Our next question comes from the line of Josh Wolfson from Desjardins. Your line is open.
Thank you.
Morning, Josh.
Hey, good morning. How you doing?
Fine.
Looking for, I guess, the comments earlier on the call about the leverage protection for Sibanye. Do you have any more information on, I guess, when that would be triggered and what that protection, I guess, is?
Well, again, it's a restriction on debt incurrence. The restriction is Sibanye and Stillwater cannot incur debt to the extent that the incurrence of that debt would take their leverage ratio over 4.5 times. As I think I've stated previously, they should be at about 1.7 times exiting this transaction. There's a reduction in the production payment depending if they are at a leverage ratio of over 3.5 times, which reduces from where it currently is at 18% down to 10%, to the extent that they're over 4.5 times leverage.
Got it. Okay, that's helpful. Looking at the production guidance, I guess near term, the full ramp up is expected around 2021, 2022, and we've been provided around 10-year average annual guidance. Is there any additional disclosure you're able to provide, at least in terms of what kind of production we should expect up until that steady state is achieved in 2021 or 2022?
I think that that kind of guidance has to come from Stillwater specifically. I can tell you there is a ramp up obviously with Blitz ramping up here in the near term. I think what we've given is what we are able to give you at this point in time.
Okay. I guess.
Josh?
Yep.
If I could draw your attention, Sibanye did put out a schedule on their presentation, on slide 12 of their presentation, going out on an annual basis out to 2032. If you look at the streamed gold that they've got, they've got about 11.7 thousand ounces of gold, climbing to 14.3 in 2021 pretty linearly, and then 14.7 starting in 2022 and running its way out.
Okay, that's very helpful. That might answer my next question, which is The second sort of 10 years of data, I guess, within that 20-year average that was provided, I guess the production volumes would clip lower from that 4.5% to 2% and a quarter. Just to understand, that 20-year average includes that reduction of volumes that would be attributable to Wheaton, correct?
That's right.
Okay.
Yeah. Gold stays flat pretty much, the palladium does drop.
Okay. Then last question, I guess on the leverage that you have, which looks very manageable, just from a holistic perspective, when you're evaluating new transactions that are available, what would be your maximum leverage that you would be comfortable with? Obviously incorporating the fact that there's multiple commodities and different movement within those commodities that you have in the portfolio now.
Yeah. Well, we've got the $2 billion revolving credit facility, Josh, I would be comfortable drawing fully on that. I would remind you that we're generating about $600 million of operating cash flow annually here. We reduce that debt very quickly, even at current commodity prices. We still have very significant capacity to consummate additional transactions without having to access any additional capital here.
Josh, I'll add one more thing to that. The majority of the opportunities we're seeing, there's still a pretty healthy pipeline, but the majority of them are development stage projects, whereas any additional capital we contribute will be staged. That would give us the flexibility.
Got it. Okay. That's very helpful. Thank you very much.
Thanks, Josh.
Our next question comes from the line of Anita Soni from Credit Suisse. Your line is open.
Hi. Good morning, Randy, Gary, and Haytham. Just a couple of quick questions.
Hey, Anita.
Hi. Just a couple quick questions on the inferred category. You mentioned that's where a lot of the exploration upside is, and I noticed in the footnotes, looking at how the resources there are calculated, I'm assuming that they don't have dilution included in them. It does have that footnote for reserves, but not for resources.
Yeah, that's right. Whenever a resource is estimated, it doesn't have the production parameters assigned to it, so dilution wouldn't be factored in.
Okay. Could you provide some kind of estimate guidance about what you would expect dilution to be?
Well, it's quite variable, actually. It comes down to the thickness of the structure in different areas, and thickness does vary in certain areas, right? Obviously, if you get wider than the working width, which does happen in numerous areas, your dilution should be much less. If you're having to go in and take a very high grade but narrow section of the vein and take that wall dilution, then it's going to be higher. It is quite variable. Obviously, typically what happens through the drilling off, and we've seen this in Blitz, is one of the things in the drilling is more almost to identify some of the thicker zones in the structure so that they can minimize the dilution, and then they'll sort of bias the production, or it'll have an impact on how they do their production scheduling.
I would fully expect them to, through the conversion of these inferred resources into reserves, be focused on areas where they have thicker intercepts and try and bring that in to minimize the dilution impact. What's particularly impressive about this system is that the structure itself is such high-grade nature. It's a bit surprising how much dilution it can actually afford. They're, of course, constantly trying to find ways to minimize that because nobody likes moving waste if you don't have to. I'm sure that they're only going to get better. They're already doing a great job, but I'm sure they're only going to get better at that with time. It's pretty tough to give a global number on that. We've got our own sort of estimates, but they're kind of broadly across and have a look at both the inferred resources and the exploration potential.
Okay. Not a clear answer there. In terms of the drill density on the inferred category, can you tell me what that is compared to the reserves?
Inferred category, it's going to vary depending on zone, as Randy mentioned, but if you'd like more information on that front, Anita, we can actually go into detail if you want to give me a call after I can have a chat with our technical guys.
Okay, sure. Thank you.
Our next question comes from the line of Andrew Kaip from BMO. Your line is open.
Morning, Andrew.
Good morning.
Morning.
Look, I thought I would just tackle Anita's questioning in a different direction. Haytham, you must have looked at long-term conversion rates at the operation. It's got a couple of decades behind it. Is there any comment that you can provide on inferred resource conversion? I suspect it's just all inferred because it's underground wide-space drilling, but the continuity of the reef is well known.
That's great. That's effectively correct, Andrew. We're pretty comfortable if you look at how long the trace mineralization has been actually extended. It's got 32 kilometers of trace mineralization. The primary reason why it's not in the measured, indicated, proven and probable categories is drilling. We suspect that given the 25-year plan that they've already outlined, that once they start getting through that, they'll start putting more money in and tightening up that spacing going forward and moving a lot of that into measured, indicated, and eventually applying dilution factors moving into the proven probable.
When you were in discussions with them, did they provide a discussion on conversion rates, historical conversion rates?
They probably did earlier on in the conversations, and I can look back into my notes and find that for you if you want to give me a call later on, Andrew.
Okay.
Andrew, I would add that the structure exists. Its conversion rate is 100%. In terms of every time they've had an inferred resource and they've taken it to reserve status, it's only a matter of drilling it off to the higher density and then slapping a mine plan around it. The structure has been continuous. There's no halt that we've seen so far. There may be places where it thins out to the point where it maybe gets close to uneconomic. We haven't seen much evidence of that. Usually, it comes down to having to leave support pillars in place and the likes when you're driving on these things, and that comes down to the only stuff that gets left behind. The J-M Reef is continuous, and so I would say that in terms of conversion, it's 100%. It's just a matter of the thicknesses.
As you get the tighter drill densities, the thicknesses, you get more detail in terms of what the thicknesses of the reef are in different areas. That's one that you're not going to know until you get that tighter drill density and drill information in place. I would say the conversion rate along this thing is 100. They understand the geology very well. It's a very impressive asset from that perspective. Conversion rates, I would say, along the reef itself is 100%.
Okay. With respect to just your view on rate of return, was there a component of conversion that you included in that outlook, or was it really just based on reserves?
Yeah, we kind of looked at it and just kept it going to be simple.
All right.
That being said, Andrew, when you're talking a 25-year reserve life, the additional component inferred out doesn't add a lot of value, so it's a very small number.
All right. Okay, thank you very much.
Thanks, Andrew.
Our next question comes from the line of Chris Terry from Deutsche Bank. Your line is open.
Good morning, guys.
Hey, Chris.
Hi. A couple questions from me. Just starting maybe in the appendix on slide 31 from a high level where you've got the split of revenue on a commodity basis and then a country basis. Just interested on the last two deals in cobalt and some palladium exposure, how do you expect that to look going forward? Or do you just look for deals that are accretive, and if they happen to be in a commodity outside of silver or gold, you'll go after those, but keep, I assume, at least 80% precious or probably above 90% precious exposure? Is that the right way to look at it? Are you focusing on other commodities specifically, or is it just that that's where you found the value recently?
Chris, we are focused on precious metals. Cobalt, the Voisey's Bay cobalt stream represented a very unique opportunity. As I've said, it's not really a cobalt stream, it's a Voisey's Bay cobalt stream. So it represented a very unique opportunity. Palladium we do consider a precious metal, along with platinum, so we've spent plenty of time actually looking at platinum group metal assets. This is the first one that sort of met our criteria for political risk and for economics. My preference is silver. I still think silver's got the best upside potential, but we're more than happy to stay focused on the precious metals. I do not see us, we will not go into the base metal space. We will not go into the oil and gas space.
I don't see a lot of other cobalt opportunities that In fact, I can't think of any right now that would pass our criteria in terms of being investable for Wheaton shareholders. Yes, I would say that we will stay precious metal focused and continue to build on the precious metal side.
Okay. Thanks, Randy. That's pretty clear. Just to follow up on the earlier question, I think, around the leverage, it looks like you've got about $500 million-$600 million to go up to that $2 billion on the revolver. I think Haytham was saying earlier, if for the rest of the year you'd expect that if you were to do other deals, they're probably more on the development side and probably earlier stages of a smaller nature. Is that fair, as in probably $100 million-$200 million deals rather than around the $500 million? Is that the right way to think about it?
Hi, Chris, it's Haytham. I think that's a very good way to think about it. I think we're focused on, I'd say $100 million-$300 million deals, and I think over the next year, there's probably half a dozen of those to consider.
Okay. That's it for me. Thanks, guys.
Thank you. Operator, one last question, please.
Our next question comes from the line of Carey MacRury from Canaccord Genuity. Your line is open.
Hey, Carey.
Good morning, guys. Just wondering if you can comment on how correlated the gold grades are relative to the PGM grades. Are they pretty consistent, or are there more higher grade gold zones and vice versa?
Yeah, no, they're incredibly correlated, but that being said, as we move from west to east, we see a significant increase in gold grades going that way. We're pretty excited about the potential, especially given the upside.
Relative to platinum.
Right, relative to platinum. Given the upside we're seeing at Blitz.
What does the west look like relative to the east, then, in terms of gold grade?
In terms of actual grades?
Like roughly speaking, is it 5%, 10%?
I'm just trying to find the number here while I'm talking.
Carey, if I could draw your attention. In the appendix, on page 32, the slide in which we do talk about attributable reserves and resources, we give the correlations there down in the bullets on the right-hand side. We laid out pretty clear our methodology. Now, the way we calculated those are based on historical production. As Haytham mentioned, as we do move to the west, we do see increased gold grades. That is not really factored in in the current R&R. Those gold grades could be anywhere between 30%-40% higher as we move in that direction.
Okay. Great. Thank you very much.
Ladies and gentlemen, this concludes the Q&A portion of today's conference call.
Thank you everyone for dialing in today. Very confident we have demonstrated on this call why Stillwater is such an incredible asset and the value we expect it will bring for many decades to come. If you look on slide 24, you can see Wheaton and Sibanye-Stillwater are planning to host an analyst tour in the fall, in September of this year, to showcase the impressive low-cost, long-life platinum group metal mining complex in Montana. We do hope that some of you can join us firsthand to see why we believe Stillwater is a great quality asset. We do look forward to speaking with you all again soon. Thank you.
This concludes this conference call for today. Thank you for participating. Please disconnect your lines.