Hello, everybody. Staying consistent with our royalty and streaming presentation from Franco before, next we'll feature Wheaton Precious Metals, another huge player in the sector that is, in this case, entirely focused on the streaming as opposed to the royalty side of the business, and that is responsible for actually creating the royalty business. Randy, you were involved in that.
Streaming business.
Sorry, in the streaming business. Yeah.
Yes.
You were involved in creating the streaming business, which has now become sort of the linchpin of the industry and where all the big transactions are done. I'm pleased to have with me here today Randy Smallwood, who is President and CEO of Wheaton Precious Metals. Randy, welcome to Barcelona.
Thank you so much, Jalonen. Really enjoy being back here.
Fantastic.
Yes.
I wanted to start off with the same question I started off with Paul, which is the gold price. It's had a fantastic start to the year, one of the best starts in the last decade. I think investors are getting bullish. It seems that the mood among corporates are quite bullish. What's your view from here, and what do you see as the drivers?
Well, it's hard not to be optimistic if you look at the fundamentals out there, from a perspective of gold versus other currencies, or versus fiat currencies, in today's world. You know, I think, you know, a lot of the events that we've seen over the last couple of years have just really pushed us towards even having, society having even more of a need in terms of investing into the gold space. I chair the World Gold Council and, of course, you know, the efforts that we've put into in terms of educating central banks on building up their own reserves, are really starting to bear fruit, and we've seen record purchases from central banks as they're shifting out their US dollars that they have in there, out for gold and starting to build up.
We're seeing that consistently around the world, a number of different locations. All it takes is to have a look at, you know, the fundamentals again in the U.S., and, well, it's not just the U.S., around the world, to not be very optimistic. So we're still out there looking for new opportunities to grow because we've got, you know, we think gold has got another leg up coming over the next few years. You know, along with gold, and I always chuckle at this 'cause I am chairing the World Gold Council, but I really like silver. I think silver actually has even better fundamentals behind it. Of course, silver's a large portion of our own production. About 40% of our revenue comes from silver right now.
When you sit and think about greening the world and critical minerals in terms of what's required to lessen our footprint and increase efficiencies and less waste, silver plays a role. We're seeing increasing demand on that side. As strong as the fundamentals are for gold, I actually like silver even better and I think in Wheaton, you get good exposure to both.
My next question was going to be about the deal pipeline, and you prematurely answered it for me by investing $300 million into Lumina Gold this morning.
That's right.
Could you, maybe talk about that transaction, Some of the details of it.
Sure.
Also, I mean, talk about whether or not that's representative of what you're seeing in the deal pipeline?
Yeah. I think that's exactly the type of transaction that probably 90% or 80% of what we're looking at fits into. For those that didn't see it, we announced this morning a transaction with Lumina Gold on their Cangrejos project in southwestern Ecuador. It's a $300 million stream, of which $48 million will be fed in early deposit. $37 million of that is actually to fund their ongoing progress towards the feasibility and the permitting, and another $11 million of that $48 million is focused on acquiring surface rights and helping fund surface rights. The rest, the remaining $252 million will go towards the construction as they work their way forward.
They're hopeful in terms of having a permit by 2025 and loosely penciling having production by 2028 or 2029. It's a meaty transaction for us because it would add close to 25,000 ounces of gold to our production profile per year once it's up and running. It's an asset that, you know, it's a relatively low impact, dry stack tailings. It's in an area of Ecuador that has good, strong community support. We spent time down on the site and met with community leaders. It's close to tidewater. It's low elevation. It's just got a lot of positives to it.
The Lumina team has done a great job advancing this project going forward, and it's really kind of representative of what we're seeing out there is a single asset development company, not being very well valued in the marketplace right now. You know, issuing equity for them is very expensive, especially compared to doing a stream. If we're willing to take some of the project risk and put it in an early deposit, that of course helps them advance going forward without being extremely dilutive to their shareholders. It's a win-win deal on all sides. I'm pretty excited about being able to get this one done.
Just keeping on that theme of the deal pipeline, watch your mic, or this type of transaction, which is like a greenfield project, you said it is quite representative? Would that suggest that you're not seeing transactions that are like brownfield expansions or M&A or potentially balance sheet repair?
Yeah. I would say that, with commodity prices where they are pretty well across the board, I mean, we've seen copper pull back a little bit but, with commodity prices where they are, if you've got operations, you've got some pretty good operating cash flow. The bulk of what we're looking at is single asset development companies that don't have access to operating cash flow. When it comes to funding their growth on a go-forward basis, you know, of course, for a good well-designed project in a responsible ... There's always going to be some form of debt available, but debt is never the entire solution in terms of the capital funding.
There's always gonna need to be a bit of an equity contribution. That's where streaming competes so well compared to actually issuing shares is, excuse me, the equity side of the equity side of those type of opportunities. Streaming qualifies for that. It's also another check of quality in terms of the asset itself. You know, we've had, you know, Cangrejos, we had a good team down on site for an extended period of time going through everything from meetings with community leaders, assessing the risk, trying to measure all the way across the front, also diving down to first principles in terms of due diligence. I do think it definitely does help in terms of providing confidence on these projects on a go-forward basis. I would say Cangrejos now has the Wheaton stamp of approval.
In the past too, when you've spoken about focus metals, you've obviously spoken about gold and silver. I mean, you now have platinum and palladium. You mentioned that platinum and palladium are focus metals for Wheaton Precious. Do you see much potential, deal flow in PGMs?
Not a lot. you know, unfortunately, most PGMs come from riskier locations around the planet. There's only a few opportunities that we see in good, strong, stable political jurisdictions. That really limits our ability to go into that. you know, we've got, obviously we've got some palladium coming from the Stillwater Mine in Montana with Sibanye-Stillwater. Then we signed the deal now with Generation Mining on the Marathon project in Ontario in terms of moving that project forward. We'll see some platinum palladium out of, you know, that'll be some of the first platinum into our portfolio. you know, we are very, very sensitive to political risk.
If you look at our asset distribution, it is in very stable jurisdictions on a relative basis. It's something that we, you know, we're long-term investors. When we find the assets that we like, we're there for the long term, and that means we need to be in politically stable jurisdictions. Unfortunately there's just not a lot of platinum and palladium that comes from politically stable jurisdictions. It does limit our opportunity set.
It's interesting too, 'cause platinum and palladium are driven by very different factors than gold and even silver to a large extent. I mean platinum largely driven by diesel and demand, there isn't a jewelry component. Palladium almost entirely driven by gas. I mean, is that, you know, conceptually, does that limit the exposure that you wanna have for PGMs, or does that even factor in?
Yeah. I mean, obviously, the conversion to electric, which will happen, it's well on its way, I converted many years ago and am a strong believer in ultimately going to electric mobility. The, you know, that's gonna have an impact in terms of catalyst demand for internal combustion engines. However, increasing environmental standards and then the propensity for hybrid technology and stop-start engines also increase the demand on a per unit basis for platinum and palladium. To act as catalysts. The combination of those factors, we still see good, strong demand for 10-20 years, I would say, in the platinum and palladium space.
There's a lot of other aspects that both of those metals play into in terms of, you know, improving environmental performance on a number of different fronts. If people move down the hydrogen side, there's going to be a demand there and so on. You know, it's, you know, and the other side of it, I would say, is that it's, there's not a lot of those deposits out there. They, you know, the ongoing, what I call geological inflation, which is it's tougher and tougher to find those deposits, that'll also provide some support for pricing, so.
With that, theme of, battery metals, you have some cobalt in your portfolio. There also aren't a lot of cobalt deposits out there either. Lithium deposits, however, I mean, there are quite a few, and we've seen the lithium price collapse recently and, you know, perhaps that market becomes more rational and perhaps there is a need from, for stream financing at some point. Maybe not today, but is lithium something that's appealing to you?
No. You know, lithium is actually one of the most common minerals on the planet. I've felt that anything on the lithium side right now is really an infrastructure issue as opposed to a supply-demand issue. I will say that we've had spent just about zero time considering lithium outside of looking at the fundamentals of the market for lithium and saying, "I don't know if that works." Cobalt, on the other hand, generally produces a by-product, and a lot of it comes, again, from very challenging jurisdictions, very challenging locations.
We're not out hunting cobalt, but when Vale comes knocking on our door and asks if we're willing to help them up at Voisey's Bay with a little bit of cobalt, and as we looked at it, we realized that it's a unique opportunity that we felt worked well. When I sit and look at Voisey's Bay and the track record of production there, relatively new operation, relatively recently permitted, good, strong community support, I would call it the cleanest, greenest cobalt being produced on this planet right now. Provenance is an issue and it's going to become more and more of an issue as society has higher and higher expectations about knowing the impacts of the products that they're consuming.
Voisey's Bay will always compare very, very well to the rest of the cobalt industry. It was an asset that we invested into with an existing partner, with Vale. We're not out looking for cobalt opportunities, but if we have situations like that, we would definitely consider it. Lithium, we just didn't see it as being. To us, you know, putting a stream on that, we just, it's a bulk material. It's, I hate to say it's gonna eventually become just like iron ore in terms of moving that forward, and we're just not interested in bulk materials.
Fantastic perspective. I wanted to ask you one more thing about deals. This is more about deal structure. Historically, and when you and Wheaton created the streaming concept, it was a fixed base escalated, ongoing payment.
Right.
That's now evolved to, it seems like a preference for a percent of the payable metal. What are you seeing the demand from your operator partners? Do they want a percent of payable metal or do they want the base escalated, that certainty in terms of what they're receiving?
It's a fixed price versus a fixed margin is really the two options there. Just about all of our recent streams have been based on a fixed margin, which means we get somewhere around 80% operating margins on this metal as it's being delivered to us. The advantage to this is that we saw this back in 2011, 2012, is that, you know, the streaming is set up so that we have a production payment that helps offset the cost of actually producing that metal as it's delivered to us. Those costs, those operating costs include the taxation burden that exists in the countries where this is where the metal is being mined, as it should be. That's where the tax should be paid on these metals.
The advantage of the fixed margin, what we saw in 2011, 2012, 2013 when we saw gold prices first pop up to $2,000 an ounce and silver prices pop up to $48, we were more of a silver company back then, but popped up to $48 an ounce, was the tax burden for our partners dramatically climbed, and it was actually starting to have an impact on some of our partners in terms of economics. Because we had that fixed payment, we didn't see that offset. So the huge, the big advantage of the fixed margin is that as commodity prices climb, the production payment will also climb with it, albeit at a much slower rate.
It will climb to provide that extra support during periods of high commodity prices. It'll provide that extra support. Again, it helps our partners be stronger. Our overlying mantra within Wheaton is that the stronger our partners are, the stronger we are. We're always looking for ways to ensure that our partners have access to that strength and keeps them sort of fiscally healthy. It's something that's very important for us. It's something that we support, and just about every transaction we've done in the last while has been fixed margin. That being said, probably about 70%-80% of our current production still has that fixed production payment on a per ounce basis with a typically just a 1% accelerator per year that will push that forward you know, it's, it still dominates our portfolio, but any of the new streams we're doing are based on fixed margins.
I'd like to canvas the audience if there are any questions. I see there's one right here in the front row. We'll get you a microphone, right away.
Hi, thank you. It's related about the projects that we have on the table, and I have two questions, if I may. The first one is how those projects has changed in the last 10 years in terms of grade, risks, and so on. The second question is related if you have seen an increase in the number of projects due to the reduction in the funding, in the capital, risk companies, venture capital, and so on.
Well, there's no doubt. I mean, we created the streaming model back in 2004, so next year's gonna be our 20th year. We really spent probably the first eight or 10 years trying to convince people that streaming was an effective source of capital. You know, I would say that, you know, what we're seeing now is a broad acceptance in terms of streaming is a very competitive source of capital. If you're a single asset, I mean, in today's market, if you look at today's environment right now, the mining industry, the single asset development companies are typically trading at substantive discounts to their net asset value, 0.2, 0.3 times net asset value. You see it across the board.
It's, there's just not, we just haven't seen the. There's no doubt that that's a higher risk aspect of the resource investing is in that space, and we just haven't seen those risk investors come back into the space. You know, I mean, we need some good success stories to deliver on that, and they will come. We've seen some great stories out of this. Currently, with those kind of discounts, equity financing, issuing shares is incredibly expensive to the existing owners. As I like to highlight, streamers, we are the new long-term investors, right?
In today's marketplace right now, you know, you hear a lot of the operators complain about the fact that you just don't see that long-term investment, that people are in and out, and they're flipping and following, and there's index investors they're chasing. Well, you know, the streamers, we are long-term investors. We invest into these assets, and our funding is not based on the value of the equity. It's based on the value of the metal. It's incredibly attractive for a company that has a substantive gold and copper resource like Lumina, for us to purchase our interest in there based on the value of the contained metal.
We're playing, we're paying, you know, net asset value for that, close to net asset value for that, 'cause we're willing to take the upside of commodity price and exploration success and be there as a long-term partner all the way forward. You compare that to issuing more equity out at such a substantive discount. Streaming has really become, you know, pardon the pun, it's way overused, but it's mainstream. There's not a single CFO in today's world that doesn't consider streaming at that stage. Ideally, you don't have to issue equity capital.
If you've got enough operating cash flow internally to fund that growth, and, you know, and access to some reasonably priced debt, then, you know, you typically don't go down the equity side in terms of issuing a portion of your project's value, your company's value to try and raise that capital. That's why in today's world, most of what we're looking at is these development stage projects, with single asset companies and making sure that we come up with structures that sort of support them in their efforts to deliver value to their shareholders. I hope that answers the question.
Thanks for the question. That was an awesome answer. Thanks. Thanks, Randy. We don't have a lot of time. I wanted to touch on growth because, I mean, you guys stand out in the sector for your growth, particularly for your size. You're planning to grow your top line GEO production 40% over the next five years. Maybe just speak to some of the upside and downside risks around that.
You know, this year we should be doing somewhere around 630,000 gold equivalent ounces, which is a slight increase over last year. But I can tell you, the next five years are incredibly exciting. Our company has never been stronger than it is right now. We've got an incredibly strong balance sheet with close to $1 billion cash on hand, access to a $2 billion revolver that we can use whenever we need to. We could easily access over $3 billion in equity if we needed it right now, or sorry, in cash right now if we needed it. Our growth at 630,000 ounces by 2027 will be very close to 1 million gold equivalent ounces per year production.
2/3 of that growth is actually coming from assets that are already operating right now. Salobo, Antamina, Peñasquito, Stillwater, Voisey's Bay, they have all got substantive growth over the next four or five years in terms of their overall production. This actually works out to about 50% increase in production. Adding on assets like we just did with Lumina at Cangrejos and Lumina will just keep that profile going on a go-forward basis. Very exciting times. As I said at the first quarter, this is the first quarter of many quarters where every quarter's gonna be better than the last one. There's bound to be a bit of volatility in there, but it's just consistent across our portfolio. The next four or five years are gonna be incredibly exciting for Wheaton.
With that, thank you, Randy. I think we'll conclude it. Thank you everybody for your attention and time today.
Thank you.