Wheaton Precious Metals: Kobold Ex Machina
Edison | Jun 22, 2018 01:50AM ET
On 11 June, Wheaton Precious Metals (WPM) announced that it had entered into an agreement with Vale to acquire 42.4% of cobalt production from Voisey’s Bay from FY21 for an upfront cash consideration of US$390m. We estimate that this acquisition will increase WPM’s silver-equivalent production by 3.1Moz and 4.7Moz and its basic EPS by 4.7c and 9.3c in FY21 and FY24, respectively.
Too precious or not too precious
While not traditionally regarded as a precious metal, at current levels, the price of cobalt at US$82,250/t is equivalent to US$2.56/oz, ie where the silver price was in May 1973 and not far from where it was as recently as March 1993 (US$3.56/oz). Moreover, like silver, the vast majority of cobalt is produced as a by-product of either copper or nickel mining. As such, WPM’s acquisition of the Voisey’s Bay cobalt stream is approximately equivalent to a gold stream of c 75-80koz pa or a silver stream of c 5.7-6.2Moz pa (at current prices). Even so, the consideration paid by WPM is less than half the amount it has paid in the last three years for similar streams at Antamina and, in particular, Salobo, which has the same counterparty (namely Vale) as Voisey’s Bay. As a result, returns from the Voisey’s Bay stream are protected approximately at or above the level of the Antamina and Salobo streams down to a cobalt price approximately half of its current level (ie c US$41,125/t).
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