Wheaton Precious cancels Glencore-Yauliyacu silver stream

At least one analyst has trimmed their target price forecast for Wheaton Precious Metals (TSX: WPM; NYSE: WPM) equity after the miner announced it has agreed to terminate its silver stream on Glencore’s (LSE: GLEN) Yauliyacu mine in Peru.

As compensation, WPM will receive an upfront cash payment of US$150 million, minus net proceeds already received from the stream in the year to date. The Yauliyacu stream represented about 2% of the company’s operating net asset value, according to Canaccord Genuity Capital Markets analyst Carey MacRury.

The analyst calculates that WPM will receive about US$138 million after proceeds of about US$12 million were factored in.

WPM has agreed to terminate the stream to help facilitate the sale of the mine by Glencore. Closing is contingent on divestiture of the mine by December 31, with Glencore having the option, but not the obligation, to terminate the stream if it doesn’t divest the mine.

WPM said the stream termination was consistent with its core principle of working with its partners and that they looked forward to maintaining a solid partnership with Glencore.

WPM acquired the stream in 2006 for US$285 million, which has since generated US$485 million in cash flow, which, combined with the termination payment, equates to a return of about 220%.

As a result of the transaction, WPM’s five-year gold-equivalent guidance was reduced to 800,000 oz. per year from 820,000 oz. per year, and the ten-year guidance drops to around 850,000 oz. per year from 870,000 oz. forecasted previously.

“While this is the second stream that WPM has terminated this year [aside from Alexco Resource Corp’s (TSX: AXU) Keno Hill termination in Yukon), it is a rare occurrence,” noted MacRury in a note to clients.

The analyst sees the transaction as an example of WPM acting as a partner to benefit all stakeholders to maintain strong relationships. He notes that the company continues to hold a silver stream on Glencore’s Antamina mine, which he values at an NPV5% of US$816 million.

MacRury had valued the Yauliyacu stream at an NPV5% of US$259 million, although he had included 50% of the measured and indicated resource base to reflect geological upside. The analyst’s NPV5% would have been US$122 million on a reserves-only basis.

Canaccord’s updated model reflects lower gold-equivalent output in 2022 and 2023 of 2.2% and 4.4%, respectively. According to the analyst, WPM’s overall NAV has decreased by 1.2%, and 2023 estimated an EBITDA of 3.2%, according to the analyst.

Canaccord trimmed its WPM price target to $67 per share from $68 previously, maintaining a ‘buy’ rating.

WPM’s Toronto-traded shares have lost nearly 24% in value over the past 12 months to $41.50, giving it a market capitalization of $18.75 billion.