CMS: Streaming could jump-start critical mineral finance, Smallwood says

The metals streaming finance model pioneered by Wheaton Precious Metals (TSX: WPM; NYSE: WPM) could be ideal for early-stage critical mineral developers to shore up their treasuries in difficult markets, president and CEO Randy Smallwood told a recent industry event.

The executive, who just concluded a three-year stint serving as the chair of the World Gold Council (WGC), argues that traditional financing models have often been restrictive, especially for projects in their early stages, making it difficult for them to advance to production.

“The nice part about the streaming model is we can adapt it and make it fit so that it makes the most sense in terms of getting that mine built,” Smallwood said during The Northern Miner’s recent Canadian Mining Symposium in London. “That’s the advantage of the streaming model: we can actually adjust our terms to ensure that the project gets built and we can bring in partners.”

The metals streaming financing model, which began in 2004, provides upfront capital to mining companies, enabling them to initiate and sustain operations. In return, the financiers secure the right to buy a portion of the future production at a predetermined price.

This arrangement ensures that mining projects have the necessary funds to navigate through exploration, feasibility studies and eventually reach production. That can be particularly helpful for rare minerals critical to technological advancement that investors may overlook.

Upfront capital

Wheaton Precious’ forerunner, Wheaton River Minerals, developed the model to first focus on exchanging upfront capital for silver by-products from mainly gold projects. Later it expanded the scope to include by-product gold streams, mainly from copper developments. In recent years, however, it has expanded the portfolio further by taking critical mineral streams such as a portion of cobalt by-product from Vale’s (NYSE: VALE) Voisey’s Bay nickel redevelopment in northeastern Canada. The portfolio has also expanded to capture platinum-group metals streams.

Critical minerals include rare earth elements, lithium, cobalt, and others, considered indispensable to modern technology, clean energy solutions, and national security. The minerals are central to manufacturing high-tech devices, renewable energy technologies, electric vehicles, and various defence applications.

Wheaton Precious’ proactive approach can mitigate supply risks, foster innovation and propel sustainable development initiatives into the future, Smallwood suggested.

The company, with a market capitalization at Thursday’s market close of $26.9 billion, primarily targets projects with bankable feasibility studies and permits. However, they’ve also introduced a funding model tailored for firms in the ‘orphan period’ of the Lassonde Curve. This phase, bridging the initial market enthusiasm post-discovery and the onset of building, sees proven discoveries needing substantial investments for economic and environmental evaluations and construction.

“On the development side, we’ve developed the early deposit model, which really works for a lot of these earlier stage projects,” Smallwood said. “We will supply some capital in advance of permits, in advance of feasibility.”.

While the corporate development team continues to scour the globe for suitable deals, Wheaton Precious comes off an intense 30 months which saw it deploy around US$2 billion into new investments. Smallwood expects these investments to drive a production increase over the next five years, from 600,000-660,000 oz. gold-equivalent to 810,000 oz., and average about 850,000 oz. gold-equivalent over the next decade. Its share price increased by more than 40% over the last 12 months to close at $59.43 on Thursday.

Blockchain tech

The conversation ranged from the role of blockchain in gold trading to the prospects of a gold-backed digital currency. He shared insights on how blockchain technology can ensure transparency and traceability in gold trading, instilling confidence among investors and stakeholders.

“Tell me there’s not a market for gold that you can trust,” Smallwood said.

The CEO also noted that initiatives like the Gold Bar Integrity program led by the WGC are making strides. At the the council’s September annual general meeting, members representing over 60% of global gold production committed to integrating these advancements into their systems.

The session also highlighted the myriad geopolitical challenges and environmental, social, and governance (ESG) considerations involved in mining investments. Smallwood discussed Wheaton Precious’ strategic approach towards identifying global opportunities.

He stressed that the company actively seeks projects worldwide while exercising caution and due diligence in evaluating the political climate and ethical considerations in different jurisdictions. Wheaton Precious takes a particularly conservative stance, ensuring their investments align with stringent ESG criteria, he said. 

For instance, the company deems certain regions, such as Russia and China, non-investable due to associated risks while exploring others, like Australia and Africa, with a discerning eye.