Is Wheaton Precious Metals Shifting Gears and Why?

Silver Bar. Credit: Youtube

The streaming company recently inked with Vale S.A. (NYSE:VALE) to extend support to the Voisey’s Bay cobalt mine.

Wheaton has been offering miners’ cash up front in exchange for the right to buy gold and silver (including other commodities) in the future at reduced rates. In the context
of capital markets and banks being expensive sources of cash when commodities are not in favour, this could be a valuable financial alternative for miners.

Wheaton benefits from these deals in the low prices that it pays for gold and silver. In this context, in the first quarter, Wheaton’s average cost for gold was set at $399 an ounce, which was sold at $1,330 per ounce. And, it paid $4.49 per ounce for silver, which was sold for an average of $16.73 per ounce.

Meanwhile, Wheaton started off focusing on the white precious metal silver, as it is a by-product of efforts including copper and gold mining. And, the change in the
company’s name from Silver Wheaton to Wheaton Precious Metals also highlight its focus on shifting to a 50/50 production mix of the precious metals gold and silver.

The choice of diversifying moved the business model of the company closer to streaming companies namely Royal Gold (NASDAQ:RGLD) and Franco-Nevada (NYSE:FNV). Furthermore, with the commodity prices moving off their lows, desirable streaming deals seem harder to come by. And, to support Wheaton’s long-term growth the shift into investing into cobalt could be an opportunity.

The shift is close to Franco-Nevada using energy downturn to expand this exposure in the oil and natural gas domain, and Royal Gold’s exposure to copper. Wheaton’s cobalt streaming deal would extend the exposure to the battery market, and provide an opportunity to look beyond its core precious metals focus.

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