VANCOUVER, – Wheaton Precious Metals™ Corp. (“Wheaton” or the “Company”) is pleased to announce that its wholly-owned subsidiary, Wheaton Precious Metals International Ltd (“Wheaton International”) has agreed to acquire from Sibanye Gold Limited (“Sibanye-Stillwater”) (JSE: SGL; NYSE:SBGL) an amount of gold and palladium equal to a fixed percentage of production from the Stillwater and East Boulder mines, collectively “Stillwater” (the “Precious Metals Stream”). Wheaton International will pay Sibanye-Stillwater upfront cash consideration of US$500 million upon closing of the Precious Metals Stream. In addition, Wheaton will make ongoing payments equal to 18% of the spot gold price and spot palladium price until the reduction of the advanced payment to nil, and 22% of the spot gold price and spot palladium price thereafter. The Precious Metals Stream is effective July 1, 2018.
TRANSACTION HIGHLIGHTS
“Stillwater is another accretive addition to Wheaton’s portfolio of assets that is expected to contribute both production and cash flow for decades to come,” said Randy Smallwood, Wheaton’s President and Chief Executive Officer. “What mainly attracted us to this opportunity was the quality and size of the J-M Reef deposit, coupled with the ongoing expansion at the Blitz Project. There are over 12 kilometres of undeveloped mineralization associated with the J-M Reef between the two currently producing mines. With a mine life extending well into the foreseeable future, we believe Stillwater will be one of Wheaton’s foundational assets for many years to come. Finally, the acquisition will be funded through our current revolving credit facility, which we are comfortable utilizing given our industry leading cash flow.”
TRANSACTION TERMS
ABOUT STILLWATER
Stillwater is the only US-based mine for platinum group metals (“PGM”s) and the largest primary producer of PGMs outside of South Africa and the Russian Federation. Located in Montana, US, Stillwater’s operations consist of two underground PGM mines (the Stillwater Mine and East Boulder Mine), the Blitz Project and the Columbus metallurgical complex. The mining assets are located in the front range of the Beartooth Mountains with elevations exceeding 1,500 metres above mean sea level.
The Stillwater Mine and East Boulder Mine have been in operation since 1986 and 2002, respectively. The mines produce from the J-M Reef, the world’s highest-grade PGM deposit. Each mine has its own milling and concentrator infrastructure on site. The Blitz Project, part of the Stillwater mine, started ore production in 2017 and is expected to ramp up to full production in 2021.
The Columbus metallurgical complex is a state-of-the-art operation that is capable of providing smelting and refining processes for mine concentrates. The complex produces a PGM-rich filter cake that is shipped to a third-party precious metal refinery.
Below are Wheaton’s attributable Mineral Reserves and Resources in respect of the Stillwater mine.
Attributable Mineral Reserves and Mineral Resources – Stillwater, effective as of December 31, 2017
Category |
Streamed |
Tonnage Mt |
Grade Au g/t |
Grade Pd g/t |
Contained Au Moz |
Contained Pd Moz |
Proven |
Gold |
5.0 |
0.31 |
0.05 |
||
Probable |
36.8 |
0.31 |
0.36 |
|||
Proven |
Palladium |
0.2 |
13.2 |
0.08 |
||
Probable |
1.3 |
12.6 |
0.53 |
|||
Total P&P |
Gold |
41.8 |
0.31 |
0.41 |
||
Palladium |
1.5 |
12.7 |
0.61 |
|||
Inferred |
Gold |
92.5 |
0.31 |
0.92 |
||
Palladium |
1.0 |
12.9 |
0.43 |
FINANCING THE TRANSACTION
The initial upfront cash payment of US$500 million will be paid by using amounts drawn from the Company’s US$2 billion revolving credit facility. At March 31, 2018, the Company had approximately US$116 million of cash on hand and US$663 million outstanding under the revolving credit facility. The Company recently acquired a cobalt stream from Vale S.A.’s Voisey’s Bay mine, which was also funded using the revolving credit facility. Net debt for the company, including the acquisition costs of streams on Stillwater and Voisey’s Bay will be approximately $1.4 billion. With trailing four-quarter operating cash flow of just under $550 million5, the Company believes it has ample capacity to service the additional debt resulting from this transaction, especially given the low interest rate and flexible nature of the covenants under the revolving credit facility (minimum net debt to total net worth and minimum interest coverage tests).
PALLADIUM – A PRECIOUS METAL WITH A PURPOSE6
Palladium is a PGM and is generally considered a precious metal and offers significant practical application as it is considered to be integral to reducing emissions caused by gasoline-powered internal combustion engines.
Palladium mine supply is highly concentrated, with approximately 80% of annual supply coming from just two countries: South Africa and Russia. Disruption in either country has potential for outsized market influence. In addition, palladium is mined overwhelmingly as a by-product, which results in mine supply being relatively price-inelastic (i.e. the economics of mine supply is driven primarily by consideration of other metals). Half of mine supply comes from nickel-copper mines, 40% comes from primary platinum mines and just under 10% comes from primary palladium mines.
The automobile industry became the biggest end-user of PGMs in the late-1970s. PGMs in autocatalytic converters help reduce harmful emissions caused by internal combustion engines. Palladium resists oxidation, high temperature corrosion and is particularly effective in scrubbing hydrocarbon emissions. Its application by the industry began to accelerate in the late-1990s and has in the intervening years replaced its cousin – platinum – in gasoline-powered vehicles. A spate of recent government announcements from around the world regarding diesel-powered vehicles strongly suggests that gasoline-based engines – and thus palladium – is expected to be gaining market share at the expense of diesel for the foreseeable future.
Fully-electric vehicles do not use PGMs; however, vehicles that are the intermediate stage between combustion and pure battery power (e.g. hybrids, plug-in hybrids) do use PGMs. While it is reasonable to expect combustion-vehicles to lose market share over the coming decades, the rise of overall vehicle sales and higher loadings per vehicle are anticipated to maintain demand for PGMs. Though North American and European markets are saturated, the analyst community expects vehicle growth in China and India to raise the overall global total. Tightening emission targets around the world add further support for the long-term necessity of palladium. While the pie slice may eventually shrink, the overall pie is growing and there will be more palladium per slice (and that’s delicious).
UPDATED FIVE-YEAR PRODUCTION GUIDANCE
Wheaton is pleased to provide its updated five-year production guidance, which now includes both palladium and cobalt production estimates, in the table below. Given the timing of the effectiveness of the Stillwater and Voisey’s Bay streams, palladium and cobalt production are given as average annual production as of 2019 and 2021, respectively. Average annual gold production is inclusive of gold from Stillwater from 2019 to 2022 as gold production from Stillwaterin 2018 is only for half of the year. For context, on a gold equivalent ounce (“GEO”) basis, five-year average annual production is approximately 730 thousand GEOs based on gold, silver and palladium, or approximately 800 thousand GEOs if cobalt is included as well.7
Forecast Average Annual Production |
|||||
Metal Streamed |
Average Annual Production |
||||
2018E |
2019E |
2020E |
2021E |
2022E |
|
Gold |
385 thousand ounces / year8 |
||||
Silver |
25 Million ounces / year |
||||
Palladium |
10.4 koz |
27 thousand ounces / year |
|||
Cobalt |
2.1 million pounds / year |
ABOUT SIBANYE-STILLWATER
Stillwater was purchased by Sibanye-Stillwater in May 2017. Sibanye-Stillwater is the third largest producer of platinum and palladium and features amongst the world’s top gold producing companies with operations in two main regions: South Africa and the United States. Sibanye-Stillwater has over the years developed several safety initiatives, including the creation and investment in “Digimine,” a joint venture between Sibanye-Stillwater, academic institutions and other stakeholders. This initiative prioritizes the use of digital technology for enhanced safety applications including focus areas of seismicity and pro-active monitoring of underground environmental conditions. Wheaton is pleased to have the opportunity to support Sibanye-Stillwater’s initiatives through further investment linked to Digimine, facilitating the fast tracking of certain technology prototypes into Sibanye-Stillwater’s underground environment.
CONFERENCE CALL
A conference call will be held on July 16, 2018, starting at 11:00 am (Eastern Time) to discuss this transaction. A presentation on the transaction will be available on the Company’s website shortly before the conference call. To participate in the live call please use one of the following methods:
Dial toll free from Canada or the US: |
888-231-8191 |
Dial from outside Canada or the US: |
647-427-7450 |
Pass code: |
9391518 |
Live audio webcast: |
www.wheatonpm.com |
Participants should dial in ten to fifteen minutes before the call.
The conference call will be recorded and available until July 23, 2018 at 11:59 pm ET. The webcast will be available for one year. You can listen to an archive of the call by one of the following methods:
Dial toll free from Canada or the US: |
855-859-2056 |
Dial from outside Canada or the US: |
416-849-0833 |
Pass code: |
9391518 |
Archived audio webcast: |
www.wheatonpm.com |
Mr. Neil Burns, Vice President of Technical Services for Wheaton, is a “qualified person” as such term is defined under National Instrument 43-101 and has reviewed and approved the technical disclosure in this news release including information on Mineral Reserves and Mineral Resources.
ADVISORS AND COUNSEL
RBC Capital Markets acted as financial advisor and Cassels Brock & Blackwell LLP acted as legal counsel to Wheaton.
End Notes
___________________________ |
1) Please refer to the Mineral Reserves & Mineral Resources table at the end of this news release for full disclosure of reserves and resources associated with Stillwater including accompanying footnotes. |
2) Production estimates based upon Competent Person’s Report of the Montana Platinum Group Metal Mineral Assets for Sibanye Gold Limited, United States of America, dated November 2017, and prepared by The Mineral Corporation. Assumptions for converting to GEOs: Pd $990/oz and Gold $1,270/oz. Production forecast contain forward looking information and readers are cautioned that actual outcomes may vary. Please see “Cautionary Note Regarding Forward Looking-Statements” at the end of this news release for material risks, assumptions, and important disclosure associated with this information. |
3) Mine life is based on recoverable reserves and resources as of December 31, 2017 and based on the mine plan provided by Sibanye-Stillwater as of June 2018. |
4) Production payment is subject to further downward adjustment based upon Sibanye-Stillwater’s leverage ratios. |
5) Operating cash flow based on Q2, Q3, and Q4 of 2017, and Q1 2018 |
6) The following sources were referenced in the discussion on palladium: Loferski, Patricia J. “Platinum-Group Metals (Ir, Os, Pd, Pt, Rh, Ru)” Metal Prices in the United States Through 2010. United States Geological Survey. 05-Mar-2010; Steel, James. “PGM Outlook” Commodities, Precious Metals, HSBC Global Research. 22-Nov-2017; Agate, Nell, Johann Steyn and Raghav Gupta-Chaudhary. “PGMs: Demand impact of LDV diesel-engine erosion” Commodities Industry Focus, Commodities. Citi Research. 13-Oct-2017; Metals Focus. Platinum & Palladium Focus 2017. May-2017. |
7) GEOs are calculated based on the following commodity prices: $1,270 per gold ounce, $16.50 per silver ounce, $960 per palladium ounce, and $40 per cobalt pound. |
8) Average annual five-year gold production is the sum of the expected average annual production for all streamed assets over 2018-2022 except for Stillwater; as 2018 is only a partial year of production, the average annual production for Stillwater from 2019-2022 was used in the calculation for the total average annual gold production for 2018-2022. |
ATTRIBUTABLE MINERAL RESERVES & MINERAL RESOURCES FOR STILLWATER
Effective as of December 31, 2017
Mine |
Category |
Stream |
Mt |
Au g/t |
Pd g/t |
Au Moz |
Pd Moz |
Stillwater |
Proven |
Gold |
2.6 |
0.31 |
0.03 |
||
Probable |
15.1 |
0.31 |
0.15 |
||||
Proven |
Palladium |
0.1 |
16.0 |
0.05 |
|||
Probable |
0.5 |
15.7 |
0.27 |
||||
East |
Proven |
Gold |
2.4 |
0.30 |
0.02 |
||
Probable |
21.6 |
0.31 |
0.21 |
||||
Proven |
Palladium |
0.1 |
10.2 |
0.03 |
|||
Probable |
0.8 |
10.5 |
0.26 |
||||
Total |
P&P |
Gold |
41.8 |
0.31 |
0.41 |
||
Palladium |
1.5 |
12.7 |
0.61 |
||||
Stillwater |
Inferred |
Gold |
48.9 |
0.27 |
0.42 |
||
East |
43.6 |
0.36 |
0.50 |
||||
Stillwater |
Inferred |
Palladium |
0.5 |
13.6 |
0.24 |
||
East |
0.5 |
12.2 |
0.19 |
||||
Total |
Inferred |
Gold |
92.5 |
0.31 |
0.92 |
||
Palladium |
1.0 |
12.9 |
0.43 |
Notes on Mineral Reserves and Mineral Resources
CAUTIONARY NOTE REGARDING FORWARD LOOKING-STATEMENTS
The information contained herein contains “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward-looking information” within the meaning of applicable Canadian securities legislation. Forward-looking statements, which are all statements other than statements of historical fact, include, but are not limited to, statements with respect to:
Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “projects”, “intends”, “anticipates” or “does not anticipate”, or “believes”, “potential”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Wheaton to be materially different from those expressed or implied by such forward-looking statements, including but not limited to:
Forward-looking statements are based on assumptions management currently believes to be reasonable, including but not limited to:
Although Wheaton has attempted to identify important factors that could cause actual results, level of activity, performance or achievements to differ materially from those contained in forward-looking statements, there may be other factors that cause results, level of activity, performance or achievements not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate and even if events or results described in the forward-looking statements are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on, Wheaton. Accordingly, readers should not place undue reliance on forward-looking statements and are cautioned that actual outcomes may vary. The forward-looking statements included herein are for the purpose of providing investors with information to assist them in understanding Wheaton’s expected financial and operational performance and may not be appropriate for other purposes. Any forward looking statement speaks only as of the date on which it is made. Wheaton does not undertake to update any forward-looking statements that are included or incorporated by reference herein, except in accordance with applicable securities laws.
Non IFRS Measures
Wheaton has included, certain non-IFRS performance measures, including operating cash flow. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, management and certain investors use this information to evaluate the Company’s performance. Operating cash flow is based on current market cobalt prices of approximately $40 per pound of cobalt, 2.6 million pounds of cobalt produced annually, a payable cobalt rate of 93.3%, production payment of 18%, and an assumed cobalt marketing fee. Non-IFRS measures do not have any standardized meaning prescribed by IFRS, and other companies may calculate these measures differently. The presentation of non-IFRS measures is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. For more detailed information, please refer to Wheaton’s Management Discussion and Analysis available on the Company’s website at www.wheatonpm.com and posted on SEDAR at www.sedar.com.
Cautionary Language Regarding Reserves And Resources
For further information on Mineral Reserves and Mineral Resources and on Wheaton more generally, readers should refer to Wheaton’s Annual Information Form for the year ended December 31, 2017 and other continuous disclosure documents filed by Wheaton since January 1, 2018, available on SEDAR at www.sedar.com. Wheaton’s Mineral Reserves and Mineral Resources are subject to the qualifications and notes set forth therein. Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability.
Cautionary Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources: The information contained herein has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities laws. The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms defined in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) – CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended (the “CIM Standards”). These definitions differ from the definitions in Industry Guide 7 (“SEC Industry Guide 7”) under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”). Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Also, under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority. In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence and as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Mineral resources that are not mineral reserves do not have demonstrated economic viability. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures. Accordingly, information contained herein that describes Wheaton’s mineral deposits may not be comparable to similar information made public by U.S. companies subject to reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder. United States investors are urged to consider closely the disclosure in Wheaton’s Form 40-F, a copy of which may be obtained from Wheaton or from http://www.sec.gov/edgar.shtml.