Wheaton Precious Metals is a Canadian precious metals streaming company that provides upfront capital to mining companies in exchange for the right to purchase a percentage of their production at a fixed cost.
Randy, yours and the story of Wheaton Precious Metals are intertwined. Tell us about the company’s beginnings and your role.
During the early 2000s, I worked at Goldcorp(since acquired by Newmont) where our focus was on project evaluation and growth, which required capital to fund that growth. In 2004, we created Silver Wheaton, the first-ever streaming company, to capitalize on the higher valuation of silver compared to gold at the time. Initially, it was a side project to raise capital for Goldcorp, but over time, we realized the potential of this business model and in 2007, I shifted my focus entirely to Silver Wheaton. By 2009, we had transitioned into a fully independent, publicly traded company. I took over as CEO in 2011, and we expanded our focus from just silver to all precious metals, hence the name change to Wheaton Precious Metals.
Yours was the first streaming company in the sector. How has streaming changed the mining industry?
Most mines around the world produce multiple products, like copper mines that produce gold and silver as byproducts. Streaming is an effective way to optimize portfolios, allowing companies to focus on their core assets. For example, a copper mine’s byproduct gold is more valuable to a gold-focused company. This arbitrage in value was something we unlocked with the streaming model, transforming it into a significant source of capital for the mining industry.
The streaming model revolutionized the royalty industry. Traditional royalty companies have shifted their focus to streaming because it offers more flexibility and value. A royalty is a registration on land and does not rely on a direct relationship between the operator and the royalty owner. In contrast, a stream is a partnership, allowing for adjustments and shared goals. For instance, we can provide incentives to improve operations or co-fund community programs, something not feasible with traditional royalties. This partnership approach allows us to influence operations positively while ensuring that both parties benefit.
At Wheaton, we focus on high-margin assets that can operate profitably into the long-term and sustain a stream, ensuring stability and security. Our direct involvement and collaborative efforts, such as technical support and community investments, strengthen our relationships with operators.
This flexibility and partnership model make streaming a superior and more effective approach compared to traditional royalties.
Can you influence operators’ sustainable development performance?
One significant advantage we have is the strong correlation between copper and gold grades, meaning maximizing copper production also maximizes gold production. This natural alignment allows us to influence operations through a partnership approach. We co-fund community programs, ensuring that other stakeholders benefit from our investments, a practice not common with royalty companies.
For example, at the Antamina mine in Peru, we co-fund a program alongside our mining partner to improve local school systems, enhancing access to technology and teacher qualifications. By matching their funding, we support effective community engagement while making a meaningful impact. This collaborative effort is now a standard in the streaming industry, reflecting our commitment to giving back and supporting sustainable development.
Wheaton has streaming agreements with 18 operating and 27 development stage mines. Could you highlight those that you find will be most interesting for our readers?
The Salobo mine located in northern Brazil and operated by Vale, is one of the richest and highest margin ore bodies in the copper world. . This copper mine produces significant gold as a by-product. At the time of the deal, gold represented about 15 to 20% of the mine's total revenue, with copper making up the rest. We supplied $3.1 billion in capital, nearly 80% of the total capital needed to build the mine, in exchange for 75% of the gold produced.
Another key mine is Antamina in Peru, where we have a stream with Glencore. Antamina, owned by a consortium including Glencore, Teck, BHP, and Mitsubishi, produces copper, lead, and zinc. It is a long-life, significant producer with strong community programs. The third major mine is Peñasquito with Newmont, originally a Goldcorp mine where we receive 25% of the silver produced. Despite having a shorter life, Peñasquito has excellent exploration potential, and Newmont's reinvestment efforts are promising.
Do you think that the gold-silver ratio will normalize soon?
Silver has better fundamentals than gold due to its significant industrial demand. Silver’s high conductivity and low resistivity make it crucial for high-efficiency electronic applications and green technologies. Currently, about 65% of global silver production is consumed in industrial applications, highlighting its strong demand fundamentals.
However, silver prices tend to rise when investors chase the metal, often lagging behind gold. Western investors have not fully embraced silver yet, but we see promising signs as gold ETFs and equities start to recover. Historically, silver lags gold but then outperforms. While the gold-silver ratio may not return to historical lows of 30-40, there is potential for silver to outperform given its strong demand fundamentals and limited supply, largely sourced as a by-product from lead, zinc, and copper mines.
What do you find most unusual about current gold trends?
The most unusual aspect is the shift in economic power from the West to the East. Despite record high gold prices, Western gold mining and streaming companies are not trading at record valuations, and gold ETFs are underperforming. In contrast, central banks in Asia and parts of Eastern Europe are heavily investing in gold to build their reserves. This is especially evident in China, where demand for gold has grown significantly. Typically, a strong U.S. dollar and high interest rates would negatively impact gold prices, but the increasing influence of Asian markets is now driving the price of gold.
One key indicator is the behavior of ETFs. Despite record gold prices in the West, we saw consistent outflows from these ETFs, representing a dislocation from what we would historically observe. Typically, rising gold prices would lead to increased ETF holdings as it is the easiest way for Western investors to get exposure to gold. The disconnect suggests that demand for gold is coming from regions that do not rely on ETFs, notably Asia.
I believe the West will eventually catch up. The U.S. dollar's strength cannot be maintained indefinitely. There is currently no viable alternative to the dollar, despite China's efforts to build its gold reserves to match those of Fort Knox. China's goal to increase its gold reserves, which currently make up about 4% of its central bank reserves compared to 8.5-9% in the U.S., will continue to support gold demand. The BRICS nations are unified by a distrust of the U.S. dollar, which will only strengthen over time. This shift in economic power underscores the importance of digital gold, making gold more accessible and tradable like currency, offering a solid, universally recognized backing that cryptocurrencies lack.
Can you expand on that point concerning digital gold’s future?
The universal recognition and respect for gold across cultures and geographies make it uniquely suited for digital transformation. Digital gold can make owning and trading gold easier while ensuring the trust and security that comes with blockchain technology. The World Gold Council has initiated programs like the Gold Bar Integrity programme, tracking the provenance of each gold bar from its production. This not only provides transparency but also highlights the ecological and community benefits associated with gold production.
The challenge lies in getting institutional adoption. The main bullion banks are slow to embrace change as they profit from the current system. However, the technology is ready, and we are pushing forward. The ability to track a gold bar's origin, the taxes paid, salaries, and community benefits, all through blockchain, will revolutionize how gold is perceived and traded. This transparency and security will strengthen gold's position as a reliable store of value.
