WPM announces acquisition of cobalt stream from Vale S.A.: On June 11th, WPM announced that it is acquiring ~42.4% of all cobalt produced at Vale’s Voisey’s Bay mine, for an advance amount of US$390M. In addition, WPM will make ongoing payments of ~18% of metal bulletin market price per cobalt pound delivered.

Transaction Highlights: Approximately 42.4% of annual cobalt production will be delivered to WPM and once an aggregate of ~31Mlbs has been delivered, the amount will be reduced to 21.2% of production. WPM is expected to pay ~18% of the cobalt reference price, which increases to ~22% once WPM has fully recovered the advance amount (US$390M). Unlike the majority of WPM’s streaming arrangements, this stream requires physical delivery of the cobalt. Wheaton will be entitled to delivery starting in 2021. Attributable production is expected to be ~2.6Mlbs per year for the first 10 years and 2.4Mlbs for the life of mine (~13 years). WPM stated that it expects operating cash flow at current spot to be ~US$75M per year for the first 10 years.

Eoin Treacy's view

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WPM announces acquisition of cobalt stream from Vale S.A.: On June 11th, WPM announced that it is acquiring ~42.4% of all cobalt produced at Vale’s Voisey’s Bay mine, for an advance amount of US$390M. In addition, WPM will make ongoing payments of ~18% of metal bulletin market price per cobalt pound delivered.

Transaction Highlights: Approximately 42.4% of annual cobalt production will be delivered to WPM and once an aggregate of ~31Mlbs has been delivered, the amount will be reduced to 21.2% of production. WPM is expected to pay ~18% of the cobalt reference price, which increases to ~22% once WPM has fully recovered the advance amount (US$390M). Unlike the majority of WPM’s streaming arrangements, this stream requires physical delivery of the cobalt. Wheaton will be entitled to delivery starting in 2021. Attributable production is expected to be ~2.6Mlbs per year for the first 10 years and 2.4Mlbs for the life of mine (~13 years). WPM stated that it expects operating cash flow at current spot to be ~US$75M per year for the first 10 years.

Generally speaking streaming companies provide funding for struggling mines when prices are low. By historical standards cobalt prices are not low. Of course, if accepts the near mania of bullish prognostications, then cobalt is cheap.

Cobalt is a byproduct of nickel and copper mining so Vale is taking advantage of high cobalt prices to extend the life of its nickel mine in Voisey’s Bay. The run-up from $20,000 to the recent peak of $95000 for cobalt has helped to flatter the 10-year average price so Vale has probably concluded it has signed an attractive deal. That is particularly true when cobalt is the process of posting its largest pullback in years suggesting at least a medium-term peak.

The broader point is that Wheaton precious metals used to be called Silver Wheaton; begging the question why the company isn’t more interested in buying silver streaming rights while prices are comparatively low?