Resource World Magazine

A U G U S T / S E P T E M B E R 2 0 1 8 www.resourceworld.com 7 case even though Wheaton has added future streams of cobalt and palladium into the mix. Unlike traditional mining companies, Wheaton makes upfront payments and in return it purchases a fixed percentage of the future silver and/or gold production from a mine at a predetermined price. It can then sell the metal in the open market. In many cases, these agreements are for the life of the mine. Having recently changed its name from Silver Wheaton, the company has stream- ing agreements covering 20 operating mines and nine development stage proj- ects. These include Vale's Salobo Mine in Brazil, Glencore AG's Antamina Mine in Peru and Goldcorp Inc.'s [G-TSX, GG-NYSE] Penasquito Mine in Mexico. Smallwood said it's a business model that shelters investors from some of the risks associated with traditional mining because after making the up-front pay- ment, Wheaton typically has no ongoing capital or exploration costs. It means that people who invest in Wheaton Precious Metals do not have to consider variables that affect traditional mining companies such as capital costs that are needed to produce a specific metal, operating costs of the mine and forecasts about the quantity of metal produced. A streaming company such as Wheaton, with 35 employees, differentiates itself from a company that owns royalty inter- ests in mining projects because it tends to play a management role, particularly when the original streaming agreements need to be adjusted for any reason. For example, following an ownership change, Wheaton said it had terminated a silver purchasing agreement covering the San Dimas Mine in Mexico and announced a new one with First Majestic Corp. [FR-TSX, AG-NYSE, FMV-FSE] in January 2018, after its acquisition of the mine's for- mer owner Primero Mining Corp. A streaming arrangement with Alexco Resources Corp. [AXR-TSX, AXU-NYSE] was also re-negotiated to eliminate some of the downside risk associated with its United Keno Hill silver mine in the Yukon. The agreement was also revised to take into account the variations in the type of grades that are a typical feature of the United Keno Hill Mine. The aim is to give Alexco the flexibility to dramatically reduce their mining costs because they can now mine continuous stopes profitably. "We are not just sitting back and count- ing cheques like the royalty guys. We actually manage our partnerships. We have teams that actually visit the mine sites on a regular basis. I spend time talking to the executives," Smallwood said. It is a role to which the Wheaton CEO seems ideally suited. A geological engineer and University of British Columbia graduate, he started out doing ground geophysics in south- ern British Columbia, later working for companies formerly known as Homestake Mining and Westmin Resources. He got his break in 1993 when he received a call from Kerry Knoll, the former Vice-President of Wheaton River Minerals Ltd., who was looking for someone to help run a north- ern BC heap leach operation called the Golden Bear Mine. "I had been working in Alaska for Westmin and they called me out of the blue," he said. "From 1993 to 1999 we restarted the Golden Bear Mine and made great prof- its up there, producing gold for about US $120 an ounce from a seasonal heap leach operation. This hadn't been done anywhere else in the world and we were producing about 100,000 ounces per year," Smallwood recalls. Following a management change that led to Ian Telfer becoming CEO of Wheaton River, Smallwood was hired to do project evaluations. He continued in that role after Wheaton River morphed into the company now known as Goldcorp. Silver Wheaton (now Wheaton Precious Metals) was spun off by Goldcorp in 2004 to create an investment vehicle for its key asset at the time, a silver stream on the San Dimas Mine in Mexico. Smallwood later became President of Wheaton in 2010 and CEO in 2011. On the morning that Smallwood spoke to Resource World, a Scotiabank analyst lowered his long term forecast for the price of silver to US $17 an ounce from US $19.25. This was due to the fact that the bank had been anticipating a stronger gold price heading into the second half of 2018 and an improved gold:silver ratio driven by greater industrial demand for gold and silver. But neither of these expectations has materialized, prompting the bank to lower its forecasts. However, he remains bullish on the outlook for both gold and silver. "We are dealing with a very strong US dollar right now. That is why we are see- ing pressure on precious metals," he said. "I do not believe that strength in the US dollar is actually sustainable for any length of time." He said the attributes of silver, includ- ing an ability to conduct electricity more efficiently than any other noble metal is not well understood. Analysts have been much more optimis- tic about the prospects for cobalt, due to its role in improving the energy density of batteries. Citi Research is a division of "We are not just sitting back and counting cheques like the royalty guys. We actually manage our partnerships. We have teams that actually visit the mine sites on a regular basis. I spend time talking to the executives," Smallwood said. LEFT: The San Dimas silver-gold mine of First Majestic Silver in Durango, Mexico which has a gold equivalent streaming agreement with Wheaton Precious Metals. Photo courtesy First Majestic Silver Corp. PROFILE

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