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Wheaton Precious Metals
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==== Penasquito ==== Penasquito is a gold-silver-lead-zinc mine, operated by Newmont in Mexico, and has consistently been regarded as one of WPM’s cornerstone assets. The stream relating to this asset was acquired late in 2007 for US$485m plus US$3.56m in costs and US$15.761m in capitalised interest. The first silver-bearing lead and zinc concentrate was delivered from the mine in 2009 after production at its first 50,000tpd sulphide process line was ramped up on schedule and on budget. During the ramp-up period, metal recoveries, concentrate grades and concentrate quality were within expected ranges. By this time, construction of a second 50,000tpd sulphide process line was also progressing towards planned completion in Q310. After exceeding ramp-up expectations, Penasquito became WPM’s second largest contributor of silver production in 2010 and, after further expansions, its largest in 2012 (by which time it held the title of Mexico’s largest precious metals mine, one of the world’s largest and lowest-cost gold-silver mines and one of Newmont’s most significant cash flow generators). Output of silver rose to c 7Moz pq after the mine’s production schedule was adjusted to reflect a targeted mill throughput rate of 110,000tpd, rising to in excess of 115,000tpd beyond 2015, after which Penasquito embarked on the Pyrite Leach Project to produce an additional 4–6Moz pa (of which 25% was attributable to WPM) by recovering 48% of the silver that previously reported to tailings. Compared to an initial investment of US$504.3m, Edison Investment Research estimates that Penasquito has yielded – and will yield – the following historical and forecast cash flows to WPM: {| class="wikitable" |+Exhibit 8: Penasquito cash flows to WPM, 2008–26e (US$m)<ref>Source: Edison Investment Research, Wheaton Precious Metals. Note: Mine life forecast to extend until 2031 (not shown here).</ref> ! ! colspan="15" |Historical ! colspan="5" |Forecast |- |Year |2008 |2009 |2010 |2011 |2012 |2013 |2014 |2015 |2016 |2017 |2018 |2019 |2020 |2021 | colspan="2" |2022 |2023 |2024 |2025 |2026 |- |Cash flow |2.3 |6.9 |52.2 |126.8 |162.2 |105.2 |106.0 |85.1 |54.1 |67.0 |57.2 |55.3 |119.0 |167.2 | colspan="2" |152.8 |165.9 |168.3 |174.2 |179.5 |} On an undiscounted basis, therefore, Penasquito paid back WPM’s initial investment midway through 2014, while, on a discounted basis (at a 10% discount rate), it paid it back late in 2020 and still has a residual value of US$1.9bn (as at 1 January 2022) to the end of 2031 (the end of the mine’s life, based on current reserves). By contrast, applying a 10% discount/hurdle rate over the life of the stream of income to end-FY31 yields a value to WPM at the start of the period of its investment of US$845.5m in 2007 money terms, which is directly comparable to the stream’s acquisition cost of US$504.3m. Stated alternatively, Edison Investment Research estimates that the stream will provide WPM with an internal rate of return of 15.7% from the point of acquisition in 2007 until 2031. In addition, there is substantial underground potential beneath the current open pits, providing excellent opportunities for further exploration growth and expanded and/or extended silver production.
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