How would you go about valuing a mining streaming company?

Based on the most helpful WSO content, here's how you can approach valuing a mining streaming company like Wheaton Precious Metals:

Steps to Model a Mining Streaming Company:

1. Identify and Segment Streaming Agreements:

   • Life-of-Mine Agreements: These agreements last for the entire life of the mine.
   • Shorter-Term Agreements: These agreements have a defined shorter duration.

2. Project Cash Flows:

   • Life-of-Mine Agreements: Estimate the production profile and cash flows for the entire life of the mine.
   • Shorter-Term Agreements: Project cash flows for the duration of the agreement.

3. Discounted Cash Flow (DCF) Model:

   • Revenue Projections: Calculate the revenue from each streaming agreement based on the expected production and the agreed-upon streaming percentage.
   • Cost Assumptions: Include any costs associated with the streaming agreements.
   • Discount Rate: Use an appropriate discount rate (WACC) to discount the projected cash flows to their present value.

4. Terminal Value:

   • For life-of-mine agreements, the terminal value might not be as relevant since the mine will eventually deplete.
   • For shorter-term agreements, consider the potential for renewal or new agreements.

5. Sum of Parts Valuation:

   • Combine the present value of cash flows from all streaming agreements to get the total valuation of the company.

Adapted DCF Model for Streaming Companies:

• Revenue Calculation:
  • ( \text{Revenue} = \text{Production Volume} \times \text{Streaming Percentage} \times \text{Commodity Price} )
• Cash Flow Projection:
  • Project cash flows for each streaming agreement separately.
• Discounting Cash Flows:
  • Use the formula ( \text{PV} = \frac{\text{CF}}{(1 + \text{WACC})^t} ) for each period ( t ).

Considerations:

• Commodity Prices: Be mindful of the volatility in commodity prices and consider using scenarios or sensitivity analysis.
• Mine Life Estimates: Ensure accurate estimates of mine life and production profiles.
• Discount Rate: The discount rate should reflect the risk profile of the streaming agreements and the overall company.

By following these steps, you can create a comprehensive model that accounts for the unique aspects of a mining streaming company. For more detailed guidance, you might want to refer to the resources available on Wall Street Oasis, such as the DCF Modeling Training Guide.

Sources: DCF Modeling Course ~ Pre-training text.pdf, Walk me through a DCF, Valuation of Metals and Mining Companies, Fairies and Leprechauns | The Daily Peel | 8/2/22