In 1990, Wheaton River Minerals Ltd. operated the Mount Skookum gold mine in Yukon’s Wheaton River. During the 1990s and 2000s, Wheaton River was a successful junior mining company driven by innovation and strong growth. In 2004 Wheaton River was seeking to raise capital for its core gold mining operations. During these efforts, innovative employees advanced the “streaming” model.

Silver is a by-product of the gold and base metal mines and financial markets don’t fully value the silver output of the miners. One of Wheaton River's properties, the San Dimas gold mine in Mexico, produced significant amounts of silver, but the market gave it little value. To unlock the value of the silver mined, a new subsidiary was created to stream the mine’s silver income.

Silver Wheaton, the new subsidiary, purchased the rights to the future silver production from Wheaton River’s Mexico mines. This was the first streaming transaction in the world. Silver Wheaton paid a one-time upfront payment, plus additional payments were made upon delivery of the silver. As Silver Wheaton received the mined silver, it sold it in the market at spot prices.

As Silver Wheaton’s portfolio diversified over the years, by 2017, the company’s revenue was evenly split between silver and gold. This prompted a name change for the company. Silver Wheaton was renamed Wheaton Precious Metals (NYSE: WPM), as it is known today. Today, WPM’s portfolio is diversified across gold, silver, palladium, platinum, and cobalt streams.

How Does Precious Metal Streaming Work?

A lead-zinc mine may produce significant amounts of silver, and a copper mine may produce gold and silver. These by-product metals are generally not the mine operator’s business focus. Also, as discussed earlier these by-products are not fully or properly valued by financial markets. To unlock the maximum value of these by-products the mine operators enter into streaming agreements with companies like WPM.

WPM’s Streaming Workflow

1. Wheaton’s upfront payment purchases a percentage of future metal production from the mine.

2. Mining Partner receives capital, which it can use as non-dilutive financing - as it chooses (e.g. build or expand mines, help fund an acquisition, or repay debt).

3. As minerals are produced, the mine delivers the agreed percentage of precious metals to Wheaton.

4. On receipt, Wheaton pays the predetermined “delivery payment” per unit, generally below the prevailing spot price. Wheaton then sells the precious metals or cobalt at spot prices.

5. WPM uses capital to:

   1. Invest in new accretive acquisitions.

   2. Distribute value back to shareholders through dividends.

   3. Support local and international communities through the Community Investment Program.

WPM’s Operations and Performance

Wheaton prides itself in its due diligence process which includes:

• Technical Analysis

• Financial Economic Analysis

• ESG Analysis

• Legal Analysis

• Country/Political Risk

The tools that Wheaton uses for due diligence, ongoing monitoring, and engagement are:

• Documentation review

• Site visits

• Regular and ongoing communication

• Engage outside experts and consultants as required

Flow of Production and Sales

WPM doesn’t believe in holding on to inventory and playing the price-guessing game of precious metals. The Days Inventory Outstanding is 9.5 days, in the worst case, WPM has to hold on to some concentrates for three months to have enough volume to sell.

Leverage and Financial Performance

WPM generates streaming income from the following:

• Gold

• Silver

• Palladium

• Cobalt

WPM started with streaming income from silver. Over the years, gold has become the largest contributor to WPM’s revenues. Palladium (2018) and cobalt (2021) are relatively new businesses and form a small part of WPM’s overall revenue.

WPM also benefits from a diversified portfolio of mines it collaborates with. WPM has collaboration agreements with 18 operating mines and 27 development projects. This diversified portfolio spreads out the risks generally associated with mine operators. WPM’s mining partners include Vale, Barrick, Silvercorp, and Newmont.

Operating Leverage

The beauty of WPM’s business model is that it doesn’t pile debt on its mining partner’s books, and the financing is also nondilutive, as would be the case with equity financing. As it unlocks value for the miners whose core business may not be precious metals, it enjoys huge leverage on future production of precious metals and cobalt.

Gold

Silver

Palladium

Cobalt

Financial Statements Highlights

From 2015 to 2019 WPM faced operational issues due to a higher debt load, SG&A costs, flat precious metals prices, and issues with impairment of certain assets. By 2021, WPM was able to become debt-free and brought its operational costs under control. Now WPM has started seeing the benefits as gold prices have moved higher.

Other important observations:

• The balance sheet is pristine with assets of $7,386.2 million and liabilities of $126.2 million. No, that is not a typo.

• WPM has $694 million in cash and cash equivalents and zero debt. It also has a $2 billion revolving facility available. Essentially, WPM has enough firepower to grow its mine portfolio.

Valuing WPM

A key characteristic of a commodity company is that it is dependent on the price of the commodity. Unlike companies in other businesses, commodity companies are price takers. Some common factors contribute to commodities' inherent cyclicality.

• The economic/commodity price cycle.

• Volatile earnings and cashflows.

• Volatile equity values are driven by volatile earnings.

• Companies that seem pristine and healthy during good times can end up facing major issues in prolonged downturns.

These characteristics make valuing commodity businesses challenging. Some factors that can lay to waste any valuation exercise for commodity companies are:

• Base Year Fixation: While valuing other businesses putting greater emphasis on most recent financial statements is a norm, it is folly to do so with commodity companies. In good times one may end up overestimating the growth potential and eventual earnings, and in bad times one may end up underestimating the company’s potential and hence, its valuation.

• The Macro Trap: Views on the current macro environment may differ from one person to the other. This leads to differences in valuation estimates caused by differing assumptions of discount rates, future commodity prices, cost of capital, and growth rates. The biggest challenge is to determine the length of the cycle and where one is in the cycle now.

The best way to mitigate errors in assumptions is to use normalized values. It is best to take it to an extreme and use data as far back as possible. While it does solve for overestimating/underestimating, it doesn’t solve for tectonic shifts in the macroeconomic landscape. There are two ways to normalize earnings and cashflows:

1. Using simple averages. This is a simple way to normalize absolute values. However, the pitfall is if one were to use the incorrect length of a commodity cycle. Even then, this method is most commonly used.

2. Using relative average over time. The scaling issue encountered when using #1 is to use the scaled version of the variable over time. Simplistically, we average profit margins over time rather than the absolute net profit and apply the scaled average profit margin to revenues in the most recent period.

To throw another challenge into the mix: what if the company is expected to show growth over the next few years and then growth plateaus out? This generally happens with smaller commodity companies or when the economy is rebounding from a recession. The way to resolve this is to use an adaptive growth model wherein we estimate cashflows for the expected growth period and put it in a steady state for the period after that.

WPM Valuation Assumptions

Irrespective of all the hoopla around DOGE, I firmly believe that federal debt will go parabolic over the next four years. Uncertainty around tariffs, or tit-for-tat tariffs will cause economic turmoil and reduce private capital expenditure. Inflation, specifically food inflation, will become a major issue due to the sudden loss of farm labor. I would request you to read the impact of the following:

• The Smoot-Hawley Traffic Act of 1930.

• The 1964 elimination of the Bracero Program and the 1965 A-TEAM program.

Given this backdrop, I expect gold to perform well over the next four years. Despite that, for intrinsic valuation, I will use $3,000 per ounce as the average price.

Other assumptions:

• The rigorous exercise would be to arrive at an intrinsic value for each of the metals WPM sells. However, WPM makes life easy for us by providing an internal metric called Gold Equivalent Ounces (GEOs). WPM normalizes the output from each metal category into what would be their gold equivalent. This makes the revenue calculation easy as one only needs to multiply the projected GEOs with the estimated average gold price.

• WPM has guided for a 40% growth by 2028 or 800,000 GEOs with growth plateauing after that. With 27 developmental mines in its portfolio, this guidance appears reasonable.

• Cost of Capital 8.83 (US average). Even if the long end goes out of hand, WPM’s zero debt and low CAPEX requirements will keep its cost of capital in check.

• ROIC: 12.5%. I assigned a higher ROIC due to my bullish stance on gold prices and WPM’s inherent operational leverage.

• Operating Margin: 55%.

• Risk-Free Rate: 4.60%.

• Steady state growth after 2028: 2%.

• Effective Tax Rate: 21%.

Intrinsic Value

I will not bore you with the math. Based on these assumptions, the intrinsic value of WPM is 69.53 per share. WPM is currently trading at 63.15, making it slightly undervalued.

For reference, I calculated WPM’s intrinsic value per share for a range of gold prices. Since we are dealing with my assumptions here, I wanted to provide as much information as possible to keep the discussion honest.

DeepSeek and Nvidia

What I am about to narrate may read like a crime novella but it is, for certain, not fiction. Many on X will vouch for everything I present.

Biden administration imposed the first export restrictions on Nvidia GPUs in October 2022. A second round of export restrictions was imposed in October 2023. Interestingly, Singapore, which accounted for zero percent of Nvidia’s revenues pre-October-2022, witnessed a sudden jump in Nvidia shipments.

A small number of people started raising alarm about these shipments to Singapore. They wondered why Singapore needed so many GPUs. Eventually, an analyst gathered the courage to ask Nvidia what was up with the Singapore business. Nvidia responded that Singapore was just a billing location. Guess what? That put the guys on X in override, they smelt blood in early 2024. The question was: If Singapore is a billing location, where are the GPUs going?

As this was playing out, I kept my mouth shut. Yes, I could guess what was going on, where the GPUs were going but I didn’t have evidence. Also, from experience, I know shenanigans can go on for a long time. For instance, MBA students at Cornell flagged Enron as a fraud in 1998, the markets ignored them and laughed at them. It was not until the end of 2001 that Enron went bust.

However, I knew there were going to be triggers that would bring down Nvidia. By the middle of 2024, I was looking for the following:

• Open source alternative of CUDA.

• Cheaper competitors.

• Improvements in training and inference algorithms reducing compute requirements.

In June 2024 I wrote about UXL Foundation here. I professed that UXL’s open-source CUDA alternative would finally be able to break Nvidia’s stranglehold on its customers. My view was by the end of 2025 UXL and Intel would give Nvidia the run for its money. I issued a “Market Underperform” rating on Nvidia.

I set a very high threshold before calling anybody a fraud. It is a very serious allegation. As I had no evidence of any fraud being committed by Nvidia, I chose to bid my time. The whole SMCI saga - after the world figured out what I had warned about in May - kept me entertained. The breakthrough finally came at the peak of the SMCI drama in November after E&Y resigned.

I got messages on X alleging the following:

• There are warehouses in China and HK full of Nvidia H100s and SMCI racks.

• There is a glut in China and H100s are going for pennies to the dollar.

• All major companies and even the government have access to the latest Nvidia chips.

• The clusters rival the size of anything available in the US.

• For large orders, engineers in Taiwan are ready to fly in a few hours’ notice - 24/7 - to provide onsite support.

• The Nvidia GPUs and SMCI racks would be available on eBay, made-in-china[dot]com, and Facebook MarketPlace in the later part of November.

I was skeptical at first. So, I waited for the listings to hit eBay and other sites. As they said, it was all there - videos of warehouses full of Nvidia and SMCI stuff. Available at pennies to the dollar and ready to be shipped from Shenzen and Guangdong. To verify that this was not a psyop, one of us pretended to be a buyer from upstate NY and contacted one of the vendors in China. Here is the recording of the text message conversation.

I finally had the proof of sanctions violations by Nvidia. I made some noise about it on X. Nothing much came out of it. But I knew it was only a matter of time. Biden administration issued a press release that Nvidia has been asked to look into the matter and everything went radio silent after that.

I was like: whatever, they are all in it. If a few guys on X sitting in their basements can figure this out, how come law enforcement doesn’t know about it?

I have to admit, I didn’t expect something like DeepSeek coming out of China. Be that as it may, here we are. As DeepSeek’s capabilities and innovation became mainstream, the discussion was mostly technical in nature, and there was general skepticism about the cost of building it. Leading voices chimed in and pontificated that DeepSeek did indeed use sanctioned Nvidia chips. I was rolling on the floor laughing.

People still didn’t connect the dots and the implications of what just happened. As the stock was crashing on Monday, Nvidia bulls came out in full force claiming that DeepSeek using the latest Nvidia GPUs is bullish. I tried to explain again.

Finally, Nvidia issued a press release about the DeepSeek matter, and guess what?

The technical debate around DeepSeek rages on but as I highlighted there are bigger issues at hand here. OFAC (Office of Foreign Assets Control) of the Treasury Department has jurisdiction over the enforcement of sanctions. Late yesterday, headlines hit the wire that the White House and FBI are investigating whether Nvidia chips were illegally shipped to China via Singapore.

What a start to 2025. It has been meme-orable, to say the least. The jokes keep writing themselves. Consider this headline:

Well, how could I not have some fun with this one? Had to throw some peanuts from the vaunted peanut gallery.