2019 BC CEO Awards: Randy Smallwood

President and CEO of Wheaton Precious Metals Corp. was instrumental in the creation of a disruptive new mine financing model

Randy Smallwood, president and CEO of Wheaton Precious Metals Corp.: “that $4.5 billion has come from cash flows. It’s allowed us to grow our company without significantly diluting our shareholders” | Submitted

Randy Smallwood is in a business that has a sizable carbon footprint – financing mines. He also travels a lot, which also produces a lot of emissions.

But when he’s home, his own personal footprint has been getting smaller and smaller. He now walks to work every day, and when he does drive, he drives an electric vehicle.

A family man with five children and six grandchildren, Smallwood raised his children in Tsawwassen. But a few years ago, after his kids began leaving home, he sold his home in Tsawwassen and bought a 124-year-old heritage house in downtown Vancouver – the Rand Family home, built in 1895. It’s just a short walk from the head office of Wheaton Precious Metals Corp. (TSX, NYSE:WPM).

“I liked the concept of walking to work,” said the 55-year-old CEO. “Once the kids were out of the house, I decided to get the commute out of the picture. The only time my vehicle moves is on weekends now.”

When he does drive, he produces no CO2.

“I’ve owned a Tesla since 2013,” he said. “I bought one of the first ones in Canada, and I have no doubt that’s the way of the future.”

That may explain why his company has recently added cobalt to the portfolio of metals it buys through streaming agreements with mining companies.

Cobalt is a critical element for electric vehicle batteries. But much of the world’s cobalt comes from the Democratic Republic of Congo, where there are serious environmental and human rights concerns associated with cobalt mining.

Through its streaming agreements, Wheaton Precious Metals will source its cobalt from jurisdictions, like Canada, that have higher environmental and social standards.

“Cobalt is very similar to silver in the sense that so much of it is produced as a byproduct from nickel mines and copper,” Smallwood said.

The Voisey’s Bay mine in Labrador, for example, produces cobalt as a byproduct of nickel mining, so Wheaton Precious Metals has entered a streaming agreement with the mine’s owner, Vale SA, to help finance a mine expansion in exchange for cobalt.

With a market cap of more than $16 billion, Wheaton Precious Metals consistently ranks in the top 10 on Business in Vancouver’s annual Biggest Mining Companies list, even though it’s not technically a mining company because it doesn’t own any mines. It does, however, own a lot of silver and gold, and the company’s Vancouver team of geologists and engineers has extensive mining expertise.

It’s fair to say that Wheaton Precious Metals revolutionized the way mines are financed, and Smallwood has been a critical player. It was the first company to develop the streaming finance model, in which the company puts up the capital needed for new mines or mine expansions in exchange for a share of the future production of byproduct metals – primarily silver, gold and palladium.

While credit goes to Ian Telfer for coming up with the idea, Smallwood was a key original member of the company. He was with it from the beginning, when it was spun out of Goldcorp (TSX:G) not long after it was merged with Telfer’s company, Wheaton River Minerals.

Born in Alberta and raised in B.C., Smallwood earned a geological engineering degree from the University of British Columbia and a mine engineering diploma from the British Columbia Institute of Technology (BCIT), and is a recipient of BCIT’s Distinguished Alumni Award.

He started out with Homestake Mining on its Golden Bear mine, which was acquired by Wheaton River in 1993. He was the mine’s project manager when Ian Telfer joined Wheaton River in 2001 as the new CEO. Wheaton River later merged with Goldcorp, which spun out Silver Wheaton in 2004.

Smallwood continued to work for both companies, until resigning from Goldcorp in 2007 to work exclusively with Silver Wheaton, which later would change its name to Wheaton Precious Metals, after it diversified from a pure-play silver streaming company into other metals, including gold, and palladium.

Historically, mining companies would raise capital to finance mines through equity or debt or a combination of both. They might also enter royalty agreements.

The model Silver Wheaton came up with was to raise capital the traditional way – equity and debt – and then provide other mining companies with a third alternative: streaming agreements.

They would put up the capital for a new mine or expansion in exchange for a share of future silver or gold production. Silver Wheaton was developed, in part, to help Goldcorp finance one of its own gold mines in Mexico, but the model took on a life of its own when the company realized what an innovative financing model it had stumbled on.

“I don’t think even we realized the strength of the business model,” Smallwood said.

In most cases, the silver produced by mining companies is a byproduct of copper, gold or lead-zinc mining.

“We noticed that 75% of silver is produced as a byproduct,” Smallwood said. “If you look at worldwide silver production, most silver actually comes from lead-zinc mines. Only about 25% comes from silver mines.”

Copper and gold miners were more than happy to give up their small amounts of silver or gold in exchange for finance capital.

“If you’re a copper company, your investors are supporting you because they want exposure to copper,” Smallwood explained. “They’re not really interested in the gold that you produce as a non-core byproduct. It’s usually a very small portion of the overall revenue.”

Mining companies like the streaming model because it’s a way of optimizing non-core assets.

“If I need capital and I look at my non-core assets and say, ‘If I sell those non-core assets and raise capital, then I can use that capital into my core franchise,’” Smallwood said, “streaming is a way to do that within a mine.’”

Since it was formed in 2004, the company has invested billions in 19 operating mines worldwide and nine development projects. In the last six years, the company has invested more than $6 billion but has had to raise only $1.5 billion in equity fundraising, and has less than $1 billion in debt.

“That $4.5 billion has come from cash flows,” Smallwood said. “It’s allowed us to grow our company without significantly diluting our shareholders.” •

 

Q&A
What sort of leadership style does a CEO have to cultivate in the 21st century?

To me, lateral structure, versus a vertical structure, is so important today – giving your team a sense of responsibility.

What accomplishments are you most proud of?
Building the streaming industry into what it has become. It’s a business concept that I was part of a team that came up with, and it’s been widely accepted.

What is the biggest challenge you have faced?
The biggest challenge I faced was defending our model against the CRA [Canada Revenue Agency], and successfully defending our model against the CRA.

What career decisions would you make differently were you starting out today?
If I have regret, it’s a regret that we didn’t jump into the business model in a more aggressive manner back in 2004, 2005.

What is the one business lesson you’d like to pass on to others?
I learned a lot of business quality from growing up in a family business and the importance of treating people with respect. One phrase that always got hammered home to me is “Treat everyone the way you want to be treated.”

 

Join us to celebrate this year’s honourees at the 2019 BC CEO Awards November 13, 2019, hosted at the Fairmont Waterfront Hotel. For tickets and event info, visit www.biv.com/ceo.