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Analyst: Tax Settlement of One Canadian Streamer Benefits Other Streamers Too

Streetwise Reports
0 Comments|December 18, 2018

A Canaccord Genuity report discussed the agreement implications specifically and broadly.


In a Dec. 14 research note, analyst Carey MacRury reported that Canaccord Genuity increased its target price on Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) to CA$41 per share from CA$38.50 (current share price is about CA$25.54). This change was made to reflect the company's just-announced tax settlement, which MacRury described as "a significant win" for the miner-streamer.

The outcome of the agreement, simply put, is that offshore streams are not taxable in Canada, MacRury noted. For Wheaton specifically, the settlement "removes a meaningful overhang on its shares that dates back to 2012," the analyst indicated. Also, it "alleviates additional pressure on the company balance sheet were it to owe back taxes and penalties."

MacRury presented the key points of Wheaton's agreement with the Canada Revenue Agency (CRA). Wheaton must now include the Canadian income capital raising costs it incurs to finance offshore transactions. It must increase the service fee it charges its international subsidiaries, which has been and remains taxable in Canada, to 30% from 20%, and do so retroactively as well. The CRA will reverse all transfer pricing penalties and adjust interest per the settlement terms. The impact of these conditions on Wheaton will be "minor," the analyst wrote.

Wheaton's tax agreement sets a precedent for, and benefits other, Canada-based streaming companies, MacRury highlighted. Primarily, they will not have to make adjustments to pay taxes to Canada on foreign income. "As a result, we believe the offshore streaming model will retain its competitiveness as a source of project funding versus traditional equity or debt funding," MacRury commented.

Canaccord Genuity reiterated its Buy recommendation on Wheaton.


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