BHP share price breaks records on US$4.3b silver agreement

The mining giant announced more than just its results today.

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The BHP Group Ltd (ASX: BHP) share price has been getting a lot of attention today.

The mining giant's shares surged after delivering a stronger-than-expected half-year result.

But that isn't the only thing that the company announced today.

A close-up of a handshake depicting a business deal with one of the people in the background of the shot alongside a colleague looking pleased at the deal.

Image source: Getty Images

What else did BHP announce?

This morning, BHP announced that it has entered into a long-term streaming agreement with Wheaton Precious Metals Corp. (NYSE: WPM).

A stream is a long-term contract under which the purchaser, in exchange for an upfront payment, acquires the right to receive a percentage of future precious metal production, calculated by reference to underlying production from a mine subject to the agreement.

BHP notes that ongoing payments to the seller are typically structured either as a fixed price per ounce or as a fixed percentage of the prevailing spot price at the time of delivery.

What is this agreement?

According to the release, under the agreement, BHP will receive an upfront payment of US$4.3 billion at completion.

In exchange, the Big Australian will deliver silver to Wheaton calculated by reference to its share of silver produced at the Antamina mine in Peru.

Management highlights that the agreement represents the most valuable streaming transaction to date based on the upfront consideration received.

It also points out that, supported by strong silver market conditions, the agreement maximises shareholder value by unlocking capital from a non-core commodity that can be reallocated to BHP's high-return growth projects and shareholder returns. This is consistent with its capital allocation framework.

The transaction is not expected to increase BHP's reported debt levels, and will allow BHP to realise the value of silver as a by-product at Antamina and retain full exposure to all copper, zinc, and lead production from its share of this large-scale, long-life asset.

Commenting on the deal, BHP's CEO, Mike Henry, said:

We are pleased to partner with Wheaton – a global leader in precious metals streaming. BHP's investment in Antamina has delivered value to investors through strong copper production performance, and this agreement further unlocks additional value from the asset in an innovative and disciplined way.

The company's CFO, Vandita Pant, added:

Today's announcement is a further example of our active capital management in action, and focus on strategically unlocking value from our portfolio. The Upfront Consideration compares favourably with the consensus estimates of our entire share of Antamina. Together with the recent transaction with Global Infrastructure Group and subject to closing of both transactions, we expect to unlock over $6 billion of cash to strengthen our balance sheet flexibility, support long-term value creation and enhance BHP's shareholder value.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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