The head of Wheaton Precious Metals’ says development of four new projects this year sets the company up well as gold prices continue to skyrocket towards US$4,000 an ounce.
The company operates as a precious metals streaming firm focused on gold and silver projects. It provides upfront cash to mining companies in exchange for the right to purchase a percentage of their future metal production at a fixed below-market rate.
The price of gold hovered around $3,646 per ounce Wednesday, a day after gold mines dominated the TSX 30, an annual list of the top performing stocks on Canada’s benchmark exchange. Mining firms totalled 17 of the 30 companies listed, with 15 of those being gold producers.
“What we’re paid to do by our investors is to look for creative, high-quality, well-structured opportunities to continue reinvesting that capital and continue growing the company,” Randy Smallwood, Wheaton’s CEO, told BNN Bloomberg in a Tuesday afternoon interview.
The Vancouver-based company reported $503 million in revenue, $292 million in net earnings, $286 million in adjusted net earnings and $415 million in operating cash flow, according to its second quarter earnings release. It plans to begin production at Blackwater in British Columbia, Goose in Nunavut, Mineral Park in Arizona and Platreef in South Africa.
Smallwood said a 10 per cent increase in gold prices could lead to a 14 to 15 per cent bump in cash flow. That can make it an attractive option for investors to capitalize on rising gold prices.
“I don’t think we could have timed it any better,” said Smallwood. “Stronger prices here in the second half of the year with combined with new mines coming on, sets us up very well.”
Streaming allows mining companies to raise capital to finance their operations as a partner while allowing Wheaton to receive metals as they are produced. Wheaton then sells the metals at current market prices, generating high cash margins. The business model gives Wheaton exposure to commodity price movements and mine exploration upside with lower operational risk than a traditional mining company.
“Streaming has a production payment on a per ounce basis, and a lot of our new contracts have that production payment as 20 per cent of the spot price, which means that we maintain an 80 per cent margin,” said Smallwood. “We will outperform royalties which don’t have a production payment and bullion. One of the things that makes the streaming royalty space, makes Wheaton attractive, is that we do provide that stronger leverage.”
The mines coming online are a significant part of its growth strategy as it also expects higher production from Antamina in Peru and Aljustrel in Portugal.