“News that Canada’s Wheaton Precious Metals is looking to list in London gives fans of gold and silver another investment option to consider, especially as the firm is not a miner. Instead, it specialises in royalty streams from mines, as it acquires the right to buy metal from producers in the future in return for cash payments upfront and on delivery,” says Russ Mould, AJ Bell investment director.
“However, investors must do their research before they consider whether to put capital at risk, just as they would for any other security.
The case for investing in Wheaton Precious Metals
• Potential buyers have to believe that gold and silver will continue to rise. Silver is up by 505 over the past 12 months and gold by 30%. Some fans of precious metals see them as a protection against inflation, some as a protection against deflation but more recent converts may be warming to gold and silver in light of rampant central bank money creation through Quantitative Easing schemes and governments’ increasingly rapid accumulation of budget deficits through what some may choose to argue are ‘magic money tree’ schemes. Fears of a second wave of COVID-19 and yet more money creation from central banks and governments in response, as they seek to provide support to consumers and companies alike, could stoke further interest in gold and silver, or so the theory goes.
Source: Refinitiv data
• For those who believe gold and silver prices will continue to rise, the £17.7 billion cap company offers a broader exposure to the metals than a single mine or individual mining stock. This lessens some of the classic stock-specific risks associated with precious metal miners, including local geology, mine operations and cost management, local geopolitics and resource nationalism and even the weather. Wheaton Precious Metals has partnership deals with eight gold mines and 15 silver mines, plus three more early deposit sites, as well as cobalt and palladium. In the first half of 2020, the partnerships produced 183,630 ounces of gold and 10,354 ounces of silver, while Wheaton actually sold 193,209 ounces of gold and 9,657 of silver, generating revenues of $503 million and a net profit of $200 million, more than double the sum made in the first half of 2020. The company also declared dividends of $0.10 a share in each of the first and second quarters in 2020 and is currently on target to at least match last year’s $160 million, $0.37-a-share distribution.
Source: Refinitiv data
• Bulls will therefore argue that the Wheaton model offers leverage into rising prices (since gold and silver are received at a pre-determined price per ounce, in line with the terms of the original streaming deal, and a contractually defined production cost per ounce also helps shield streaming firms from inflationary cost pressures at mining sites). In sterling terms, gold is up 26% and silver by 45% in the past 12 months and Wheaton’s share price is up by 80%.
Source: Refinitiv data
The case against investing in Wheaton Precious Metals
Sceptics will offer the 180 degree argument to counter all three bull cases.
• Not everyone loves gold or silver. Although silver has industrial uses, notably in the medical and solar power industries, gold’s uses are limited to certain stages of silicon chip manufacturing, barring jewellery, and the metal is in essence inert – it generates no cash, offers no yield and owning it potentially comes with storage and insurance costs. Moreover, a vaccine for COVID-19, a strong economic rebound and any signs of a ‘normalisation’ of monetary policy could cap demand for perceived haven assets such as precious metals.
• Even though Wheaton Precious Metals’ share price has soared from C$0.63 to C$67.53 since its debut in Canada in March 1995, history suggests that that it struggles to perform when gold and silver prices are falling. Anyone who thinks this may happen again may well fight shy of the shares.
Source: Refinitiv data
• Wheaton Precious Metals’ history also shows that its dividend ebbs and flows to some degree according to fluctuations in silver and gold prices. The annual payment fell in 2013, 2014 and 2015 as precious metals prices slid lower. In addition, yield-seekers may not be impressed by last year’s annual dividend payment of $160 million on a market cap of $23 billon as that equates to a historic dividend yield of just 0.7%.
