The Stillwater Mine in Montana, source of a gold/palladium stream that Wheaton acquired from operator Sibanye-Stillwater in 2018
If you’re worried about inflation, royalty streaming companies are a relatively safe option
The stock: When inflation looms and the markets look shaky, as they do now, many investors turn to gold as a hedge. Traditionally, there were two ways of investing in the metal. You could buy bullion, which then presents a problem of storage (largely solved these days by exchange-traded funds) and produces no income. Or you could buy gold producers, which have the drawback of being more closely correlated to stock markets and still mostly produce no income.
Today there’s a third option: the royalty streaming company. This is a kind of sector-specific financier that extends capital to mining companies to build or expand their mines in return for a share, or “stream,” of the project’s output. Streaming companies give the investor exposure to gold prices, only with a dividend, too. Vancouver-based Wheaton Precious Metals (TSX, NYSE:WPM) is one of the largest around.
The drivers: Both gold itself and gold miners have had a lousy 2021 so far, coming down from gold’s all-time high of US$2,074.88 an ounce in August 2020, and Wheaton is likewise trading near its 52-week low ($48.42 on Tuesday).
However, as a large-cap company with its execution risk spread over 23 operating mines and eight development properties around the world, WPM doesn’t experience the volatility of either bullion or mine operators. It also recently raised its dividend for the fourth consecutive quarter, giving it a yield of 1.6 percent—more than you can get from a government bond. And this is meant to be a portfolio outlier, right? Something that’ll zig when the rest of your stocks zag.
Operationally, Wheaton is on pace for record production of 720,000 to 780,000 gold-equivalent ounces this year. In addition to gold, the company sells silver, palladium and cobalt byproducts of the mines it invests in.
Word on the street: “Wheaton has high-quality assets and management, in our view, and should continue trading at a premium to smaller peers,” wrote KeyBanc analyst Adam Josephson upon initiating coverage of the company last week. He rates the stock “overweight” with a US$47 target.
Coming and going: Vancouver-based Copperleaf Technologies is preparing an initial public offering on the Toronto Stock Exchange under the ticker symbol CPLF. The infrastructure analytics developer aims to raise at least $125 million. CEO Judi Hess was recently named one of the EY Entrepreneur Of The Year award winners for the Pacific Region.