How Streamers Offer Profits and Opportunity Over Conventional Miners

Wheaton Precious Metals Corp. (TSX:WPM)(NYSE:WPM) remains a great opportunity for investors seeking a position in precious metals without the risks of traditional miners.

| More on:

Precious metal miners operate under a very risky business model. They acquire land, build the requisite infrastructure necessary to begin mining operations, and then need to staff the mine with miners.

Once the mine has been set up and operations begin, there’s no guarantee that the mine will yield a significant amount of metals to justify that initial cost and production estimates.

Further to this, the volatile pricing of precious metals adds a degree of uncertainty beyond the mining phase. The epic drop in gold prices witnessed in the multi-year slump that started in 2011 taught the entire precious metals sector the importance of both sustainable and efficient operations.

So, how can investors benefit from a mining investment? Consider investing in a streamer such as Wheaton Precious Metals Corp. (TSX:WPM)(NYSE:WPM). Wheaton is the largest gold and silver streaming company in the world.

The streaming model — simplified

Streamers cut much of the risk and uncertainty out of the mining business model, resulting in a simplified and potentially lucrative investment opportunity.

Streamers provide upfront financing that miners use to set up that requisite infrastructure and begin mining operations. In exchange for that upfront investment, streamers are allocated a specific amount of the precious metals extracted from the mine at heavily discounted rates.

That discount can be significant. For gold, the price can be as low as US$400 per ounce, and for silver, the price falls to just US$4.50 per ounce. Once purchased, streamers can then sell those metals to the at the market rate, which currently stands at near US$1,300 per ounce for gold and US$17 per ounce for silver.

Wheaton changed its name earlier this year, striking the former reference to silver, reflecting the shift from a predominately silver streaming company to one with increasing exposure to gold. That shift is becoming more prevalent in production figures with each passing quarter.

In the most recent quarter, Wheaton produced 7.6 million ounces of silver and 93,000 ounces of gold. Wheaton also sold on 5.8 million ounces of silver and 83,000 ounces of gold, which are both in line with the company’s full-year production guidance.

Wheaton is often overlooked as a dividend investment. Wheaton pays a yield of 1.69%, which is not the highest yield, but it’s based off 30% of the average cash generated from operations from the preceding four quarters. That, in turn, translates into the highest yield among streamers.

While production figures and revenue in the most recent were lower than the prior quarter, they are in line with Wheaton’s full-year guidance. Looking ahead to the next quarter, Wheaton continues to pursue advancing several development projects, such as the B.C.-based Kutcho Project.

Is Wheaton a good investment?

Despite weaker results in the most recent quarter, Wheaton remains, in my opinion, a great investment opportunity for investors looking to diversify their portfolios with a precious metals company. While the metals sector remains as volatile as ever, Wheaton produces more metal, generates more cash flow, and has the highest-paying yield across all streamers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned. Wheaton Precious Metals is a recommendation of Stock Advisor Canada.

More on Metals and Mining Stocks

todder holds a gold bar
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell or Hold?

Investing in quality gold mining stocks that trade at a reasonable valuation could help you beat the TSX index over…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Buy?

Let's dive into whether First Quantum Minerals (TSX:FM) is worth buying at current levels, or if investors should sit this…

Read more »

nugget gold
Metals and Mining Stocks

Competitive? Beat the Market With These 2 Dividend-Paying Growth Gems

Investors looking to beat the market buying dividend stocks right now need to focus on this right sectors. Here are…

Read more »

nugget gold
Metals and Mining Stocks

A Canadian Billionaire Investor Sold Micron Stock and Bought This TSX Company Instead

Prem Watsa focuses on value over short-term growth.

Read more »

Concept of multiple streams of income
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for Its 1.2% Dividend Yield?

Gold royalty stocks represent a niche in the precious metals industry. They have different dynamics from mining stocks.

Read more »

todder holds a gold bar
Metals and Mining Stocks

The 1 Mining Stock Canadians Should Buy and Hold Forever

Newmont is a gold mining stock that trades at a cheap valuation, making it a top investment choice for those…

Read more »

Metals and Mining Stocks

Top Canadian Gold Stocks to Buy Now

Canadian gold mining stocks such as Barrick Gold and Kinross Gold are two top investments in October 2024.

Read more »

todder holds a gold bar
Stocks for Beginners

Is the Worst Over for SSR Mining Stock?

SRR Mining stock has been rising higher after recent earnings performance that made a bit of a comeback. So is…

Read more »