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

Metals
Metals and Mining Stocks

3 Unstoppable Metal Stocks to Buy Right Now for Less Than $1,000

Gold prices are expected to keep rising or stabilize in the next few months, and the precious metal stocks rising…

Read more »

Tractor spraying a field of wheat
Metals and Mining Stocks

Where Will Nutrien Stock Be in 1 Year?

Nutrien stock has had a rough few years, and this next year may not be easy. But long-term investors may…

Read more »

nugget gold
Metals and Mining Stocks

Gold Stocks vs Silver Stocks: Which Have the Shinier Outlook?

Gold and silver are on a roll in 2024.

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is Kinross Gold Stock a Good Buy?

Kinross (TSX:K) stock has certainly been showing strength lately, but is it enough to bring investors on board?

Read more »

nugget gold
Metals and Mining Stocks

China Hits Gold: What Mining Investors Need to Know

China Gold International Resources (TSX:CGG) stock and other great gold plays look enticing as the recent China find looks to…

Read more »

nugget gold
Metals and Mining Stocks

Bullish on Precious Metals? These Are Promising Gold Investments

Consider Agnico Eagle Mines (TSX:AEM) and another top mining stock to play the run in gold into 2025.

Read more »

Paper Canadian currency of various denominations
Metals and Mining Stocks

This Billionaire Is Selling Micron and Picking up This TSX Stock

Prem Watsa may have sold some Micron, but he's putting the funds towards something with even more growth potential.

Read more »

nugget gold
Metals and Mining Stocks

Must-Watch Gold Stocks Before Year-End

Gold prices have been going up for the better part of the year, and it is highly probable that this…

Read more »