Central banks are flooding the markets with cash...
To support their economies during the coronavirus pandemic, central banks are printing trillions of dollars to fund stimulus programs. The Federal Reserve alone has pumped more than $3 trillion into the economy... money that didn't exist just a few months ago.
And that's great for precious metals...
You see, as the central banks print more and more money, the value of their currencies goes down. That means it takes more dollars, euros, or yen to buy an ounce of gold – pushing the price higher.
Uncertainty about the pandemic is giving gold another tailwind. People aren't sure when the economy will fully recover. At Stansberry Research, we like to call gold a "chaos hedge" because folks value its stability in turbulent times.
These factors have pushed gold up to a multiyear high around $1,800 per ounce. And today's company is one of our favorite ways to play higher precious metals prices...
Regular readers know we love royalty and streaming companies. Since developing a mine is an expensive process, these companies pay cash up front to help miners fund their projects.
In return, they sit back and collect a royalty (percentage of sales) or a stream (the right to purchase metals at a predetermined cost). Most importantly, they collect revenue based on a mine's production, not profitability.
And when gold prices rise like they have today, these royalties and streams are worth even more.
Wheaton Precious Metals (NYSE: WPM) is one of the top streaming companies out there.
It has gold and silver streaming agreements with 20 mines. And Wheaton has nine more agreements with mines in development. It works with the largest gold miners in the world – Barrick Gold (GOLD) and Newmont (NEM).
In 2019, these streams produced more than 400,000 ounces of gold and 22.5 million ounces of silver for Wheaton. That led to revenue of $861million – up 8.5% from 2018.
Outside of gold and silver, Wheaton also became the first company to secure a streaming agreement for cobalt.
In June 2018, Wheaton paid $390 million to a subsidiary of Brazilian mining giant Vale for 42.4% of the cobalt produced at Voisey's Bay mine in Canada, starting in 2021. Wheaton will receive the cobalt at 18% of the current market price until the company recoups its initial payment.
Since Wheaton doesn't have to pay to operate and maintain mines, it produces incredibly thick margins...
As a streaming company, it gets the right to buy gold and silver at a predetermined, discounted price. This means that, especially when prices rise, Wheaton can turn around and sell the metals at the market rate and make a hefty profit.
Just look at how Wheaton did last year... The company paid an average of $421 for an ounce of gold and $5.02 for an ounce of silver. With the spot rate for gold and silver at more than $1,700 and $15 respectively, Wheaton has a lot of room to profit.
Last year, Wheaton produced an incredible 70% operating margin for gold and 69% for silver.
The company's recent earnings report gave more insights into its strength...
Both earnings and revenue beat Wall Street's consensus estimate. And its streams amounted to more than 180,000 ounces in the quarter. The company reported operating cash flow of $177 million in the quarter, up more than 50% from the same quarter in 2019.
This was driven by record silver production at Newmont's Peñasquito mine in Mexico, which produced 2.7 million ounces of silver attributable to Wheaton. Wheaton has an agreement for 25% of all silver produced at Peñasquito. Also, Wheaton's gold stream for Mexico's San Dimas mine grew 10%... and its silver stream in Peru's Antamina mine grew 11% in the first quarter.
What's more, Wheaton pays the same for gold and silver no matter their spot prices... So its profit surges as precious metals prices rise.
WPM stock has soared during the pandemic. Since the S&P 500 peaked on February 19, shares are up 35%. And since hitting a recent bottom on March 19, WPM has soared more than 80%.
With the coronavirus causing uncertainty about the health of the economy, and central banks printing trillions to support their economies, precious metals have a huge tailwind. As one of the top streaming companies, Wheaton is perfectly positioned to take advantage.
Sometimes investing is simple.
Our colleague Bill Shaw recommended shares of WPM to his Stansberry Gold & Silver Investor subscribers back in October 2018. Readers who followed his advice are sitting on 150% gains. That dwarfs the 6% gain for the S&P 500 over the same period. If you'd like to learn more about a subscription to Stansberry Gold & Silver Investor, click here.