The gold price may have ticked down in recent days, but analysts are still projecting that it will continue its march upwards this year, potentially rising above the record high of $2,000 (£1,557) per ounce (oz) seen in August. Amid the ongoing gold rush, Canadian company Wheaton Precious Metals (CA:WPM) is planning a secondary listing in London by the end of this year. Looking to join the main exchange, this would accompany its primary listing in Toronto and dual listing in New York.
Wheaton offers London investors a slightly different proposition to a traditional mining company. Rather than digging minerals out of the ground itself and selling them, it operates under a so-called ‘streaming’ model. This entails making an upfront payment to a miner in return for a fixed percentage of whatever is produced, plus an additional payment upon delivery. The price per oz or pound is determined in advance and is often lower than the prevailing price. This arrangement is popular with miners as it offers an alternative method of financing to equity raises or taking on additional debt, and at the same time, it allows Wheaton to capitalise on price arbitrage.
Focusing on gold and silver, Wheaton also has smaller interests in cobalt and palladium. It has 23 long-term purchase agreements with 17 mining companies spread across 30 mines, and its partners include the likes of Vale (US:VALE), Newmont (US:NEM) and Barrick Gold (US:GOLD). Take Vale’s Salobo mine in Brazil, the country’s largest copper deposit. Wheaton has paid $3.1bn upfront for the right to 75 per cent of its gold stream at $300/oz. This is actually below the average $418/oz it paid for gold in the three months to 30 June and compares to a selling price of $1,716/oz.
On the back of a higher realised gold price, the first half of the year saw Wheaton post an operating profit of $212m, versus a $40m loss a year earlier. Thanks to its low fixed costs – it employs less than 40 people – this equated to an operating margin of 42 per cent. The company also generated $329m of operating cash flow, a 45 per cent year-on-year increase.
Canadian mining businesses have been increasingly eyeing up London listings and Wheaton’s move follows Yamana Gold (CA:TRI) announcing a planned return in July. Wheaton would be the first senior precious metals company to float on the LSE – Anglo Pacific (APF) is comparable but focuses on copper, zinc and nickel. With a market cap of C$30bn (£18bn), Wheaton would also offer investors exposure to a sizable global player. It is not seeking to raise any money through its listing; instead it is looking to “enhance the company’s access to the pools of capital available”.
