When Randy Smallwood, CEO of Wheaton Precious Metals (WPM 2.58%), told Bloomberg Television in October that he was "confident" that gold prices would hit $5,000 per ounce within the next year, his call seemed outlandish. After all, gold had just surged 21% in under two months, and seemed due for a breather. But in the three months since, gold prices have climbed another 15%, and are within striking distance of $5,000 per ounce.
If gold simply maintains its momentum, Smallwood's market call will come true with about six months to spare. Now analysts at JPMorgan, Citigroup, and Bank of America have laid out scenarios where gold hits $6,000, though not necessarily this year.
NYSE: WPM
Key Data Points
Whether gold prices surge, drift higher, or even stay flat from here, it's good news for Wheaton Precious Metals. Its shares have already benefited enormously from the ongoing gold boom, having returned 128% over the last year. That's a solid beat on gold's 68% rise, and the nearly two-to-one beat is no accident. Thanks to some powerful advantages of its business model, this Vancouver-based company with just 44 full-time employees has a long history of outperforming gold.
Dramatic beats on gold and silver
Wheaton Precious Metals is a precious metals streaming company, meaning it provides financing upfront for mining projects in return for the right to buy a fixed amount of the mine's production at a discount to spot price. These discounts can be very steep, which allows Wheaton Precious Metals to amplify its earnings during gold booms.
As an example, take the company's November deal with Hemlo Mining to help the latter acquire a mine just north of Lake Superior. Under the streaming agreement, Wheaton Precious Metals is providing $300 million to Hemlo to develop its mine, in return for the right to buy 10% of its payable gold output, until 135,750 ounces of gold are delivered (the "First Dropdown Threshold").
After that, Wheaton Precious Metals can buy nearly 7% of Hemlo's payable gold output, until another 117,998 ounces of gold are delivered (the "Second Dropdown Threshold"). After that, Wheaton Precious Metals can purchase 4.5% of payable gold for the rest of the mine's production lifetime.
What makes the deal lucrative for Wheaton Precious Metals is its right to buy these tiers of payable gold at just 20% the spot price of gold. That's an 80% discount, and it means that the $300 million provided to finance the mine is recouped in a hurry. With gold at $4,626 per ounce as I write, Wheaton Precious Metals' right to buy up to 135,750 ounces from that First Dropdown Threshold alone would net it $502 million in profit, putting the company $202 million ahead if you factor in the $300 million in financing it provided.
Image source: Getty Images.
And if gold prices rise another 10%? Suddenly Wheaton Precious Metals is netting $553 million on the First Dropdown Threshold, while its initial $300 million in financing of course remains constant. Meanwhile, should the 117,998 ounces from the Second Dropdown Threshold materialize, Wheaton Precious Metals would net another $417.8 million at today's prices.
And this is one deal of many. Last November, the company announced another streaming deal on a project in Nevada that entitles it to buy 300,000 ounces of the mine's first 8% of payable gold, at another 80% discount. All told, the company has a portfolio of 23 operating mines around the world, all in politically stable countries.
These mines have an average proven and probable "mine life" of 27 years, meaning that's how long they are expected to produce. This lends some predictability to Wheaton Precious Metals' business model, and the steep discount it can claim on gold, silver, and other metals produced in mines around the world would allow it to be profitable even if gold prices floundered.
Buy Wheaton for an advantage that precious metal can't provide
The advantages of streaming deals have allowed Wheaton Precious Metals to handily outperform gold and silver over one-year, three-year, five-year, and 10-year intervals. Additionally, the stock provides something no precious metal does: a dividend.
In 2025, Wheaton Precious Metals raised its dividend by 6.5%, and now pays a yield of 0.5%. While not hefty, this growing dividend is yet another reason why Wheaton Precious Metals is an attractive choice for investors seeking to capitalize on this gold boom.
