Adrian Day reviews recent results at some of his favorite gold and silver royalty and streaming companies and asserts that they represent, as a group, the lowest risk way to gain exposure to the sector.
Silver Wheaton Corp. (SLW:NYSE; SLW:TSX US$18.69) is a streaming company with approximately 55% of its revenues from silver, 45% from gold. The stock has been extremely weak since it reported good quarterly results. Depreciation hurt the bottom line, but quarterly “production” rose 17%, up over 50% from a year ago. Most mines on which it holds streams performed well.
“Silver Wheaton Corp. is my favorite way to gain exposure to silver.”
The problem is looking ahead. Production is essentially flat through 2020 after years of steady growth, though there is optionality on several nonproducing projects. The balance sheet, while reasonable, is a bit of a constraint on a major acquisition, with just $126 million in cash, and $1.35 billion drawn down on its line of credit. It could utilize the unused credit line for an acquisition, but a smaller transaction is more likely than a major producing one. The Canadian tax issue also hangs over the company.
Nonetheless, we like Silver Wheaton, and it is my favorite way to gain exposure to silver. The tax issue is priced into the stock for the most part, while there is good optionality on any gold or silver price increase. The stock is now undervalued relative to other major royalties and streamers (though part of that is justified given the differences in balance sheets). Silver Wheaton is a solid buy, under US$19.
Osisko pursues a different path
Osisko Gold Royalties Ltd. (OR:TSX US$9.99) is also undervalued relative to other royalty companies. All of its producing royalty mines are performing well. It has a very …read more