Canada’s Wheaton Precious Metals plans London listing

Canada’s Wheaton Precious Metals, one of the world’s largest companies involved in buying gold and silver, is planning to list on the London Stock Exchange as it looks to tap pent-up demand for precious metals from investors.

The Vancouver-based group, which has a market capitalisation of about $23bn, is listed in Toronto and New York, where its shares have risen more than 70 per cent this year.

Wheaton specialises in royalty and streaming transactions — acquiring long-term rights to buy metal from mines in return for an upfront payment — which have become big business in recent years.

“There is a bit of a void on the mining side in London and we think the streaming business model is a much better way of investing in precious metals,” Randy Smallwood, chief executive of Wheaton, told the Financial Times.

With low overheads and costs — Wheaton has just 40 employees — streaming companies are some of the most profitable in the natural resources sector. Other companies active in the space include Franco-Nevada, Royal Gold and Triple Flag. 

Wheaton is not seeking to raise any money in conjunction with its listing, and because it will apply for a standard rather than a premium listing it will not be eligible for inclusion in the prestigious indices run by FTSE.

However, joining the LSE will put it on the radar of UK investors who are looking for ways to tap into soaring precious metal prices. Gold has risen 28 per cent this year and hit a record high above $2,000 an ounce in August, while silver is up 50 per cent to $27 an ounce. 

Apart from Russia-focused Polymetal, London has lacked a choice of large gold mining stocks since the acquisition of Africa-focused gold miner Randgold by Canada’s Barrick Gold last year.

Several Canadian-listed gold miners have announced plans to list in London, including Yamana Gold. But Wheaton offers investors a different way to get exposure to gold and silver.

Mr Smallwood said the advantage over investing in a mining company was that Wheaton’s costs were fixed in its contracts to purchase metals. “If you look at every mining investment that has failed, it’s because costs came in higher than expected,” he said. “The huge advantage is our capital cost is fixed.” 

Wheaton at present pays out 30 per cent of its cash flow in dividends, but this could rise to between 40 and 50 per cent with higher commodity prices, according to Mr Smallwood, who was recently named chairman of the World Gold Council. 

It has 23 purchase agreements with 17 mining companies to buy precious metals and cobalt. Its streams include a deal for 42 per cent of the cobalt from Vale’s Voisey’s Bay nickel mine in Canada, starting in 2021. 

Many big streaming and royalty deals were announced during the commodity prices crash of 2014 to 2016 as cash-strapped miners rushed to bolster their balance sheets and reduce debt.  

While the mining industry is in much better financial shape today, bankers still expect a steady flow of royalty and streaming deals in part because of the relative values of gold and copper, which are often produced alongside each other, providing an opportunity to tap into a fresh form of financing.

Mr Smallwood said that while higher commodity prices could make it more difficult to strike streaming deals, the market had not yet reached the stage of being “frothy”.

“I still feel there’s considerable upside in gold, silver and all precious metals prices,” he said.