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We Brits are well known for our obsession with home ownership. Perhaps rightly so. Property prices have almost doubled in 20 years, offering emotional and financial security. But the price of gold has proved a clear example of this, having risen 525 per cent since 2004.
Gold, which is trading at a record high of $2,506 (£1,904) an ounce, is on a tear and there are reasons to believe the price will hold firm. Central banks are buying gold, emerging market consumers are excited and US interest rates are falling, all of which is stimulating investor appetite for gold.
Gold mining stocks are starting to respond to this environment, but have moved much more slowly than the metal itself, representing a real opportunity for the discerning investor.
Wheaton Precious Metals
Wheaton Precious Metals is a blue-blooded company in the sector. Based in Vancouver, Canada, the company lends money to mining companies to fund their exploration and development activities. In return, CEO Randy Smallwood gets access to discounted gold and silver as the companies begin production.
The strategy has yielded consistent results. Founded as a single company in 2004, Wheaton’s portfolio now includes 18 operating mines and another 27 under development.
Worth their weight: Mining stocks could add some shine to your portfolio as U.S. interest rates fall and banks snap up the precious metal.
The group’s shares have increased more than 20-fold in value since it floated on the stock exchange in 2004 and Wheaton is now valued at more than £21bn. With just 42 employees, each member of staff is responsible for an average value of £500m.
Wheaton doesn’t just lend money. Instead, Smallwood and his team are involved in mining projects from the beginning, are seen as partners rather than lenders, and are valued as much for their technical expertise and support as for their money.
The projects range in size and scale, from a small development site in County Tyrone, Northern Ireland, to multi-million-dollar operations scattered across Latin America. In each case, however, Wheaton is able to purchase gold from its partners at extremely advantageous rates, typically around 20 percent of the going price.
As highlighted in the half-year results, Smallwood is buying gold at an average price of $436 an ounce and selling it for almost $2,000 more.
As a result, Wheaton’s cash reserve is soaring and the group recently said it was moving to a progressive dividend policy, which should mean generous payouts to shareholders.
Brokers are forecasting earnings of nearly $700 million this year and a dividend of 62 cents (47 pence). Smallwood expects to increase production from 550,000 ounces to 800,000 ounces by 2028, rising further over the next five years. That suggests earnings will continue to be strong, particularly given the low-cost deals Wheaton is signing with its mining partners.
MIDAS VERDICT: At £47.95 a piece, Wheaton shares aren’t cheap, but with a very broad portfolio, expert management and a top-notch track record, the company offers exposure to precious metals, with an added dividend thrown in for good measure. That gives the stock real appeal, especially for gold bulls.
Listed in: Main market Heart: words per minute Contact: wheatonpm.com or 001 604 639 9884
Goldstone Resources
Ghana is one of the most gold-friendly countries in Africa, with a rich history in mining and an understanding of the rewards that miners can bring.
Goldstone Resources is based in Ghana, in an area famous for its gold. However, Goldstone has had its share of tough times, suffered a number of setbacks and had to fight for survival more than once.
Shares have fallen from 14p in 2021 to just over a penny today as chief executive Emma Priestley has guided the group through funding crises, Covid-19, poor engineering and a last-minute takeover bid thwarted after months of preparation.
Such a flurry of bad luck might have set a mere mortal back, but Priestley has kept his cool, negotiated with investors and creditors and kept workers on board and motivated. Now, the future looks bright and the stock should respond.
Goldstone has one mine, Homase, in operation, producing 300 ounces of gold a month. Priestley is confident that he will be able to triple that output to 1,000 ounces by spring by increasing worker shifts and ensuring the ore is processed efficiently. Expanding production at a time when gold prices are high will allow Priestley to put Goldstone on a stable financial footing so that it can increase production at Homase while developing a second deposit a few miles away.
MIDAS VERDICT: Priestley’s ambitions for Goldstone are far-reaching, but with decades of experience in mining and in Africa, he has shown he can overcome even the toughest obstacles. The shares are not for widows and orphans, but at 1.3p they could prove an interesting investment.
Listed in: Aim Heart: GRL Contact: goldstoneresources.com or 020 7236 1177
Gold Serabi
Brazil’s Serabi Gold has also had to battle through adversity of late. Rescued by mining expert Mike Hodgson in 2013, the company was making steady progress before a combination of Covid and supply constraints took its toll. Production fell, investors panicked, and by the time Midas announced the shares would be out in 2022, they had fallen from £1.05 to 39p.
Today, the stock is at 69p and should continue to gain ground.
Serabi has two mines in northern Brazil, which are expected to produce around 39,000 ounces of gold this year, rising to nearly 60,000 ounces by 2026.
Serabi has money in the bank, its cash position should be even stronger next year and some supporters are talking about dividend payments, a rarity among small mining stocks.
Even if no payment is forthcoming, Hodgson can make good use of its capital by exploring deposits to boost resources and thereby increase production in the future. Half-year results, released last week, showed great potential and traders expect annual profits to soar from $9.4 million last year to $34 million in 2025.
MIDAS VERDICT: Serabi shares have performed well and investors may want to take some profits. However, at 69p, the stock should have more room for growth, especially with gold at current levels.
Listed in: Aim Heart: RBS Contact: Serabigold.com or 020 7246 6830
Golden outlook for precious metals
American writer Mark Twain said, “A mine is a hole in the ground with a liar standing over it.” As managers of Golden Prospect Precious Metals, Keith Watson and Robert Crayfourd try to sort out the liars from the good guys so they can offer investors sustained growth through a carefully selected group of gold and precious metals companies.
The duo scour the globe for companies that are growing fast, well-run and able to keep going even if external conditions worsen.
Golden Prospect has stakes in more than 40 companies, but the bulk of its capital is concentrated in ten businesses. These companies, which are listed mainly in Australia and Canada, have performed well in recent years, led by Australia’s Emerald Resources, whose shares have increased tenfold since 2020.
The collective performance is a testament to the dedication of Watson and Crayfourd. The pair analyze hundreds of companies a year and use their experience in mining and finance to distinguish the winners from the offenders.
MIDAS VERDICT: Golden Prospect invests in a broad selection of companies, many of which would be difficult for individual investors to access. Long-term performance has been solid, but the shares are undervalued, trading at just 35.3p, despite the company’s assets being valued at 45.5p just last week. That discount should narrow as Watson and Crayfourd’s portfolio continues to deliver, making Golden Prospect an attractive buy.
Listed in: Main market Heart: GPM Contact: ncim.co.uk/golden-prospect-precious-metals-ltd or 020 7201 6900
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