Three PGM plays to investigate
is Wheaton Precious Metals (NYSE: WPM) one of the largest precious metals streaming companies in the world. It buys all, or part of, the precious metal or cobalt output from high-quality mines for an upfront payment plus an extra sum on delivery of the metal. Wheaton has built up a portfolio of low-cost, long-life assets – it currently has streaming agreements with 24 operating mines and eight development stage projects.
Last year WPM generated 49% of its revenues from silver and 5% from palladium. The key point for WPM’s shareholders is that apart from that firstupfront cash payment, Wheaton typically doesn’t incur capital expenditure or exploration expenses, unlike its suppliers. So the company benefits from rising silver prices and achieves high profit margins without taking the risks to which physical miners are exposed.
These attributes are, of course, factored into WPM’s share price. The market capitalisation is $21.8bn and the stock stands on a prospective price/earnings (p/e) ratio of 35, according to analyst estimates compiled by MarketWatch. But WPM’s valuation isn’t earnings-driven – it’s powered by precious metals prices, in particular the price of silver. And their upside scope makes this a potentially very profitable stock to own.
Hecla Mining (NYSE: HL) is the largest primary US silver producer and the oldest NYSE-listed precious metals miner in North America. It operates two mines in the US and one in Canada, as well as several exploration properties and pre-development projects in world-class silver and gold mining districts throughout North America. As well as silver, Hecla also produces gold, lead and zinc.
In other words, Hecla ticks all the boxes on both political stability and, with a market cap of $3.76bn, on its status within the mining industry. Long-term debt is just over $500m compared with equity of $1.8bn. While Hecla’s shares trade on an even higher p/e than Wheaton, again the firm’s shares are mainly driven by silver prices.
Sibanye-Stillwater (NYSE: SBSW) is a multinational mining and metals processor with a wide portfolio of extraction and processing operations across five continents, although most of its mines are in South Africa. The company is one of the world’s largest producers of platinum, palladium, and rhodium (it’s also a top gold miner), while other PGMs, such as iridium and ruthenium, feature on its product list. The market cap is $13.7bn, total equity is $5.1bn and there’s long-term debt of $1.27bn. Probably the easiest way to invest in Sibanye-Stillwater is via the NYSE-quoted American depositary receipt (ADR) that represents four shares in the group. Analyst estimates are for earnings per share of $3.24 in 2022, which compares with a current ADR price of $19, according to MarketWatch, putting the stock on a low p/e of below six.
Furthermore, the company is currently distributing a decent dividend. Although consistent pay-outs from miners are by no means guaranteed – particularly when, like Sibanye, they operate in politically unstable areas such as South Africa – the hefty 7% yield is very appealing in these days of meagre returns.