Gold Fever & Clever Financing

by

The oracle, Randy Smallwood of Wheaton Precious Metals, predicted five thousand dollars an ounce for gold. A bold claim, naturally. One might have dismissed it as the enthusiastic pronouncements of a man who’d spent too long gazing at bullion. After all, the price had already staged a rather energetic sprint, and one expects a pause for breath. But gold, it seems, has a stamina that confounds expectations. It’s now within striking distance of the five-thousand mark, and Mr. Smallwood, it appears, is not entirely a fool – a rare quality in these circles.

Now, the gentlemen at JPMorgan, Citigroup, and Bank of America are chiming in with scenarios where gold reaches six thousand. They speak in cautious tones, naturally, as if predicting the price of gold is akin to forecasting the whims of a particularly capricious aunt. But the air is thick with possibility, and the scent of profit is, shall we say, intoxicating.

Loading widget...

Wheaton Precious Metals, it turns out, is rather adept at capitalizing on this golden delirium. Its shares have soared – a 128% return in the last year, which, let’s be honest, is the sort of figure that makes accountants blush. Gold itself managed a respectable 68% rise, but Wheaton has left it trailing, and that, my friends, is not mere luck. It’s a testament to a business model that’s as cunning as a fox in a henhouse.

The Art of the Discount

Wheaton doesn’t actually mine gold. Oh no. That requires dirt, sweat, and the constant threat of cave-ins. They simply finance the miners. A rather clever arrangement, wouldn’t you agree? They provide the capital, and in return, receive the right to purchase a fixed amount of gold at a discount. A steep discount, mind you. One might even call it highway robbery, if it weren’t perfectly legal.

Consider their recent deal with Hemlo Mining. Three hundred million dollars in financing, in exchange for the right to buy 10% of their gold output until 135,750 ounces are delivered. After that, another 7%, and so on. It’s a cascade of gold, flowing directly into Wheaton’s coffers. The best part? They’re acquiring this gold at a mere 20% of the spot price. Eighty percent off! One suspects the miners are too busy digging to notice they’re being fleeced.

Let’s do the arithmetic, shall we? At $4,626 an ounce, that First Dropdown Threshold alone nets Wheaton $502 million. A tidy sum, wouldn’t you say? And if gold rises another 10%? Suddenly, we’re talking about $553 million. The initial $300 million in financing seems almost… insignificant. It’s like using a magnifying glass to start a forest fire.

This Hemlo deal is merely one of many. Wheaton has a portfolio of 23 operating mines around the world, all in countries where the political climate is, shall we say, stable enough. These mines have an average lifespan of 27 years, which means Wheaton can continue its golden harvest for decades to come. It’s a remarkably predictable business, built on the backs of those who actually get their hands dirty.

A Dividend and a Dash of Ingenuity

Wheaton Precious Metals has consistently outperformed gold and silver over the long term. And, as if that weren’t enough, they even pay a dividend. A modest one, to be sure – 0.5% – but a dividend nonetheless. It’s a small gesture, perhaps, but it adds a certain… respectability to the whole affair.

In essence, Wheaton has discovered a way to profit from gold without actually having to dig for it. It’s a triumph of finance over labor, a testament to the power of leverage and the art of the deal. It’s a scheme so audacious, so elegantly simple, that one can’t help but admire it. Or, at the very least, be thoroughly entertained.

Read More

2026-01-19 19:03