Mixed Results From Major Gold Companies

August 24, 2022 (Investorideas.com Newswire) Expert Adrian Day reviews the quarterly earnings reports from the remaining precious metals companies on his list, including Wheaton Precious Metals and Franco Nevada, among others.


Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) saw production and revenue up, but lower than expected, while the major development was the company reducing its full-year guidance as well as its five and 10-year outlooks. Wheaton has been hit by several incidents at its major assets: a slower underground ramp-up at Voisey’s Bay, flooding and mine plan changes at Stillwater, and, most significantly, maintenance issues at Salobo, its largest asset.

Production from Salobo is down 39% from a year ago, while the Phase III expansion could be delayed.

Nonetheless, these three assets continue to be multi-decade assets for Wheaton.

The balance sheet is strong, with cash of $449 million, no debt, and $2 billion undrawn on its credit facility.

Wheaton also agreed to terminate a stream it has on a small Glencore mine for $150 million.

Glencore said it could complete a sale on the mine only if there was no stream. This is the second stream that Wheaton has monetized in recent weeks, but we do not believe this is the start of a trend; both were special situations.

Wheaton is a Buy.

Franco Hits New Records on Back of Oil

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) had a record quarter and half-year on many metrics, including revenue. It also achieved its highest margins since it added streams to its portfolio of royalties. (Because streams involve an ongoing per-ounce payment, margins are lower.)

These positive results were on the back of strong results from oil and gas, with revenue up over 20% quarter-on-quarter.

Nonetheless, the number of gold equivalent ounces (GEOs) sold remained relatively flat from last year, and the company’s guidance remained the same.

Its cash cost per GEO actually fell 3%, again demonstrating that the royalty companies are relatively immune to cost pressures.

Its largest asset, the gold stream on Cobre Panama, is doing well as the operator reached record production. However, there has been increased civil unrest in Panama, mostly focused on temporary road blockades.

Although so far, Cobre Panama has not been affected, the blockades could affect the company if they continue.

Franco said it was looking at several mid-sized deals on gold mines rather than on the gold by-product of other mines. Franco has no debt and $1.9 billion in available capital.

It remains a core holding, and if you do not own it, this is a good level to buy.

Fortuna Has Solid Operations but Loses Officer

Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) had already released operating results. Its financial results were lower than expected due to higher operating costs. Operations are going well, and the company reiterated its full-year guidance on both production and costs, though indicated that two mines, in particular, Lindero and San Jose, would likely see costs at the upper end of guidance.

The company emphasized that it is focusing on operational efficiencies and cost optimization. Séguéla, the new mine under construction in Cȏte d’Ivoire, continues on schedule and on budget.

It is now 66% complete. Somewhat surprising then that Paul Criddle, who had spearheaded the mine construction, resigned as COO for West Africa. He came from Roxgold and had played a key role in integrating the two companies.

The current VP will replace him. Negotiations with the government on a new mining convention continue.

Fortuna, despite its name, saw 70% of production from silver last quarter and only 20% from silver.

The balance sheet is strong, with a debt of $110 million and another $20 million available credit. Fortuna is a Buy at this level.

Another Weak Quarter for Pan American on Mining Halt

Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) had another weak quarter, the sixth in a row, with a negative surprise at the Dolores mine hurting production, earnings, and the outlook.

Dolores is a short-lived mine, and the company said it had stopped underground mining, causing a $99 million impairment charge and a loss for the quarter. Although it is maintaining its guidance for the full year, it is now expected to be at the lower end while
costs are expected to be at the high end.

Other assets did reasonably well, with La Colorada, in particular, having a strong performance, with production up 50% on last year as the new ventilation shaft seems to be working well.

In Guatemala, the “pre-consultation” with the local people on the possible restart of the Escobal mine has now been concluded, while the “consultation” phase has started, with the first meeting yesterday.

The stock has fallen significantly after the earnings report and is certainly an overreaction based on the actual news. But the market is increasingly concerned about the consistently weak quarters.

Also, it is unclear why the company did not announce the stoppage at the Dolores underground early rather than announce it as a surprise in the quarterly earnings report.

Notwithstanding this, the stock is now undervalued and can be bought.

Adrian Day’s Disclosures

Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. www.AdrianDayGlobalAnalyst.com. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2022. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.

Streetwise Disclosures

1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: All. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management, which is unaffiliated with Adrian Day’s newsletter, hold shares of the following companies mentioned in this article: All. I determined which companies would be included in this article based on my research and understanding of the sector.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.

4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services, or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports LLC and its directors, officers, employees, or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in the securities mentioned. Directors, officers, employees, or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company release.

As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Wheaton Precious Metals Corp., Franco-Nevada Corp., and Pan American Silver Corp., companies mentioned in this article.

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