Gold Miners Need To Keep Plugging Away To Regain Investor Trust – Randy Smallwood
(Kitco News) - Years after destroying shareholder value, the mining industry, while on the right path, still has more work to do before regaining investor trust and bringing capital back into the sector, according to one mining CEO.
In an interview with Kitco News, Randy Smallwood, CEO of Wheaton Precious Metals (NYSE: WPM, TSX: WPM, said that companies have to continue to deliver value to shareholders to make up for years of “overpromising and under delivering.” He added that while the sector as a whole is heading in the right direction, it’s a gradual process that should eventually pay off in the end.
“Companies have to continue to deliver to shareholders,” he said. “When there is a break in trust, you can’t just turn it back on; it is something that has to be rebuilt over time. As we continue to deliver results, more investors will come back to the market.”
Smallwood’s comments come after Wheaton Precious Metals reported higher adjusted earnings for the first quarter of 2018. Last week, the company said that, excluding special items, adjusted net earnings were $70 million, or 16 cents per share, compared with $61 million, or 14 cents, for the same period in 2017.
Smallwood added that an amended streaming agreement with First Majestic Silver is an excellent example of how his company has learned from the past to provide better results for its shareholders.
At the same time as the earnings announcement, Wheaton also revealed a new streaming agreement with First Majestic on its newly acquired San Dimas mine, which it bought from Primero Mining Corp. In the new deal, Wheaton will get 25% of the gold production projects and 25% off its silver production. The contract was amended from a 100% streaming agreement for the project’s silver.
“The steaming agreement with Primero was our first as a company and we have learned a lot since then,” he said.
He said that the problem with the original streaming agreement was that Primero was focused more on gold than silver. Smallwood explained that it is better to have two smaller producing precious metal streams than 100% of one.
Smallwood said that he is looking forward to seeing what First Majestic does with its new project.
“We think that First Majestic is going to have great success with San Dimas,” he said. “San Dimas will, by itself double First Majestic’s production. This is one of the best mines they have in their portfolio.”
Another issue that has weighed on Wheaton’s stocks is its ongoing tax dispute with the Canadian Revenue Agency. In its first-quarter earnings report, the company said that a trial date has been set for mid-September 2019; however, he added that the company is still hoping to reach a settlement before the trail. He said that they are confident that they will be able to settle with the Canadian government within the next year-and-a-half.
“We continue to work on clawing back some of that lost shareholder value from the lawsuit by continuing to deliver good operating results,” he said. “We don’t think there is much of a case on the government’s side; that is why we think a settlement makes sense.”
Not only are there proactive steps that companies can take to create value for their shareholders, but Smallwood is also expecting more capital to flow back into the sector as precious metals prices improve.
He added that he is still confused by silver’s lackluster performance, but said that at some point the market has to turn.
“It all comes down to the U.S. dollar and I don’t see anything sustainable in the U.S. dollar,” he said. “The U.S. dollar can benefit from short-term fluff, but there is nothing sustainable. It all comes down to what you see as a long-term store of value and to me, that is gold and silver.”