Part of our hesitance to rate more gold stocks as “buys” is our concern about a potential pullback after such a strong upmove, cautions Adrian Day, editor of Global Analyst — and a participant in MoneyShow’s upcoming live streaming event, Money, Metals & Mining Expo, on September 1-3.
Fortuna Silver (FSM) had a difficult quarter, as expected, due to Covid restrictions affecting its mines in Peru and Mexico and development of its new mine in Argentina.
San Jose in Mexico was shut down for much of the quarter, while operations at Callyoma in Peru were curtailed. And Lindero in Argentina was pushed back by about three months, and will start on a smaller scale.
Still, the company reported neutral cash flow, partly because of higher metals prices, partly because of higher gold and silver and reduced costs in Peru, though a loss overall. It is reasonable to expect a much better 3rd quarter, with limited covid related reductions.
Lindero is now 97% complete, with an abbreviated circuit, and ore is being placed on the leach pad; the tertiary crusher (an HPGR system) is by-passed in the revised circuit because of travel restrictions preventing skilled technicians being on site, and this will cause lower recoveries.
The company expects to have the HPGR operational within three months, with commercial production in the first quarter of 2021, a quarter’s delay over earlier projections.
The balance sheet is strong, with $77 million in cash (and $132 million total liquidity), for about $50 million net debt. With increased production and metals prices, it should be et cash positive by the end of the quarter. We are holding, and would be renewed buyers on any price decline.
Wheaton Precious Metals (WPM) reported that all mines on which it receives streams have now restarted. With strong cash flow due to higher prices, Wheaton cut its debt by $80 million; it now has a little over $130 million cash, with $641 million outstanding on its revolver.
In the current environment, Wheaton has deliberately utilized debt as the most attractive form of financing. The company has now issued revised guidance for 2020, expecting 655,000 to 685,000 ounces equivalent, just over half of it from gold, with an average of 750,000 ounces over the next four years.
Wheaton stock has performed very well since the settlement with the Canadian tax authorities at the end of 2019 (when it was trading around $15) and then again from the sell-off in March (when it fell to under $25).
At the current price, if not out-of-line with other major royalty companies, it is hardly undervalued. We are holding, and will wait for a better opportunity to buy.