Pinnacle Silver & Gold Corp (TSXV: PINN)
Building a New Americas-Focused Silver and Gold Company
As global geopolitical tensions continue to escalate, a growing number of investors are turning to safe-haven assets such as gold and silver. In recent years, central banks in countries including China, India, and Turkey have been increasing their gold holdings at record levels in an effort to reduce their dependence on the U.S. dollar. Moreover, historically, precious metals have been viewed as an effective hedge against further inflation and rising budget deficits.
Among precious metals mining stocks, two companies can also help investors withstand inflationary pressures: Agnico Eagle Mines (AEM) and Wheaton Precious Metals (WPM). These two stocks not only benefit from rising precious metals prices but also possess a certain degree of resilience against the rising fuel costs that typically trouble mining companies.
Mining companies typically benefit from rising precious metals prices and offer investors a way to amplify price gains. This is because mining companies can sell precious metals at higher prices while their production costs remain relatively fixed, translating into higher profit margins.
However, mining companies are not entirely immune to price shocks. The recent conflict in Iran and the closure of the Strait of Hormuz have driven up international oil prices, leading to higher costs for mining companies that rely heavily on diesel for their mining operations.
Agnico Eagle Mines, which operates high-quality, low-cost mines in Canada, Finland, and Australia, is an attractive mining company. Not only does it avoid regional political risks, but it also extensively uses grid electricity from low-emission and zero-emission sources rather than on-site diesel generation. Its Kittilä mine in Finland is the largest gold mine in Europe. In 2023, the company signed a clean electricity agreement ensuring that 100% of the mine’s power comes from renewable wind energy or nuclear power. At its Abitibi hub in Quebec, the mine connects to the Hydro-Québec grid, obtaining cheap, clean industrial power. For some mines that still rely on diesel power, the company actively employs hedging strategies, thereby reducing its vulnerability when oil prices spike.
Wheaton Precious Metals has even less exposure to oil price fluctuations. This is mainly due to its core business model—the streaming agreement. Under this model, Wheaton provides upfront cash to mining companies in exchange for the right to purchase a fixed percentage of their future production at a predetermined discounted price. According to its contracts, by 2030, Wheaton’s agreed-upon average cost per ounce of gold is $650, and per ounce of silver is $12.50. This arrangement allows the company to benefit from further increases in precious metals prices while effectively hedging against the risk of rising fuel and labor costs.
Given the persistently high level of global geopolitical tensions, multiple pressures such as rising budget deficits and supply shortages could keep inflation elevated for years to come. Amid so much uncertainty, investors are diversifying their portfolios by allocating to precious metals to hedge against further inflation.
Summary: Overall, against the backdrop of geopolitical conflicts and inflationary pressures, the safe-haven attributes of precious metals such as gold and silver have once again come to the fore. Agnico Eagle Mines, with its high-quality mines and clean energy strategy, has effectively reduced the impact of fuel cost volatility. Meanwhile, Wheaton Precious Metals, through its unique streaming agreement model, has achieved dual control over costs and price fluctuations. For investors who are bullish on the long-term price outlook for gold and silver, these two stocks can serve as valuable additions to an investment portfolio in the current environment.
