On Mar 16, we issued an updated research report on Wheaton Precious Metals (NYSE:WPM) Corp. WPM. The company is poised to gain from investments in mine expansions and a solid financial position.
Wheaton reported adjusted earnings of 33 cents per share in fourth-quarter 2020, missing the Zacks Consensus Estimate of 34 cents. The bottom-line figure, however, surged 100.6% year over year. The Zacks Consensus Estimate for current-year earnings is pegged at $1.57 per share, suggesting year-over-year growth of 40.2%.
Upbeat Guidance
Wheaton generates revenues primarily from the sale of precious metals including gold, silver and palladium. The company has a diversified portfolio of high-quality, long-life assets. It projects production within 720,000 GEOs and 780,000 GEOs for 2021, which indicates year-over-year growth of 12% at the midpoint.
For the current year, Wheaton expects gold production between 370,000 ounces and 400,000 ounces. The midpoint of the guidance indicates 5% year-over-year growth. This is likely to primarily be driven by growth at Salobo, San Dimas and Constancia mines.
Silver production for the current year is expected at 22.5-24 million ounces, indicating 1% year-over-year growth at the midpoint. This will be driven by higher silver ounces from Cozamin and Keno Hill.
Production of palladium & cobalt is expected in the range of 40,000 GEOs to 45,000 GEOs for 2021. The company has also provided a five-year (2021-2025) guidance averaging 810,000 GEOs.
Mine Expansions to Aid Growth
In October, Vale S.A VALE invested in the Salobo III mine expansion, wherein 68% expansion has been completed at the end of fourth-quarter 2020. This expansion will increase mill throughput capacity by 50% and will add to gold production in 2023.
Palladium and gold production from Stillwater is expected to increase with the ramp up of the Sibanye-Stillwater's Blitz project, which is expected to reach full capacity in 2024. At Constancia, Hudbay Minerals (NYSE:HBM) HBM announced that it has completed the Consulta Previa process and been granted the final permit for the development and operation of the Pampacancha deposit, which is expected to commence production in 2021. These expansion projects are anticipated to be growth drivers for Wheaton in the coming years.
Acquisitions to Boost Growth
Wheaton is focused on adding additional production capacity from high-quality accretive metals. Moreover, its business model focuses on reducing risk while leveraging higher commodity prices. Wheaton remains focused on growing a high-quality portfolio of assets.
On Nov 5, the company entered into a precious metals purchase agreement with Aris Gold Corporation to acquire 6.5% of the gold production and 100% of the silver production from the Marmato Project located in Colombia. On Dec 11, the company entered into an agreement with Capstone Mining (OTC:CSFFF) Corp. to purchase a 50% silver stream from its Cozamin Mine located in Zacatecas, Mexico.
Strong Financial Position Drive Growth
Wheaton's solid cash position and operating cash flows, combined with the available credit capacity, help it invest in growth opportunities and sustain the dividend policy. The company’s fourth-quarter dividend payout of 13 cents per share is 30% higher from 2019.
Wheaton's efforts to reduce its debt levels appear encouraging. At the end of 2020, the company had a net debt of $2 million compared with $770 million at 2019-end. Moreover, Wheaton’s listing on the London Stock Exchange will provide scope for international investors to invest in the company.
However, there are a few factors that are likely to hinder growth in the near term.
The company expects unfavorable impacts of the pandemic to dent its results until the situation stabilizes. Further, gold prices have dipped lately and are hovering below $1,800 per ounce on prospects of a swift economic recovery, stimulus measures and vaccine rollouts.
A stronger dollar and high government bond yields have also put pressure on precious metals. The company’s GEOs production guidance assumes gold prices of $1,800 per ounce. If gold prices dip further, this might put the guidance at risk.
Price Performance
Shares of Wheaton have appreciated 54.3% over the past year compared with the industry’s growth of 112.1%.
Zacks Rank & Stocks to Consider
Wheaton currently carries a Zacks Rank #3 (Hold).
A better-ranked stock in the basic materials space is Impala Platinum (OTC:IMPUY) Holdings Limited IMPUY, which sports a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Impala Platinum has an expected earnings growth rate of 195.9% for the current fiscal year. The company’s shares have surged 84% in the past year.
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