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Wheaton to Gain From Mine Expansion Amid Coronavirus Woes

Zacks Equity Research
·5 mins read

On Sep 11, we issued an updated research report on Wheaton Precious Metals Corp. WPM. The company is poised to gain from investments in mine expansions, solid financial position and higher gold prices.

Wheaton reported adjusted earnings of 22 cents per share in second-quarter 2020, beating the Zacks Consensus Estimate of 19 cents. The bottom-line figure also surged 131% year over year. The company generated revenues of $248 million in the reported quarter, up 31% on a year-over-year basis. Also, the top line outpaced the Zacks Consensus Estimate of $208 million.

The Zacks Consensus Estimate for the current-year earnings moved 12.1% north over the past 60 days and is currently pegged at $1.02 per share. The earnings estimate suggests year-over-year growth of 82.1%.

Mine Expansions to Aid Growth

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. Wheaton’s six partner mines (Constancia, Yauliyacu, San Dimas, Los Filos, Peñasquito and Antamina) have resumed operations, which were temporarily suspended due to the pandemic. Wheaton expects mining operations to continue throughout the remainder of the year without major interruptions. The company’s long-term production forecast remains unchanged at 750,000 gold equivalent ounces (GEOs) per year on average between 2020 and 2024.

Wheaton benefits from its mine exploration and expansion activities. The company expects higher production of silver grade at the Penasquito mine in 2020. First Majestic stated that mill modernization and optimization programs have resumed at the San Dimas mine, including the mid-May delivery of the 3,000 tons per day high intensity grinding mill ("HIG"). As a result of the temporary suspension during the quarter, First Majestic expects the assembly and installation of the new HIG mill to be completed in the second quarter of 2021. These expansion projects are anticipated to be growth drivers 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 active on the corporate development front and focused on growing high-quality portfolio of assets. On Jun 22, it entered into an agreement to purchase precious metals stream from Caldas Gold Corp. to purchase 6.5% of the gold production and 100% of the silver production from the Marmato Project located in Colombia. On Jun 24, Alexco Resource Corp stated its plan to recommence mining operations in the Keno Hill Silver District with ore production, mill commissioning, and concentrate sales planned for fourth-quarter 2020. Wheaton is entitled to 25% of the payable silver production from Keno Hill.

Higher Gold Prices & Strong Financial Position Drive Growth

Gold prices have been up 27.8% so far this year fueled by apprehensions regarding the coronavirus pandemic. Silver price is also gaining momentum. The combination of lower mined gold supply and higher demand, and geopolitical tensions are likely to drive prices north in the days to come. This bodes well for Wheaton. Moreover, given the bullish precious metals markets and high-quality portfolio of assets, Wheaton is focused on creating sustainable value for shareholders.

Wheaton's solid cash position, operating cash flows, combined with the available credit capacity of more than $1.1 billion, under the revolving facility of $2 billion, helps the company invest in growth opportunities as well as sustain its dividend policy. These also provide flexibilities to acquire additional accretive precious metals. In addition, the company’s efforts to reduce its debt levels are encouraging.

However, there are a few factors that are likely to hinder growth in the near term.

The company has revised the current-year production guidance to reflect the previously-announced temporary suspensions at its six mining partners operations due to government restrictions on reducing the spread of COVID-19. Estimated attributable production is estimated between 655,000 GEOs and 685,000 GEOs, down from the prior range of 685,000 GEOs to 725,000 GEOs. Gold production is expected in the band of 365,000-385,000 ounces, down from the earlier forecast of 390,000-410,000 ounces. Silver production is expected between 21 million ounces and 22.5 million ounces, lower than the prior estimate of 22-23.5 million ounces. Palladium production forecast is unchanged in the band of 23,000-24,500 ounces. Therefore, the pandemic will keep denting the company’s production and sales volume in the near term.

Price Performance

Wheaton’s shares have appreciated 97.6% over the past year, outperforming the industry’s growth of 17.2%.

Zacks Rank & Stocks to Consider

Wheaton currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space include Kinross Gold Corporation KGC, Eldorado Gold Corporation EGO and Yamana Gold Inc. AUY, each carrying a Zacks Rank #2 (Buy) currently. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Kinross has an expected earnings growth rate of 100% for the current year. The company’s shares have surged 71.7% over the past year.

Eldorado Gold has an anticipated earnings growth rate of 2.33% for the ongoing year. Its shares have rallied 14.5% in the past year.

Yamana has an estimated earnings growth rate of 76.9% for 2020. The stock has soared 73.6% in the past year.

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