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On Apr 12, we issued an updated research report on Wheaton Precious Metals Corp. WPM. The company is poised to gain from ongoing focus on mine expansions, acquisitions as well as a solid financial position.
Upbeat Production Forecast 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. It projects production within 720,000 GEOs (Gold Equivalent Ounces) and 780,000 GEOs for 2021, which indicates year-over-year growth of 12% at the mid-point.
For the current year, Wheaton estimates gold production between 370,000 ounces and 400,000 ounces. The mid-point of the guidance suggests a 5% year-over-year increase. This will likely be driven by improved performance at the Salobo, San Dimas and Constancia mines.
Silver production for 2021 is projected at 22.5-24 million ounces, calling for a 1% year-over-year rise at the mid-point. 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 issued a five-year (2021-2025) guidance, averaging 810,000 GEOs.
Mine Expansions to Drive Growth
Vale S. A’s VALE investment in the Salobo III mine expansion was completed 68% at the end of fourth-quarter 2020. This expansion will increase mill throughput capacity by 50% and add to gold production in 2023.
Palladium and gold production from Stillwater will likely increase on the ramp up of the Sibanye-Stillwater's Blitz project, which is expected to reach full capacity in 2024. At Constancia, Hudbay Minerals HBM announced its completion of the Consulta Previa process and has 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. On Dec 11, 2020, the company entered into an agreement with Capstone Mining Corp. to purchase a 50% silver stream from its Cozamin Mine. Last month, the company entered into an agreement with Capstone Mining Corp. to purchase gold stream from the latter’s Santo Domingo project for $290 million. Per the deal, Wheaton will purchase 100% of the mine’s payable gold production.
Solid Financial Position
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 2020 dividend payout of 13 cents per share is 30% higher from 2019. Wheaton's efforts to reduce its debt levels look encouraging. At the end of 2020, the company had a net debt of $2 million compared with $770 million at the end of 2019.
However, there are a few factors that might impede growth in the near term.
The company expects unfavorable impact 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.
Shares of Wheaton have gained 20.8% over the past year, compared with the industry’s growth of 55.9%.
Zacks Rank & Stocks to Consider
Wheaton currently carries a Zacks Rank #3 (Hold).
A better-ranked stock in the basic materials space is Fortescue Metals Group Limited FSUGY, which sports a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Fortescue has a projected earnings growth rate of 84.3% for the current fiscal year. The company’s shares have soared 182% in a year’s time.
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