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Wheaton's (WPM) Arm to Purchase Gold Steam From Capstone

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Wheaton Precious Metals Corp.’s WPM wholly-owned subsidiary, Wheaton Precious Metals International Ltd., has entered into an agreement with Capstone Mining Corp. to purchase gold stream from the latter’s Santo Domingo project located in the Atacama Region, Chile.

After the deal’s closure, Wheaton International will purchase 100% of the mine’s payable gold production until 285 thousand ounces have been delivered. Following this, the company will purchase 67% of payable gold production for the life of the mine. Wheaton International will pay Capstone a total cash consideration of $290 million, out of which $30 million is payable upon the deal’s closure, while the remaining amount will be paid during construction of the Santo Domingo project. Apart from this, Wheaton International will make payments at 18% of the gold spot price for all gold ounces delivered.

The Santo Domingo project is a first quartile, fully-permitted greenfield copper-iron-gold project based in Chile. It is a perfect fit for Wheaton's existing high-quality portfolio of assets The latest acquisition will boost Wheaton's estimated Proven and Probable gold reserves by 0.51 millions of ounces (Moz), Measured and Indicated gold resources by 0.12 Moz and Inferred gold resources by 0.03 Moz.

Attributable gold production from this project is estimated to average 35-40 koz per year for the first five full years of production and 25-30 koz for the first 10 years. Construction of the project is expected to commence in the later part of 2021 and 2024 is likely to be the initial full year of production.

As of Dec 31, 2020, the company had cash balance of approximately $193 million and $1.8 billion available under its revolving credit facility of $2 billion. Wheaton has ample capacity to pay down additional debt related to this transaction, given its solid cash position, low interest rate and solid operating cash flows combined with the existing credit capacity. These also provide flexibilities to acquire additional accretive precious metals.

Wheaton is focused on boosting its production capacity from high-quality accretive metals. It is active on the corporate development front and focused on growing a high-quality portfolio of assets. On Nov 5, 2020, Wheaton 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, 2020, the company entered into an agreement with Capstone Mining Corp. to purchase a 50% silver stream from its Cozamin Mine located in Zacatecas, Mexico.

The company generates revenues primarily from the sale of gold, silver and palladium. It projects production between 720,000 GEOs and 780,000 GEOs for 2021, which indicates year-over-year growth of 12% at the mid-point. For 2021, Wheaton expects gold production between 370,000 ounces and 400,000 ounces. The mid-point of the guidance suggests a 5% year-over-year increase. Silver production for 2021 is projected at 22.5-24 million ounces, calling for 1% year-over-year growth at the mid-point.

Price Performance

Shares of Wheaton have gained 33.4% over the past year compared with the industry’s growth of 74%.



Zacks Rank & Stocks to Consider

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

Better-ranked stocks in the basic materials space include Impala Platinum Holdings Limited IMPUY, Fortescue Metals Group Limited FSUGY and Ashland Global Holdings Inc. ASH, all sporting 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.

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.

Ashland has an estimated earnings growth rate of 83.9% for the current fiscal year. The company’s shares have appreciated 109.2% over the past year.

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