On May 21, 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.
Wheaton reported first-quarter 2021 adjusted earnings per share of 36 cents, suggesting year-over-year growth of 53.6%. The bottom-line figure came in line with the Zacks Consensus Estimate. The company generated revenues of a record $324 million during the reported quarter, up 27% on a year-over-year basis. The top line also beat the Zacks Consensus Estimate of $313 million.
Upbeat Production Estimates
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 a year-over-year jump 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.
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 Expansion Moves to Drive Growth
Vale S. A’s VALE investment in the Salobo III mine expansion was 73% complete at the end of first-quarter 2021. This expansion will increase the mill throughput capacity by 50% and add to gold production in 2023. Per the precious metals purchase agreement with Vale, effective Jan 1, 2021, Wheaton reported the first production of cobalt from Vale’s Voisey's Bay mine in Canada.
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 that it has completed the final land user agreement for the Pampacancha deposit. Hudbay now has full access to the site and has begun pit development activities. 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 active on the corporate development front and focused on growing high-quality portfolio of assets.
On Feb 19, Wheaton closed its precious metals purchase agreement with Capstone Mining Corp. to purchase a 50% silver stream from the Cozamin Mine located in Zacatecas, Mexico. On Apr 15, the company wrapped up the deal 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 Mar 25, the company entered into an agreement with Capstone to purchase 100% of the payable gold production from the Santo Domingo project located in the Atacama Region, Chile.
Strong Financial Position
The company fully paid a revolving credit facility of $2 billion during the first quarter. Wheaton had $191 million of cash in hand at the end of the first quarter with no outstanding debt. Backed by Wheaton’s cash position, sales volume, revenues and strong operating cash flows, the company announced a quarterly dividend of 14 cents per share, representing an increase of 40% year over year. This is the company’s third quarterly dividend hike in a row. It also provides the flexibility to acquire additional accretive precious metals.
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. Even though gold prices have been higher on a year-over-year basis, it has lost 0.7% of its value, year to date. In fact, yellow metal prices had dropped below $1,700 an ounce earlier this year on successful vaccine roll-out and massive stimulus package. The company’s GEOs production guidance assumes gold prices of $1,800 per ounce. If gold prices dip below this level further, this might put the guidance at risk.
Shares of Wheaton have gained 25.1% over the past three months compared with the industry’s growth of 25%.
Zacks Rank & Stocks to Consider
Wheaton currently carries a Zacks Rank #3 (Hold).
A better-ranked stock in the basic materials space is ArcelorMittal MT, which sports a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
ArcelorMittal has a projected earnings growth rate of 984.7% for the current year. The company’s shares have soared nearly 179% in the past year.
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