Wheaton (NYSE:WPM) misses Q4 estimates but adds to streaming portfolio

In a March 10th release, Wheaton Precious Metals (NYSE:WPM) (TSX:WPM) announced record revenue, earnings, and operating cash flow for 2021. Adjusted Q4 EPS of $0.29 missed the consensus estimate by $0.02. Q4 revenue of $278.2 million missed by $9.79 million.

Silver was Wheaton’s best performing metal in terms of total sales. While nearly all major precious metal equities have performed well with the gold price so far in 2022, Wheaton’s position as a steaming company with significant silver exposure may set it apart in the longer term.  

Results and new streams

Attributable production in 2021 was 752,958 GEOs. Production guidance for 2022 is 700,000-760,000 GEOs. Average cash costs in Q4 were $429 per GEO with operating margins at $1,377.  

Total attributable reserves (proven and probable) for all metals increased by 13% due to recent precious metal purchase agreements (PMPAs) and increases at Vale’s Salobo mine in Brazil. 

In Q4, Wheaton announced a PMPA on silver production on Artemis Gold’s Blackwater Project in British Columbia and acquired the existing PMPA on gold production, held by New Gold Inc. They also announced a new gold and platinum PMPA on Generation Mining’s Marathon Project in Ontario. So far in 2022, they’ve announced new PMPAs on Adventus Mining’s Curipamba Project and Sabina Gold & Silver Corp.’s Goose Project. 

“Over the past three months alone, we added five new streams to our already robust portfolio. This additional growth is readily apparent in our ten-year production forecast, where we see annual production climbing to well over 900,000 gold equivalent ounces,” said CEO Randy Smallwood. 

Source: wheatonpm.com

Source: wheatonpm.com

Silver and PGM exposure

Wheaton has revenue streams from gold, silver, palladium, and cobalt. Of the $1.2 billion 2021 sales, $573.4 million (47.7 percent) was from silver. Gold accounted for 46.8 percent and PGMs and cobalt were 3.8 and 1.7 percent, respectively.  

This gives Wheaton significantly more silver exposure than other large PM royalty and streaming companies. By comparison, for Franco Nevada (NYSE:FNV) TSX:FVN) silver accounts for about 17.3 percent of sales. For Royal Gold (NASDAQ:RGLD), silver is only about 10 percent.

With an average cash cost of $5.78 per ounce and realized price of $25.08 in 2021, silver also delivered higher operating margins (77 percent) for Wheaton compared to gold (74 percent).

“Silver just has so many more attributes behind it in terms of what it’s used for…. Silver has the strongest fundamentals because so much of it is consumed on the industrial side yet it still acts as a precious metal, a store of value,” says Smallwood.

The recent run-up in palladium has drawn attention to Wheaton’s PGM exposure. Wheaton has a 4.5 percent stream on the Stillwater mine in Montana, which is the largest primary producer of PGMs outside of South Africa and Russia. Wheaton’s latest statements also reported platinum reserves for the first time due to the new PMPA on the Marathon Project.

Appeal of streaming as producers face cost pressures

As inflationary pressures, particularly energy costs, eat into margins for producers, streaming and royalty companies are better positioned to benefit from recent precious metal price action. 

While some of the major royalty and streaming companies (such as Royal Gold and Sandstorm) have outperformed the Gold Miners ETF (NYSEARCA:GDX) so far in 2022, Wheaton and Franco Nevada have tracked it closer. Gold and silver spot prices have recently been moving in lockstep, but any breakout in silver could set Wheaton apart from its peers.     

 

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is an insider or shareholder of one or more of the companies mentioned above.

By Craig Frayne

Craig has worked in research consulting, international development, and software in Canada, Europe, and Latin America. His analysis aims to identify deep value as well as the long term macro and geopolitical context. He holds a MSc in Environmental Engineering from the Bauhaus University Weimar and a PhD from the Faculty of Economics at the Freiberg University of Mining and Technology.

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