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Wheaton (WPM) Rides on Mine Expansions & Buyouts Amid COVID Woes

Wheaton Precious Metals Corp. WPM is posed to gain from its focus on mine expansions, benefits from acquisitions and a solid financial position. However, pandemic-related uncertainties and changes in market price of commodities might hurt Wheaton’s results.

Wheaton reported third-quarter 2021 adjusted earnings per share of 30 cents, down 10.1% year over year. The bottom line missed the Zacks Consensus Estimate of 33 cents. The company generated revenues of $269 million during the reported quarter, down 12.5% on a year-over-year basis. The top line also missed the Zacks Consensus Estimate of $300 million.

Upbeat Mine performance to Drive GEOs Production

Wheaton generates revenues, primarily from selling precious metals, including gold, silver and palladium. The company has a diversified portfolio of high-quality, long-life assets. It projects production within 735,000 GEOs (Gold Equivalent Ounces) and 765,000 GEOs for 2021. The company produced 671,713 GEOs in 2020. It expects strong performance in the Penasquito, Antamina and Voisey’s Bay mines in the current year.

For the current year, Wheaton estimates silver production between 25.5 million ounces and 26.5 million ounces, suggesting an increase from 23 million ounces produced in 2020.

Production of palladium & cobalt is expected in the range of 45,000-55,000 GEOs for 2021. The company maintains its five-year (2021-2025) guidance, averaging 810,000 GEOs.

Mine Expansion Moves to Stoke Growth

Vale S.A’s VALE investment in the Salobo III mine expansion was 81% complete at the end of third-quarter 2021. This expansion will increase the mill throughput capacity by 50% and add to gold production in 2023. It anticipates that the Salobo expansion is scheduled to commence in the second half of 2022.

At Vale's Voisey's Bay operation, physical completion of the Voisey's Bay underground mine expansion (Reid Brook and Eastern Deeps underground mines) was 70% completed at the end of the third quarter. In June, Vale achieved the first ore production from the Reedbrook underground mine, which is likely to be one of the most sustainable sources of cobalt in the world. Eastern Deeps is expected to start in 2022.

In April, the first ore production was achieved from the Pampacancha deposit at Hudbay MineralsHBM Constancia mine, which has higher gold grades than the main Constancia pit.

This will significantly boost gold production at Hudbay’s Constancia mine from 2022 to 2025. These projects are likely to drive Wheaton’s growth in the coming years.

Acquisitions to Boost Growth

Wheaton is focused on adding additional production capacity from high-quality accretive metals. Its business model focuses on reducing risk, while leveraging higher commodity prices. The company remains active on the corporate development front and is focused on growing high-quality portfolio of assets.

On Jul 20, 2021, the company entered into an agreement with Rio2 Limited to purchase gold stream from the latter’s Fenix Gold mine in Chile for a cash payment of $50 million. Per the agreement, Wheaton will purchase 6% of the gold production until 90,000 ounces have been delivered and 4% of the gold production until 140,000 ounces have been delivered.

Strong Financial Position

The company’s $2-BILLION revolving credit facility was extended by an additional year with the facility now maturing in June 2026. As of Sep 30, 2021, Wheaton had $2.4 billion of immediate liquidity. It had nearly $372 million of cash in hand at the end of the third quarter with no outstanding debt. Backed by Wheaton’s cash position, sales volume, revenues and strong operating cash flows, it declared a quarterly dividend of 15 cents per share, representing an increase of 25% year over year. 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 impacts from the pandemic to dent its results until the situation stabilizes. After declining below $1,700 an ounce earlier this year, gold prices have picked up on concerns over the new Delta COVID-19 variant. So far this year, gold price has dropped 1.5%. Even though the yellow metal is currently trading above $1,800 ounce, if prices further decline, this might put the guidance at risk given the company’s GEOs production guidance assumes gold prices at $1,800 per ounce. For the current year, Wheaton expects gold production within 330,000 ounces and 345,000 ounces compared with 367,419 ounces produced in 2020.

Price Performance

Shares of Wheaton have gained 2.1% in the past year compared with the industry’s growth of 12.5%.

Image Source: Zacks Investment Research

Zacks Rank & A Stocks to Consider

Wheaton currently carries a Zacks Rank #4 (Sell).

A better-ranked stock in the basic materials space is Olin Corporation OLN, which currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Olin’s third-quarter 2021 adjusted earnings beat the Zacks Consensus Estimate, while revenues missed the same. It has an expected earnings growth rate of around 740% for the current fiscal year. The Zacks Consensus Estimate for current-year earnings has been revised 20.5% upward in the past 60 days.

Olin’s shares have surged 229% in the past year. The company has a long-term earnings growth of 56%.


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VALE S.A. (VALE): Free Stock Analysis Report
 
HudBay Minerals Inc (HBM): Free Stock Analysis Report
 
Olin Corporation (OLN): Free Stock Analysis Report
 
Wheaton Precious Metals Corp. (WPM): Free Stock Analysis Report
 
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