Tuesday, April 21, 2020

An @MarquetteAIM International Holding: Wheaton Precious Metals (WPM, $35.25): “Precious Metals Will Always Stay Precious” by: Alec Feygin, AIM student at Marquette University

Wheaton Precious Metals (WPM, $35.25): “Precious Metals Will Always Stay Precious”
By: Alec Feygin, AIM Student at Marquette University
 Silver Wheaton Changes Name to Wheaton Precious Metals

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

·       Wheaton Precious Metals, Corp. (NYSE: WPM) is a mining company which generates its revenue primarily from the sale of precious metals. The three main precious metals are: Gold, Silver, and Palladium.
·       Wheaton currently has streaming agreements covering 19 operating mines and 9 development state projects.
·       Wheaton’s portfolio has over 30 years of mine life based on reserves.
·       Top rated among ESG analysts and Is the first streaming company to join UN Global Compact. UN Global compact is the largest sustainability initiative in the world.
·       Wheaton offers the highest dividend yield amongst streamers.

Key Points:
Wheaton Precious Metals considers itself a “High Margin Precious Metals Company”. WPM is a streaming company which means that it invests in mining operations upfront and gets a fixed percentage of the output of a mine at a predetermined price. WPM partners with many different mining companies including the two largest: Newmont Goldcorp and Barrick. The streaming market is growing and is currently at about $21 billion, and WPM makes up 45% of the total market. 

There are many advantages of the streaming model for both miners and WPMs shareholders. One noteworthy advantage is that in a streaming business model WPM support its partners, but the partners keep all operational control. This way both companies can benefit by using the expertise of the other without having to spend any extra money. Currently WPM is working closely with its partners to monitor the spread of Coronavirus. 

WPM has shut down four mines that are located in Mexico and Peru. When WPM was initially pitched in February of 2019, a key driver was “Portfolio diversification” which included adding Cobalt operations by 2021. The management team has since reconfirmed that it plans to begin mining Cobalt in 2021 and originally planned. Financially WPM is sitting on over $100 million and is very comfortable with its current debt obligations. The company has raised its minimum quarterly dividend payment to $.10 per share which represents an 11% increase relative to 2019.  

What has the stock done lately?
The company’s stock price has been very volatile and experienced a V like shape in the last month. It is currently trading at $35.25 which Is 20% above the price target that was originally pitched. The company hit a low of $23.92 on March 19th and since has jumped to $35.25 less than a month later which is slightly higher than the price that WPM was trading at before the Coronavirus became and pandemic.

Past Year Performance:
Wheaton’s stock has had an amazing year, it is currently up 61% since April 2019. With the uncertainty in the world caused by the coronavirus, many investors have fled to Gold as a safe haven. This has increased both the value of the companies in the sector and the price of gold. I believe that the stock still has room to grow but the next earnings call will shed a lot of light on its continuing operations throughout the world.

Source: Fact Set

My Takeaway:
Wheaton Precious Metals is a strong cash flow positive company that has a very flexible balance sheet with relatively low levels of debt. Therefore, WPM is the type of company that can withstand the volatile times that are upon us. With only a few mines shut down, WPM can still operate while taking the proper precautions to keep its mines safe. I believe that WPM has positioned itself as winner in this space for the foreseeable future and therefore I recommend that the AIM portfolio holds on to its position in WPM.

Source: Fact Set