Tuesday, November 17, 2020

An International Equity holding: Wheaton Precious Metals Corp. (WPM-US, $45.45): “Mining the Most of Covid-19” by: Sam Shibilski, AIM Student at Marquette University

 Wheaton Precious Metals Corp. (WPM-US, $45.45): “Mining the Most of Covid-19”

By: Sam Shibilski, AIM Student at Marquette University

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 focusing on in Gold, Silver, Palladium, Cobalt, among others. WPM has revenues across the globe; however, they heavily focus in Brazil (42.4%), Peru (19.8%), Mexico (16.2%), and Canada (8.6%).

• WPM enters a definitive Precious Metals Purchase Agreement with Caldas Group; effective July 1, 2020.

• Management has indicated a Q4 2020 dividend increase of 20% from Q3 to $0.12.

• Company and revenue value have been driven by rising precious metal prices and company leverage.

• All WPM’s mining partners have resumed excavations and operations if they were suspended due to Covid-19.

Key points: Caldas Gold Group and WPM have agreed to a definitive Precious Metals Purchase agreement concerning a mine in Columbia. WPM will pay $110 million USD, $38 million upfront and 18% of the commodity spot price until the remaining $72 million has been paid, for 6.5% of the gold production up to 190,000 ounces of gold and 100% of the silver up to 2.15 million ounces of silver. Subsequently, after the thresholds, WPM will acquire 3.25% of the gold production and 50% of the silver for the life of the mine. Additionally, after the $110 million, WPM will pay 22% the commodity spot prices for the gold and silver for the life of the mine. This marks one of the first agreements WPM has entered since the Covid-19 pandemic. 

WPM has been affected by Covid-19 in a multitude of ways. Firstly, many of their mining partners understandably had to close down operations both in compliance with regulations and in order to look out for their workers well beings. These shutdowns occurred industry and world economy wide; thus, causing a precious metal shortage which bring up another way Covid-19 affected WPM. Due to the precious metal shortage, many precious metals have seen a drastic increase in price the last few months; most notably is gold, one of WPM’s main commodities, since March of 2020 gold has risen 27.53% in price, from $1478.60 to $1885.70. These precious metal price increases have positively affected WPM’s revenues and share value.

Furthermore, although production did drop since the pandemic began, WPM is still on track for their long-term average goals of 750,000 ounces of gold produced per year on average from 2020 to 2024. Currently, WPM expected to finish the year between 655,000 and 685,000 ounces. The Caldas Gold Group agreement will help WPM achieve their gold moving forward.

Lastly, in response the Covid-19 pandemic WPM has pledged a $5 million USD fund in order to address the adverse effects the pandemic has had on the communities which WPM operates. A large amount of this fund has been dedicated to Brazil, Peru, and Mexico in respect to them being WPM’s three highest revenue driving countries.

What has the stock done lately?

For the first 3 quarters of 2020, as of September 30th, WPM has generated $565 million in operating cash flows, an increase of 51.88% from the first three quarters of 2019. This has allowed for WPM’s 2020 Q4 dividend to increase by 20%. With Q3 earnings being released on November 10th, production for gold, silver, and palladium, their largest commodities, are down 7% from 2019 Q3, however they are up 22% from 2020 Q2 due to Covid-19 mine shutdowns resuming excavations. 

Past Year Performance: WPM has increased 61.92% in price over the past year. This large increase in stock price is largely driven by the increased demand and as such increased price of precious metals that has arisen during the Covid-19 pandemic. This affect is even more evident when looked at the March to July price jump of 97.35%, from $27.53 to $54.33.  

Source: FactSet

My Takeaway

The Caldas Gold Group agreement will greatly help Wheaton hit their production targets moving into future years and as such also increase revenues for the firm and continue to help create value for shareholders through dividends. However, as more and more mining sites become operational again and increase operations post-prime Covid-19 the supply of precious metals which WPM specializes in will increase industry wide and as such cause the commodities prices to decrease. This is a large risk which WPM has to deal with and will adversely affect their revenues and likely their share price moving forward.

Source: FactSet