Thursday, March 10, 2022

An International Equity holding: Wheaton Precious Metals (WPM, $43.48): “Not So Precious Anymore” By: Alexander Mastalish, AIM Student at Marquette University

 Wheaton Precious Metals (WPM, $43.48): “Not So Precious Anymore”

By: Alexander Mastalish, AIM Student at Marquette University

Disclosure: The AIM International 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 deals with the sale of precious metals. They primarily sell three precious metals: Gold, Silver and Palladium.

  • Wheaton currently has 24 operating mines with 12 development projects spread across the Americas with some European exposure.
  •  85% of current production comes from assets that fall in the lowest half of the cost curve.
  • WPM currently one of the highest rated materials sector companies in regard to ESG (AA Rating) and the WPM is a part of the UN Global Compact as well.
  • Wheaton current pays a high dividend which is increasing by 25% YoY to $0.15 per share.

Key points: Wheaton Precious Metals is a streaming metals company. When a company is a streaming metals company, it makes an agreement with mining company to purchase most of the mining company production at a set price in advance. The streaming model offers WPM the advantage of buying below the cost curve often (85% as of 2021 Q3), allowing WPM to lock in pricing in advance and better position the company against price volatility. Streaming also allows for the precious metal company to focus on selling the good to end user, and the miners on mining. This reduces the cost of operations for Wheaton compared to if it had mining operations of its own. WPM’s main partners include Capstone, Rio2 and Artemis.

The company has seen a decrease in gold production, primarily due to a lower output from a major partner Vale and their Salobo operation, alongside a decrease of production at the Sudbury operation. These challenges in production helped contribute to the decrease in adjusted net earnings for WPM. This has also caused the trend of WPM missing earnings expectations for all of 2021, and missing revenue on 2 of the 3 quarters so far announced in 2021. Most notably, Q3 2021 saw a 12.5% decrease in revenue, while also seeing a 10% decrease in earnings.

To reverse this trend, management is planning on continuing their development projects for increased growth. A partnership with New Gold and Artemis Gold in Canada will further diversify Wheaton’s existing portfolio, while strengthening the partnership with Artemis. The project will start in 2021 Q4 and be complete in 2024. Management also just increased the dividend to $0.15 in Q3 of 2021, a 25% YoY increase, demonstrating their commitment to shareholders.

What has the stock done lately?

The company has seen steady growth in the last month, seeing share price increasing 7.84% over that time period. At its current share price, WPM is trading at 47.15% upside from the original pitched price target of $29.50. The company in the last 6 months is down 3.46%, while being down 19.02% from the all-time high share price in July of 2020.

Past Year Performance: Wheaton’s share price has seen great growth after rebounding from a drastic sell off from its all-time high in July 2020. Share price for the year has been up 21.86%, primarily from the elevated commodity prices in the spring and summer of 2021. Going forward, Wheaton is poised to see growth, albeit at a slower rate than the first 6 months of the past year.

Source: FactSet

My Takeaway

Wheaton Precious Metals, while being an industry leader and have demonstrated their capabilities to diversify and expand their current portfolio, have already seen much of the growth attached to these strengths. Therefore, WPM has underperformed earnings and revenue expectations in 2021. This has raised concern over the firm’s long-term performance and it is for that reason that I recommend WPM should be sold from the AIM International Portfolio, recognizing 98.15% upside from the original purchase.

Source: FactSet