Wheaton Precious Metals (WPM, $43.48): “Not So Precious Anymore”
By: Alexander
Mastalish, AIM Student at Marquette University
Summary
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.
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.
