Wheaton simply a proxy for gold

Wheaton Precious Metals is the world’s largest pure streaming company providing exposure primarily to silver and gold. Wheaton has come a long way from just being a silver-focused company to one with a large portfolio comprising 26 assets and a balanced production profile.

The company currently has streaming agreements for 24 operating mines and eight development stage projects. It operates a portfolio of low-cost and long-life assets, with over 30 years of mine-life based on reserves, having high silver and gold production base. 

Wheaton’s assets include a gold stream on Vale’s Salobo mine, silver streams on Glencore’s Antamina mine, and Newmont Goldcorp’s Penasquito mine. Over two-thirds of Wheaton’s production comes from assets that fall in the lowest cost quartile and have over 30 years of mine-life.

Gold accounts for more than 60% of the company’s total revenue, followed by silver (~35%) and palladium (~5%). Wheaton has a high-quality stream portfolio with more than 95% of revenue from precious metals.

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Revenue Growth & Market Exposure

Wheaton Precious Metals changed its name from Silver Wheaton earlier to better reflect the company’s commitment towards precious metals like silver, gold, palladium, and cobalt. The company owns a portfolio of high-quality, low-cost, and long-life assets in politically stable jurisdictions.

Wheaton’s streaming agreement entitles it to procure precious metals from its mining partners for an upfront payment as well as an additional payment upon delivery. 

Wheaton reduces many of the downside risks faced by traditional mining companies. The company incurs no capital or exploration costs as it does not own these mines. The contracts are typically multi-year agreements wherein operating costs are predictable and contractually set at the time of the stream.

Over the last 15 years, Wheaton Precious Metals has partnered with leading global gold miners like Vale, Newmont Goldcorp, Glencore, Hudbay, Barrick, and has maintained sustainable relationships with its streaming partners. The mining companies are also entitled to greater value for their by-product precious metals by entering into a streaming agreement. 

YTD September 2020, the company entered into 23 long-term purchase agreements for precious metals and cobalt with 17 different mining companies in 11 countries. Wheaton’s long-term forecast stands at 750,000 GEOs per year on average between 2020 and 2024, and its development projects have the potential of adding over 200,000 GEOs per year.

Relative to the prior year, YTD production represented a 5% decline in gold equivalent production with gold and silver production declining by 8% and 0.6% respectively while palladium production increasing by 3.6%. Revenues increased by 27% YoY, primarily due to an increase in the realized selling price.

The company is anticipating COVID-19 to have a continued impact on its performance with many partners temporarily suspending operations due to government restrictions. Operations at a few of Wheaton’s mines remained suspended as a result of the pandemic. 

Dividends

Wheaton Precious is a Dividend Aristocrat. The company sports a dividend yield of 1.25% and a reasonable payout ratio of 45%. It last raised its dividend by 24% annually and has grown dividends at a rate of 16% CAGR in the last five years. Wheaton has declared $1.2 billion in dividends as of December-end 2020.

The company offers its investors both capital and operating cost predictability, and a way to play an increase in precious metals prices. It offers commodity prices upside to its investors with a minimal risk profile. A diversified portfolio further balances the impact of price volatility or weakness in other commodities.

Wheaton enters into multi-year agreements with mining companies which are contractually set at the time of the stream, granting more visibility and reducing risk. Wheaton is known for delivering high cash operating margins in the mining industry. Its cash cost for gold in the latest quarter was roughly $428 an ounce and $5.89 an ounce for silver.

Gold sold at near $1,906-an-ounce range, and silver fetched more than $24 per ounce in the last quarter. Wheaton also stands a good chance to benefit from growing cobalt demand arising from lithium-ion batteries that are used in emerging electric vehicles, smartphones, and other electrical devices. 

The company’s streaming business model enables predictable operating costs and no exploration/ capital costs. Predictable costs and lower risk provide for secure cash flows and sustainable dividends. The company typically returns 30% of its operating cash flows to its shareholders and maintains a high dividend yield when compared to other streamers.

Competition

Wheaton Precious Metals competes with the likes of Newmont Gold Corp., Franco Nevada, Agnico Eagle Mines, and Royal Gold. Franco Nevada is the leading gold-focused royalty and streaming company. Newmont is a leading gold producer headquartered in Colorado, while Royal Gold is another precious metals stream and royalty company focusing on gold. Agnico Eagle is a leading gold miner having extensive experience of more than 60 years. 

TickerCompanyMarket CapP/EAristocratGraphSectorIDIndustryID
NGTNewmont56.330.00NO1146
ABXBarrick Gold41.5813.08NO1146
FNVFranco-Nevada Corp33.1138.74YES1146
WPMWheaton Precious Metals Corp23.6529.52YES1146
TECK.BTeck Resources16.80108.81NO1173
AEMAgnico Eagle Mines16.5317.40YES1146
FMFirst Quantum Minerals Ltd.15.5838.56NO11116
PAASPan American Silver Corp6.5317.36NO1189
YRIYamana Gold4.9722.96NO1146
BTOB2Gold4.886.58NO1146
AGIAlamos Gold3.72132.41NO1146
OROsisko Gold Royalties2.53191.13NO1146
SVMSilvercorp Metals0.9317.22NO1189

Bottom Line

Wheaton Precious Metals is a premier streaming company. About 90% of Wheaton’s current production comes from mines operating at the lowest cost and the company benefits from mine exploration and expansion activities typically at no additional cost.

The company’s strong cash generation and available liquidity position it well to fund all outstanding commitments including dividends. The company expects to generate strong annual cash flows at current commodity prices.

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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.