Wheaton to Grow on Mine Expansions & Higher Gold Prices
On Mar 30, we issued an updated research report on Wheaton Precious Metals Corp. WPM. The company is poised to gain from higher gold and silver production for the current year, investments in mine expansions, acquisitions and higher gold prices.
Upbeat 2020 Prospects
Wheaton strives to generate revenues from a diverse production profile of precious metals, including gold, silver and palladium. For the current year, the company expects to produce 390,000 to 410,000 ounces of gold, silver between 22 million ounces and 23.5 million ounces, and palladium in the band of 23,000-24,500 ounces. The company has reiterated its current-year and long-term production guidance announced in February. Gold production is expected to be solid, primarily aided by the Salobo and San Dimas mines. Silver production will likely be stable this year as growth from Penasquito might be partially offset by slight declines at Antamina and Constancia due to mine planning.
The company estimates annual gold equivalent production to average 750,000 ounces per year, primarily on continued growth at the Penasquito, Constancia, Stillwater and Salobo mines. For the five-year period ending in 2024, the company estimates that average annual gold equivalent production will amount to 750,000 ounces.
Mine Expansions to Aid Growth
Wheaton receives benefit from mine exploration and expansion activities. The company expects higher production of silver grade at the Penasquito mine in 2020 as Newmont initiates improvement program to drive productivity and grade. At Constancia, Hudbay has secured the surface rights for the Pampacancha deposit and expects to begin mining the satellite deposit in late 2020. At the Stillwater mine, palladium and gold production is likely to increase with the continued ramp-up of the mill projects. These projects are expected to be growth drivers in the coming years. Last October, Vale invested in the Salobo III mine expansion, wherein 40% expansion has been completed. Vale anticipates that the Salobo expansion is scheduled to commence in the first half of 2022. This will enhance the mine’s throughput capacity to 36 million ton per annum (Mtpa) from the current level of 24 Mtpa.
However, metal producers worldwide are suspending production, slowing project construction as governments are imposing restrictions to contain the spread of coronavirus. Hence, Vale S.A VALE announced that it is placing its Voisey's Bay mining operation in Canada on care and maintenance for a period of four weeks. In 2018, Wheaton acquired two new low-cost, long-life assets to its high-quality portfolio, the Voisey’s Bay mine and the Stillwater mines. Hence, suspension of mining operations is likely to hurt Wheaton’s business in the near term. The company is taking precautionary measures for health and safety of its employees on account of the coronavirus outbreak and implementing measures to minimize any possible impact on the business.
Higher Gold Prices & Strong Financial Position Drive Growth
Gold prices have been up 6.7% so far this year fueled by the slowdown in manufacturing activity, rate cuts, geopolitical tensions, and apprehensions regarding the coronavirus outbreak. The combination of lower mined-gold supply and higher demand, and geopolitical tensions are likely to drive prices north. This bodes well for Wheaton.
The company’s cash position, strong operating-cash flows, combined with available credit capacity under the revolving facility of $2 billion, help invest as well as sustain its dividend policy. These also provide flexibilities to acquire additional accretive precious metals. For 2020, Wheaton’s board of directors hiked the quarterly dividend by 11% year over year to 10 cents per share.
Silver Wheaton Corp Price and Consensus
Silver Wheaton Corp price-consensus-chart | Silver Wheaton Corp Quote
Zacks Rank & Other Stocks to Consider
Wheaton currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the basic materials space are Newmont Corporation NEM and Franco-Nevada Corporation FNV, both currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Newmont has an expected earnings growth rate of 72% for 2020. The company’s shares have gained 35.7% in the past year.
Franco-Nevada has an anticipated earnings growth rate of 37.6% for the ongoing year. Its shares have appreciated 46.6% over the past year.
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