Wheaton Precious Metals is the world’s largest streaming-only company, primarily selling silver and gold. Wheaton has come a long way from being a silver-focused company to one with a large portfolio of 26 assets and a balanced manufacturing profile.
The company currently has streaming agreements for 24 operational mines and eight projects in development. The company operates a portfolio of low-cost, long-lived assets with over 30 years of lifespan based on reserves and a high silver and gold production base.
Wheaton’s assets include a gold stream at Vale’s Salobo mine, silver streams at 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 a lifespan of over 30 years.
Gold accounts for more than 60% of the company’s total sales, followed by silver (~ 35%) and palladium (~ 5%). Wheaton has a high quality stream portfolio with more than 95% of sales in precious metals.
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Sales growth and market presence
Wheaton Precious Metals previously changed its name from Silver Wheaton to better reflect the company’s commitment to precious metals such as silver, gold, palladium and cobalt. The company owns a portfolio of high quality, affordable, and durable assets in politically stable jurisdictions.
Wheaton’s streaming agreement entitles the company to source precious metals from its mining partners for an upfront payment and an additional payment on delivery.
Wheaton reduces many of the downside risks traditional mining companies face. The company incurs no capital or exploration costs as it does not own these mines. The contracts are usually multi-year contracts where the operating costs at the time of the stream are predictable and contractually determined.
For the past 15 years, Wheaton Precious Metals has worked with the world’s leading gold mining companies such as Vale, Newmont Goldcorp, Glencore, Hudbay and Barrick, and has maintained lasting relationships with its streaming partners. The mining companies are also entitled to higher value for their precious metals by-product by entering into a streaming agreement.
In September 2020, the company signed 23 long-term purchase agreements for precious metals and cobalt with 17 different mining companies in 11 countries. Wheaton’s long-term forecast is an average of 750,000 GEOs per year between 2020 and 2024, and its development projects have the potential to add over 200,000 GEOs per year.
Year over year, YTD production meant a 5% decrease in gold equivalent production, with gold and silver production decreasing 8% and 0.6%, respectively, while palladium production increased 3.6%. Revenue increased 27% year over year, mainly due to an increase in the realized selling price.
The company expects COVID-19 to continue to affect its performance as many partners temporarily cease operations due to government restrictions. Operation of some of Wheaton’s mines has been suspended due to the pandemic.
Wheaton Precious is a dividend aristocrat. The company has a dividend yield of 1.25% and a reasonable payout ratio of 45%. Most recently, it increased its dividend by 24% per year and has increased its dividend by 16% CAGR over the past five years. Wheaton paid dividends of $ 1.2 billion through December 2020.
The company provides its investors with predictability in both capital and operating costs, as well as an opportunity to see precious metals prices rise. It offers its investors commodity prices with a minimal risk profile. A diversified portfolio further offsets the effects of price volatility or weakness in other commodities.
Wheaton signs multi-year contracts with mining companies that are contracted at the time of the stream to provide greater visibility and reduce risk. Wheaton is known for its high cash operating margins in mining. The cost of cash for gold last quarter was approximately $ 428 an ounce and $ 5.89 an ounce for silver.
Gold sold in the nearly $ 1,906 an ounce range, and silver topped $ 24 an ounce in the most recent quarter. Wheaton also has a good chance of capitalizing on the growing demand for cobalt resulting from lithium-ion batteries used in emerging electric vehicles, smartphones, and other electrical devices.
The company’s streaming business model allows for predictable operating costs and no exploration / capital costs. Predictable costs and lower risk ensure safe cash flows and sustainable dividends. The company typically returns 30% of its operating cash flow to its shareholders and maintains a high dividend yield compared to other streamers.
Wheaton Precious Metals competes with companies like Newmont Gold Corp., Franco Nevada, Agnico Eagle Mines, and Royal Gold. Franco Nevada is the leading gold-focused licensing and streaming company. Newmont is a leading gold producer headquartered in Colorado while Royal Gold is another precious metals stream and licensing company focused on gold. Agnico Eagle is a leading gold miner with over 60 years of experience.
Wheaton Precious Metals is a leading streaming company. Approximately 90% of Wheaton’s current production is from mines operated at the lowest cost, and the company benefits from mine exploration and expansion activities, usually at no additional cost.
The company’s strong cash generation and available liquidity make it possible to fund all outstanding obligations including dividends. The company expects strong annual cash flows at current raw material prices.
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