Can Wheaton Precious Metals Rise Higher?


Wheaton Precious Metals [stock_market_widget type="inline" template="generic" color="default" assets="WPM.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has been on a terrific run so far this year, appreciating around 25% thanks to a better-than-expected quarterly report and an improving precious metals pricing environment.

The silver streaming company’s recently-released fourth-quarter results turned out to be ahead of expectations despite some concerns, but it remains to be seen if it can sustain its momentum for the remainder of the year.

Let’s take a closer look at what’s in store for Wheaton Precious Metals this year.

Not in Great Shape

Wheaton Precious Metals’ revenue fell nearly 19% year over year last quarter. Such a steep drop in the company’s top line was the result of a 23% annual drop in its silver production, which was enough to erase any gains the company would have recorded from an 11.5% increase in its gold output.

At the same time, Wheaton witnessed declines in the sales price of both gold and silver. More specifically, the company’s sales price per ounce of gold fell nearly 4%, while silver prices fell 12.5% year over year during the quarter. Not surprisingly, Wheaton witnessed a severe drop in its gold and silver margins.

Its cash operating margin per ounce of gold was down 6.6% annually, while the silver margin saw a much higher decline of 18.5%. Despite this weak performance, Wheaton shares have shot up strongly this year, and the weak operating performance didn’t impact investor sentiment negatively. That’s possible because the company’s production profile will stabilize this year as the company is taking steps to ensure the same.

A Better Year Ahead

Wheaton estimates production of 365,000 ounces of gold and 24.5 million ounces of silver this year. For comparison, the company had produced nearly 373,000 ounces of gold last year, while silver production stood at an identical level to this year’s forecast. That’s much better than the double-digit annual decline recorded by Wheaton last year.

Though the production outlook doesn’t appear to be that great at first, Wheaton investors are possibly excited by the approval received by Hudbay Minerals for the operation of its Rosemont copper mine.

It remains to be seen if Wheaton can actually deliver the growth that’s expected of it given the challenges that it is facing.

Wheaton has struck a streaming agreement with Hudbay. The streaming company will pay $230 million upfront to Rosemont in two installments in exchange for all the silver and gold produced at the mine at a cash price of $450 per ounce of gold and $3.90 per ounce of silver.

Once the company starts getting its gold and silver streams from Rosemont, Wheaton’s production profile will start improving. At the same time, the recent uptick in gold and silver prices will be a tailwind for the company in case it manages to boost its production.

That’s probably why analysts expect the company’s revenue to increase over 8% this year after last year’s decline. But it remains to be seen if Wheaton can actually deliver the growth that’s expected of it given the challenges that it is facing. Still, Wheaton investors can expect the company to sustain its momentum on the market even if it sticks to its current guidance and precious metal prices keep rising.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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