Wheaton Precious Metals: Another Record Year For This Streamer

Summary

  • The fourth quarter of 2021 generated revenue of $278.197 million, down 2.8% on a year-over-year basis and up 3.4% sequentially.
  • This quarter's attributable gold equivalent production was 186,404 GEOs compared to 178,801 GEOs in the prior-year quarter. The company sold 158,864 GEOs during 4Q21.
  • I recommend buying WPM at or below $44.5.
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Canadian Gold Maple Leaf ontop of American Silver Eagles

Nicholas Wright/iStock via Getty Images

Introduction

The Canadian company Wheaton Precious Metals (NYSE:WPM) released its fourth-quarter and full-year 2021 results on March 3, 2022.

Note: This article is an update of my article published on February 8, 2022.

1 - A quick snapshot of the quarter

The company generated revenues of $278.197 million during the 4Q21, down 3% on a year-over-year basis. The adjusted income was $132.23 million, or $0.29 per share, down from $149.441 million the same quarter a year ago. The downside was caused by a 5% decline in the average realized gold equivalent price.

In 2021, GEO's gold equivalent ounce production exceeded the midpoint of guidance primarily due to stronger-than-expected production from Peñasquito, Antamina, Constancia, and Voisey’s Bay, partially offset by weaker production from Salobo and Sudbury.

In 2021, GEO production was up 9.9% compared to 2020 (682,630 GEOs).

CEO Randy Smallwood said in the conference call:

2021 was another record year for Wheaton, driven by a strong quarter to close out the year. In the fourth quarter of 2021, we produced over 186,000 gold equivalent ounces, giving us a total of 753,000 gold equivalent ounces for all of 2021. This was slightly above the mid-point of our previously announced guidance.

2 - Stock performance

Wheaton Precious Metals is part of my core long-term streamer with Franco-Nevada (FNV). Below is the one-year performance.

WPM vs FNV vs RGLD vs SAND price
Data by YCharts

WPM jumped 23% on a one-year basis, underperforming its rival Franco-Nevada slightly.

3 - Investment Thesis

I have held a core long-term position for many years, and I have never been disappointed. The investment thesis remains the same for Wheaton Precious Metals and Franco-Nevada. Those companies are my "streamer of choice" and should be kept as a long-term investment.

However, short-term trading LIFO the gold price volatility is crucial, and I recommend allocating about 30%-40% of your position to take advantage of the short-term fluctuations. This dual strategy is even more vital now with the risk of inflation that could force the Fed to act more aggressively and hurt gold in the process.

Wheaton Precious Metals: Financials And Production In 4Q21

Wheaton Precious 4Q20 1Q21 2Q21 3Q21 4Q21
Total Revenues in $ Million 286.21 324.12 330.39 268.96 278.20
Net Income in $ Million 157.22 162.00 166.12 134.94 291.82
EBITDA $ Million 213.58 232.41 237.37 192.19 356.49*
EPS diluted in $/share 0.35 0.36 0.37 0.30 0.65
Cash from operating activities in $ Million 207.96 232.15 216.42 201.28 195.29
Capital Expenditure in $ Million

0.28

155.33

64.78

1.81

304.04*

Free Cash Flow in $ Million

207.68

76.82

151.63

199.48

-108.7*

Total cash $ Million 192.68 191.16 235.45 372.45 226.05
Long-term debt in $ Million 195.0 0.0 0.0 0.0 0.0
Dividend per share in $ 0.13 0.13 0.15 0.15 0.15
Shares outstanding (diluted) in Million 450.6 450.6 451.2 451.7 451.2
Production details 4Q20 1Q21 2Q21 3Q21 4Q21
Production in Gold Equivalent K Oz GEO 178.8 190.4 194.1 184.9 186.4
Production in Silver Equivalent Oz SEO 14,900 13,706 13,978 13,314 13,421
Gold price realized $/Eq. Oz GEO 1,882 1,848 1,870 1,764 1,798
Silver price realized $/Eq. Oz SEO 24.72 25.66 25.97 24.51 23.36
The gold/silver ratio 76.1 72.0 67.5 72.0 77.0

Source: Company release

* Estimated by Fun Trading

Note: Historical data (more than four years) are only available for subscribers.

Analysis: Revenues, Earnings Details, Free Cash Flow, Debt, And Gold Production Details

1 - Revenues: Wheaton Precious Metals posted $278.20 million in revenue for 4Q21

Wheaton Precious Metals revenues

WPM: Chart Quarterly Revenues history (Fun Trading)

The fourth quarter of 2021 generated revenue of $278.197 million, down 2.8% on a year-over-year basis and up 3.4% sequentially.

The adjusted net earnings were $132.23 million, or $0.29 per share, compared to $149.441 million, or $0.33 per share in 4Q20. Cash costs were $429 per GEO, higher than $415 per ounce a year ago.

The downside was caused by a 5% decline in the average realized gold equivalent price, partially compensated by a 2% increase in the number of Gold Equivalent Ounces sold.

Cash from operating activities for the fourth quarter of 2021 was $195.29 million compared to $207.96 million in the prior year.

Below presented is the revenue per metal for the last four quarters. Cobalt production started in 1Q21:

Wheaton Precious Metals revenues per metals

WPM: Chart revenue per quarter in 2021 (Fun Trading)

As we can see, gold represents 51.5% of the total revenue this quarter.

Note: During the three months ended December 31, 2021, Wheaton received its fourth cobalt deliveries under the Voisey's Bay precious metal purchase agreement.

The gold price dropped slightly sequentially at $1,798 per GEO, while the silver price was also down at $23.36 per SEO, as we can see in the graph below:

Wheaton Precious Metals gold and silver price history

WPM: Chart gold and silver price history (Fun Trading)

2 - Free cash flow was a loss estimated at $108.7 million in 4Q21

Wheaton Precious Metals Free cash flow

WPM: Chart Free Cash Flow history (Fun Trading)

Note: The generic free cash flow is the cash from operations minus Capex.

On December 31, 2021, the trailing twelve-month FCF was estimated at $319.23 million, and the fourth quarter of 2021 was estimated at a loss of $108.7 million.

The Board of Directors declared a dividend of $0.15 per common share or a yield of 1.25%.

Note: Wheaton Precious Metals is a Canadian company, and dividends are subject to Canadian tax (15%) taken at the source, reducing the amount paid for US investors.

3 - Available capital, no debt, and liquidity

On December 31, 2021, Wheaton Precious Metals had cash and cash equivalents of $226.045 million and no debt outstanding, which is positive from a long-term investment perspective.

The company has a $2 billion revolver facility that has been extended for another year (see below).

The chart below shows a significant debt reduction:

Wheaton Precious Metals cash vs debt

WPM: Chart Cash versus Debt history (Fun Trading)

Wheaton Precious Metals balance sheet

WPM: Balance sheet presentation (Wheaton Precious Metals)

4 - Production in gold equivalent ounce and trend details

Wheaton Precious Metals production

WPM: Chart Production GEO history (Fun Trading)

This quarter's attributable gold equivalent production was 186,404 GEOs compared to 178,801 GEOs in the prior-year quarter. The company sold 158,864 GEOs during 4Q21, up 2% from the prior-year quarter’s 155,665 GEOs.

Wheaton's metals production was:

  1. 88,321 Au ounces.
  2. 6,356 Ag K ounces.
  3. 4,733 Pd ounces.
  4. 381 M Lbs of Cobalt.

Wheaton Precious Metals Gold vs silver

WPM: Chart ratio gold silver (Fun Trading)

The gold/silver ratio is 1:77 this quarter (see chart above).

5 - 2020 Reserves (Total Proven and Probable) and 2021 guidance and recent acquisitions

5.1 - Reserves 2021

Total Reserves P3 are 14.01 Moz of gold, 567.9 Moz of silver, 0.63 Moz of palladium, 0.17 Moz of platinum, and 31.4 Moz of cobalt.

5.2 - 2022 Guidance revised

Wheaton Precious Metals guidance

WPM: 2022 Guidance (Wheaton Precious Metals)

The company expects 700K to 760K GEOs in 2022.

The production for 2022 is expected to be slightly lower than what was produced in 2021. The forecast for 2023-2026 is expected to be 850K GEOs, and for 2023-2031, it is expected to be 900K GEOs. Both estimates are well above 2021 production.

5.3 - Acquisitions in 2022

On December 13, 2021, WPM entered into a precious metals purchase agreement ("PMPA") with Artemis Gold Inc. (OTCPK:ARGTF) to acquire silver production from Blackwater Gold Project. The company acquired the existing gold stream from New Gold Inc. (NGD).

Wheaton will pay New Gold an upfront consideration of $300 million after the gold stream deal’s closure. The company will pay Artemis a total cash consideration of $141 million, payable in four equal installments during the construction of the Blackwater Project.

On December 22, 2021, Wheaton entered into a PMPA with Generation Mining Limited to acquire gold and platinum production from the Marathon Project.

On January 17, 2022, Wheaton entered into another PMPA with Alliance Metals International to acquire gold and silver streams from the Adventus Curipamba Project.

Finally, on February 8, 2022, Wheaton entered a definitive purchase agreement with Sabina Gold & Silver Corp. (OTCQX:SGSVF) regarding the Goose Project, part of Sabina's 100% owned Back River Gold District in Nunavut, Canada.

Technical Analysis and Commentary

WPM technical analysis

WPM: TA Chart (Fun Trading)

Note: The chart is adjusted for the dividend.

WPM forms an ascending wedge pattern with resistance at $49.5 and support at $44.5. The trading strategy is to sell about 30% of your position between $49 and $49.5.

I believe it is safe to accumulate WPM below $44.5. However, if the stock breaks down, the next lower support is $42.5. I suggest buying slowly using about four lots between $44.5 to $42.5.

While the gold price is up significantly on record inflation and the conflict between Russia and Ukraine, I believe it faces a potential weakness if the Fed decides to hike interest rates to control it. Following a record rally in oil, gas, base metals, and even wheat, Inflation is about to explode.

The Fed will meet this week to decide on an effective strategy to slow down rampant inflation. Thus, hiking interest by 25-point or 50-point is widely expected and harmful for the gold price.

Thus, I recommend keeping a core long-term position and using about 30% to trade LIFO while waiting for a higher final price target to profit from your core position.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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This article was written by

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20.11K Followers
As an experienced investor, I will help you stay on task more efficiently.

I am a former test & measurement doctor engineer (geodetic metrology). I was interested in quantum metrology for a while.

I live mostly in Sweden with my loving wife.

I have also managed an old and broad private family Portfolio successfully -- now officially retired but still active -- and trade personally a medium-size portfolio for over 40 years.

“Logic will get you from A to B. Imagination will take you everywhere.” Einstein.

Note: I am not a financial advisor. All articles are my honest opinion. It is your responsibility to conduct your own due diligence before investing or trading.

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Disclosure: I/we have a beneficial long position in the shares of FNV, WPM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I trade short-term FNV and WPM regularly.

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