How Has Wheaton Precious Metals’ Revenue Composition Changed Over the Past 5 Years?
Silver was the mainstay of Wheaton‘s (NYSE: WPM) business five years ago as reflected by the below graph. However, the company has recently been capitalizing on streaming opportunities in gold to boost the share of gold streaming in its overall revenue. This has remained advantageous to Wheaton as an exposure to both gold and silver reduces a great degree of volatility to its revenue tied to a single commodity. The company’s recent decision to redefine its traditional name to Wheaton Precious Metals reflects the two-pronged growth strategy of the company.
The precious metal streaming business essentially provides a source of funding to traditional mining companies, with companies such as Wheaton providing upfront payments (which account for a portion of the capital expenditure for the construction or expansion of a mine) to traditional miners, in return for rights to precious metals produced as by-products from these mines.
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Silver rose by a mere 4% in 2017 whereas gold had risen by 13% in 2017. In such a scenario, Wheaton’s exposure to gold and silver limits the impact of such price variation on the company’s revenue. Looking ahead, we expect the share of both these precious metals in Wheaton’s revenue to remain about even, which is not surprising considering that the precious metals streaming business model is equally suitable for both gold and silver. Silver’s price is expected to revive in the next few years given the huge industrial potential for the precious metal in the solar industry. Likewise, gold’s traditional demand for jewelry is expected to remain robust in the upcoming year given an improved economic condition in China and India, gold’s largest markets. However, the investment demand for gold might see some volatility which would be reflected in its market price. Overall, an exposure to both silver and gold would continue to remain beneficial for Wheaton Precious Metals over the long run.
The above graph has been created using our new interactive platform, where you can modify our assumptions to see the impact on the overall revenue share for the company.
We have a $19 price estimate for the company which is 6% below the market price.
Have more questions about Wheaton Precious Metals? See the links below.
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