With Gold Prices And Production On The Decline, What’s Next For Wheaton Stock?

Wheaton Precious Metals stock (NYSE:WPM) has declined by almost 10% over the last month and remains down by close to 27% year-to-date, as bullion prices remain under pressure. Gold prices have declined around 17% from $2,050 per ounce in mid-March to levels of $1,720 at present, with prices remaining down by 4% year-to-date.  Silver, which is the second biggest driver of Wheaton’s revenue, has also corrected by about 20% thus far in 2022.  Things could remain tough as investors expect that interest rates will continue to move higher following hawkish comments from top central bankers at the Jackson Hole conference late last month, amid a need to fight soaring inflation. Higher rates have led to a stronger U.S. dollar and a recovery in yields of treasuries – both considered safe-haven assets –  putting pressure on the price of non-yielding bullion. Moreover, Wheaton’s revenues have also taken a hit recently, falling about 8% year-over-year to $303 million in Q2 2022 due to weaker gold production at its Salobo and Stillwater mines. The weaker recent production has also made the company lower its production guidance for 2022 to approximately 640,000 to 680,000 gold equivalent ounces from a previous estimate of 700,000 to 760,000.

Indicators point to a recession in the United States.  GDP has contracted over the last two-quarters straight with the yield curve remaining inverted, as the 10-year treasury yield remains below the two-year yield. Geopolitical uncertainties have been growing following Russia’s ongoing invasion of Ukraine. Trefis believes that these factors are likely to eventually propel gold prices higher until global macroeconomic and geopolitical stability is attained. Considering that about 52% of Wheaton’s sales in Q2 came from gold and 43% from silver, there could be an upside to the stock if investors eventually seek safe havens in the event of a recession. Wheaton’s balance sheet also looks stronger, as it has largely paid down debt over the last few years, with its cash and cash equivalents standing at a healthy $449 million at the end of the last quarter. We estimate Wheaton Precious Metals valuation at $47 per share, which is about 50% ahead of the current market price. See our analysis of Wheaton Precious Metals revenue for more details on the company’s business model and key revenue streams.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

[1] Month-to-date and year-to-date as of 9/6/2022
[2] Cumulative total returns since the end of 2016