Wheaton Packs a Powerful Precious Metals Punch with Growth Plans

Wheaton Precious Metals Poised for Major Growth and Innovation

Precious metals streaming company Wheaton Precious Metals finds itself at an inflection point, according to CEO Randy Smallwood in a recent interview. The company has embarked on an ambitious multi-year growth strategy aimed at increasing production by up to 50% through internal initiatives and partnerships. Wheaton is also pioneering efforts to modernize gold trading through digitization and blockchain technology.

With commodity prices rising and Wheaton’s stock undervalued, Smallwood believes now is an opportune time for investors to gain exposure to the company’s upside potential. “I don't think there's ever been a better time to own more Wheaton,” he remarked.

Ramping Up Production

A core part of Wheaton’s strategy centers on aggressively expanding production over the next several years. “We’ve just started off a pretty aggressive growth campaign and for the next over the next four or five years we'll be increasing production by pretty close to 50%,” Smallwood explained. This projection does not even include potential acquisitions.

He noted that for a company of Wheaton’s size, with a market capitalization over $20 billion, targeting 50% production growth is ambitious. “There's nothing that exists in the streaming and royalty space...that has the amount of growth that we have,” Smallwood said. “We are going to take streaming to a whole new level in terms of the scale and size of what we're actually delivering.”

Smallwood expects the company’s growth profile to drive increased cash flow, even if commodity prices stay flat. Wheaton currently generates around $1 billion in annual operating cash flow, which could grow substantially as production expands. The growth will come through both existing assets and new streaming agreements. On the former, Wheaton’s flagship Salobo mine in Brazil is ramping up operations after some delays last year. On the latter, the company has been busy reviewing many new opportunities.

Disciplined Deal-Making

When it comes to new deals, Wheaton is selective, targeting high-quality mines with low costs and strong margins. “The most important thing for us is that it's got high operating margins,” Smallwood said. “We want to make sure our partners are profitable, and in fact the more profitable they are the more focused they are on maximizing value.”

By partnering with mines in the lowest-cost quartiles globally, Wheaton is able to secure better terms and strong cash flows. Currently, 93% of the company’s production comes from mines ranked in the bottom half of their respective cost curves. This gives Wheaton a competitive advantage in terms of risk-adjusted returns. Beyond cost considerations, Wheaton looks for operators with good community and government relations. The company has learned that fostering strong local relationships is crucial for mines to maintain productivity and minimize disruptions.

Moreover, Wheaton prides itself on being a value-added partner, not just a passive investor. “That’s a key difference between a stream and a royalty – streams are partnerships,” Smallwood said. This means engaging frequently with mine operators, providing support, and sharing ideas to help improve processes.

Bringing Gold Trading into the Digital Age

In addition to its ambitious organic growth plans, Wheaton is also pioneering innovation around how gold is traded in financial markets. The company is working on utilizing blockchain technology to introduce digitized and tokenized gold trading.

“It’s time to get gold to the point of where you can trade at 24 hours a day seven days a week,” Smallwood said. “The technology is there; we've seen the technology we know it works now it's a matter of applying it.”

The goal is to transition towards instant settlement and enable gold to be traded around the clock like other major asset classes. This initiative would also allow for greater tracking of provenance and providence through the gold supply chain. By enhancing liquidity and auditability, digitized gold trading could make the precious metal more appealing to mainstream investors and institutions. Currently, lack of standardization and transparency are barriers to broader adoption.

While monetary metals like gold cannot be manipulated in the same way as fiat currencies, bringing blockchain technology to bear can nonetheless improve fungibility and the depth of the market. This modernization effort has buy-in from major players in the industry as well as regulatory bodies.

Delivering Value to Shareholders

With its ambitious growth plans, Wheaton appears well-positioned to create substantial value for shareholders in the years ahead. The company currently maintains a strong balance sheet, with over $800 million in cash and no debt as of Q2 2022. This provides flexibility to fund expansion efforts.

Wheaton also offers shareholders exposure to commodity upside along with substantive dividend payouts. The company returns over $400 per ounce produced back to shareholders in dividends, surpassing all competitors in the mining industry. The dividend yield is variable and tied to volume, which provides an extra boost when production is rising. Combined with share repurchases, Wheaton delivered over $600 million back to shareholders in 2021.

Moreover, with shares potentially undervalued currently, investors have an opportunity to gain exposure at a reasonable entry point. Wheaton trades at around 2.3x cash flow, a discount to royalty and streaming peers. As commodity prices and production volumes grow, Smallwood sees an upside for revenue, cash flow and ultimately shareholder returns.

Key Takeaways for Investors

Here are some of the key takeaways from Smallwood’s commentary that make Wheaton Precious Metals an attractive investment opportunity:

• Targeting up to a 50% increase in production over the next 4-5 years
• Pioneering digitization of gold trading through blockchain
• Selective deal-making focused on lowest-cost, highest-margin mines
• $1 billion+ in annual operating cash flow, set to expand with growth
• Debt-free balance sheet with over $800 million in cash
• Industry-leading dividend payouts exceeding $400/oz
• Attractive entry point trading at a discount to peers
• Leveraged to potential precious metals bull market

With its ambitious plans for growth and innovation, Wheaton appears to offer a unique value proposition as both a streaming company and a technology disruptor. For investors, the company provides upside exposure to commodity prices along with substantive, low-risk cash flow.

As Smallwood sums up, Wheaton finds itself at an exciting inflection point, with production ramping up as gold enters a new phase of digital evolution. Backed by a healthy balance sheet, selective deals and loyal partnerships, the company seems poised to deliver major shareholder value both today and into the future. In the world of precious metal streaming, Wheaton may very well have the Midas touch.