Wheaton Precious Metals Gives Back To Shareholders As Big Deals Remain Elusive - Smallwood
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(Kitco News) - With few major headline grabbing deals in the marketplace, Wheaton Precious Metals (NYSE: WPM, TSX: WPM) is using its cash flow in another way to attract investors to the much beat up mining sector.
In its earnings report, released Thursday evening, the gold and silver streaming company, formerly known as Silver Wheaton, announced that it would increase its dividend to $0.10 per common share, a 43% increase from the previous quarter’s payout.
In an interview with Kitco News, Randy Smallwood, president of Wheaton Precious Metals said that the dividend now represents 30% of the company’s free cash flow.
“We think our stock is very undervalued relative to our peers,” he said. “We are generating more metal than anyone of our peers; we’re generating substantially more cash flow than anyone and we are only paying back 20% of our cash flow to our investors. We thought this would be a good way to highlight the strength of our company.”
Smallwood’s comments come the day after the company announced set second quarter earnings of $68 million dollars or $0.15 per share, up from net earnings of $60 million or $0.14 seen in the second quarter of 2016.
In the second quarter of this year, Wheaton Precious metals said that it produced 7.2 million ounces of silver and 78,100 ounces of gold, compared with 7.6 million ounces of silver and 71,200 ounces of gold in Q2 2016.
The company’s dividend strategy comes at a time when there is a dearth of major projects on the horizon. Smallwood said that it is difficult finding the big project deals as companies are still hesitant to invest major capital to develop projects.
Smallwood said that major mining companies have just only recently managed repair their balance sheets that were damaged following a multi-year bear market and they are in the process of determining which projects are most viable.
“We are seeing a lot of development and early stage stuff but we are not seeing a lot of the bigger projects and I think it has to do with the fact that the mining sector is in a transition period,” he said. “Some of the bigger companies are waiting for a little more stability.”
However, the sector is coming to a tipping point where companies need to find and develop new resources.
“Eventually the supply side will support the market because current market conditions are not sustainable,” he said. “It is one of the reasons why I am more bullish on silver than gold because it has actually hit peak production.”
The Resource Sector Is So Beat Up, Now Is The Time To Buy
While current market conditions, with significantly lower trading activity, compared to historic norms, is hurting the sector’s ability to raise capital and attract investor interest, Smallwood said that he is not too worried.
Ultimately, the companies with solid management and solid projects will raise the capital they need, he said.
“As long as you have a sound business plan with solid assets then you should be find. The companies that fail are probably the ones that need to fail. It’s a natural sorting process that all sectors go through,” he said.
The TSX Venture Index, which is heavily weighted towards the resource sector has seen its daily average volume drop by almost half in recent months, according to some analysts. But, Smallwood is confident the sector will be able to bounce back.“The key for any sound investment strategy is to sell on the highs and buy on the lows. I would say that the resource sector as a whole is at a low and while the equity market, the S&P 500 is at a high,” he said. “The only question is when do you pull the switch into the resource sector?”