Wheaton Precious Metals Corp. (TSX: WPM) is one of the largest precious metals streaming companies across the globe and operates through projects like Vale's Salobo mine and silver streams on Glencore's Antamina mine and Goldcorp's Penasquito mine.

Key highlights

• Highly Diversified Portfolio: Silver is expected to account for about 38% of consolidated revenue in fiscal years 2022-2026E. Furthermore, the aforementioned metal's demand is expected to continue high in the coming days due to its widespread use in a variety of sectors such as electric cars, solar panel manufacture in renewable energy, and so on. Moreover, the firm benefits from the diversity of different locations, which reduces the risk of operating in a single region.

Source: Company Filing

• Production Guidance: In FY 2022, the Company expects to produce 350,000 to 380,000 ounces of gold, 23.0 to 25.0 million ounces of silver, and 44,000 to 48,000 gold equivalent ounces (“GEOs”) of other metals, for a total of 700,000 to 760,000 GEOs. It estimates that average production will be 850,000 GEOs over the five years ending in 2026, while for the ten years ending in 2031, its average annual production will amount to 910,000 GEOs.

Source: Company Filing

• Strong Liquidity: In terms of liquidity, the USD 376 million in cash and cash equivalents as of March 31, 2022, combined with the liquidity provided by the USD 2 billion revolving term loan and ongoing operating cash flows, positions the Company well to fund all outstanding commitments and known contingencies. Additionally, it also provides flexibility to acquire further accretive mineral stream interests.

• Industry beating margins: The resilient business, management’s solid determination along prudent steps and higher average realizations of gold and cobalt helped in leaping the industry median margins on many fronts in Q1 2022, which is a key positive. The chart below gives a glimpse of this.

Source: REFINITIV, Analysis by Kalkine Group 

Risks associated with investment 

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any drawdown in the gold and silver prices would impact the group’s performance.

Financial Overview of Q1 2022

Source: Company Filing

• WPM announced its Q1 2022 result, wherein it reported sales of USD 307.2 million, which fell from USD 324.1 million in pcp. This 5% decrease in revenue from the first quarter of 2021 due primarily to a 4% decrease in the number of GEOs sold.
• Gross profit stood at USD 179.8 million, up from USD 175.1 million in pcp, supported by the lower cost of sales which stood at USD 127.3 million in the reported period against USD 148.9 million in pcp.
• The period was marked by higher share-based compensation, which dragged the earnings from operations to USD 159.7 million in Q1 2022, compared to USD 163.1 million in pcp.
• Net earnings stood at USD 157.4 million, compared to USD 162.0 million in Q1 2021, partially offset by higher income tax cost.

Valuation Methodology (Illustrative): EV to Sales

*1USD=1.30 CAD

Analysis by Kalkine Group 

Stock Recommendation

Wheaton Precious Metals once again had a solid start to the year FY2022, generating over USD 210 million in operating cash flow, thanks to a well-diversified portfolio of high-quality, long-life assets. The firm also stayed focused on accretive expansion, adding two additional streams to its powerful portfolio in the last three months alone. Furthermore, it outperforms the industry median margins on a number of fronts in Q1 2022, which is impressive.

Hence considering the aforesaid facts and valuation, we recommend a “Buy” rating at the last closing price of CAD 51.36 as on May 12, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. 

One-Year Technical Price Chart (as on May 12, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary

Disclaimer

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