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 Updates:

• Acquisition Update: The company announced the 100% acquisition of Goose Project from Sabina Gold & Silver Corp. at an upfront payment of USD 125 million in four equal installments. This project is located the prosperous Back River Gold District located in Nunavut, Canada. The mine is expected to produce ~11.7 koz of gold per year for the first five years, and ~10.7 koz of gold per year for the next ten years. Notably, this is expected to increase WPM’s proven and probable gold reserves by 0.14 million of ounces.
  

• FY21 results stood in-line with guidance: The company reported its FY21 gold production of 342,546 ounces, which is close to the upper bracket of the guidance of 330,000 to 345,000 ounces. Total production of gold equivalent ounces stood at 750,220 ounces, which is within the company’s guidance of 735,000 to 765,000 Notably, gold sales stood at 312,465 ounces in FY21. This impressive performance was driven by stronger than expected production from Peñasquito, Antamina, Constancia and Voisey's Bay mines, partially offset by weaker production from Salobo and Sudbury mines.

     Source: Company report

• Strong profitability margins: The company commands a higher margin than the industry median, which is a key positive and illustrates improved operational efficiency. Notably, the company reported its gross margin and EBITDA margin at 56.3% and 71.9%, respectively, in Q3FY21, higher than the industry median of 50.8% and 39.8%, respectively. Additionally, the company’s net margin stood relatively higher at 50.2% in Q3FY21, versus the industry median of 14.8%.

Risks associated with the investment:

The performance of the company is highly correlated to the international metal prices, and volatility in the same would lead to lower realization prices and subsequently dampen the company’s performance. 

Q3FY21 Financial Highlights: (Thousands in USD)

 Q3FY21 Income Statement Highlights (Source: Company Reports)

• WPM announced its quarterly result, wherein it reported its sales of USD 268.9 million, lower than USD 307.2 million in pcp. The slide was primarily due to lower gold sales coupled with lower realization rate.
• Gross margin stood at USD 151.4 million, slide from USD 176.5 million in pcp, due to lower sales. This was partially offset by lower total cost of sales (USD 117.5 million v/s USD 130.7 million in pcp).

• The quarter was marked by lower general & administrative expenses (USD 13.5 million v/s USD 21.3 million in pcp) coupled with a decline in other expenses (USD 1.1 million v/s USD 2.6 million in pcp). Despite lower costs, the company reported its earning before finance costs and income taxes stood at USD 136.7 million v/s USD 152.5 million in pcp.

• Net earnings stood at USD 134.9 million, as compared to USD 149.8 million in pcp, due above-mentioned reasons coupled with income tax expense of USD 0.433 million v/s an income tax recovery of USD 0.043 million in pcp.

 Valuation Methodology (Illustrative): Price to CF-based

Analysis by Kalkine Group 

Stock Recommendation

For FY22, the company expects its production of 350,000 to 380,000 ounce of Gold and 23,000 to 25,000 thousand ounces of silver. Other metal production is expected in between 44,000 to 48,000 GEOs. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Franco-Nevada Corp, Osisko Gold Royalties Ltd and Sandstorm Gold Ltd. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of WPM at the closing price of CAD 57.21 on March 02, 2022.

One-Year Technical Price Chart (as on March 02, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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