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

• Strong momentum from silver segment:The company reported strong demand from its silver segment and posted its silver sales of 22,860 ounces, reflecting 18.9% y-o-y growth over FY20. Additionally, the realization price of silver stood at USD 25.08/ounce in FY21, up 20.7% on y-o-y basis. This resulted to higher silver revenue of USD 573.4 million in FY21, as compared to USD 399.6 million in FY20.

• Higher operating cash flows: On the back of agile management, record revenues and higher average realization price of metal in FY21, the company reported its operating cash flows of USD 845.1 million, which is 10.4% higher compared to CAD 765.4 million in pcp. This might support the overall liquidity position and is a key positive for the company.

• Future guidance on production: In 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

• Industry beating margins: The resilient business, management’s solid determination along prudent steps and higher average realizations of the different metals helped in leaping the industry median margins on many fronts in FY 2021, 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 prices would impact the group’s performance. 

Financial overview of FY21

Source: Company Filing

• WPM announced its full-year result, wherein it reported sales of USD 1,201.6 million, grew from USD 1,096.2 million in FY20. The increase was primarily due to higher silver sales coupled with increase in realized prices of other metals also.
• Gross profit stood at USD 658.9 million, up from USD 585.5 million in previous year, supported by the elevated sales as mentioned above. This was partially offset by higher total cost of sales (USD 542.7 million v/s USD 510.6 million in FY20).
• The period was marked by lower general & administrative expenses and reported an income from reversal of impairment of mineral stream interests amounting USD 156.7 million. This was partially offset by an increase in other expenses.
• Net earnings stood at USD 754.8 million, surged from USD 507.8 million in FY20, due above-mentioned reasons coupled with significantly lower finance costs.

Valuation Methodology (Illustrative): EV to Sales

Analysis by Kalkine Group

*1USD=1.25CAD 

Stock recommendation 

Wheaton achieved record annual revenue and operational cash flow in 2021, thanks to a well-diversified portfolio of high-quality, long-life assets. The firm also stayed focused on accretive expansion, adding five additional streams to its powerful portfolio in the last four months alone. This additional increase is immediately visible in the ten-year production prediction, which shows yearly production rising to well over 900,000 gold equivalent ounces, which is a significant positive. Furthermore, it outperforms the industry median margins on a number of fronts in fiscal year 2021, which is impressive.

Hence considering the aforesaid facts, we recommend a ‘Hold rating at the last closing price of CAD 64.62 as on April 20, 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 April 20, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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