Wheaton Precious Metals Corp.

Wheaton Precious Metals Corp. (TSX: WPM) is a precious metals mining company and operates in Gold, Silver, Palladium etc. It has streaming agreements for approximately 19 operating mines and nine development stage projects.

Q1FY20 Financial Highlights: For the period ended March 31, 2020, WPM impresses with its quarterly results, wherein the Company reported sales of USD 254.78 million, as compared to USD 225.04 million in pcp. Gross margin soared to USD 123.04 million, as compared to USD 87.45 million, driven by lower cost of sales and lower depletion expenses. Earnings before finance costs and income taxes stood strong at USD 110.45 million, as compared to USD 71.18 million, thanks to lower general and administration expenses and an improved other income. Average cash costs in the first quarter of FY20 stood at USD 403 per ounce against USD 399 per ounce in the previous corresponding quarter. The Company posted its net income of USD 94.89 million, as compared to USD 57.34 million in pcp, thanks to a lower finance expense. The Company exited the quarter with cash and cash equivalent of USD 126.68 million and total assets of USD 6,076.94 million. During the quarter, the Company produced Gold equivalent of 182,241 ounces, reflecting an increase of 7.8% y-o-y basis. The Company repaid CAD 159 million under the Revolving Facility. Due to the ongoing COVID 19 shutdown, the Company withdrew its FY20 production guidance until further notice.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: EV to Sales Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of WPM has generated a strong return of ~66% in the last one year. The company’s financial performance was benefited by elevated gold prices in the international market. Investors should note that the stock is trading significantly higher above its 200 days simple moving average of CAD 41.28. The company offers one of the highest cash operating margins across the mining industry, which helps the company to pay a continuous dividend and supports the growth through acquisitions. Investors accumulated the stock in the recent past due to lucrative margins and strong financial muscle. Though, recently in a month-over period and in the past five trading sessions, WPM stocks have tumbled approximately 15.3% and traded below its short-term support levels of 5-day, 10-day and 30-day SMAs. We have valued the stock using EV to Sales based relative valuation method and have arrived at a target upside offering low single-digit (in percentage terms). For the said purposes, we have considered Average EV/Sales multiple of Metals and Mining Industry. Hence, we recommend a ‘Watch’ rating on the stock at the closing market price of CAD 50.70 on June 5, 2020 and look for the better entry point.

WPM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

NovaGold Resources Inc.

NovaGold Resources Inc. operates (TSX: NG) in the mining industry, focused on the exploration and development of gold mineral properties. The Company operates through its Donlin Gold project in Alaska, USA and has 50% interest in it. The Company is an exploration stage company and yet to report revenue.

Guidance: For FY20, the Company expects its total spending within the range of ~USD 31 million, out of which 20 million would be utilized for drilling programs in Donlin Gold project and remaining 11 million for general and administrative costs.

Q1FY20 Operational Highlights: For the period ended February 29, 2020, NV reported a higher total operating expense of USD 6.28 million, against USD 5.66 million in pcp, primarily due to a higher general and administrative expense. The Group’s net loss widens to USD 6.59 million, as compared to USD 6.32 million in pcp due to a higher loss from the operation, partially offset by an improved other income. The Company exited the quarter with cash and cash equivalent of USD 59.69 million, while total assets stood at USD 239.81 million. Total equity of the NV stood at USD 131.01 million, including an accumulated deficit of USD 1,891.66 million. During the period, the Company commenced 80-hole drill program where the Company foresees completing a total of 22,000-meters in the ACMA and Lewis resource areas.

Q1FY20 Financial Highlights (Source: Company Reports)

Stock Recommendation: The stock stood resilient and gained ~115%.  The Company has a partnership with Barrick Gold through Donlin Gold LLC and focusing on improvement on the project’s value and to lower initial capital outlays through innovative project designing and capital financing of some capital-intensive infrastructure. The company is into gold exploration and yet to report the revenue. Further, the drilling activities are put on hold owing to COVID-19 restrictions. As a result, the stock corrected ~23% in the last one month. We believe that the group is likely to witness delay in drilling activities owing to travel restrictions put in place. The stock is trading at forward P/BV multiple of 23.3x against the industry average (Metals and Mining) of 20.7x. Hence, we recommend a ‘Watch’ rating on the stock at CAD 12.16 on June 5, 2020.

NG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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