Wheaton Precious Metals Corp.

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:

• Latest Acquisition update: During the month of December 2021, the company reported the following acquisitions:
  • On December 13, 2021, the company acquired the gold and silver streams on the Blackwater Project from New Gold Inc. at a price consideration of USD 441 million. The above will increase Wheaton's estimated Proven and Probable gold reserves by 0.47 Moz and silver reserves by 31.0 Moz. Notably, attributable gold production is estimated ~28 koz/year for the first ten complete years. 
  • The company also acquired the Marathon Project located in Ontario, Canada from Generation Mining Limited at a price consideration of CAD 240 million. The above project is expected to be high-margin palladium mine with a ~13-year mine life and is expected to produce ~15 koz of gold and ~11 koz of platinum/ year for the first ten years.

Both the acquisitions are expected to generate strong mineralization and would support the company’s reserve base.

• Robust profitability margins: The company commands a higher margin than the industry median, which is a key positive and indicates 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 50.4% and 41.9%, respectively. Additionally, the company’s net margin stood relatively higher at 50.2%, as compared to the industry median of 13.8%.

• RSI hovering at an oversold zone: At the daily chart, the 14-days RSI of the WPM stock is trading near the oversold zone of 31.72, which indicates a possible up move from the current level. Moreover, the stock price is near the lower band of its 20-days Bollinger band, which also augurs for an expected upside potential in the coming trading sessions.

Technical Price Chart (as on January 06, 2020) Source: REFINITIV, Analysis by Kalkine Group 

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

Q3FY21 Financial Highlights:

• In Q3FY21, WPM posted its sales of USD 268.957 million, as compared to USD 307.268 million in pcp. The decline was primarily due to lower gold sales due to lower gold ounce sold and lower realization rate.
• Gross margin stood at USD 151.452 million, slide from USD 176.548 million in pcp, due to lower sales, partially offset by lower total cost of sales (USD 117.505 million v/s USD 130.720 million in pcp).
• The quarter was marked by lower general & administrative expenses (USD 13.595 million v/s USD 21.326 million in pcp) and decline in other expense.
• Net earnings stood at USD 134.937 million, as compared to USD 149.875 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Reports) 

 Valuation Methodology (Illustrative): Price to CF based.

Analysis by Kalkine Group

Stock Recommendation

International Gold price has remained elevated since October 2021 due to rising bond yield, combined with the weakness in the dollar index. Moreover, being a defensive asset class, gold is gaining traction due to the overvalued equity market. Recently, we have seen a growing interest in the Gold ETF segment, which indicates that investors are pouring their investments in the same. Continuation of the above trend would lead to higher realization price and would support the company’s topline. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a double-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 ‘Buy’ rating on the stock of WPM at the last traded price of CAD 49.19 on January 06, 2022. 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Summary Analysis

One-Year Technical Price Chart (as on January 06, 2022). Analysis by Kalkine Group 

Major Drilling Group International Inc

Major Drilling Group International Inc (TSX: MDI) is engaged in the business of contract drilling, and it provides services to companies that are involved in mining and mineral exploration. It maintains field operations and offices in many countries across continents.

Key highlights 

• Industry upturn gaining momentum: The company is pleased with its results this quarter, as its approach of having rigs and inventory on hand for speedy deployment to clients worked out well. The group continues to see greater activity in the industry as the cyclical recovery proceeds. Despite headwinds from industry-wide labor difficulties, the North American region continues to thrive on solid demand. An increase in junior exploration as well as a surge in demand for specialized services drove the company's growth.

• Robust financial performance: The company reported its highest ever quarterly revenue in Q2 2022, at CAD 170.7 million, which increased 50% compared to CAD 114.2 million recorded in the same quarter last year. The gross margin also saw an elevated level at 22% compared to 20% in the previous corresponding period and generated an EBITDA of CAD 30.7 million compared to CAD 19.3 million in pcp. A continuous growth across operating matrix on sequential basis is a big positive.

Source: Company Presentation

• McKay acquisition delivering great results: The Company bought McKay Drilling, a significant specialized drilling contractor based in Perth, Australia, which gave it a strong established position in a rapidly rising market. In addition, income from McKay Drilling ("McKay") was included in the firm's most recent financial reports. While the integration is still in its early stages, we believe it is moving well and that operations are running well in a busy market.

• Strong financial position: The Company’s financial position remains strong and the balance sheet flexible, allowing it to continue to deploy technologies that aid in the ongoing development. It reported total liquidity of CAD 98 million comprising of CAD 43 million of cash and rest under undrawn credit facilities. Moreover, its Debt/Equity ratio stood lower compared to industry median at 0.18x.

Source: Company Presentation 

Financial overview of Q2 FY22 (in thousands of Canadian dollar)

Source: Company Filing

• In Q2 2022, the company reported healthy growth of 50% in its revenue at CAD 170.7 million compared to CAD 114.1 million in pcp on the back of industry gaining momentum.
• The gross profit on the back of higher revenue jumped to CAD 37.5 million, against CAD 22.8 million in the previous corresponding period.
• Although it reported higher operating expenses, still it managed to post robust earnings before income tax at CAD 18.7 million compared to CAD 9.0 million in pcp.
• Net income in the reported period stood at CAD 14.2 million compared to CAD 7.0 million in pcp.
  

Risks associated with investment

the shortage of experienced drill crews could put pressure on labor costs and productivity, especially in the Company’s most active markets, which could affect the company’s operating margin as well as its bottom line. 

Valuation Methodology (Illustrative): EV to EBITDA

Analysis by Kalkine Group 

Stock recommendation 

The company has shown some impressive financial results, both in terms of topline and bottom-line development. The Company's services continue to be in high demand, and more work has been obtained for the coming quarter with better terms and rates, which is a huge bonus. It also intends to boost profits in the future; however, this will be partially offset by rising supply and labor costs. Therefore, on the back of industry gaining momentum and based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 8.18 as on January 6, 2022. 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

Technical Summary Analysis

One-Year Technical Price Chart (as on January 6, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.