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Research: Metals & Mining
Gold and silver sales in Q421 were exactly in line with our forecasts, albeit this was expected given that Wheaton had updated the market with production and sales figures on 7 February. As a result, revenue, total cost of sales, earnings from operations, earnings before tax and net earnings (excluding a US$156.7m impairment reversal) were all within 1% of our prior expectations for the quarter.
Wheaton Precious Metals |
Russia-free exposure to precious metals |
Q421/FY21 results |
Metals & mining |
17 March 2022 |
Share price performance
Business description
Next events
Analyst
Wheaton Precious Metals is a research client of Edison Investment Research Limited |
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Gold and silver sales in Q421 were exactly in line with our forecasts, albeit this was expected given that Wheaton had updated the market with production and sales figures on 7 February. As a result, revenue, total cost of sales, earnings from operations, earnings before tax and net earnings (excluding a US$156.7m impairment reversal) were all within 1% of our prior expectations for the quarter.
Year end |
Revenue (US$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
1,096.2 |
503.2 |
112 |
42 |
41.8 |
0.9 |
12/21 |
1,201.7 |
592.1 |
132 |
57 |
35.4 |
1.2 |
12/22e |
1,394.0 |
709.4 |
157 |
65 |
29.8 |
1.4 |
12/23e |
1,562.2 |
834.1 |
185 |
75 |
25.4 |
1.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Attributable reserves and resources increase
Proven & probable gold reserves attributable to Wheaton increased by 20% to 14.01Moz, while measured & indicated resources increased 18% to 5.34Moz and inferred resources increased 11% to 4.96Moz (largely on account of WPM’s recent acquisitions of five precious metals purchase agreements plus an increase at Salobo). Attributable silver reserves increased by 3% to 567.9Moz, while measured & indicated resources increased 3% to 766.6Moz and inferred resources decreased by 1% to 464.0Moz. Note that none of WPM’s assets are in the former Soviet Union.
Strengthened ESG policies and disclosure
Post year-end, Wheaton announced the adoption of a climate change policy and commitment to net zero carbon emissions by 2050. As part of this policy, WPM plans to establish targets across both Scope 2 and Scope 3 attributable emissions to support a 1.5°C (2.7°F) trajectory. To this end, it has also established a fund to support its mining partners’ efforts to transition to renewable energy sources.
Valuation: C$71.34 but potentially C$91.27
In normal circumstances and assuming no material purchases of additional streams in the foreseeable future (which we think unlikely), we forecast a value per share for WPM of US$55.69 or C$71.34 or £42.69 in FY23, based on a multiple of earnings (note: updated to reflect a lower medium-term silver price forecast). In the meantime, WPM’s shares are trading on near-term financial ratios that are cheaper than those of its peers on at least 83% of common valuation measures if Edison forecasts are used or 50% if consensus forecasts are used. Note that, within this context, it is significant that Edison forecasts that WPM’s earnings, cash-flows and dividends will rise in FY23 compared to FY22 (in line with production expectations), while the market appears to believe that they will fall. Nevertheless, if WPM’s shares were to trade at the same level as the average of its peers, then we calculate that its year one share price should be US$59.60 (C$76.35 or £45.69), based on our forecasts for FY22. Alternatively, if precious metals return to favour and WPM to a premium rating, we believe a US$71.25 (C$91.27 or £54.61) per share valuation is achievable (see page 7).
Q421/FY21 results
Gold and silver sales during the quarter were exactly in line with our forecasts, albeit this was not a surprise given that Wheaton had updated the market with its own production and sales figures on 7 February. As a result, revenue, total cost of sales, earnings from operations, earnings before tax and net earnings were all within 1% of our prior expectations. A summary of WPM’s underlying financial and operating results in the context of both its results in the preceding quarters and Edison’s prior expectations is provided in the exhibit below:
Exhibit 1: WPM underlying Q221 results versus Q121 and Q221e, by quarter*
US$000s |
Q120 |
Q220 |
Q320 |
Q420 |
Q121 |
Q221 |
Q321 |
Q421e |
Q421a |
Chg |
Variance |
FY21a |
Silver production (koz) |
6,704 |
3,650 |
6,028 |
6,509 |
6,754 |
6,720 |
6,394 |
5,933 |
6,356 |
-0.6 |
7.1 |
25,999 |
Gold production (oz) |
94,707 |
88,631 |
91,770 |
93,137 |
77,733 |
90,290 |
85,941 |
88,582 |
88,321 |
2.8 |
-0.3 |
342,546 |
Palladium production (koz) |
5,312 |
5,759 |
5,444 |
5,672 |
5,769 |
5,301 |
5,105 |
4,733 |
4,733 |
-7.3 |
0.0 |
20,908 |
Cobalt production (klbs) |
1,161 |
380 |
370.5 |
382 |
381 |
2.8 |
-0.3 |
2,294 |
||||
|
|
|||||||||||
Silver sales (koz) |
4,928 |
4,729 |
4,999 |
4,576 |
6,657 |
5,600 |
5,487 |
5,116 |
5,116 |
-6.8 |
0.0 |
22,860 |
Gold sales (oz) |
100,405 |
92,804 |
90,101 |
86,243 |
75,104 |
90,090 |
67,649 |
79,622 |
79,622 |
17.7 |
0.0 |
312,465 |
Palladium sales (koz) |
4,938 |
4,976 |
5,546 |
4,591 |
5,131 |
3,869 |
5,703 |
4,641 |
4,641 |
-18.6 |
0.0 |
19,344 |
Cobalt sales (klbs) |
132.3 |
395 |
131.2 |
228 |
228 |
73.8 |
0.0 |
886 |
||||
|
|
|||||||||||
Avg realised Ag price (US$/oz) |
17.03 |
16.73 |
24.69 |
24.72 |
26.12 |
26.69 |
23.80 |
23.35 |
23.36 |
-1.8 |
0.0 |
25.08 |
Avg realised Au price (US$/oz) |
1,589 |
1,716 |
1,906 |
1,882 |
1,798 |
1,801 |
1,795 |
1,796 |
1,798 |
0.2 |
0.1 |
1,798 |
Avg realised Pd price (US$/oz) |
2,298 |
1,917 |
2,182 |
2,348 |
2,392 |
2,797 |
2,426 |
1,947 |
1,918 |
-20.9 |
-1.5 |
2,369 |
Avg realised Co price (US$/lb) |
22.19 |
19.82 |
23.78 |
28.04 |
28.94 |
21.7 |
3.2 |
23.11 |
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|
|
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Avg Ag cash cost (US$/oz) |
4.50 |
5.23 |
5.89 |
5.51 |
6.33 |
6.11 |
5.06 |
5.33 |
5.47 |
8.1 |
2.6 |
5.78 |
Avg Au cash cost (US$/oz) |
436 |
418 |
428 |
433 |
450 |
450 |
464 |
430 |
472 |
1.7 |
9.8 |
459 |
Avg Pd cash cost (US$/oz) |
402 |
353 |
383 |
423 |
427 |
503 |
468 |
350 |
340 |
-27.4 |
-2.9 |
433 |
Avg Co cash cost (US$/lb) |
4.98 |
4.41 |
5.15 |
5.05 |
4.68 |
-9.1 |
-7.3 |
4.67 |
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|
|
|||||||||||
Sales |
254,789 |
247,954 |
307,268 |
286,213 |
324,119 |
330,393 |
268,957 |
277,881 |
278,197 |
3.4 |
0.1 |
1,201,665 |
Cost of sales |
|
|
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Cost of sales, excluding depletion |
66,908 |
65,211 |
70,119 |
64,524 |
78,783 |
78,445 |
62,529 |
64,257 |
68,190 |
9.1 |
6.1 |
287,947 |
Depletion |
64,841 |
58,661 |
60,601 |
59,786 |
70,173 |
70,308 |
54,976 |
62,099 |
59,335 |
7.9 |
-4.5 |
254,793 |
Total cost of sales |
131,748 |
123,872 |
130,720 |
124,310 |
148,956 |
148,753 |
117,505 |
126,356 |
127,525 |
8.5 |
0.9 |
542,740 |
Earnings from operations |
123,040 |
124,082 |
176,548 |
161,902 |
175,164 |
181,640 |
151,452 |
151,525 |
150,672 |
-0.5 |
-0.6 |
658,925 |
Expenses and other income |
|
|
||||||||||
– General and administrative |
13,181 |
21,799 |
21,326 |
9,391 |
11,971 |
18,465 |
13,595 |
19,019 |
16,954 |
24.7 |
-10.9 |
60,985 |
– Foreign exchange (gain)/loss |
0 |
0 |
0 |
0 |
|
|
0 |
|||||
– Net interest paid/(received) |
7,118 |
4,636 |
2,766 |
2,196 |
1,573 |
1,357 |
1,379 |
1,249 |
1,508 |
9.4 |
20.7 |
5,817 |
– Other (income)/expense |
-1,861 |
234 |
391 |
850 |
420 |
136 |
(684) |
(58) |
-91.5 |
N/A |
(190) |
|
Total expenses and other income |
18,438 |
26,669 |
24,483 |
12,437 |
13,964 |
19,958 |
14,290 |
20,267 |
18,404 |
28.8 |
-9.2 |
66,612 |
Earnings before income taxes |
104,602 |
97,413 |
152,065 |
149,465 |
161,199 |
161,682 |
137,162 |
131,258 |
132,268 |
-3.6 |
0.8 |
592,313 |
Income tax expense/(recovery) |
8,442 |
59 |
58 |
24 |
67 |
56 |
75 |
250 |
36 |
-52.0 |
-85.6 |
234 |
Marginal tax rate (%) |
8.1 |
0.1 |
0.0 |
0.0 |
0.0 |
0.0 |
0.1 |
0.2 |
0.0 |
-100.0 |
-100.0 |
0.0 |
Net earnings |
96,160 |
97,354 |
152,007 |
149,441 |
161,132 |
161,626 |
137,087 |
131,008 |
132,232 |
-3.5 |
0.9 |
592,079 |
Average no. shares in issue (000s) |
447,805 |
448,636 |
449,125 |
449,320 |
449,509 |
450,088 |
450,326 |
450,507 |
450,614 |
0.1 |
0.0 |
450,138 |
Adjusted basic EPS (US$) |
0.215 |
0.217 |
0.338 |
0.333 |
0.358 |
0.359 |
0.304 |
0.291 |
0.293 |
-3.6 |
0.7 |
1.32 |
Adjusted diluted EPS (US$) |
0.214 |
0.216 |
0.336 |
0.331 |
0.358 |
0.358 |
0.303 |
0.290 |
0.293 |
-3.3 |
1.0 |
1.31 |
DPS (US$) |
0.10 |
0.10 |
0.10 |
0.12 |
0.13 |
0.14 |
0.15 |
0.15 |
0.15 |
0.0 |
0.0 |
0.57 |
Source: WPM, Edison Investment Research. Note: *As reported by WPM, excluding exceptional items. **Q421 versus Q321. ***Q421 actual versus Q421 estimate.
Note that this representation of ‘underlying’ results specifically excludes a fourth quarter benefit of US$156.7m relating to the reversal of an earlier impairment of the value of WPM’s precious metals purchase agreement at Voisey’s Bay (among other things). Otherwise, operationally, San Dimas, Penasquito, Antamina, Minto, Statoni and Neves-Corvo all outperformed our prior expectations in terms of both sales and production, while Sudbury and a suite of smaller operations slightly underperformed. Wheaton’s flagship asset, Salobo in Brazil, performed in line with our expectations in terms of production and slightly ahead in terms of sales. In broad terms, Penasquito, Constancia, San Dimas and Minto all benefited from higher grades, while production was restrained at Sudbury and Stillwater by lower throughput, in the case of the former by a bucket scoop blocking and damaging the shaft causing its temporary closure.
In the meantime, according to Vale’s most recent performance report, physical completion of the Salobo III mine expansion was 85% at end-Q421 (cf 81% at end-Q321, 77% at end-Q221, 73% at end-Q121, 68% at end-Q420, 62% at end-Q3, 54% at end-Q2, 47% at end-Q1, 40% at end-Q419 and 27% at end-Q319), despite heavy rainfall causing a landslide that damaged a conveyor belt and blocked access to the project site. Safety protocols in the area were subsequently re-established and the operator, Vale, is currently working on additional preventative measures. In the meantime, a full assessment of the impact of the landslip by Vale is underway and is expected to be completed early in Q222. Salobo III had hitherto been expected to be commissioned in H222 to be followed by a 15-month ramp-up to full capacity. It remains to be seen whether Vale will be able to maintain this timetable in the light of the landslide. However, Salobo III is not (and never has been) included in Edison’s estimates for FY22, but only from FY23, which continues to remain the case.
Ounces produced but not yet delivered
At 9.8% and 19.5%, respectively, under-sales of gold and silver relative to production were within their normal ranges, albeit perhaps slightly high for a fourth quarter in which a ‘flush through’ effect before the year-end is sometimes observed:
|
Exhibit 2: Over/(under) sale of silver and gold as a percentage of production, Q112–Q421 |
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|
Source: Edison Investment Research, WPM. Note: As reported. |
Gold and silver ounces produced but not yet delivered as at 31 December amounted to 85,900oz and 4.2Moz, respectively. Both of these were less than our prior forecasts of 90,206oz and 4.0Moz (respectively), albeit in part this could be attributed to the comparable figures in the prior quarter (anyway always an estimate) being restated downwards by 427oz and 211koz (respectively). At the period end, ounces produced but not yet delivered equated to 3.01 months and 1.92 months of gold and silver production (respectively) and compared with WPM’s target of two to three months of gold and palladium production and two months of silver production:
|
Exhibit 3: WPM ounces produced but not yet delivered, Q316–Q421 (months of production) |
|
|
Source: Edison Investment Research, WPM. Note: As reported. |
Note that, for these purposes, the use of the term ‘inventory’ reflects ounces of gold and silver produced by WPM’s operating counterparties at the mines over which it has streaming agreements, but which have not yet been delivered to WPM. It in no way reflects the other use of the term in the mining industry, where it typically refers to metal in circuit and ore on stockpiles etc.
General and administrative expenses
At the time of its Q321 results, WPM provided updated guidance for non-stock general and administrative (G&A) expenses of US$42–44m (or US$10.5–11.0m per quarter) in FY21, cf US$42–45m previously and to a guided range of US$40–43m in FY20 and an actual outcome of US$38.7m (ie 3.1% below the bottom of the range), including all employee-related expenses, charitable contributions, etc, but excluding performance share units (PSUs) and equity settled stock-based compensation. In the event, at US$11.4m, non-stock G&A expenses in Q421 were below the bottom of the range of expenses implied by WPM’s updated post-Q321 guidance for the fourth quarter in succession:
Exhibit 4: WPM FY19–21 general and administrative expenses (US$000s)
Item |
FY21 |
Q421 |
Q421e |
Q321 |
Q221 |
Q121 |
FY20 |
Q420 |
Q320 |
Q220 |
Q120 |
G&A excluding PSU* and equity settled stock-based compensation |
18,244 |
4,618 |
4,283 |
4,634 |
4,709 |
16,733 |
4,466 |
4,037 |
4,095 |
4,135 |
|
Other (inc. depreciation, donations and professional fees) |
23,475 |
6,818 |
5,173 |
5,852 |
5,632 |
22,013 |
5,957 |
5,488 |
6,302 |
4,266 |
|
Sub-total |
41,719 |
11,436 |
11,587 |
9,456 |
10,486 |
10,341 |
38,746 |
10,423 |
9,525 |
10,397 |
8,401 |
Guidance |
42,000–44,000 |
11,717-13,717 |
10,500–11,250 |
10,500–11,250 |
10,500–11,250 |
40,000–43,000 |
10,000–10,750 |
10,000–10,750 |
10,000–10,750 |
10,000–10,750 |
|
PSU* accrual |
14,004 |
4,203 |
2,824 |
6,672 |
305 |
21,520 |
(2,336) |
10,482 |
10,097 |
3,277 |
|
Equity settled stock-based compensation |
5,262 |
1,315 |
1,315 |
1,307 |
1,325 |
5,432 |
1,305 |
1,319 |
1,305 |
1,503 |
|
Total general & administrative |
60,985 |
16,954 |
19,019 |
13,595 |
18,465 |
11,971 |
65,698 |
9,392 |
21,326 |
21,799 |
13,181 |
Total/sub-total (%) |
+46.2 |
+48.3 |
+64.1 |
+43.6 |
+76.1 |
+15.8 |
+69.6 |
-9.9 |
+123.9 |
+109.7 |
+56.9 |
Source: WPM, Edison Investment Research. Note: *Performance share units.
Stock-based G&A expenses were also US$2.1m below our prior expectations, as shown by the ‘below trend’ point relating to Q421 in the exhibit comparing stock-based G&A expenses against the change in Wheaton’s share price (both in US dollars) below.
|
Exhibit 5: Graph of historical share price move (US$/share) versus quarterly stock-based G&A expense, Q419–Q421 |
|
|
Source: Edison Investment Research (underlying data: Bloomberg and Wheaton Precious Metals) |
Nevertheless, this analysis of stock-based G&A expenses over the past nine quarters relative to the change in WPM’s share price (also in US dollars) continues to exhibit a relatively close Pearson product moment (correlation) coefficient between the two of 0.76 (cf 0.78 previously), which remains statistically significant at the 5% level for a directional hypothesis (ie there is less than a 5% probability that this relationship occurred by random chance). On this basis, and on the basis of Wheaton’s share price having risen by US$3.94 so far in FY22, we have revised our estimate for stock-based G&A expenses for Q122 to US$6.8m. In combination with Wheaton’s guidance for non-stock based G&A of US$47–49m in FY22 (ie c US$12m per quarter), this suggests total G&A expenses of US$18.8m in Q122, followed by US$17.0m thereafter in Q2–Q422.
FY22 guidance
WPM’s guidance for FY22 remains unchanged at 350–380koz of gold production, 23.0–25.0Moz of silver production and 44–48koz gold equivalent ounces in other metals to result in total gold equivalent production of 700–760koz for the year.
In the longer term, its guidance for the five-year period ending in FY26 is 850koz gold equivalent ounces per annum, while its guidance for the 10-year period ending in FY31 is 910koz gold equivalent ounces per annum.
Updated FY22 forecasts by quarter
In the light of Q4/FY21 results, recent moves in metals prices, forex rates and WPM’s share price, Edison has updated its quarterly estimates for FY22 as follows:
Exhibit 6: WPM FY22 forecast, by quarter*
US$000s |
Q122e (prior) |
Q122e |
Q222e (prior) |
Q222e |
Q322e (prior) |
Q322e |
Q422e (prior) |
Q422e |
FY22e (current) |
FY22e (prior) |
Silver production (koz) |
5,900 |
5,900 |
5,900 |
5,900 |
5,900 |
5,900 |
5,900 |
5,900 |
23,598 |
23,598 |
Gold production (oz) |
95,097 |
95,097 |
95,097 |
95,097 |
91,474 |
91,474 |
95,097 |
95,097 |
376,763 |
376,763 |
Palladium production (koz) |
4,750 |
4,750 |
4,750 |
4,750 |
4,750 |
4,750 |
4,750 |
4,750 |
19,000 |
19,000 |
Cobalt production (klb) |
347 |
347 |
347 |
347 |
347 |
347 |
347 |
347 |
1,386 |
1,386 |
Silver sales (koz) |
5,900 |
5,900 |
5,900 |
5,900 |
5,900 |
5,900 |
5,900 |
5,900 |
23,598 |
23,598 |
Gold sales (oz) |
95,065 |
95,065 |
95,065 |
95,065 |
91,442 |
91,442 |
95,065 |
95,065 |
376,635 |
376,635 |
Palladium sales (oz) |
4,731 |
4,731 |
4,731 |
4,731 |
4,731 |
4,731 |
4,731 |
4,731 |
18,924 |
18,924 |
Cobalt sales (klb) |
347 |
347 |
347 |
347 |
347 |
347 |
347 |
347 |
1,386 |
1,386 |
Avg realised Ag price (US$/oz) |
23.74 |
23.95 |
23.90 |
24.64 |
23.90 |
24.64 |
23.90 |
24.64 |
24.47 |
23.86 |
Avg realised Au price (US$/oz) |
1,876 |
1,876 |
1,890 |
1,926 |
1,890 |
1,926 |
1,890 |
1,926 |
1,913 |
1,886 |
Avg realised Pd price (US$/oz) |
2,328 |
2,336 |
2,382 |
2,444 |
2,382 |
2,444 |
2,382 |
2,444 |
2,417 |
2,368 |
Avg realised Co price (US$/lb) |
32.81 |
33.66 |
33.01 |
37.14 |
33.01 |
37.14 |
33.01 |
37.14 |
36.27 |
32.96 |
Avg Ag cash cost (US$/oz) |
5.28 |
5.61 |
5.29 |
5.64 |
5.29 |
5.64 |
5.29 |
5.65 |
5.63 |
5.29 |
Avg Au cash cost (US$/oz) |
430 |
430 |
430 |
431 |
432 |
432 |
431 |
431 |
431 |
431 |
Avg Pd cash cost (US$/oz) |
419 |
421 |
429 |
440 |
429 |
440 |
429 |
440 |
435 |
426 |
Avg Co cash cost (US$/lb) |
5.91 |
6.06 |
5.94 |
6.68 |
5.94 |
6.68 |
5.94 |
6.68 |
6.53 |
5.93 |
Sales |
340,717 |
342,334 |
343,379 |
352,891 |
336,531 |
345,913 |
343,379 |
352,891 |
1,394,029 |
1,364,005 |
Cost of sales |
||||||||||
Cost of sales, excluding depletion |
76,035 |
78,054 |
76,201 |
78,613 |
74,751 |
77,164 |
76,284 |
78,696 |
312,528 |
303,271 |
Depletion |
72,358 |
75,262 |
72,358 |
75,262 |
68,649 |
71,552 |
72,358 |
75,262 |
297,337 |
285,724 |
Total cost of sales |
148,394 |
153,316 |
148,559 |
153,875 |
143,400 |
148,716 |
148,642 |
153,958 |
609,865 |
588,995 |
Earnings from operations |
192,323 |
189,018 |
194,820 |
199,016 |
193,131 |
197,197 |
194,736 |
198,933 |
784,164 |
775,010 |
Expenses and other income |
||||||||||
– General and administrative** |
18,329 |
18,781 |
18,329 |
16,965 |
18,329 |
16,965 |
18,329 |
16,965 |
69,678 |
73,316 |
– Foreign exchange (gain)/loss |
0 |
0 |
||||||||
– Net interest paid/(received) |
1,201 |
1,292 |
1,166 |
1,257 |
1,172 |
1,260 |
1,160 |
1,246 |
5,055 |
4,699 |
– Other (income)/expense |
0 |
0 |
||||||||
Total expenses and other income |
19,530 |
20,073 |
19,495 |
18,222 |
19,501 |
18,226 |
19,489 |
18,212 |
74,733 |
78,015 |
Earnings before income taxes |
172,793 |
168,945 |
175,324 |
180,794 |
173,630 |
178,972 |
175,248 |
180,721 |
709,432 |
696,995 |
Income tax expense/(recovery) |
250 |
250 |
250 |
250 |
250 |
250 |
250 |
250 |
1,000 |
1,000 |
Marginal tax rate (%) |
0.1 |
0.1 |
0.1 |
0.1 |
0.1 |
0.1 |
0.1 |
0.1 |
0.1 |
0.1 |
Net earnings |
172,543 |
168,695 |
175,074 |
180,544 |
173,380 |
178,722 |
174,998 |
180,471 |
708,432 |
695,995 |
Average no. shares in issue (000s) |
450,507 |
450,864 |
450,507 |
450,864 |
450,507 |
450,864 |
450,507 |
450,864 |
450,864 |
450,507 |
Basic EPS (US$) |
0.383 |
0.374 |
0.389 |
0.400 |
0.385 |
0.396 |
0.388 |
0.400 |
1.57 |
1.54 |
Diluted EPS (US$) |
0.373 |
0.364 |
0.378 |
0.390 |
0.375 |
0.386 |
0.378 |
0.389 |
1.53 |
1.50 |
DPS (US$) |
0.15 |
0.15 |
0.16 |
0.16 |
0.16 |
0.17 |
0.16 |
0.17 |
0.65 |
0.64 |
Source: Edison Investment Research. Note: *Excluding impairments, impairment reversals and exceptional items. **Forecasts now include stock-based compensation costs. Totals may not add up owing to rounding.
Our basic EPS forecast of US$1.57/share for FY22 is little changed relative to our prior estimate of US$1.54/share and is 11.3% above the (unchanged) consensus forecast of US$1.41/share (source: Refinitiv, 15 March 2021), albeit within an (almost unchanged) range of analysts’ expectations of US$1.20–1.68 per share. Within this context, it is worth noting that our gold price forecast for the remainder of the year is now US$1,926/oz, which is that prevailing at the time of writing. Should it revert to its average of US$1,799/oz for FY21, then our estimate of EPS for FY22 reduces by 5.1% to US$1.49/share and our DPS forecast by 2c to 63 US cents per share.
Exhibit 7: WPM FY22 consensus EPS forecasts (US$/share), by quarter
Q122e |
Q222e |
Q322e |
Q422e |
Sum Q1–Q422e |
FY22e |
|
Edison forecasts |
0.374 |
0.400 |
0.396 |
0.400 |
1.570 |
1.57 |
Mean consensus |
0.35 |
0.35 |
0.35 |
0.35 |
1.40 |
1.41 |
High consensus |
0.42 |
0.41 |
0.41 |
0.43 |
1.67 |
1.68 |
Low consensus |
0.31 |
0.31 |
0.31 |
0.30 |
1.23 |
1.20 |
Source: Refinitiv, Edison Investment Research. Note: As at 15 March 2022.
Metals prices
Edison has recently reviewed its longer-term metals price forecasts. We have left our gold price forecasts unchanged. However, in deference to the continued and increasing macro-economic uncertainty prevailing in markets at the current time, we have reduced our medium-term silver price forecasts, such that the gold/silver ratio tends towards 70.4x, rather than the 61.5x average exhibited since gold was demonetised in August 1971.
A summary of our updated silver price forecasts (in real terms) for the next four years is provided in the table below:
Exhibit 8: Edison updated silver price forecasts (US$/oz, real)
Forecast |
2023 |
2024 |
2025 |
2026 |
Unchanged gold price forecast (US$/oz) |
1,749 |
1,681 |
1,617 |
1,554 |
Updated silver price forecast (US$/oz) |
23.60 |
23.00 |
22.80 |
22.50 |
Previous silver price forecast (US$/oz) |
28.53 |
27.47 |
26.45 |
25.47 |
Change (%) |
-17.3 |
-16.3 |
-13.8 |
-11.7 |
Gold/silver ratio |
74.1 |
73.1 |
70.9 |
69.1 |
Source: Edison Investment Research
Valuation
Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 30.1x current year basic underlying EPS, excluding impairments (cf 29.8x Edison or 33.1x Refinitiv consensus FY22e – see Exhibit 10).
|
Exhibit 9: WPM’s historical current year P/E multiples, 2005–21 |
|
|
Source: Edison Investment Research |
Applying this 30.1x multiple to our reduced (owing to the silver price) EPS forecast of US$1.85 in FY23 (previously US$2.12) would ordinarily imply a potential value per share for WPM of US$55.69 or C$71.34 in that year. However, the graph above suggests that the investing environment post-2017 has been able to support an enhanced WPM multiple relative to earlier years. We would ascribe this observation to macro-economic uncertainty and loose monetary policy combining to create a supportive environment for precious metals prices. As such, we believe that a multiple of 38.6x (the average of FY18, FY19, FY20 and FY21) may still be supported in the event of a return to favour of precious metals and precious metals stocks. In this case, applying a 38.6x earnings multiple to our updated EPS forecast of US$1.85 in FY23 implies a potential value per share for WPM in that year of US$71.25 or C$91.27. Even at such share price levels, however, a multiple of over 38.6x would still put WPM’s shares on a notable discount to those of Franco-Nevada (see Exhibit 10).
In the meantime, from a relative perspective, it is notable that WPM has a lower valuation than the average of its royalty/streaming ‘peers’ on all nine of nine valuation measures if Edison forecasts are used and five out of nine measures if consensus forecasts are used. On an individual basis, it is cheaper than its peers on 83% (30 out of 36) of the valuation measures observed in Exhibit 10 if Edison estimates are adopted or 50% (18 out of 36) of the same valuation measures if consensus forecasts are adopted.
Exhibit 10: WPM comparative valuation versus a sample of operating and royalty/streaming companies
P/E (x) |
Yield (%) |
P/CF (x) |
|||||||
Year 1 |
Year 2 |
Year 3 |
Year 1 |
Year 2 |
Year 3 |
Year 1 |
Year 2 |
Year 3 |
|
Royalty companies |
|||||||||
Franco-Nevada |
42.6 |
44.8 |
45.5 |
0.8 |
0.8 |
0.9 |
29.2 |
29.8 |
31.0 |
Royal Gold |
33.6 |
32.2 |
35.8 |
1.0 |
1.1 |
1.1 |
18.9 |
18.2 |
19.3 |
Sandstorm Gold |
47.0 |
46.1 |
45.7 |
0.8 |
0.8 |
0.8 |
17.3 |
18.4 |
18.7 |
Osisko |
36.6 |
30.1 |
29.0 |
1.2 |
1.2 |
1.2 |
18.6 |
16.1 |
15.6 |
Average |
39.9 |
38.3 |
39.0 |
1.0 |
1.0 |
1.0 |
21.0 |
20.6 |
21.2 |
WPM (Edison forecasts) |
29.8 |
25.4 |
25.6 |
1.4 |
1.6 |
1.6 |
20.4 |
18.4 |
18.2 |
WPM (consensus) |
33.1 |
36.0 |
34.9 |
1.1 |
1.1 |
0.7 |
23.0 |
23.9 |
22.5 |
Implied WPM share price (US$)* |
62.77 |
70.76 |
71.41 |
67.79 |
77.13 |
77.75 |
48.25 |
52.59 |
54.58 |
Source: Refinitiv, Edison Investment Research. Note: Peers priced on 15 March 2022. *Derived using Edison forecasts and average consensus multiples.
Within this context, it is worth noting that Edison forecasts imply that WPM’s EPS, DPS and cash-flow will increase in FY23 and FY24 (relative to FY22), not least under the influence of the company’s increasing production profile (in line with its guidance). By contrast, consensus forecasts appear to indicate that the market expects WPM’s EPS and cash flow to fall in FY23, relative to FY22, before recovering slightly in FY24. The consensus also appears to indicate that WPM’s dividend will decline in FY22, relative to FY21, then remain flat in FY23, before being cut in FY24.
Financials: US$223.2m in net cash and growing
At 31 December, WPM had US$226.0m in cash on its balance sheet (cf US$372.5m in Q321, US$235.4m in Q221, US$191.2m in Q121 and US$192.7m in Q420) and no debt outstanding (cf US$195.0m in Q420) under its US$2bn revolving credit facility. As such (including a modest US$2.9m in leases), it had US$223.2m in net cash overall (cf US$369.4m in Q321, US$232.1m in Q221, US$187.7m in Q121 and US$6.0m in Q420) after US$195.3m of cash generated by operating activities during the quarter (cf US$201.3m in Q321, US$216.3m in Q221, US$232.2m in Q121 and US$208.0m in Q420) and US$304.1m in cash consumed in investing activities. Given this net cash position and the rate at which it is accumulating cash, we believe that Wheaton will be able to pay for its remaining known streaming investment commitments without resorting to its revolving credit facility.
Exhibit 11: Financial summary
US$'000s |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
||||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||||
PROFIT & LOSS |
|||||||||||||
Revenue |
|
|
891,557 |
843,215 |
794,012 |
861,332 |
1,096,224 |
1,201,665 |
1,394,029 |
1,562,160 |
1,574,892 |
||
Cost of Sales |
(254,434) |
(243,801) |
(245,794) |
(258,559) |
(266,763) |
(287,947) |
(312,528) |
(343,963) |
(341,821) |
||||
Gross Profit |
637,123 |
599,414 |
548,218 |
602,773 |
829,461 |
913,718 |
1,081,501 |
1,218,197 |
1,233,071 |
||||
EBITDA |
|
|
602,684 |
564,741 |
496,568 |
548,266 |
763,763 |
852,733 |
1,011,824 |
1,148,520 |
1,163,394 |
||
Operating Profit (before amort. and except.) |
|
|
293,982 |
302,361 |
244,281 |
291,440 |
519,874 |
597,940 |
714,487 |
833,238 |
825,841 |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||||
Exceptionals |
(71,000) |
(228,680) |
245,715 |
(156,608) |
4,469 |
162,806 |
0 |
0 |
0 |
||||
Other |
(4,982) |
8,129 |
(5,826) |
217 |
387 |
190 |
0 |
0 |
0 |
||||
Operating Profit |
218,000 |
81,810 |
484,170 |
135,049 |
524,730 |
760,936 |
714,487 |
833,238 |
825,841 |
||||
Net Interest |
(24,193) |
(24,993) |
(41,187) |
(48,730) |
(16,715) |
(5,817) |
(5,055) |
833 |
821 |
||||
Profit Before Tax (norm) |
|
|
269,789 |
277,368 |
203,094 |
242,710 |
503,159 |
592,123 |
709,432 |
834,071 |
826,662 |
||
Profit Before Tax (FRS 3) |
|
|
193,807 |
56,817 |
442,983 |
86,319 |
508,015 |
755,119 |
709,432 |
834,071 |
826,662 |
||
Tax |
1,330 |
886 |
(15,868) |
(181) |
(211) |
(234) |
(1,000) |
(1,000) |
(1,000) |
||||
Profit After Tax (norm) |
266,137 |
286,383 |
181,400 |
242,746 |
503,335 |
592,079 |
708,432 |
833,071 |
825,662 |
||||
Profit After Tax (FRS 3) |
195,137 |
57,703 |
427,115 |
86,138 |
507,804 |
754,885 |
708,432 |
833,071 |
825,662 |
||||
Average number of shares outstanding (m) |
430.5 |
442.0 |
443.4 |
446.0 |
448.7 |
450.1 |
450.9 |
450.9 |
450.9 |
||||
EPS - normalised (c) |
|
|
62 |
63 |
48 |
54 |
112 |
132 |
157 |
185 |
183 |
||
EPS - normalised and fully diluted (c) |
|
|
62 |
63 |
48 |
54 |
112 |
131 |
153 |
180 |
178 |
||
EPS - (IFRS) (c) |
|
|
45 |
13 |
96 |
19 |
113 |
168 |
157 |
185 |
183 |
||
Dividend per share (c) |
21 |
33 |
36 |
36 |
42 |
57 |
65 |
75 |
77 |
||||
Gross Margin (%) |
71.5 |
71.1 |
69.0 |
70.0 |
75.7 |
76.0 |
77.6 |
78.0 |
78.3 |
||||
EBITDA Margin (%) |
67.6 |
67.0 |
62.5 |
63.7 |
69.7 |
71.0 |
72.6 |
73.5 |
73.9 |
||||
Operating Margin (before GW and except.) (%) |
33.0 |
35.9 |
30.8 |
33.8 |
47.4 |
49.8 |
51.3 |
53.3 |
52.4 |
||||
BALANCE SHEET |
|||||||||||||
Fixed Assets |
|
|
6,025,227 |
5,579,898 |
6,390,342 |
6,123,255 |
5,755,441 |
6,046,427 |
6,252,340 |
6,757,308 |
6,670,256 |
||
Intangible Assets |
5,948,443 |
5,454,106 |
6,196,187 |
5,768,883 |
5,521,632 |
5,940,538 |
6,146,451 |
6,651,419 |
6,564,367 |
||||
Tangible Assets |
12,163 |
30,060 |
29,402 |
44,615 |
33,931 |
44,412 |
44,412 |
44,412 |
44,412 |
||||
Investments |
64,621 |
95,732 |
164,753 |
309,757 |
199,878 |
61,477 |
61,477 |
61,477 |
61,477 |
||||
Current Assets |
|
|
128,092 |
103,415 |
79,704 |
154,752 |
201,831 |
249,724 |
476,492 |
471,258 |
1,035,848 |
||
Stocks |
1,481 |
1,700 |
1,541 |
43,628 |
3,265 |
12,102 |
3,280 |
3,676 |
3,706 |
||||
Debtors |
2,316 |
3,194 |
2,396 |
7,138 |
5,883 |
11,577 |
7,639 |
8,560 |
8,630 |
||||
Cash |
124,295 |
98,521 |
75,767 |
103,986 |
192,683 |
226,045 |
465,573 |
459,022 |
1,023,513 |
||||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||||
Current Liabilities |
|
|
(19,057) |
(12,143) |
(28,841) |
(64,700) |
(31,169) |
(29,691) |
(46,581) |
(49,681) |
(49,470) |
||
Creditors |
(19,057) |
(12,143) |
(28,841) |
(63,976) |
(30,396) |
(28,878) |
(45,768) |
(48,868) |
(48,657) |
||||
Short term borrowings |
0 |
0 |
0 |
(724) |
(773) |
(813) |
(813) |
(813) |
(813) |
||||
Long Term Liabilities |
|
|
(1,194,274) |
(771,506) |
(1,269,289) |
(887,387) |
(211,532) |
(16,343) |
(16,343) |
(16,343) |
(16,343) |
||
Long term borrowings |
(1,193,000) |
(770,000) |
(1,264,000) |
(878,028) |
(197,864) |
(2,060) |
(2,060) |
(2,060) |
(2,060) |
||||
Other long term liabilities |
(1,274) |
(1,506) |
(5,289) |
(9,359) |
(13,668) |
(14,283) |
(14,283) |
(14,283) |
(14,283) |
||||
Net Assets |
|
|
4,939,988 |
4,899,664 |
5,171,916 |
5,325,920 |
5,714,571 |
6,250,117 |
6,665,908 |
7,162,542 |
7,640,290 |
||
CASH FLOW |
|||||||||||||
Operating Cash Flow |
|
|
608,503 |
564,187 |
518,680 |
548,301 |
784,843 |
851,686 |
1,041,474 |
1,150,303 |
1,163,083 |
||
Net Interest |
(24,193) |
(24,993) |
(41,187) |
(41,242) |
(16,715) |
(5,817) |
(5,055) |
833 |
821 |
||||
Tax |
28 |
(326) |
0 |
(5,380) |
(2,686) |
(503) |
(1,000) |
(1,000) |
(1,000) |
||||
Capex |
(805,472) |
(19,633) |
(861,406) |
10,571 |
149,648 |
(404,437) |
(503,250) |
(820,250) |
(250,500) |
||||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||||
Financing |
595,140 |
1,236 |
1,279 |
37,198 |
22,396 |
7,992 |
0 |
0 |
0 |
||||
Dividends |
(78,708) |
(121,934) |
(132,915) |
(129,986) |
(167,212) |
(218,052) |
(292,640) |
(336,437) |
(347,914) |
||||
Net Cash Flow |
295,298 |
398,537 |
(515,549) |
419,462 |
770,274 |
230,869 |
239,528 |
(6,551) |
564,490 |
||||
Opening net debt/(cash) |
|
|
1,362,703 |
1,068,705 |
671,479 |
1,188,233 |
774,766 |
5,954 |
(223,172) |
(462,700) |
(456,149) |
||
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||||
Other |
(1,300) |
(1,311) |
(1,205) |
(5,995) |
(1,462) |
(1,743) |
0 |
0 |
0 |
||||
Closing net debt/(cash) |
|
|
1,068,705 |
671,479 |
1,188,233 |
774,766 |
5,954 |
(223,172) |
(462,700) |
(456,149) |
(1,020,640) |
||
Source: company sources, Edison Investment Research
|
|
Research: Metals & Mining
Since we published our last outlook note on KEFI in July 2021, the company has raised additional equity to deleverage its balance sheet and announced a turnaround in the working environment in Ethiopia, plus the take-off of its projects in Saudi Arabia. In particular, KEFI reports the civil war in Ethiopia effectively ceased in December with no clashes outside the northern part of the country (which is over 1,000km from Addis Ababa and over 1,300km from Tulu Kapi) since then. It also reports that, with the explicit support and agreement of the Ministry of Mines, the finance syndicate members are now all engaging to launch full construction programmes and the field teams are back on the ground, restarting tasks suspended in 2021, as well as completing development tasks to demonstrate safe conditions ahead of project launch.
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